BP PLC’s U.S. subsidiaries have asked the trial judge to halt payout of Deepwater Horizon oil spill claims under its $7.8 billion settlement, citing potentially billions of dollars in "absurd windfalls" to businesses with fictitious losses.

In a motion filed on March 15, BP Exploration & Production Inc. and BP America Production Co. asked U.S. District Judge Carl Barbier in New Orleans to grant a preliminary injunction preventing the administrator of the settlement’s funds from distributing money to businesses making claims for fictitious losses.

BP asserted that the claims administrator, Patrick Juneau, with the support of the plaintiffs’ steering committee, has agreed to calculate lost profits using a formula that violates the terms of the settlement agreement.

"BP did not agree to pay what is already hundreds of millions of dollars, and potentially billions, to claimants with ‘losses’ that do not exist in reality, but result solely from the Claims Administrator’s rewriting of the Agreement," wrote BP counsel Richard Godfrey, a partner at Kirkland & Ellis in Chicago. "Instead, BP settled this matter for the purpose of compensating those with legitimate claims who were injured by the Deepwater Horizon oil spill."

An injunction is necessary to block these payments, he argued. "While the ultimate amount at stake is at present inestimable, awards for fictitious losses already are hundreds of millions of dollars and could reach billions," he wrote.

Barbier has scheduled a hearing on the matter for April 5.

BP spokeswoman Ellen Moskowitz and Godfrey declined to comment. Asked for comment, Juneau issued a formal statement defending the claims process as "consistent and transparent." All claims "have been processed consistent with the federal court order dated March 5, 2013," he added. "We will continue to process all claims until further instructed otherwise by the court."

Stephen Herman of Herman Herman Katz & Cotlar, and James Roy, of Domengeaux, Wright, Roy & Edwards, co-lead counsel on the plaintiffs’ steering committee, defended the process via email.

"This Court has already affirmed Mr. Juneau’s independent interpretation of the Settlement Agreement, which is to say that claims are to be paid under the terms spelled out in the Agreement—terms which were negotiated, co-authored and expressly agreed to by BP," he said.

The settlement funds program, he added, "is demonstrably not under BP’s unilateral control or subject to its whims. Indeed, it is entirely too objective, transparent, consistent and predictable for BP’s comfort. Simply put, BP undervalued the settlement and underestimated the number of people and businesses that qualify under the objective formulas that BP agreed to. Despite their legion attorneys and accountants, BP just guessed wrong on the cost."

The dispute centers on BP’s settlement with individuals and businesses with claims of economic damages caused by the spill, which occurred on April 20, 2010. Barbier approved the settlement on December 20, but BP had already begun to question how Juneau was calculating the payments for certain businesses.

Juneau began distributing money on June 4, according to court documents. On January 15, adopting the interpretation of the plaintiffs’ steering committee, he issued decisions addressing the calculation of lost business profits. Under the settlement, a business must designate three months in 2010 after the spill occurred and compare those financials to a comparable "benchmark" period.

BP has asserted that, under the administrator’s calculations, a construction contractor who typically collected $1 million for work during May through July could assert a $1 million loss if in 2010 he got paid in August, rather than in July. In the same vein, if a business spent $100,000 in materials in May 2010, rather than in April, it could claim a $100,000 loss—even though its annual revenue, expenses and profits would be the same.

On March 5, Barbier affirmed the administrator’s decision.

"The Court adopts Class Counsel’s interpretation as it is most in line with the rest of the Settlement Agreement," he wrote, acknowledging that some of the claims might not equate to actual losses. "Objective formulas, the possibility of ‘false positives,’ and giving claimants flexibility to choose the most favorable time periods are all consequences BP accepted when it decided to buy peace through a global, class-wide resolution."

In its motion, BP said that without a preliminary injunction it could be forced to pay "millions of dollars, and what could be billions, for fictitious or artificially inflated losses." The company argued that the policy didn’t compensate businesses for actual loss of income, earnings or profits caused by the spill, and contradicts and rewrite the language of the settlement agreement.

The calculation, BP argued, "systematically produces illogical and absurd compensation awards," including some to businesses that posted record profits in 2010. BP estimated that two-thirds of all awards over $75,000 have been based on "flawed data" and that as much as $400 million in claims have been distributed to businesses with "non-existent losses."

The discrepancies are particularly prevalent in the agriculture, construction, professional services (including law firms), real estate, manufacturing, wholesale trade and retail, according the motion.

For example, Godfrey wrote, a rice mill 40 miles from the Louisiana coast received a $21 million award, despite earning more revenue in 2010 than in the three preceding years.

"BP never accepted the risk of such absurd awards," he wrote. "Paying significant and increasing sums of money to thousands of claimants for fictitious losses violates the terms of the Settlement and is absurd. It simply is not the bargain that the Parties negotiated or this Court approved."

An injunction, he added, would apply only to claims that use the policy decisions in calculating losses, or to those in the most prevalent industries, but would not affect the distribution of claims to seafood businesses, individuals with economic or property damages, subsistence farmers, or boat owners who assisted in the cleanup.

Contact Amanda Bronstad at abronstad@alm.com.