NEW ORLEANS – Loyola University New Orleans College of Law professor Blaine LeCesne describes the court-ordered investigation into allegations of fraud within the BP oil spill settlement program as the first of its kind.
LeCesne, who focuses his research on liability determinations in the oil spill litigation, contends that the call for the investigation was likely due to the size and uniqueness of the settlement, as well as to the amount of money at stake.
“Whenever you have a pool of money that large – it’s uncapped so it’s billions, and there is no limit to the amount that can be paid out – there are going to be individuals and entities that are going to try to game the system,” he said.
But, LeCesne adds, the settlement program was designed with “multiple redundancies” to ensure claims are only paid after a thorough, forensic review. The individuals or businesses that submit those claims also face intense scrutiny.
“If there is anything that is remotely amiss, that claim has to go through a gauntlet of multiple levels of accountants’ review before a decision is made to pay the claim,” he said. “So it’s almost impossible to defraud the system.”
Alongside BP’s recent appeals over the payment of business economic loss claims, and the initial approval of the settlement and certification of the class, the company argued that fraud did exist within the oil spill settlement program. BP initially estimated it would pay around $7.8 billion to resolve claims, but now alleges that it faces much higher costs.
In July, U.S. District Judge Carl Barbier of the U.S. District Court for the Eastern District of Louisiana asked ex-FBI Director Louis Freeh to serve as a special investigator after claims administrator Patrick Juneau revealed that an internal investigation into the program showed potential conflicts of interest.
Freeh released the results of his two-month investigation in September, accusing Lionel Sutton, a former senior attorney with the settlement program, of taking a $40,000 referral fee from the Andry Lerner law firm and attempting to expedite a claim worth more than $7.9 million for the firm. Freeh also accused the New Orleans firm of taking advantage of Sutton’s position in the program to gain swift acceptance of its claim.
On “The State of the Gulf,” a new website BP launched to counter its critics, the company argues that its concerns about possible fraud and misconduct in the oil spill settlement process were confirmed by Freeh’s investigation.
BP doesn’t identify the lawyers named in the report, but argues that Freeh found that “‘many’ of the claims program’s ‘key executives and senior attorneys’ engaged in ‘pervasive’ improper and unethical conduct, some of which may have been criminal.”
The company also points out that “a New Orleans law firm tried to exert ‘improper personal influence’ to advance both its…payment award and claims determinations favoring its clients, and ‘to corrupt’ the claims process ‘in order to enrich’ itself.”
LeCesne views the results of the investigation from a different perspective, contending that after spending several months at the claims facility and interviewing hundreds of its employees, Freeh concluded that the claims process worked as intended and was free of fraud.
He explains that Freeh found a conflict of interest by one attorney and an effort by a few other attorneys to move their claims to the front of the line. But, he continues, there was no finding that any claim was improperly processed or paid.
“BP has predictably exaggerated the nature and substance of the findings of the Freeh report, whereas the Freeh report actually validated the process in most respects,” LeCesne said. “The only wrongdoing is an ethical violation by an attorney and other unseemly conduct by some attorneys trying to get their claims paid ahead of others.”
“When you look at that, it’s not really that bad,” he said. “They probably were overzealous in trying to get their clients and themselves paid before everyone else, but they weren’t trying to extract improper payments. There’s a big difference.”
Lewis Unglesby, an attorney with the Unglesby Law Firm in Baton Rouge, who represents Andry Lerner partner Jon Andry, also challenges the findings of the Freeh investigation.
He argues that Andry never paid any fee to nor approved any fee for Sutton. He adds that Freeh never contacted Andry or him to discuss those allegations before he released his report to the public.
“It is full of erroneous conclusions, poorly researched facts, misinterpretations and plain errors,” Unglesby said. “I’ve interviewed most of the witnesses that he interviewed, and they all say that what he says isn’t true.”
Unglesby has since filed pleadings and asked for hearings to address the investigation, but he says he and his client are still waiting for their day in court.
“We’re exasperated with the failure to give us a fair and honest opportunity to confront and defeat these unfounded allegations,” he said. “Jon Andry has about 600 clients who were in line to be paid properly and appropriately under the rules, and Freeh effectively hijacked not only that, but essentially the entire claims office.”
Following his report, Freeh recommended turning over his results to the U.S. Department of Justice and the U.S. Attorney’s Office for the Eastern District of Louisiana to determine whether Sutton, Andry or other attorneys violated any federal laws related to fraud, money laundering or conspiracy.
He also asked the court to consider disallowing the $7.9 million payment to the Andry Lerner law firm and disqualifying the accused attorneys from representing claimants in the settlement or collecting fees from those claimants.
The court directed Freeh to continue his examination and investigation of conflicts by parties involved in the oil spill settlement program. He has not yet issued his final report.
LeCesne remains skeptical, contending that the entire investigation is “much ado about nothing.”
“I know this because I’ve talked to many attorneys who have claims, and I’ve interviewed them about what they have to go through,” he said. “That’s what’s not getting reported – how tedious a process it is and how carefully they review every aspect of every claim. If there is a ‘T’ not crossed, or an ‘I’ not dotted, it’ll get kicked out.”