BP Oil Spill: Drilling Into The Legal Issues One Year After The Spill

April 20, 2011, marked the one-year anniversary of the largest environmental disaster in US history – the BP oil spill.  While the news cycle forever churns forward and we face new global disasters, the sludge from the oil spill is now settling on the ocean floor and the long-term problems are beginning to be defined. The Deepwater Horizon oil rig, leased by BP and owned and operated by Transocean, exploded into a fiery mass on top of an active oil well, coughing up billowy gray smoke as it burned chemicals for two days. The explosion killed 11 people and injured 17 people before it sank to the bottom of the Gulf.  In its wake, the inferno left an uncapped oil well that rapidly discharged oil like a carbonated bottle that had been violently shaken and uncapped.  The gushing well was finally capped on July 15 and sealed on September 19.  Three months and 4.9 million barrels later, the Gulf has been severely impacted and scientists are just beginning to see how extensive the damage is.  Immediately following the explosion, lawsuits began springing up around this disaster and continue to be filed each month.  Though the lawsuits are from a variety of sources, seeking damages for different types of harm, they all share one common concern with regard to the disaster left by the oil in the Gulf -accountability.  Sorting out who is to blame and allocating financial responsibility will likely to take years.

Types of Lawsuits

On March 3, 2011, the state of Louisiana filed a complaint under the Louisiana Oil Prevention Act and the Louisiana Environmental Quality Act in federal court, seeking declaratory judgment against BP, Anadarko, Transocean, MOEX Offshore, among others, asking that they be held jointly, severally, and strictly liable for unlimited removal costs.  The complaint alleges that BP and the other defendants disregarded safety procedures and regulations, from the design and building of the well to the operating procedures on the day of the explosion.  The state is demanding $1 million per day from the companies.  In the complaint, the state outlines the varied damages incurred as a result of the oil spill—the loss of wetlands, response costs, costs incurred by losses to the fishing industry, costs incurred to evaluate the safety of the fish and shellfish coming from the Gulf, and other environmental and economic damages.

In December, the Department of Justice (DOJ) filed a lawsuit against BP claiming willful negligence and seeking civil environmental damages under the Clean Water Act (CWA).  The DOJ sought penalties under the CWA at $1,000 to $4,300 per barrel of oil spilled.  With scientists estimating that oil spilled out of the well at the rate of 53,000 to 60,000 barrels per day, that could lead to damages totaling $4 billion to $20 billion.  BP filed a response this month claiming that they were not willfully negligent and that the CWA allows for calculation of damages at a per diem rate of days that oil was spilling into the Gulf.  This method of calculation would lead to total damages in the $2.8 to $4.9 million range.  Any fines that a court awarded under the CWA would be paid straight to the Federal Treasury.  Senators from Louisiana and Florida have introduced bills that would funnel all fines paid out under the Clean Water Act by BP to the restoration of the Gulf Coast, rather than going straight to the Federal Treasury.

Over 500 other claims have been filed in courts across the United States, mostly in the Fifth and Eleventh Circuits, including a variety of class actions. Some class action suits are based on the “commonality of plaintiffs” through industry.  For example, the loss of income to the fishing industry of each Gulf state and loss of revenue to commercial charter fishing guide businesses, provides commonality.  Some class actions were filed by commonality of location by state, and those suits present common factual and legal claims of property damage to coastal cities.  In addition to the numerous class actions brought, many individuals are also seeking relief.  Deepwater Horizon workers have filed personal injury claims and wrongful death actions are being pursued on behalf of workers killed during the explosion. Even local boat owners hired to conduct cleanup are seeking personal injury and property damage claims.  BP itself is now seeking to share the financial burden created by the explosion of Deepwater Horizon and has filed lawsuits against Transocean, Halliburton, and Cameron.  BP is seeking $40 billion in damages and contribution from Transocean as the operator of Deepwater Horizon alleging misconduct and violation of maritime law.  In addition, BP filed suit against Halliburton, alleging that it played a critical role in the disaster (Halliburton poured the cement for the well).  BP is also suing Cameron, manufacturer of the blowout preventer, alleging faulty design and negligence in the maintenance.

Beyond the litigation surrounding the environmental and economic disaster that was created by the Deepwater Horizon explosion, shareholder derivative suits are starting to multiply.  State pension funds have filed civil suits as shareholders of BP who are seeking compensatory and punitive damages.  The state pension funds of Ohio and New York claim that BP shares lost over $90 billion of value and that BP misled investors to believe that the company was less risky than it actually was.  Shareholders have also filed separate derivative suits against BP’s corporate executives for breach of fiduciary duty and corporate waste.

The Gulf Coast Claims Facility

As an alternative to litigation, the Gulf Coast Claims Facility (GCCF) was established under the Oil Pollution Act of 1990 as a means to provide monetary settlement of certain claims related to the oil spill.  The Oil Pollution Act of 1990 was established in the wake of the Exxon Valdez oil spill to establish strict liability to the party responsible for the facility from which oil is discharged and outlined requirements of government and industry. The BP Compensation Fund, which funds and administers the GCCF, is headed by Kenneth Feinberg, who was jointly appointed by BP and the White House as administrator. BP established GCCF after the oil spill to pay damages resulting from the oil spill.  Those affected by the spill may file claims in lieu of going to court.  The types of claims that the GCCF will provide compensation for are: removal and clean up costs; damages to real and personal property; lost earnings or profits; loss of subsistence use of natural resources; and physical injury or death.  The payment options vary from providing interim payments to other final payments with the attached condition that you give up your right to file a lawsuit.  BP’s response to the oil spill has been massive.  BP has set aside $20 billion to the BP Compensation Fund that funds GCCF as well as $500 million to an independent environmental impact research project.  At the height of the disaster, BP suspended dividend payments and began to sell assets to cover the costs incurred by the spill.  In addition to financial considerations, the company conducted oil-skimming operations, beach cleanup, wildlife rehabilitation, and recognition that environmental and economic restoration efforts will be long term.

Moving Forward

By the end of 2010, BP estimated that its costs related to the oil spill would total $40 billion.  Scientists estimate it will be years before the full effects will be known. Mr. Feinberg, for the BP Compensation Fund, on the other hand, estimates that the Gulf of Mexico will have fully recovered by the end of 2012.  NOAA recently reopened the last 1,000 square miles of the closed Federal Gulf waters to fishing after indications that there was no detectable oil.  At one point, 88,522 square miles of the Gulf of Mexico were closed around the spill.  Whatever the long-term consequences are from this egregious environmental and economic tragedy to the Gulf coast region, the extent of the impact is apparent, as claims seeking damages continue to be filed. The number of claims thus far has amassed a mountain of litigation in multiple venues, which is increasingly difficult to monitor.  People will be looking to BP and others involved in the failed operation of Deepwater Horizon, to provide reimbursement for the associated losses to the fishing industry, tourism, local business, marshes, wildlife, ocean waters, and countless other areas that were impacted.