NEW ORLEANS — A federal judge refused Friday to temporarily shut down a multibillion-dollar settlement program for compensating victims of BP’s 2010 Gulf oil spill, saying he has seen no evidence of widespread fraud among the tens of thousands of claims.
The judge also said he was offended by what he saw as attempts to smear the lawyer administering the claims.
BP PLC argued that all payments to Gulf Coast residents and businesses should be suspended while former FBI Director Louis Freeh investigates alleged misconduct by a lawyer who worked for claims administrator Patrick Juneau on the settlement program.
U.S. District Judge Carl Barbier said he was troubled by the allegations but didn’t see any reason to take the “drastic step” of shutting down the program without evidence of widespread fraud.
Lionel H. Sutton III, a target of Freeh’s probe, allegedly received a portion of settlement proceeds for claims he referred to a law firm before joining Juneau’s staff.
Sutton, who resigned on June 21, has denied the allegations. Sutton’s wife, Christine Reitano, who also worked as a lawyer for the settlement program, had her contract terminated June 26.
Barbier lashed out at critics who have questioned Juneau’s objectivity and have tried to portray the Lafayette-based lawyer as a “good ol’ boy” who is beholden to plaintiffs’ attorneys.
“I find the recent attacks on Mr. Juneau’s character are highly offensive, inappropriate,” Barbier said.
Barbier said he found it “especially offensive” that BP CEO Robert Dudley claimed during an interview televised by CNBC on Thursday that the settlement process has been “hijacked.”
“Personal attacks, hyperbole and use of such language in my opinion crosses the line,” he said.
BP says there is a risk that hundreds of millions of dollars in claims payments could be tainted by fraud.
“We didn’t sign up for a deal in which this type of corruption would enter the program,” BP attorney Jeff Clark told Barbier before he ruled.
Plaintiffs’ attorneys say the company hasn’t provided any evidence that Juneau has improperly paid any claims.
BP spokesman Geoff Morrell said the company disagreed with Barbier’s ruling and would review its legal options.
“There is a material risk that payments going out the door have been and continue to be tainted by possibly fraudulent or corrupt activity, and BP should not be forced to bear the risks of improper payments pending the outcome of Judge Freeh’s investigation,” Morrell said in a statement.
Clark, the company’s attorney, said BP’s request to halt payments until after the investigation was relatively modest because in many cases it won’t be possible to recoup fraudulent payments.
Stephen Herman, one of the lead plaintiffs’ lawyers, said BP agreed to Juneau’s appointment and was pleased with his work before a recent dispute over his interpretation of settlement terms governing business claims.
“Now he’s become their scapegoat,” Herman said.
Rick Stanley, one of Juneau’s lawyers, said BP’s request to suspend all payments was unnecessary. Juneau’s internal probe of the misconduct allegations hasn’t turned up any evidence that Sutton or his wife could have manipulated the calculation of claims payments or had any “undue influence” on policy decisions.
“They had some involvement in those policies, but Juneau was ultimately responsible,” he said. “That is his final decision.”
Barbier has authorized Freeh to conduct an independent investigation of the alleged misconduct and take a broader look at the claims program. The former FBI director hasn’t indicated how long it will take to complete his investigation.
Separately, BP has argued that Barbier and Juneau have misinterpreted the settlement and forced the company to pay businesses for inflated and fictitious losses. The company appealed Barbier’s decision to uphold Juneau’s interpretation of that portion of the deal. A three-judge panel from the 5th U.S. Circuit Court of Appeals heard arguments in the case earlier this month.
The April 2010 blowout of BP’s Macondo well triggered an explosion that killed 11 workers and led to millions of gallons of oil spilling into the Gulf of Mexico. Shortly after the disaster, BP agreed to create a $20 billion compensation fund that was administered at first by the Gulf Coast Claims Facility, led by attorney Kenneth Feinberg.
After the settlement was announced last year, Barbier appointed Juneau to take over the process of evaluating and paying claims.
The settlement doesn’t have a cap, but BP initially estimated that it would pay $7.8 billion to resolve the claims. Now the company says it no longer can give a reliable estimate for how much the deal will cost.