Image: Kenneth Feinberg speaks with Native American tribe chief
Patrick Semansky  /  AP
BP oil spill fund administrator Kenneth Feinberg, left, speaks with Thomas Dardar, chief of the United Houma Nation American Indian tribe, on Jan. 28 before a town hall meeting for oil spill claimants in Montegut, La. The tribe, heavily dependant on fishing, are among those whose futures are tied to Feinberg, the man handing out checks for billions of dollars of damage claims resulting from the spill.
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updated 2/4/2011 2:13:16 PM ET 2011-02-04T19:13:16

The Justice Department is telling the administrator of the $20 billion fund for Gulf oil spill victims that his job is not to preserve money or return it to BP, and is insisting he loosen the purse strings to help people who are still suffering from last year's disaster.

In a letter Friday to Kenneth Feinberg, Associate Attorney General Thomas Perrelli alluded to the fact that only $3.5 billion of the $20 billion fund has been spent. Any money not spent goes back to BP.

Perrelli also said that Feinberg needs to be more transparent, and he should take a second look at the emergency advance payments the fund paid to victims to determine if the process was fair.

Feinberg told the AP in a telephone interview that he would give Justice's concerns his attention. He didn't promise any immediate changes to the program.

"I welcome their input. It's always constructive," Feinberg said. "I plan as I move forward to take into account the constructive suggestions of the department and the administration."

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On Wednesday, a federal judge ruled that Feinberg is not independent from BP and must stop telling potential claimants that he is.

The ruling could spur more people to sue rather than settle.

U.S. District Judge Carl Barbier said Feinberg and any of his agents must change the way they communicate with people seeking money from the fund. The ruling came just hours after Feinberg released details on how final payments would be determined.

The ruling cuts at the heart of one of Feinberg's central arguments that because he's independent, thousands of people who have been denied money or received less than they feel they deserve should trust his decisions. And it could prompt more people to sue rather than accept relatively quick settlements with the fund, raising the potential for further uncertainty and liability for BP.

Barbier said 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.

However, Barbier stopped short of ordering changes to a release form people who accept final payments from the fund must sign. He asked lawyers to submit additional briefs to the court on that, as well as address the question of whether BP is fully complying with the law in the processing of claims.

"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 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 said in a statement it respects the court's decision.

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."

Plaintiffs lawyers hailed the ruling as a "a good day for the thousands of victims of the Deepwater Horizon tragedy."

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 GCCF 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 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 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.

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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 losses.

Documents released by Feinberg indicate he based the assessment largely on expert reports from a Texas professor and a consulting firm to determine the long-term effects 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.

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 adds, "I am comfortable with what I am doing today."

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.

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

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