Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—5th Cir.: Franchisors excluded from Deepwater Horizon oil spill settlement class, (Dec 5, 2016)

By Edward L. Puzzo, J.D.

Fast-food restaurant franchisors, unlike their legally-independent franchisees, are excluded from the Deepwater Horizon oil spill settlement class because they do not own facilities within the covered Gulf Coast areas, the U.S. Court of Appeals in New Orleans has ruled (Claimant ID 100197593 v. BP Exploration & Production, Inc., November 16, 2016, Per Curiam).

Fast-food restaurant franchisors filed claims with the claim administrator of the Court Supervised Settlement Program that had been established to handle claims arising from the 2010 Deepwater Horizon oil spill for a class consisting of those doing business or operating in the Gulf Coast areas. The franchisors sought to recover franchise royalty fees allegedly lost from the reduction in their franchisees' business due to the oil spill. The Settlement Program found that the franchisors were not part of the class and ruled against the claims, and the denial was affirmed by the Appeal Panel and, upon discretionary review, by the federal district court. The franchisors appealed to the appellate court.

The issues on appeal were whether the franchisors met the requirements of Section 1.2.1 in the Settlement Agreement—entities that "owned, operated, or leased a physical facility in the Gulf Coast areas"—or the requirements of Section 1.2.2—"service businesses with one or more full-time employees (including owner-operators) who performed their full-time services while physically present in the Gulf Coast Areas." Initially, the franchisors alleged that they met the requirements of Section 1.2.1, but on appeal, the franchisors relied on Section 1.2.2, alleging that since their franchisees were within the Gulf Coast areas, they qualified, regardless of the location of the franchisors themselves.

Legally independent businesses. The appellate court found that the Settlement Agreement 's geographic restriction on putative class members could not be satisfied by relying on legally independent businesses. Franchisees are third-party businesses that are not part of the larger franchisor, the court stated. Because the franchisees may be owner-operators within the meaning of Section 1.2.2, it does not confer that status on the franchisors.

The court noted that franchisors also did not meet the definition of a multi-facility business, discussed elsewhere in the Settlement Agreement, which was a business entity that maintained facilities in more than one location and had at least one facility within the Gulf Coast areas. More specifically, the court noted, the Settlement Agreement addressed franchises, stating that "a franchise location is not a facility of the franchisor entity if the franchisor does not own or lease the real property on which the franchise is located." Thus, franchisors, unlike franchisees, were excluded from the settlement class, the court ruled.

The case is No. 16-30283.

Attorneys: Jeffrey W. Willis (Rogers & Hardin LLP) for Claimant ID 100197593, Claimant ID 100200179 and Claimant ID 100195755. Don Keller Haycraft (Liskow & Lewis), Daniel A. Cantor (Arnold & Porter, LLP) and J. Andrew Langan (Kirkland & Ellis, LLP) for BP Exploration & Production, Inc., BP America Production Co. and BP P.L.C.

Companies: BP Exploration & Production, Inc.; BP America Production Co.; BP P.L.C.

Cases: FranchisingDistribution LouisianaNews MississippiNews TexasNews