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.
This appeal by a Sylacauga, Alabama commercial lessor from a denial of its BEL claim for lack of proof of causation is one in a growing line of cases in which the Program accountants saw fit to, as a first step in analysis, restate revenues from months received to months when they should have been earned. This Claimant posits that it contemporaneously maintained its financials on a cash accounting basis, yet the Program vendors proceeded to move certain rental payments under the guise of Policy 495 to achieve more sufficient matching of revenues and expenses. It argues that such shifting of non-error-based revenues is a violation of both Policy 495 and the relevant judicial decisions, and notes that had their cash-basis method been allowed to stand, they would have met the V-shaped causation test set forth in the Settlement Agreement.
BP responds by citing language of the 5th circuit opinion requiring matching to achieve “realistic measurement of economic loss.” It further notes that both Policy 495 and relevant judicial decisions endorse the avoidance of “idiosyncratically maintained” financial records, and argues that this was so in the present case, where certain rental prepayments were made, in some instances, for several months.
This panelist is well aware that the panel decisions on this important issue are far from consistent. It feels strongly, however, that just as many BP appeals were denied on the basis that only obvious errors can be corrected as an initial step in the application of Policy 495, such an approach must also be followed herein. Claimant’s financials, in the opinion of this panelist, were not “idiosyncratically maintained.” It simply followed consistently and contemporaneously its cash basis accounting method. Footnote 10 of Policy 495 , in defining correctable errors, specifically mandates the Program vendors to analyze the financials “under the basis (eg, accrual, cash…etc.) of accounting used by the claimant in the ordinary course of business and reflected in the contemporaneous P&Ls.” A de novo review of this record, in the opinion of this panelist, indicates that the Program vendors overreached their authority in essentially converting Claimant’s cash accounting basis to accrual. As such, the matter must be remanded with instructions that Claimant’s eligibility be reanalyzed applying its contemporaneously kept financials, with the sole exception of correcting obvious errors as defined in Policy 495.