Monday, August 9, 2010

Hotels in Oil Spill Town Made Money; How Does Feinberg Deal With Claims For Future Losses?

Steve Chevalier (right), owner of the Tropical Motel in Grand Isle, La.
repairs one of the inn's second-story floorboards from ground-level.
Chevalier maintains that his hotel is filled nightly with spill workers.
(Photo by Nick Moroni)

Hotel owners in Grand Isle, La. saw high occupancy rates throughout the summer due to the armies of oil spill response crews lodging on the island. Nonetheless innkeepers fret over the sustainability of the industry and Ken Feinberg is not sure how he will handle their claims.

By Nicholas Moroni

Along the southernmost tip of Louisiana Highway 1 (LA 1) ‐ a diagonal stretch of road that traverses over four hundred miles of the state – a few outdated, Nuclear-era motels line Grand Isle’s main drag. They rest on stilts – quasi protection from hurricane flooding – and most are located near marshes or beach side, by the Gulf of Mexico.

The amateur fishers and vacationers that usually occupy these places during the summer did not show up this year because of federal restrictions on gulf waters and beaches subsequent to the recently tamed BP oil spill. In lieu of the tourists, relief workers descended upon this vacation town for four months, filling its hotels on a nightly basis and providing innkeepers with a decent take for the summer season.

Nonetheless, Grand Isle’s hotel owners question the sustainability of the industry here and have moved to file claims for future losses. But how will the claims of businesses that experienced little or no financial calamities in the immediate aftermath of the spill be assessed?

Steve Chevalier, 51, is part owner of The Tropical Motel, one of the archaic inns that define the architecture on LA 1. In a recent telephone conversation, he said that “business is great,” but ceded, “What I’m afraid of is what’ll happen in three years.” It’s an allusion to a time when the spill‐response crews with tabs that are picked up by contracted and subcontracted companies have shuffled off; and, when the fishing groups that once came every summer do not return because of environmental damage to the gulf and the bayous, as well as the stigmatization of the region.

In the event that Chevalier’s doomsday scenario plays out, he and other hotel owners on the island will be at the mercy of an ad hoc claims system that BP is currently operating, but will hand off to attorney Ken Feinberg this month. Businesses currently filing claims with BP need to prove loss of income subsequent to the spill, something Chevalier and other Grand Isle innkeepers are incapable of at this time.

“I’m on a balanced scale, I can’t pursue a claim. I know they’re not going to write me a check for what I made last year right now,” Chevalier said.

“BP will argue that it doesn’t have to pay claims for lost revenue due to hotel reservations which may or may not be canceled in the future,” Brian Donovan, an engineer and an attorney specializing in business, securities, and corporate law, stated in an e‐mail. His blog, The Donovan Law Group, which shares the same name as his Tampa Bay firm, has chronicled an array of legal issues surrounding the oil spill.

Controversy regarding the company’s handling of the claims process, which has delivered payments to just under one third of claimants since May, has the oil giant salivating at the thought of transitioning the outfit to Feinberg. “We’re ready to go, he’s [Feinberg] the one taking his time,” said Mark Proegler, a BP spokesperson. Feinberg will administer a $20 billion escrow fund, dubbed the Gulf Coast Claims Facility, set up for spill victims; and, will be charged with the task of officially denying claimants. Or, as BP America Vice President Darryl Willis said, “making the tough decisions.”

Feinberg has not yet published any specific protocol for his deliberations. The Oil Pollution Act of 1990 will no doubt be leaned upon, but the claims expert indicated there might be flexibility when he pledged “an expansive view of eligibility.”

“At some point I will offer the claimant a lump sum for all future loss,” Feinberg told the Financial Times. He has also admitted to a level of uncertainty regarding the assessment of such claims, though.

“Feinberg plans to apply tort law principles in weighing claims, meaning [claimants]
will have to show that their losses wouldn’t have occurred but for the spill,” Donovan wrote in a recent blog entry.

Under the OPA, BP’s culpability could extend to damages to natural resources, in the case of Grand Isle’s hotels. In other words, if, say, the fishing groups that frequent the town’s inns significantly decline in attendance next year because of damage to marine life, BP could be held responsible for the sum of the hotels’ losses, if not more. Those eligible for reparations are initially entitled to six months of emergency payments, after which the decision must be made to either move forward with a settlement or to file a lawsuit. However, if claimants agree to a final settlement, the right to pursue future litigation is waived.

Presently, a claimant such as Chevalier, whose occupancy rate supposedly rose from 85 percent last summer to 95 percent this year, might not be a shoe‐in for compensation. However, BP will be paying into the escrow account for four years, at a rate of $5 billion, annually; so, a claim could be pursued in the future, if his business bottoms out. Moreover, if Chevalier’s claim is denied by Feinberg, he can appeal the decision to a panel of three judges; or, he can seek damages through the Oil Spill Liability Trust Fund, which is paid into by taxes levied on major oil companies. The National Pollution Funds Center, a division of the United States Coast Guard, is facilitating that fund.


Chevalier maintains that 75 percent of what the Tropical grosses annually – he said the hotel generally makes $200,000, but it costs that much, if not more, to maintain the facility year round ‐ is usually made between the months of May and July.

“Any profit we made, we turned around and put it right back in. Every time I turn around I’m spending money on something that needs to be done,” said Chevalier, describing how he has operated the hotel since acquiring it in ramshackle conditions in 2006, following Hurricane Katrina. Each year, he invests in repairs and hopes he will eventually receive a substantial return on his investment ‐ one that far exceeds the near‐even margins he claims to regularly see at the end of each tax year.

“We’ll make that target,” said Chevalier, noting that the hotel would turn a small profit this year – something of an anomaly.

At daily rates of $100 and $150, for single and double rooms, respectively, the orange‐vested men and women that were hired to clean the area’s beaches and marshes, and the representatives of companies that flipped the bills, kept the neon “Open” sign in the front of the hotel off throughout this summer’s oil saga.

After viewing the Tropical’s dated appearance and its simple quarters, Mr. Chevalier’s rates might be hard to swallow. In fact, he bemoans having to “charge 2010 prices for 1966 accommodations.”

“I had eight months of paying the bills out of my pocket,” said the innkeeper, in reference to financial adversities this past offseason. “March 1 came around, and I broke even. Then the oil spill hit and I had three weeks of no money when I’m normally full.”

By early May that changed. Grand Isle – a town heavily dependent upon summer
tourism – was crawling with factions of BP’s spill response.

Gary Lavette, 70, the owner of the 40‐plus‐year‐old Breaker’s hotel, located just up the road from the Tropical, said his busy season is usually between Memorial Day and Labor Day. Lavette also attested to having limited vacancy, but unlike Chevalier, he cut his daily rates nearly in half. This summer he received $66 for a double room that would otherwise have gone for $129 during the week, or $139 on the weekend, at this time of year. He said he was forced to do so because many of his occupants represented companies involved in the spill response, and claimed to have limited expense accounts that could not accommodate his seasonal per diem rates.

“This is just a little brief period of money, which is going to be followed by a long, huge draught,” Lavette said grimly. “This is like giving an alcoholic a sip of wine and saying that’s it.”

Anticipating forthcoming losses in profits, both Chevalier and Lavette filed claims with BP in May, but were told they could not receive any payments because they lacked the necessary paper work. Lavette said he needs a 2009 tax return that he has not yet received due to a filing extension granted by the IRS; and, Chevalier has procrastinated compiling an array of financial documentation he was told to return with.

If Lavette is covered for his expenses, which he said usually total between $42,000 and $45,000 annually, he will be more than content. He was unwilling to specify what the hotel brings in each year; however, he did say the amount was more than half the cost of upkeep. What’s more, 85 percent of the gross is allegedly gathered during the summer months.

Karen England, 48, who owns the vintage Blue Dolphin Inn, another dusty LA 1 lodge, said she also received an extension for her 2009 income taxes, and is awaiting a return. When she contacted BP to file a claim, she was told that her case could not be evaluated absent the tax return. She is in no rush, though.

“Our claim is not loss of income today,” said England. “Our loss is going to be more of
a long term problem.”

Like the Tropical and Breaker’s, England’s Blue Dolphin was filled with spill workers this summer staying at daily rates between $125 and $190. “We’re making more money than we usually do because there’s more people,” England said over the phone a few weeks ago. She refused to provide any figures, though. “But we all know that’s temporary,” she added.


BP maintains that it has received over 140,000 claims, and has paid out $300 million. “Let’s be perfectly clear, we haven’t spared any expense or any effort,” Proegler said. The company has spent close to $6 billion in the gulf thus far.

Gary Lavette is aware that his situation does not require urgent assessment, but he is nonetheless skeptical about the future, and whether he will be compensated, if need be. “Once this thing is over, BP is gonna ride off in the sunset and we’re still gonna be here,” said Lavette. “And they just want to dump this thing on Feinstein [sic] so he’ll get the blame.”

If all goes accordingly, Feinberg will take the reigns of the Gulf Coast Claims Facility this week, much to the delight of BP, which has already announced its plans to defer many of the “tough” decisions to the pay guru, who will begin judging the merits of hundreds of thousands of claims.

For the last month, Feinberg, who was appointed by the White House and is being paid by BP, has traveled the gulf region and hosted a number of town hall meetings, in an attempt to promote his new outfit. What’s more, he wishes to illuminate his autonomy, telling one congregation, “I am your lawyer,” and informing another that he thinks any potentially eligible person that does not pursue the claims facility is “crazy.”

No comments:

Post a Comment