Evidence Required to Establish Lost Profits Claim -Court

By MarEx 2014-03-07 11:07:00

A federal judge in the Eastern District of Louisiana has ruled that the National Pollution Funds Center did not act arbitrarily or capriciously in denying a refinery operator’s claim for lost profits arising out of a 2008 oil spill. Murphy Oil USA v. USA, Civil Action No. 12-2756 (E.D. La. 2014).

The case arose from a 2008 oil spill in the Mississippi River following a collision between the M/V TINTOMARA and the barge DM-932.  As a result of the spill, the U.S. Coast Guard closed a portion of Mississippi River for several days as part of its containment efforts.  At the time of the closure, Murphy Oil USA (“Murphy”), the operator of a refinery and dock downriver from the location of the spill, had several vessels moored to its dock which were unable to leave the dock for several days.  Shortly after the spill, Murphy presented a claim to the responsible party for the spill, seeking damages for cleanup costs associated with oil contamination of the vessels and the dock, as well as damages for lost profits.  When no response was received, Murphy filed a claim with the National Pollution Funds Center (“NPFC”), an independent unit of the U.S. Coast Guard, for recovery from the National Oil Spill Liability Trust Fund (“the Fund”).  The Fund was established, following the EXXON VALDEZ oil spill, to provide reimbursement and compensation for those who have suffered loss or damages due to an oil spill.  It is primarily funded by a five cents per barrel tax on oil produced and imported to the United States.   The NPFC is tasked with serving as the fiduciary agent for the Fund and adjudicating claims submitted to the Fund.  Although the NPFC settled Murphy’s property damage claim, the claim for lost profits (and subsequent request for reconsideration) was denied by the NPFC.  Accordingly, Murphy filed suit in the Eastern District of Louisiana, seeking judicial review of the NPFC’s action.

On cross-motions for summary judgment, the District Court affirmed the NPFC’s denial of Murphy’s lost profits claim.  The Court first noted that judicial review of agency action under the Administrative Procedure Act is subject to a highly deferential standard of review, with the agency’s ruling being overturned only if it is “arbitrary, capricious, an abuse of discretion, not in accordance with law, or unsupported by substantial evidence on the record taken as a whole.”  The Court then noted that the NPFC is responsible for administering the Oil Pollution Act of 1990 (“OPA”), which sets forth the procedure with which parties who sustain damages resulting from an oil spill must comply.  The NPFC has also promulgated regulations which detail the evidence required to establish certain claims, including a claim for lost profits.  Under such regulations (which are set forth in 33 C.F.R. § 136.233), to recover lost profits damages from the NPFC, a claimant must establish (1) that real or personal property or natural resources have been injured, destroyed, or lost; (2) that the claimant’s income was reduced as a result of the injury to, destruction of, or loss of that property or natural resources, and the amount of that reduction; (3) the amount of the claimant’s profits or earnings in comparable periods and during the period at issue, as established by income tax returns, financial statements, and similar documents (and comparative figures for similar activities outside the area affected by the spill); and (4) whether alternative employment or business was available and undertaken and, if so, the amount of income received.

Both the NPFC, and the District Court reviewing the administrative record presented to the NPFC, concluded that Murphy failed to submit the type of evidence required to establish its claim for lost profits.  In support of its claim, Murphy asserted that the five (5) vessels moored to its deck were delayed and, as a result, it was forced to pay demurrage charges under the vessel’s charters.  To calculate the demurrage charge, Murphy divided the daily charter rate by twenty-four (24); calculated the number of hours each vessel remained docked; and multiplied the hourly charter rate by the number of hours the vessel was delayed.  However, the charters at issue made no mention of demurrage and, indeed, Murphy was not required to pay demurrage fees to the owners of the vessels at issue.  Rather, the Court found that the demurrage charges claimed by Murphy were nothing more than an attempt by Murphy to quantify its damages.  Finding that Murphy failed to substantiate its damages in accordance with the NPFC’s regulations, the Court affirmed the NPFC’s denial of the claim and granted summary judgment in favor of the USA.

For more information about presenting a claim to the NPFC, please contact info@chaloslaw.com.  

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