COLUMN-Divided judges nudge BP lawsuit closer to U.S. Supreme Court: Kemp

Thu Oct 3, 2013 10:48am EDT

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By John Kemp

LONDON Oct 3 (Reuters) - BP has finally found a court prepared to look sympathetically on its arguments about the eligibility and calculation of compensation claims stemming from the Deepwater Horizon oil spill.

In the ruling published on Wednesday, a panel of three federal judges from the 5th Circuit Court of Appeals instructed the U.S. District Court in New Orleans to look again at whether the class-action settlement requires claims for business economic losses to be based on accrual rather than cash accounting.

The appellate judges also ordered the district court to issue a "narrowly tailored" injunction to halt disputed payments until the legal issues have been fully resolved.

"BP is extremely pleased with today's ruling," the company said in a press release.

It said the judgment "affirms what BP has been saying since the beginning: claimants should not be paid for fictitious or wholly non-existent losses. We are gratified that the systematic payment of such claims by the claims administrator must now come to an end."

But BP would be unwise to break out the champagne just yet. The ruling raises fundamental legal questions about the nature of class action lawsuits, which threaten to create a clash between different circuit courts and can only be resolved by further litigation.

The court was splintered, with parts of the opinion supported by just one of the three judges hearing the appeal, calling into question whether the circuit court reached the requisite majority to instruct the district court to issue an injunction.

And the legal process in New Orleans is revealing political and philosophical divisions, pitting judges appointed by Republican presidents against those appointed by Democrats.

For all those reasons, the case appears ripe for rehearing en 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 class actions in American history," Circuit Judge Edith Brown Clement wrote for the court.

"As such, significant legal questions are involved that will affect the course of class action law in this country going forward, and the class action as a suitable vehicle for the resolution of conflict for businesses and litigants," she added, in a strong hint this case could go all the way to the Supreme Court.

Clement is a favourite in conservative legal circles. She was first nominated as a federal judge by Republican President George H W Bush in 1991, and then elevated to a vacant position on the Circuit Court of Appeals by Republican President George W Bush in 2001.

In 2005, her name was widely mentioned in connection with the vacant position on the Supreme Court that eventually went to John 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 court must reconsider whether the settlement requires that compensation payments be based on accrual rather than cash accounting. In Part 2, Clement held the agreement excluded so-called "fictitious claims" with no possible validity whatever the terms of the agreement might appear to say. In Part 3, she found the district court should have granted BP an injunction while the legal issues were resolved.

On Parts 1 and 3, Clement was joined by Circuit Judge Leslie Southwick, another judge nominated to the appeals court by Republican George W Bush in 2007. But Southwick declined to join Part 2, preferring to defer the issue until later proceedings.

On all three points, Clement's legal reasoning was fiercely opposed by Circuit Judge James Dennis, nominated by Democratic President Bill Clinton in 1995.

It is worth noting the judge who heard the case originally in the U.S. District Court for the Eastern District of Louisiana, Carl Barbier, was another Clinton nominee.

So far, the case has been heard by four judges, and they have divided evenly, along party lines, the two Republican nominees for BP and the two Democrat appointees for the plaintiffs.

FRACTURED COURT

There is a dispute about whether the Circuit Court achieved the necessary majority on the three-judge panel to remand the case back to the district court for further consideration and instruct it to issue a narrowly tailored injunction.

Parts 1 and 3 of Clement's opinion for the court were each clearly supported by two judges (Clement and Southwick). But Part 2 was supported by Clement alone. Judge Dennis opposed all three parts.

But Dennis claims Part 3 (the injunction) was based on reasoning contained in Part 2 (fictitious claims and class action law) and that there was not, therefore, really a majority legal analysis for the injunction.

The 'majority opinion' on fictitious claims and class action lawsuits "is now supported by the vote of one judge," Dennis wrote in dissent.

"Because the majority opinion's instruction to the district court regarding the injunction appears to be based on Judge Clement's separate opinion concerning class-action law, that instruction does not appear to be based on a majority vote of this panel," Dennis complained.

Dennis also noted Clement's views on fictitious claims and class action lawsuits are the subject of separate litigation before a separate panel of the Fifth Circuit composed of different judges and due to be heard in November.

By pointing to the potential for a clash between differently composed panels of the same circuit, Dennis was in effect hinting the case should be heard by the entire membership of the Fifth Circuit sitting en banc to resolve the issue once and for all.

Dennis also hinted the issue might be ripe for Supreme Court review because the Clement's views threaten to create a clash between courts in different parts of the United States.

"(Clement's) analysis confuses the relevant legal principles, is not supported by law from our circuit or others, and would cause our circuit to split with at least three of our sister circuits if it were binding," Dennis concluded.

CLASS ACTION ISSUES

In the most fiercely contested part of her judgment, Clement held BP did not have to pay "fictitious claims" that had no plausible connection to the oil spill, whatever the terms of the settlement agreement might appear to say.

If the claimant lacked any standing to pursue a claim for damages against BP on their own, they could not suddenly be given standing by the loose drafting of the settlement agreement. Claimants must be able to show some level of causation between the spill and their losses.

"A class settlement is not a private agreement between the parties," Clement noted. "It is a creature of the Federal Rules of Civil Procedure." The rules cannot create grounds for a claim where 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 making a claim. The idea that BP was buying "global peace" was a "myth" and a "legal nullity," she added. "There is no need to secure peace 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 commit himself. Dennis was openly hostile and pointed out possible inconsistencies with the law in circuit courts covering other parts of the United States.

But Clement's views are not easily dismissed given her status as a prominent conservative jurist.

The Supreme Court has been cracking down on class action litigation in recent years. There is a clear business-friendly majority on the court keen to restrict rampant class action lawsuits, comprising Chief Justice John Roberts and Associate Justices Antonin Scalia, Anthony Kennedy, Clarence Thomas and Samuel Alito.

Clement's views might be controversial and not reflect a settled legal consensus, but they could well attract the interest of enough justices on the high court to persuade them to hear the case in future.

With both Clement and Dennis dropping strong hints the case is suitable for review en banc or by the Supreme Court, BP's lawsuit appears set to continue rising up the judicial ladder.

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