Oil-Spill Lawyers Urge Clients to Settle

Move Would Shift Gulf Residents' Claims From Court to BP's Compensation Fund; 'Most of These People Can't Wait'

By DIONNE SEARCEY

Kael Alford for The Wall Street Journal

Tacky Jack's, an Orange Beach, Ala. eatery whose owners received money from the $20 billion fund set up by BP and the Obama administration.

A group of lawyers suing BP PLC over its Gulf oil spill is moving instead to redirect dozens of its clients to make claims to the $20 billion fund set up by BP and the Obama administration.

While hundreds of people are still suing BP in federal court, the lawyers' move could end up robbing that ongoing litigation of the critical mass of plaintiffs that might be needed to prove broad economic losses.

The move by the lawyers—about 30 altogether—represents the first significant crack in plaintiffs' attorneys' plans to reap significant court victories for hundreds of people affected by the spill triggered by the April explosion that sank BP's Deepwater Horizon rig, killing 11 workers.

Those still representing clients in the federal litigation said they would continue. "It is not our job to pass judgment on how individual lawyers choose to handle their clients' claims," said Brian Barr, one of the lead attorneys in the litigation against BP.

For the fishermen, resort owners, hoteliers and others who say they were financially harmed by the Gulf disaster, settling means a quicker payout but a lost chance at earning damage payments.

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Tallahassee, Fla., restaurant owner Jeff Stilwel at an October meeting on the Gulf oil spill's $20 billion compensation fund.

For their attorneys, the move is a chance to eke out a bigger settlement that could serve as a lure for other plaintiffs to drop their lawsuits and hire them to settle claims.

For BP, settling all the claims could save money on attorneys' fees and usher the matter out of the public eye rather than a lawsuit that lingers for years.

A BP spokeswoman declined to comment.

The group of lawyers represent about 5,000 claims that could be worth hundreds of millions of dollars, the lawyers involved said.

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The claims would cover future losses expected to be suffered as the region reels from the spill's lingering impacts, such as tar balls that still periodically wash ashore. Almost 500,000 claims for emergency and final payments have been lodged so far with Washington, D.C., attorney Kenneth Feinberg, administrator of the $20 billion compensation fund.

The lawsuits against BP were consolidated and are being heard by U.S. District Judge Carl Barbier in New Orleans. Attorneys in the federal litigation are moving ahead, taking depositions and interviewing key witnesses in an action that could end up costing BP millions.

The federal litigation is sprawling and also includes environmental claims against BP and other defendants as well as civil racketeering and securities suits. Those branches of the litigation will proceed regardless of how many plaintiffs stick with their economic suits. Any criminal case the government may file wouldn't be affected.

The move away from the courts by the alliance of attorneys—led by Daniel Becnel in Louisiana—represents a new tactic for lawyers who weren't named to lead the federal litigation and so are ineligible to reap the biggest fees.

Last week, over dinner at a resort hotel in Florida, Mr. Becnel and two other Louisiana attorneys, Camilo Salas and J.R. Whaley, hammered out a plan to proceed with settling by the end of February the claims of their clients and others represented by different attorneys in the coalition.

Still other attorneys, including those who represent families of some of those killed or injured in the rig explosion, are in similar negotiations with Mr. Feinberg, according to several people familiar with the situation.

Plaintiffs face a dilemma: fight in court and potentially reap big rewards, or turn to the fund and get a faster payout for their past and likely future losses but forgo any damage payments.

Anyone who reaches a final settlement with Mr. Feinberg must waive their right to sue BP and other defendants. "Most of these people can't wait," said Mr. Becnel. "They don't have the financial wherewithal."

New Orleans attorney Stuart Smith said he advised his clients, among them hoteliers, restaurant owners and fishermen, to drop their suits so he could negotiate with Mr. Feinberg "in good faith." He filed motions to dismiss the suits last month.

Mr. Smith, who is part of the group that is aligning with Mr. Becnel, said other plaintiffs could bail on the federal litigation if the group's settlement talks are successful.

The attorneys brokering the settlements are charging clients roughly 12.5% of their total haul, compared with as much as 40% lawyers might reap in court victories.

The raft of claims being presented to Mr. Feinberg also includes people who haven't sued but might turn to the court if unhappy with their final offer from him.

Mr. Feinberg, who served previously as special master of the September 11th Victim Compensation Fund, has been touring Gulf states trying to draw as many people as he can to the fund.

He instituted a plan last month to fast track final payments for some applicants by cutting down on red tape and allowing those who already received emergency payments to receive final, lump-sum payments of either $25,000 for businesses or $5,000 for individuals.

As of Wednesday, Mr. Feinberg had paid 168,502 claims altogether for a total of $3.35 billion. He will release the general methodology he plans to use to calculate final settlements next week.

Since Mr. Feinberg started his campaign, plaintiffs' attorneys who are leading the federal lawsuits have worried that the fund, which can be accessed without hiring an attorney, would decimate attempts to sue BP if potential clients filed claims.

The settlement talks also signal a rift among plaintiffs' attorneys handling oil cases.

Those who were upset that they weren't chosen as members of a committee to lead the litigation are more inclined to now turn to the Feinberg fund, as it gives them an alternative not offered in most mass torts."At the end of the day I think lawyers should be focusing on their individual clients, and I'm going to connect the dots the most fair way possible," said Louisiana attorney Richard J. Arsenault who is taking his clients' claims to Mr. Feinberg. "Justice delayed is justice denied."

Write to Dionne Searcey at dionne.searcey@wsj.com