We’ve reported about what’s wrong in the secrecy around BP’s payments to Kenneth Feinberg and his law firm, which is doling out compensation for BP’s devastating oil spill in the Gulf.
Monday, though, the Center for Justice and Democracy got deep into the guts of the matter.
In a letter to the CEO of BP, it lays out all the pressures on claimants and the risks of the structure of the three-year payout.
The gist of it: victims are pressured to take payouts now and sign releases absolving every possible culprit of liability. And the private payouts to Feinberg and Co. could be structured to intensify the pressure.
Here’s the whole thing:
December 6, 2010
Mr. Robert Dudley, Chief Executive Officer BP p.l.c. 1 St. James’s Square London SW1Y 4PD
United Kingdom VIA FACSIMILE: 44 (0)20 7496 4630
Dear Mr. Dudley:
We are contacting you today because of serious new issues raised about the lack of transparency and potential conflicts of interest related to the administration of the Gulf Coast Claims Facility (GCCF). As a national public interest organization that works to protect the civil justice system, we are concerned about how these issues could impact the integrity of the process for the victims of the BP Gulf Coast oil disaster as the final settlement process moves forward.
First, we should note that the integrity of the final process is already marred by several issues. For example, even though the long-term effects of the disaster on businesses and communities will not be known for several years, potential claimants were warned by Mr. Feinberg that the longer they wait to accept a lump sum final payment, the less money they may get. This kind of “advice,” which could lead to undue pressure on businesses to settle low before they have any idea what they may need to survive, smacks of anti-claimant bias and raises very serious questions as to why he would say this now.
Second, Mr. Feinberg, employed by BP, has decided on his own authority that all claims recipients must release all companies who caused this disaster from any and all legal responsibility, no matter how grossly negligent they were. This sweeping release, which assigns victims’ claims to BP, benefits only one actor: BP – the company that happens to pay Mr. Feinberg’s salary. Aside from the impact on victims, who must give up all legal rights before they know what damages they may have, weakening the legal accountability of culpable companies in this way could have grave ramifications for the future health and safety of the Gulf and elsewhere. That this is being required by an attorney representing and compensated by BP who directly engages victims outside of the presence of their own counsel is ethically and morally distressing.
Already of concern is the fact that the claims adjudication process is private, lacking any judicial supervision, with the terms and protocols arrived at privately. In light of these and other well-known concerns about the claims process, the need for transparency about potential conflicts of interests by Mr. Feinberg and his team of lawyers and subcontractors, all of whom are being paid by BP, is all the more urgent. Yet full disclosure remains severely lacking.
Despite repeated calls for the release of documents establishing the formal relationship between BP and Feinberg Rozen, as well as its subcontractors who are reviewing and adjudicating claims, almost nothing has been publicly released. And now we learn, as reported by Reuters on November 22, 2010, that BP and Feinberg Rozen consider their arrangement “verbal,” i.e., they have not committed to writing the firm’s compensation arrangement so there can be no public examination of it. Is the public to believe that there is no paper evidence at all documenting a $10 million per year financial arrangement between BP and Feinberg Rozen? What about the contracts between BP, Feinberg Rozen and the subcontractors who are advising and adjudicating claims and also being paid directly by BP? Surely these contracts must be in writing and released.
This failure to release the terms of all these financial arrangements under circumstances of tremendous historic and public significance is simply unacceptable. As Stephen Gillers, an ethics professor at New York University School of Law said, “Although strictly speaking, claimants are private and BP is private and Feinberg Rozen is private, this situation has public interest and concern written all over it…In fact, it’s hard to imagine a private compensation scheme that is as imbued with the public interest as this one.”
What we do know is that Feinberg Rozen has been given an extremely lucrative contract. Reuters noted:
The [October 7, 2010] report by former [George W. Bush] Attorney General Michael Mukasey, now a partner with Debevoise & Plimpton, said that BP was paying Feinberg’s six-lawyer Washington, D.C., firm, Feinberg Rozen, a flat fee of $850,000 a month for labor and overhead costs, under an agreement expected to last through the end of the year. During a three-and-a-half month period from June to October, the report said, Feinberg and three other lawyers spent about 2,777 hours on the project, which would amount to an average hourly rate of about $1,000 per hour if the firm were being paid on an hourly basis.
There is much we still do not know. For example, Mukasey recommended that the parties “agree to revisit the issue [of monthly fee payments] at intervals of 4 months or some other fixed period.” Mr. Feinberg, on the other hand, told Reuters that “he had a three-year agreement with BP ‘for the life of the GCCF (Gulf Coast Claims Facility) totally unrelated to whether we process 1,000 claims or one claim.’” Does this mean BP will pay him $850,000 per month for three years irrespective of the firm’s workload? Or, if he has accepted Mukasey’s recommendation, will BP and Feinberg Rozen disclose information related to any renegotiations over this fee?
If BP and Feinberg Rozen agree to reduce payment to the firm over time, there is suddenly a troublesome financial motive for the firm to slow down claims processing. Mukasey pointed this out in his report arguing against an hourly fee because “charging for hours could lead to suggestions that delays in claims review are motivated by compensation concerns.” The slower the fund distributes payments, the more desperate victims get; the more desperate they get, the more likely they will agree to smaller amounts. Alternatively, if the firm’s fee drops as more claims are processed, the same conflict of interest arises. At the very least, these issues must be disclosed and publicly examined. Moreover, we still do not know how much Mr. Feinberg is being paid personally. This information must also be released.
What’s more, the financial arrangements with subcontractors, like Garden City and BrownGreer, who are conducting claims review and adjudication, are even more secretive. As Mukasey described it, “[T]he costs of these subcontractors are not covered by the flat fee to the Firm, but are passed through dollar for dollar to BP.” In other words, just as with Feinberg Rozen, BP pays for the subcontractors who in turn directly engage victims outside of the presence of their own counsel. Again, there are real ethical concerns raised by this practice. At a minimum, all contracts, documents and communications related to the financial arrangements between BP, Feinberg Rozen and the subcontracted firms that are dependent on BP for this work must be disclosed.
It is in this context that we call on BP and Mr. Feinberg to come clean, live up to the promise of transparency that was issued when the fund was created and make clear exactly how much Mr. Feinberg is being paid by BP personally. In addition, we ask for the release of all documents detailing the nature of the Feinberg Rozen-BP relationship, as well as the financial arrangements between Feinberg Rozen, BP and the subcontracted firms.
As all parties acknowledge, this is an unprecedented situation. Mr. Feinberg’s role as the acting attorney for BP, through which Mr. Feinberg is directly engaging unrepresented victims while receiving in excess of $10 million a year from BP, is troublesome to say the least. BP and Mr. Feinberg need to allay these concerns by making fully public all documents pertaining to their formal relationship, including each and every compensation arrangement related to the administration of the GCCF.
Thank you very much for your consideration. Please do not hesitate to contact me with any questions.
Joanne Doroshow Executive Director