BP's Cert Petition Appealing the Deepwater Horizon Settlement

The papers in the Deepwater Horizon Settlement cert petition are mostly in.   The case is BP Exploration & Production Inc. v. Lake Eugenie Land & Development, Inc. -- you can find the documents on SCOTUSBLOG.  

BP's basic argument is that the settlement approved by Judge Barbier in the mass tort class action against it was ultra vires because it contemplated giving money to people who were, according to BP, not injured.   The plaintiffs respond that BP is just trying to overturn a settlement it championed through the backdoor now that its unhappy with the deal.

One of the most interesting briefs filed in this dispute is from Kenneth Feinberg, who oversaw both the 9/11 Victims Compensation Fund and the Gulf Coast Claims Facility.  The latter was the entity that settled claims arising out of the Deepwater Horizon oil spill immediately after it happened.

Feinberg is a world class mediator and one of the most prominent figures in the mass tort world.   The class action settlement that BP is now disputing is the successor to the Gulf Coast Claims Facility, which he headed.   What the class action did that the Gulf Coast Claims Facility could not do is give BP global peace. In other words, all civil claims against BP arising out of the oil spill are precluded by that class action settlement.  

Feinberg's brief asks the Supreme Court to grant cert.  The argument is basically the following: claim facilities like the ones he ran apply a causation requirement that parallels that of the tort system. But, he argues, the settlement agreed to by BP does not include as strong a causation requirement, and this threatens the possibility of future compensation funds to solve mass torts. The brief explains: 

..the Fifth Circuit's decisions in this case affecting the causation standard, if permitted to stand, threaten to make these sorely needed alterantives to mass tort litigation unlikely to be replicated.  Future funds would either adopt the Fifth Circuit's new standard, thereby threatening to overwhelm the claims process with spurious claims, or continue to require causation, thereby channeling claimants toward litigation where the burden of proof is lower. (Feinberg petition at 6). 

This argument seems to me to be just wrong.  The settlement imposed a looser causation requirement than tort law requires.  But that causation requirement was agreed to in order for claimants collect under the settlement; it is not the causation requirement of the substantive law. In the future, if a defendant perferred to create a settlement fund of the Feinberg-ian variety, they could do so and rest "easy" that the causation requirement of the substantive law remains as it always was. (Whether the requirement of specific causation is the best requirement from a normative point of view in mass tort litigation I leave to another day).  

There is no risk that this settlement will affect future litigation because it is a settlement - the defendant participated in crafting and agreed to the causation requirement applied in the claims facility created by the settlement.   One might say it is a form of private lawmaking only applicable to these parties.  If a future mass tort defendant doesn't like this type of loosened causation requirement, they don't have to agree to it.  In fact, they are free to say "we'll litigate every case" as Merck did for five years in the Vioxx mass tort and then in each and every case the standard causation requirement of the tort law in the relevant jurisdiction will apply. 

And what of the argument championed by BP that the settlement pays people who were not injured in fact?  Welcome to the world of settlements, Dorothy.  What happens in a settlement is this: each party has a sense of what the case is "worth" - that is, the likely result at trial.  They discount that amount by the risk of loss.  Then they substract from that discounted amount their transactions costs (the costs of litigation).  If the resulting number is close for both parties, they settle.  See Steven Shavell, Foundations of the Economic Analysis of Law, 401-407 (2004).  If they settle, they don't litigate. When they don't litigate, there is no trial.  

A settlement means that the plaintiff never has to prove causation, or any other element of her cause of action.  If the BP settlment violates Article III because plaintiffs didn't prove their legal entitlements, then every settlement violates Article III.  The reason is that in no settlement does plaintiff ever prove that they are entitled to compensation because the very purpose of the settlement is to avoid trial.  A plaitniff's entitlement at settlement is always uncertain.  If settlements in general are constitutional, then so is this one. 

A class action settlement is different than an ordinary settlement because it requires judicial approval.  But does that judicial approval require that plaintiff establish injury?  Here is the requirement for judicial approval of class action settlements:  "If the settlement would bind class members," then the court needs to determine at a fairness hearing that the settlement is "fair, reasonable and adequate."  Fed. R. Civ. P. 23(e)(2).  The reason that a fairness hearing is only required "if the settlement woudl bind class members" is that the purpose of the hearing and approval process is to protect absent class members who are to be bound, but are not before the court to state their objections.  This requirement is not meant to protect defendants, who are certainly well able to defend their interests and state their objections before the court.

And what was the benefit to BP? Why would BP enter into such a settlement?  They wanted global peace.  Only a class action settlement can provide that.  They were willing to pay a high price for global peace at the time.  Now things are different for BP, time has passed and it is in a better position than it was when it made this agreement, but that doesn't make the agreement unconstitutional or violative of the class action rule.  

I hope the Supreme Court does not grant certiorari because the Fifth Circuit correctly rejected these claims.  The ideas that underly the BP cert petition don't make sense in a litigation system that permits settlement.  And they don't make sense under modern jurisprudential understanding of what a right is.  People can sue when they think they have a right that has been violated.  If the lawsuit goes to trial, then plaintiff will have to meet their burden of proving that they in fact (1) have a right and (2) it was violated.  (Actually, they will likely have to show that they have a colorable case long before then).  At the beginning of the litigation these things are uncertain. Uncertainty is the space in which settlements happen.