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The BP Oil Spill Settlement and the Paradox of Public Litigation

36 Pages Posted: 13 Jun 2013 Last revised: 1 Feb 2014

Samuel Issacharoff

New York University School of Law

D. Theodore Rave

University of Houston Law Center

Date Written: September 18, 2013

Abstract

The streamlined administrative program that BP set up to pay claims arising out of the Deepwater Horizon Oil spill — the Gulf Coast Claims Facility (GCCF) — promised a significant transaction-cost savings over litigation in the public court system. At least in theory, that savings should have worked to the benefit of BP and claimants alike, freeing up money that would otherwise have gone to lawyers and other litigation costs to fund claimants’ recoveries. But a comparison of the GCCF to the class action settlement that replaced it reveals that the class settlement will result in greater payments to claimants. Paradoxically, the dispute resolution system with the higher built-in transaction costs appears superior. We offer some hypotheses for why this might be the case. Our central claim is that claimants did better under the higher-cost class action settlement because it allowed them to offer the defendant something it valued — a greater degree of finality than the GCCF could ever provide — in exchange for a “peace premium.” And we analyze some of the features of the public system of class action litigation that enable parties to obtain a greater degree of closure than a purely private dispute resolution system like the GCCF, while at the same time providing guarantees of transparency, consistency, and equitable treatment of absentees.

Suggested Citation

Issacharoff, Samuel and Rave, D. Theodore, The BP Oil Spill Settlement and the Paradox of Public Litigation (September 18, 2013). 74 Louisiana Law Review 397 (2014); NYU Law and Economics Research Paper No. 13-20. Available at SSRN: https://ssrn.com/abstract=2278378

Samuel Issacharoff

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States
212-998-6580 (Phone)
212-995-3150 (Fax)

D. Theodore Rave (Contact Author)

University of Houston Law Center ( email )

4604 Calhoun Road
Houston, TX 77204-6060
United States
713-743-2499 (Phone)

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