The resignation of a former staff attorney for the Deepwater Horizon settlement fund who was accused of pocketing some of the distributions came as BP PLC is challenging the method of calculating damages on oil spill claims.

Lionel Sutton III, a staff attorney for the administrator of the $7.8 billion fund, resigned Friday after being placed on administrative leave pending the outcome of an investigation, according to Nick Gagliano, a spokesman for fund administrator Patrick Juneau. According to press reports, an anonymous complaint accused Sutton of collecting portions of settlement payments from a New Orleans law firm to which he had once referred claims.

The revelation came as BP prepared to ask the U.S. Court of Appeals for the Fifth Circuit to reverse court orders upholding the way in which payments for individual damages have been calculated and then dispersed. Specifically, BP claims that Juneau's distribution method has resulted in "absurd" results and "windfall" awards, as BP attorney Theodore Olson of Gibson Dunn & Crutcher put it in a May 3 appellate brief. Continuing to issue payments on claims using that method could cost BP billions of dollars in "fictitious losses," he wrote.

"The Deepwater Horizon settlement could serve as a positive landmark in American jurisprudence because of its ambitious size, its innovative nature, and the speed with which it was negotiated to compensate injured parties. Instead, it is poised to become an indelible black mark on the American justice system," Olson wrote. "Plaintiffs' lawyers across the Gulf region are now openly advertising that the settlement is a way for claimants to collect payouts even if they have no losses at all."

Olson and BP spokeswoman Ellen Moskowitz did not respond to requests for comment.

Defending the calculations are Juneau and the plaintiffs' steering committee, which obtained the settlement on behalf of thousands of businesses near the Gulf of Mexico that suffered economic damages following the oil spill in April 2010. In a May 24 brief, Juneau's attorney, Jennifer Thornton of Stanley, Reuter, Ross, Thornton & Alford in New Orleans, wrote that the fund administrator had complied with court orders and the terms of the settlement and that BP had on numerous occasions chosen not to challenge the method of calculating claim payments. Stephen Herman and James Roy, co-lead plaintiffs' attorneys for the class, wrote that BP has offered no alternative method.

'Remorse does not alter deal'

"Contrary to BP's contention, the issue before this Court is not an abstract evaluation of purported accounting principles, but the agreement reached by the parties," Herman, of New Orleans-based Herman, Herman & Katz, and Roy, of Domengeaux, Wright, Roy & Edwards in Lafayette, La., wrote in a May 24 brief. "Buyer's remorse does not alter the deal that was struck."

Thornton and David Falkenstein, a spokesman for Herman and Roy, did not respond to requests for comment.

On Dec. 21, U.S. District Judge Carl Barbier approved the settlement with BP Exploration & Production Inc. and BP America Production Company. But BP soon began complaining about the distributions. 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.

BP retained Olson to immediately petition the Fifth Circuit to reverse Barbier's rulings. In April, the Fifth Circuit denied BP's motion for an injunction pending its appeal but put briefing on a fast track. Oral arguments are scheduled for the week of July 8.

According to BP, Juneau's policy decisions allow businesses to make claims based on an inaccurate accounting of lost profits. Specifically, the method allows them to compare revenue and expenses for any three months in 2010 after the spill to the exact same months during a prior year. Under the calculation, businesses with big lapses of time between when they earn revenue and when they get paid—such as farming, construction and professional services, like law firms—have "substantial errors" in calculating actual lost profits, Olson wrote.

Thousands of businesses could receive payments on claims despite having not suffered any losses from the spill, he wrote. He cited a rice mill that received $21 million and an unnamed law firm that got $3.3 million despite earning more profits in 2010 than in the prior year it referenced.

And, Olson wrote, BP isn't the only one to suffer from the policies. By granting large payments to businesses with no losses, other members of the class—including those with economic damages living or working in Louisiana, Mississippi, Alabama, and parts of Texas and Florida—are being deprived of their potential claims.

"Indeed, the district court's contractual interpretation would jeopardize the class settlement itself, as the class could not be certified if businesses with no losses at all stand to receive a substantial portion of the settlement's benefits," Olson wrote.

Friends lining up

The appeal has attracted some amicus interest. A dozen accounting professors, represented by former U.S. solicitor general Paul Clement, argued on BP's behalf in a May 16 brief that cash receipts and distributions were "not the same thing as revenues and expenses."

"Any judicial decision to the contrary is in conflict with well-established accounting principles," wrote Clement, of Bancroft in Washington.

On June 24, the Alabama Society of Certified Public Accountants and the Louisiana Society of Certified Public Accountants, representing thousands of accountants in the region, wrote that the professors failed in their brief to discuss the terms of the settlement in arguing for BP.

"The narrow discussion of one method of determining revenue and expenses submitted by BP and its academic amici has no relevance to the issue before the Court: the real-world interpretation of the Settlement Agreement and its implementation by the Claims Administrator," wrote their attorney, Christopher Guidroz, of Simon, Peragine, Smith & Redfearn of New Orleans.

Also opposing BP's appeal were attorneys general of Louisiana, Alabama and Mississippi. In a May 31 brief, they argued that BP's attempt at unraveling the settlement's terms would erode the public's confidence in the claims process.

Amanda Bronstad writes for the National Law Journal, a Daily Report affiliate.