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.
BP appeals the issuance of 126 awards to [XXXXX]. These awards total more than $58.4 million (post – RTP) with additional claims pending. This body of appeals has been considered by the entire Appeal Panel in en banc session.
The gravamen of BP’s appeals is that [XXXXX] is excluded under the Settlement Agreement as a member of the oil and gas industry. Appellant approaches this position from several vantage points. Although there was some analysis relating to claimant’s percentage of retail and wholesale sales, this analysis was ultimately determined not to be dispositive.
Instead, there is a unanimous finding herein that claimant was the refining and marketing arm of an integrated oil and gas company and, therefore, is excluded from the class pursuant to Section 220.127.116.11 of the Settlement Agreement. Accordingly, the other points of debate between the parties are rendered moot.
[XXXXX] parent, was a cradle to grave oil company, which engaged in the full array of operations beginning with exploration and extraction and ending with the retail sale of fuel. Accordingly, there is little question that [XXXXX] would be an excluded entity under the Settlement Agreement. Section 18.104.22.168, in describing the Oil and Gas exclusion, provides as follows:
Oil and Gas Industry, as identified by the NAICS codes listed in Exhibit 17, which includes by way of example, firms engaged in: extracting crude petroleum, natural gas or other hydrocarbons; drilling wells; preparing maintaining or constructing petroleum or natural gas well-sites or other mineral extraction sites; mining; maintaining or constructing petroleum or natural gas well-sites or other mineral extraction sites; mining; maintaining or constructing petroleum or natural gas pipeline distribution of crude petroleum, refined petroleum, oil or natural gas; petroleum or natural gas refining or other mineral refining and/or manufacturing; manufacturing petroleum lubricating oil and grease, petrochemical products or other petroleum and coal products or chemical products derived from extracting minerals; merchant wholesaling of construction and mining (except oil well) machinery and equipment; wholesale distribution of oil well machinery, equipment and supplies, wholesale distribution of oil well machinery, equipment and supplies; wholesale distribution of petroleum, petroleum products, other extracted minerals, chemical products produced from extracted or refined minerals, petroleum bulk stations and terminals, petroleum and petroleum products merchant wholesalers.
[XXXXX] engages in so many of these prohibited activities that there can be little debate with respect to the parent’s status as an excluded entity.
BP portrays Claimant as a subsidiary carrying out the functions of the larger excluded company. Claimant, on the other hand, points out it is a separate legal entity, whose primary business is retail sales from its retail stations, which is not an excluded activity under the terms of the Settlement Agreement. In support of this position, Claimant argues it is a stand-alone business with its own employees, management team, offices and Board of Directors. Additionally, the subsidiary maintained its own P and L statements and was responsible for its own expenses. Further, claimant argued strenuously that over 60% of its revenues were attributable to its retail gasoline stations with convenience stores. This last point can be an important consideration since an entity engaged in the wholesale sale of petroleum products is generally excluded but a retail petroleum seller is often not excluded.
Nevertheless, BP’s most salient argument is not that Claimant’s sales are primarily wholesale, but that claimant is an operating subsidiary carrying out the functions of the excluded oil company parent, including owning and operating major oil refineries, petroleum terminals and ethanol production plants. BP points to the fact that claimant owned and operated the following:
1) A 125,000 barrels per stream day refinery in [XXXXX]
2) A 35,000 barrels per stream day refinery in [XXXXX]
3) A 110 million gallons per year ethanol plant in [XXXXX]
4) As of late 2010, a 105 million gallons per year ethanol plant in [XXXXX]
5) Ownership interests in several crude oil and refined petroleum product pipelines
6) 12 refined petroleum product terminals
BP contends that claimant’s operations were “simply the last step in the chain through which – its then corporate parent, holding company [XXXXX]. Claimant realized some of its profits from excluded industries.”
In further support of this proposition, appellant points out the following:
1) [XXXXX] was the parent of [XXXXX] and, accordingly, [XXXXX] was wholly owned by [XXXXX].
2) In its annual report, the parent states it is an international oil and gas company that conducts business through its subsidiaries (including [XXXXX]).
3) The report also states the parent operates retail gas stations and 2 petroleum refineries.
4) The Annual Report states that [XXXXX] is engaged in refining and marketing petroleum products.
5) [XXXXX] reported to the Securities and Exchange Commission that the parent was a worldwide oil and gas exploration company with refining and marketing operations in the United States.
6) The 2010 Annual Report describes claimant’s operation as follows:
7) The Annual Report and 10-K of the parent references the entire operations of the oil company from exploration to production, to refining, and distribution of wholesale as well as retail petroleum products.
[XXXXX] contends that generic language frequently used by corporations when describing the activities of their subsidiaries does not demonstrate that the parent actually controls the subsidiary. However, the language at issue, as opposed to being generic, is quite specific with respect to the activities of the parent and subsidiary. Moreover, in conjunction with the other pertinent facts, there is a picture painted of a coterminous subsidiary whose activities are so fundamental to the prohibited activities of the parent, that the two entities must be considered inextricably interwoven.
This finding is not based, as [XXXXX] suggests, on some corporate piercing theory. Both companies seem to have observed the corporate formalities necessary to preserve legal recognition of their distinct corporate identities. Accordingly, there is no suggestion of piercing. Instead, this holding is premised on claimant’s status as an essential cog in the operations of an integrated oil company. Claimant owned and operated the refineries, ethanol plants, pipelines and petroleum terminals which supplied the final sales outlets for the parent oil entity. As set forth in Section 2.2.4 of the Settlement Agreement, “exclusions are based on the substantive nature of the business, not the legal or juridical form of the business.”
Claimant attempts to distinguish these facts from those at issue in [XXXXX] Decision No. 2014-340. It is true that one of the major tenets underpinning that holding was the finding that [XXXXX] sole purpose was increasing the mineral exploration, development and production efforts of the corporate parent. The facts herein are somewhat different. Nevertheless, an analogy can still be drawn. In [XXXXX] the claimant serviced the upstream activities of the parent. In this case, [XXXXX] central function was to operate the downstream portion of [XXXXX] business, and, therefore, further the mission of the parent. Analogous to [XXXXX] it would be inappropriate to find that claimant is merely an owner of retail stations with no integral nexus to its parent oil company.
BP points out that claimant, on its federal tax returns, selected the NAICS Code for “petroleum refineries.” However, this issue is not particularly germane to the current analysis. Rather, the decision hinges on the fact that [XXXXX] is a key component of an integrated oil company and acts in furtherance of the parent company’s excluded activities. Claimant argues that an analysis of its retail versus wholesale sales supports a finding that it is not engaged in prohibited oil and gas activities. Although this Panel recognizes that the percent of retail sales has been a determining factor in other decisions, in this case, there is a finding that claimant is so entwined with its parent’s prohibited activities that it cannot be said that claimant is simply a retailer.
It should be noted that the holding in this case is fact specific. There should be no precedential value with respect to other parent-subsidiary relationships or retail gasoline outlets. The result in this case is a byproduct of the interwoven nature of the relationship between claimant and its parent oil company.
For the foregoing reasons, BP’s appeal is sustained in this case and the claim of is excluded.
[Editor’s Note: But see generally Assignment of NAICS Codes, See also BP Business Economic Loss Claim Appeal 2015-564: Primary business activity controls NAICS code selection]
[Editor’s Note: This decision REVERSED by Discretionary Review of Judge Barbier.