Gulf Coast Claims Facility Justice
Justice for Spill Victims, Like It or Not
by Joe Nocera
A few days ago, I had breakfast with Kenneth R. Feinberg, the former pay czar and 9/11 fund administrator, who is now grappling with one of the most difficult assignments of his career: doling out as much as $20 billion of BP’s cash to residents of the Gulf Coast who suffered as a result of the Gulf of Mexico oil spill.
We ate at the grand Carlyle Hotel, where Mr. Feinberg usually stays when he is in New York. The dining room, less than half full, was hushed; people were whispering, if they were talking at all. Except for Mr. Feinberg. Whispering has never been part of his repertory.
You might think that giving away billions would be easy. To hear Mr. Feinberg tell it, though, it’s been anything but. Expecting maybe 150,000 claims, the Gulf Coast Claims Facility — that’s the official name of the BP fund — received more than 400,000 requests for short-term emergency money. Claims came from all over the country, not just the gulf. Hotels on the coast of Mississippi filed claims — and so did dentists 100 miles inland. One claimant asked for the entire $20 billion. Others wanted Mr. Feinberg to pay their increased grocery bills. In the three months since the fund has been open for business, Mr. Feinberg has handed out close to $2 billion to 119,000 claimants. Yet nobody seems happy.
In Alabama, politicians have been calling for his head. The outgoing governor, Bob Riley, has called Mr. Feinberg an extortionist. Tony Kennon, the mayor of Orange Beach, a coastal town dependent on tourism, said that meeting with Mr. Feinberg was worse than seeing the dentist. The Mobile Press Register wrote scathing editorials calling for his resignation. Just the other day, the attorney general, Troy King, issued a “consumer alert,” warning the citizenry of Alabama against Mr. Feinberg’s supposedly misleading statements and claiming that Alabama residents would be better off going to court to seek redress than agreeing to Mr. Feinberg’s terms.
At breakfast, as Mr. Feinberg spoke about the obstacles he faced, his loud voice began rising. Suddenly, he was interrupted by a man a few tables away. “Just pay them!” he shouted. Mr. Feinberg looked up at the man, a little startled to realize he’d been overheard. “That’s what I think,” the man continued loudly. “Just. Pay. Them.”
Mr. Feinberg turned to me and said, “This is what I’m up against.”
Wednesday marks an important milestone in the brief history of the Gulf Coast Claims Facility. That is the cut-off date for asking for no-strings-attached emergency money — money meant to help individuals and businesses meet their short-term cash needs. After Thanksgiving, the fund will shift course. With the well now capped, and the waters open again to fishermen — my, that was quick! — Mr. Feinberg will start making lump sum payments for what amounts to damages. In return, however, the recipients have to agree not to pursue damages in the traditional way, by taking BP to court.
A lawyer himself, Mr. Feinberg has created a unique niche in the legal profession. His role is to come up with solutions that prevent large national traumas — not just 9/11 and the Gulf of Mexico oil spill, but such controversies as the ones over silicon breast implants and Agent Orange — from tying up the courts for years on end in litigation that winds up frustrating everyone except the lawyers.
To devise these solutions, though, he still relies on the basic building blocks of the very tort system he is trying to avoid. In the 9/11 disaster, Mr. Feinberg compensated victims’ families by calculating the likely lifetime earnings of the deceased; that’s why the families of investment bankers got more than the families of janitors. That’s the way the tort system calculates damages.
“Compensation systems need to track the tort system,” said Peter H. Schuck, a law professor at Yale. “They’re not perfect, but they’re our best norm for judging wrongfulness and the extent of harm.” In truth, given his life experience, one could hardly expect Mr. Feinberg to come at his task in any other fashion.
Which is also why he can’t just pay them. The tort system is about fighting something out in court and coming to a financial resolution based on the evidence. Mr. Feinberg didn’t just pay them when he had the entire Treasury at his disposal to pay the 9/11 families, and he’s not doing it now, when he has $20 billion of BP’s money to play with. It rubs against everything he believes in about devising fair systems of compensation. Without question, though, this is a large part of the reason that people in the gulf are frustrated with Mr. Feinberg. Since it is not his money but BP’s, why should he care so much that everything be documented to a fare-thee-well? Why can’t he just open the purse strings?
Mr. King, the Alabama attorney general, has gone so far as to accuse Mr. Feinberg of being an agent of BP, rather than an independent dispenser of money. He also stresses that Mr. Feinberg’s firm is being paid more than $800,000 a month by BP, failing to note that it was President Obama who foisted Mr. Feinberg on the company. (Mr. King did not reply to an interview request.)
“First of all,” responded Mr. Feinberg, “if I’m not a careful steward, the money will dry up fairly quickly. Secondly, if the process lacks credibility, people will begin to question the legitimacy of this alternative to the court system. The idea that I’m Santa Claus undercuts the integrity of the process.” Thus, his emphasis on having oil spill victims document the financial harm they suffered. And thus his deep reluctance to consider paying claims from faraway places — claims that would likely be laughed out of court if the claimants sued for damages. (He has faced so much political heat on this issue that he agreed to at least consider such claims.)
But why then, if he is such a creature of the tort system, does Mr. Feinberg want to keep claimants from going to court? Why is that part of the lump-sum payment process that starts next week? It is easy enough to understand why BP would want to avoid expensive litigation, but what is Mr. Feinberg’s motive?
The answer is that he has seen enough class-action lawsuits in his lifetime to know that they are far more likely to cause heartache than joy. They can go on for years. There is no guarantee that the plaintiffs will win anything. Money awards can — and often are — reduced by the appeals court. And when litigation does finally end, the plaintiffs’ lawyers take a big cut of the proceeds, leaving the actual victims with the leftovers. Yes, there are occasions when individual plaintiffs get large sums, but they are the exception, not the rule. To put it bluntly, litigation is a crapshoot.
“Look at the Exxon Valdez case,” said Mr. Feinberg. Indeed. The accident took place in 1989. The subsequent class-action litigation, involving some 32,000 victims, took over 20 years to play out. The damages were argued three times in district court and twice by the appeals court. Some 20 percent of the victims had died by the time checks were cut. Although the plaintiffs at one point won a $5 billion judgment, the Supreme Court reduced it to $500 million. I saw one estimate that the victims received an average of $15,000.
Which is also why I have a hard time seeing Mr. Feinberg’s efforts as anything but laudable. Without question, it is in BP’s best interest to avoid the expense and difficulties that come with years of litigation; that is why it was willing to set up the fund in the first place. But the truth is, it is in the interest of most victims to avoid the court system as well. By trying to keep victims out of the courts, Mr. Feinberg is doing them a big favor — even if they don’t think he’s paying them enough.
“Many people are going to get a significant amount,” he told me over breakfast. “I have to offer them enough money that they’ll be willing to give up their right to sue. A lot of people, and a lot of businesses, are going to get a premium, no doubt about it.”
We all cling to the idea that courts are a place where victims can find justice. The plaintiffs bar, to be sure, encourages that notion — as it is currently doing in the aftermath of the Gulf of Mexico oil spill, hoping that enough people will opt out of Mr. Feinberg’s program so that they can bring a big, juicy class-action lawsuit. In The New York Times Magazine recently, a Louisiana plaintiff’s lawyer named Stuart Smith was quoted as saying, “I’m going to do everything in my power to make sure a jury finds out what happened.”
To what end? We already know what happened. BP was involved in some genuinely negligent things that led to a terrible oil spill. Thanks to pressure from the Obama administration, it has put up as much as $20 billion to atone — far more money than it would likely have to pay out in a class-action suit. Is that justice? Perhaps not to a plaintiff’s lawyer, but it comes a lot closer than a class-action lawsuit is likely to.
Mr. Feinberg’s way may not be perfect. He has surely made his share of mistakes — foolishly promising early on that he would pay claims within 48 hours, for instance. Undoubtedly, there are some worthy claimants who are not getting as much money from Mr. Feinberg as they ought to. It’s bound to happen.
But until something better comes along, Mr. Feinberg’s is the fairest way to compensate the greatest number of people. The tort system doesn’t come close.