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BP Business Economic Loss Claim Appeal 2017-559: Non-Contingent Fee Law Firm Not Subject To Professional Services Methodology

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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, a Lafayette, Louisiana law firm, appeals the denial of its BEL claim which the Claims Administrator found not to have passed causation. Claimant’s financials were found to trigger matching criteria and the claim proceeded under the Professional Services Methodology (PSM).
Claimant specializes in divorce and other family law-related litigation. There is no evidence in the record that Claimant handles any matters on a contingency fee
basis, which often results in significant income “spikes which represent payment for work done over a period of many months or, in many cases, years. Instead,
Claimant often receives advance retainers for fees and costs which are placed into the firm’s trust account. Money in the trust account remains the property of the
client and is not recorded as revenue until the firm invoices the client for services performed which it does on a monthly basis. This is no different than any other
business, although Claimant has the opportunity to be paid instantly for work done in the previous 30 days. On some occasions, there are no funds in the trust account
and the client is invoiced at the end of the month for the work performed during that month. This, too, is typical of many businesses and Claimant, like other
businesses, typically gets paid within 30–60 days of sending its invoice.
On rare occasions, Claimant is not paid within that time period and has to wait several months to be paid. A review of the record reveals that Claimant submitted 73 pages of billing records for its clients. Although the Panel did not count how many clients were represented, a small number (18) were identified in the Case Summary as clients who were billed for several months (in 2010 for example) and did not pay until the following year. In applying the PSM, the Program accountants made an adjustment and allocated the revenue on a straight line basis over the entire length of the engagement with the client which, in some instances, stretched back to 2008. Claimant takes issue with this approach, although it is unclear whether Claimant also takes issue with the use of the PSM in general.
For purposes of this appeal, the pertinent portions of the PSM (Attachment F to Policy 495) are as follows:
The majority of professional service claims presented to the program to date have not maintained books and records
on an accrual basis, but rather have been prepared predominately on a modified cash basis. As such, the timing of revenue
recognized on the claimant’s P&Ls may not correlate with the timing of activities performed to earn such revenue–e.g.,
advance payments or retainers may be received; progress or milestone invoices may be issued for fixed price contracts, and
contingent fees may be paid, for example, on the successful outcome of a litigation matter or costs savings realized from a
consulting engagement. Recording revenue when cash is received in payment for such invoices can, therefore, result in
considerable timing differences in the months that sales are recorded relative to when work was performed . . .If the claimant
elects not to submit additional documentation, or provide documentation that, in the judgment of the Claims Administrator,
does not permit the CSSP Accounting Vendors to reasonably estimate or verify the level of effort expended/hours worked
in a given month, revenue will be allocated to each month on a straight line basis over the duration of the matter.
The Case Summary provided by the Claimant identifies the clients that were unable to remit payment at the time the legal services were performed. In addition
to reflecting engagement start dates and end dates, the Case Summary reflects monthly bill dates, collected amounts, and dates of payment. The revenue is matched to the specific months it was generated and Claimant argues that it is unreasonable to “smooth the revenue over the entirety of the case/engagement.”
This Panel agrees. The goal of the PSM, (preventing considerable timing differences in the months that sales are recorded relative to when work was performed”) is not achieved in this claim because the overwhelming majority of Claimant’s payments received by clients were not uncharacteristically delayed. Of the 18 identified on the Case Summary that were, the Program can easily determine when the work was performed and reallocate the revenue to those months instead of over the entire duration of the firm’s representation of those clients. This panel cannot determine what effect, if any, this change in adjustment of revenue will have on Claimant’s causation determination. Accordingly, this claim is remanded to the Program to allocate the revenue of from the clients identified on the Case Summary to them months during which the work was performed.

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