NEW YORK (Reuters Legal) - There has never been anything quite like Kenneth Feinberg’s $20 billion Gulf Coast Claims Facility. Established to compensate victims of the BP Plc(BP.L) oil disaster, it essentially invests one man with full power over how the money is distributed, while he is being paid by the company and unsupervised by any government body.
Now pressure is intensifying for Feinberg to fully disclose his fee arrangement with BP. But interviews with experts in dispute resolution and legal ethics suggest that Feinberg is under no obligation to unveil anything about his deal with BP — and in fact, in a report released last month, he disclosed more than he had to. A Reuters Legal analysis found that Feinberg is operating in a gray area not governed by rules that typically apply to arbitrators or fund administrators.
Some members of Congress, lawyers for claimants and public-interest groups contend Feinberg should tell the public how much he is personally earning from the oil company, suggesting the compensation agreement could tempt him to process claims more slowly in order to extend the lucrative arrangement. “Is there a financial incentive to slow the pace down?” said Joanne Doroshow, executive director of the Center for Justice and Democracy, a liberal Washington, D.C., public-interest group. “It’s something that needs to be examined.”
In an email to Reuters Legal, Feinberg dismissed such insinuations: “My compensation has nothing to do with the rate of claims processing,” he wrote. He said he had a three-year agreement with BP “for the life of the GCCF (Gulf Coast Claims Facility) totally unrelated to whether we process 1,000 claims or one claim.” Feinberg said the agreement was verbal.
Under pressure from critics, Feinberg commissioned a report that last month made public some details about his compensation. The report by former Attorney General Michael Mukasey, now a partner with Debevoise & Plimpton, said that BP was paying Feinberg’s six-lawyer Washington, D.C., firm, Feinberg Rozen, a flat fee of $850,000 a month for labor and overhead costs, under an agreement expected to last through the end of the year. During a three-and-a-half month period from June to October, the report said, Feinberg and three other lawyers spent about 2,777 hours on the project, which would amount to an average hourly rate of about $1,000 per hour if the firm were being paid on an hourly basis. The report concluded that the fee is “within the range of reasonable compensation for the initial phase of the GCCF engagement.”
What the report did not say was how much Feinberg himself is paid — and how that compares to his usual rate. Asked about that by Reuters Legal, Feinberg said in an interview that he would not know his individual take until the end of the year. He also pointed to the Mukasey report, which called the fee “consistent” with the firm’s compensation “for roughly analogous previous engagements.” Feinberg was noncommittal about whether he would seek periodic updates from Mukasey, as some critics have demanded. “If someone wants another report, there may be another report,” he said.
The Gulf Coast Claims Facility was announced in June following a meeting between President Barack Obama and BP executives in the wake of the worst oil spill in U.S. history. The goal, the White House said at the time, was to create a new, independent claims process that would be “fairer, faster, and more transparent.” The White House selected Feinberg, who had emerged in recent years as the adjudicator of choice in national crises, from his administration of the 9/11 victims’ compensation fund to his role as the TARP “pay czar.” As with the 9/11 fund, which Feinberg ran pro bono, claimants under the Gulf Coast fund can opt into the process as an alternative to litigation.
But unlike the 9/11 victims’ compensation fund, which was created by an act of Congress and administered by the Justice Department, the BP fund is fundamentally a private operation. It also differs from trusts set up by companies to compensate victims, such as those created by asbestos and pharmaceutical companies, which have been overseen by judges.
As administrator of the oil-spill compensation fund, Feinberg told Reuters Legal, he is operating under “no official legal statute or court-imposed authority.” He is, he said, “a private party asked by both sides to design and implement the Gulf Coast Claims Facility on behalf of both sides.”
When the fund was announced, the White House said in a fact sheet that “a panel of three judges will be available to hear appeals of the administrator’s decisions.” Feinberg said that the final protocol for the Gulf Coast Claims Facility, to be released this week, “will include some type of appeals process.” However, the protocol is not expected to create oversight of Feinberg’s work as claims administrator or specify what information he must disclose about his compensation agreement.
Feinberg’s role in many ways resembles that of an arbitrator. Arbitration involves presiding over adversarial proceedings and is governed by a professional code of conduct designed to assure even-handedness. The Code of Ethics for Arbitrators in Commercial Disputes, for example, calls on arbitrators to make “pre-appointment disclosures of any facts which might affect their neutrality, independence or impartiality.” The code also states that any doubt as to whether or not to disclose should be resolved “in favor of disclosure.” But Feinberg isn’t refereeing battling adversaries. Overseeing the BP claims fund basically involves divvying up the $20 billion pot by weighing the merits of individual claims.
Whether or not Feinberg reveals all about his fee arrangement with BP will in the end be entirely up to Feinberg. While he is under no obligation to make his pay arrangement with BP more transparent, the pressure on him to do so shows no sign of dissipating. “Although strictly speaking, claimants are private and BP is private and Feinberg Rozen is private, this situation has public interest and concern written all over it,” said ethics professor Stephen Gillers of New York University School of Law. “In fact, it’s hard to imagine a private compensation scheme that is as imbued with the public interest as this one.”
Editing by Eric Effron and Howard Goller