Image: Ken Feinberg, the administrator in charge of the Gulf Coast Claims Facility, BP's compensation fund for Gulf oil spill victims
Amanda McCoy  /  AP
Attorney Kenneth Feinberg, the administrator in charge of the Gulf Coast Claims Facility, BP's compensation fund for Gulf oil spill victims, speaks during a town hall meeting Jan. 11 in Bay St. Louis, Miss.
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updated 2/2/2011 8:54:38 PM ET 2011-02-03T01:54:38

The embattled administrator of the $20 billion compensation fund for Gulf oil spill victims is not independent from BP and must stop telling potential claimants that he is, a federal judge ruled Wednesday, just hours after the fund czar released details on how final payments would be determined.

U.S. District Judge Carl Barbier said in a ruling late Wednesday that he is ordering BP, claims czar Ken Feinberg and any of their agents to change the way they communicate with people seeking money from the fund.

Barbier says Feinberg must clearly disclose in all communications that he is acting for and on behalf of BP in fulfilling its obligations as the responsible party under the Oil Pollution Act.

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"Full disclosure and transparency can ensure that the reality of the operation of a third party will be consistent with any publicity concerning that entity," Barbier wrote. "Full disclosure can also give protection to the responsible party from possible future legal attacks on the validity of the evaluation, payment, and release of claims."

Feinberg was appointed last June by BP and the White House to oversee the claims fund. His Washington law firm was paid $850,000 a month for its work through the middle of January, and now Feinberg is discussing with BP how much he should be paid going forward.

Barbier said: "The court finds that BP has created a hybrid entity, rather than one that is fully independent of BP."

BP did not immediately respond to a request for comment. Feinberg did not return a call to his cell phone. A Feinberg spokeswoman said the Gulf Coast Claims Facility would have no comment on the ruling and would move forward paying claims.

Lead attorneys in hundreds of lawsuits filed over last year's rig explosion and massive oil spill had asked Barbier to intervene in the communications between Feinberg and fund claimants. The attorney generals in Mississippi and Louisiana have expressed support for the motion, and Florida joined in Wednesday.

Among other things, they expressed concern with the requirement that people who accept final payments from the fund have to sign a release form giving up their right to sue any party deemed responsible for the disaster. The lawyers have argued that those claimants should still be able to sue BP for punitive damages and other companies for compensatory and punitive damages.

Barbier ordered all sides to issue additional briefs by Feb. 11 addressing the question of "whether and how BP as the responsible party is fully complying with the mandates of OPA, for example, in the processing of claims for 'interim, short-term damages,' or 'final damages,' methodologies for evaluation of claims, and the release forms required of claimants."

Recovery date set
Earlier Wednesday, Feinberg said the Gulf of Mexico should largely recover from BP's oil spill by the end of next year, and all final settlement offers to victims who lost revenue from the disaster will be based on that assessment.

Feinberg said the Gulf Coast Claims Facility relied on experts to determine that a 30 percent recovery is likely in 2011 with full recovery in 2012. He notes, however, that oyster harvesting will take longer.

The fund was set up by BP PLC in August to compensate people for lost revenue following BP's oil well blowout off Louisiana. It has so far paid about $3.3 billion to 168,000 claimants, but many are still waiting for any money, and thousands of others claim they were shortchanged. About half of the total 485,000 claims filed have been denied because of ineligibility or lack of documentation.

Feinberg has faced repeated criticism about the slow pace of payments and the small size of checks to victims, as well as complaints about lack of transparency and perceived influence from BP. The hits continued Wednesday.

"While this office had hoped that the methodology would finally provide some transparency, this document provides no useful information to claimants beyond a simplistic multiplier and is based on very optimistic assumptions about unknown environmental and economic conditions," Florida Attorney General Pamela Bondi said in a court filing.

Feinberg's new draft proposal for how final settlements will be paid, based on the assessment, calls for claimants to receive twice their documented 2010 losses. Oyster harvesters will be offered four times their documented 2010 losses.

"I have canvassed the universe"
Documents released by Feinberg show he based the assessment largely on expert reports from a Texas professor and a consulting firm to determine the long-term affects on seafood harvests, the tourism industry and the Gulf economy.

"I think I have canvassed the universe," Feinberg said.

People can comment on the payment proposal through Feb. 16.

For months, Feinberg has promised worried claimants that final settlements would be very "generous."

The reaction to Wednesday's news by many across the region was: This is what you call generous?

"He's asking people to sign away their rights for basically peanuts. I don't see anyone accepting this," said Louisiana fishing guide Mike Helmer. "This is an insult. This is unbelievable. It's a joke."

Mississippi seafood processor Keath Ladner hasn't been paid a dime on his roughly $1.7 million claim. He is one of the largest processors in the state, taking in seafood from about 70 boats.

He calls Feinberg's assessment a guessing game.

"We may have certain species come back within a few years, but that doesn't mean the nation is going to feel safe buying it," Ladner said.

Feinberg acknowledges nothing is certain, but agrees with the assessment that recovery is at least likely in 2012.

"I am comfortable with what I am doing today," he said.

Those who aren't ready to take a final settlement can instead file for interim quarterly payments through August 2013, provided they can show proof of continued losses. Claimants can also file for a quick cash one-time payment of $5,000 for individuals and $25,000 for businesses, but they would have to give up their right to anymore money or to sue responsible parties. The same release is required for a final settlement. About 90,000 people have taken the quick cash. About 92,000 claimants are so far seeking final settlements.

Early on, the process first allowed for claimants to seek six-month emergency payments to help keep them afloat, but many weren't satisfied with what they received and felt the requirements were too cumbersome.

Under the new guidelines for final settlements, those documentation requirements would be even "more rigorous and exacting than the minimal documentation" previously required, according to the draft methodology.

BP claims unique situation
Tony Kennon, mayor of Orange Beach, Ala., a tourist town hit particularly hard by the spill, called the new requirements "absolutely astounding."

"We have businesses handing in 2,000 pages of documents. How much more rigorous can you get other than handing over your first born," Kennon said. "The strategy continues to minimize BP's payout."

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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