Cleaning Up Economic Harm Inflicted By Oil Spills: The Role of Forensic Accounting & Damage Experts
On April 20, 2010 the Deepwater Horizon oil rig exploded in the Gulf of Mexico, resulting in the tragic deaths of 11 crewmembers and a catastrophic, ongoing oil spill from an undersea oil well. Less than two months later, on June 15th, U.S. government officials announced that the well was leaking at a rate of about 35,000 to 60,000 barrels of oil a day.3 Although the leak has been plugged, the damage is done, leaving many pondering how they will move forward from this devastating event.
Analogous to the alarming rate at which oil was spilling into the Gulf, British Petroleum (“BP”), amongst others, have been sued by various parties seeking economic damages allegedly caused by the explosion and surging oil spill. Lawsuits filed range from a private action brought by a family-run Panama City Beach limited partnership4 to a class action filed by shareholders of certain BP securities.5 However, civil actions provide just one source of remedy for individuals harmed by the oil spill.
On June 16th, BP agreed to establish a $20 billion escrow fund towards damages and claims arising from the flowing oil spill. Claims against the $20 billion fund will be administered by Kenneth Feinberg, who is widely known for serving as the special master in charge of overseeing the compensation of claimants from the September 11th Victim Compensation Fund of 2001, as well as his role as “compensation czar”.6 Feinberg will determine claimants’ eligibility for compensation from the $20 billion fund and a three-person panel has been established to hear appeals for rejected claims.7 Similar to the administration of the 911 Fund, claims against the $20 billion fund will serve as an alternative to litigation; however, President Obama has made it clear that “the fund ‘does not supersede’ the rights of individuals and states to sue.” 8
Nor does the fund represent a cap on BP’s liability.9 But, if an individual accepts a final, lump sum from the fund, they must waive their rights to sue BP.10
Regardless of whether compensation is sought through litigation or administrative proceedings overseen by Mr. Feinberg, it is essential that attorneys and claimants recognize the importance of involving forensic accounting and damage experts at all stages of their claim. This article will demonstrate why forensic accounting and damage experts will play a vital role in cleaning up the devastating economic mess that has been left in the wake of this oil spill.
A. Why forensic accounting and damage experts are essential to claimants & their advocates regardless of the channels through which monetary relief is sought
i) Damage experts will play a vital role in litigation relating to oil pollution.
Virtually all causes of action that can be asserted against BP and others in a lawsuit would require the plaintiff to plead and prove damages. Whether the complaint asserts a tort based on state or common law (i.e. negligence, gross negligence, nuisance or strict liability) or a claim under state or federal environmental or securities laws (i.e. the federal Oil Pollution Act of 1990 or the Securities Exchange Act of 1934), the plaintiff will have the burden of proving, in addition to liability, that the damages were proximately caused by the wrongful acts and/or omissions of the defendant(s).
Recent case law regarding claims brought under the Oil Pollution Act of 1990 (the “OPA”) demonstrates the damage expert’s vital role. Under the OPA, a responsible party is liable for the “loss of profits or impairment of earning capacity due to the injury, destruction, or loss of real property, personal property, or natural resources, which shall be recoverable by any claimant.”11 Regarding the current oil spill, this means that plaintiffs must prove that their economic losses were caused by the property or natural resources that were damaged from the discharge or threatened discharge of oil (regardless of who owned the property or resources).12 The damage expert’s role in demonstrating the causal link between the harm done and the injury suffered, and quantifying the resulting damages with supportable, non-speculative analyses and assumptions is often the crucial factor which allows for claimants’ recovery.13
Thus, failure to engage an independent damage expert to analyze and opine on the alleged economic harm suffered will only impede claimants’ chances at obtaining monetary relief under the OPA.14 The same principal holds true for the other types of actions that may be brought against BP and its cohorts for the current oil spill. For example, in Russo v. M/T Dubai the plaintiffs’ tort claims for lost fishing profits due to an oil spill in the San Francisco Bay were dismissed because of plaintiffs’ failure “to allege sufficient facts regarding the timing and circumstances of any closures, and how these closures actually affected [plaintiffs’] fishing and crabbing activities.”15 Damage experts are skilled and experienced in considering facts and circumstances - such as those that the Russo plaintiffs should have raised in their complaint. Engaging a damage expert before a complaint is filed can enhance the link between the claimed bad act and the lost profits that is alleged in the complaint thereby reducing a Russo-like dismissal.
ii) Forensic accountants and damage experts will play a vital role in administrative claims against the $20 billion BP fund.
The process for submitting claims to the Gulf Coast Claims Facility, the body charged with administering the BP Fund and overseen by Kenneth Feinberg, is not yet finalized.16 However, if this process for the BP Fund is similar to that for the September 11th Victim’s Compensation Fund (the “9/11 Fund”), there exists a myriad of ways in which a forensic accounting and damage expert can facilitate the injured party’s recovery of claimed amounts.
Under the regulations regarding the administration of the 9/11 Fund, claimants were required to file a “Personal Injury Compensation Form” or “Death Compensation Form”.17 It was on this form where claimants set forth the financial information and factual basis for the amount of compensation sought. The submission process for the 9/11 Fund also called for tax returns and other records as requested by the Special Master (Feinberg) for the purposes of determining an award.18 Additionally, claimants were allowed to attach “any additional statements, documents or analyses by … experts, advisors, or any other person or entity that the claimant believes may be relevant to a determination of compensation.”19 Further, claimants had the option of requesting hearings in order to present information or evidence that the claimant believed was necessary to provide the Special Master or his designee with a full understanding of the claim. Claimants were permitted to present witnesses, including experts, to present evidence explaining the factors and variables used in calculating economic losses.20
Given that the 9/11 Fund was administered by Feinberg, it is likely that the procedures for submitting claims against the BP Fund will be similar. Thus, a forensic accounting expert will usually be a required resource in preparing, analyzing, presenting and explaining the financial data requested by the administrator and his designees. Further, the damage expert will provide valuable analyses and/or testimony to assist the claimant in demonstrating, and the administrator in understanding, how the claimant was damaged by the oil spill and the factual basis and assumptions regarding the amount of compensation sought. Thus, the services provided by forensic accounting and damage experts enhance claimants’ chances for a favorable decision by the BP Fund administrator and his designees.
The importance of consulting a forensic accounting and damage expert in seeking relief from the fund is heightened by the fact that claimants must waive their right to sue BP if they accept a final distribution from the fund. In order to maximize their recovery, claimants should consult with an expert. Skilled in such matters, a forensic accounting and damages expert can assist claimants in determining whether or not the lump sum settlement is right for them.
With professionals nationwide, MarcumRachlin's Advisory Services Group has the expertise to navigate the many issues claimants and their advocates will likely face in pursuing claims relating to the oil spill. The Advisory Services Group has decades of experience providing business owners, lawyers, financial institutions, regulatory agencies and insurance companies with a wide range of accounting, financial and valuation services.
In addition to our expertise in forensic accounting and the analysis and quantification of economic damages and expert testimony in support thereof, the Advisory Services Group also boasts robust complimentary services from which claimants and their advocates can benefit. Such services include financial valuation, litigation consulting, insolvency and fiduciary services and business performance services.
3Joel Achenbach & David Fahrenthold, Oil-Spill Flow Rate Estimate Surges to 35,000 to 60,000 Barrels a Day, THE WASHINGTON POST, Jun. 15, 2010, http://www.washingtonpost.com/wp-dyn/content/article/2010/06/15/AR2010061504267.html.
4S. Brady Calhoun, Condo Owner Sues Over Oil Spill, THE NEWS HERALD, May 20, 2010, http://www.newsherald.com/articles/panama-
83985-beach-spill.html (Complaint filed May 19, 2010, Case 2:10-
5See Tresa Baldas, BP Shareholders Bring Latest Class Action in Western Louisiana, LAW.COM, Jun. 9, 2010, http://www.law.com/jsp/article.jsp?id=1202462295850.
6John W. Schoen, BP $20 Billion Fund May Not Cover Spill Costs, MNSBC.COM, Jun. 16, 2010, http://www.msnbc.msn.com/id/37736098.
7Peter Nicholas, BP Will Create Fund to Pay Claims, LOS ANGELES TIMES, Jun. 17, 2010, http://www.latimes.com/news/la-na-obama-oil-20100617,0,2459042.story?track=rss.
8Sheryl Gay Stolberg, Administering Fund, a Master Mediator, THE NEW YORK TIMES, Jun. 16, 2010, http://www.nytimes.com/2010/06/17/us/17feinberg.html.
10John Schwartz, For Kenneth Feinberg, More Delicate Diplomacy, THE NEW YORK TIMES, Jul. 16, 2010, http://www.nytimes.com/2010/07/17/us/17feinberg.html?_r=3&pagewanted=1.
11Oil Pollution Act of 1990, 33 U.S.C.S. §2702(b)(2)E) (2010).
12See Taira Lynn Marine Ltd. No. 5, LLC v. Jays Seafood, 444 F.3d 371, 382-383 (5th Cir. 2006). See also Ballard Shipping Co. v. Beach Shellfish, 32 F.3d 623, 631 (1st Cir. 1994)(stating that the legislative history of the OPA makes it clear that “under section 2702(b)(2)(E), ‘the claimant need not be the owner of the damaged property or resources to recover for lost profits’”).
13See South Port Marine, LLC v. Gulf Oil L.P., 234 F.3d 58, 66-67 (1st Cir. 2000)(holding that plaintiffs should be awarded lost profits based primarily on damage expert’s testimony).
14See Seaboats, Inc. v. Alex C. Corp., 2003 U.S. Dist. Lexis 1301, *17-18 (Dist.Mass. 2003) (finding that plaintiff’s own, conclusory allegations of economic injuries was insufficient for proving damages).
152010 U.S. Dist Lexis, *15-16 (N.D.Cal. 2010). See also Bastian v. Petren Research Co., 892 F.2d 680, 685 (7th Cir. 1990)(explaining that loss causation must be proven by plaintiffs to prevail on a claim for damages under the securities laws).
16See Ron Scherer, Kenneth Feinberg: Will He Be Fairer and Faster than BP?, THE CHRISTIAN SCIENCE MONITOR, Jun. 16, 2010, http://www.csmonitor.com/USA/2010/0616/Kenneth-Feinberg-Will-he-be-fairer-and-faster-than-BP (stating that Feinberg is still setting up the infrastructure for administering claims). According to Feinberg’s July 21, 2010 testimony to the House Judiciary Committee, a final protocol for submitting claims to the Gulf Coast Claims Facility will be finalized in August 2010. Feinberg’s testimony can be heard at http://www.c-span.org/flvPop.aspx?src=project/disaster/
17See 28 C.F.R. § 104.21(6)(c) (2010).
18Id. at § 104.21(6)(c)(1).
19Id. at § 104.21(6)(c)(2).
20See 28 C.F.R. § 104.33(b)-(d).