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BP Business Economic Loss Claim Appeal 2017-837: Remodeling Contractor’s “Out-of-Zone” Included Since Claimant Maintained No Facility


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 BEL award ($1,666,803.28 pre-RTP) to the claimant, a Tarpon Springs, Florida remodeling contractor. BP raises three issues on appeal: (1)the Settlement Program failed to adequately investigate out of Zone revenue, expenses and facilities; (2) the Program misclassified “Management Fees;” and (3) the Program misclassified “Management Fees/Office Err.” BP suggests a remand and alternatively submitted a final proposal of $0.

 

Claimant’s primary business involves the renovation of hotels. It does so on-site and does not utilize construction trailers. Claimant’s office location is in Tarpon Springs, Florida (Zone C) from where it manages its operations. BP argues that there is “substantial evidence” that Claimant operates outside the Gulf Coast Claim Zone and points to Claimant’s website which identifies construction projects in Puerto Rico, Aruba, Georgia, Virginia and Orlando. BP also notes that the claimant has employees in those locations and registered as a US Foreign LLC in Puerto Rico in 2007. BP asserts that revenue and earned expenses in connection with projects outside the Gulf Coast Claim Zone do not “arise” within the Gulf Coast Areas and, therefore, should be excluded. BP contends the Program should have investigated this issue further. BP also asserts that “Management Fees” and “Management Fees/Office-Err” were mischaracterized as fixed. Claimant contracts with for services in connection with its construction projects and pays 34.64% of Claimant’s net income. The Program accountants classified this expense as “Fees-fixed,” BP contends that this expense should have been treated as either variable COGS or contact labor.

 

“Management Fees/Office-Err” represents expenses Claimant pays to Errington to reimburse for Claimant’s portion of office expenses. These include office space, overhead, taxes, utilities, postage, phones, IT equipment and personnel, and furnishings. The Program likewise classified these expenses as fixed. BP contends they should be considered variable. Although BP maintains that this misclassification visits significant error on Claimant’s award ($534,801 post-RTP), BP nevertheless submits a final proposal of $0.

 

Section 38.57 of the Settlement Agreement provides:

Economic Damage shall mean loss of profits, income and/or earnings arising in the Gulf Coast Areas or Specified Gulf Waters allegedly arising out of, due to, resulting from, or relating in any way to, directly or indirectly, the Deepwater Horizon Incident; provided, however,  that Economic Damage does not include (1) loss of profits or earnings, or damages for injury relating to real property or personal property that constitutes any part of the Seafood Compensation Program, Coastal Real Property Damage, Real Property Sales Damage, Wetlands Real Property Damage, Vessel Physical Damage, or (2) VoO Charter Payment, or (3) damages for loss of Subsistence use of natural resources, which constituted Subsistence Damage.

The Settlement Agreement does not prohibit a business entity located within the Claim Zone from recovering compensation for work performed outside the Zone,

unless it maintains a “facility” outside the Zone. Policy 467 provides as follows:

 

  1. Definition of Facility.

The Claims Administrator defines a Facility of a Business Entity as:

(a) A separate and distinct physical structure or premises;

(b) Owned , leased or operated by the Business Entity;

(c) At which the Business Entity performs and/or managed its

operations.

  1. Determining the Location of a Business Entity
  2. Basic Rule: The location of a Business Entity is determined by the location of its Facility.
  3. Location of Customers, Employees, Contractors or Other Representatives :. The Claims Administrator does

not locate a Business Entity on the basis of the location of the customers, employees, contractors or other

representatives of the business apart from the location of the structure owned, leased or operated by the business.

 

The panel has conducted a de novo review of the record and unanimously finds no evidence that Claimant is a Multi-Facility Business or that it maintains “facilities” in any location other than its office location in Tarpon Springs (Zone C). The panel also unanimously concludes that the Program’s classification of Claimant’s management expenses was appropriate and that there is no record support for BP’s final proposal of $0. In this “baseball” appeal, Claimant’s final proposal is the correct result.

 

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BP Business Economic Loss Claim Appeal 2017-816:Paving Contractor Not Operating “Out-Of-Zone Facilities” From Which It Received Impermissible Revenue

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

The three-member panel, having duly convened and deliberated, enters the following unanimous decision:
BP appeals the BEL award to claimant, a paving contractor in Naples, Florida. BP presents two issues for review: whether the Settlement Program (SP) award included impermissible revenues from out-zone-facilities; and whether the SP misclassified “contract management” costs as a fixed expense. BP argues that in addition to its headquarter facility in Naples, Florida, claimant operated several other asphalt plants, one of which is located in Lake Placid, Florida, and is located out-of-zone. BP contends that this asphalt plant qualifies as a separate out-of-zone facility and that revenues derived from its operation should have been excluded from the SP award. BP also argues that “contract management” expenses should have been classified as a variable expense and not as a fixed cost.
Claimant in response acknowledges it has an asphalt plant it uses in an out-of-zone location in Lake Placid, Florida. Claimant contends this plant is not a “facility” as defined by the Settlement Agreement and policy 467 from which it performs or manages its operations. Claimant posits it is an auxiliary location that serves as a supply
depot to transport hot asphalt to nearby job sites. Claimant asserts there is only one facility from which it operates in Naples, Florida, and from which its operations are performed and managed. Claimant argues this issue was fully considered and explored by the SP which determined that there were no revenues that resulted from out-of-zone activities or facilities. Claimant also argues that operations at the Lake Placid site comprise less than 10% of claimant’s total annual operations so that any alleged out-of-zone revenues tied to it would be minimal and have little impact on an award of this magnitude if excluded. Relative to the remaining issue of misclassification of the “contract management” expense, claimant agrees that this cost was misclassified as a fixed expense; and that remand to the SP for reconsideration of it as a payroll expense is in order.
A review of the record discloses that claimant operates from its headquarters in Naples, Florida. Claimant has other sites which it uses to supply paving projects. These projects take place in neighboring counties which are not geographically remote from Naples, making oversight and supervision from there possible. The SP analyzed claimant’s business operations as explained in paragraph 18 of the Calculation Notes: “On its purple form***the claimant checked Question B 2 stating that its business maintains more than one separate distinct physical location. DWH Accountant inquired about the separate facilities and regarding trailers used by the claimant within 2010. The claimant’s attorney noted that ‘the Claimant operates all activities from their single location in Naples. They have mobile asphalt plants that are towed to quarries depending on job site locations being worked for duration of a paving operation. They pay sales tax in multiple counties because they perform work in multiple counties and have registered in multiple counties for that purpose as required. But, they do not operate physical plants in multiple locations and have no trailers or site equipment other than mobile asphalt plants, trucks and equipment at any locations at any times. When not in use, all equipment is stored at the Naples yard.
So, the claim form was determined by your personnel previously to be in error as there is only a single physical location for this entity. To be specific, there were no job site trailers in use in 2010, or any other period, at any site.’ “Against this backdrop, this panel is satisfied that the SP correctly determined that claimant was not operating or managing an out-of-zone facility from which it derived impermissibly revenues. BP has failed to rebut this determination and provide a reasonable basis to overturn it. A claimant may include revenues from out-of-zone operations if such operations are managed and supervised from an in-zone facility. To this extent, the decision of the Claims Administrator is affirmed.
Because claimant has agreed that remand is appropriate for the reasons stated earlier with regard to “contract management” expenses, this claim is remanded to the Claims Administrator for the limited purpose of resolving whether the expense should be treated as a variable expense or a payroll related cost; and then recalculate a proper award consistent with the foregoing.
By |Appeals Critical of BP, BP Claim Appeals, Entity Issues, Facilities, Legal Examiner, Out-of-Zone Activities, Related Party Transactions, Revenue Recognition|Comments Off on BP Business Economic Loss Claim Appeal 2017-816:Paving Contractor Not Operating “Out-Of-Zone Facilities” From Which It Received Impermissible Revenue
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