I’ll be on FOX Business Network today discussing the likely legal actions in the BP Gulf oil blowout and providing some commentary on the political response from Washington (to view video, cleck here). Earlier this week, U.S. Attorney General Eric Holder announced that the federal government has launched civil and criminal investigations (see this coverage from the Wall Street Journal with my reaction), but the Attorney General was frustratingly vague on specifics. Here’s my short summary of what we can expect from the lawyers in the months to come:
- The U.S. Department of Justice, working with other federal agencies and state governments, may pursue civil and criminal charges against BP, Transocean Ltd. (the BP contractor that owned the rig), and other involved companies and individuals. Government attorneys have many laws to use in this case, and would likely pursue violations for discharge of pollution under the Clean Water Act (section 309). Criminal charges could be brought under the Refuse Act and the Migratory Bird Treaty Act, both of which use strict liability, so the government would not need to show that BP intended to violate the law or was even negligent in its operation and response. Fines are the most likely outcome - Exxon was nailed for $150 million after the 1989 Valdez spill in Alaska, although the court forgave $125 million of the fine in recognition of Exxon’s cooperation in cleaning up the spill and paying certain private claims. The money would likely go to some combination of special funds, the federal government, and state governments.
- Federal and state governments will also likely bring claims under the Clean Water Act (section 311) and the Comprehensive Environmental Response Compensation and Liability Act (section 107) to recover damages to natural resources for which the governments are trustees. Governments recovered about $1 billion from Exxon for the Valdez spill, but the damages to natural resources in the Gulf are far greater.
- The thousands of businesses, property owners, and individuals harmed by impacts to the fishing industry, coastline, and tourism have already started filing claims in state and federal court for economic damages. BP and the other companies face billions of dollars in liability for these claims. The economic damages from the Exxon Valdez spill would be over $1 billion in 2010 dollars, and the Gulf blowout is far worse and in a much more economically significant region. The litigation after the Exxon Valdez oil spill makes clear two points relevant to the BP Gulf oil blowout litigation. First, it will take a long time for justice to be served – it was just about 20 years after the 1989 spill that the case was finally resolved in the courts. Second, as a result of the Supreme Court’s decision in Exxon Shipping Co. v. Baker (2008), punitive damages will be limited to an amount equal to the actual economic damages.
- In addition, BP and the other companies are on the hook for clean up, response costs, and economic claims under the 1990 Oil Pollution Act. This law, passed after the Exxon Valdez spill, also established a fund to pay these costs, with money generated by an 8 cent tax per barrel of oil produced. While the fund only has about $1.6 billion in it, BP has the money to cover the claims, which could easily be ten times that amount.
The 1990 Oil Pollution Act also caps liability for economic damages at $75 million, and this is where the political posturing comes in. Politicians and interest groups have focused on the perceived injustice of the $75 million cap. Groups like MoveOn.org have rallied behind the “Big Oil Bailout Prevention Act” supported by New Jersey Senator Robert Menendez and other coastal state Democrats. The “Big Oil Bailout Prevention Act” would raise the liability cap from $75 million to $10 billion, which sounds nice but is really a nonissue for several reasons. First, the $75 million cap only applies to claims for economic damages, not actual spill clean-up costs and other response costs (which will be billions of dollars). Further, the $75 million cap does not apply if the companies have violated any federal safety or operational regulation (and it’s very likely that at least one minor safety violation will be shown). Finally, the $75 million cap does not apply to claims in state court or under maritime law, and as we saw from the Exxon case, that’s where most victims and potential plaintiffs will turn to pursue large claims against BP and other parties. The problem is that this legislation takes attention away from the real reforms that are needed to reduce the risk of massive environmental disasters and efficiently and fairly compensate the victims when disasters do occur. There will be time enough for legal reform, but right now all efforts should be focused on stopping the damage and protecting the people and resources of the Gulf.
Update: For more coverage of Gulf oil blowout legal issues, see this great PBS NewsHour story by Quinn Bowman, “Oil Spill Liability a Complicated Legal Web." My Wayne State colleague Peter Henning has additional coverage on his New York Times DealBook’s White Collar Watch.