IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 15-30574

IN RE: DEEPWATER HORIZON

____________________________________________

LAKE EUGENIE LAND & DEVELOPMENT, INCORPORATED, ET AL.,

 Plaintiffs

v. 

BP EXPLORATION & PRODUCTION, INCORPORATED, ET AL.,

 Defendants

JASON ZIRLOTT; CAPTAIN JAY, L.L.C., 

 Movants - Appellants

v.

LOUIS J. FREEH,

 Appellee

Appeal from the United States District Court

for the Eastern District of Louisiana

USDC No. 2:12-CV-970

USDC No. 2:10-MD-2179

Before KING, SOUTHWICK, and HAYNES, Circuit Judges.

United States Court of Appeals

Fifth Circuit

FILED

April 8, 2016

Lyle W. Cayce

Clerk

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PER CURIAM:*

In 2014, Special Master Louis J. Freeh filed a motion with the district 

court overseeing the Deepwater Horizon settlement fund to have Capt Jay, 

LLC, and Jason Zirlott remit monetary amounts that they collected from the 

fund. Freeh argued that Capt Jay and Zirlott had submitted fraudulent claims 

for compensation and separately moved for the district court to bar Capt Jay 

and Zirlott from further collecting from the settlement fund. Exercising its 

continuing supervision over the settlement fund, the district court granted 

both motions. Capt Jay and Zirlott timely appealed. We hold that the district 

court did not abuse its discretion when it granted both motions and AFFRIM 

the district court’s judgment.

I. FACTUAL AND PROCEDURAL BACKGROUND

This case arises from the multidistrict litigation (MDL), In Re: Oil Spill 

by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010, 10-

MD-2179, that resulted after a number of private plaintiffs brought civil claims 

against BP plc in the wake of the 2010 Deepwater Horizon oil spill. The claims 

were consolidated into the Deepwater Horizon MDL, and the matter was 

transferred by the United States Judicial Panel on Multidistrict Litigation to 

Judge Carl Barbier in the United States District Court for the Eastern District 

of Louisiana on August 10, 2010. In 2012, counsel for BP and the Plaintiffs 

Steering Committee (PSC) in the MDL reached an agreement to settle claims 

for economic damages arising from the oil spill. And on December 21, 2012, 

the district court approved the Deepwater Horizon Economic and Property 

Damages Settlement Agreement (Settlement Agreement). Included under the 

 

* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not 

be published and is not precedent except under the limited circumstances set forth in 5TH

CIR. R. 47.5.4.

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Settlement Agreement was a Seafood Compensation Plan that covered 

commercial fishermen, seafood crews, or seafood vessel owners that operated 

vessels in Gulf Coast areas around the time of the Deepwater Horizon oil spill. 

To implement and administer the Settlement Agreement, the court established 

the Deepwater Horizon Court Supervised Settlement Program (Settlement 

Program) whereby entities and individuals, who fell within the settlement

class, could submit claims for compensation for economic losses. Under the 

terms of the Settlement Agreement, the court retained continuing and 

exclusive jurisdiction over the administration of claims under the Settlement 

Program and was tasked with resolving disputes concerning the enforcement 

of the Settlement Agreement.

On July 2, 2013, the district court appointed Louis J. Freeh as Special 

Master, pursuant to Federal Rule of Civil Procedure 53, on suspicion that 

ethical violations and other misconduct were taking place in the Settlement 

Program. Freeh was tasked with performing an external investigation of the 

Settlement Program, conducting fact finding as to possible ethical violations or 

misconduct in the Settlement Program, and examining internal compliance 

programs and anti-corruption controls. On September 6, 2013, the district 

court directed Freeh to investigate any past or pending claims submitted to the 

Settlement Program and to initiate legal action in order to recover any funds 

paid out on fraudulent claims by the Settlement Program. Freeh’s 

investigation turned to claims submitted by Capt Jay, LLC, and Jason Zirlott 

for lost commercial fishing income, for which they had received payment from 

the Settlement Program. 

Capt Jay, an Alabama company engaged in commercial fishing and 

water debris cleanup, had filed a shrimp vessel owner claim with the 

Settlement Program on November 19, 2012, seeking compensation from the 

Seafood Compensation Program. Zirlott, an employee of Capt Jay, filed his 

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own shrimp vessel captain claim thereafter. In support of their claims, Capt 

Jay and Zirlott submitted supporting documentation that included accounting 

statements, official licenses, and tax forms that Capt Jay filed with the 

Internal Revenue Service (IRS) from 2007 to 2009. In submitting their claims, 

Capt Jay and Zirlott both filed sworn, written statements on November 29, 

2012, that Capt Jay’s 2009 gross receipts from shrimping in Gulf Coast areas 

totaled $162,364—a figure that matched Capt Jay’s gross receipts in the Form 

1065 it submitted to the IRS in 2009. Based on the documentation provided, 

the Settlement Program determined that Capt Jay was entitled to $248,371.29 

on its claim but awarded the company $85,357.82, based on deductions for 

prior payments from the Settlement Program. The Settlement Program 

determined that Zirlott was entitled to $196,906.96 on his shrimp vessel 

captain claim but, after adding reimbursement for accounting expenses, 

increased the award to $197,384.31. Capt Jay’s and Zirlott’s attorneys at the 

time received $43,222.81 in attorneys’ fees for handling the claims.1 

On October 7, 2014, Freeh, pursuant to his duties as Special Master, 

moved to have Capt Jay and Zirlott remit the payments they received from the 

Settlement Program and moved for an order prohibiting both from receiving 

any more compensation from the Settlement Program. According to Freeh, 

subsequent investigation revealed that Capt Jay and Zirlott had submitted 

fraudulent claims for compensation. In particular, Freeh alleged that Capt 

Jay and Zirlott knowingly presented false information and concealed 

information when they claimed that their 2009 revenue came from shrimping 

activities alone when, in fact, over 80 percent of this revenue came from marine 

debris cleanup work. And in a separate motion, Freeh argued that this 

 

1 The attorneys later withdrew from further representation of both claimants and 

repaid their fees to the Settlement Program on October 3, 2014.

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deceptive conduct precluded Capt Jay and Zirlott from collecting further 

amounts from the Settlement Program. Capt Jay and Zirlott opposed both of 

Freeh’s motions. They argued that they reasonably believed marine debris 

cleanup could be compensable under the Settlement Program, provided all 

materials disclosing their income, and innocently made any alleged 

misrepresentations. 

The district court granted both of Freeh’s motions on June 24, 2015. 

Interpreting the terms of the Seafood Compensation Plan, the district court 

rejected any argument that Capt Jay and Zirlott’s marine debris cleanup was 

covered by the Settlement Agreement. According to the district court, Capt 

Jay and Zirlott had not merely filed tax returns with the Settlement Program 

but had personally averred, in sworn statements, that all of their revenue came 

“from ‘shrimp’ landed in 2009.” The district court therefore concluded, as a 

matter of law, that Capt Jay and Zirlott had committed fraud.2 In light of this 

finding, the court entered final judgment under Rule 54(b), ordering restitution 

of the amounts Capt Jay and Zirlott had received and barring both parties from 

further participation in the Settlement Program. Capt Jay and Zirlott timely 

appealed on July 1, 2015.3 

II. STANDARD OF REVIEW

We have acknowledged that “a district court has inherent power to 

recognize, encourage, and when necessary enforce settlement agreements 

reached by the parties.” Bell v. Schexnayder, 36 F.3d 447, 449 (5th Cir. 1994); 

see also Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991) (“[A] court has the 

power to conduct an independent investigation in order to determine whether 

 

2 The court rejected ancillary arguments from Capt Jay and Zirlott that they had not 

signed the sworn statements, only their lawyers had, and that entities responsible for 

administering the Settlement Program were at fault for not discovering the misinformation 

in the claims. 

3 On appeal, Special Master Louis J. Freeh defends the district court’s judgment.

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it has been the victim of fraud.”). We review a district court’s exercise of this 

inherent power, absent any challenge to the underlying settlement, “for abuse 

of discretion.” In re DEEPWATER HORIZON, 786 F.3d 344, 354 (5th Cir. 

2015). Similarly, “[w]e review the imposition of sanctions [under a court’s 

inherent power] for an abuse of discretion.” Chaves v. M/V Medina Star, 

47 F.3d 153, 156 (5th Cir. 1995). “A district court abuses its discretion if it: 

(1) relies on clearly erroneous factual findings; (2) relies on erroneous 

conclusions of law; or (3) misapplies the law to the facts.” Harmon v. Journal 

Pub. Co., 476 F. App’x 756, 757 (5th Cir. 2012) (per curiam) (unpublished)

(citation omitted). We review de novo any questions regarding the 

interpretation of a settlement agreement as questions of law. Waterfowl Ltd. 

Liab. Co. v. United States, 473 F.3d 135, 141 (5th Cir. 2006).

III. FRAUD AND SANCTIONS

Before proceeding to the merits of Capt Jay and Zirlott’s appeal 

regarding fraud, we note that the parties dispute which substantive law the 

district court should have applied in finding fraud. Capt Jay and Zirlott, 

without explanation, argue that Alabama substantive law applies to the 

instant matter and that the district court could not have found fraud under 

Alabama law. In response, Freeh argues that general maritime law applies to 

issues arising under the Settlement Program. We hold that general maritime 

law applies to the instant matter. This is because the Settlement Agreement, 

by its express terms, states that its interpretation and enforcement is governed 

by general maritime law and the Oil Pollution Act of 1990 (OPA).4 See In re 

 

4 Section 36.1 of the Agreement states:

Notwithstanding the law applicable to the underlying claims, which the 

Parties dispute, this Agreement and the Release and Individual Releases 

hereunder shall be interpreted in accordance with General Maritime Law as 

well as in a manner intended to comply with OPA.

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Deepwater Horizon, 739 F.3d 790, 804 n.53 (5th Cir. 2013) (noting that the 

Settlement Agreement is governed by the substantive law of the OPA and 

federal maritime law). Because general maritime law applies, we apply 

traditional common law fraud rules to determine whether the district court 

abused its discretion in finding fraud. See Johnson v. GlobalSantaFe Offshore 

Servs, Inc., 799 F.3d 317, 321 (5th Cir. 2015) (“Drawn from state and federal 

sources, the general maritime law is an amalgam of traditional common-law 

rules, modifications of those rules, and newly created rules.” (quoting E. River 

S.S. Corp. v Transamerica Delaval, Inc., 476 U.S. 858, 864–65 (1986))). We 

have recognized that common law fraud exists where:

(1) a material representation was made; (2) the representation was 

false; (3) when the representation was made, the speaker knew it 

was false or made it recklessly without any knowledge of the truth 

and as a positive assertion; (4) the representation was made with 

the intention that it be acted upon by the other party; (5) the party 

acted in reliance on upon the representation; and (6) the party 

suffered injury.

In re DEEPWATER HORIZON, 786 F.3d at 363 (quoting O’Hare v. Graham, 

455 F. App’x 377, 379–80 (5th Cir. 2011) (per curiam) (unpublished)); see also 

Black Gold Marine, Inc. v. Jackson Marine Co., Inc., 759 F.2d 466, 470 (5th 

Cir. 1985). Under common law principles, “[a] transfer induced by fraud or 

material misrepresentation is subject to rescission and restitution.” 

Restatement (Third) of Restitution and Unjust Enrichment § 13 (Am. Law Inst. 

2011).

The district court here did not abuse its discretion in finding fraud and 

ordering restitution based on the facts before it. Capt Jay and Zirlott 

defrauded the Settlement Program when they filed sworn statements 

affirming that the revenue shown on their 2009 tax returns came only from 

commercial shrimp landings, when in fact 80 percent of the revenue came from 

marine debris cleanup. As the district court properly concluded, the 

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Settlement Agreement’s Shrimp Compensation Plan governs the 

compensation criteria under the Settlement Agreement.5 And that 

Compensation Plan specifically provides compensation for loss of revenue from 

“shrimp landings in the Gulf Coast Areas,” but not for marine debris cleanup. 

Therefore, Capt Jay and Zirlott made knowingly false representations when 

seeking compensation from the Settlement Program for their marine debris 

cleanup work. In turn, the Settlement Program relied on these

misrepresentations in dispersing money from the settlement fund to Capt Jay 

and Zirlott.

Capt Jay and Zirlott argue that any misrepresentation was at most a 

misunderstanding based on the ambiguity of the terms of the Settlement 

Agreement and on Zirlott’s high-school-level education. However, the district 

court specifically found that Zirlott knew his claim for compensation to be false 

when he made it, as Zirlott stated on a claim form “that he had earned $162,364 

‘from the sales of fish’” in 2009. And while Capt Jay and Zirlott asserted that 

the Compensation Plan was ambiguous, the district court also found that the 

Compensation Plan’s criteria were “unambiguous” so that Capt Jay and Zirlott

could not have been mistaken that marine debris cleanup was not covered by 

the Settlement Agreement. 

 

5 The Shrimp Compensation Plan was attached as an exhibit to the Settlement 

Agreement and states:

The Seafood Compensation Program shall cover and compensate Commercial 

Fishermen, Seafood Boat Captains, all other Seafood Crew, Oyster 

Leaseholders, and Seafood Vessel Owners for economic loss claims relating to 

Seafood. All economic loss claims by Commercial Fishermen, Seafood Boat 

Captains, all other Seafood Crew, Oyster Leaseholders, and Seafood Vessel 

Owners relating to Seafood will be part of and must be brought under the 

Seafood Compensation Program.

Capt Jay and Zirlott cite a number of federal regulations and other authorities that they 

argue make it reasonable to assume that marine debris cleanup revenue was compensable 

under the Settlement Program. These authorities are inapposite.

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Alternatively, Capt Jay and Zirlott argue that the common law 

requirement of reliance for fraud is not satisfied here because they submitted 

all of their documentation and an inspection of this documentation would have 

revealed that 80 percent of Capt Jay’s revenue came from marine debris 

cleanup. Capt Jay and Zirlott’s alternative arguments on reliance are also 

without merit. For common law fraud, we look to justifiable reliance as the 

common law standard for reliance. See Field v. Mans, 516 U.S. 59, 71–75 

(1995). Under this standard, unless a fraudulent misrepresentation is patently 

apparent, “a person is justified in relying on a representation of fact ‘although 

he might have ascertained the falsity of the representation had he made an 

investigation.’” Id. at 70 (quoting Restatement (Second) of Torts, § 540 (Am. 

Law Inst. 1976)). The documents filed by Capt Jay and Zirlott suggested that 

their 2009 revenue came from shrimping and not marine debris cleanup, and 

Capt Jay and Zirlott do not suggest how any misrepresentation would have 

been patently apparent to the administrators of the Settlement Program. 

Moreover, reliance is not lacking because the administrators failed to 

investigate the claims more thoroughly, as “[t]he requirement of [justifiable 

reliance] does not impose a duty of active investigation on a plaintiff, and does 

not entitle a defendant to exploit a plaintiff's foolishness with impunity.” 

Restatement (Third) of Torts: Liab. for Econ. Harm § 11 cmt. d (Am. Law Inst. 

2014).

The district court similarly did not abuse its discretion in imposing 

sanctions that prohibited Capt Jay and Zirlott from further participating in 

the Settlement Agreement’s Seafood Compensation Program.6 Within its 

 

6 Capt Jay and Zirlott argue that the district court applied judicial estoppel in barring

them from further participation in the Settlement Program and that the elements of judicial 

estoppel are not present in its case. While the district court did not make clear whether it 

was exercising its inherent power to sanction or applying judicial estoppel, we interpret its 

judgment as exercising its inherent power to sanction. See Blanco River, L.L.C. v. Green, 457 

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“inherent powers,” a district court has “the ability to fashion an appropriate 

sanction for conduct which abuses the judicial process.” Chambers, 501 U.S. 

at 44–45. “Because of their very potency, inherent powers must be exercised 

with restraint and discretion.” Id. at 44. Accordingly, when “invoking its 

inherent power” to sanction, a district court “must comply with the mandates 

of due process.” Id. at 50. And we have noted that sanctions under a district 

court’s inherent powers generally require a finding of “bad faith” by the district 

court. In re Sealed Appellant, 194 F.3d 666, 671 (5th Cir. 1999). But “specific 

findings [of bad faith] are unnecessary to understand the misconduct giving 

rise to [a] sanction,” “[w]hen bad faith is patent from the record” and “may be 

inferred.” Id.

The district court complied with due process when it gave Capt Jay and 

Zirlott the opportunity to respond in writing to Freeh’s motion that they be 

barred from receiving further compensation. See Merriman v. Sec. Ins. Co. of 

Hartford, 100 F.3d 1187, 1192 (5th Cir. 1996) (“[T]he opportunity to respond 

through written submissions [to motions for sanctions] usually constitutes 

sufficient opportunity to be heard.”). And, as previously mentioned, the district 

court made the requisite finding of bad faith when it found that Capt Jay and 

Zirlott had engaged in fraud by falsely misrepresenting that all of their 2009 

revenue came from shrimping. See Chambers, 501 U.S. at 46 (“[I]f a court finds 

‘that fraud has been practiced upon it, or that the very temple of justice has 

been defiled,’ it may assess [sanctions] against the responsible party . . . as it 

may when a party ‘shows bad faith.’” (citations omitted)); cf. Takeda Chem. 

Indus., Ltd. v. Mylan Lab., Inc., 549 F.3d 1381, 1391 (Fed Cir. 2008) (noting 

 

F. App’x 431, 438–40 (5th Cir. 2012) (per curiam) (unpublished) (determining the basis for 

sanctions from a district court where the basis was not mentioned by the district court); 

Hazeur v. Keller Indus., No. 92-3488, 1993 WL 14973, at *5–6 (5th Cir. Jan. 11, 1993) (per 

curiam) (unpublished) (noting that a court does not have to expressly state that it is 

sanctioning under its inherent power to comply with due process).

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that conduct that did not amount to fraud could still be considered bad faith 

and subject a party to sanctions). Based on these facts, the district court did 

not abuse its discretion by barring Capt Jay and Zirlott from collecting funds

from the Settlement Program.

IV. CONCLUSION

For the reasons herein, we AFFIRM the district court’s judgment.

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