Oil spill loss formula doesn’t count early 2010 income, claimants complain


Oil spill claims czar Kenneth Feinberg’s proposed new method for calculating final damage payments doesn’t take into consideration the months just before the BP disaster, and several of the hundreds of people who have commented on the proposal say that’s unfair.

According to sample calculations attached to Feinberg’s proposal last Wednesday, the Gulf Coast Claims Facility wants to measure most claimants’ 2010 losses by subtracting their May to December income in 2010 from the average of what they earned in the last eight months of 2008 and 2009. That formula doesn’t account for income or business revenues claimants got in the first four months of 2010.

“My income for Jan-May 2010 is greater than the past two years and I have backup documentation to prove that. Why can’t that be taken into consideration when projecting future losses?” asked one Louisiana business owner among more than 500 e-mail comments posted on the GCCF website, with names and other identifying information stripped by GCCF.

Feinberg has given the public two weeks to react to the methodology introduced last Wednesday. Nearly all of the e-mails posted on the website are critical of the proposal.

The first third of 2010 was a time of strong recovery for Gulf Coast businesses emerging from the recession, said Tony Buzbee, a Houston plaintiffs lawyer who represents several Vietnamese-American business groups and more than 1,500 individual spill claimants.

In a letter this week to Feinberg, the U.S. Justice Department, Sen. Mary Landrieu, D-La., and others, Buzbee said many applicants will be shortchanged if they aren’t given credit for stronger revenues right before the spill happened on April 20, 2010.

“This is a crucial weakness because, in many industries, the first four months of the year represent the greatest opportunity for the business to generate revenues. The post-Christmas sales of January, MLK Day (January 18, 2010), Lunar New Year (February 14, 2010), Valentine’s Day (February 14, 2010), Mardi Gras (February 16, 2010), Spring Break (throughout March), and Easter (late March and beginning of April) are all major revenue generating holidays,” Buzbee wrote.

Using an eight-month comparison period of May to December is not illegitimate. It captures the post-spill period that is complete and measurable at this time and compares it to the same months in 2008 and 2009. For seasonal fishing industries, that could prove helpful.

Along with concerns about the failure to look at a claimants’ income and losses from the January to April period, some of the most common complaints so far have been:

  • The proposed formula does not account for growth trends as Gulf businesses were emerging from the recession.

One Louisiana restaurant owner, who said he or she is also a certified public accountant, questioned why Feinberg would take an average of 2008 and 2009 revenues to determine what was lost due to the spill. On top of failing to account for increased earnings in early 2010, the proposed formula also ignores any growth in revenues or income displayed in the previous two years.

  • Feinberg offers no details about how payments will be calculated for startup businesses.

He only says a different calculation method will be used for companies incorporated in the first four months of 2010. One Alabama business owner called that limited definition of a startup “absurd” given the way small businesses tend to emerge over the first few years.

“2009 was a growth year as I was beginning to present my products and services to the Gulf Coastal market. 2010 was supposed to be a year to try and figure the internal capacity for growth vs. income potential. Unfortunately the Deepwater Horizon Oil Spill made 2010 not a year to determine the future growth potential of (company name replaced with Xs by GCCF), LLC, but a year to try and salvage the company from complete destruction and insolvency.”

  • Reducing business claimants’ lost revenues by a “loss-of-income percentage” is not a good way to capture how different businesses may have mitigated their 2010 losses by cutting expenses.

Buzbee called the loss-of-income figure “arbitrary,” but Feinberg said it’s actually tailored to each business claimant and based on its profit and loss statements.

“The LOI percentage adjusts the lost revenues to reflect the saved or discontinued expenses for that particular business,” Feinberg said in an e-mail response to The Times-Picayune. “Expenses that are typically considered to be fully or partially saved/discontinued as a result of lost sales include but are not limited to cost of goods sold, commissions, direct/hourly payroll and fuel/utilities.”

  • Feinberg’s assumption – based on a report by a Texas A&M University-Corpus Christi professor – that Gulf fisheries, other than oysters, will fully recover by the end of 2012 is faulty, and therefore so is Feinberg’s proposal to calculate most claimants’ future losses using twice their actual 2010 losses.

One Alabama fishing business owner, noting that oil from the Exxon Valdez tanker spill 22 years ago is still affecting the Alaska environment today, questioned Feinberg’s assumption that a spill nearly 19 times larger would take just two and a half years to run its course. The e-mail comment, stripped of identifying information when it was posted by the GCCF, concluded: “I’ve done my research and now I think it’s time you do yours and that does not mean searching high and low looking for some Bozo professor to tell you what you want to hear. 22 years for 11,000,000 gallons and 2 years for 205,800,000 gallons?……..PLEASE!!!!!”;

  • It’s unclear which businesses and individuals will qualify as oyster “harvesters,” the group Feinberg proposes to compensate based on four times their 2010 losses.

Some claimants have wondered if they’ll get that determination if they process, shuck or distribute oysters, rather than simply harvesting them. Asked about this, Feinberg said by e-mail simply: “The 4x calculation is limited to Oyster Harvesters.”

  • Companies and employees who supply or support offshore drilling rigs asked Feinberg to make them eligible to recover for losses due to the government’s ban on deepwater drilling and reticence to issue drilling permits after the spill.

Feinberg has said he doesn’t have jurisdiction over those claims, and the employees were also ruled ineligible for a separate fund BP established for rig workers.

David Hammer can be reached at dhammer@timespicayune.com or 504.826.3322.

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
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