A federal judge overseeing the Deepwater Horizon oil spill litigation has denied BP PLC’s request to halt payments in a $7.8 billion settlement pending an investigation into potential corruption in the claims administration process.

Meanwhile, two New Orleans law firms at the center of that probe have denied allegations that their attorneys were paying kickbacks to a former senior lawyer for the claims administrator.

BP sought an emergency preliminary injunction halting payments from the settlement, reached last year with individuals and businesses claiming economic damages from the 2010 spill. In a July 16 motion, BP argued that the claims process was tainted, citing claims administrator Patrick Juneau’s termination of two senior lawyers amid allegations that they received kickbacks for claims paid to a New Orleans law firm, identified in court papers as “Law Firm Y.”

U.S. District Judge Carl Barbier on July 2 hired former FBI director and U.S. District Judge Louis Freeh to investigate the matter.

The Andry Law Firm, identifying itself as Law Firm Y, responded that the allegations are “baseless and cannot be supported by any competent evidence,” according to July 18 filing. A lawyer for another firm, Andry Lerner LLC, denied the same allegations.

During a hearing on Friday, Barbier rejected BP’s motion.

“BP is disappointed in the District Court's ruling, which we believe is wrong under the law,” BP spokesman Geoff Morrell wrote in an emailed statement.

A lawyer for The Andry Law Firm—Ian Atkinson of Schonekas, Evans, McGoey & McEachin in New Orleans—declined to comment. But in court records, he wrote: “There is no factual support for the allegations against The Andry Law Firm, and no basis for continuing to withhold the funds unambiguously due The Andry Law firm under the settlement.”

James A. Cobb Jr., a solo practitioner in New Orleans representing Andry Lerner, told The National Law Journal: “We look forward to Judge Freeh’s report, and Judge Freeh’s findings, because when these findings are made by Judge Freeh we’re confident we’ll be fully exonerated having anything to do with any scheme as per BP’s allegations.”

The injunction request represented BP’s latest attempt to halt payments under the deal, which Barbier approved on December 21. The settlement, reached with BP Exploration & Production Inc. and BP America Production Co., excludes claims by government entities and those against other entities sued over the spill, such as Transocean and Halliburton.

Soon after the deal was approved, BP began asserting that Juneau was using inaccurate calculations to disperse payments to participants in the settlement. Such methods, BP alleged, allowed some businesses to claim “fictitious losses” and had resulted in “absurd” results and “windfall” awards.

Barbier affirmed the distribution process on March 5 over BP’s objections and, on April 5, denied BP’s request for a permanent injunction that would have halted certain settlement payments. He dismissed a separate lawsuit BP filed alleging that Juneau, through his policy decisions, had breached the settlement agreement.

The U.S. Court of Appeals for the Fifth Circuit, after rejecting BP’s motion for an injunction pending its appeal, heard oral arguments regarding the dispute on July 8. BP retained Theodore Olson of Gibson Dunn & Crutcher to handle its appeal.

Last month, Lionel “Tiger” Sutton III, one of Juneau’s staff attorneys, resigned after being placed on administrative leave pending the outcome of an investigation into alleged kickbacks, according to Nick Gagliano, a Juneau spokesman. In its latest motion, BP sought to halt payments until Freeh’s investigation was complete.

BP noted that Sutton’s wife, Christine Reitano, another lawyer working for Juneau, had been terminated. Their terminations leave Juneau with a single remaining attorney – his own son, wrote BP attorney Richard Godfrey, a senior partner at Kirkland & Ellis in Chicago.

Both Sutton and Reitano, who had “extensive involvement” in developing claims policy, and Juneau, as administrator and settlement trustee, breached their fiduciary duties to BP by failing to conduct background checks to prevent fraud and corruption within the claims process, the company said.

According to BP’s motion, Sutton intervened in the claims process, requesting payments from Law Firm Y, to which he had referred oil-spill claimants. Reitano also represented clients with claims and passed along at least one to Law Firm Y, the motion says.

In addition to filing 675 claims on behalf of clients, Law Firm Y also had a pending $7.6 million claim on behalf of its own losses, BP’s motion says. Juneau later placed on hold all claims brought by the law firm.

The co-lead counsel of the plaintiffs’ steering committee, in opposing the injunction request, argued that BP has yet to identify any act of corruption or fraud in the claims process and had had numerous opportunities to administratively appeal any claims decisions.

“Both the Claims Administrator and this Court have acted swiftly and appropriately in response to the initial rumors relating to the two former employees,” Stephen Herman and James Roy, co-lead counsel on the plaintiffs’ steering committee, wrote in its July 18 motion. “The Law Firm Y Claim and those of all of its clients were immediately placed on hold, and the employees in question were placed on administrative leave.”

Herman is with New Orleans-based Herman, Herman & Katz and Roy is from Domengeaux, Wright, Roy & Edwards in Lafayette, La.

Juneau, in his own motion, called BP’s request “completely overbroad in its scope” and based on “premature speculation.”

For one thing, Law Firm Y could be two firms. Andry Lerner’s attorney, Cobb, told the NLJ that Andry Lerner and The Andry Law Firm are separate from each other. Brothers Gibby Andry and Jonathan Andry split up after being partners amid disagreements over whether to file claims following the oil spill, he said. He said his client, Jonathan Andry, set up the Andry Law Group to handle oil spill claims.

Sutton, he acknowledged, had “some legitimate business connection” to Andry Lerner before going to work for Juneau, but he could not say whether he had been employed as an associate or was a referral source.

“They’re saying this guy who used to be in some fashion with Andry Lerner has put his finger on the scale to benefit Andry Lerner,” he said of BP’s allegations. “Nothing could be further from the truth.”

The Andry Law Firm’s attorney, Atkinson, wrote in court records that the firm does not represent any oil spill claimants. The only claim his client made was for its own economic losses attributable to the spill. That claim has gone through the review process and, despite BP’s appeal of the award, was found to be accurate and payable last month, Atkinson wrote.

He insisted that The Andry Law Firm has no financial interest in Andry Law Group and Andry Lerner. Furthermore, The Andry Law Firm has not received any referrals from Sutton or paid fees to him and has no financial interest in any of his claims, he wrote. At no time did anyone at the firm, he continued, “ask Mr. Sutton to do anything improper, illicit, or illegal in processing the….claim filed by The Andry Law Firm LLC. And, at no time did Mr. Sutton have any involvement in the processing or handling of The Andry Law firm claim.”

“B.P. has engaged in a multi-faceted legal and public relations campaign challenging the settlement agreement and this Court’s interpretation of it,” Atkinson wrote. “BP’s spurious attacks against The Andry Law Firm LLC are simply its latest attempt to avoid the deal it made.”

Contact Amanda Bronstad at abronstad@alm.com.