Ripple effect: Gulf coast oil spill litigation

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Cover Story

August 2010, Volume 46, No. 8

Ripple Effect

Allison Torres Burtka

Gulf Coast communities-and those who depend on them-will feel the effects of the Deepwater Horizon disaster for years to come. For many people and businesses that have been harmed, litigation offers the only hope of recovery after the nation's worst-ever environmental catastrophe.

Since the Deepwater Horizon oil rig exploded in April, quantifying the oil that has gushed out of the damaged well has proved difficult. Quantifying the harm done to rig workers, coastal communities, and the environment seems virtually impossible.

“It’s probably the largest economic disaster our country has ever faced,” said Brent Coon of Beaumont, Texas, whose firm is handling several hundred cases related to the oil spill.

About 300 lawsuits have been filed over the spill, more than 150 of them in federal court, and many of them class actions. Plaintiffs include the families of the 11 rig workers who were killed when the rig exploded, injured workers, landowners, fishers, hotel owners, shareholders, and environmental groups. Their claims range from wrongful death and personal injury to property and environmental damage. Defendants include British Petroleum PLC, which leased the rig; Transocean Ltd., the owner; Cameron International Corp., which made the blowout preventer that was supposed to avert a spill; and Halliburton Energy Services, which performed cementing operations.

Plaintiffs say BP mismanaged the risk of its operations and should have prevented the explosion. Some critics say the Interior Department’s Minerals Management Service (MMS), the agency that regulates the industry, also failed to heed warnings. According to government inspection records, the MMS failed to perform all the required inspections for the Deepwater Horizon.

The environmental law firm Earthjustice has filed a lawsuit against the MMS, arguing that it did not adequately regulate the industry. Specifically, it says the agency told the oil companies involved in the Deepwater Horizon exploration plan that they did not have to comply with rules for disclosing blowout and worst-case spill scenarios.

Coon said the Deepwater Horizon explosion was not a surprise, given BP’s record. He was involved in litigation over a 2005 explosion at BP’s Texas City, Texas, refinery. “It’s frustrating, personally,” he said, because the people involved realized such a disaster could happen again.

At press time, a new cap on the well appeared to have stopped the flow of oil into the Gulf, although tests were still being conducted.

Even if the spill were contained, many plaintiffs who could quantify their losses so far wouldn’t know how long they would be affected or how much revenue they would lose, Coon said.

“How big a ripple effect do you have?” he asked, explaining that if resorts are hurt, they affect restaurants, which in turn affect grocery stores, and then cities, which will lose tax revenue, for example. In the tourism industry, even the perception that an area is contaminated deters visitors, he added.

New Orleans lawyer Stuart Smith agreed that it’s unclear where the line should be drawn when parties are affected less directly. In assessing damages, “how far removed from the beaches can you go?” he asked. His firm is handling about 500 cases.

This unknown will be a challenge, Coon said. “Liability will be pretty clear, but damages will be extremely problematic.”

Smith noted that the litigation will be complicated and prolonged and will require the help of qualified environmental lawyers. Attorneys who get involved will need “staying power,” he said.

Other problems include the likelihood that the defendants will point fingers at each other and the issue of judges with conflicts of interest. Seven of the 12 active judges in the Eastern District of Louisiana reportedly have recused themselves from the litigation due to investments or personal relationships involving the oil industry.

The federal Judicial Panel on Multidistrict Litigation was set to decide on July 29 whether and where to consolidate cases in an MDL. BP has asked that the cases be consolidated in Texas; plaintiffs have requested Louisiana and Florida.

BP has moved to stay some of the lawsuits until the judicial panel has made its decision. Courts reportedly have granted about half of the motions.

Applicable statutes

The Death on the High Seas Act (DOHSA), the Jones Act, the Limitation of Liability Act, and the Oil Pollution Act of 1990 (OPA) come into play, and the way these statutes overlap and apply to different parties in different claims is complicated. Some of the statutes preclude punitive damages.

On July 1, the House of Representatives passed the Securing Protections for the Injured from Limitations on Liability (SPILL) Act, which would amend some of these statutes and broaden protections for those injured or killed and their families. At press time, the Senate had yet to consider the legislation.

DOHSA currently limits the families of workers killed to recovering pecuniary damages, but the SPILL Act would also allow for nonpecuniary damages. DOHSA was amended in 2000 to allow victims of the TWA Flight 800 crash to recover full damages, but that amendment does not apply to the oil rig.

Keith Jones, a Baton Rouge, Louisiana, attorney whose 28-year-old son, Gordon, died in the explosion, testified before the House Judiciary Committee in May, urging Congress to change the law to allow the families of those killed to recover more than pecuniary damages.

Gordon’s wife, Michelle, “won’t console her sons by telling them how much money their dad earned,” he said. “And as I understand the present state of the law, that’s all Michelle and her two sons can recover from those responsible for Gordon’s death.”

The SPILL Act would also amend the Jones Act to permit recovery of noneconomic damages and would repeal certain sections of the Limitation of Liability Act. Based on that statute, Transocean has filed a motion to limit its liability to $26.7 million (the rig’s current worth as it sits on the floor of the Gulf), but critics say it’s an antiquated law that should no longer apply, now that vessel owners have insurance.

OPA, enacted in response to the 1989 Exxon Valdez oil spill, provides recovery for removal costs, property damage, damage to natural resources used for subsistence, and economic damages because of damage to property or resources. But it caps the responsible party’s liability at $75 million plus removal costs, and it preempts some maritime law claims.

The cap does not apply in the case of gross negligence or regulatory violations, which plaintiff lawyers say they will be able to show, and BP has indicated it will not limit its payments to the cap. Plaintiff lawyers also say OPA does not apply to state claims or personal injury claims. Members of Congress on both sides of the aisle have called for lifting the cap.

The statute requires plaintiffs to pre­sent their claims to the responsible party first and then wait 90 days before filing suit in court—a unique requirement, Smith said.

Thomas Sims of Dallas, whose firm has filed about 15 oil spill cases so far, said the requirement has caused problems because some courts have held that claimants who presented their claims didn’t satisfy it. “Uncertainty regarding how courts will interpret key provisions of OPA” is a big challenge, he said.

Bills have been introduced in Congress to raise or eliminate the OPA cap, remove caps on punitive damages under maritime law, create a system to resolve economic injury claims, and raise limits on civil and criminal penalties under the Continental Shelf Lands Act.

Meanwhile, the Justice Department has launched its own inquiry. On June 1, Attorney General Eric Holder announced that the agency was investigating potential civil and criminal liability related to the spill. The investigation will consider OPA; the Clean Water Act, which provides civil and criminal penalties; and the Migratory Bird Treaty Act and Endangered Species Act, which provide penalties for injuring and killing wildlife. The same day, the department filed a motion opposing Transocean’s attempt to limit its liability.

Some lawyers say the criminal investigation might delay civil suits and complicate discovery; others say it’s likely to help the civil cases.

Coon falls in the latter camp. Once there’s a plea agreement for criminal charges, he said, “it’s hard to go to a courtroom and a jury and profess any sense of innocence.”

Cleaning up the mess

According to a June 30 BP statement, the company had paid about $132 million to individuals and businesses that filed claims with it for loss of income or net profit. This amount includes more than 42,000 payments.

The company has said repeatedly that it will pay “all legitimate claims,” but claimants have complained of delays, red tape, and small payments. Louisiana Attorney General Buddy Caldwell is investigating BP’s claims-handling process.

After meeting with President Obama in June, BP agreed to create and fund a $20 billion escrow account to compensate victims. It will be administered independently. AAJ then-President Anthony Tarricone noted that such a compensation system must adequately protect those who have been harmed. “Ultimately, a claims process must ensure Gulf Coast residents and businesses can be fully compensated, preserve access to the civil justice system, and hold BP and other corporations accountable for their wrongdoing,” he said in a statement.

BP has also agreed to establish a $100 million fund for workers who were laid off because of a moratorium on deep-water drilling.

Cleanup workers and members of the public have complained of health problems after exposure to the oil and fumes. Symptoms include respiratory problems, headaches, and skin irritation. At least one class action has been filed over health problems—in the Eastern District of Louisiana—against BP, Transocean, and their insurers. Smith said he expects to see more of these cases.

Shareholders have also sued BP for misleading them about the safety of the company’s operations. At least six class actions have been filed, one of them proposing to include shareholders worldwide.

If there’s a silver lining, some lawyers say, it’s that the oil spill will expose why caps on damages are a bad idea.

“It’s always been a façade that tort ‘reform’ is good for people,” Coon said. After this disaster and its resulting litigation, “people will understand what caps on damages do.”

Allison Torres Burtka is an associate editor with Trial.

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