The action by the court was announced in a brief order without further explanation.
It marks a major setback for the oil giant BP and will probably create a significant disincentive for other multinational corporations to agree to set up similar billion-dollar compensation funds after future disasters.
The appeal was filed by BP in an effort to reverse lower court rulings enforcing generous compensation of millions of dollars to people and companies that did not suffer any injury actually caused by the Deepwater Horizon oil spill.
In an effort to speed resolution of claims and avoid litigation costs, BP agreed to create a fund to pay compensation to those in the Gulf region hurt by the environmental disaster.
The company has spent $27 billion for environmental cleanup and restoration and to settle economic claims.
Company officials said they are willing to pay claims of those whose losses are a result of the oil spill. But they complained that the administrator running the claims process has embraced an expansive view of the settlement agreement and is forcing the company to pay more than a half billion dollars in claims of those whose losses are unrelated to the oil spill.
“Those awards include $76 million to entities whose entire losses unquestionably had nothing to do with the spill, such as lawyers who lost their law licenses and warehouses that burned down before the spill occurred,” wrote Washington appellate lawyer Theodore Olson in the BP petition urging the high court to take up the case.
Mr. Olson said a former excavation company in Alabama was awarded nearly $3.5 million even though the company’s drop in revenue during the relevant time frame was the result of the owner’s decision to sell the company’s assets. The decision to sell was made in 2009, he said, before the oil spill.
A central Louisiana wireless phone retailer received $135,000 even though the company was effectively shut down in 2010 after its main facility was damaged by fire, Olson said.
An attorney in northern Louisiana received $172,000 from the settlement fund despite the fact that his business license was revoked in 2009, before the oil spill, Olson said.
He said an additional $546 million had been paid to individuals and companies “that reside far from the Gulf Coast and are engaged in business activities that bear no logical connection to the spill, such as commodity farms that sell in a nationwide or worldwide market or contingent fee law firms.”
BP filed a lawsuit challenging the claims administrator’s expansive interpretation. A federal judge in Louisiana agreed with the administrator, and a panel of the New Orleans-based Fifth Circuit Court of Appeals affirmed that ruling in a 2-to-1 decision.
The Supreme Court action lets stand that Fifth Circuit affirmation.
“This case is about a contract that BP signed but now wishes it hadn’t,” Samuel Issacharoff, a New York University law professor representing those seeking compensation from BP, wrote in his brief.
“BP, aided by a team of sophisticated attorneys and experts, specifically chose the categories of businesses and individuals that could claim compensation for objectively documented losses under the settlement,” Mr. Issacharoff said.
He said the lower courts had determined that “the settlement agreement means what it says.” He told the Supreme Court justices there was no reason for them to take up the case.
The central issue in the case was whether the courts can enforce the BP settlement agreement in a way that requires BP to pay compensation to those whose claims are not related to the oil spill.
Under the settlement, the claims administrator identified a class of those claiming economic harm from the oil spill. Although the fund was set up to compensate those whose losses were a result of the oil spill, once the class of potential claimants was established, all they were required to show was proof of economic loss. They were not required to demonstrate how those losses had been caused by the oil spill.
BP argued that such proof must be required before individuals or businesses are included in the class of claimants. It said the claims administrator and the courts have ignored this requirement.
“The class definition by its plain terms limits class membership to the claimants who experienced loss ‘as a result of’ the spill,” Olson said in his brief.
“Although BP supported – and still supports – the settlement agreement as written, BP has consistently opposed the district court’s subsequent modification of the agreement,” he said.
In a dissenting opinion to the Fifth Circuit panel’s decision, Judge Emilio Garza said that without an “actual causation requirement for all class members,” the settlement agreement had become “a private handout program.”
Another appeals court judge, Edith Clement, went even further, saying judicial approval of the expansive reading of the settlement agreement would “funnel” payments “into the pockets of undeserving non-victims” and effectively make the court “a party to this fraud.”
Kenneth Feinberg, who administered the $7 billion compensation program for victims of the Sept. 11 terror attacks, was retained to oversee the Gulf oil spill compensation program.
According to a friend-of-the-court brief filed on behalf of Mr. Feinberg, he authorized $6.2 billion in payments to 220,000 individuals and businesses under the Gulf Coast claims program. He was replaced after litigation moved the process into the courts.
In his brief to the court, Feinberg said he is concerned that the expansive reading of the BP settlement agreement threatens the continued viability of such alternatives to years of expensive litigation in the courts.
“Requiring claimants to establish causation – an essential element in claims processed by both the 9/11 Fund and the Deepwater Horizon Fund – is crucial to ensuring the integrity of the claims programs and to encouraging defendant companies to design and implement them,” the Feinberg brief said.
A brief filed on behalf of the claims administrator, Patrick Juneau, said that Mr. Juneau asked BP before the settlement was approved by the court whether he should enforce a subjective test establishing a link between claims and the oil spill. “He was twice told ‘no,’ " the brief said.
The brief said that Juneau issued a written policy statement reflecting BP’s agreement prior to the court’s approval of the settlement agreement. BP accepted that policy statement, the brief said.
“In the light of these facts, there is no room for an argument that the parties to the settlement agreement did not know or understand that causation would be judged for each and every claim – but only by those objective standards set forth plainly in the settlement agreement,” the brief said.
The case was BP Exploration & Production v. Lake Eugenie Land & Development (14-123).