The wizardry of Kenneth Feinberg.

The law, lawyers, and the court.
July 22 2010 2:11 PM

Feinberg's Wizardry

How he'll help the down-and-out businesses of the Gulf states—despite the law.

Kenneth Feinberg. Click image to expand.
Kenneth Feinberg

The BP oil spill: another mass disaster, another compensation fund, and another opportunity for Kenneth Feinberg to mete out economic justice to the victims? Probably, but it won't be routine. Feinberg is the master of mediation who helped sort out compensation for Agent Orange, Sept. 11, and the financial bailout. But the $20 billion BP oil spill fund will present pure legal challenges he hasn't encountered before.

One problem has been much discussed: the inability of fishermen or others who rely on the Gulf waters to make a living, but who don't keep careful records, to prove their losses. Cash businesses like that may have no way to compare their monthly revenue before and after the spill.

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But there's another, deeper problem that hasn't received enough attention: The state law Feinberg says he'll rely on offers nothing to many, even most, possible claimants. Unless he ignores clear rules of law, the promise of this fund won't—and can't—be fulfilled. To see why, it's useful to compare the oil spill aftermath with the 9/11 Victim Compensation Fund.

When Congress created the VCF, it clearly spelled out who was eligible: only those present at one of the three terrorist attack sites, either at the time they occurred or shortly thereafter. Regulations further limited the pool by requiring claimants to have sought medical assistance within a few days of the disaster. So, much of Feinberg's admirable work revolved not around deciding who was eligible for compensation but rather assessing damages. Feinberg was a whiz at getting victims (mostly surviving family members of those who died when the Twin Towers fell) to see that taking the generous compensation offered was better than putting their hopes into a protracted and uncertain lawsuit.

Not so in this case. No legislation or executive order from the president created the oil spill fund. It is the result of an informal agreement between President Obama and BP. And so Feinberg has been given neither formal guidance nor limitations on who can recover. To determine who's eligible, Feinberg says he'll look to the law of the state where the injury was suffered. Most victims will surely hope he's not serious about that, because the law on recovery in the Gulf states—and in most states—is terrible for many potential claimants.

To be sure, some victims will still benefit. Those who were injured by the spill, or the families of those who were killed, are the clearest cases. People who suffered the damage or destruction of their property are also good candidates. For example, if oil causes property damage to a beachfront hotel, the owners have a sound claim for recovery—both for the property damage and for any resulting economic loss.

But claimants who suffer only economic loss, such as loss of profits or increased costs, face longer odds, legally speaking. In an almost unbroken line of decisions, state courts that have considered the issue have drawn a clear, firm line against recovery for such economic losses in virtually every case and context. Consider the 1984 Louisiana case PPG Industries Inc. v. Bean Dredging. There, Bean Dredging Co.'s negligence had damaged a gas pipeline belonging to Texaco. The plaintiff, PPG Industries, was a customer of Texaco's that claimed it had to buy gas from another seller, at a higher price, because of the pipeline damage. But PPG was not even permitted to make its case against Bean Dredging. Why? Because the court could not figure out a way to limit the class of plaintiffs once it recognized any claimants at all. Quoting a well-known line from an old New York case (written by legendary jurist Benjamin Cardozo), the Louisiana court expressed a fear that allowing PPG to recover could lead to liability "in an indeterminate amount for an indeterminate time to an indeterminate class."

The court then gave pointed examples of the possible, ever-rippling consequences of Beam Dredging's negligent act. Here's one of them: "If any of PPG's employees were laid off while PPG sought another source of fuel for its plant, they arguably sustained damages which in all likelihood would not have occurred but for defendant's negligence." The court made a policy decision to limit recovery "[b]ecause the list of possible victims and the extent of economic damages might be expanded indefinitely."