By John Kemp
LONDON, Oct 3 (Reuters) - BP has finally found acourt prepared to look sympathetically on its arguments aboutthe eligibility and calculation of compensation claims stemmingfrom the Deepwater Horizon oil spill.
In the ruling published on Wednesday, a panel of threefederal judges from the 5th Circuit Court of Appeals instructedthe U.S. District Court in New Orleans to look again at whetherthe class-action settlement requires claims for businesseconomic losses to be based on accrual rather than cashaccounting.
The appellate judges also ordered the district court toissue a "narrowly tailored" injunction to halt disputed paymentsuntil the legal issues have been fully resolved.
"BP is extremely pleased with today's ruling," the companysaid in a press release.
It said the judgment "affirms what BP has been saying sincethe beginning: claimants should not be paid for fictitious orwholly non-existent losses. We are gratified that the systematicpayment of such claims by the claims administrator must now cometo an end."
But BP would be unwise to break out the champagne just yet.The ruling raises fundamental legal questions about the natureof class action lawsuits, which threaten to create a clashbetween different circuit courts and can only be resolved byfurther litigation.
The court was splintered, with parts of the opinionsupported by just one of the three judges hearing the appeal,calling into question whether the circuit court reached therequisite majority to instruct the district court to issue aninjunction.
And the legal process in New Orleans is revealing politicaland philosophical divisions, pitting judges appointed byRepublican presidents against those appointed by Democrats.
For all those reasons, the case appears ripe for rehearingen banc by the full membership of the Circuit Court of Appeals,and a possible eventual appeal to the U.S. Supreme Court.
POLITICAL DIVISIONS
"This case is one of the largest and most novel classactions in American history," Circuit Judge Edith Brown Clementwrote for the court.
"As such, significant legal questions are involved that willaffect the course of class action law in this country goingforward, and the class action as a suitable vehicle for theresolution of conflict for businesses and litigants," she added,in a strong hint this case could go all the way to the SupremeCourt.
Clement is a favourite in conservative legal circles. Shewas first nominated as a federal judge by Republican PresidentGeorge H W Bush in 1991, and then elevated to a vacant positionon the Circuit Court of Appeals by Republican President George WBush in 2001.
In 2005, her name was widely mentioned in connection withthe vacant position on the Supreme Court that eventually went toJohn Roberts, now chief justice of the United States.
Clement ruled in BP's favour on three key points.
In Part 1 of her opinion, Clement found the district courtmust reconsider whether the settlement requires thatcompensation payments be based on accrual rather than cashaccounting. In Part 2, Clement held the agreement excludedso-called "fictitious claims" with no possible validity whateverthe terms of the agreement might appear to say. In Part 3, shefound the district court should have granted BP an injunctionwhile the legal issues were resolved.
On Parts 1 and 3, Clement was joined by Circuit Judge LeslieSouthwick, another judge nominated to the appeals court byRepublican George W Bush in 2007. But Southwick declined to joinPart 2, preferring to defer the issue until later proceedings.
On all three points, Clement's legal reasoning was fiercelyopposed by Circuit Judge James Dennis, nominated by DemocraticPresident Bill Clinton in 1995.
It is worth noting the judge who heard the case originallyin the U.S. District Court for the Eastern District ofLouisiana, Carl Barbier, was another Clinton nominee.
So far, the case has been heard by four judges, and theyhave divided evenly, along party lines, the two Republicannominees for BP and the two Democrat appointees for theplaintiffs.
FRACTURED COURT
There is a dispute about whether the Circuit Court achievedthe necessary majority on the three-judge panel to remand thecase back to the district court for further consideration andinstruct it to issue a narrowly tailored injunction.
Parts 1 and 3 of Clement's opinion for the court were eachclearly supported by two judges (Clement and Southwick). ButPart 2 was supported by Clement alone. Judge Dennis opposed allthree parts.
But Dennis claims Part 3 (the injunction) was based onreasoning contained in Part 2 (fictitious claims and classaction law) and that there was not, therefore, really a majoritylegal analysis for the injunction.
The 'majority opinion' on fictitious claims and class actionlawsuits "is now supported by the vote of one judge," Denniswrote in dissent.
"Because the majority opinion's instruction to the districtcourt regarding the injunction appears to be based on JudgeClement's separate opinion concerning class-action law, thatinstruction does not appear to be based on a majority vote ofthis panel," Dennis complained.
Dennis also noted Clement's views on fictitious claims andclass action lawsuits are the subject of separate litigationbefore a separate panel of the Fifth Circuit composed ofdifferent judges and due to be heard in November.
By pointing to the potential for a clash between differentlycomposed panels of the same circuit, Dennis was in effecthinting the case should be heard by the entire membership of theFifth Circuit sitting en banc to resolve the issue once and forall.
Dennis also hinted the issue might be ripe for Supreme Courtreview because the Clement's views threaten to create a clashbetween courts in different parts of the United States.
"(Clement's) analysis confuses the relevant legalprinciples, is not supported by law from our circuit or others,and would cause our circuit to split with at least three of oursister circuits if it were binding," Dennis concluded.
CLASS ACTION ISSUES
In the most fiercely contested part of her judgment, Clementheld BP did not have to pay "fictitious claims" that had noplausible connection to the oil spill, whatever the terms of thesettlement agreement might appear to say.
If the claimant lacked any standing to pursue a claim fordamages against BP on their own, they could not suddenly begiven standing by the loose drafting of the settlementagreement. Claimants must be able to show some level ofcausation between the spill and their losses.
"A class settlement is not a private agreement between theparties," Clement noted. "It is a creature of the Federal Rulesof Civil Procedure." The rules cannot create grounds for a claimwhere there was never one in the first place.
"Why should BP pay to resolve claims that cannot be plead?"Clement asked using the legal terminology for stating and makinga claim. The idea that BP was buying "global peace" was a "myth"and a "legal nullity," she added. "There is no need to securepeace with those with whom one is not at war."
Clement did not secure any support for her views in Part 2.Southwick appeared to have some sympathy but refused to commithimself. Dennis was openly hostile and pointed out possibleinconsistencies with the law in circuit courts covering otherparts of the United States.
But Clement's views are not easily dismissed given herstatus as a prominent conservative jurist.
The Supreme Court has been cracking down on class actionlitigation in recent years. There is a clear business-friendlymajority on the court keen to restrict rampant class actionlawsuits, comprising Chief Justice John Roberts and AssociateJustices Antonin Scalia, Anthony Kennedy, Clarence Thomas andSamuel Alito.
Clement's views might be controversial and not reflect asettled legal consensus, but they could well attract theinterest of enough justices on the high court to persuade themto hear the case in future.
With both Clement and Dennis dropping strong hints the caseis suitable for review en banc or by the Supreme Court, BP'slawsuit appears set to continue rising up the judicial ladder.
BP (BP.)
