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BP Business Economic Loss Claim Appeal 2017-661:Claimant Bought Restaurant Assets Post-Spill In Bankruptcy Sale: Denial Upheld With Advice to Seek District Court Review

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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 appeals the denial of its BEL Claim. The Program denied the Claim on the grounds that Claimant was “not doing business or operating in the Gulf CoastAreas. . . at the time of the Oil Spill.”

Background

Claimant owns a chain of Restaurants throughout the Gulf South. The location that is the subject of this appeal was purchased by Claimant through a bankruptcy proceeding in October 2010. Prior to the purchase, this location was a fully operational which was in operation at the time of the Spill and continued to operate without interruption until the ownership changed. Following the change in ownership, the location continued to operate as an ongoing business, with no fundamental change to the operations.

[Editor’s Note: Procedural History Omitted As Unnecesary]

District Court Decisions

As noted above, Claimant was incorporated after the Spill. Further, Claimant bought the assets of this location in a bankruptcy sale that took place after the Spill.The District Court has rendered decisions in three claims relevant to this appeal. The text of the Orders and Judgments in those appeals are set forth below:

  1. Appeal Decision 2016-300: IT IS ORDERED that the request for discretionary review is hereby GRANTED. The Claims Administrator denied this claim on grounds that the claimant entity . . . was not in business nor operating as of the date of the Oil Spill (April 20, 2010). The Appeal Panel reversed on grounds that the claimant entity was merely the continuation of two entities that had been in operation long before the Oil Spill. The flaw in the Appeal Panel’s decision lies in the fact that the June 2010 transaction at issue was one where the claimant entity purchased certain assets, not where the predecessor entities themselves were purchased. The Claims Administrator was correct in determining that the claimant entity was not operating as of the date of the Oil Spill as required by Claims Administrator Policy362 v. 2. The decision of the Appeal Panel is REVERSED, and the denial of the Claims Administrator is REINSTATED.
  1. Appeal Decision 2015-1820: IT IS ORDERED that the request for discretionary review is hereby GRANTED. The claimant here is [ABC Company], an entity formed on July 8, 2010. It is undisputed that [ABC Company] did not exist or operate the subject business at the time of the Oil Spill, but rather the business was operated by a wholly separate and distinct entity, [XYZ Inc.] [ABC Company’s] involvement with this business did not come about until it bought substantially all of the assets of [XYZ Inc.] in September, 2010, well after the Oil Spill. The transaction was a sale of assets, not a sale of the company’s stock. Further, it was not merely a change in corporate organization. The transaction was something other than a single entity merely changing its legal form of organization; it was a sale of assets from one entity to a separate entity with a different set of owners. Under these circumstances, the Claims Administrator was correct to deny this claim on grounds that the claimant entity was not operating at the time of the Oil Spill. The decision of the Appeal Panel istherefore REVERSED, and the Claims Administrator’s denial is REINSTATED.
  1. Appeal Decision 2015-1699: IT IS ORDERED that the request for discretionary review is hereby GRANTED. The claimant entity is [Claimant]. The claiming entity submitted income tax returns for 2010, 2011 and 2012, acknowledging that it did not exist prior to 2010. Further, the documents submitted establish that this legal entity did not exist until May 25, 2010; after the date of the Oil Spill (April 20, 2010). Thus, by definition, this claimant entity was not in operation as of the date of the Oil Spill. The fact that prior to that date some other person or entity may have incurred expenses relative to this venture does not change this conclusion-by definition, an entity could not have been in operation before that entity even existed. The Appeal Panel decision is REVERSED, and the Claims Administrator’s denial of this claim is REINSTATED.

Analysis

It is unclear whether or not Policy 354 was mentioned by the parties in the above appeals. However, what is clear is that the District Court has drawn a bright line regarding claimants who (a) came into existence after the Spill and/or (b) only purchased the assets of a predecessor business. If either of these facts are present,the claimant is not entitled to make a claim.

In the instant appeal, both circumstances are present. This Panel is sympathetic to Claimant’s argument that the Program’s denial of its Claim may be unfair. Claimant makes a persuasive point in its Reply Brief when it argues that it was misled by the Program (and arguably by this Panel’s original decision). Claimant specifically relied on Policy 354 and the representations made by the Settlement Program. This is demonstrated by communication from DWHCC on February 12, 2013 where DWHCC Liaison acknowledges the application of Policy 354 to the claims, albeit under the condition that the Settlement Program finds that the business had not undergone a fundamental change in operating activity. Additionally Claimant’s Counsel was advised by . . . telephone conference that if Claimant was able to provide the predecessor-in-interest’s financial documents the claim would be evaluated pursuant to Policy 354.

These proceedings [this Panel’s original decision and the Program’s statements] coupled with the fact that BP did not object to the review of the claim under the BEL methodology indicates that there was an understanding by all parties involved that would be evaluated pursuant to Policy 354 utilizing the predecessor-in-interest’s financial documents with contemporaneous financial documents. Policy 354 was withdrawn on or around July, 2014, after the statute of limitations for opting out of the Settlement Program and filing Presentment had expired. The Claimant will have no recourse if the claim remains denied despite the fact that the Claimant diligently complied with Policy 354 and relied on representations made by the Settlement Program. By failing to apply Policy 354 and evaluating the claim as a “Newly Acquired

Business” utilizing the predecessor-in-interest’s financial documents after the statute of limitations expired for an OPA claim, the Claims Administrator has violated Claimant’s right to due process.

In the absence of the above-referenced District Court decisions, this Panel would be inclined to overturn the Program’s denial, probably on the grounds that this Panel’s earlier recognition of Policy 354 is the “law of the case.” That said, the District Court decisions seem factually indistinguishable from the instant claim. Further, this Panel questions whether it has authority to grant the Claimant equitable relief. As such, this Panel has no choice but to uphold the denial, and urge the Claimant to seek relief from the District Court.

 

 

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