The Donovan Law Group

3102 Seaway Court, Suite 304 Tampa, Florida 33629 (352) 328-7469 November 27,2010

VIA CERTIFIED MAIL

RETURN RECEIPT REQUESTED
The Honorable Janet Napolitano Office of the Secretary Department of Homeland Security 245 Murray Lane, SW Washington, DC 20528 Re: BP Oil Spill - The Need to Properly Define "Expenditure" Under the Oil Spill Liability Trust Fund (OSLTF)

Dear Secretary Napolitano

I am writing in regard to the need to properly define the term "expenditure" under the OSLTF. Under the OSLTF, expenditure should mean "an expenditure that is not reimbursed by the responsible party." Defining the term in any other manner ignores the legislative intent of
Congress and the Internal Revenue Code.

The question is whether victims of the BP oil spill of Api|22,2010 will have to pay three times: (a) once for the oil spill, the environmental and economic damages of which will devastate their way of life and leave many in financial ruin; (b) again by being mislead and undercompensated by GCCF; and (c) a third time for daring to demand justice, which will consume their time, energy and hopes for years to come if they are held hostage by protracted individual lawsuits or class action lawsuits. The damages suffered by victims of the BP oil spill incident of April 22,2010 will be enoilnous and on-going. The livelihoods of all persons whose businesses rely on the natural resources of the Gulf Coast are at risk. Commercial fishermen, oyster harvesters, shrimpers, and businesses involved, directly or indirectly, in processing and packaging for the seafood industry will experience the end of a way of life that, in many cases, has been passed down from one generation to the next. BP and Oxford Economics estimate the total cost to clean up this unprecedented spill to be in the tens of billions of dollars. On November 2,2010, BP raised its estimated cost of
range between $60

cleaning up the Macondo oil spill incident to $40 billion. Other independent third party estimates billion and $90 billion.

Secretary Janet Napolitano November 27,2AlA

Page2
How will victims of this unprecedented oil spill be fully compensated for their losses? Theoretically, there are three potential avenues of compensation which victims of this oil spill may pursue to be made whole: (a) the Gulf Coast Claims Facility (GCCF); (b) litigation; and (c) the Oil Spill Liability Trust Fund (OSLTF). GULF COAST CLAIMS FACILITY (GCCF) GCCF was meant to replace the inefficient claims process which BP had established to fuIfilI its obligations as a responsible party pursuant to the Oil Pollution Act of 1990 (OpA). It was not the legislative intent of Congress for OPA to limit an oil spill victim's right to seek full compensation from the responsible party. BP and Kenneth Feinberg, the GCCF claims administrator, allege that GCCF (and the protocols under which it operates) are structured to be compliant with OPA. However, as explained in my letter, dated October 18, 2010 and received by your office on October 25,2010, GCCF is in violation of OPA. In lieu of ensuring that oil spill victims are made whole, GCCF's primary goal appears to be the limitation of BP's liability via the systematic postponement, reduction or denial of claims against Bp.

LITIGATION
Kenneth Feinberg uses the fear of costly and protracted litigation to coerce victims of the BP oil spill to accept grossly inadequate settlements from GCCF. During town hall meetings organized to promote GCCF, Feinberg repeatedly tells victims of the BP oil spill, "the litigation route in court will mean uncertainty, years of delay and a big cut for the lawyers." "I am determined to come up with a system that will be more generous, more beneficial, than if you go and file a lawsuit." "It is not in your interest to tie up you and the courts in years of uncertain protracted litigation when there is an altemative that has been created," Feinberg says. He adds, "I take the position, if I don't find you eligible, no court will find you eligible." Mr. Feinberg intentionally fails to mention that litigation is not the only alternative to CCCf'. BP, the responsible party, is a powerful and well-funded defendant, does not lack imagination or incentive to pose innumerable legal barriers, and will aggressively assert its legal rights and otherwise use the law, the courts and the judicial system to serve its interests. Bp can afford to stall, and actually benefits from delay, but its victims cannot afford to wait for years to be fully compensated for their losses.

OIL SPIL LIABILITY TRUST FUND (OSLTF) As Representative Lent explained in urging passage of OPA, o'The thrust of this legislation is to eliminate, to the extent possible, the need for an injured person to seek recourse through the litigation process." See 135 Cong. Rec. H7962 (dally ed. Nov. 2, lggg) prior to OPA, federal funding for oil spill damage recovery was difficult for private parties. To address this issue, Congress established the OSLTF under section 9509 of the Internal Revenue Code of 1986 (26 U.S.C. esOe).

Secretary Janet Napolitano November 27,2010

Page 3

The OSLTF is currently funded by: a per barrel tax of 8 cents on petroleum products either produced in the United States or imported from other countries, reimbursements flom responsible parties for costs of removal and damages, fines and penalties paid pursuant to various statutes, and interest earned on U.S. Treasury investments. On September 30, 2010, the unaudited OSLTF balance was approximately S1.69 billion. Under OPA, claims for damages must be presented first to the responsible party.33 U.S.C. $ 2713(a) In the event that a claim for damages is either denied or not paid by the responsible party within 90 days, the claimant may elect to commence an action in court against the responsible party or to present the claim to the OSLTF. 33 u.S.C. g 2713(c)

Expenditure
The maximum amount which may be paid from the OSLTF with respect to any single incident shall not exceed $1 billion. 26 U.S.C. g 9509(cX2)(A) Furtherrnore, except in the case of payments of removal costs, a payment may be made from the OSLTF only ifthe amount in the OSLTF after such payment will not be less than $30,000,000. 26 U.S.C. g 9509(oX2XB)

This is an incident of first impression for the OSLTF. The BP oil spill of April 22,2010, oil spill incident, represents the first time that the viability of the OSLTF has been threatened. Federal statutes and relevant regulations neither specifically address such a scenario nor provide authority for further compensation. However, OPA legislative history and statements from OPA drafters indicate that drafters intended the OSLTF to cover "catastrophic spills." See U.S. Congress, House Committee on Merchant Marine and Fisheries, Report accompanying H.R. 1465, Oil Pollution Prevention, Removal, Liability, and Compensation Act of 1989, 1989, H.Rept. I0T-242,Part2,101st Cong., lst sess., p. 36
a catastrophic

If an expenditure is reimbursed, is it still an expenditure? The OSLTF is established under Internal Revenue Code. 26 U.S.C $ 9509 Under the Internal Revenue Code, a reimbursed expenditure is not deductible. It is not considered to be an expenditure. Therefore, under the OSLTF, why should an expenditure, reimbursed by the responsible party,be defined as an expenditure?
Legislative history and the Internal Revenue Code strongly support the conclusion that, in the case of a catastrophic oil spill, the proper definition of the term "expenditure," under the OSLTF, means "an expenditure that is not reimbursed by the responsible porty."

Subrogation Any person, including the OSLTF, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law. 33 U.S.C. g 2715(a)

Secretary Janet Napolitano November 27,2010 Page 4

Moreover, at the request of the Secretary,the Attorney General shall commence an action on behalf of the OSLTF to recover any compensation paid by the OSLTF to any claimant pursuant to OPA, and all costs incurred by the OSLTF by reason of the claim, including interest (including prejudgment interest), administrative and adjudicative costs, and attorney's fees. Such an action may be commenced against any responsible party or guarantor, or against any other person who is liable, pursuant to any law, to the compensated claimant or to the OSLTF, for the cost or damages for which the compensation was paid. 33 U.S.C. $ 2715(c) Thus, a responsible party may ultimately pay a claim that was initially denied, or not addressed for more than 90 days, by the responsible party. Proposed Retroactive OPA Legislation The cost of this catastrophic BP oil spill will far exceed the current OSLTF per incident expenditure limit. In response, since the BP oil spill disaster of April, 20l0,bil1s have been introduced to amend OPA to increase the liability limit of the responsible party and the OSLTF's per incident expenditure limit for oil spills. For example, H.R. 4213,the American Jobi and Closing Tm Loopholes Act, passed by the House on May 28,2010, includes provisions that would raise the per barrel tax used to fund the OSLTF to 34 cents and increases the per incident expenditure limit to $5 billion, including up to $2.5 billion in natural resource damage claims.

An important question is whether this legislation can and should be applied retroactively to the BP oil spill disaster of April, 2010. The constitutional issues that may be raised from retroactive application of this legislation are based on the Ex Post Facto Clause, Substantive Due Process, the Takings Clause, the Bill of Attainder Clause, and the Impairment of Contracts
Clause.

CONCLUSION
The advantage of defining an expenditure, under the OSLTF , as " an expenditure that is not reimbursed by the responsible party," is twofold: (a) It eliminates, without the need to pass retroactive legislation, the $1 billion cap which may be paid from the OSLTF with respect to any single incident and allows the OSLTF to maintain a balance of at least $1 billion for the purpose of paying claims for damages resulting from other oil spill incidents. As the OSLTF pool of $1 billion is depleted by payments made to oil spill claimants, it is replenished, by virhre of subrogation, by reimbursements made to the OSLTF by the responsible party; and (b) It ensures that the cost of a catastrophic oil spill incident shall be borne by the responsible par1y, not the federal taxpayer.

Secretary Janet Napolitano November 27,2010 Page 5

Thank you for your prompt attention to this issue. If you have any questions, please do not hesitate to contact me at 352-328-7469 or via e-mail at BrianJDonovan@verizon.net.

Brian J. Donovan

BJD/rc

cc:

The Honorable The Honorable The Honorable The Honorable The Honorable The Honorable The Honorable The Honorable The Honorable The Honorable The Honorable

Edward J. Markey James L. Oberstar Elijah E. Cummings Corrine Brown Anh "Joseph" Cao John Conyers, Jr. John L. Mica Jeff Bingaman Bill Nelson Bobby Jindal Eric H. Holder, Jr.

The Honorable The Honorable The Honorable The Honorable The Honorable The Honorable The Honorable The Honorable The Honorable

Daniel K. Inouye Barbara Boxer Joseph I. Lieberman Troy King David R. Obey Henry A. Waxman Bennie G. Thompson Nick J. Rahall, II Charles W. Boustany Jr.