NEW ORLEANS (CN) - In a scorching federal lawsuit, BP accused a well-known attorney of "brazen fraud" involving "phantom clients," that could cost the oil company more than $2 billion in unfair oil-spill payments.
BP sued lead defendants Mikal C. Watts his San Antonio law firm, Watts Guerra, 15 of their clients, "and all others similarly situated."
BP claims in the 35-page lawsuit that Watts gained a seat on the coveted oil spill plaintiff steering committee by claiming to represent tens of thousands of oil spill claimants and helping to create an oil spill compensation fund large enough to accommodate the fake clients, resulting in "windfall" payments from the fund.
Watts resigned his position on the committee at the court's insistence in March.
BP claims that Watts engaged in "brazen fraud" by purporting to represent more than 40,000 deckhands who allegedly suffered economic injuries as a result of the April 2010 Deepwater Horizon oil spill.
It claims Watts' alleged misrepresentations could cost it $2.3 billion because of the way the terms of its oil spill settlement were crafted.
All told, Watts wound up with more than 44,000 purported clients, though just eight so far have had payable claims, and another 17 claims are pending, BP says in the lawsuit.
"We now know that over half of Watts' alleged clients were phantoms: individuals never represented by Watts, in a number of cases not even commercial fishermen, and in some instances individuals who are deceased," BP says in its lawsuit.
The plaintiff steering committee is an exclusive group of attorneys selected by U.S. District Judge Carl Barbier, who is overseeing the oil spill litigation. Steering committees are known to be lucrative for attorneys involved, and the oil spill litigation is no exception. As part of its global settlement, BP earmarked an historic $600 million for attorneys .
As a member of the plaintiff steering committee Watts, was in a position to help construct the compensation settlement between BP and hundreds of thousands of claimants.
According to the terms of the settlement, if Watts' clients opt out, BP says, it could save up to $2.3 billion.
If Watts' clients do not opt out of the settlement, the agreement was based on "rounds" of payment. A select number of seafood workers would be paid in the first round, then another select group, and if money remains, it will be divided among remaining claimants.
If the number of legitimate claimants is unexpectedly small, the structure provided not a premium, "but a windfall to the claimants who received compensation in the first round," BP says in the complaint.
It claims that Watts' claims to have more than 40,000 clients inflated the value of the seafood compensation program.
"But when fewer than 1,000 persons from that group filed claims, and the other 42,000 Watts 'clients' did not opt out, Watts' phantom clients created an unjustifiable, fraud-based windfall for the first-round claimants," BP says in the complaint.
"In short, more than 98 percent of the Watts claimants never filed a claim with the Seafood Compensation Program," and 96 percent of the claims Watts did file have been denied, BP says in the lawsuit.