In Re: Oil Spill by the Oil Rig "Deepwater Horizon" in the Gulf of Mexico, on April 20, 2010

Response/Reply

E.D. La.February 21, 2014

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF LOUISIANA In Re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010 This document relates to all actions. * * * * * * * * * * * MDL NO. 2179 SECTION: J HONORABLE CARL J. BARBIER MAGISTRATE JUDGE SHUSHAN BP’S RESPONSE TO INITIAL OBJECTIONS AND RESPONSE OF THE ANDRY LAW FIRM TO THE FREEH REPORT BP respectfully submits this Response to the Initial Objections and Response of The Andry Law Firm to the Freeh Report (Rec. Doc. 12172). The Court should adopt the recommendation of the Special Master and apply the unclean hands doctrine to disallow payment of The Andry Law Firm’s claim. Neither the Settlement Agreement nor principles of res judicata compel this Court to order payment of a claim to a party – like The Andry Law Firm – which has unclean hands. See Keystone Driller Co. v. General Excavator Co., 290 U.S. 240, 245 (1933) (stating that courts apply the unclean-hands doctrine because “‘[t]o aid a party [who has acted inequitably] would make th[e] court the abettor of iniquity’” (quoting Bein v. Heath, 47 U.S. 228, 247 (1848))). BP bears the cost of any award paid to a party that has acted inequitably, fraudulently, or unethically. It thus has a direct and particularly acute interest in the outcome of the Special Master’s recommendation that this Court disallow the payment of The Andry Law Firm’s pending $7,818,693.95 award. Case 2:10-md-02179-CJB-SS Document 12389 Filed 02/21/14 Page 1 of 8 2 I. Background An exhaustive procedural history of The Andry Law Firm’s claim is unnecessary; BP merely highlights the key steps in the claim’s chronology. • On August 14, 2012, The Andry Law Firm filed a pro se Business and Economic Loss claim with the Court Supervised Settlement Program (“CSSP”). • On March 20, 2013, the claims facility issued an Eligibility Notice finding that The Andry Law Firm was entitled to $7,648,722.34. BP appealed. • The Appeal Panel upheld the initial compensation finding and on June 7, 2013, issued a post-appeal eligibility notice calculating an award amount of $7,818,693.95 to The Andry Law Firm. • The Andry Law Firm’s claim (and its further processing) was placed on hold pending the outcome of the investigation into alleged ethical violations and other misconduct within the CSSP. • Special Master Freeh’s first report, published on September 6, 2013, contained detailed descriptions of the improper conduct of Jon Andry and Gibby Andry with respect to the processing of The Andry Law Firm’s claim and efforts to influence the appeal of their claim. Rec. Doc. 11287 at 45-57.1 This conduct formed the 1 Among his findings, Special Master Freeh wrote, “These [cell phone] records support the inference that Mr. Sutton and the Andrys were engaged in conversations regarding The Andry Law Firm claim.” Special Master Freeh also titled a section of his report “The Andrys’ Efforts to Influence The Andry Law Firm Appeal Within the DHECC.” Rec. Doc. 11287 at 48-49, 53. Case 2:10-md-02179-CJB-SS Document 12389 Filed 02/21/14 Page 2 of 8 3 basis for the Special Master’s recommendation to disallow the payment of The Andry Law Firm’s claim under the “unclean hands” doctrine.2 Id. at 88. • Pursuant to the Court’s Show Cause Order, The Andry Law Firm filed “Initial Objections and Response” to the Freeh Report. BP now responds. II. Argument In its Initial Objections and Response, The Andry Law Firm cites the language of the Settlement Agreement as well as principles of res judicata to argue that its claim must be paid, despite the overwhelming evidence of its misconduct.3 But res judicata surely does not apply to The Andry Law Firm claim because the parties are subject to the ongoing jurisdiction of the Court,4 pursuant to which the Court may apply equitable doctrines – such as unclean hands, disgorgement, or restitution. These doctrines prevent the payment and allow recovery of claims awards procured in an inequitable, fraudulent, or otherwise improper manner. The provision of 2 This Response is limited to the Special Master’s recommendation to disallow the payment of The Andry Law Firm’s claim under the “unclean hands” doctrine and the objections thereto. BP does not address other possible grounds for challenging The Andry Law Firm’s claim, such as potential miscalculations under the Claims Administrator’s now-invalidated interpretation of the Settlement Agreement, admissions made by The Andry Law Firm during the Special Master’s investigation, that the alleged losses of The Andry Law Firm were not a result of the spill and are therefore ineligible for payment, or inaccurate statements by The Andry Law Firm in its appeal panel memoranda. Further, no award induced by fraud may be paid under the terms of the Settlement Agreement. See Order, Sep. 6, 2013 (Rec. Doc. 11288) (instructing the Special Master to investigate and take “legal action” concerning “the payment of any fraudulent claims”). BP reserves its right to challenge The Andry Law Firm’s claim on other grounds. 3 The Andry Law Firm has also filed a separate Motion to Release Hold on Payment to The Andry Law Firm, Rec. Doc. 12277, which raises similar arguments. This Court has not yet set a briefing schedule on The Andry Law Firm’s Motion to Release Hold on Payment to The Andry Law Firm, and BP reserves the right to respond directly to that motion if and when the Court sets a briefing schedule. 4 See, e.g., Settlement Agreement § 18.1, Rec. Doc. 6430 (providing that this Court retains “continuing and exclusive jurisdiction” of all matters “arising out of or related to the interpretation, enforcement or implementation of the Agreement”). Case 2:10-md-02179-CJB-SS Document 12389 Filed 02/21/14 Page 3 of 8 4 the Settlement Agreement cited by The Andry Law Firm merely describes the procedure for calculating awards under the terms of the Settlement Agreement. See Settlement Agreement § 6.2, Rec. Doc. 6430. The Andry Law Firm provides no contractual language that would divest this Court of jurisdiction or prohibit this Court from using its equitable powers to prevent the payment of an ill-gotten gain from the CSSP. Accepting The Andry Law Firm’s reading of the Settlement Agreement would lead to the absurd result that this Court’s ongoing jurisdiction and supervision of the settlement is toothless because every award affirmed by an Appeal Panelist or Appeal Panel must be paid out, and can never be stopped or recovered, no matter what inequity it is based upon or what fraudulent or improper conduct is used to secure it. Another flaw in The Andry Law Firm’s res judicata argument is that res judicata only bars the relitigation of claims and defenses that “could have been raised” in an earlier proceeding. See RA Global Services, Inc. v. Avicenna Overseas Corp., 843 F. Supp. 2d 386, 289 (S.D.N.Y. 2012) (emphasis added); see also Brown v. Felsen, 442 U.S. 127, 131 (1979) (“Res judicata prevents litigation of all grounds for, or defenses to, recovery that were previously available to the parties . . . .”) (emphasis added). The Andry Law Firm does not identify how and when BP could have raised the equitable defense of unclean hands during the CSSP process. The CSSP is not an entity, standing alone, to which res judicata principles would apply. See Oreck Direct, LLC v. Dyson, Inc., 560 F.3d 398, 401 (5th Cir. 2009) (stating that one of the four elements that must be met for a claim to be barred by res judicata is that “the prior judgment must have been rendered by a court of competent jurisdiction”) (internal citations omitted). It remains “subject to the ongoing supervision of the Court.” Settlement Agreement § 4.4.7, Rec. Doc. 6430. Furthermore, The Andry Law Firm does not explain how the defense of unclean hands was “previously available” to the parties. The Special Master’s report detailing misconduct on Case 2:10-md-02179-CJB-SS Document 12389 Filed 02/21/14 Page 4 of 8 5 the part of The Andry Law Firm with respect to its claim was not published until September 6, 2013 – three months after the Appeal Panel upheld the initial compensation finding of The Andry Law Firm’s claim. Therefore, the evidence of The Andry Law Firm’s “unclean hands” was not a defense that “could have been raised” in the earlier proceeding before the CSSP because the evidence revealed in the Freeh Report was not yet in BP’s possession. Finally, various civil procedure doctrines recognize the fact that fraud by its very nature conceals, and for that reason “the desire to preserve the finality of judgments” must be balanced against “the incessant command of the court’s conscience that justice be done in light of all the facts.” Seven Elves, Inc. v. Eskenazi, 635 F.2d 396, 401 (5th Cir. 1981) (describing the “countervailing impulses” moderated by Federal Rule of Civil Procedure 60(b)) (internal quotations omitted). The purposes underlying the doctrine of res judicata do not support upholding a determination procured through later-discovered fraud or other misconduct. See Turner v. Pleasant, 663 F.3d 770, 777 (5th Cir. 2011) (“[E]quity will not enforce judgments procured by fraud or bribery.”) (citing Restatement (Second) of Judgments § 70 (1982)); Hazel- Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 244 (1944) (“From the beginning there has existed along side the term rule a rule of equity to the effect that under certain circumstances, one of which is after-discovered fraud, relief will be granted against the judgments regardless of the term of their entry.”). This Court has the authority to disallow the payment of The Andry Law Firm’s claim, and it should do so for the reasons stated by the Special Master in his September 6, 2013, report. Allowing the payment at issue to proceed in the face of the evidence gathered by the Special Master would not only directly harm BP, but undermine the integrity of the CSSP. See Report of Special Master at 10, Rec. Doc. 11287 (“The undisclosed financial interest between Mr. Sutton Case 2:10-md-02179-CJB-SS Document 12389 Filed 02/21/14 Page 5 of 8 6 and Mr. Jon Andry tainted and corrupted the integrity of the DHECC process and payment of The Andry Law Firm claim should therefore be prohibited under the Unclean Hands Doctrine and well-settled principles of equity, fairness and justice.”). There can be no tolerance for fraud or misconduct when the CSSP processes claims in the first instance, and all appropriate remedies should be pursued to prevent the administration of this court-supervised settlement from contamination by fraud or other injustice. See New York Football Giants, Inc. v. Los Angeles Chargers Football Club, Inc., 291 F.2d 471, 474 (5th Cir. 1961) (“‘[W]here a suit in equity concerns the public interest as well as the private interests of the litigants th[e unclean hands] doctrine assumes even wider and more significant proportions. For if an equity court properly uses the maxim to withhold its assistance in such a case it not only prevents a wrongdoer from enjoying the fruits of his transgression but averts an injury to the public.’” (quoting Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 815 (1945))); Hazel-Atlas Glass Co., 322 U.S. at 246 (the unclean hands doctrine protects against “a wrong against the institutions set up to protect and safeguard the public”). The unclean hands doctrine serves to protect the Court from becoming an “abettor of iniquity,” Keystone Driller Co., 290 U.S. at 245, and should be applied here to disallow the payment of The Andry Law Firm’s claim. CONCLUSION For the foregoing reasons and those set forth in the Special Master’s report of September 6, 2013, BP respectfully requests that the Court overrule the Objections of The Andry Law Firm and disallow the payment of The Andry Law Firm’s claim. At bottom, The Andry Law Firm’s position is that a claimant whose actions “tainted and corrupted” the CSSP is entitled to the CSSP’s mistaken award, and that there is nothing this Court can do about the claimant’s conduct. Neither the law, principles of equity, nor the facts justify such a result. Case 2:10-md-02179-CJB-SS Document 12389 Filed 02/21/14 Page 6 of 8 7 February 21, 2014 James J. Neath Mark Holstein BP AMERICA INC. 501 Westlake Park Boulevard Houston, TX 77079 Telephone: (281) 366-2000 Telefax: (312) 862-2200 Respectfully submitted, /s/ Kevin M. Downey Kevin M. Downey F. Lane Heard III WILLIAMS & CONNOLLY LLP 725 Twelfth Street, N.W. Washington, DC 20005 Telephone: (202) 434-5000 Telefax: (202) 434-5029 Daniel A. Cantor Andrew T. Karron ARNOLD & PORTER LLP 555 Twelfth Street, NW Washington, DC 20004 Telephone: (202) 942-5000 Telefax: (202) 942-5999 Robert C. “Mike” Brock COVINGTON & BURLING LLP 1201 Pennsylvania Avenue, NW Washington, DC 20004 Telephone: (202) 662-5985 Telefax: (202) 662-6291 Jeffrey Lennard Keith Moskowitz DENTONS US LLP 233 South Wacker Drive Suite 7800 Chicago, IL 60606 Telephone: (312) 876-8000 Telefax: (312) 876-7934 OF COUNSEL /s/ Don K. Haycraft S. Gene Fendler (Bar #05510) Don K. Haycraft (Bar #14361) R. Keith Jarrett (Bar #16984) LISKOW & LEWIS 701 Poydras Street, Suite 5000 New Orleans, Louisiana 70139 Telephone: (504) 581-7979 Telefax: (504) 556-4108 Richard C. Godfrey, P.C. J. Andrew Langan, P.C. Wendy L. Bloom KIRKLAND & ELLIS LLP 300 North LaSalle Street Chicago, IL 60654 Telephone: (312) 862-2000 Telefax: (312) 862-2200 Jeffrey Bossert Clark Steven A. Myers KIRKLAND & ELLIS LLP 655 Fifteenth Street, N.W. Washington, D.C. 20005 Telephone: (202) 879-5000 Telefax: (202) 879-5200 ATTORNEYS FOR BP EXPLORATION & PRODUCTION INC. AND BP AMERICA PRODUCTION COMPANY Case 2:10-md-02179-CJB-SS Document 12389 Filed 02/21/14 Page 7 of 8 8 CERTIFICATE OF SERVICE I hereby certify that the above and foregoing pleading has been served on All Counsel by electronically uploading the same to Lexis Nexis File & Serve in accordance with Pretrial Order No. 12, and that the foregoing was electronically filed with the Clerk of Court of the United States District Court for the Eastern District of Louisiana by using the CM/ECF System, which will send a notice of electronic filing in accordance with the procedures established in MDL 2179, on this 21st day of February, 2014. /s/ Don K. Haycraft Don K. Haycraft Case 2:10-md-02179-CJB-SS Document 12389 Filed 02/21/14 Page 8 of 8