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Feinberg’s Independence From BP Questioned

NEW ORLEANS (CN) - A legal expert says aspects of BP's oil spill compensation fund made through its Gulf Coast Claims Center "do not comport with the usual standards for transparency and fairness." Kenneth Feinberg's law firm receives $850,000 a month while Feinberg oversees claims for BP. Tulane law professor Edward Sherman was hired by plaintiff counsel to determine whether the Gulf Coast Claims Facility is meeting expectations.

Sherman made the statement in a 5-page declaration submitted to U.S. District Judge Carl Barbier, who is hearing the consolidated complaints stemming from the Deepwater Horizon catastrophe.

Sherman wrote that a claims center should be established with standards of "independence, neutrality, and experience," should adhere to judicial supervision, and should be transparent about where its funding comes from.

Claimants should be told Feinberg was hired by and is paid through BP, Sherman wrote. He says this would help claimants determine for themselves whether Feinberg's statement that claimants are better off not litigating may be influenced by Feinberg's contract with BP.

Sherman's 5e-page statement is followed by an 11-page Curriculum Vitae that lists his legal expertise, including his former position as Dean of Tulane Law School, a teaching fellowship at Harvard Law, his alma mater, and an extensive list of publications, including casebooks for law schools. His experience included complex litigation, civil procedure and alternative dispute resolution. He has served as counsel, consulted with counsel, or served as an expert witness in a large number of class actions and complex litigations in federal and state courts.

Sherman claims the monthly $850,000 "fee arrangement" between BP and Feinberg's law firm, Feinberg Rozen LP, "contrasts with the usual method of payment of special masters, who are paid on an hourly basis according to the prevailing market rates in the community."

Citing BP's hiring of lawyers to work at its facility to field claims, Sherman wrote that "having a defendant pay for representation of claimants against it is far from the best way to insure legal representation, and raises questions about the adversaries of attorneys who counsel claimants about whether to accept an offer."

"It is my opinion that certain aspects of the GCCF's [Gulf Coast Claims Facility] operations concerning communications with class members, public releases and comments, requirements for release, and method of payment to attorneys for claimants do not comport with the usual standards for transparency and fairness expected of a claims phase of complex litigation," Sherman wrote in his declaration.

Feinberg and BP set up the Gulf Coast Claims Facility after the Deepwater Horizon catastrophe, as a "responsible party" is expected to do under the Oil Pollution Act of 1990. The ostensible purpose of the fund is to get money quickly to victims of the oil spill.

Critics of the fund have said BP has a second motive: to skew public perception of the disaster as it affects fishermen, seafood proprietors and tourism industry workers, and to reduce litigation resulting from the spill.

Quoting from a legal document put out by the Stanford Review, "The What and Why of Claims Resolution Facilities," by Professor Francis McGovern, the court-appointed special master in the Deepwater Horizon litigation, Sherman wrote: "There are a number of common threads that are critical to their acceptance by parties and claimants and to their success in fulfilling the objectives of the fund.


"Professor McGovern, for example, mentions several accepted standards for the establishment and approval of a claims facility scheme. First is 'independence, neutrality, and experience. ...

"Another accepted standard identified by Professor McGovern is 'judicial supervision.' While not all claims facilities operate under court supervision, where, as here, a claims facility operates as a pre-litigation device, an MDL court having jurisdiction over cases in which claimants are parties or potential parties can exercise surpervisory or remedial authority to insure fairness in the litigation before it," Sherman wrote.

"Claims resolution may be accomplished in litigation through appointment of a special master to serve as claims administrator. ... That the special master must be independent and neutral as regards the parties goes without saying, and is further insured by the fact that the judge has the final decision-making authority.

"On June 16, 2010, British Petroleum announced the appointment of Kenneth Feinberg as administrator of an 'independent claims process' for individuals and businesses injured by the oil spill. The agreement between Mr. Feinberg and British Petroleum was not memorialized in detailed contractual terms. Either BP or the law firm of Feinberg Rozen LP, (or some combination thereof), established the Gulf Coast Claims Facility ('GCCF') under Mr. Feinberg's control and supervision, which in turn assumed the duties of administering the claims process, on behalf of BP. British Petroleum, in this regard, was acting pursuant to its legal duties as a 'responsible party' under the Oil Pollution Act to establish a claims process and pay interim and other claims arising from the spill," Sherman wrote. (Parentheses in original.)

His statement continues: "Mr. Feinberg and British Petroleum repeatedly stated that Feinberg was independent, but Mr. Feinberg appears to have worked closely with BP officials in designing the structure and procedures of the GCCF. He apparently consulted with British Petroleum concerning both the substantive and procedural standards for the payment of claims. Although Mr. Feinberg would not draw a salary, his law firm would be paid $850,000 a month, in addition to expenses and the possibility of further compensation. This arrangement was not publicized, and most claimants would not have been aware of it.

"The fee arrangement here contrasts with the usual method of payment of special masters, who are paid on an hourly basis according to the prevailing market rates in the community. The sizable fee arrangement is not objectionable in itself; however, the fee arrangement does reveal a relationship which claimants who are encouraged to go through an 'independent' claims process should be aware of. Knowledge of the arrangement may or may not make a difference to any particular claimant, but it could be a factor in a claimant's decision as to whether to accept an offer by the GCCF. ...

"Statements by Mr. Feinberg quoted on page 11 of plaintiff's memorandum are to the effect that claimants would be better off by not litigating and instead resolving their claims through the GCCF. It is certainly Mr. Feinberg's right to have these views, but when he gives such advice in his capacity as an 'independent' administrator, (as well as a lawyer), they carry special weight with claimants. This becomes more important when the statements suggest that claimants do not need an attorney, and that an attorney is a waste of money." (Parentheses in original.)

"A development since the filing of plaintiffs' motion adds to the concern - the hiring by BP of private law firms to provide representation for claimants. This may have been prompted by a concern that all claimants may not be able to obtain an attorney. The retained firms maintain that they are independent, and the fact that they are paid by BP does not mean that they would abrogate their ethical responsibilities to the client. However, having a defendant pay for representation of claimants against it is far from the best way to insure legal representation, and raises questions about the adversaries of attorneys who counsel claimants about whether to accept an offer. Additional questions arise regarding the prior or current representation of BP, or other potentially released parties, such as law firms. At the very least, claimants should be informed as to how an attorney provided them is being paid, and other potential conflicts of interest.

"The kind of release required by the GCCF in order for a claimant to receive a final payment also raises questions as to how independent the GCCF is. The requirement is that claimants release all claims against BP (not just those which are being considered or paid by the GCCF), and all potentially liable parties (not just BP). In addition, the claimants are required to provide a contractual subrogation of assignment against third parties in favor of BP. As a private claims facility, the GCCF may have a right to impose such restrictions on payouts, but this is a position that is heavily weighted in favor of the interests of defendants, particularly BP. This points up to the fact that claimants should have adversarial legal advice before accepting a GCCF offer, given the scope of the release. This MDL court's concern that the litigation process not be adversely affected by unfair adversarial behavior in getting releases is very real." (Parentheses in original.)

In conclusion, Sherman wrote: "I am of the opinion that this court has the authority, as an MDL court with jurisdiction over litigation involving claimants before the GCCF (and in many cases this court), to insure fairness in the pre-litigation and/or pre-certification stages of the claims and litigation process. To that end, it is appropriate for the court to limit or clarify the GCCF's communications with putative class members and public announcements concerning its associations with the defendant, BP." (Parentheses in original.)

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