BP’s hard-line legal tactics aimed at capping the financial blowout from the 2010 Gulf of Mexico oil disaster will backfire, according to Joe Rice, negotiator of last year’s settlement on behalf of over 100,000 compensation claimants.

Until six months ago, the British oil company sought to co-operate and negotiate its way through the web of litigation spun around it by government bodies, private individuals and businesses.

It pleaded guilty to criminal misconduct in November 2012, having agreed in March the same year to a compensation settlement with the Plaintiffs’ Steering Committee (PSC) on which Rice sits.

But with $42.4 billion so far spent or earmarked for spending on clean-up, compensation payments, fines and costs, and with assets that generated $5 billion of cash flow a year sold to pay that bill, BP’s management finds itself still a long way from the financial “closure” it craves, and so has changed tack.

In February it gave up hope of settling the civil charges that could add tens of billions more to its bill, and a trial began in New Orleans under judge Carl Barbier. The second phase of that trial is due to start on Sept 30 with federal charges brought under the Clean Water Act and damage claims sought by Gulf Coast states at stake.

Then in March as its bill began to overshoot estimated costs, BP began to contest the way payouts were being made under the PSC settlement – saying too many undeserving claims were getting through, calling some of them “fictitious” and “absurd”.

It failed to convince Barbier. Participants await the outcome of a one-day appeal hearing on July 8 at The U.S. Fifth Circuit Court of Appeal, also in New Orleans.

BP has also baulked at paying claims administrator Patrick Juneau’s costs, has expressed concern at the amount of money being made by lawyers, and launched its own “fraud hotline” after allegations of misconduct in the payout process.

Then last week, it began a separate lawsuit against the Environmental Protection Agency (EPA), seeking to lift its exclusion from bidding for new federal contracts following its criminal conviction in November.

Battle Of New Orleans

At a quarterly results presentation on July 30, BP’s chief executive Bob Dudley, himself an American, said the U.S. legal system needed reform and that BP was “digging in … for the long-haul on legal matters” over the spill, which killed 11 people and caused the United States’ worst offshore environmental disaster.

“We’re going back to the 1814 attack on New Orleans by the British,” Rice told Reuters by telephone in a reference to a Christmas-time campaign at the end of the 1812-1815 war. Hard-pressed U.S. forces were victorious in the ensuing Battle of New Orleans on Jan 8, 1815, the inspiration for Johnny Horton’s eponymous 1959 hit song.

“They’re attacking our entire judicial system. They’re attacking the judge. They’re attacking the claims administrator they helped appoint. They’re attacking the lawyers for representing people. Now they’ve filed an attack on the U.S. government demanding that they do business with them.

“In our view, BP views us as a colony that they own and can exploit. It’s outrageous.”

In response, BP called Rice’s words “xenophobic” and said it was “defending its rights”.

Rice, of the law firm Motley Rice, is a veteran of the largest civil settlement in U.S. history, in which the tobacco industry agreed to reimburse states for smoking-related health costs.

He says BP has done itself no favors by using language about “fictitious”, “absurd” and “inflated” compensation claims.

“I think they’ve made a vast strategic error by fighting and shifting this whole battle to an attack on the people of the Gulf,” Rice said. “Any goodwill they built on trying to do the right thing, they have destroyed … Now more people are going to file claims and it’s going to make the whole process worse.”

Settlement Itself At Risk?

On top of this, Rice says, BP’s legal argument against the way some payouts are being approved cannot change the financial impact significantly, since only a small proportion come under the type of payout BP is objecting to, and because all claims already made that get approved must be honoured under the settlement’s terms, regardless of what happens to it in future.

He said the settlement itself was also at risk from the line of argument BP has taken in its court papers.

BP has said Juneau’s interpretation of certain terms in the settlement treats some claimants differently from others, and so, under U.S. rules, is at odds with its status as a “class” settlement – one that can apply to the large numbers of individual cases it is designed to cater for.

Claimants who object to the settlement and want it scrapped altogether have picked up on this, using BP’s arguments in their own legal briefs as ammunition to overturn what is called “class certification”. One such brief, filed in July on behalf of Cobb Real Estate and other objectors, makes a specific reference to its adoption of the argument put forward by BP.

Class certification forces all claimants, other than those who opted out or were excluded, to file claims through the court-approved settlement process, and they must do so by a certain time – currently set at April 2014.

Without it, anyone who has not filed a claim can go back to normal litigation. “So BP has put that (settlement) at greater risk,” said Rice. If class certification is overturned, “all the benefits they got from the agreement … the end of the lingering tail of liability, all that goes away.”

Aside from this technical argument, BP’s main objections to the interpretation of the settlement by Juneau and his team centre on the assertion that normal accounting definitions of words used in the agreement were being ignored. A group of accountancy academics has filed a paper in support of that claim.

“But we’re not using normal accounting,” says Rice.

“We spent months sitting down and writing an agreement on what was a variable expense and what was a fixed expense. We also agreed that claimants would use their monthly P&Ls (profit and loss accounts) if they reconciled with their tax returns … That’s how we made sure no one was cooking the books so to speak … We both acknowledged that we’re not using GAAP accounting.”

And putting out an estimate of the cost Of the PSC Settlement might have been the beginning of BP’s troubles, Rice reckons.

“We asked them not to put out a public number of what they thought the settlement was worth … They had no reasonable basis to get there,” he said.

The original estimate was $7.8 billion. It currently stands at $9.6 billion.

BP was unapologetic.

“To hear Mr. Rice’s xenophobic name-calling and hyperbolic characterizations, you’d think the War of 1812 was still raging,” said BP’s head of U.S. communications Geoff Morrell in an emailed statement that noted BP employs 20,000 Americans and supports more than 250,000 jobs in the country.

“BP also stepped up in the wake of the Deepwater Horizon accident and continues to do so,” said Morrell.

“What Mr. Rice is bemoaning is BP’s effort to ensure that our willingness to do the right thing is not taken advantage of and distorted to provide windfalls to undeserving businesses, including law firms. While we are willing to pay legitimate claims, we did not agree to pay for fictitious losses, or for claims that are based on fraud or tainted by corruption. We are defending our rights, shining a light on abuses, and keeping people informed. This is our legal right—one Mr. Rice should remember was at the heart of the revolution he invokes.”

(Editing by Greg Mahlich)