A federal appeals court this month agreed with BP PLC that there were serious problems with the processing of claims on its $9.6 billion Deepwater Horizon settlement, especially because some Gulf Coast businesses apparently were being compensated for economic losses from the oil spill that they never actually suffered.

In coming to that conclusion, a split panel of the U.S. Court of Appeals for the Fifth Circuit ran into a separate problem: If they weren’t truly victims, why were these claimants included in a class settlement premised on compensating victims of the spill? Wouldn’t that undermine the settlement entirely?

BP is answering that question with a resounding yes. In fact, the company has found common cause with a group of plaintiffs who are also trying to undo the settlement. A separate three-judge Fifth Circuit panel has set oral arguments on those objectors’ challenge for Nov. 4.

The company’s position is that the objectors have “advanced very substantial arguments,” BP attorney Theodore Olson wrote in an Aug. 30 appellate brief. BP has long criticized the way in which claims administrator Patrick Juneau has been calculating post-spill losses; that formula, the company says, allows claimants to inflate or outright concoct losses. BP CEO Robert Dudley, in interviews with the press in July, said the settlement had been misinterpreted. On Oct. 2, a three-judge panel of the Fifth Circuit ordered U.S. District Judge Carl Barbier in New Orleans to hold payments until the claims process could be revised.

Now, BP is taking aim at the plaintiffs’ steering committee that negotiated the deal and Barbier for approving it.

“As the Fifth Circuit held [on Oct. 2], the claims administrator’s current misinterpretation of the business economic loss framework of the settlement agreement does not withstand scrutiny under the law,” BP spokesman Geoff Morrell said in a written statement to The National Law Journal. “If it is not corrected, the settlement should be set aside, ending what once promised to be an historic effort to benefit those who experienced losses as a result of the spill.”

THE OBJECTORS

Five groups of objectors have appealed the settlement, which Barbier approved on Dec. 21, 2012. The parties hadn’t really argued about the shape of the class at that point, but in accepting the deal Barbier certified a class of individuals and businesses with economic losses attributable to the 2010 spill. . Many objectors raised issues with the class definition. “A class is supposed to have commonality, typicality — and you look at this class definition and it’s nine pages long,” said Ted Frank, a Washington attorney and vocal critic of class action settlements who represents four Florida property owners objecting to the deal. “How can there possibly be a single, unified class? The answer is, it’s not.”

The Fifth Circuit’s Oct. 2 ruling landed while the parties to the objectors’ challenge were still filing briefs, but picked up on what BP had identified as the settlement’s fatal flaw. The company had appealed two of Barbier’s orders affirming the methods used to calculate oil spill claims. The panel reversed those orders, agreeing with BP that Barbier “had no authority to approve the settlement of a class that included members that had not sustained losses at all.” As Circuit Judge Edith Brown Clement put it in the majority opinion, claimants that hadn’t suffered losses lacked standing for inclusion in a class of oil spill victims because they had no “colorable legal claims” against BP. In a dissent, Circuit Judge James Dennis argued that the standing issue was not yet before the court and could be addressed during oral arguments in the objectors’ case.

Meanwhile, the Fifth Circuit in the objectors’ case asked for briefs addressing its earlier decision. Several objectors embraced Clement’s position. So did BP. “In addition to resting their decision squarely on the text of the parties’ settlement agreement, the two judges comprising the … panel majority also discussed principles of class action law and standing,” both of which have “significant implications for the present appeal,” wrote Olson, a Washington-based partner at Gibson, Dunn & Crutcher.

BP acknowledges that the situation is not beyond repair. “If the claims administrator’s policies with respect to the issues of loss calculation and causation under the business economic loss framework are properly revised, the settlement agreement could be returned to its original, intended and lawful function: the compensation of claimants who sustained actual losses that are traceable to the Deepwater Horizon accident,” Morrell wrote.

But the deal’s only true defender was the plaintiffs’ steering committee. “There may be many cases in which it is arguably unclear whether the plaintiff could establish an injury fairly traceable to the defendant’s conduct,” they wrote in their own brief. But that “has not in any way affected the fair, reasonable and adequate compensation paid under the Settlement Agreement’s transparent and objective criteria to any Objector or any other member of the class.”

Amanda Bronstad can be contacted at abronstad@alm.com.