The Donovan Law Group3102 Seaway Court, Suite 304

Tampa, Florida 33629(352) 328-7469

November 27,2010

VIA CERTIFIED MAILRETURN RECEIPT REQUESTED

The Honorable Janet NapolitanoOffice of the SecretaryDepartment of Homeland Security245 Murray Lane, SWWashington, DC 20528

Re: BP Oil Spill - The Need to Properly Define "Expenditure"Under the Oil Spill Liability Trust Fund (OSLTF)

Dear Secretary Napolitano :

I am writing in regard to the need to properly define the term "expenditure" under theOSLTF. Under the OSLTF, expenditure should mean "an expenditure that is not reimbursed bythe responsible party." Defining the term in any other manner ignores the legislative intent ofCongress and the Internal Revenue Code.

The question is whether victims of the BP oil spill of Api|22,2010 will have to paythree times: (a) once for the oil spill, the environmental and economic damages of which willdevastate their way of life and leave many in financial ruin; (b) again by being mislead andundercompensated by GCCF; and (c) a third time for daring to demand justice, which willconsume their time, energy and hopes for years to come if they are held hostage by protractedindividual lawsuits or class action lawsuits.

The damages suffered by victims of the BP oil spill incident of April 22,2010 will beenoilnous and on-going. The livelihoods of all persons whose businesses rely on the naturalresources of the Gulf Coast are at risk. Commercial fishermen, oyster harvesters, shrimpers, andbusinesses involved, directly or indirectly, in processing and packaging for the seafood industrywill experience the end of a way of life that, in many cases, has been passed down from onegeneration to the next.

BP and Oxford Economics estimate the total cost to clean up this unprecedented spill tobe in the tens of billions of dollars. On November 2,2010, BP raised its estimated cost ofcleaning up the Macondo oil spill incident to $40 billion. Other independent third party estimatesrange between $60 billion and $90 billion.

Secretary Janet NapolitanoNovember 27,2AlAPage2

How will victims of this unprecedented oil spill be fully compensated for their losses?Theoretically, there are three potential avenues of compensation which victims of this oil spillmay pursue to be made whole: (a) the Gulf Coast Claims Facility (GCCF); (b) litigation; and(c) the Oil Spill Liability Trust Fund (OSLTF).

GULF COAST CLAIMS FACILITY (GCCF)GCCF was meant to replace the inefficient claims process which BP had established to

fuIfilI its obligations as a responsible party pursuant to the Oil Pollution Act of 1990 (OpA). Itwas not the legislative intent of Congress for OPA to limit an oil spill victim's right to seek fullcompensation from the responsible party. BP and Kenneth Feinberg, the GCCF claimsadministrator, allege that GCCF (and the protocols under which it operates) are structured to becompliant with OPA. However, as explained in my letter, dated October 18, 2010 and receivedby your office on October 25,2010, GCCF is in violation of OPA. In lieu of ensuring that oilspill victims are made whole, GCCF's primary goal appears to be the limitation of BP's liabilityvia the systematic postponement, reduction or denial of claims against Bp.

LITIGATIONKenneth Feinberg uses the fear of costly and protracted litigation to coerce victims of the

BP oil spill to accept grossly inadequate settlements from GCCF. During town hall meetingsorganized to promote GCCF, Feinberg repeatedly tells victims of the BP oil spill, "the litigationroute in court will mean uncertainty, years of delay and a big cut for the lawyers." "I amdetermined to come up with a system that will be more generous, more beneficial, than if you goand file a lawsuit." "It is not in your interest to tie up you and the courts in years of uncertainprotracted litigation when there is an altemative that has been created," Feinberg says. He adds,"I take the position, if I don't find you eligible, no court will find you eligible." Mr. Feinbergintentionally fails to mention that litigation is not the only alternative to CCCf'.

BP, the responsible party, is a powerful and well-funded defendant, does not lackimagination or incentive to pose innumerable legal barriers, and will aggressively assert its legalrights and otherwise use the law, the courts and the judicial system to serve its interests. Bp canafford to stall, and actually benefits from delay, but its victims cannot afford to wait for years tobe fully compensated for their losses.

OIL SPIL LIABILITY TRUST FUND (OSLTF)As Representative Lent explained in urging passage of OPA, o'The thrust of this

legislation is to eliminate, to the extent possible, the need for an injured person to seek recoursethrough the litigation process." See 135 Cong. Rec. H7962 (dally ed. Nov. 2, lggg) prior toOPA, federal funding for oil spill damage recovery was difficult for private parties. To addressthis issue, Congress established the OSLTF under section 9509 of the Internal Revenue Code of1986 (26 U.S.C. esOe).

Secretary Janet NapolitanoNovember 27,2010Page 3

The OSLTF is currently funded by: a per barrel tax of 8 cents on petroleum productseither produced in the United States or imported from other countries, reimbursements flomresponsible parties for costs of removal and damages, fines and penalties paid pursuant tovarious statutes, and interest earned on U.S. Treasury investments. On September 30, 2010, theunaudited OSLTF balance was approximately S1.69 billion.

Under OPA, claims for damages must be presented first to the responsible party.33U.S.C. $ 2713(a) In the event that a claim for damages is either denied or not paid by theresponsible party within 90 days, the claimant may elect to commence an action in court againstthe responsible party or to present the claim to the OSLTF. 33 u.S.C. g 2713(c)

ExpenditureThe maximum amount which may be paid from the OSLTF with respect to any single

incident shall not exceed $1 billion. 26 U.S.C. g 9509(cX2)(A) Furtherrnore, except in the caseof payments of removal costs, a payment may be made from the OSLTF only ifthe amount in theOSLTF after such payment will not be less than $30,000,000. 26 U.S.C. g 9509(oX2XB)

This is an incident of first impression for the OSLTF. The BP oil spill of April 22,2010,a catastrophic oil spill incident, represents the first time that the viability of the OSLTF has beenthreatened. Federal statutes and relevant regulations neither specifically address such a scenarionor provide authority for further compensation. However, OPA legislative history and statementsfrom OPA drafters indicate that drafters intended the OSLTF to cover "catastrophic spills." SeeU.S. Congress, House Committee on Merchant Marine and Fisheries, Report accompanying H.R.1465, Oil Pollution Prevention, Removal, Liability, and Compensation Act of 1989, 1989,H.Rept. I0T-242,Part2,101st Cong., lst sess., p. 36

If an expenditure is reimbursed, is it still an expenditure? The OSLTF is establishedunder Internal Revenue Code. 26 U.S.C $ 9509 Under the Internal Revenue Code, a reimbursedexpenditure is not deductible. It is not considered to be an expenditure. Therefore, under theOSLTF, why should an expenditure, reimbursed by the responsible party,be defined as anexpenditure?

Legislative history and the Internal Revenue Code strongly support the conclusion that, inthe case of a catastrophic oil spill, the proper definition of the term "expenditure," under theOSLTF, means "an expenditure that is not reimbursed by the responsible porty."

SubrogationAny person, including the OSLTF, who pays compensation pursuant to OPA to any

claimant for damages shall be subrogated to all rights, claims, and causes of action that theclaimant has under any other law. 33 U.S.C. g 2715(a)

Secretary Janet NapolitanoNovember 27,2010Page 4

Moreover, at the request of the Secretary,the Attorney General shall commence anaction on behalf of the OSLTF to recover any compensation paid by the OSLTF to any claimantpursuant to OPA, and all costs incurred by the OSLTF by reason of the claim, including interest(including prejudgment interest), administrative and adjudicative costs, and attorney's fees. Suchan action may be commenced against any responsible party or guarantor, or against any otherperson who is liable, pursuant to any law, to the compensated claimant or to the OSLTF, for thecost or damages for which the compensation was paid. 33 U.S.C. $ 2715(c) Thus, a responsibleparty may ultimately pay a claim that was initially denied, or not addressed for more than 90days, by the responsible party.

Proposed Retroactive OPA LegislationThe cost of this catastrophic BP oil spill will far exceed the current OSLTF per incident

expenditure limit. In response, since the BP oil spill disaster of April, 20l0,bil1s have beenintroduced to amend OPA to increase the liability limit of the responsible party and the OSLTF'sper incident expenditure limit for oil spills. For example, H.R. 4213,the American Jobi andClosing Tm Loopholes Act, passed by the House on May 28,2010, includes provisions thatwould raise the per barrel tax used to fund the OSLTF to 34 cents and increases the per incidentexpenditure limit to $5 billion, including up to $2.5 billion in natural resource damage claims.

An important question is whether this legislation can and should be applied retroactivelyto the BP oil spill disaster of April, 2010. The constitutional issues that may be raised fromretroactive application of this legislation are based on the Ex Post Facto Clause, Substantive DueProcess, the Takings Clause, the Bill of Attainder Clause, and the Impairment of ContractsClause.

CONCLUSIONThe advantage of defining an expenditure, under the OSLTF , as " an expenditure that is

not reimbursed by the responsible party," is twofold:(a) It eliminates, without the need to pass retroactive legislation, the $1 billion cap which may bepaid from the OSLTF with respect to any single incident and allows the OSLTF to maintain abalance of at least $1 billion for the purpose of paying claims for damages resulting from otheroil spill incidents. As the OSLTF pool of $1 billion is depleted by payments made to oil spillclaimants, it is replenished, by virhre of subrogation, by reimbursements made to the OSLTF bythe responsible party; and(b) It ensures that the cost of a catastrophic oil spill incident shall be borne by the responsiblepar1y, not the federal taxpayer.

Secretary Janet NapolitanoNovember 27,2010Page 5

Thank you for your prompt attention to this issue. If you have any questions, please donot hesitate to contact me at 352-328-7469 or via e-mail at BrianJDonovan@verizon.net.

BJD/rc

cc: The Honorable Edward J. MarkeyThe Honorable James L. OberstarThe Honorable Elijah E. CummingsThe Honorable Corrine BrownThe Honorable Anh "Joseph" CaoThe Honorable John Conyers, Jr.The Honorable John L. MicaThe Honorable Jeff BingamanThe Honorable Bill NelsonThe Honorable Bobby JindalThe Honorable Eric H. Holder, Jr.

The Honorable Daniel K. InouyeThe Honorable Barbara BoxerThe Honorable Joseph I. LiebermanThe Honorable Troy KingThe Honorable David R. ObeyThe Honorable Henry A. WaxmanThe Honorable Bennie G. ThompsonThe Honorable Nick J. Rahall, IIThe Honorable Charles W. Boustany Jr.

Brian J. Donovan