Approximately two weeks ago, the 5th Circuit Court of Appeals reversed the District Court’s decision affecting the Deepwater Horizon Settlement Agreement. The new ruling affects business economic loss claimants who kept their financial records on a cash basis.

The 5th Circuit panel in a 2-1 decision concluded that variable expenses as identified in the Settlement Agreement should always be matched to the revenue they generated or are associated with, regardless of when they were paid out.

By coming to this conclusion, the Court seems to have ignored other parts of the Settlement Agreement. For example, for further verification of income Federal Tax Returns must be submitted for each claimant (Exhibit 4A). After this ruling this form of verification is completely ineffectual for claimants that have, through the normal course of business, filed tax returns with the IRS on a cash basis. Also this decision adds to the task of the Claims Administrator by making him look beyond the claimant’s chosen Benchmark and Compensation periods for the information needed to recalculate the claimant’s financials from cash to an accrual basis for the sake of the claim.

Though it seems the Court read into the Settlement Agreement what it deemed was the intent of the parties, it still acknowledged that the literal interpretation of the language contained the agreement supported the District Court’s previous decision that the word “corresponding” referred to “a temporal connection between cash inflows and outflows” and not a matching of variable costs and revenues.

In my opinion, the majority of the 5th Circuit Court of Appeals failed to acknowledge that this Settlement Agreement was incorporated in a Court approved consent decree. BP actively supported this agreement without qualifications months after it was made aware of the Claims Administrator’s treatment of business economic loss claimants with financials calculated on a cash basis.  As the dissent  apply put it, the Supreme Court has been clear that “the consent decree must be interpreted within its ‘four corners’ and that an appellate court cannot add to or subtract from the consent decree or interpret it according to what the court thinks is the purpose of the agreement.”

Like others in the region, we are curious to see what the class counsel will do next.