The speed at which BP PLC reached a $7.8 billion settlement on economic damages and medical costs in the Deepwater Horizon litigation has been remarkable. The agreement, pending court approval, took care of the bulk of the private plaintiffs’ claims, but didn’t end BP’s legal problems. A trial on how to apportion liability between the company and its business partners is scheduled to begin on January 14. And claims by the federal and Gulf state governments remain pending.
Besides speed, the multidistrict litigation in the U.S. District Court for the Eastern District of Louisiana produced rulings on liability likely to spread comfort among oil and gas industry executives. In January, U.S. District Judge Carl Barbier granted partial summary judgment to Transocean Ltd. and Halliburton Energy Services Inc., declaring that indemnity clauses in their contracts with BP cleared them of liability for compensatory damages related to subsurface oil discharges.
Harold Watson, a partner in the maritime law practice at Chaffe McCall in Houston, said the indemnity provisions at issue are “almost universal” in drilling contracts. “What Judge Barbier did was rule that this was enforceable and what the parties intended,” he said. “In terms of the industry, it helps for people to be able to plan their affairs, to know that contracts are going to be enforced.”
The April 2010 explosion of the Deepwater Horizon oil rig above BP’s Macando well killed 11 people and released an estimated 4.9 million barrels of oil into the Gulf of Mexico. BP and representatives of the thousands of individuals and businesses that pursued claims for economic damages and medical costs announced in March that they had reached the estimated $7.8 billion settlement.
Noting that litigation over the Exxon Valdez oil spill in 1989 took decades to resolve, Tulane University Law School professor Edward Sherman credited Barbier for finding a way to keep the case moving. “Judge Barbier really did hold the parties’ feet to the fire,” Sherman said. “He set very strict discovery dates and…he kept them to this schedule.”
“The fact that a significant portion of the case has been resolved on the private plaintiffs’ side, and there’s great prospect for resolution on the federal government side — those are the two largest components of potential liability for BP and the other defendants,” said Blaine LeCesne, a professor at Loyola University New Orleans School of Law. “That is really quite remarkable for a case of this size and a disaster of this magnitude.”
Co-lead class counsel James Roy of Domengeaux, Wright, Roy & Edwards said via email that the parties’ willingness to settle was due to, “without question, the litigation pressure and the prospect of trial.” BP and its lead counsel from Kirkland & Ellis, Liskow & Lewis and Covington & Burling declined to comment.
A final fairness hearing on the proposed settlement is scheduled for November 8. More than 200 objections have been filed — Barbier set up a separate docket to handle the flood of filings — ranging from plaintiffs’ concerns about the division of funds to opposition by state governments to descriptions of the spill’s effects and BP’s role. Roy said he didn’t expect any objections to stand in the way of approval, noting that some were filed by parties outside the class seeking inclusion.
Sherman agreed. “Barbier kept close touch with what was going on in the negotiations and…the kinds of agreements that they reached were things we had already, through his earlier rulings perhaps, presaged,” he said.
The settlement means BP is likely off the hook on most of the private plaintiffs’ claims, but all signs point to the other defendants preparing for battle. And BP isn’t out of the woods — the company still faces potentially billions of dollars in civil penalties and costs associated with cleanup.
LeCesne said Barbier’s rulings on indemnity struck at BP’s strategy to shift as much blame as possible to its co-defendants. In late January, the judge ruled that BP had to indemnify Transocean, which owned the rig, and Halliburton, which cemented it, against any compensatory damages related to subsurface discharge. The two companies could still face liability for punitive damages or damages related to surface oil, but surface discharge is “just a drop in the bucket compared to subsurface oil,” LeCesne said. “That’s a major victory.”
Transocean spokesman Jared Allen said that the “rulings have not only been vital wins for Transocean, but for the long-term viability of the industry as well.”
The indemnity rulings mean Transocean and Halliburton are unlikely to settle before the trial, LeCesne said. Donald Godwin of Godwin Ronquillo, lead counsel for Halliburton, said his client “has never drawn a line in the sand” and would consider an offer from the plaintiffs, but confirmed that there are no talks at present. Allen said Transocean believes that “the facts of the case are firmly on our side and we remain fully prepared for trial.”
Civil claims brought by the U.S. Department of Justice and various state and local authorities related to the spill also moved forward this year.
In February, Barbier found BP and well co-owner Anadarko Petroleum Corp. liable for civil penalties under the U.S. Clean Water Act (CWA) and for costs related to cleanup under the U.S. Oil Pollution Act (OPA). Those sums could run in the tens of billions of dollars, according to lawyers watching the case. He cleared Transocean of liability under the OPA for damages stemming from subsurface discharge, but left open whether Transocean is liable under the CWA. Anadarko has appealed.
It’s unclear how much BP and Anadarko could owe, but Sherman said that penalties under the CWA alone could run in excess of $20 billion if there is a finding of gross negligence. In February, MOEX Offshore LLC, a unit of Mitsui & Co. Ltd. of Japan that invested in the Macando well, agreed to pay $70 million in civil penalties to states and the federal government and to contribute an additional $20 million for habitat preservation projects.
Anadarko and its counsel at Bingham McCutchen and Kuchler Polk Schell Weiner & Richeson declined to comment, as did Justice Department spokesman Wyn Hornbuckle.
Sherman expects additional settlements with the federal government, but added that the Justice Department was likely to hold out for as much as possible. “The attorney general has certainly indicated a very strong stance on this, of looking for sizable amounts,” he said. BP and its co-defendants are still facing claims from states and local authorities, he added, “so that’s a whole other area of contention.”
BP did have some success this year. In multidistrict litigation in the U.S. District Court for the Southern District of Texas, Judge Keith Ellison tossed a shareholder action against BP, finding that it should have been brought in the United Kingdom. The case is on appeal before the U.S. Court of Appeals for the Fifth Circuit.
Contact Zoe Tillman at firstname.lastname@example.org.
SPREADING FAST: A TIMELINE OF LITIGATION OVER THE GULF OF MEXICO OIL SPILL