Under the settlement agreement, which was approved by the U.S. District Court for the Eastern District of Louisiana, proximity to certain geographic areas and participation in certain industries were deemed sufficient indicia to justify a presumption of loss and thus a recovery of damages. When the neutral claims administrator began awarding claims based on such presumptions, however, BP argued that actual proof of loss causation was required. This argument was rejected by the claims administrator and the trial court, prompting BP to appeal to the Fifth Circuit, which remanded the matter to the trial court. Among the questions on remand were (1) whether the settlement agreement actually provided that payments could be made by satisfaction of the criteria in the settlement agreement without further proof of loss causation, and (2) whether approval of the settlement violated Article III standing requirements, as the settlement could bind parties who lacked standing because they had no colorable claim to injury. The district court rejected BP’s arguments on both points.
Court Finds That BP Knew Presumptions Could Compensate Uninjured Parties
As to the causation issue, the district court held that BP was judicially estopped from arguing a contrary interpretation of the settlement agreement where BP’s own expert, in support of the motion for approval of the settlement agreement, had explained that under the settlement agreement, the “presumption of causation [for certain businesses] will inevitably include businesses that were not economically or financially affected by the DWH Spill.”
“The judicial estoppel argument eliminated serious discussion over the presumptions that were employed in the settlement agreement,” explains John M. Barkett, Miami, FL, former cochair of the ABA Section of Litigation’s Environmental Litigation Committee and of that Committee’s Private Cost Recovery Subcommittee. “There are lots of efficiency reasons to employ presumptions in settlements. The court discusses them, in fact, in its discussion of other class action settlements. Because every settlement is unique and this opinion is fact-based, the precedential value is not going to be high,” says Barkett.
Appeals Court Finds Nothing “Fundamentally Unreasonable” about Settlement Agreement
The Fifth Circuit, in upholding the trial court’s ruling, stated that the settlement agreement did not ignore causation; rather “the parties explicitly contracted that traceability between the defendant’s conduct and a claimant’s injury would be satisfied at the proof stage” through submission of a claim. While the claimant need not submit evidencethat the claim arose as a result of the oil spill, the claimant must attest, under penalty of perjury, to that fact. As the appellate court observed, “[t]hese requirements are not as protective of BP’s present concerns as might have been achievable, but they are the protections that were accepted by the parties and approved by the district court. It was a contractual concession by BP to limit the issue of factual causation in the processing of claims.”
“Another way of looking at it is that BP seems to have hoisted itself on its own petard,” observes Loren Kieve, San Francisco, CA, a life fellow of the Section of Litigation and a member of the Section’s Federal Practice Task Force. “If BP did not want to have this construct applied, it should not have agreed to it and asked the court to approve it,” he adds. Kieve explains that the court’s ruling really has nothing to do with ordinary principles of causation and damages: “It is all about what the actual contractual terms the parties agreed to in their court-confirmed settlement agreement.”
Court Rejects Standing Arguments
As to the standing issue, the district court held that although it did not believe it had jurisdiction to consider the issues concerning standing, the settlement was not defective, nor was certification of the class improper. “In my view, the court also rightly rejected BP’s arguments that, because a claimant did not have to prove causation, in one sense of the word, that claimant did not have Article III standing,” adds Kieve. “The claimant certainly did have standing because it had a claim, which the court termed colorable. Simply because a claimant may not be able to prove its claim does not mean that it does not have one. If that were the case, then every plaintiff who loses can be said to lack standing,” says Kieve.
“It must send shudders down a plaintiff’s lawyer’s spine to think that a settling defendant, after settling on terms it advocated, can later attempt to back out because some of the people it agreed to pay did not have a colorable claim,” suggests Laurence F. Pulgram, San Francisco, CA, cochair of the Section’s Federal Practice Task Force. “To allow that potentiality to undo a settlement could nullify a major benefit of class action procedures, namely, the ability of the courts to resolve matters without having to inquire into the actual merits, or colorable merit, of each claim.”
“BP seems to have had buyer’s—or seller’s, depending on your perspective—remorse. That is not a ground for trying to rewrite or re-characterize the express terms of its settlement agreement,” says Kieve.
Class Action Settlement Protects Absent Class Members
BP also argued that the settlement violated the Rules Enabling Act, which provides that rules of the court, such as Rule 23 of the Federal Rules of Civil Procedure, cannot create substantive rights that do not otherwise exist. “BP’s argument on this point is a creative one,” observes Pulgram, “but the trial judge had an answer to it—in reviewing a class action settlement, the Court’s concern is primarily with protecting absent class members. Here, the amount of the settlement was uncapped, meaning that BP’s stipulation to pay without analysis of causation would not injure class members who did have causation. A defendant like BP can take care of itself and choose not to settle. So, when unrepresented parties are not harmed by the agreement, the court should not undo the agreement merely because one party had second thoughts.”
Dispute Has Not Been Definitively Resolved
“The titanic size of this dispute brings into sharp relief an issue that has arisen before, but that has not been definitively resolved by the Supreme Court: Must each class member have Article III standing for a class to be certified, or is it enough that at least one individual class representative demonstrate standing?” queries Pulgram. He notes that most courts and commentators maintain that Article III’s demand for genuine adversity and a real controversy is satisfied by one or more representatives having standing, while who is properly within the scope of the class is a matter that should turn on application of Rule 23 and whether there is sufficient commonality, typicality, and adequacy of representation.
Pulgram cautions however that “the Supreme Court’s Amchem decision, in dicta, referred to the issue of uninjured plaintiffs as a standing issue. This raises the possibility that this Supreme Court, if presented the issue, might further tighten up on class actions by insisting that uninjured parties unable to prove Article III standing cannot be part of any class. This presents an important issue for class certification practice, independent of settlements after certification.”
Katerina Eftimoff Milenkovski is an associate editor for Litigation News.