BP Business Economic Loss Claim Appeal 2017-1016:School’s Tuition and Non-Tuition Revenue Allocated On Straight-Line Basis

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 Claims Administrator denied the BEL claim of this Catholic school in Harvey, Louisiana (Zone D). When subjected to Policy 495 matching analysis, four criteria were triggered. The program accountant then utilized the Education Methodology to restate the financials. As restated, the P&Ls were unable to satisfy any of the causation tests in Exhibit 4B. Claimant appeals.
In its opening memorandum, Claimant lobs a barrage of asserted errors at the Settlement Program but only two, merit discussion. Claimant argues that the vendor accountants improperly adjusted tuition revenue by restating actual expenses in the Tuition Assistance Expense account as revenue. Claimant also argues that the accountant erroneously restated non-tuition revenue over the course of the fiscal year, lumping it with a similar reallocation of tuition revenue. Claimant therefore
argues that the accountant improperly utilized the Education Methodology to reallocate non-tuition revenue rather than allowing it to remain in the months recorded.
In response, BP argues that the vendor accountant classified the Tuition Assistance Expense account as contra-revenue, thereby properly offsetting tuition refunds against the corresponding revenue. BP also argues that the reallocation of non-tuition revenue, under the facts of this claim, was an appropriate exercise of the program accountant’s professional judgment.
De novo review does not support the Claimant’s assertions of error. First, the reallocation of tuition revenue was proper under Policy 495 as it was allocated on a straight-line basis over the periods of instruction. As to the non-tuition revenue, the program accountant noted that this consisted primarily of grants and contributions that represented efforts to raise funds for the school’s yearly operations. On this basis, this revenue was allocated evenly over the fiscal year. This panelist is convinced that these were proper exercises of the vendor accountant’s professional judgment.
No basis for disturbing the application of the Education Methodology has been demonstrated. Accordingly, Claimant’s appeal is denied.
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BP Deepwater Horizon Claim Policy 495 Gutted by 5th Circuit

A few weeks ago the United States Court of Appeals for the 5th Circuit ripped the heart out of Policy 495’s claimant-unfriendly “matching” methodology. Specifically, the Court held that certain specialized formulas, those used to “match” the “unmatched” profit and loss statements of entities in the construction, professional services, education and agricultural industries, ran contrary to the plain terms of the Settlement Agreement. In addition, the Court opined that any movement of revenue from one month to another – “smoothing” – also contravened the Settlement Agreement. Revenue reallocation can be particularly troublesome for claimants, as Exhibit 4B’s causation tests are rooted in monthly revenue patterns. Take some sales out of one month and move or “smooth” them into another and you can fail causation in a New York minute.

Tragically, the nefarious aspects of Policy 495 which were rejected by the 5th Circuit were used to the detriment of claimants for over three years. Who knows how many economic loss victims received nothing due to this misapplication. Worse, most if not all of those whose claims were wrongfully denied (or values diminished) under this nefarious policy are likely out of luck (unless they preserved their appellate rights – which, for practical reasons, few did).

Policy 495 was originally concocted after BP successfully argued to the 5th Circuit that the original formula found in Exhibit 4C of the Settlement Agreement could lead to inflated awards, or as BP put it, “absurd” results. While the plaintiffs certainly disagreed with such hyperbole, the result was an 80+ page addendum to the Settlement Agreement (a.k.a. Policy 495) which attempted to implement the 5th Circuit’s earlier directive. Now it appears that Policy 495 was an unfortunate overreach.

Last week Judge Barbier entered an Interim Order requiring that any claims pending in the internal appeals process which were subjected to the offending Policy 495 construction, professional services, agriculture or education methodologies (or where revenues were moved short of error) be remanded to the Claims Administrator for treatment under the standardized Policy 495 methodology (annual variable margin – AVM). Impacted claimants should ask their counsel how treatment under AVM versus the specialized formulas will impact their claim’s value.

Finally, BP, disappointed with the 5th Circuit’s ruling, has asked that body for a rehearing. It is this attorney’s opinion that BP is barking up the wrong tree in that request. Of course, stranger things have happened in this unprecedented litigation.

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