Ken Feinberg Compensation for Administering BP Fund — A Problem and Possible Solution

Today, I saw on Bloomberg Rewind a video of several questions to Kenneth Feinberg, administrator of the $20 billion BP oil-leak compensation fund.  (Video of the interview apparently not yet available on the internet.)  At one point, the reporter asked Feinberg how he would be paid, and Feinberg responded that BP would pay because neither the victims nor taxpayers should have to pay him.  Fair enough.  But when the reporter asked Feinberg whether his compensation would be disclosed, Feinberg said that his compensation “would be confidential.”  

The issue of Feinberg’s compensation is interesting.  Feinberg worked pro bono on the 9/11 victim compensation fund — a remarkable and laudable commitment given the substantial time involved.  I’m not suggesting that Feinberg should go on doing such monumental administrative tasks pro bono — but is it appropriate for him to keep his compensation from BP confidential?  

As with the 9/11 fund, Feinberg will likely have tremendous discretion in fashioning the administrative claim mechanism for the BP compensation fund.  His exercise of discretion could possibly result in BP saving substantial funds, especially if any remainder of the $20 billion fund is to be returned to BP. Accordingly, a fair process at a minimum requires that both the amount of his compensation, and the method of compensation be disclosed publicly.  If BP has the ability to review and cut his billable hours or his billable-hour rate, for example, Feinberg might have a conflict of interest that could lead him unconsciously to favor BP in structuring the administrative fund or making awards.  As a result, in addition to public disclosure, an even better solution might be for BP and Feinberg also to agree to have a federal judge review Feinberg’s billable hours, billable-hour rate, and total fee, much as is already typically done by judges reviewing class counsel fee awards in class-action settlements under Rule 23.  See Fed. R. Civ. P. 23(h) (“In a certified class action, the court may award reasonable attorney’s fees and nontaxable costs that are authorized by law or by the parties’ agreement.”). 

I of course do not mean in any way to call into question Feinberg’s integrity; he is widely viewed as the nation’s leading claims administrator.  But even federal judges have their compensation set publicly and in a manner that could not be said to incentivize them to favor one litigant over another.  We would never approve of a judge being paid confidentially by only one litigant — and we shouldn’t here either, especially when the claims structure could be seen as quasi-public in light of the President’s central involvement and comments that “[i]n order to ensure that all legitimate claims are paid out in a fair and timely manner, the account must and will be administered by an independent, third party.”  Ultimately, removing the issue of Feinberg’s fees from any controversy would aid Feinberg in making the BP fund a success. 

BGS    

UPDATE — Professor Andrew Perlman (Suffolk) comments at Legal Ethics Forum on my post above.

UPDATE #2 — Forbes’ On The Docket blog discusses my post above: Feinberg’s BP Pay: Should It Be Disclosed?, by Daniel Fisher.