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 is a company based in Florence, Alabama, which owns, operates and leases tour buses. The Settlement Program (“the SP”) awarded it $432,615.31 pre-RTP on its BEL claim. Claimant appeals, contending that the SP improperly excluded from the calculations of Claimant’s Revenue its income derived annually from the sale of older buses out of its fleet. Claimant argues that the sales income should have been recognized as “Revenue” for it in the claim calculations, which it says, in turn, would have entitled it to a pre-RTP award of $1,108,189.00. The record reflects that as a routine, recurring part of its business, Claimant takes older buses from its rental inventory and sells them. It sold four old buses in 2007; one in 2008; five in 2009; two in 2010 and three in 2011. In denying request for reconsideration of the exclusion from Revenue of the net income resulting from those annual sales, the SP stated, “We have reviewed the Reconsideration Request regarding the inclusion of ‘Bus Sales’ as Revenue. As these amounts relate to the sales of depreciable assets with no related cost component, they remain excluded from Revenue per Policy 328 v2. No changes were made to the compensation calculation.”
The sales are reported on P&Ls as “Other Income Gain/Loss on Sale of Assets,” because the buses have been depreciated while in the rental inventory. Likewise, it reports the transactions on its federal tax returns using Form 4797, “Sales of Business Property.”
As a threshold proposition, Policy 373 v.2 declares, “All recurring revenue streams that are deemed to be within the businesses’ normal course of operations should be included in the analysis. For example, a restaurant that generates income from food service and also generates rental income by renting an apartment attached to the building.” Policy 328 v.2 relied on by the SP to exclude the bus sales from Revenue says that eight categories of transactions, including “gains or losses from sales of assets,” won’t “typically” be treated as revenue, based “upon the fact that these items are not typically earned as revenue under the normal course of operations in an arm’s length transaction.” That explanation in comparison with the declarations of Policy 372 v.2, necessarily implies the opposite proposition whereby sales of assets can be treated as revenue where they routinely occur as part of a businesses’ “normal course of operations.”
The three-member Appeal Panel reviewing this appeal are not aware of any provision of the Settlement Agreement, or any officially promulgated Policy, or any decision on discretionary review, which declares that gains from sales of assets made in the normal course of operations of a business can’t constitute Revenue simply because reported on tax returns as capital gains. BP argues in its Final Proposal that the money received from the annual sales of older buses can’t be treated as Revenue because it was “not part of the ‘company core revenue’.” The panelists are not aware of any requirement that revenue from sales of assets as a part of a company’s normal course of operations must constitute part of its “core revenue” in order to be eligible for recognition as Revenue. The example given in Policy 373 v.2 of Revenue of “a restaurant that generates income from food service and also generates rental income by renting an apartment attached to the building” refutes that notion.
The Panel concludes that the annual sale of older buses by Claimant represented a regular feature of its “normal course of operations” and, therefore, the income derived qualifies as Revenue for the purposes of the calculation of the pre-RTP Compensation Amount due it. BP’s Final Proposal is the same as the pre-RTP award made by the SP after excluding the bus sale income from Revenue, $432,615.31. states in the concluding paragraph of both its Initial and Final Proposals that including of the bus sales revenue “yields a pre-RTP claim amount of $1,108,189. That is the correct compensation amount and should be the award.” Unfortunately, it offers no explanation or underlying computations showing how it came up with that amount. Its 12-page “Settlement Calculation Summary” submitted at the time it filed its claim on June 6, 2013, contains no such figure. Rather, the pre-RTP compensation amount therein calculated is $1,158,704. Therefore, the Panel would be unable to validate Final Proposal of $1,108.189 without further information. Rather than resort to a time-consuming remand that would impose a costly burden on the SP’s resources, the Panel submitted a request to the SP that it calculate the effect on the Compensation Amount of inclusion in Revenue of the bus sale income, and report the results back to the Panel so that it can see if the appeal is susceptible of a non-remand decision employing the Baseball Process.
The SP has reported back to the Panel that with the bus sales income included in Revenue, the total pre-RTP Compensation Amount due would be $1,108,184.21. The Panel deems the $5.79 difference between that figure and Final Proposal of $1,108,189.00 to be de minimus under the circumstances, and the Panel chooses Final Proposal under the controlling Baseball Process. Appeal upheld and Claimant’s Final Proposal of $1,108,189.00 is chosen.