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BP Business Economic Loss Claim Appeal 2017-512:Claimant Earns Tourism Designation Based Upon Revised NAICS Code and “Totality of Circumstances”; Accrual-Based P&L’s Sufficiently Matched

The following is an Appeal Panel Decision issued pursuant to Section 6 of the BP Deepwater Horizon Economic & Property Damages Settlement Agreement and the Rules Governing the BP Appeals Process. Links may have been added to assist the reader. The original decision may be found here, as well as a glossary of BP Settlement terms

Claimant appeals the amount of its BEL award on two grounds: First, Claimant contends that it should have been designated Tourism and thus assigned a higher RTP. Second, Claimant argues that its P&Ls, as submitted, were “sufficiently matched,” hence negating the need to apply a matching methodology.
Tourism Issue
Claimant’s store is located at the at Foley, Alabama, which is approximately 10-15 miles from the beaches at Gulf Shores, Alabama. The Program determined that NAICS Code 446130 (Optical Goods Stores) was the code that best fit Claimant’s business. This code is not a presumed Tourism code. Further, the Program apparently rejected Claimant’s “totality of circumstances” Tourism argument.
On appeal, Claimant contends that the Optical Goods Stores NAICS code does not accurately describe Claimant’s primary business. Claimant has submitted voluminous documentation reflecting the store items sold by Claimant. Claimant notes that while over 1,500 of its items are eyewear products, more than 2,400 items are not:
These include shirts, pants, jackets, hats, bras, socks, gloves, bathing suits, sweaters, tank-tops, vests and more.
Multi-line sporting goods and clothing products are designed and retailed to male and female surfers, golfers, fisherman, baseball players, runners, skaters, cyclists, hunters, skiers, BNX riders, football players and more. Claimant suggests a number of alternative NAICS codes that Claimant contends more appropriately describes its business, one of which is NAICS Code 451110 –Sporting Goods Stores.
This Panel agrees that Sporting Goods Stores more accurately describes Claimant’s primary business activity. This is a presumed Tourism code. Hence, this Panel agrees that Claimant should have assigned the Tourism RTP. In the alternative, the “totality of circumstances” analysis also supports a finding of Tourism. Claimant submitted various documents to support this finding.  A few are listed below:
1. Per Google Maps, this store is located approximately 10-15 miles from the Gulf of Mexico beaches.
2. Per Google Maps, this store is located on a main highway connecting I-10 and the beaches.
3. The majority of reviews are from non-locals.
4. Baldwin County, where this store is located, published a report entitled “Baldwin County sees 4th consecutive record tourism year in 2014 with 5.7 million visitors.”
5. The xxx contains the following data: 61% of shoppers defined themselves as “Tourist.” A zip code analysis of mall shoppers in May 2105 indicated that 44% were know visitors.
6. An unsworn statement from this store manager that 85% of the daily traffic are out-of-towners.
In light of the above, this Panel finds that Claimant should have been assigned the Tourism RTP.
Matching Issue
Claimant’s second appeal issue appears to this Panel as one of first impression. The broad contention is that Claimant’s P&Ls, as submitted, were “sufficiently matched,” thus negating the need to apply a matching methodology. The more narrow position put forth by Claimant is as follows: The P&Ls for the Benchmark, Compensation or Recovery years did not trigger any of the seven criteria. Only the non-benchmark years of 2007 and 2008 triggered criteria 6. Thus, there was no obligation for the Program to apply a matching methodology to the years 2009 through 2011, as those years were “sufficiently matched.” Further, there was no obligation to apply a matching methodology to 2007 and 2008, as they are not Benchmark years.
Claimant’s argument is interesting, if not persuasive. There is a common sense feel to Claimant’s position. That said, this Panel is reluctant to draw a bright line as it relates to the exercise of Policy 495’s “professional judgment.” Rather, this Panel prefers to base its decision on whether or not the Program’s matching decision (to apply a matching methodology) was appropriate in this matter.  The record shows that Claimant’s P&Ls for 2007 and 2008 (non-Benchmark years) triggered criteria 6.
Claimant provided an analysis and explanation as to why the trigger occurred:
In the case of claim application 276592, the Claims Administration did not do its job as required under Policy 495. Any reasonable dynamic analysis of the application and supporting P&Ls reveals the reason why Test 6 was triggered in late 2007 and January 2008. The store in question began operating in November 2007. The store did not record revenue until December 2007. Variable profit margins in November and December of 2007 and January 2008 were lower than the subsequent 47 months of P&Ls provided, not because they were unmatched, but because the store had just opened. The store lost money in November and December 2007, earning negative Variable Profit Margins, and had a low Variable Profit Margin in January 2008 of 19.2% because the store had just opened its doors. Losing money the first months of operations is routine for retailers, and not indicative of insufficiently matched P&Ls.
Even if the Claims Administration decided that the P&Ls in November 2007 through January 2008 were insufficiently matched because of start-up issues, there is no basis to conclude that the P&Ls from February 2008 through December 2011 are insufficiently matched because once the store was functioning normally; none of the Seven Tests were again triggered. As noted above, these start-up distortions all occurred in a non-Benchmark Year, making them even less relevant to the 2009-2011
P&Ls. If the Claims Administration had performed requisite Professional Judgment, and analyzed the P&Ls, it would have seen the obvious explanation for why Test 6 was triggered during the first three months of operations. Professional Judgment dictates that start-up distortions are not indicative of insufficiently matched P&Ls, especially as it relates to the P&Ls from 2009 through 2011.
The Claimant cites one other factor that supports the argument that Claimant’s P&Ls were “sufficiently matched.” Claimant maintained its P&Ls on an accrual basis. Both the Fifth Circuit and the District Court have observed that accrual based P&Ls are usually “sufficiently matched.”
This Panel acknowledges that most Appeal Panel have affirmed the Program’s Policy 495 matching decisions. That said, Appeal Panels are charged with conducting
de novo reviews of the record. In light of the fact that only non-Benchmark years triggered a single criteria, and further in light of Claimant’s explanation as to why the single criteria was triggered, this Panel finds that Claimant’s accrual-based P&Ls, as submitted, were sufficiently matched. Thus, the Program erred in applying a matching methodology to Claimant’s P&Ls. [It should be noted that BP did not brief the matching issue, focusing instead on the Tourism issue.]
Claimant’s Final Proposal is adopted.

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