EDITH BROWN CLEMENT, Circuit Judge:
BP Exploration & Production, Inc. ("BP") appeals the district court's decision upholding the Claims Administrator's interpretation of the settlement agreement between it and the class of parties injured in the Deepwater Horizon oil spill. BP also appeals the district court's dismissal of its action for breach of contract against the Administrator and denial of its motion for a preliminary injunction. We affirm the district court's dismissal of BP's suit against the Claims Administrator. We reverse the district court's denial of BP's motion for a preliminary injunction and the district court's order affirming the Administrator's interpretation of the Settlement and remand to the district court for further consideration.
BP leased the Deepwater Horizon drilling platform from Transocean to drill its Macondo prospect off the Louisiana coast. On April 20, 2010, the exploratory well Transocean was drilling blew out. After the initial explosion and during the ensuing fire, the platform sank, causing millions of barrels of oil to spill into the Gulf of Mexico. Eleven workers died; sixteen more were injured. Litigation followed.
The Judicial Panel on Multidistrict Litigation centralized the non-securities federal lawsuits in the District Court for the Eastern District of Louisiana. BP, as lessor of the rig, was named as a defendant in most of these suits.
BP waived its statutory limit of liability and committed to pay all legitimate claims, even those in excess of the $75 million liability cap under the Oil Pollution Act, 33 U.S.C. § 2704(a)(3). BP initially established its own claims process and later funded the claims process administered by the Gulf Coast Claims Facility ("GCCF") to begin paying out claims immediately instead of at the conclusion of litigation. Over approximately 18 months, the company paid out more than $6.3 billion to individuals and businesses with spill-related losses.
BP began negotiating a class settlement in February 2011. In March 2012, the district court granted the parties' request to implement a process to transfer claims from the GCCF to a court-supervised program that the parties agreed to in principle. The court appointed Patrick Juneau as Claims Administrator of this program. The parties filed notice of their proposed settlement (the "Settlement") in April 2012, to which the district court gave preliminary approval in May and directed to begin processing claims in June.
Businesses' claims for economic loss are one type of claim covered by the Settlement. Under the class definition, business economic loss ("BEL") claimants must have conducted commercial activities in
After a BEL claimant provides the documentation needed to submit a claim and evidence required that the oil spill caused its losses, the claimant is entitled to compensation for the difference between its actual profit "during a defined post-spill period in 2010[and] the profit that the claimant might have expected to earn in the comparable post-spill period of 2010." This amount includes "the reduction in Variable Profit," defined as "any reduction in profit between the 2010 Compensation Period selected by the claimant and the comparable months of the Benchmark Period." The post-spill Compensation Period "is selected by the Claimant to include three or more consecutive months between May and December 2010." It is compared to a pre-spill baseline, the "Benchmark Period," of the claimant's choosing: either 2009, the average of 2008-2009, or the average of 2007-2009. Variable Profit "is calculated for both the Benchmark Period and the Compensation Period as follows:
As early as September 28, 2012, BP raised concerns about the varied accounting methods claimants used in the ordinary course of their record-keeping and the ways in which erroneously-stated expenses could cause erroneous variable profit calculations. The district court held the final fairness hearing on November 8 and granted final approval on December 21, 2012.
On December 5, 2012, BP requested that the Administrator convene a Claims Administration Panel to consider "the issue of the assignment of revenue to the proper months for purposes of the BEL causation framework and the proper matching of revenue and corresponding expenses for purposes of the BEL compensation framework."
On December 16, Class Counsel requested a Policy Announcement addressing the issue. After reviewing both parties' written submissions, the Administrator issued a Policy Announcement on January 15, 2013. He stated that, for both calculation of Variable Profit and purposes of causation, he would "typically consider both revenues and expenses in the periods in which those revenues and expenses were recorded at the time," and would "not typically re-allocate such revenues or expenses to
BP was not satisfied with the Policy Announcement. BP alleged that the Administrator's misinterpretation of the Settlement resulted in awards of hundreds of millions of dollars to BEL claimants with inflated losses or no losses at all. The parties convened a Claims Administration Panel. When the panel failed to reach a unanimous agreement, they presented the matter to the district court for resolution. Before the district court, BP contested the Administrator's interpretation of the meaning of several of the Settlement's terms: "revenue," "expenses," "corresponding," and "comparable." According to the company, revenue and expenses have generally accepted definitions among economists and accountants that do not permit the Administrator to calculate a BEL claimant's Variable Profit based only on cash receipts or cash disbursements. Rather, a claimant's expenses must be "matched" to corresponding revenue. In addition, the Settlement's requirement that the Administrator measure the difference between Variable Profit in the Compensation Period and the "comparable months of the Benchmark Period" requires that the Administrator compare Variable Profit in comparable months — in other words, when a claimant engaged in similar conduct — not necessarily the "same" months.
On January 30, the district court affirmed the Administrator's Policy Announcement. The district court acknowledged that the Administrator's interpretation "may sometimes cause apparent anomalies (in either direction) in claim determinations." But it noted that this consequence "appears to be the result of the objective, straight-forward mechanisms set forth in the Settlement." It found that "BP's proposed remedy does not appear to be based on any generally accepted accounting principle, and might only result in adding another level of complexity and subjective analysis to the BEL calculation."
BP filed a motion to reconsider, and the district court issued a written ruling on March 5 upholding the Administrator's interpretation and denying BP's motion. The district court reasoned that "[n]owhere does the Agreement state or indicate that revenue and expenses must be `matched' or revenues `smoothed,' nor does it state that one should inquire into when revenue was `earned.'" The district court held that revenues and expenses need not be matched and that "the same months of the Compensation Period are to be compared with the months in the Benchmark Period" rather than "months where the claimant engaged in comparable activity."
In response to the district court's order, BP filed a breach of contract claim against the Administrator and an emergency motion for a preliminary injunction to enjoin the Administrator from implementing the Settlement in accordance with the March 5 order and instead to require the Administrator to implement BP's proposed interpretation. The Administrator filed a motion to dismiss BP's breach of contract claim, arguing that BP failed to state a claim. The district court granted the motion, concluding that the Administrator could not breach the Settlement by interpreting and implementing the agreement
BP appeals the district court's March 5 order affirming the Administrator's interpretation of the Settlement, its order granting the Administrator's motion to dismiss, and its order denying a preliminary injunction.
A district court's interpretation of a settlement agreement is a question of law, which we review de novo. Waterfowl L.L.C. v. United States, 473 F.3d 135, 141 (5th Cir.2006).
BP argues that the district court disregarded the plain text of the Settlement by interpreting it to permit recovery of fictitious and inflated losses. It contends that this misinterpretation also leads to absurd results and contravenes the purpose of the Settlement, which BP characterizes as "compensat[ing] for actual lost profits rather than ... provid[ing] unjustifiable windfalls to uninjured claimants."
We repeat the relevant language of Exhibit 4C:
BP contends that the district court's interpretation of "revenue" and "expenses" for the purposes of Exhibit 4C does not comport with the accepted economic and accounting meanings of those terms. It also argues that "corresponding" necessarily implies matching variable expenses to the revenues with which they are properly associated. Accordingly, BP argues the district court erred in concluding that "revenue" and "corresponding variable expenses" refer only to "cash received" and "cash disbursed" in the relevant period. We will explain why this language in Exhibit 4C cannot be interpreted so that it always means cash received and cash disbursed. We leave open for remand whether it ever has that meaning.
The purpose of financial record-keeping is to provide businesses with accurate and reliable information upon which to make decisions. Principles of revenue and expense recognition vary based upon accounting judgment, regulatory or transactional requirements, or even internal management preferences. While an imperfect presentation of the broad array of accounting methods in the business world at-large, a delineation might be fairly made between cash and accrual accounting. Depending on which of these methods a business chooses, the terms "revenue" and "expenses" take on widely variant meanings.
Typically, only very small and fledgling businesses keep their primary financial records in accordance with cash accounting principles. See CPA Societies' Amicus Brief at 7-8 ("some small enterprises ... use a strict or modified cash-basis approach"). That is, they recognize revenue when cash from a given transaction is received and expenses when cash is paid. Id. at 11-12. Class Counsel urged in a December 2012 memorandum: "[w]hen a business keeps its books on a cash-basis, revenue is earned during the month of receipt, irrespective of when the contract was entered or services were performed." It argued further that "[t]he `corresponding variable expenses' associated with monthly revenue are the expenses that are expended or incurred during the ... months in question." These statements are consistent only with revenue and expense recognition principles of cash accounting. Cash accounting can be useful for many enterprises as a method of analyzing periodic cash needs, but this use is largely unrelated to the concepts of "revenue" and "expenses."
On the other hand, accrual accounting has as a fundamental principle the recognition of revenue when the entity becomes entitled to receive payment, as opposed to when the payment is actually received. See Statement of Financial Accounting Concepts No. 6, Fin. Accounting Standards Bd., ¶ 139. Expenses that can be readily traced to the recognized revenues are themselves recognized at the same time as those revenues. Id. at ¶ 146.
BP argues extensively in its brief that these revenue and expense recognition principles were to apply to Exhibit 4C computations. Class Counsel argues that the agreement's language does not, in fact, permit such an interpretation because the settlement does not state that revenues and expenses must be matched or that revenues must be recognized according to any objective standard.
The March 5 Order apparently adopted Class Counsel's interpretation of Exhibit 4C, holding that revenue and expenses referred only to cash payments and disbursements. The practical effect of this ruling is unclear in light of the different recognition principles under different accounting methods. We now turn to a more focused discussion of the district court's decision.
Exhibit 4C directs the Administrator to "[s]um the monthly revenue over the period," and then "[s]ubtract the corresponding variable expenses from revenue over the same time period." In the March 5 order, the district court appears to have interpreted "revenue" as "cash received" and "expenses" as "cash disbursed," without reference to whether the holding was to apply to all claims or just those from cash-basis claimants. The order derives from a series of events that we briefly trace.
In December 2012, following unsuccessful attempts to raise the issue since September, BP requested a formal policy statement from the Administrator on matching. The Administrator responded by soliciting responses from BP and Class Counsel to help him make his policy determination. In the December 2012 memorandum to the Administrator, mentioned briefly above, Class Counsel urged an interpretation which could easily be read to interpret revenues and expenses under Exhibit 4C by their cash accounting meanings. Counsel also explicitly stated that "corresponding variable expenses" should be cash paid out during those periods, also a statement consistent only with cash accounting. Class Counsel's Memorandum was not clear whether its proposal applied to both cash and accrual records, despite discussing both. BP responded with its December 2012 memorandum, also referenced above, by explicitly rejecting Class Counsel's interpretation of "corresponding variable expenses," restating its insistence that the agreement requires matching, and presenting alternative frameworks for industries it thought were most problematic. The dissent treats this argument as an effort to modify the agreement. That conclusion seems too facile. The process for resolving disputes between the Administrator and BP was to be collaborative and cooperative. Consequently, it is not clear to us that BP was attempting to rewrite the agreement as much as it was attempting to resolve apparent anomalies without derailing the entirety of the claims process.
In his January 15, 2013 Policy Statement, the Administrator stated, in relevant part:
Given that "revenues" and "expenses" take on different meanings in the context of cash or accrual accounting, this statement is ambiguous at best as to how exactly the Administrator is processing accrual-basis claims. Further, this Policy Statement apparently rejects BP's proposal and adopts, at least in part, Class Counsel's interpretation.
As we understand the district court's March 5 order, it interpreted "corresponding" to mean that any cash disbursed within a given month should be deemed to "correspond" to cash received in that month, simply by virtue of the fact that the cash flowed in and out in the same month. This is consistent with Class Counsel's December 2012 memorandum. At one point, the district court said it agreed with Class Counsel as to the method of identifying revenue and expenses, though it is not entirely clear to what aspect of Class Counsel's argument the court was referring. The district court determined that "in the same time period" would be deprived of meaning if "corresponding" were interpreted to connect expenses to the revenues with which they are directly related. The district court echoed Class Counsel's December 2012 memorandum, holding that "matching" would require the Administrator to look outside the claimant's chosen Benchmark and Compensation periods. Finally, the district court's only discussion of cash or accrual-basis regarded whether one or the other was required under Exhibit 4A's documentation requirements. The court said there was no such requirement, and the parties agree that claimants may submit documents using either method.
In light of the proposals and rulings we just discussed, we consider it possible (though unlikely) that the district court was holding that the cash-in, cash-out interpretation applied to all claims, including those supported by accrual accounting. If so, then the inherent matching that occurs as a matter of course would be undone. Regardless of whether Exhibit 4C requires matching when it has not been undertaken in the ordinary course of record-keeping, it cannot be said to permit ignoring sufficiently matched data from accrual-basis claimants. We conclude it would be error if the district court was stating that already-matched revenue and expenses could be ignored.
The Administrator has not made clear whether he is ignoring already-matched revenues and expenses in the manner the district court's interpretation appears to suggest. BP, though, has not explicitly complained to us that he is doing so. Implicit in this silence is that accrual-based claims continue to be processed using the inherently matched revenue and expense figures. BP acknowledged, in its own December 2012 Memorandum, that "[m]any types of Business Economic Loss claims... sufficiently match revenue and corresponding variable expenses, and as a result, [the Settlement] is properly applying" Exhibit 4C. This would likely be the case with most accrual-basis claimants. We see no reason for the Administrator to be doing this, but there are a few contrary indications. Class Counsel's December 2012 Memorandum, the January 15, 2013 Policy Statement, and the March 5 order do not offer any assurance that the Administrator is not applying the cash-in, cash-out interpretation to claims that are presented with matched revenues and expenses.
The district court on remand should make certain that this is not occurring.
Neither the Policy Statement nor the Order make any reference to the recognition principles discussed above. The district court's interpretation gives little weight to the terms "corresponding" and "variable," and the parties apparently agree that matching is required
As noted above, the district court held that the words "corresponding" and "in the same time period" must be read to mean that expenses correspond to the time period in which they were recorded and further that "expenses" means "cash paid." The court did not qualify its interpretation to state that this was not true of accrual-basis claimants, or to explain why one form of claims would be matched but not others. The district court's interpretation would fit the language of Exhibit 4C better if the agreement had said this about the Benchmark and Compensation Periods:
Instead, step 2 says this: "Subtract the corresponding variable expenses from revenue over the same time period."
Had the words "corresponding" and "variable" been omitted, the district court's explanation would not be so difficult to accept, economic incoherence notwithstanding. The difficulty is that subtracting temporally-related revenues and expenses recorded by cash-basis claimants would not result in numbers that could fairly be said to represent actual economic losses or lost "variable profits." It is difficult to understand why some claimants would be compensated for lost "variable profits," while others would be compensated for negative cash flows, based solely on how claimants maintained their financial records. Though in our view the agreement fails to provide absolutely clear direction on processing claims based on cash-basis records, we conclude that the district court's holding too quickly dismissed the concept of matching, and did not deal with the inconsistent results the court's interpretation gives to claims presented on an accrual-basis and those on a cash-basis.
We suggest a more consistent interpretation of Exhibit 4C, one that fits both accrual- and cash-basis claims, is as follows. Such parol evidence as would assist the district court in deciding if this is correct can be presented on remand. After the heading "Variable Profit," Exhibit 4C reads "This is calculated for both the Benchmark Period and the Compensation Period." Then, part 1 references a "period," which seems reasonably to refer either to the Benchmark or to the Compensation designations set out immediately
Weight to such an interpretation comes from the fact that the agreement cannot be read to permit ignoring "sufficiently-matched" revenue and expenses from accrual-basis claimants. The fact that Exhibit 4C requires processing of claims supported by sufficiently-matched, accrual-basis accounting should inform but does not necessarily control how cash-basis claims are to be analyzed. In any case, it does not appear to us that the district court gave real meaning to "corresponding" and "variable" when interpreting Exhibit 4C. It also did not articulate a basis to distinguish between determining actual economic losses for those claimants whose records were maintained on an accrual-basis, but abandoning that purpose when cash-basis claims were presented, with such a distinction being supported by exactly the same words in Exhibit 4C.
BP has been arguing at least since September 2012 that treating cash-basis claims by their own terms, that is, treating cash inflows and outflows as revenues and expenses, violates the express language of the agreement. As we understand its contention, BP argues that Exhibit 4C represents an agreement on a specific accounting methodology, based loosely on accrual accounting revenue and expense recognition principles. Central to this argument is that the term "corresponding variable expenses," the detailed computation instructions, the detailed expense classifications, and extensive documentation requirements would be largely superfluous if all claims, but especially cash-basis ones, were meant to be treated on their own terms.
As discussed above, the district court held that "corresponding" referred to a temporal connection between cash inflows and outflows. That is, cash receipts and payments corresponded to one another because they flow in and out during a given month. In a literal sense, this is true. But cash accounting, by nature, ignores any significance that might be related to the timing of cash receipts and payments, beyond mere cash flow concerns. See CPA Societies' Amicus Brief at 7-8. Because cash accounting does not inherently recognize relationships between cash flows and their underlying transactions, the term "corresponding variable expenses" reasonably could imply an accrual-style framework inherent in Exhibit 4C.
BP argues that the detailed expense classifications and adjustments outlined in Exhibit 4C as well as the requirement of annual and tax financial statements in addition to monthly profit-and-loss statements in Exhibit 4A indicate that claims are to be adjusted to "match" revenue and expenses and then provide for the records necessary to doing. Exhibit 4A lists numerous documents a claimant must submit to make a claim. These documents presumably would allow accountants fairly, if at times imperfectly, to "match" revenues and expenses if such were required.
The record creates a different perplexity, namely, why would parties who agree as to the propriety of matching for one set of claims reject it for other claims? Our doubt is particularly strong due to the fact that only matching provides a realistic chance of achieving the ostensible goal of the settlement of compensating claimants for real losses. Furthermore, the only support for not matching seems to derive from the conclusion that cash-basis claimants' own books are not matched. It hardly seems conclusive to us that a claimant's idiosyncratically-maintained records dictate the way Exhibit 4C is applied to a claim, especially if Exhibit 4C is supposed to be an objective formula.
Class Counsel and the Administrator argue that significant parol evidence, including e-mails where BP counsel appears to accept the occasional false positive, shows BP's acquiescence. One form of a false positive discussed during negotiations would arise from the agreement to assume factual causation. Under Exhibit 4B, causation is generally assumed if economic loss can properly be shown. BP did agree that alternative causes of losses were irrelevant if the financial figures supported that a loss occurred. The false positives BP criticizes now are based on loss calculations produced under the district court's cash-in, cash-out approach. The approach could lead to false positives or false negatives, though negatives presumably would not lead to claims. In either event, the issue is whether it is permissible to allow the often economically meaningless temporal coinciding of cash received and paid to determine the value of a claim. BP never acquiesced to a cash accounting interpretation of "revenue" and "expenses" for all claims, i.e., not for accrual-based ones. It has argued consistently that the formula was intended to compensate for real economic losses, not artificial losses that appear only from the timing of cash flows.
The dissent concludes that the course of dealing outlined above, beginning with the September 28 correspondence between BP and the Administrator, shows that BP missed its opportunity to raise these objections. Much has been made of an October 2 conference call, where the concerns BP raised on September 28 were to be resolved. During that call, according to a number of affidavits, BP asked about the treatment of certain cash-basis claims and apparently left assured that they need not fear the way the Administrator was proceeding. The dissent cites the affidavit of
Perhaps whatever was specifically said in the October 2 conference call indicated to BP that the accountants were making Exhibit 4C calculations in accordance with the interpretation it advances here. Thus, BP would have agreed to finalizing the agreement. That possibility would support that BP thought the agreement was functioning properly, and then raised these issues later when BP came to believe that something was amiss.
After all the other arguments are considered, it remains of significance that the interpretation urged by the Administrator is completely disconnected from any reasonable understanding of calculation of damages. In interpreting a settlement, surely some weight has to be given to what damages recoverable in civil litigation actually are. If clear words in a settlement require the use of randomly associated numbers for calculating damages, even if there is little likelihood that, after subtracting one of those numbers from the other, the remainder will in fact show anything relevant to damages, then so be it. We do not perceive such clarity here.
Given the record before us, we cannot determine with an adequate level of certainty whether a matching principle should apply to all claims. Even with the interpretation we outlined above, it is not wholly clear that the words "corresponding" and "variable" unequivocally imply matching. Given the divergent effects of differing recognition principles, we hold that Exhibit 4C is ambiguous as to whether claims that are not based on matched revenues and expenditures are to be matched for Exhibit 4C purposes. We have not discovered whether, before the agreement was signed, the parties discussed the divergent effects of cash- and accrual-basis accounting records on the Exhibit 4C formula. Furthermore, neither the January 15, 2013 Policy Statement nor the March 5 order mentions the inherent but crucial differences in these recognition principles. Instead, we remand to the district court to develop a more complete factual record regarding the meaning of Exhibit 4C or other relevant parts of the agreement and make relevant findings. The Administrator needs to assure the court that he is not ignoring already-matched accrual-basis accounting records.
We remand because the district court did not acknowledge the requirement of matching that is foundational for accrual-basis claims and it did not then explain why it was interpreting the same Exhibit 4C language that leads to matching for accrual-based claims as not requiring the matching of cash-basis claims. This is particularly questionable when the agreement contains not only the terms "corresponding" and "variable," but extensive documentation requirements which would allow claims administration accountants to process claims in accordance with economic reality.
BP further argues that "comparable" months of the Benchmark and Compensation
The district court held that "comparable" refers to the same calendar months in both the Benchmark and Compensation period. We do not disturb this holding for two reasons. First, we conclude that this is the most natural reading of the word "comparable" in the context of the agreement. The agreement allows the claimant to pick as few as three months or as much as an average of nine months over three calendar years. This, along with the word "comparable," clearly indicate that the Benchmark and Compensation periods were referring to months of the same name, without any complex analysis of what type of business activities took place within those months. Second, we conclude that our holding as to cash and accrual-basis claimants will resolve some of the issues BP claims results from the district court's interpretation of "comparable."
BP's primary concern seems to be the uneven cash flows of certain types of businesses. We accept this possibility, but we see nothing in the agreement that provides a basis for BP's interpretation. Despite the potential existence of this kind of distortion, the parties may not have considered it, agreed to ignore it, or failed for other reasons to provide clearly for this eventuality. The district court was correct that BP's proposed interpretation is not what the parties agreed.
BP alleges not only that the Administrator's interpretation of the disputed terms inflates awards to legitimate BEL claimants, but also that the interpretation results in awards to BEL claimants who admittedly either have suffered no loss at all or have suffered losses that were not caused by the oil spill. Such claimants would have no colorable legal claim. See Richardson v. United States, 468 U.S. 317, 326 n. 6, 104 S.Ct. 3081, 82 L.Ed.2d 242 (1984) (defining a "colorable claim" as one with "some possible validity"). Absent a loss, a claimant has suffered no injury. Unless a claimant can colorably assert a loss, it lacks standing. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (noting that an injury is a required element of constitutional standing); Jobe v. ATR Mktg., Inc., 87 F.3d 751, 753 (5th Cir.1996) ("[T]he conventional tort elements in a negligence action are duty, breach of duty, proximate causation and injury."). Similarly, if a claimant has suffered a loss, but it has no colorable claim that the loss was caused by the spill, it also lacks standing and cannot state a claim. It lacks standing because it cannot allege "a causal connection" between its loss and the spill. Lujan, 504 U.S. at 560, 112 S.Ct. 2130. Its injury is not "fairly traceable to the challenged action of the defendant;" rather, it is "the result of the independent action of some third party not before the court." Id. (citation, quotation marks, and alteration omitted). Moreover, it cannot state a claim because it is unable to plead the causation element of a negligence cause of action. See Jobe, 87 F.3d at 753. Therefore, such non-colorable claims do not constitute Article III cases or controversies and are not founded on any substantive right.
"To avoid dismissal based on a lack of standing, the court must be able to find that both the class and the representatives have suffered some injury requiring court intervention. The class must therefore be defined in such a way that anyone within it would have standing." Denney v. Deutsche Bank AG, 443 F.3d 253, 264 (2d Cir.2006) (internal citations and quotation marks omitted). "In order to state a class action claim upon which relief can be granted, there must be alleged at the minimum (1) a reasonably defined class of plaintiffs, (2) all of who have suffered a constitutional or statutory violation (3) inflicted by the defendants." Adashunas v. Negley, 626 F.2d 600, 603 (7th Cir.1980) (affirming the denial of a plaintiff class). A claimant "must actually have a legal claim before getting in line for a legal recovery. When objections are raised that persuasively demonstrate that a portion of a proposed class does not have any such claim, courts of law are obliged to follow the law." Sullivan, 667 F.3d at 347 (Jordan, J. dissenting); see In re Chicken Antitrust Litig. Am. Poultry, 669 F.2d 228, 238 (5th Cir. Unit B 1982) ("Of course, had indirect purchasers been completely without any colorable legal claims against defendants, it would have been an abuse of the court's discretion to allow them to share in the settlement fund."); see also In re Agent Orange Prod. Liab. Litig. MDL No. 381, 818 F.2d 179, 184 (2d Cir. 1987) (approving a settlement distribution plan to class members who had "stated `colorable legal claims against defendants'" because their claims "d[id] not entirely disregard traditional tort principles of causation" (citation omitted)). But see Sullivan, 667 F.3d at 310 ("[W]ere we to mandate that a class include only those alleging `colorable' claims, we would effectively rule out the ability of a defendant to achieve `global peace.'").
There is a distinction here between whether a claim is colorable and whether it is meritorious. A plaintiff's claim is colorable if he can allege standing and the elements necessary to state a claim on which relief can be granted — whether or not his claim is ultimately meritorious — whether he can prove his case. See Sullivan, 667 F.3d at 340 (3d Cir.2011) (Jordan, J. dissenting) (explaining that the problem with the class "is not that it may include people with marginal or dubious claims" but that it "includes people who have no legal claim whatsoever" as is "clear on the face of the [applicable] statutory and decisional law"). Class settlements certainly can encompass unmeritorious claims, because such claims, successful or not, are based on existing substantive rights. Class settlements, however, cannot create new rights and then settle claims brought under them. See id. (dissenting because "the Majority has endorsed the fabrication of substantive rights where none before existed"); see also Messner v. Northshore Univ. HealthSystem, 669 F.3d 802, 824 (7th Cir.2012).
Turning to the present case, the district court had no authority to approve the settlement of a class that included members that had not sustained losses at all, or had sustained losses unrelated to the oil spill, as BP alleges. If the Administrator is interpreting the Settlement to include such claimants, the Settlement is unlawful. Should BP's proposed interpretation of the Settlement exclude putative class members with no colorable legal claim, the district court should have rendered the Settlement lawful by adopting that interpretation, as long as the interpretation is reasonable and effective. See Harvey v. Joyce, 199 F.3d 790, 794 (5th Cir.2000) ("A court must strive to reach an interpretation which gives a reasonable, lawful, and effective meaning to all the terms of an agreement.").
Moreover, if BP's counsel did negotiate a Settlement that included payouts to businesses whose losses were not caused by the oil spill, agreeing to pay a client's funds to claimants that concede that they have no causally related injury is counterintuitive and contradictory to common tenets of both tort and contract law — and to common sense. The fact that these claimants cannot show causation translates to a Settlement that lacks valid consideration. Why would BP pay to resolve claims that cannot be plead? The myth of "global peace" through payment of admittedly non-spill-related claims is a legal nullity
The class settlement cases the dissent cites to the contrary all involved classes that suffered actual economic loss that resulted from the conduct of the party agreeing to the settlement. In Sullivan, direct and indirect purchasers of diamonds settled a class action suit against the operator of a diamond cartel for violations of federal and state antitrust laws. 667 F.3d at 285-293. The Sullivan majority pointed out that while considering predominance, "commonality is informed by the defendant's conduct as to all class members and any resulting injuries common to all class members." Id. at 297 (emphasis added). Both the majority and the dissent recognized "that, well yes, there must be some limiting feature of the class and that feature is injury; class members must have been injured by De Beers's unlawful conduct." Id. at 343 (Jordan, J. dissenting). In Sullivan, the majority and the dissent sparred over whether or not this financial injury was legally cognizable, because the settlement proposed to settle claims in all 50 states whether or not the states had causes of action for these kinds of injury. What the Sullivan majority never approved was a class that consisted of people who had never purchased diamonds at all and thus suffered no losses. In In re American International Group, Inc. Securities Litigation, 689 F.3d 229 (2d Cir. 2012), three public pension funds sought class certification to settle a securities fraud claim against an issuer for violations of federal securities fraud that led to losses in their portfolios. Id. at 232-37. "All plaintiffs here claim injury that by reason of defendants' conduct ... has caused a common and measurable form of economic damage." Id. at 240 (quoting Sullivan, 667 F.3d at 338 (Scirica, J., concurring)). Similarly, this case did not involve class approval of people who had never invested in the stock market and therefore never could have experienced traceable loss.
These issues are important in this case, and not just in future cases, because these legal principles further undermine an interpretation of the Settlement Agreement that includes businesses without colorable legal claims. Such an interpretation could imperil a final approval of the settlement and can be considered in evaluating the correct interpretation of possible ambiguities in this agreement.
"It takes time to decide a case on appeal. Sometimes a little; sometimes a lot. No court can make time stand still while it considers an appeal ... and if a court takes the time it needs, the court's decision may in some cases come too late for the party seeking review." Nken v. Holder, 556 U.S. 418, 421, 129 S.Ct. 1749, 173 L.Ed.2d 550 (2009) (internal quotations and citations omitted). Despite the generally
BP moved for a preliminary injunction and a stay pending appeal, arguing that the continued distribution of its assets under a potentially improper reading of the Agreement was causing it irreparable harm. The district court denied the motions from the bench and in a subsequent minute entry. The court believed that BP was asking it to enjoin an interpretation of the Settlement Agreement that the court itself had ordered on March 5. As such, the court viewed it as a request for reconsideration of an issue the court had considered.
"As to each element of the district court's preliminary-injunction analysis, the district court's findings of fact `are subject to a clearly-erroneous standard of review,' while conclusions of law `are subject to broad review and will be reversed if incorrect.'" Janvey v. Alguire, 647 F.3d 585, 591-92 (5th Cir.2011) (citations and quotation omitted).
The conclusions the district court made here were conclusions of law. Contract interpretation, such as the meaning of the Settlement Agreement, is a question of law. Becker v. Tidewater, Inc., 586 F.3d 358, 369 (5th Cir.2009). Proper claimants under a class are a question of law. Wal-Mart Stores, Inc., 131 S.Ct. at 2550-51. For this reason, errors in conclusions of law are subject to broad review and will be reversed if incorrect. The errors in conclusions of law involved are laid out in the preceding sections of this opinion. Because of these, the preliminary injunction should be granted while the judicial process takes its course.
The traditional four-factor test for a stay pending appeal is typically used to analyze requests for a preliminary injunction.
The balance of equities favors a tailored stay. The interests of individuals who may be reaping windfall recoveries because of an inappropriate interpretation of the Settlement Agreement and those who could never have recovered in individual suits for failure to show causation are outweighed by the potential loss to a company and its public shareholders of hundreds of millions of dollars of unrecoverable awards. A stay tailored so that those who experienced actual injury traceable to loss from the Deepwater Horizon accident continue to receive recovery but those who did not do not receive their payments until this case is fully heard and decided through the judicial process weighs in favor of BP. We therefore REVERSE the
We AFFIRM the district court's dismissal of BP's suit against the Claims Administrator. We REVERSE the district court's order affirming the Administrator's interpretation of the Settlement and denial of a preliminary injunction and REMAND to the district court for further consideration while retaining jurisdiction.
LESLIE H. SOUTHWICK, Circuit Judge, concurring:
I concur in Part I of the opinion, which analyzes why we are vacating and remanding for further consideration of the interpretation of Exhibit 4C of the Settlement Agreement. I also agree, as stated in Part III, that the district court should enter a narrowly tailored and potentially brief stay to allow the purposes of the remand to be realized. I do not join the broader Rule 23 analysis that appears in Part II. The discussion is logical in finding that constitutional infirmities would exist if certain corrections are not made to the interpretation of Exhibit 4C. There is, though, no briefing on the constitutional issues that are addressed. I am concerned that those observations imply — though they may well not be intended to go that far — an invalidity to the Settlement Agreement's causation framework, which no one challenges. I would not make the pronouncements that appear in Part II. Instead, I would defer the issue and allow the parties on remand to give it the attention it deserves.
The Settlement Agreement resolved two separate issues by, in effect, combining them. One concerned loss causation, and the other loss measurement. If a BEL claimant could prove an economic loss, properly measured, that proof substituted for evidence of causation. Improper measurement of losses under Exhibit 4C might compensate claimants without actual losses. That potential raises the causation question in the sense that a party who suffered no loss regardless of cause certainly did not have a loss caused by the oil spill. Even so, the parties agreed by Exhibit 4B's causation framework to ignore alternative explanations for actual losses that occurred to claimants during the proper time period. The agreement simplified the claims process by making proof of loss a substitute for proof of factual causation.
The question of loss measurement is clearly before us. BP argues almost exclusively that the Administrator and the district court misinterpreted the formula for measurement of business and economic losses that appears in Exhibit 4C. Part I of the panel opinion identifies the crucial question for remand: should matching be required for all claims when it is clearly required for many? I agree to remand with instructions to reconsider the interpretation of Exhibit 4C for unmatched claims in light of the necessity of revenue
Part II of the opinion elaborates on a causation issue under Rule 23, which affects the class definitions. As noted already, causation was addressed by the parties in Exhibit 4B of the Settlement Agreement. BEL claimants within a defined geographic region closest to the Gulf do not need to present any evidence of factual causation. The same is true of BEL claimants in certain sensitive industries, such as seafood processors, regardless of geographic location. For those groups of BEL claimants, a mathematical loss as calculated under Exhibit 4C is compensated without any proof of the cause of the loss. BEL claimants operating further from the Gulf must show a mathematical loss under Exhibit 4C, subject to a requirement that the loss meet a certain percentage threshold, and must also provide documentation that the claimant lost revenues from certain classes of customers. As the last alternative to other forms of evidence, these more distant claimants could offer evidence of factual causation.
Thus, Exhibit 4B of the Settlement Agreement allowed causation to be supported simply by loss calculations under Exhibit 4C rather than by requiring the claimant to prove that the loss had any factual relationship to BP's actions. No one on appeal is challenging Exhibit 4B. BP is arguing that the erroneous variable profit decision endangers class certification by potentially allowing parties not harmed by BP's actions to recover from the settlement fund. That potential arises from miscalculating loss. Other than by the challenge to the application of the method of showing loss, BP has not argued that the Settlement Agreement is defective under Rule 23.
Given that we are remanding so that the interpretation of variable profit will be reconsidered, it is not apparent that we should reach any fundamental Rule 23 concerns at this time. I agree that parts of the analysis have been briefed. For example, if the methods of computing losses do not, at least for a large number of claimants, determine in any reasonable fashion whether a financial loss actually occurred, there are significant Rule 23 problems in the incoherence of the calculation method. Because proof of loss largely substitutes for proof of causation, to allow the means of showing loss to become disconnected from economic realities threatens to distort entry into the class and is a defect under Rule 23. There is no evidence yet presented that BP ever agreed to this. Because the Rule 23 problem BP raises is confined to the measurement of loss and not to questions of standing of claimants who cannot show their losses were caused by BP's actions, I would not at this time suggest there is a fundamental Rule 23 defect in the Settlement Agreement.
I do not minimize the concern about recognizing limitations for Rule 23. The opinion correctly notes that class actions are not meant to be vessels for achieving "global peace" by creating substantive rights that would not otherwise exist. See Amchem Products, Inc. v. Windsor, 521 U.S. 591, 612-13, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). I would only have identified the relevant principles and authorities, then remanded for such consideration as the parties and the district court bring to the issue of causation as they address the measurement of loss.
JAMES L. DENNIS, Circuit Judge, concurring in part and dissenting in part:
This case arises out of BP's proposal to the Administrator that he modify the consent decree and settlement agreement, or his interpretation of them, to provide that the Administrator must convert a claimant's cash-method accounting data into the
In my view, we should affirm the district court's judgment for the reasons assigned hereinafter. Moreover, the remand is unnecessary because the record clearly reflects that the dispute between the Administrator and BP is only about whether the Administrator must convert a claimant's cash-method data into BP's proposed accrual-method data before calculating a claimant's business economic loss. BP does not contend that the Administrator is mishandling claimants' accrual-method data claims.
In this opinion, I first explain why this appellate court must uphold the district court's judgments affirming the Administrator's rejection of BP's actions to force him to modify, or to revise his interpretation of, the district court's consent decree incorporating the parties' settlement agreement. Second, I explain how the majority misunderstands the record, sails past the only issue on appeal, and unnecessarily and prematurely remands the case to the district court. Finally, I respectfully disagree with Judge Clement's separate opinion, which expounds on class-action-law issues that are not presented to this panel but to a different three-judge panel scheduled to hear that appeal in November and which purports to instruct the district court to issue an injunction pursuant to her class-action-law declarations.
Having failed to convince the Administrator to modify the terms of the district court's consent decree, which approves and adopts the parties' settlement agreement, or to persuade the district court to reverse the Administrator's decision, BP appeals to this court. Because BP agreed to the settlement and, in fact, actively sought the district court's approval and adoption of it in its consent decree, BP cannot seek to modify the consent decree unless it demonstrates that there has been a significant change in circumstances or the law that warrants a revision of the decree by the district court. BP appears to acknowledge that it failed to carry this burden below, for it now argues that the parties' settlement agreement incorporated in the district court's consent decree has always required the Administrator to convert a claimant's cash-method data into BP's proposed accrual-method data before calculating a claimant's business economic loss. However, the Supreme Court, in United States v. Armour & Co., 402 U.S. 673, 91 S.Ct. 1752, 29 L.Ed.2d 256 (1971), and its progeny, has explained that a consent decree must be interpreted within its "four corners" and that an appellate court cannot add to or subtract from the consent decree or interpret it according to what the court thinks is the purpose of the agreement. This court, applying the four corners of Armour, must find that the decree does not contain the conversion and matching requirements that BP asks us read into it.
I start by reviewing background that highlights the true issue on these appeals.
The Administrator began identifying, calculating, and paying business-economic-loss claims in May 2012 and continued to do so without any objection from the parties relating to his calculations or otherwise.
On November 8, 2012, the district court conducted a hearing on final approval of the parties' class action and settlement agreement. By this time, the settlement program had received over 79,000 completed claims and authorized payment in excess of $1.3 billion. At the hearing, BP
It was not until December 5, 2012, almost a month after the final-approval hearing, that BP first expressed its concern to the Administrator that his use of claimants' cash-method data, particularly in connection with construction and professional-services firms' claims, might, according to BP, result in overcompensation of those claimants. See R. 18325. Several days later, on December 11, 2012, BP sent a follow-up email to the Administrator's special counsel, raising a number of questions and posing several hypotheticals involving claims by construction, professional-services, and agriculture-industry claimants. R. 18372-74. In particular, BP asked, "[i]f financial data submitted by a claimant does not accurately assign revenue to the months in which it was earned" (which, according to BP, occurs with cash basis accounting), "what steps do you take to obtain financial data that accurately reflects the earning of revenue by month?" R. 18372. Days later, on December 16, 2012, class counsel responded by asking the Administrator to issue a policy statement providing that, "[w]hen a business keeps its books on a cash basis, revenue is earned during the month of receipt, irrespective of when the contract was entered or services were performed." R. 18381.
BP's next move, on the 8th or 9th of January 2013, was to seek to have the Administrator modify the settlement's formula for compensating business economic loss or revise his interpretation of that formula.
R. 18399-400. Following this section, BP's Tab 1 sets forth similar detailed changes and additions with respect to farming firms' claims that it describes as a "proposed approach to improving the alignment of revenue to corresponding expenses for farm claims [that] generally tracks the two-step approach proposed ... for construction firm claims." R. 18400. Finally, BP's Tab 1 outlines its proposals with respect to professional services firms, including a detailed "proposed approach to align revenue to corresponding expenses for professional services firms [that also] generally tracks the two-step approach proposed ... for construction and farming claims." R. 18401.
Having reviewed the parties' submissions, the Administrator, on January 15, 2013, issued a policy statement stating that, in performing the calculations under the business-economic-loss framework, he would typically consider both revenue and expenses in the periods in which the revenues and expenses were recorded at the time and would not typically reallocate such revenue or expenses to different periods, but he would reserve the right to adjust financial statements in certain circumstances, including but not limited to, inconsistent basis of accounting between the Benchmark and Compensation Periods, errors in previously recorded transactions, and flawed or inconsistent treatment of accounting estimates. R. 18327-28. Importantly, the Administrator's special counsel, in the cover letter transmitting the policy statement, made clear that the Administrator "d[id] not view it within his authority to carve out specific types of claims in the fashion" proposed by BP. R. 18326. BP appealed to the district court, complaining of the Administrator's refusal to either modify the settlement decree or revise his interpretation of the compensation formula so as to bring about the same result as a modification. The district court, however, upheld the decision of the Administrator, ruling that BP's proposed modification would both conflict with the terms of the parties' agreement and add substantive provisions thereto that had not been agreed to by the parties or approved of by the court during the final-approval hearing in which BP could have complained but did not. BP has now appealed to this court.
Because BP has not satisfied its heavy burden of showing that a change in circumstances
A party seeking to modify the substance of a district court's consent decree bears a heavy burden of establishing that revision of the decree is justified. See Rufo v. Inmates of Suffolk Cnty. Jail, 502 U.S. 367, 383, 112 S.Ct. 748, 116 L.Ed.2d 867 (1992). In Rufo, the Supreme Court explained that,
Id.
BP has failed to demonstrate that there has been a significant change either in circumstances or in the law since it entered into — and, in fact, affirmatively sought adoption of — the consent decree approving and incorporating the settlement agreement. As the record reflects, BP was fully aware that it would be required to pay claims by firms in the construction, agriculture, and professional-services industries that were supported by these businesses' cash-basis accounting data and yet, nevertheless, BP agreed to the settlement and actively sought the district court's approval of the eventual consent decree. Accordingly, it is this court's clear duty to affirm the district court's judgment rejecting BP's attempts to force the Administrator to modify the consent decree and the parties' settlement simply because it is no longer convenient for BP to live with the terms to which it agreed.
In its appeals to this court, BP conveniently forgets that it sought to have the Administrator modify the settlement agreement's formula for calculating business
In reviewing a district court's consent decree, our primary rule of interpretation is the "four corners" doctrine, under which the decree is construed according to its terms, not on the basis of "what might satisfy the purpose of one of the parties to it." See United States v. Armour & Co., 402 U.S. 673, 682, 91 S.Ct. 1752, 29 L.Ed.2d 256 (1971). In addition, certain "aids to construction" commonly employed in construing contracts may be referenced. See United States v. ITT Continental Baking Co., 420 U.S. 223, 238, 95 S.Ct. 926, 43 L.Ed.2d 148 (1975). "Such aids include the circumstances surrounding the formation of the consent order, any technical meaning words used may have had to the parties, and any other documents expressly incorporated in the decree." Id. In so doing, we must not strain the decree's precise terms or impose other terms in an attempt to reconcile the decree with our own conception of its purpose. See Armour, 402 U.S. at 681-82, 91 S.Ct. 1752. A consent decree is the product of negotiation between the parties and embodies a compromise struck among various factors, including the parties' competing goals and the time, expense, and risk of litigation. See id. at 681, 91 S.Ct. 1752. In this way, "the decree itself cannot be said to have a purpose; rather the parties have purposes, generally opposed to each other, and the resultant decree embodies as much of those opposing purposes as the respective parties have the bargaining power and skill to achieve." Id. at 681-82, 91 S.Ct. 1752.
Exhibit 4C of the settlement and consent decree, which is the pertinent subject of these appeals, details the compensation framework for business economic loss.
With regard to step one, the Compensation Period is "selected by the claimant and may include three or more consecutive months between May and December 2010" (in other words, several months shortly after the oil spill began). R. 4277. The "Benchmark Period" is "the pre-[spill] period which claimant chooses as the baseline for measuring its historical financial performance"; for the Benchmark Period, "the claimant can select among the following... [p]eriods: 2009; the average of 2008-2009; or the average of 2007-2009, provided that the range of years selected by the claimant will be utilized for all Benchmark Period purposes." R. 4277. Variable Profit is then defined as follows:
R. 4277. Having defined the relevant terms, the settlement finally prescribes "Step 1 Compensation" as follows: "Step 1 of the compensation calculation is determined as the difference in Variable Profit between the 2010 Compensation Period selected by the claimant and the Variable Profit over the comparable months of the Benchmark Period." R. 4277.
The majority states, and I agree, that the settlement permits a business-economic-loss claimant to select a comparison interval as short as three months (or as long as eight months). That is, claimants may choose income from any three consecutive months between May and December of 2010 to compare with income in a Benchmark Period of the same three to eight months in 2009, the average of 2008-2009, or the average of 2007-2009. This flexibility to choose a shorter comparison interval allows a claimant to take advantage of the natural variability in revenue over the course of a given year. Claimants may choose a three-month period in which their income was particularly bad in 2010, or particularly good in the Benchmark Period, and exclude from the calculation other months in which their 2010 income might have actually been quite good. The text of the settlement illustrates this feature (and others involving the settlement's causation framework) with three examples as follows:
R. 4283. Consequently, if this court were to interpret the settlement agreement to require the Administrator to convert each claimant's cash-method data into accrual-method data showing monthly revenue as earned matched with the expenses that generated it regardless of when the revenue and expenses were recorded on the claimant's books, we necessarily would be violating Armour's four-corners rule: BP's proposed conversion and matching requirements, which would require the Administrator to restate the months in which claimants recorded their revenue and expenses, are not contained within the four corners of the decree and settlement. And, for the reasons already stated, we, in effect, would be modifying the terms of the consent decree without BP having satisfied its burden of showing a significant change in circumstances or law justifying that modification. Such a modification of the settlement decree would conflict with the clear examples in the settlement agreement and would require the Administrator go outside and perhaps far beyond the Compensation and Benchmark Periods selected by the claimant to trace the generative expenses to match with revenue earned in those periods. Further, even if such a reconstruction of the claimant's business history were possible, it would likely differ markedly from the cash-method claimant's records kept in 2009 and the first quarter of 2010 when the claimant had no inkling that an oil spill affecting his business would occur on April 20, 2010. The effect of our so interpreting the settlement agreement could be devastating to many claimants who are unable to translate or reconstruct their cash-basis data into revenue matched to the expenses that generated it under BP's proposed conversion and ultra matching requirements. Moreover, forced conversion of all cash-basis data into accrual-basis data would discriminate against the remaining cash-basis claimants by either thwarting their claims entirely or treating their claims less favorably than the cash-basis claims already resolved.
The plain wording of the settlement agreement read as a whole and with all of its supporting documents permits claimants to support their business-economic-loss claims using their own business records
For these reasons, I respectfully conclude that the majority has unintentionally fallen into legal error by not recognizing that the four-corners rule of Armour and other teachings by the Supreme Court require that the district court's consent decree containing the settlement agreement
I respectfully disagree with the majority's reversal of the district court's decision and its remand of the case to the district court to determine whether the Administrator has been converting claims submitted with accrual-method accounting data into cash-method supported claims and processing them on that basis. The majority itself concedes that this scenario is "unlikely" and that BP has not explicitly asserted this. Ante, at 335. That BP has not so argued in these appeals makes the majority's sua sponte raising of the issue highly irregular and contrary to our normal rule of addressing on appeal only the issues raised and argued by the appellant. Furthermore, careful inspection of the record in this case demonstrates that the majority's intuited scenario is not just unlikely; the record demonstrates that it is plainly not the case.
Neither BP nor class counsel has ever questioned whether the Administrator was properly applying Exhibit 4C's compensation requirements to use claimants' accrual-method accounting data to calculate and pay business-economic-loss claims. On December 5, 2012, BP expressed concern to the Administrator that he was overcompensating claimants by using their cash-method data in his calculations. On December 11, 2012, BP sent a follow-up email to the Administrator's special counsel asking, if financial data submitted by a claimant does not accurately assign revenue to the months in which it was earned, what steps would the Administrator take to obtain financial data that accurately reflect the earning of revenue by month. R. 18372. On December 16, 2012, class counsel responded by asking the Administrator to issue a policy statement providing that, "[w]hen a business keeps its books on a cash basis, revenue is earned during the month of receipt, irrespective of when the contract was entered or services were performed." R. 18381. On January 8 or 9, 2013, BP demanded that the Administrator revise his interpretation of the Exhibit 4C formula so as to require him to convert the books of all claimants using cash-basis accounting to accrual-basis accounting or to modify the formula to do so for construction, farming, and professional-services firms using cash-method accounting. The Administrator's refusal to do so and his January 15, 2013 policy statement, stating that he "will typically consider both revenues and expenses in the periods in which those revenues and expenses were recorded at the time" and that he lacked authority to change the settlement agreement by carving out exceptions for certain categories of claimants, led directly to BP's appeal to the district court to reverse the Administrator's decision. Thus, nothing in the communications between the parties and the Administrator indicates that their dispute involved the conversion of accrual-based accounting data to cash-based accounting data. The district court affirmed the decision of the Administrator rejecting BP's demand that the Administrator either (a) interpret the settlement agreement to
Consequently, the majority's notion that Administrator has ever converted any claimant's accrual-method accounting data to cash-method data has no support in the record or the briefs in this case. The majority's precipitous reversal of the district court's judgment and remand for unnecessary proceedings is erroneous and quite unfortunate for everyone concerned in this case.
I now turn to the discussion in the majority opinion of so-called "fictitious" claims (part II of the opinion), which is now supported by the vote of one judge. Like Judge Southwick, I do not join this section of the opinion and I respectfully dissent from it as well. These appeals arise from a dispute regarding BP's proposed modification or reinterpretation of the settlement agreement's text; a separate appeal addressing the district court's certification of this class action and acceptance of the settlement agreement has been docketed and calendared for oral argument on November 4, 2013 before a different panel of judges. See In re Deepwater Horizon Appeals of the Economic and Property Damage Class Action Settlement, No. 12-31155 (5th Cir. filed Nov. 19, 2012). The parties have not argued those certification and acceptance issues to this panel, and we may not properly decide them or pronounce upon them.
Judge Clement begins her discussion by expressing concern regarding whether the plaintiff class members have "colorable legal claims" which she defines as an "[ability] to plead" the elements of a claim. See ante, at 340-41; see also ante, at 342 (stating that a claim is "colorable" if the plaintiff "can allege standing and the elements necessary to state a claim on which relief can be granted"). I do not understand what that concern has to do with this case. Here, the district court held, in an opinion to which Judge Clement makes no reference, that "the class representatives — like all class members — allege economic and/or property damage stemming directly from the Deepwater Horizon spill." In re Oil Spill by Oil Rig Deepwater Horizon in Gulf of Mexico, on April 20, 2010, 910 F.Supp.2d at 915 (emphasis added). And the district court went on to say that, under the class definitions, "persons with marginal or potentially worthless claims ... [are] excluded." Id. at 917; see also id. at 917 (stating that the "class in this case consists exclusively of individuals and businesses that have already suffered economic loss"). Nobody has appealed from this finding that the class members here allege losses stemming directly from BP's conduct. Judge Clement's dicta are divorced from the facts and issues in this case.
Turning, very briefly, to Judge Clement's legal pronouncements, I must say that I respectfully disagree with her statement that a court cannot allow a single person lacking a "colorable claim" against a class-action defendant to recover compensation in a class-action settlement because to do so would "ignore[] the standing requirement of Article III and create[] a substantive right where none existed before." Ante, at 341. This analysis confuses the relevant legal principles, is not supported by any 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. First, although Judge Clement leans heavily on a dissenting
Kohen v. Pac. Inv. Mgmt. Co. LLC, 571 F.3d 672, 676 (7th Cir.2009). And third, the analysis also conflicts with the Second Circuit's. See In re Am. Int'l Grp., Inc. Sec. Litig., 689 F.3d 229, 243-44 (2d Cir. 2012).
And, for the reasons explained at length in Sullivan, requiring a district court to ensure that every class-action settlement beneficiary has a "colorable" cause of action against the defendant is unworkable in practice. Should the district court require that every settlement beneficiary file a separate complaint consisting of individual allegations and that BP file separate motions to dismiss each of the complaints? I do not think it wise to mandate such an unwieldy and expensive undertaking when the parties settled precisely to avoid that sort of costly litigation. See Fed.R.Civ.P. 1 (the civil procedure rules "should be construed and administered to secure the just, speedy, and inexpensive determination of every action and proceeding"). Nor do I see how it is required by existing law.
Lastly, Judge Clement's theory rests on a false premise: the idea that every individual who benefits from a class-action settlement must or is deemed to have an independent cause of action against the class-action defendant. I do not think that is the case. In a simple non-class-action lawsuit between a single plaintiff and a single defendant, I am not aware of any rule that would prohibit the litigants from reaching a settlement in which the defendant agrees to make payment not to the plaintiff he has allegedly wronged but rather to, say, a favored charity instead. Should that happen, neither the law nor common sense presumes that the charity has an independent cause of action against the defendant. See, e.g., King v. Emp'rs Nat'l Ins. Co., 928 F.2d 1438, 1442 (5th Cir.1991) (discussing third-party beneficiaries
A fundamental flaw in Judge Clement's analysis is that it conflates and fails to distinguish between, on the one hand, the legal requirements for certifying a class, see ante, at 341-42 (arguing that courts act unlawfully "[b]y including claimants in the class definition that lack colorable claims"), and, on the other hand, those for approving and enforcing a settlement agreement in the class-action context, see ante, at 343-44 (arguing that a class-action settlement "is unlawful" and cannot be approved if it grants compensation to businesses "that had not sustained losses"), assuming without explication that the former are coterminous with the latter. However, the distinction should not be elided: whether or not it is true that Rule 23 or another provision of law is violated by maintaining a class action including class members lacking "colorable" claims — one legal issue — it does not follow either way that the court's approval or enforcement of a settlement that benefits persons without "colorable" claims violates any law-a distinct legal issue. See, e.g., Denney v. Deutsche Bank AG, 443 F.3d 253, 268-76 (2d Cir. 2006) (addressing separately the class certification and settlement approval issues); cf. Messner v. Northshore Univ. HealthSystem, 669 F.3d 802, 824 (7th Cir.2012) ("[The class-action defendant] argu[es] that the class for which certification is requested is fatally overbroad because it contains members who could not have been harmed by any post-merger price increases.... This [issue] is critical for class certification purposes.") (emphasis added). Without embracing either of Judge Clement's propositions, because neither are presented to this panel for decision, any discussion of them will not be furthered by conflating one for the other as she does here.
BP twice sought a preliminary injunction from the district court and was twice denied. Thereafter, BP sought both a stay pending appeal and a preliminary injunction from this court, which were also denied. I see no reason to reverse any of these decisions. The majority opinion, however, purports to reverse the district court's denial of a preliminary injunction and appears to "instruct the district court to expeditiously craft a narrowly-tailored injunction" that allows the claims of "those who experienced actual injury traceable to loss from the Deepwater Horizon accident" to proceed while staying the claims of "those who did not." Ante, at 345. Because the majority opinion's instruction to the district court regarding the injunction
For these reasons, I concur in the majority's affirmance of the district court's dismissal of BP's suit against the Administrator for failure to state a claim under Rule 12(b)(6) but I respectfully dissent from the majority opinion in all other respects.
Moreover, the procedures for resolving disputes concerning the Administrator's administration of the Settlement specify that a disagreement is "referred to the Court for resolution" if it is not resolved by the Claims Administration Panel. Based on its use throughout the Settlement, the term "the Court" appears to refer to the district court. Such an interpretation of the parties' agreement would render the district court's ruling final. However, the parties clearly intended a broader interpretation of the term — one that retained their right to appeal to this court — as shown by BP's appeal and Class Counsel's failure to object.
