Earth Protect Blog

A massive trial over the 2010 Gulf of Mexico oil spill heads for a New Orleans federal courtroom on Monday, to determine how much BP Plc and others should cough up for the worst U.S. offshore oil spill.

The case is perhaps the most complex environmental lawsuit in history, and could leave companies on the hook for tens of billions of dollars in fines and payments to the U.S. government, Gulf Coast states, and tens of thousands of workers and businesses claiming economic damages from the spill.

Absent broad-based settlements, the trial will assign blame for the April 20, 2010, explosion and sinking of the Deepwater Horizon drilling rig. The disaster killed 11 people and unleashed an estimated 4.9 million barrels of oil from the mile-deep Macondo well for 87 straight days.

“You’ll see fingerpointing fairly early — parties saying: ‘It wasn’t us,’ or: ‘It was more them than us,’” said Edward Sherman, a professor at Tulane University Law School in New Orleans and a complex litigation specialist.

The non-jury trial before U.S. District Judge Carl Barbier follows more than 300 depositions and the production of more than 72 million pages of evidence.

Plaintiffs include the federal government, which seeks unspecified damages under the Clean Water Act, Oil Pollution Act and other laws; and the Gulf states of Alabama, Louisiana and Mississippi. Only one minor partner in the well has settled with the federal government.

Also seeking compensation are the fishermen, hotel operators and restaurateurs who say the disaster hurt their livelihoods and property values.

The main defendants are London-based BP, which owned 65 percent of the well; Vernier, Switzerland-based Transocean Ltd., which owned the rig; and Houston-based Halliburton Co., which provided cementing services for the well. They are also suing each other.

A trial could last into 2013 unless broad settlements were reached. BP sources told Reuters last month that the company has been in talks with the U.S. Department of Justice.

“There is a big incentive for everyone to settle,” said Robert Percival, a professor at the University of Maryland’s law school and director of its environmental law program. “Companies can avoid damaging public relations from months of evidence of all the stupid things they did.”

Barbier oversees 536 spill-related lawsuits, according to the U.S. Judicial Panel on Multidistrict Litigation. President Bill Clinton appointed him to the bench in 1998.

“It’s hard to believe any kind of settlement will keep Judge Barbier for having to at least start this trial,” though “anything’s possible,” said Martin Davies, a Tulane Law professor and director of its Maritime Law Center.

THREE PHASES

Barbier has said the trial would have three phases.

The first is expected to last through May, and would assess everything leading up to the rig explosion and subsequent oil spill, which dwarfed the spill from the 1989 grounding of the Exxon Valdez tanker off the Alaskan coast.

A second phase would assess efforts to seal the well and try to quantify how much oil was lost in the five months it took BP to do so. The third phase would assess clean-up efforts and environmental damage. Any appeals could take several years.

Barbier will not consider possible criminal allegations, which the Justice Department has said it is investigating. He is unlikely to assign dollar values to any liability. Shareholder claims are being handled separately in a Houston federal court.

BP has accepted responsibility for the disaster. It has projected its total legal and cleanup costs at roughly $43 billion, including $20 billion toward the Gulf Coast Claims Facility for victims, overseen by the lawyer Kenneth Feinberg.

Robert Dudley, who succeeded the beleaguered Tony Hayward as BP’s chief executive following the spill, on Feb. 7 said the company is prepared to enter reasonable settlements, but otherwise is ready for trial.

Hayward, who now runs Genel Energy Plc, in a Thursday interview said he has no involvement in the trial and declined to predict the outcome.

BP would also like to shift some blame, having argued that Transocean failed to maintain and operate the rig properly, and that Halliburton’s cementing services were deficient.

BP suffered major setbacks when Barbier last month ruled it had to indemnify Transocean and Halliburton for compensatory damages on some pollution claims raised by third parties.

But that ruling still leaves Transocean and Halliburton, as well as BP, liable for punitive damages.

“BP, Transocean and Halliburton have a gun to their heads,” said David Berg, a partner at Berg & Androphy in Houston and author of “The Trial Lawyer: What It Takes To Win.” “They could cap their liability by pitching in on a global settlement.”

BP spokesman Daren Beaudo said the company has paid more than $8 billion of claims, and will pay “all legitimate claims” and help economic and environmental restoration efforts.

Transocean spokesman Lou Colasuonno said that company is prepared for a trial and believes “the facts of this case are on our side.” Halliburton spokeswoman Beverly Stafford said that company intends to vigorously defend itself in court.

CLEAN WATER ACT

Litigation with the U.S. government is thornier.

The federal Clean Water Act lets the government seek fines of up to $1,100 per barrel of oil spilled.

Assuming 4.1 million barrels were spilled and not cleaned up as the government contends, a fine could reach $4.5 billion. But if gross negligence or willful misconduct were found, a fine could reach $4,300 per barrel. The resulting bill: $17.6 billion.

Barbier on Wednesday said BP and Anadarko Petroleum Corp., which owned 25 percent of the well, are liable for Clean Water Act damages.

Exxon Mobil Corp.’s bill for the Valdez ultimately topped $4 billion, a sum that could have been higher but for a 2008 U.S. Supreme Court decision capping punitive damages at the total of environmental and economic damages.

That decision, however, left open the possibility of higher punitive damages if a thirst for profit over safety drove particularly “egregious” conduct.

The Gulf case “is the perfect case for higher punitive damages, if information comes out that companies’ conduct was fiscally motivated,” said Blaine LeCesne, a tort law professor at the Loyola University New Orleans College of Law.

Experts said political considerations in an election year could factor into government decision-making on reaching a settlement.

“This (Obama) administration hasn’t been friendly to the oil industry, and may want to send a message that it (the industry) will pay dearly for this kind of conduct,” LeCesne said.

But holding out would also keep some victims from recovering sooner for their losses.

“I can’t imagine Mississippi, Louisiana and Alabama wouldn’t like to have a great deal of money to relieve some of their burdens,” rather than “litigate this for years,” Berg said.

The office of Alabama Attorney General Luther Strange, who leads the states’ case, declined a request for comment.

‘QUITE A BIG RISK’

Several other companies have settled with BP.

In exchange for having BP drop some claims, Anadarko agreed to pay BP $4 billion, and Mitsui & Co. Ltd.’s MOEX USA unit, which owned 10 percent of the well, agreed to pay BP $1.065 billion.

BP has also settled with Cameron International Corp., which made a blowout preventer, and Schlumberger NV’s M-I Swaco venture, which provided mud services.

In an accord that could provide a template for Anadarko, MOEX also agreed this month to pay $90 million to settle federal and state claims, including $70 million of fines and $20 million for coastal conservation.

For BP stockholders, quick settlements could avert public relations nightmares from a trial.

Uncertainty over damages, together with public missteps by Hayward, caused BP’s American depositary shares to lose more than half their value within 2-1/2 months of the spill.

They have since partially recovered, but still trade more than 20 percent below their level prior to the spill.

“For BP to quibble over a few billion dollars and hope for a lower judgment is quite a big risk,” Tulane’s Sherman said.

The case is In re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010, U.S. District Court, Eastern District of Louisiana, No. 10-md-02179.