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BP Business Economic Loss Claim Appeal 2017-705: Claimant Correctly Classified As “Construction” Instead of Real Estate Developer

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

The Settlement Program awarded Claimant $2,640, 944.37, pre-RTP. BP appeals alleging that Claimant is an excluded Real Estate Developer and the Settlement Program misclassified Claimant.
The Settlement Agreement excludes from the Settlement Class “any Natural Person or Entity that develops commercial, residential or industrial properties.” Here, says BP, the Settlement Program correctly determined on initial review that Claimant is excluded from the Settlement Class as a Real Estate Developer. It noted that it “determined that [Claimant] was sufficiently engaged in Real Estate Development activity during 2010″ to warrant exclusion from the Settlement Class as a Real Estate Developer. In reaching this conclusion, says BP, the Settlement Program determined that Claimant “has 2010 business permits or licenses indicating real estate development activity,” “derived ordinary revenue from real property sales . . . reported on its 2010 tax return as ordinary income,” and “had expenses associated with real estate development activity.”
However, the Settlement Program then reversed course, determining without providing any explanation that Claimant may recover under the Settlement Agreement.
In changing its determination, BP asserts that the Settlement Program appears to have relied on Claimant¹s self-serving statement that it is not a Real Estate Developer. Indeed, Claimant’s sole submission into the record after the Settlement Program¹s original Denial Notice was a one-page document stating that Claimant “constructs and sells single family homes” and “is not a developer.” BP asserts that Claimant did not provide any supporting documentation to substantiate this assertion.
BP points out that on Claimant¹s website Claimant holds itself out to the public as both a home builder and a developer. On that website Claimant states, BP asserts that Claimant is a licensed real estate developer. Claimant¹s representations to the Settlement Program also support the fact that Claimant is a developer. Thus, says BP, Claimant is not merely a home builder but is also a Real Estate Developer.
Claimant counters that its website attached to BP’s Memorandum is from 2016 and is absolutely irrelevant to whether Claimant was a developer in 2010. Furthermore, there is no such thing as a “licensed real estate developer” in the State of Florida, as BP claimed applied to Claimant. Claimant refers to Policy 299(f)*
which provides: “Notwithstanding the forgoing, an Entity engaged in construction that also acquires land for the purposes of erecting residential dwellings for the sale on a dwelling by dwelling basis, rather than as part of a subdivision or other development by the Entity, will not be considered an Excluded Real Estate Developer.”
Claimant also refers to Policy 468 that sets forth five criteria for the analysis of a Developer that relate to the business designation of tax returns, 2010 permits and/or licenses, revenues, expenses and other available information. Claimant points out that Claimant’s tax returns list its business activity as “Construction” and the
product or service as “Residential Homes.” Claimant holds three actual licenses as a Registered Residential Contractor, Registered General Contractor and Certified Building Contractor. That while Policy 468 provides that any revenue from real estate sales reported on its 2010 tax returns as “ordinary income” typically shall be considered to be revenue associated with real estate development activity, home builders such as Claimant who build and sell houses in the ordinary course of their business must report income from that business activity as ordinary income.
Claimant points out that its books do not reflect any expenses that would be found in the P&Ls of a developer such as permitting, platting, zoning, architectural, surveying, expenses relating to raw land, land use planning, engineering, civil site work, etc. Claimant’s principal is shown on the aforementioned website as involved in other entities mentioned in the website which are real estate development entities, and no claim has been filed for them. Claimant again refers to Policy 299 which sets forth activities that may indicate Real Estate Developer Activity and Claimant asserts the record is devoid of any evidence that Claimant was engaged in any of the activities listed therein. This Panel finds that the Settlement Program appropriately handled the classification of the Claimant.
As to the misclassification as Fixed a number of Claimants Variable expenses, BP asserts that The Settlement Program misclassified as Fixed Claimants Variable expenses of “Intang/Doc/Stamps,” “Recording Fees,” “Title Search Fees,” “Cloan [Construction Loan] Intang/Doc Stamps,” “Closings,” Inspection Fees & Appraisals,” Origination Fees,” “Recording Fees,” “Title Search Fees,” “Deed Stamps,” “Mortgage Stamps,” “Mortgage Concessions,” “Title Insurance,” “Cloan [Construction Loan] Title Insurance,” and “Ploan Other Clsg [Closing] Cost.” Claimant incurs a number of expenses that are directly associated with the purchase and sale of specific properties.
According to BP, the extent of these expenses depends on Claimants business volume i.e., how many properties Claimant develops and sells. As a result, all of Claimant’s expenses that tie to particular property purchases or sales should be classified as Variable costs of goods sold. It does not appear that Claimant responded to this assertion by BP, and thus conceded its validity. However, this this is a “baseball” appeal, where the Appeal Panel must chose either Claimant’s Final Proposal or BP’s Final Proposal. BP’s Final Proposal is zero($0), and whatever the downward adjustments to the amount of the award this “misclassification”would entail, this Panel cannot conceive that the adjusted amount would be closer to BP’s zero ($0) Final Proposal than the amount proposed by Claimant in its FinalProposal. Therefore, Claimant’s Final Proposal is affirmed and BP’s appeal is denied.
*Claimant mistakenly refers to Policy 299 which was superseded by Policy 468, but Policy 468 F2 is consistent with superseded Policy 299

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