BP settlement has blow-out provision

Posted on: June 7th, 2012 by Steve Larson
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By most accounts, BP Plc appears to be well on its way to concluding an estimated $7.8 billion settlement to resolve most of its civil liability from the Gulf of Mexico oil spill.  But a potential landmine lurks in the settlement.  Under certain circumstances, the company can invoke a little-noticed provision that allows it to walk away from the deal.

The trigger is opt-outs.  In a settlement of a class action, class members can reject the deal and decide to go it alone.  Defendants have to be prepared for the possibility that a high volume of opt-out litigation will undermine the goal of global resolution.  BP certainly is prepared: Its settlement agreement with plaintiffs claiming economic and property damages includes a provision that gives BP the right to terminate the deal if the total of opt-outs “exceeds a number agreed to by the parties.”

So what’s the number?  That’s the big question.  The settlement agreement doesn’t say.  In fact, the document states that the opt-out number that could trigger a blowup is to be submitted to the court “in a sealed envelope.”  It’s not clear why BP is keeping the number secret.  A spokesman for BP said that it was “part of the settlement negotiation process.”

Most likely, BP may want the number kept under seal so that lawyers with lots of clients do not team up and threaten to opt out in an effort to extract a favorable deal.  Also, BP can choose to go ahead with the settlement if the opt-outs exceed the amount agreed upon, because that number will not be public.  A secret trigger like this is almost unheard of.

Earlier this month, U.S. District Judge Carl Barbier in New Orleans granted preliminary approval to the pact between BP and thousands of private plaintiffs affected by the spill.  Judge Barbier set a fairness hearing date for November 8, 2012, when he will consider granting final approval.  In the meantime, plaintiffs who are part of the class have until August 31, 2012 to file objections to the settlement.  Those plaintiffs also face a deadline of October 1, 2012, to opt out of the settlement.