New Orleans' CAC Leads Way For Nonprofit BP Claims

May 8, 2013

The legal fallout from BP’s 2010 Deepwater Horizon oil spill has been ongoing, as the civil trial makes its way through the courts. In the meantime, some New Orleans groups that were not eligible for claims money have found that they do qualify under a new claims process. Though they are filing quickly, BP is now appealing that formula.

It may seem tangential that arts nonprofits are getting oil spill payouts, especially those in areas that don’t sit where oil was spilled. New Orleans Contemporary Arts Center director Jay Weigel says the first body that handled BP claims, the Gulf Coast Claims Facility, didn’t see a connection.

“We were turned down,” Weigel says. “So the CAC was determined not to have, be worthy, of any kind of compensation.”

That changed, thanks in part to a massive class action lawsuit that was settled with BP a year ago. It created a new claims process that’s producing very different results from the GCCF’s. And the Contemporary Arts Center’s story reveals part of the messy trail the oil spill left through the Gulf Coast economy. For the past couple of years, the CAC has been in a tough spot.

“We found ourselves slowly sinking further and further into debt,” Weigel says. “We were reaching a critical point, where I was, the brain trust around here was running out of ways to navigate the economic waters.”

Now some of those troubles came from an obvious source — about a third of the CAC’s revenue was from renting warehouse space to conventions for large receptions, and a bunch of those contracts were canceled after the spill. But even when that business started coming back, the Center kept struggling, and Weigel couldn’t figure out exactly why. So, when he heard about the new claims process, he decided to try again. The CAC hired Zachary Wool, a lawyer with Barrios Kingsdorf and Casteix.

“First, there’s the question of, 'Was your loss caused by the spill?'" he says. “That has now been replaced with this objective formula based on gross revenue. And you either meet that test or you don’t. Or in some cases, for tourism businesses and seafood businesses, depending on where they’re located, any loss you have is automatically presumed to be caused by the spill, and you get to get pass this step.”

For an arts non-profit located in downtown New Orleans like the CAC, this settlement assumes their losses were caused by the oil spill. Next, they have to figure out what’s owed. The settlement allows an organization to chose a three- to eight-month window after the oil spill in 2010, and compare that to the same months pre-spill to determine lost revenue. And that turns out to be a generous way of doing the math for non-profits.

Wool says, “Most businesses have an uneven cash flow, and that’s especially true for nonprofits, because they usually receive the bulk of their money in large donations, and those come at different times of the year.”

“And so because the settlement is flexible — and these are the terms that BP agreed to — nonprofits really have an optimal chance to maximize their recovery," he continued. "They might have a large donation in May 2009, and then no donations in May 2010, and by using May in the calculation therefore have a large claim.”

In the CAC’s case, that claim was able to cover all of its more than $600,000 in operational debt. Jay Weigel says that was a revelation.

“The debt we were sinking into turned out to be a result of that spill, according to the third party accounting firm. [They] looked at the books and told me the number. I was like… it was my darn deficit,” he says.

Now, several hundred thousand dollars may seem like a shockingly large number. And that flexible formula may seem like it allows organizations to end up receiving more than they’re due. But Blaine LeCesne says it’s more complicated than that. He’s a professor at Loyola University's College of Law who’s been closely following all the BP cases. And he says this shows how tricky it is to follow the impact of an event like the oil spill. An art non-profit’s hit might have been less visible to the public.

“Private individuals, who are in businesses affected by the spill, gave less,” he says. “Governmental revenues from sales taxes may have diminished, so that if they were the beneficiary of governmental donations they would have suffered.”

And, LeCesne says, even if an organization did end up being able to capitalize on the claims process by choosing the right months for the formula to look at, there’s no reason they can’t. That’s the formula that BP agreed to use.

“That’s typical of many large scale settlements — you’re going to have claimants that may not have actually suffered the losses that the original conduct allegedly caused,” he says. “But in order to buy peace, the defendant decides to provide a formula that may encompass, from time to time, those persons who weren’t actually injured.”

LeCesne says, an arts non-profit filing a large claim is not depriving anyone else — a fisherman, say, or a seafood processor — of their due.

“There’s no sort of internal tension between claimants who are fighting over a limited pot of money, because BP agreed to a settlement with no cap on it,” he says. “I thought they would have sticker shock when they got the final bill. And now they’re starting to see this is going to cost them a lot more than they projected.”

In fact, BP is in the midst of an appeals process, questioning the very provision in the settlement’s formula that allows organizations such flexibility. A judge has denied their appeal three times, and the Fifth Circuit is expected to weigh in soon. In the meantime, lawyers are spreading word about the CAC’s success around the local non-profit world. The Louisiana Cultural Economy Foundation has been holding workshops around the state on how to file claims. Jay Weigel says the BP money could transform non-profits across the region, as it’s already changed the CAC.

“It allows us now to move forward and do work that will create a deeper impact in the unique way that the arts have for a community, so then you make a healthier community,” he says. “And that’s a lovely place to be thinking, as opposed to you know, the electric bill’s due in three days, Jay, what are you going to do?”

It’s also a sign that three years out, we're still identifying the way the ripples from the oil spill have formed... And are forming.

This news content made possible with support from the John S. and James L. Knight Foundation.