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(Alison Frankel is a Reuters columnist. The opinions expressedare her own.)
By Alison Frankel
NEW YORK, Sept 10 (Reuters) - I'm on record as a skeptic ofBP's doomsday predictions about the impact of ballooning claimsin its settlement with alleged victims of the 2010 DeepwaterHorizon oil spill in the Gulf of Mexico.
I still don't buy BP's argument that future mass disasterdefendants will shy away from group settlements because BP'sagreement was open to what the oil company contends ismisinterpretation by claims administrator Patrick Juneau. Nor doI think the 5th Circuit Court of Appeals should permit BP toargue that the settlement it once asked U.S. District Judge CarlBarbier of New Orleans to approve should now be undone. BP is a sophisticated defendant ably represented by Kirkland &Ellis in the long negotiations that produced the settlementagreement proposed to Barbier in March 2012. The oil companysays the deal has been warped by Barbier's endorsement ofJuneau's overly expansive reading of the terms for business andeconomic losses. But it bargained hard for the language in thesettlement agreement and should have to abide by the deal itstruck.
Nevertheless, I'm troubled by the 98-page report oncorruption within Juneau's Claims Administration Office byformer FBI director Louis Freeh. Anyone who believes in masssettlements should be. Freeh conducted a two-month investigationspurred by the resignation of a lawyer on Juneau's staff. Hisreport, released Friday, goes out of its way to exonerateJuneau, whom Freeh praised for setting a clear ethical tone andimplementing written policies on ethics and conflicts. Freehalso recommended that the claims approval process continue underJuneau's direction. That's the good news for Juneau and theplaintiffs lawyers defending the settlement against BP'sattacks. The bad news: Freeh found copious evidence thatcorruption and conflicts have tarred some former members ofJuneau's staff.
FEW BAD APPLES
The alleged wrongdoing detailed in the report ranges fromvenality - such as an attempt by Juneau's self-described"general counsel," Christine Reitano, to secure her husband ajob with a company doing work for Juneau and an attempt by twoother Juneau staff lawyers to capitalize on their work (andJuneau's name) to win additional claims administrationassignments for their outside company - all the way to thesupposed crimes of fraud and money laundering. According toFreeh, a lawyer on Juneau's staff named Lionel "Tiger" Suttonappears to have conspired with two outside lawyers, Jon Andryand Glen Lerner, to hide about $40,000 in referral fees routedthrough various vehicles from Andry and Lerner to Sutton. Freehasserted that Sutton improperly "facilitated" claims by otherclients of Andry and Lerner and expedited an $8 million award toone of Andry's other law firms. The report also said that Sutton- who is married to Reitano - never bothered to tell Juneau thatduring his employment at the Claims Administration Office he wasalso receiving $10,000 a month as Lerner's partner in a waterreclamation company nor that Sutton is the co-owner of an oilrig services company with an active claim before Juneau's staff.(Defense counsel for Sutton and Andry told the Associated Pressthat Freeh had made unfounded allegations about their clients.)
There's lots more unseemly stuff in the report, like Freeh'saccount of an affair between a former Sutton client assertingclaims against BP and an employee of BrownGreer, a settlementadministration firm that Juneau employed to process claims. OrFreeh's discussion of suspicious claims by shrimpers whose taxreturns didn't match up with Louisiana fishing records. Or thereport's account of supposed efforts by Sutton and Reitano,acting in the best interest of the BrownGreer instead of Juneau,to squelch complaints about the outside vendor's inefficiency.
BP, as you might expect, was quick to seize on Freeh'sfindings as confirmation of its assertions of fraud andmisconduct in the claims process, even though the investigationexamined only one of the business and economic loss claims thatBP has been complaining about before the 5th Circuit.(Admittedly, Freeh hints at problems with that claim, by one ofseveral law firms linked to Jon Andry and his brother, notingBP's concern that one or both of the Andry brothers may haveabandoned the law firm making the claim before the oil spilloccurred.) A company spokesman told Reuters Monday that theFreeh report proves that "immediate steps" must be taken toprevent more fraud in the program. Juneau and the plaintiffs'steering committee, on the other hand, chose to focus on thepositive: Freeh's exoneration of Juneau and the relatively fewsupposedly bad apples in an operation that involves hundreds ofpeople on Juneau's staff and at outside claims administrationcompanies.
'IN GOOD FAITH'
Freeh himself said in his conclusion that the allegedcorruption of these few had tainted what was otherwise anhonorable settlement, "written and administered in good faith"and designed to benefit victims of the oil spill. If he hadgrave concerns of pervasive fraud in the claims administrationprocess, surely he would not have used those words, norrecommended that the process be permitted to continue underJuneau.
In my mind, Freeh's reminder that both sides entered thissettlement in good faith suggests a way forward for BP,claimants, Juneau and Barbier. When the judge appointed Freeh asa special master on July 2, he gave the former FBI director athree-part assignment: Investigate the resignation of TigerSutton; conduct fact-finding on any other misconduct by membersof Juneau's staff; and review the Claims Administration Office'sinternal controls and anti-fraud policies. Freeh's reportcovered the first two areas in minute detail. He touched uponthe third when he discussed the disclosure agreements Juneaustaffers signed and internal audits Juneau lawyers conducted oncertain suspect claims. But aside from the two claims Freehreviewed deeply - one by a former Sutton client and the other bythe Andry firm itself - Freeh didn't report on potentiallyimproper claims, or even on inefficiencies and possible abusesin the claims process.
JUNEAU'S HONOR
Judge Barbier saw that omission as an opportunity. In anorder Friday that made the Freeh report public (and invited thelawyers targeted in the report to submit responses), Barbiersaid that Freeh will remain involved in the BP claims process.Under his new mandate, the former FBI director will design andhelp implement new anti-fraud and anti-corruption procedures forJuneau's staff. Barbier also assigned Freeh to review any pastor pending claims that seem suspicious, to refer any findings ofillegality to the Justice Department and to initiate litigationto claw back payment of fraudulent claims. Freeh, in otherwords, now has full judicial authority to police claims againstBP, past and present, and to reverse any wrongful payments. Thatpower - and the Freeh report's willingness to cast blame -should throw a serious scare into anyone asserting a dubiousclaim.
The report should also convince BP to reconsider itsappellate and public relations campaigns against the claimsprocess and Juneau. Unlike the oil company, Freeh emphasized thegood intentions of both the settlement agreement and the claimsadministrator, who had to effect as seamless a transition aspossible from the old Gulf Coast Claims Facility to the newClaims Administration Office, employing outside vendors selectedbefore he took office. Juneau's honor survived a two-monthinvestigation by Freeh. Shouldn't that - in combination withFreeh's new mandate to investigate whatever suspicious claim hecomes across - satisfy BP's concerns about illegitimate claims?
The plaintiffs steering committee told me that its members"welcome any assistance by Judge Freeh," but then the plaintiffsaren't trying to undo the settlement. BP, what do you say? (Reporting by Alison Frankel; Editing by Ted Botha)
