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 describes itself as an [XXXXX]. It is a not-for-profit entity which files Form 990 tax returns. The Claims Administrator (CA) determined that Claimant’s financials did not pass the causation requirements of Exhibit 4B of the Settlement Agreement. Claimant appeals and states in its Appeal Comments:
“Claimant passes the V-Shaped causation test if its properly maintained cash basis P&L’s are used. The Program impermissibly moved revenue from the month in which it was received. There is no policy or decision addressing matching and smoothing issues that would allow Claimant’s revenue to be moved to months other than those months in which it was received.”
The two sources of revenue involved here are annual membership dues and annual convention revenue.
The CA’s P&L Detail for Causation Denial states at #6 how the CA dealt with annual dues:
“The Claimant noted that all member dues cover a twelve-month period. Furthermore, dues are recognized as revenue when they are earned. Accounting Review also noted that the majority of dues are received in the beginning of the year. Accounting Review created contra and adjustment accounts to spread dues throughout twelve months in order to reflect membership dues applied to the entire year.”
The same document states how the CA dealt with convention revenue:
“The Claimant stated that they held an annual convention in the following months: April 2007, May 2008, June 2009, May 2010 and May 2011. The convention is announced at the beginning of the year. Members are allowed to sign up once the convention is announced; as a result, this is when revenue is recorded. The Claimant confirmed that Registration Fee Convention and are directly related to the annual convention. Accounting Review created contra and adjustment accounts to move all revenue in the calendar year to the month in which the convention occurred. The annual convention results in a revenue increase in April 2007, May 2008, 2010, 2011 and June 2009.”
As a result of the CA’s actions regarding dues and convention revenues, the Claimant’s restated financials did not pass the Settlement Agreement’s causation requirements.
As the CA points out, the dates and details of Claimant’s annual convention are announced at the beginning of each calendar year and members begin paying registration fees and sponsors begin paying sponsorship fees then. However, as Claimant logically points out, work preparing for the convention and securing attendees and sponsors occurs throughout the months preceding the convention. In the ordinary course of business, Claimant books the registration fees and sponsorships when same are received. The decision by the CA’s professional staff to reallocate all such revenue to the month of the convention was incorrect and not supported by the realities of Claimant’s actual business.
The issue on this aspect of the appeal is whether the CA had the authority under the Settlement Agreement to reallocate Claimant’s dues revenue and, if so, whether the CA properly utilized that authority.
Footnote 1 to Policy 495 provides:
“’Errors’ will be defined as accounting transactions that have been identified in the ordinary course of processing to have been inappropriately recorded in the claimant’s contemporaneous P&Ls and will include, but not be limited to: duplicate accounting entries; debit entries recorded as credits or vice versa; mistakes in applying applicable accounting principles based on the claimant’s method of accounting; oversights or misinterpretation of the facts; input or calculation errors; and/or postings to the incorrect revenue and/or expense categories. Recognizing that the Settlement Agreement does not mandate that the P&Ls be based on GAAP or any particular basis of accounting, the CSSP will analyze the P&Ls under the basis (e.g., accrual, cash, modified cash, income tax, et.) of accounting used by the claimant in the normal course of business and reflected in the contemporaneous P&Ls. In general, accounting estimates now determined to be inaccurate based on subsequent events will not be considered accounting errors if the entries were mad using the best available information at the time.”
The Underlying Issues/ Principles section of Policy 495 provides, at #7, as follows:
“Depending on the specifics of a given business, it may appropriate to make adjustments to the claimant’s financials as to the timing of the recognition of either revenues or expenses or both.”
Finally, on Page 7 of Policy 495, we find the following statements:
“Contemporaneous P&Ls submitted by the claimant will be restated if in analyzing and processing a claim, the CSSP Accounting Vendors identify either an error (as previously defined) or a mismatch of revenue and variable expenses which can be explained and supported by appropriate documentation. If matching issues remain after such restatements, revenue and/or variable expenses will be allocated as per one of the methodologies set forth in Attachments B through H.”
The CA’s reallocation of dues revenue is not supported by Footnote 1 of Policy 495. There are no “errors” in Claimant’s contemporaneous P&L’s as that term is defined. The issue then is whether the other 2 provisions of Policy 495 cited above give the CA the discretion to reallocate the dues revenue and, if so, whether the CA’s exercise of such discretion was correct. Claimant’s counsel and Class Counsel have repeatedly argued that there is no basis for reallocation of revenue as “Step One” under Policy 495 before application of the AVM Methodology. Frankly, appeal panel decisions have come down on both sides of the issue. One recent Appeal Panel decision held:
“Moreover, BP’s argument on appeal is based on the assumption that Policy 495 calls for the smoothing of revenues prior to applying the trigger exercise and, if triggered, application of the appropriate matching formula. Here the exercise triggered, the AVM Methodology, which was applied. As has been held repeatedly, there is no “step one” matching and smoothing requirement under Policy 495 that precedes the application of the AVM Methodology. The very purpose of the AVM Methodology is to achieve sufficient matching. There is no error. BP’s appeal is denied, and Claimant’s Final Proposal, consistent with the Award, is hereby selected.”
Yet other decisions have upheld the CA’s reallocation of revenue before submission to the AVM Methodology of Policy 495, most commonly in lump-sum rent/lease payment scenarios.
In three recent Discretionary Review Decisions by the District Court, the Court affirmed the ability of the CA’s professional accounting staff to exercise its discretion to correct obvious mismatches of revenue and expenses even in the absence of an actual accounting error. These decisions cite Page 7 of Policy 495 quoted above.
This Panelist is not aware of any previous Appeal Panel decision dealing with the reallocation by the CA of annual membership dues revenue. However, the annual membership dues paid by members at the beginning of each year allow the member to enjoy membership benefits throughout the year. Accordingly, this panelist finds that the CA was correct in spreading the dues revenue over the 12 months of the year.
In summary, this matter is remanded to the CA to allocate the convention revenue to the months it was received and further evaluate the claim.