The Tampa Bay Buccaneers' bid to collect $19.5 million from the Deepwater Horizon oil spill settlement program for an alleged dip in revenue in the aftermath of the disaster has been ruled out of bounds by the Fifth Circuit, which found the NFL team “erred” in an accounting shift of certain revenue to support its claim.
While the appeals panel on Friday ultimately affirmed a lower court's rejection of the claim based on the accounting issues, it noted that, like many of the more than 100,000 businesses that have filed claims related to the explosion and spill aboard BP PLC's Deepwater Horizon oil rig in the Gulf of Mexico, the team may have been eligible to recover for a less-than-obvious decline in business.
“The spill's impact on the Buccaneers may not be readily apparent,” the court said. “Disastrous though the April 2010 explosion was for significant areas of the Gulf and surrounding coast, it did not hurt the Buccaneers’ performance that fall. The team went 10-6 after going just 3-13 the year before. The Bucs have not had a 10-win season since.”
The court, however, found the team failed to support its assertion that concerns of a possible lockout in 2011 had prompted the National Football League to instruct it to record revenue received from joint league ventures earlier in 2011 than in prior years. This accounting shift was critical to the team's evidence that its revenue experienced a “V-shaped” decline and recovery in the aftermath of the oil spill.
“The Buccaneers fail to support it as a valid reason to deviate from its prior practice,” the panel said of the lockout justification. “The team relies solely on the affidavit of its controller and repeatedly misrepresents it as recounting a directive from the NFL that teams should book NFL ventures revenue during the offseason.”
The Fifth Circuit affirmed a Louisiana district court's finding that the team had made an accounting error, as defined by the claims administrator, and that settlement program accountants were justified in moving the NFL ventures revenue to during the NFL season, when it had traditionally been recorded.
A team spokesman did not immediately comment when reached Tuesday, and counsel for BP did not respond to an inquiry.
In an effort to minimize litigation, BP had agreed in the settlement agreement to determine eligibility based on a claimant's financial decline after the spill, rather than requiring proof of a direct cause and effect in each case, according to the opinion.
Based on its location in the farthest away of four designated “economic loss zones,” the Buccaneers had to show some proof of causation. The team said it fit the “V-Shaped Revenue Pattern” test, showing at least a 15% reduction of revenue during a three-month period between May and December 2010 and an increase of 10% in the same three-month period in 2011, the opinion said.
While reviewing the claim, settlement program accountants questioned the team about why it recorded NFL ventures revenue in May to July 2011, whereas in the previous year it recorded that revenue only between August 2010 and January 2011, which approximately covered the NFL season.
“That difference has a huge impact on the V-shaped test,” the Fifth Circuit noted, with the early recording of the revenue providing the upswing needed to complete the “V-shaped” revenue pattern.
The team said a labor dispute that threatened the 2011 season had led the league to advise the team to record the NFL ventures revenue early, in case there was a lockout. The team submitted an affidavit from its controller which said the NFL had “provided an NFL ventures revenue forecast of amounts estimated to be earned during April 1, 2011-March 31, 2012.”
But the team did not submit any financial documents or other evidence showing that it made this accounting decision in 2011, as opposed to after learning about the Deepwater Horizon settlement requirements. The program accountants rejected the explanation and moved the NFL ventures revenue that was recorded early to August, when the team recorded the rest of those funds.
As a result of that shift, the claims administrator denied the Buccaneers' claim. The Buccaneers won an appeal before the program's appeal panel, but BP won a subsequent appeal before the district court, which said it found the lockout explanation “not persuasive,” according to the Fifth Circuit opinion.
The Fifth Circuit said it agreed with the district court's focus on a portion of the claims administrator's policy that defined an accounting “error” as “mistakes in applying applicable accounting principles,” and its interpretation of that to include “an unjustified departure from an established accounting practice.”
“What better indication of the claimant's method of accounting than how it historically recorded that revenue — that is its established accounting practice?” the appeals court said. “An unjustified departure from an established accounting practice is necessarily a mistake in applying that practice, and thus is an 'error' warranting reallocation.”
The panel also agreed that the lockout justification was unpersuasive. The judges pointed out that the NFL's actual communication to the team was not in the official case record and questioned how a “revenue forecast” on its own would entitle the team to receive revenue early.
U.S. Circuit Judges Gregg Costa, E. Grady Jolly and Kurt D. Engelhardt sat for the Fifth Circuit.
The Buccaneers are represented by Joseph F. Rice, John A. Baden IV, Kevin R. Dean and Lisa M. Saltzburg of Motley Rice LLC and Calvin Clifford Fayard Jr. of Fayard & Honeycutt.
BP is represented by Don Keller Haycraft, Devin C. Reid and Russell Keith Jarrett of Liskow & Lewis, Daniel A. Cantor and Sarah E. Warlick of Arnold & Porter and Kaye Scholer LLP, and J. Andrew Langan, Jeffrey Bossert Clark and Martin R. Martos II of Kirkland & Ellis LLP.
The case is BP Exploration & Production Inc. et al. v. Claimant ID 100246928, case number 18-30375, in the U.S. Circuit Court for the U.S. Court of Appeals for the Fifth Circuit.