A Texas lawyer who is the target of a federal probe into whether he grossly inflated the number of clients he represented in the wake of the 2010 Gulf of Mexico oil spill is due in federal court in New Orleans on Wednesday, as BP takes aim at the $2.3 billion deal it brokered to compensate the seafood industry for losses suffered by commercial fishing vessel owners, captains, fishermen and crew members.
In light of the allegations against attorney Mikal Watts, attorneys for BP plan to argue that an anticipated second round of claims payments for losses by the seafood industry should be halted. Watts’ inflated claims resulted in the creation of an oversized $2.3 billion pool, which should instead be capped at the roughly $1 billion already paid out, the company said in a Dec. 17 court filing.
U.S. District Judge Carl Barbier, who is overseeing the civil trial against BP and its partners in the Deepwater Horizon disaster, is scheduled to hear oral arguments Wednesday. Attorneys for Watts also are expected to ask Barbier to put BP’s lawsuit against him on hold until an ongoing criminal investigation over the same allegations is completed.
In the lawsuit filed in December, BP alleges that Watts claimed to represent more than 40,000 clients, which accounted for 88 percent of the anticipated claims for fishing crew members as the settlement was being negotiated. But he eventually filed only 648 claims for deckhands, and the entire number of seafood claims turned out to be far smaller, with 24,250 claims filed in total.
The compensation program for seafood claims is just part of a larger class-action settlement between the British oil giant and the Plaintiffs’ Steering Committee, the group of lawyers who negotiated the pact. The agreement sought to avoid piecemeal litigation by resolving hundreds of thousands of claims for economic damages from what is generally considered the worst environmental disaster in U.S. history.
The company has requested a preliminary injunction to block an upcoming second round of payments to be distributed to businesses and individuals who filed initial seafood-related claims.
BP contends that it signed off on the $2.3 billion cap for seafood-related losses because plaintiffs’ lawyers said from the start that tens of thousands of claims would be filed. Of the 24,551 claims filed, eligibility notes had been issued for 9,077 seafood claims as of last month, totaling about $1.1 billion, records show.
Steve Herman and Jim Roy, co-chairmen of the plaintiffs’ committee, have argued against BP’s effort to halt the seafood program, saying it is part of the company’s “continuing effort to rewrite history and the settlement agreement.”
They said the number of fishing crew members who were expected to be part of the settlement represented only a small portion of the industry that suffered economic losses after the spill.
“The notion that the number of deckhands was the driving factor during negotiations in determining the overall amount is absurd,” they said. “The figure was determined by broad, government-provided economic data.”
Of the 648 individual crew claims Watts filed under the seafood program, only eight were found eligible for payment at the time of BP’s lawsuit, court records show. “There is now every reason to think that the explanation for this glaring discrepancy is fraud,” BP’s attorneys wrote.
In January 2013, Watts filed 43,976 claims through a separate process for seeking payment from BP, but the company says most of those clients, too, were fraudulent. “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,” the BP lawsuit asserted. The “overwhelming majority” of Watts’ named claimants were “almost certainly not clients” of his, BP said in court filings. Many had a Social Security number that belonged to someone else, or one that was either incomplete or phony.
For 5 percent of the Watts claims, the Social Security number matched up to someone who had died, BP said.
Watts was appointed to the plaintiffs’ committee in 2010 and resigned in March 2013.
BP’s motion to halt the payments doesn’t single out any other attorneys who represent seafood claimants.
Since it opened in June 2012, the settlement claims facility has processed more than 262,500 claims for economic losses overall. As of Jan. 10, Lafayette lawyer Patrick Juneau, who oversees the multibillion-dollar claims process, had issued more than 62,100 eligibility notices — affirming the validity of the claims — with payment offers totaling almost $5 billion. Nearly 54,800 claims were paid, adding up to more than $3.8 billion.
A month before his resignation from the steering committee, federal authorities executed search warrants at Watts’ two law offices in San Antonio, according to news reports.
Besides the request for the injunction, Barbier is scheduled to hear a motion from Watts’ attorneys asking that BP’s lawsuit be put on hold pending the conclusion of an ongoing federal criminal investigation into the legitimacy of Watts’ client list.
An affidavit from Watts’ attorney confirmed that Watts and others are under a federal criminal investigation, and that the materials removed from his firm are in federal custody.
“The potential for a criminal indictment of an number of individuals under investigation is ‘real, appreciable and non-speculative,’ ” Watts’ lawyer, Gerald Meunier, wrote in a Jan. 17 memorandum.
In a full-page ad in The New York Times on Monday, BP took its complaints about the seafood claims program to the public, saying the program was “tainted by questionable, potentially fraudulent claims.” The ad described claims that were processed but had “obvious red flags,” including some supported by conflicting tax records; people who said they worked only part of the year, thereby increasing their reported losses; and some claims that projected large spikes in earnings for 2010 that didn’t correlate with the previous year’s revenue.
Monday’s ad was the latest in a series BP has bought in The New York Times and elsewhere to attack the various settlement programs. BP has previously criticized Juneau’s oversight of the claims facility, including its top executives, several of whom have been fired or have resigned amid controversy since it opened in June 2012. They also claim his generous view of the settlement has resulted in outsized checks for claimants who suffered no losses from the spill.
Juneau declined comment Monday about BP’s latest allegations.
Last year, Barbier named former FBI Director Louis Freeh to review the claims program’s operations after a lawyer on Juneau’s staff, Lionel “Tiger” Sutton III, resigned amid allegations that he got money from a claim he referred to a law firm before joining the claims center.
Monday’s ad claimed that Freeh is currently investigating the seafood program and that “he has already found reason for suspicion in many of the approved seafood claims he’s examined so far.”