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BP Accuses Oil Spill Attorney of ‘Brazen Fraud’ & ‘Phantom Clients’

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.


Claims filed with the BP Compensation Fund require Social Security numbers for all claimants. When the fund sought to verify Social Security numbers from Watts' claimants, it was able to identify just 42 percent of the numbers, BP claims.

And of names that matched with Social Security numbers, more than 95 percent never filed a claim with the program, BP claims.

"The inference of fraud is overwhelming," it says.

BP has filed a motion with the court seeking to halt payments from the fund pending investigation.

The New York Times reported in 2011 that Vietnamese workers on the Gulf Coast finally decided to file claims with the compensation fund, only to be told they could not file on behalf of themselves because they were already being represented by an attorney.

According to the Times article: "numerous Vietnamese households - including some who say they were not even affected by the spill - received letters signed by Mr. Watts, of San Antonio. The letters, in Vietnamese, addressed some recipients by name and others as: 'Dear Client.' The letters directed people to send their financial records and added, 'Do not sign anything from BP or anyone else except Watts Guerra Craft,' the name of the firm."

In July 2012, Watts hosted a $35,800-a plate event for President Obama in the basketball court at his home in San Antonio.

Watts' two law offices in San Antonio were raided in February by Secret Service agents, likely on a mission related to the BP compensation fund, Department of Justice officials suggested.

After the raids, Watts resigned from the oil spill plaintiff steering committee but has kept his oil spill clients.

"The facts in this case shout fraud. Tens of thousands of Mikal Watts' clients have proved to be phantoms," according to a statement from Geoff Morrell, senior vice president for U.S. communications at BP.

Watts' attorney, Robert McDuff of Jackson, Miss., where the federal investigation is based, issued a statement: "In another of a series of efforts to walk away from the settlement to which it agreed, BP has now launched an attack on Mikal Watts, an attorney who has spent his life representing the victims of corporate wrongdoing."

McDuff added: "Mr. Watts never committed identity theft and did not defraud BP or anyone else. He made various filings on behalf of people to preserve their rights to pursue claims. All actions were taken in good faith that legitimate claims were being filed for real people who had been hurt by BP's gross negligence. With respect to those who applied to the settlement, he forwarded the documentation they provided to the independent special master in charge of reviewing settlement claims."

Attorneys who worked with Watts on the oil spill steering committee called BP's lawsuit another of its many attempts to stall compensation payments.

Attorneys Stephen J. Herman and James P. Roy said in a statement: "The notion that the number of deckhands was the driving factor during negotiations in determining the overall amount is absurd," and that just $130 million was allocated to deckhands from the compensation program.

"BP's overreaching attempt to hold the entire seafood program hostage is part of its continuing effort to rewrite history and the settlement agreement, and is unfair to the hardworking men and women of the seafood industry whose livelihoods were destroyed by BP's reckless conduct," the attorneys said.

McDuff was more terse: "BP is a recidivist corporate felon," he said in the statement.

Defendants in BP's recent lawsuit, in addition to Watts and his law firm, are the named plaintiffs in the consolidated class actions filed by Watts in the wake of the oil spill.

"It is not alleged in this complaint that the class engaged in any wrongful conduct," BP says in its lawsuit, "only that it unjustly benefitted from the wrongdoing of Watts."

BP is represented by Don K. Haycraft, with Liskow & Lewis, in New Orleans.

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