BP accuses Texas lawyer of fraud in Gulf oil spill claims

John Schwartz
Workers shuck oysters at Crystal Seas Oysters April 15, 2011, in Pass Christian, Miss. The oyster industry was crippled by the BP oil spill.
Getty Images

BP on Tuesday accused a Texas lawyer of fraudulently driving up its settlement costs in the 2010 Gulf Coast oil spill by claiming to represent tens of thousands of clients who turned out to be "phantoms."

In a lawsuit filed in Federal District Court in New Orleans, the oil giant, which has been fighting the administration of a settlement with plaintiffs in the courtroom and in the news media, claimed that it relied on the client count supplied by the lawyer, Mikal C. Watts, in 2010 when it put $2.3 billion into a special compensation program for the seafood industry.

The company, citing "brazen fraud," is asking the court to allow it to stop payments and reclaim some of the unspent money.

The more than 40,000 deckhands claimed as clients by Mr. Watts constituted nearly 80 percent of the people projected to file claims under the program, the company said in court papers.

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In a statement, a lawyer for Mr. Watts, Robert McDuff, called BP's actions "another of a series of efforts to walk away from the settlement to which it agreed." He said his client "never committed identity theft and did not defraud BP or anyone else."

Mr. Watts, a prominent Democratic fund-raiser who is regarded as a formidable litigator, has said that his clients came through referrals from other lawyers. Mr. McDuff stated that Mr. Watts filed claims "in good faith that legitimate claims were being filed for real people."

BP, which has paid nearly $13 billion in claims to businesses, individuals and the government so far, has paid out $1 billion from the seafood fund so far. The company said that 24,520 seafood claims were ultimately filed, and of these, fewer than 5,000 were filed on behalf of individuals.

Under the structure of the fund agreed to by BP and plaintiffs' lawyers and approved by the judge, any money not distributed to seafood workers based on their claims would be given out in a second round. The company does not argue that the workers engaged in wrongful conduct, but said the inflated size of the fund would mean an undeserved "windfall" to members of the class.

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Mr. Watts ultimately filed just 648 individual crew claims through the seafood fund, BP said, and just eight have been found eligible for payment. (Seventeen are pending.) That means, the company said, that "98 percent of the Watts claimants never even filed a claim" with the program, and "96 percent of the claims that he did file have been denied."

Mr. Watts has since filed 43,976 claims under a separate compensation program intended to address claims that had been excluded from the settlement agreement. In examining those claims, the company said it found that 40 percent of the claims used Social Security numbers that belonged to someone other than the person supposedly making the claim; 13 percent gave incomplete numbers or obvious fakes such as 000-00-0001. Five percent of the numbers belonged to dead people. "The inference of fraud is overwhelming," the company stated in its complaint.

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BP has argued for months that the claims process is rife with fraud and has paid out claims from people who had no actual losses related to the spill. The federal judge in the case, Carl J. Barbier, appointed former F.B.I. director Louis J. Freeh to investigate the allegations. Mr. Freeh found that the process itself was not corrupt, but did find incidents of conflict of interest and fraud among individual lawyers and staff members of the fund.

Since then, the company has asked the Court of Appeals for the Fifth Circuit, in New Orleans, to order changes in the way that the settlement fund is run. That court has ordered Judge Barbier to "give further consideration" to the company's complaints; Judge Barbier has temporarily halted payments.

In July 2012, Mr. Watts hosted a $35,800-a-plate event for President Obama at his home. Judge Barbier named him to the committee of plaintiffs' lawyers that helps run the litigation; he resigned from the Plaintiffs' Steering Committee on March 13 this year, however, not long after Secret Service Agents executed search warrants at his San Antonio law office, a move that the Department of Justice officials suggested was related to the questions about his clients in the BP case.

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Mr. Watts's client submissions were initially challenged by Kenneth R. Feinberg, who ran the first version of the settlement office after the disaster. Concerns about the claims were first reported in an April 2011 article in The New York Times.

Lawyers for plaintiffs in the case argued that BP is using the Watts controversy as an excuse to stop payments on the much larger program that affects deserving claimants. In a statement, the lawyers, Stephen J. Herman and James P. Roy, said "the notion that the number of deckhands was the driving factor during negotiations in determining the overall amount is absurd," and that just $130 million was allocated to deckhands.

"BP's overreaching attempt to hold the entire seafood program hostage is part of its continuing effort to rewrite history and the settlement agreement," the lawyers said, "and is unfair to the hardworking men and women of the seafood industry whose livelihoods were destroyed by BP's reckless conduct."

—By John Schwartz, The New York Times.