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BP Waiting for Other Shoe to Drop Over $30 Billion in Gulf Cleanup Costs
The National Law Journal
As the $7.8 billion settlement of the massive litigation over the Deepwater Horizon oil spill heads toward final approval, BP PLC and Anadarko Petroleum Corp., both of which leased the drilling site at the heart of the case, face additional billions of dollars in liability to the federal government.
The settlement, announced on March 3, would resolve claims by thousands of individuals and business owners against BP. The last day to object to the deal was August 31, and the deadline to opt out is November 1. A final settlement hearing is scheduled for November 8.
That leaves claims by the federal government over how to divide liability for the spill's damages and cleanup costs among BP, Anadarko and Transocean Ltd., owner of the rig. On February 22, U.S. District Judge Carl Barbier in New Orleans put BP and Anadarko on the hook for civil penalties under the U.S. Clean Water Act (CWA) plus costs associated with cleaning up the spill under the U.S. Oil Pollution Act (OPA). Some estimates have pegged the total liability at $30 billion.
On August 24, Anadarko appealed Barbier's ruling to the U.S. Court of Appeals for the Fifth Circuit.
"Between Anadarko and BP, who gets stuck with these penalties can be pretty significant," said Alfred Kuffler, a partner at Montgomery, McCracken, Walker & Rhoads in Philadelphia who specializes in maritime law and has been following the case closely. "And they all long ago ran through their insurance money, so if these penalties stick, they come off somebody's bottom line."
The April 2010 oil spill, caused by the blowout of BP's Macondo well off the Louisiana coast, killed 11 workers and caused nearly 5 million barrels to flow into the Gulf of Mexico. Hundreds of lawsuits have been coordinated before Barbier in multidistrict litigation that originally was scheduled for trial this year. The civil settlement, if approved, would resolve many of those claims, and Barbier has rescheduled trial for the rest for January 13, 2013.
The government's case, filed on December 13, 2010, against BP Exploration & Production Inc., Transocean and Anadarko, is slated to be part of that trial. The first phase would address the defendants' conduct soon after the spill. A second phase, scheduled to begin two weeks after the conclusion of the initial phase, would address efforts to contain the oil.
KEYS TO THE CASE
Blaine LeCesne, a professor at Loyola University New Orleans College of Law, who is following the litigation, said the government could end up playing a major role in determining the percentage of fault by each defendant for the oil spill precisely what the original trial was designed to do.
"The findings of fact in this January trial are going to ultimately be the key to the resolution of all those other claims," he said. "Once you do that, those same facts will be the factual findings that resolve any of the other claims like those by the state of Louisiana or plaintiffs that opt out of the settlement."
Barbier's summary judgment ruling assessing CWA and OPA liability was closely watched by maritime attorneys because it was the first to address claims under those statutes involving the off-shore energy drilling industry, rather than in the traditional shipping business, Kuffler said.
He cautioned that "these are interlocutory rulings by one district court judge" that are under appeal. "But at the moment, it's what's out there. And when you're dealing with a statute, and there haven't been many judicial decisions, or any, the first ones out of the box have a lot of influence."
In summary, Barbier held BP and Anadarko liable for costs and penalties under both statutes. OPA addresses liability for the spill's harm to natural resources and the costs of removing the oil, while the CWA assesses penalties based on the amount of oil discharged. Under the latter, penalties could reach $1,100 per barrel of oil spilled, but that amount could grow to $4,300 per barrel if a liable defendant is found to have been grossly negligent.
Given the massive size of the Deepwater Horizon oil spill, the penalties under the CWA alone could amount to $20 billion, LeCesne said.
In its motion for partial summary judgment, the government sought to hold all three defendants liable under the OPA and CWA. Under the CWA, the government has to prove that each defendant is an "owner, operator, or person in charge" of an "offshore facility" or "vessel" from which oil was discharged. Attempting to prove liability against all three companies, the government argued that oil gushed from both the Macondo well, an "offshore facility" of which BP and Anadarko are considered owners and operators; and the rig, a "vessel" owned by Transocean.
The government also claimed that the defendants were liable for damages under the OPA, although neither BP nor Anadarko denied liability under that law. According to LeCesne, OPA damages could amount to $10 billion.
Justice Department spokesman Wyn Hornbuckle declined to comment about the litigation.
LIABILITY AS WELL OWNERS
As for BP and Anadarko, Barbier essentially found both liable under the CWA as the owners of the Macondo well, an "offshore facility" that discharged oil from underneath the water surface. He also found both responsible under the OPA. In ruling for the government, Barbier rejected Anadarko's cross-motion to avoid liability under the CWA on the ground that the oil discharged from the rig, not the well.
"So, in an effort to avoid that liability, Anadarko says, 'No, the escape was not from the seabed but from the blowout preventer, which is part of the Deepwater Horizon drill rig, so liability is on Transocean as owner and operator of the drill rig,' " Kuffler said. "And the court said, 'No,' and went through some reasoning as to where did the problem start. It started in the seabed."
In appealing the ruling, Anadarko is contesting that finding.
Anadarko attorney James Dragna, a partner in Bingham McCutchen's Los Angeles office, and BP attorney Don Haycraft, a shareholder at Liskow & Lewis in New Orleans, did not respond to requests for comment.
Anadarko, based in Houston, is appealing Barbier's ruling despite having agreed on October 17, 2011, to pay $4 billion to settle indemnity claims brought by BP. Kuffler theorized that the indemnity agreement, details of which have not been disclosed, might not absolve Anadarko of all liability. He noted a separate ruling on January 26 in which Barbier found that Transocean's indemnity agreement with BP might not protect it from CWA penalties or punitive damages.
"That was Transocean and BP," he said. But if Barbier's ruling against Transocean is any guide, he said, "Anadarko has a problem, because they won't be able to lay that off on BP."
Of all the defendants, Transocean came out on top in Barbier's ruling.
"This decision states clearly that BP is the responsible party and reaffirms the long-standing legal, regulatory and economic framework that has been employed by parties in the offshore oil and gas industry for decades," Transocean spokesman Lou Colasuonno wrote in an emailed statement. "It is a vital win for Transocean and for the long-term viability of the industry's operator-contractor model."
Transocean, in a cross-motion for partial summary judgment, had argued that it wasn't liable under either the OPA or CWA. As for the OPA, Transocean convinced the judge that it wasn't responsible for damages caused by a spill that occurred below the water's surface. Barbier said there was an "open question" about whether the rig's owner should be responsible for some of the remediation costs.
But Barbier also refused to address one of the most important issues in the litigation: whether Transocean is responsible for civil penalties under the CWA, LeCesne said. Transocean argued that oil had discharged from the well, not the rig. The judge agreed but concluded that he couldn't determine at this stage whether Transocean was the operator of the well, and therefore liable under the CWA.
Transocean also continues to face claims from private plaintiffs as BP's settlement moves forward. On May 2, Barbier preliminarily approved the deal, which resolves claims by individuals and businesses suffering economic harm or medical costs associated with the spill. Lawyers on both sides have filed motions seeking final approval of the agreement.
So far, more than 75 objections have been filed, mostly by charter boat operators hired by BP to assist in cleanup efforts soon after the spill. Before he preliminarily approved the deal, Barbier rejected objections raised by Halliburton Energy Services Inc. and the states of Mississippi and Florida.
This article originally appeared in The National Law Journal.
A TIMELINE OF LITIGATION OVER THE GULF OIL SPILL