The BP Gas Deepwater Horizon oil spill was the largest oil spill in history, eclipsing the Exxon Valdez oil spill in Prince William Sound in the 1980s. Not only did the oil spill cause damage to the water and its wildlife, it also damaged local businesses across the Gulf of Mexico.
As a result, BP entered into the Deepwater Horizon Economic and Property Damages Settlement Agreement, of the Settlement Agreement, which is a court-administered agreement that compensates businesses for losses due to the Deepwater Horizon accident. Courts noted that this falls under Federal Maritime jurisdiction.
The Settlement Agreement provides that parties who feel that the assessment of the administrator of the Settlement Agreement is not sufficient or below value can appeal within the Settlement Agreement structure. Beyond that, a party that feels it was not sufficiently compensated and has exhausted options within the structure can appeal to the District Court.
A recent case, brought by Cody Fortier Farms, LLC, a Louisiana dirt-work services business, questioned some aspects of the Settlement Agreement. The case is Claimant ID 100196090 v. BP Exploration, which was appealed the Fifth Circuit Court of Appeals. This case is unique because it explores questions about “non-arm’s length transactions,” which we will explain below.
Cody Fortier Farms Case
Cody Fortier Farms believes that it was undercompensated per a non-arm’s length transaction payout. Cody Fortier choose 2008 and 2009 as its benchmark periods and 2010 as its post-disaster period. Federal administrators were to use these periods as a way to determine losses and therefore compensate Cody Fortier.
Arm’s Length Transactions
Many contracts have arm’s length transaction clauses or make reference to arm’s length transactions. Arm’s length transactions are requirements that the parties deal with each other at arm’s length, meaning that they deal with each other under basic business conditions without any of the parties favoring another party. They will negotiate and act with each other at arm’s length.
Suppose two brothers are making a business deal. In such a deal, the transaction may not be at arm’s length because one party may be favoring another party due to the familial relationship. In such an instance, upon a discpute between the parties, courts may not view the terms of the contract as facially accurate and may attempt to interpret certain terms because the contract is not considered at arm’s length.
Cody Fortier Equipment
Much of Cody Fortier Farms’ business was with Cody Fortier Equipment. Those two companies are owned by the same individual. The Federal Administrator viewed the negotiations between the parties as non-arm’s length transactions. Under the settlement agreement, non-arm’s length transactions are hard to calculate because they are not accurate gauges of a company’s business. Consequently, the administrator provided a reduced compensation award under the Settlement Agreement, reasoning that the revenues were not at arm’s length.
The District Court declined to hear the case and the Fifth Circuit agreed with the administrator’s assessment.
Involved in the maritime business? Speak with the Kolodny firm, experienced maritime lawyers.
(image courtesy of Erwan Hesry)
Alan Kolodny is committed to representing injured clients in Texas and throughout the United States. Alan earned his B.A. from Rice University and his J.D. from Southern Methodist University.
He focuses his practice on representing plaintiffs in personal injury cases involving the following matters: maritime and offshore accidents, including those under the Jones Act; automobile and 18-wheeler truck accidents; and industrial site accidents, work-related accidents, and claims for injured railroad workers under the Federal Employers’ Liability Act.
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