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BP Claim Discretionary Review of Appeal 2016-2151: Start-Up’s Two Claims Allowed–Appellate Panel Decisions Affirmed revenue allocation

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The following is a Discretionary Review Order issued by Judge Barbier pursuant to the Rules Governing Discretionary Court Review of Appeal Determinations. Judge Barbier’s rulings are binding on the Claims Administrator and the Appeal Panelists. 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 owns multiple rental properties in a vacation home development called located in Islamorada, Florida. Claimant filed Start-Up Business claims for each of its rental houses and boat slips. Before the Court are Claim no.XXXX which concerns *****, and Claim no. YYYY which concerns ^^^^^.  At issue is whether these claims meet the requirements of the Start-Up Business Economic Loss Framework, Exhibit 7 to the Settlement, as interpreted by Claim Administrator’s Policy 362 v.2.
The Settlement Program denied both of these claims. The Appeal Panel, in separate decisions, reversed both denials.
No party argues that Policy 362 v.2 misinterprets or contradicts the terms of the Settlement.  Under that Policy, “[o]nly claimants that can establish an operating history, in accordance with [the Policy’s] analysis , that commenced before April 20, 2010 will be eligible for compensation under the Start-Up BEL framework.”
The Policy further states that “the Claim Administrator’s analysis of whether a business was doing business or was in operation ” before April 20, 2010 “will be based on the totality of the circumstances involving the claimant’s business and will include a focus on when the business began to a) sell products in the Gulf Coast Areas . . . , c) perform its full time services while physically present in the Gulf Coast Areas, . . . or e) incur substantial costs or expenses of a nature indicative of the actual start-up of business operations.”
This Court has encountered Policy 362 v.2 in at least two prior discretionary review decisions. Discretionary review of Appeal Panel no. 2016-145 (E.D. La. Dkt No. 16-3589) concerned a restaurant that did not open for business until a year after the oil spill. The claimant cited pre-spill payments for architectural design work as evidence that it had commenced business operations prior to April 20, 2010. The Court held that “payment of an architectural design fee for the early stages of designing a restaurant, which restaurant was not opened until over a year later, is insufficient to indicate the actual startup of business operations.”
Discretionary review of Appeal Panel no. 2016-227 (E.D. La. Dkt No. 16-4033) concerned a restaurant/bar that did not open until October 2010. That claimant also relied on pre-spill expenses to show that it satisfied Policy 362 v.2. The Court, however, held that the cited expenses were “largely legal, architectural and engineering expenses that do not indicate the actual startup of business operations under a
‘totality of the circumstances’ analysis as per [Policy 362 v.2].”
In both of these instances it was clear that business operations did not actually commence (i.e., the restaurants were not “open” for business) until months after April 20, 2010. Very different scenarios are presented here. The ultimate question under Policy 362 v.2 is whether based on the totality of the circumstances involving the claimant’s business the claimant has established that it commenced business operations prior to April 20, 2010. This is a flexible standard; what might prove sufficient
for one type of business might not be sufficient for another type of business. In the context of a residential rental property, the question boils down to whether the unit was “rental ready”prior to April 20, 2010. For claim XXXX this is a close call. The Claimant purchased on February 19, 2010, performed some repairs and maintenance, and then rented it out.  However, this first rental occurred on May 28-31, 2010 (Memorial Day weekend), five weeks after April 20, 2010. If had been rented before April 20, 2010, the matter would easily be resolved in favor of the Claimant. Nevertheless, the fact that the first rental did not occur until five weeks after April 20, 2010, does not necessarily mean, under these circumstances, that the unit was not “rental ready” prior to the spill. The Claimant incurred the following expenses prior
to April 20, 2010: $95 for an insurance inspection, $3,930 for property insurance, $1,925 for property management fee, $75.70 in utilities, and $17,685.40 in repair and replacement costs (e.g., replacing or refurbishing closets and kitchen cabinets, painting, replacing lights, and floor treatment). The repair and replacement costs certainly
resemble “preparatory” expenses that indicate business operations have not yet commenced. However, the Claimant asserts that these repairs were complete by April 20, 2010 and the unit was ready to rent by that time. Although some arguably similar expenses were incurred after April 20 and before the first rental, there is not
enough in the record to establish that was not “rental ready”prior to April 20. The other pre-spill expenses (property insurance, property management, utilities) are neither clearly preparatory nor are they conclusively indicative of the “actual start up of business operations.” It should be noted, however, that given the nature of the business, a residential rental property might not incur the sort of expenses that would clearly indicate “actual start-up of business operations.”
In short, while one cannot say with certainty that was “rental ready” prior to April 20, it $2,000 for “minor repairs, lamp inst [sic], and deck repair” was incurred on April 23, 2010, and $800 for “curtains” was incurred on April 29, 2010. By contrast, a hypothetical restaurant might point to food purchases and servers’ wages as clear indicators of actual start-up of business operations. A residential rental property might not have analogous expenses. It was permissible for the Appeal Panel to conclude
that it was. The Court reiterates that (Claim no.XXXX) is a close call. If the period between April 20 and the first rental had been much longer, or if the repairs after April 20 and before the first rental had been much more substantial, then the outcome would likely be different.
Claim no.YYYY, which concerns ^^^^^, is less difficult. The claimant purchased this property on November 4, 2009. There is evidence indicating that the Claimant first rented out during the week of March 27 through April 2, 2010, before the oil spill began. BP attacks this evidence on the grounds that this revenue does not appear in Claimant’s profit and loss statements or tax returns, nor does Claimant mention it in its earlier filings with the Settlement Program. The Appeal Panel did acknowledge that the timing of the “new” revenue information caused it concern, but accepted the Claimant’s representation in light of the fact that it was made under penalty of perjury.
In its objection to BP’s request for discretionary review, the Claimant points out that the revenue is reported on an income statement from the property management
company (a third party), which has been on-file with the Settlement Program since April 16, 2014. Considering this, the Court concludes that it was not error for the Appeal Panel to accept and rely on this revenue. Furthermore, because this revenue establishes that was actually rented prior to April 20, 2010, the Court agrees with
the Appeal Panel’s conclusion that the Claimant has established that commenced business operations prior to April 20, 2010, as required under Policy 362 v.2.
Case 2:17-cv-00212-CJB-JCW Document 3 Filed 02/01/17.
For these reasons, IT IS ORDERED that the Appeal Panel’s decisions to overturn the denials of Claim nos. XXXX and YYYY is AFFIRMED. The claims are remanded to the Settlement Program for further processing.
[Editor’s Note: This Order affirms the holding of the appeal panelist in Appeal 2016-2151

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