BP Case Shifts to Fight Over U.S. Pollution Fines That May Top $17 Billion
By Jef Feeley – Mar 5, 2012 5:19 AM ET
BP Plc (BP) may face as much as $17.6 billion in civil pollution fines and possibly billions of dollars more in criminal penalties as its settlement with businesses and individuals harmed by the 2010 Gulf of Mexico oil spill shifts the focus to government claims.
BP said March 2 it would pay an estimated $7.8 billion to resolve private plaintiffs’ claims for economic loss, property damage and injuries. The settlement, to be paid from a $20 billion trust for spill victims set up in 2010, doesn’t resolve federal and state government environmental damage claims. BP has set aside $37 billion to cover spill costs.
Because plaintiffs’ lawyers and government officials have worked together to gather evidence about who is at fault for the spill, U.S. Justice Department attorneys are likely to take the lead in the case, said Edward Sherman, a Tulane University Law School professor in New Orleans who teaches classes on complex litigation and mass-tort law.
“We’ll now see the federal government pick up the ball in this case and run with it,” Sherman said in a phone interview. “They have plenty of lawyers capable of effectively presenting the case against BP and the other defendants.”
U.S. District Judge Carl Barbier in New Orleans had been set to hear evidence in a trial starting today to decide fault for the spill. BP was sued along with Vernier, Switzerland-based Transocean Ltd. (RIG), owner and operator of the doomed Deepwater Horizon rig, and Houston-based Halliburton Co. (HAL), provider of cementing services at the Macondo oil well, about 45 miles (72 kilometers) off the Louisiana coast.
New Trial Date
Barbier delayed the trial after a settlement was announced of consolidated cases against London-based BP that are overseen by a group of lawyers known as the Plaintiffs Steering Committee, or PSC. He said in a March 2 order that he’ll schedule a status conference to discuss the consequences of the accord and set a new trial date.
The judge said he delayed the trial because the settlement “would likely result in a realignment of the parties in this litigation and require substantial changes” to the trial plan he adopted.
BP is poised to gain at least 5 percent this week, an analyst survey showed. The shares will probably rise to a minimum of 520 pence, according to the forecasts of five oil- industry analysts. Shares of the company rose 9.6 pence, or 1.9 percent, to 506.10 pence in London trading at 10:02 a.m.
BP officials said their estimates showed the PSC spill settlement would cost the company at least $7.8 billion. They said the figure didn’t amount to a cap of how much the company would pay to resolve claims over the disaster.
U.S. Attorney General Eric Holder said Feb. 28 that the U.S. has a “strong” case over liability for the explosion that ripped through the Deepwater Horizon drilling rig, killing 11 workers and triggering the biggest U.S. offshore oil spill. The U.S. estimates more than 4 million barrels of oil were released into the gulf.
“We are prepared to go to trial,” Holder said in testimony before a U.S. House of Representatives Appropriations subcommittee in Washington.
“It should be a pretty seamless transition from the PSC to the government as lead counsel,” Tobias said. “They’ve already been working together, so they’ve probably been sharing evidence. The judge may give them a couple of weeks to work out the logistics and then go forward with the trial.”
Barbier could grant a longer delay if settlement negotiations between the government and BP heat up, Tobias added. The company has been in talks with the Justice Department for months, two people familiar with negotiations said earlier this year.
U.S. officials are open to the possibility of “a fair and just settlement,” Wyn Hornbuckle, a spokesman for the Justice Department, said in a March 2 statement.
Still, the government is “fully prepared” to try environmental claims over the spill to “hold the responsible parties accountable for the damage suffered in the Gulf region,” Hornbuckle said in the e-mailed statement.
BP Chief Financial Officer Brian Gilvary said the company is prepared to settle with the U.S. and state governments on “fair and reasonable” terms. BP General Counsel Rupert Bondy said it wasn’t appropriate to comment on the state of negotiations with others over the spill. Gilvary and Bondy commented on a conference call with analysts yesterday.
Any settlement talks between BP and the government may be complicated by a desire to resolve all potential civil and criminal claims in connection with the oil spill, Tulane’s Sherman said.
Holder announced in 2010 that the Justice Department had begun a criminal investigation into the spill. The probe combined “separate and simultaneous investigations” by the agency’s criminal, environmental and natural resources divisions along with the U.S. Attorney’s Office in New Orleans, according to Justice Department officials.
Alisa Finelli, a Justice Department spokeswoman, declined to comment March 3 on whether the government is pursuing criminal charges against anyone in connection with the spill. No person or company has been charged with a crime to date.
David Uhlmann, a former chief of the Justice Department’s environmental crimes section, said yesterday in a phone interview that companies involved in the spill could face manslaughter charges over the fatal explosion. Making a case against individual managers would be more difficult, he said.
“The Justice Department could charge lower-level employees, but they lack the level of authority within the companies to be good targets,” said Uhlmann, who now teaches law at the University of Michigan in Ann Arbor. “People at higher levels would be great targets but don’t have the kind of personal involvement you need to make a case against them.”
Prosecutors could seek “multibillion-dollar fines” against BP, Transocean or Halliburton for criminal violations of environmental laws, he said. Under the federal Clean Water Act, the criminal fine could be as much as twice the total spill damages, an amount that might be calculated by a judge or trial jury or as part of a settlement.
The Clean Water Act lets the U.S. seek additional civil fines of as much as $1,100 for each barrel of oil spilled as a result of simple negligence, often described as a failure to exercise ordinary care.
The maximum fine would increase to $4,300 a barrel if BP or the other defendants are found to have been grossly negligent, meaning a conscious action or omission caused the spill. Such a finding could leave BP liable for as much as $17.6 billion in fines over its handling of the Macondo well, based on the government estimate of barrels spilled.
Transocean officials alleged in a Feb. 24 court filing that BP managers overseeing the well ignored questions about whether safety tests done hours before the blast were flawed.
Donald Vidrine, the senior BP manager on the Deepwater Horizon on April 20, 2010, talked with an engineer about unsatisfactory well tests less than an hour before the explosion, Transocean’s attorneys said.
While Mark Hafle, a Houston-based BP drilling engineer, warned Vidrine in a phone call that stability tests on the well might be flawed, “neither man stopped work” at the facility, Transocean said.
The BP officials allowed crews to continue displacing drilling fluid in the well with seawater, attorneys for the oil- drilling company said. Experts who reviewed the companies’ handling of the well noted that once the fluid was removed, the lighter seawater couldn’t stop natural gas from leaking into the well and causing an explosion.
Vidrine has refused to testify, citing medical problems and Hafle has invoked his constitutional protection against self- incrimination for refusing to testify.
Election-year politics could play a role in the government’s decision on whether to agree to an out-of-court settlement with BP, Tulane’s Sherman said.
“The Obama people want voters to see them as being tough on those responsible for the spill,” Sherman said. “So the thinking may be that it would be beneficial to have the whole country hear a couple of weeks worth of testimony about what led up to the spill and how much damage it caused.”
BP and other companies involved in the spill owe a debt “well in excess” of $30 billion in clean-up, restoration and financial penalties, said John Kostyack, a vice president of the National Wildlife Federation in Reston, Virginia, said on the group’s website.
“The environmental legacy of the Obama administration is going to rest in large part on how well the people in the Gulf and the ecosystem are compensated for this disaster,” Kostyack said in an interview.
If the liability trial moves ahead, lawyers from the private plaintiffs’ group may still be involved in presenting government pollution claims, said Paul Sterbcow, a New Orleans- based lawyer who serves on one of the group’s trial committees.
The steering committee settlement doesn’t resolve the private plaintiffs’ claims against Transocean, Halliburton and Cameron International Corp. (CAM), the Houston-based maker of blowout prevention equipment that BP officials contend malfunctioned and failed to halt the spill, Sterbcow said.
‘Ready to Go’
“If those claims aren’t settled, we’re ready to go forward to trial on them.” Sterbcow said.
A trial, in addition to government pollution claims, would cover cross-claims between BP and its partners. Barbier would decide whether BP can demand those firms pick up some of the estimated $26 billion in costs related to the disaster.
Transocean officials said March 2 that the BP settlement wouldn’t influence the company’s approach to claims over the handling of the Macondo well.
“Delays or deals made by other players do not change the facts of this case and we are fully prepared to argue the merits of our case based on those facts,” Lou Colasuonno, a Transocean spokesman, said in an e-mailed statement.
Beverly Stafford, a Halliburton spokeswoman, said after the settlement was announced that the oil-drilling services company continues to deny any liability for the spill.
“Halliburton will continue to defend its position regarding the Macondo well as the litigation further develops,” she said in a phone interview.
Rhonda Barnat, a Cameron spokeswoman, said in a phone interview that the company’s position on spill-related claims hasn’t changed since December, when it agreed to a $250 million settlement with BP over its role at the Macondo well.
The company contends the accord means BP will indemnify, or cover, all claims against Cameron in connection with the incident, she said.
The settlement “removes uncertainty facing Cameron in the litigation associated with the Deepwater Horizon event,” Cameron Chief Executive Officer Jack Moore said in a Dec. 16 statement.
Barbier previously ruled that BP must honor certain liability agreements in its drilling contracts with Transocean, the rig owner, and Halliburton, the cement contractor.
In January, the judge concluded BP can’t collect any cleanup costs or economic losses from Transocean, which is indemnified from pollution-related economic losses under its drilling contract. The judge extended the same coverage to Halliburton for the same reason.
Still, BP isn’t required to cover any punitive-damage awards against either contractor if they are found to have been grossly negligent in their handling of the well, Barbier said.
The prospect remains that thousands of Gulf Coast residents will opt out of the BP accord to pursue their suits separately, Tulane’s Sherman said.
“It’s way too early to tell how many people will decide not to join the settlement, but BP will certainly face opt-out claims,” he said.
Mike Stag, a New Orleans-based lawyer who represents spill victims, said he’s still studying the terms of settlement and can’t say how many of his clients will join.
“There may be a large number of victims who opt out because it likely won’t be very clear how much they’ll receive it they opt in,” Stag said in a March 3 phone interview.
Stag said the deadline for spill victims’ claims doesn’t expire for a year, so the number of claims BP and other defendants may have to confront isn’t clear.
“I just find it hard to believe that 100 percent of the problem is going to go away with this settlement,” he said. “The best chance is it will resolve 50 percent to 80 percent of the claims.”
L. Blake Jones, a New Orleans lawyer who represents commercial fishermen seeking compensation for oil-polluted oyster beds, said the settlement may not provide enough money to cover future damages to that industry.
“We won’t know the true extent of the damage for five to 10 years,” he said. “Oystermen could be facing losses of as much as $40 billion depending on the pace of recovery.”
The case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).
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