By Jeff Birren, Senior Writer
There is an old expression: pigs get fat and hogs get slaughtered, but often in court the hogs just lose, and so it was recently for the Tampa Bay Buccaneers. On April 20, 2010, there was an explosion at a BP oilrig in the Gulf of Mexico. It took place at the Macondo Prospect, and became the largest oil spill in U.S. history. The disaster became known as the Deepwater Horizon oil spill, and the U.S. government later estimated that over 210 million U.S. gallons were unleashed into the bay. Two years later the well was still leaking oil.
For many industries, the “explosion and resulting oil spill’s effects on their bottom line is obvious. Commercial fishing was not allowed in large portions of the Gulf of Mexico during part of the clean up. And anyone would recognize that the decline in beach tourism likely hurt hotels and restaurants near the coast” (BP Exploration & Production, Incorporated: BP American Production Company; BP, PL.C., v. Claimant ID 100246928, Case No. 18-30375, United States Court of Appeals for the Fifth Circuit, May 24, 2019, LEXIS #15620, (“BP”) at 3/4).
Eventually BP pled guilty to eleven counts of manslaughter, two misdemeanors, and later a felony for lying to Congress. The company paid a massive fine, and so far its costs for fines, cleanup, fines and other charges are over $65 billion dollars. Yes, billion, with a “b”.
That disaster led to a class action lawsuit against BP and BP naturally settled. “More than a hundred thousand business have filed claims” (Id. at 3). The agreement established four geographic “economic loss zones” (Id. at 4). “Claimants are treated more favorably the closer they were to the spill” (Id.).
Readers are at this point wondering what, exactly, this is doing in a sports publication. As it turns out, the Tamp Bay Buccaneers filed a claim for damages, and sought $19.2M from the fund (Id.).
The Bucs’ Attempt to Profit from the Disaster
The Fifth Circuit turned a somewhat jaundiced eye to the claim. After all, the “spill’s impact on the Buccaneers may not be readily apparent. Disastrous though the April 2010 explosion was for significant areas of the Gulf and surrounding coast, it did not hurt the Buccaneers person that fall. The team went 10-6 after just going 3-13 the year before. The Bucs have not had a 10-win season since” (Id.).
The Bucs were in the zone farthest from the spill, and thus “had to meet a ‘causation’ test that requires more than just a post-spill loss” (Id.). The team was required to show a reduction in revenue during the oil spill year followed by an increase in revenue the following year. In that situation, “the inference is that the spill caused the downturn” (Id.). More specifically, “a claimant must show: (1) a post-spill revenue downturn of 15% during a three-month period between May and December of 2010, and (2) a revenue upturn of 10% during the same three months in 2011” (Id.).
The team’s economic performance in 2010 did show the required dip from 2009, but the issue was whether the required upturn was present in the 2011 figures. The numbers submitted by the team did show that increase for 2011 but BP disputed the submitted figures, and rightly so. As it turned out, the desired result was only reached because for that period only, the team conveniently changed its accounting methodology.
The change dealt with how the club recorded national revenues that annually come from NFL Ventures, a for-profit entity that serves the entire National Football League. Specifically, for 2010 the team “recorded NFL Ventures revenue only in January and August-December, the months roughly comprising the NFL reason. The team recorded no revenue from NFL Ventures during May-July 2010” (Id.). Yet for 2011, the club recorded NFL Ventures revenue during the May to July period. “Without that change, that is, if all the NFL Ventures revenue was recorded only during the season for both 2010 and 2011, the team would have suffered a disqualifying revenue downturn from May-June 2010 to May-June 2011. With the change, the team’s revenue shows a nearly 500% upturn” (Id.). The club’s accountants had a lot of “’splaining to do.”
The team argued that the change was due to the labor dispute with the NFL Players Association that threatened the 2011 season. Specifically, it submitted an affidavit from its controller that stated that the NFL had “provided a NFL Ventures revenue forecast of amounts estimated to be earned during April 1, 2011-March 31, 2012″ and that the club in turn recognized the income earlier than normal ‘[b]ased on this information” (Id. at 5). Conveniently, the Bucs “never submitted financial statements or other evidence showing that it made and implemented this accounting decision during 2011 (as opposed to later when it learned of the requirements form a Deepwater Horizon claim)” and in fact, the only dated financial statements that it submitted were as of October 2014 (Id.). The Bucs also failed to submit anything from the club’s accounting firm that stated or indicated that it decided in 2011 to allocate the NFL Ventures revenue in a different manner (Id.).
The Legal Proceedings Begin
The program administering the spill fund rejected this purported explanation so the Bucs appealed this denial to the program Appeal Panel. The panel acknowledged that revenue could be reallocated to correct errors and this reallocation was a unique circumstance due to the threatened lockout. It thus held for the Bucs, so BP then filed a discretionary appeal with the District Court.
The District Court granted the appeal request, and reversed the Panel. That court found that the club’s “lockout explanation” was “not persuasive” (Id.). The 2011 departure from the team’s ‘established accounting practice’ was thus an error that the program accountants were authorized to correct (Id.). The Bucs once again appealed, this time to the Fifth Circuit.
The Fifth Circuit Weighs In
The Circuit began its analysis by noting that when it reviews such cases, “questions of law such as the interpretation of the settlement agreement are reviewed de novo, as is the ordinary rule” but for questions of facts, “we defer to the district court’s finding unless they are clearly erroneous” (Id.). In that light, the court did “not see a basis for disturbing the district court’s determination that the team erred in allocating some of its NFL Ventures revenue in 2011 to May and June” (Id.). As both the district court and the circuit noted, this process is normally used to fix errors or mistakes but the Fifth Circuit found no mistakes that required fixing.
It stated that in this context the “questions then become whether the district court clearly erred in finding that (a) the Buccaneers’ established accounting practice was to record NFL Ventures revenue only during the football season and (2) the threat of a lockout did not justify departing from the practice in 2011 (Id. at 6)(emphasis in the original). In examining the record, the court noted that the record for pre-2011 accounting practice was “not robust” (Id.). However for the two years where there was evidence, the “team recorded its NFL Ventures revenue from August to January (roughly the football season)” (Id.) (emphasis in the original).
Under those circumstances, “the district court reasonably found that the team had an established practice of recording NFL Ventures revenue during the season and not outside of it” (Id.) It then looked closely at the period relevant to the test used by the settlement agreement, and found that during those periods, “in neither 2009 nor 2010 did the team book NFL Ventures revenue during these months” (Id.).
Thus, “the dispute comes down to the legitimacy of the lockout justification” (Id.). For its part, the Bucs “fail[ed] to support it as a valid reason to deviate from its prior practice” (Id.). The entirety of its evidence was the affidavit of the its controller and the team “repeatedly misrepresents it as recounting directive from the NFL that teams should book NFL Venture revenue during the offseason” (Id.). Yet the revenue forecasts were for amounts estimated to be earning during the relevant time frame, “but not when it should have recognized the revenue (to say nothing of the absence from the record of the actual communication from the NFL). We see no reason why a ‘revenue forecast’ meant that the team received or became entitle to receive revenue earlier in 2011 than in prior years. The district court’s rejection of the lockout explanation was sound” (Id.).
In one its final footnotes, the court noted that the team had requested that the courtroom be sealed during oral argument. This request was denied. The Bucs also requested that the opinion in the case be sealed. That too, was denied, though the court did omit the revenue numbers from its opinion (Id., fn. 4). The most benign explanation for the shocking request about sealing the courtroom or the opinion was to hide the club’s revenue numbers.
Conclusion
The opinion was not published but it made its way on to LEXIS for all to see. The attempt by the Bucs to profit from such a massive disaster is further proof of the old Russian adage, adopted and made famous in this country by President Reagan: “trust, but verify.” The Fifth Circuit found the Bucs attempt to profit from a massive public disaster failed the test. They can now turn all of their efforts back to trying to win football games and not attempting to profit from such a massive environmental disaster.
The author would like to thank David Stern, Esq, of Toronto, Canada for his on-going assistance.
