CQ WEEKLY – IN FOCUS
Dec. 8, 2012 – 3:16 p.m.
From the Coast To the Courts
By Geof Koss, CQ Staff
There was nothing subtle about the message the EPA delivered last month by temporarily suspending the oil giant BP from new federal contracts for its “lack of business integrity” in handling the catastrophic 2010 Gulf of Mexico oil spill.
The news caught most of the parties affected by the spill off guard, including lawmakers from the region who griped they had been kept in the dark. BP itself had indicated weeks earlier that a ban from government contracts wasn’t part of the negotiations that led to a $4.5 billion settlement of criminal charges stemming from the Deepwater Horizon explosion and spill.
But with a trial starting in February on civil claims that could dwarf the criminal penalties, the Obama administration’s action raised the stakes for the world’s third-largest public oil company to strike a quick deal.
BP is the largest supplier of fuel to the U.S. military, and losing out on new Pentagon contracts — in addition to being shut out of new oil and gas leases on federal lands — would be an enormous financial blow. While most contracting prohibitions last no longer than 18 months, they can endure indefinitely if civil claims are pending against a company.
“It is a big stick,” says George Mannina, an attorney with the Nossaman firm who has represented industry clients defending the same kinds of liability claims over toxic releases that BP now faces. “I would suspect if I were the BP attorneys, that if I’m talking settlement, a withdrawal or modification of that penalty is part of the settlement.”
By flexing its muscle, the government has highlighted the stakes in the legal fight surrounding the country’s worst-ever environmental disaster, which killed 11 workers and spilled almost 5 million barrels of oil into the Gulf.
A quick settlement would spare the still recovering Gulf Coast from the extended litigation that followed the 1989 Exxon Valdez spill, which dragged on until 2008.
“If everyone goes to trial, it could literally go on for a decade," says Sen.
But the administration also is under intense pressure to wring a heavy penalty from BP, and environmentalists and Gulf Coast lawmakers balked at the terms of a reported multi-billion dollar settlement deal leaked in October. Critics say the deal would have let BP off too easily and done little to deter future drilling disasters.
There also are differences about how to dole out the civil damages. Landrieu favors distributing the bulk of funds under the terms of the Restore Act, a formula negotiated with some difficulty among members of the region’s congressional delegations.
But her state’s junior senator, Republican
From the Coast To the Courts
Despite efforts by Gulf lawmakers to secure the lion’s share of any fines for their states, Landrieu questions the wisdom of suspending BP from government contracting. She noted the company has won more than 50 offshore leases in the two and a half years since the Deepwater Horizon explosion and spill.
“I just found it odd,” says Landrieu, who fears the move could harm BP subcontractors who had nothing to do with the spill. “Initially if you had taken BP’s license away to operate in the Gulf, I would have thought that was very appropriate. They didn’t do that after the accident.”
BP, she adds, already has plenty of incentive to resolve its legal claims and put the spill behind it. “I think BP is motivated enough to get to the settlement table,” she says.
That may be true, given that the company is facing fines of at least $5 billion under the Clean Water Act for the spill, an amount that could increase to $20 billion if a court determines it was “grossly” negligent. The Justice Department has made clear it intends to establish gross negligence at trial, an assertion that may have gotten a boost last month when BP admitted lying to Congress about the rate at which oil had spewed from the well.
In its own statement on the Nov. 15 settlement, which if approved by a judge will resolve the company’s criminal liability related to the spill, BP vowed to “vigorously defend itself against all remaining civil claims and to contest allegations of gross negligence in those cases.”
Adding to BP’s woes is the Justice Department’s plan to pursue damages at the upcoming trial for natural-resource degradation. Those damages, intended to restore resources injured by the spill, would be on top of cleanup costs and would total billions of dollars.
Nossaman attorney Mannina, who is not involved in the BP spill case but has represented industry clients facing similar environmental liability, says the claims are usually resolved without litigating. “There’s not much litigation, in part because you never know what a court may do at the end of day,” he says.
Major oil spills have become less frequent since the Exxon Valdez, in part because of statutory changes governing the industry that were included in the Oil Pollution Act, which established the process for assessing natural resources damaged by oil spills.
But the complexity of restoring injured resources on the scale of the 2010 spill is unprecedented, and could set up what Mannina calls an “epic” legal battle that could last two decades.
While the Justice Department and BP in recent months were said to be discussing an $18 billion to $21 billion global settlement to resolve BP’s liability — including the natural-resource damage claims — Landrieu and other Gulf senators wrote to President
The lawmakers were concerned that the tentative settlement as structured would direct more money toward natural-resource restoration under the Oil Pollution Act at the expense of Clean Water Act fines subject to the Restore Act. That would leave the money in the hands of federal agencies to spend on environmental restoration, rather than in state coffers, which under Restore can be used for broader purposes — including economic development projects such as road building or port expansion.
Another wrinkle is that natural-resource restoration damages — unlike Clean Water Act fines — can be used to reduce tax liability. That creates the politically untenable situation of BP receiving tax breaks from the spill.
Vitter declined to join fellow senators from the region in signing the letter, citing the likelihood that his state would receive more money under the Oil Pollution Act. But Landrieu says she expects the administration will honor the will of Congress, given the strong bipartisan backing for the Restore Act, which she called a model that should guide any settlement.
From the Coast To the Courts
“We want a just settlement,” she says, “and we want a robust settlement, and we want the states that were harmed by this appropriately reimbursed.”
FOR FURTHER READING: Restore Act enacted in surface transportation law (PL 112-141), CQ Weekly, p. 1388; oil spill safety legislation falters, p. 798; drilling legislation, 2010 Almanac, p. 12-6; Oil Pollution Act of 1990 (PL 101-380), 1990 Almanac p. 283.