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October 30, 2014

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Sympathy for the devil

What does it mean for a company “to do the right thing” after an industrial accident?

It used to be standard operating procedure that when something went wrong, companies immediately took to the courts to fight over who got compensated and for how much, trying to minimize their own financial liability. Those fights could take years to resolve, with no guarantee that the plaintiffs would be compensated justly.

But then came the Deepwater Horizon spill, which killed 11 people and spewed oil into the Gulf of Mexico for 87 days in 2010. BP, whose negligence was largely responsible for the spill, decided to take a different tack. It decided to try to make amends immediately, without waiting to get sued.

“It was a shocking tragedy,” recalled Bob Dudley, BP’s American-born chief executive, who spoke to me in New York in the midst of a day of meetings with investors. (BP had just announced its second-quarter earnings.) “And we immediately knew we wanted to do the right thing.”

BP spent billions on environmental cleanup and billions more compensating the economic victims of the spill. It waived liability limits. It vowed — to the president of the United States, no less — to put aside $20 billion for compensation alone. Most intriguingly, it brought in Ken Feinberg to oversee a claims process that avoided the court system. Feinberg wound up paying $6.3 billion to around 200,000 claimants, people who could show that the spill had in some way harmed them or their businesses economically.

Why? No doubt the awful public relations that came from having the country watch the oil gushing from the broken well had something to do with it. And no doubt only a company as big as BP could spend the billions required to undo the damage of such a massive spill. (It has spent a total of $27 billion so far.) But, Dudley says, it was also the company’s objective “to reach reasonable settlements and put this behind us. I don’t regret what we did. I feel proud of us as a company.”

As it turns out, the regret came a little later. Despite the Feinberg claims process — and the billions he doled out — the plaintiffs’ bar still wanted its piece of the action. So a group called the Plaintiffs’ Steering Committee sued BP. After that suit was settled, Feinberg was let go, replaced by a local Louisiana lawyer named Patrick Juneau. And Juneau began approving claims from all sorts of businesses that, by any reasonable standard, were never harmed by the oil spill.

The wireless phone retailer who was awarded more than $135,000, even though its building had burned down before the spill. The attorney who was awarded more than $172,000, even though his license had been revoked in 2009. There were dozens — nay, hundreds — of bogus claims like those.

At one point, BP, through Juneau, was spending $100 million a week in claims. In the space of two years, Juneau has awarded some $4 billion.

Should you care that a big corporation that did an awful thing — and that has paid mightily for doing so — is now being hosed? “First of all,” said Dudley, “this is the shareholders’ money, not some faceless corporation’s.” Second, said Dudley, it causes other companies to think twice about investing in America. And third, “It’s just not right for people to cash in on an industrial tragedy when they weren’t actually involved.”

So about a year ago, BP changed tack again: It decided to fight the plaintiffs’ lawyers and Juneau’s claims process. Although the plaintiffs say that BP signed a bad agreement — and that it always knew that people who weren’t harmed by the spill were going to get money — BP has put “causation” at the center of its legal claims. In other words, it is arguing that you can’t litigate on behalf of a class of people who weren’t harmed by the accident.

The 5th U.S. Circuit Court of Appeals ruled against BP. But other circuits have voted the other way in different cases — ruling that no matter what the terms of a settlement, no judge can approve it if there is no causal link between the class members and the accident itself.

Not surprisingly, on Friday afternoon, the day after I spoke to Dudley, BP made a filing to the Supreme Court, asking the court to rule on the 5th Circuit’s decision. The question remains a simple one: Can you have a class-action lawsuit in which large numbers of the class members have never been harmed by the defendant?

I know what my answer to that question is. Assuming it takes the case, it will be interesting to see what the Supreme Court has to say.

Joe Nocera is a columnist for The New York Times.

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