BP Tightens its Grip on the Deepwater Horizon Checkbook

Posted on June 9, 2014 by Jarred Taylor

BP Exploration and Production, Inc. (“BP”) was recently dealt another blow in its fight to reinterpret its multibillion dollar settlement for economic and property losses arising from the 2010 Deepwater Horizon disaster when the Fifth Circuit refused to rehear BP’s appeal of a prior district court ruling on “causation nexus” requirements in the agreement.  In December 2013, U.S. District Court Judge Carl Barbier ruled that individuals and businesses do not have to prove that they were directly harmed by the oil spill in order to get paid under the terms of the settlement agreement.

In 2012, nearly two years after the spill, BP reached a settlement with the Plaintiffs’ Steering Committee (which acts on behalf of individual and business plaintiffs in the multi-district litigation proceedings) to resolve hundreds of thousands of private economic, property damage, and medical claims stemming from the Deepwater Horizon explosion and oil spill.  BP has disputed many of the economic and property damage claims brought pursuant to the settlement agreement.  BP argues that the claims administrator was incorrectly interpreting the meaning of the settlement agreement, particularly with respect to whether or not a claimant must submit evidence that its losses were directly caused by the spill.

Judge Barbier, who is presiding over the multidistrict litigation stemming from the Deepwater Horizon disaster, ruled that the settlement agreement did not contain a causation requirement beyond the revenue and related tests set out in the agreement, opening BP’s checkbook to economic loss claimants who may not be able to trace the cause of their damages back to the 2010 disaster.  BP already had revised its original $7.8 billion estimate of its potential costs under the settlement agreement up to about $9.2 billion.  Later, as it began challenging economic loss claims, BP proclaimed it could no longer provide a reliable estimate of the ultimate cost of the deal.   

BP appealed the district court’s ruling to the Fifth Circuit Court of Appeals, claiming in December that it had to pay hundreds of millions of dollars to businesses and individuals that exaggerated losses from the disaster.  The Fifth Circuit affirmed the district court’s ruling in March 2014, and on May 19, declined to rehear BP’s appeal. In a strongly worded dissent joined by two other justices, though, Judge Edith Clement argued that the district court’s rulings would “funnel BP’s cash into the pockets of undeserving non-victims” of the 2010 spill, adding that the appeals court had made itself “party to this fraud” by rejecting BP’s arguments. Judge Clement concluded that “another court surely must resolve this.” BP clearly agrees and has vowed to appeal its case to the U.S. Supreme Court, declaring that “no company would agree to pay for losses that it did not cause, and BP certainly did not when it entered into this settlement.” 

Ted Olsen, BP’s lead attorney, said in a 60 Minutes segment in May that the company would take its argument “as far as it is necessary to go to make sure that this settlement agreement is construed properly.” The New Orleans Times-Picayune reports that some experts following the case expect that the Supreme Court will not take up the case, but suspect that BP’s true motive may not be to win on appeal, but to simply prolong the litigation and delay paying claims. The Fifth Circuit lifted its stay on payout of settlement claims, and the Supreme Court just rejected BP’s request that the Supreme Court reimpose the stay pending filing and disposition of its petition for writ of certiorari. 

Meanwhile, in the midst of its attempt to walk back from the economic and property loss settlement it negotiated and—at the time—happily agreed to, BP rejected a $147 million claim from the National Oceanic and Atmospheric Administration (“NOAA”) demanding additional funds to conduct its ongoing Natural Resource Damage Assessment (“NRDA”) activities related to the Deepwater Horizon oil spill. NRDA is the process created by the Oil Pollution Act (“OPA”) and its implementing regulations that authorizes natural resources Trustees to assess injuries to natural resources caused by oil spills and spill response activities, and to restore the injured resources. OPA requires that the party or parties responsible for the oil spill pay for the reasonable costs incurred by the Trustees to carry out the NRDA and restoration. 

Last July, NOAA submitted a claim to BP for the estimated costs of NRDA activities that NOAA planned to implement in 2014. NOAA’s claim includes $2.2 million for research on the recovery of coastal wetlands, more than $10 million to remedy damage to dolphin and whale habitat, and $22 million for oyster habitat restoration. The Financial Times (free subscription required) reports that BP rejected the majority of NOAA’s requests, saying it was concerned by “the lack of visibility and accountability” in the process, and the unwillingness of the Deepwater Horizon NRDA Trustees (a handful of U.S. federal agencies and five Gulf Coast state governments) “to engage in technical discussions of the substantive issues.” The Financial Times reports that “BP said it had paid for work that was not done or done properly, been double-billed for the same study, and not been allowed to see research findings that it had been told would be shared”—evidence BP argues could be used at the trial over civil penalties to show that ecological damages from the spill are much less than once feared. 

According to an April 30 report on BP’s website, BP has already paid nearly $1.5 billion to federal and state government agencies for spill response, NRDA activities, and other claims related to the Deepwater Horizon spill, and over $11 billion to individuals and businesses. I need to disclose, too, that my firm is assisting several claimants to the BP settlement fund.

Causation and Tarballs: Two Things That Just Won't Go Away

Posted on April 10, 2014 by Steve McKinney

In the Spring of 2012, just before trial on the Deepwater Horizon oil spill, BP and the plaintiffs reached a class action settlement.  This settlement created a business claims process that required no direct causation beyond a showing that the business was located in a certain geographic area and had experienced a certain decline in revenue during the relevant period.  The settlement included claims from throughout Mississippi, Louisiana and Alabama, and certain coastal counties of Florida and Texas.  In November, 2012, the district court held a fairness hearing where BP argued for approval.  In December, 2012, with the support of BP, the court certified the class and approved the settlement. 

Over time, estimates of BP’s claims exposure under the settlement agreement grew.  Frustrated by attorney advertising that getting paid by BP did not require showing that your losses were caused by the oil spill, BP returned to the district court and objected to the claims administrator’s interpretation of the settlement agreement.  BP argued for the first time that claims should be evaluated on an accrual basis accounting method rather than a cash basis.  This could have reduced BP’s exposure, but most small businesses maintain their books on a cash basis and the district court upheld the claims administrator’s interpretation.  BP appealed to the Fifth Circuit.

In the Summer of 2013, a 3-judge panel of the Fifth Circuit heard this first appeal and remanded the case for further development of the record on the parties’ intent. (link to decision)  One judge questioned sua sponte whether a causation standard that did not require proof of a connection to the oil spill undermined the parties’ legal ability to enter into a class action settlement.  The panel also instructed the district court to stay the payment of claims pending resolution of these issues.

Meanwhile, parties who had objected at the fairness hearing took a second appeal to the Fifth Circuit that challenged class certification.  BP joined in this appeal, notwithstanding having argued for certification before the district court.  BP argued that because the settlement agreement was being interpreted to pay claims that were not connected to the oil spill, the class was not properly certified.  In January, 2014, a 3-judge panel hearing the second appeal affirmed class certification based on the panel’s understanding of the injury alleged on behalf of potential class members and the panel’s view of Article III standing requirements and Rule 23 class certification requirements applicable at the settlement stage of the case. (link to decision)

Back to the first appeal. On remand, the district court ruled in December, 2013 that the revenue-based causation standard agreed to by the parties was sufficient for class certification and met the requirements of Rule 23 and other federal laws regarding class actions.  Predictably, BP asked the first Fifth Circuit panel to review this ruling.  On March 3, 2014, that first panel affirmed the district court’s ruling and ordered that the stay on payments be lifted. (link to decision)  Focusing more on the Claims Administrator’s interpretations of the Settlement Agreement, this panel determined that the agreed-upon claims process included elements sufficient to establish traceability of the claimed damage to the spill.  In a sense, the earlier panel decision reviewed the Settlement Agreement as a matter of principle and the later decision reviewed it in application.  On March 17, 2014, BP sought rehearing en banc.  As a result, the panel’s mandate will not issue and the stay will remain in place pending resolution of BP’s request for rehearing.  Is the gravity-challenged opera person warming up? 

UPDATE ON THE DEEPWATER HORIZON OIL SPILL AND RESTORATION OF THE GULF COAST ECOSYSTEM AND ECONOMY

Posted on December 28, 2012 by Jarred Taylor

By: Jarred O. Taylor II and Shannon K. Oldenburg

The Gulf Coast Ecosystem Restoration Council (the “Council”) held its first public meeting on December 11, 2012, in Mobile, Alabama, intended to introduce the Council to the public and to give the public feedback opportunity on the Council’s plans.  The Council, established by the Resources and Ecosystems Sustainability, Tourist Opportunities, and Revived Economies of the Gulf Coast States Act of 2012 (the “RESTORE Act”), is charged with developing and overseeing implementation of a comprehensive plan to help restore the ecosystem and economy of the Gulf Coast region in the wake of the Deepwater Horizon oil spill. 

The RESTORE Act will fund the Council’s work via a Trust Fund made up of 80 percent of all Clean Water Act administrative and civil penalties related to the oil spill:

• 35 percent of the money will be divided equally between the five Gulf States;
• 30 percent will be spent through the Council to implement a comprehensive plan;
• 30 percent will be used through States’ plans to address impacts from the oil spill;
• 2.5 percent will be used to create the Gulf Coast Ecosystem Restoration Science, Observation, Monitoring and Technology Program within the Department of Commerce’s National Oceanic and Atmospheric Administration (“NOAA”); and
• the remaining 2.5 percent will be used for Centers of Excellence Research grants, which will each focus on science, technology, and monitoring related to Gulf restoration.

Overarching themes of the comments from both the Council and the public in attendance at the meeting were that ideas for Gulf restoration should originate from the Gulf Coast, not from the federal government, and that the Gulf of Mexico Ecosystem Restoration Strategy developed by the Gulf Coast Ecosystem Restoration Task Force (“GCERTF”) should be used as a framework for the Council’s work.  To much approval from the audience, Rachel Jacobson, Principal Deputy Assistant Secretary for Fish and Wildlife and Parks, Department of the Interior (Ken Salazar’s designated representative on the Council), commented that the Council should incorporate the “four pillars” of the GCERTF strategy into the process and work of the Council in determining how the RESTORE Act funds should be distributed and used.  These four pillars are (1) restore and conserve habitat; (2) restore water quality; (3) replenish and protect living coastal and marine resources; and (4) enhance community resilience.  Notably, Jacobson and many of the other designated representatives to the Council served as members of the GCERTF and also act as Trustees for the Natural Resources Damage Assessment (“NRDA”) for the Deepwater Horizon oil spill.

The Council has only 180 days from passage of the RESTORE Act to publish: 1) procedures to assess whether programs and activities carried out under the Act are in compliance with the Act’s requirements; 2) auditing requirements for disbursing funds from the Trust Fund; and 3) procedures to identify and allocate funds for the expenses of administering the Trust Fund.  The Council will publish a “proposed plan” by the end of this year that will be the focus of public hearings in late January and early February 2013, likely to be in the style of the public “listening sessions” held by the GCERTF last year.  The Council also will release a “draft comprehensive plan” for restoration in Spring 2013, and publish a final plan on July 6, 2013, the anniversary of enactment of the RESTORE Act.

An incredible amount of work has already gone into Gulf restoration, but much work remains.  Only time will tell if these legislative acts and work will translate into true restoration in the Gulf area.

SHALE GAS FRACKING: PREVENTING THE NEXT DEEPWATER HORIZON

Posted on May 23, 2012 by David Ullrich

There has been a dramatic increase in shale gas and oil extraction over the past several years that is presenting an interesting mix of technical, legal, policy, and environmental issues.  These appear to be playing out differently in each state, and with additional twists in Canada relative to the oil sands in Alberta and shale gas in Quebec.  Although the flow of gas and oil has increased dramatically during this time, there appear to be continuing questions about the impacts on groundwater, the relationship to earthquakes, the nature of the chemicals used in the water injected, how the residual water should be treated, and many more.  The matter of the Keystone pipeline has generated significant controversy between the United States and Canada, and the role of non-government organizations in this process has drawn the attention and concern of the Government of Canada.  If this practice is not managed and regulated effectively, we are likely asking for serious environmental consequences like those we have experienced in the past when we have not thought through carefully what could happen as a result of our actions.

With the many issues to address, one in particular is the focus of this discussion, and that is the appropriate roles of federal, state, local, provincial, tribal, and first nation governments in the process of approving the siting, construction, and operation of the wells, in addition to the handling of the residues and the product.  It appears a bulk of the responsibility is in the hands of state and provincial governments, but that may not be the best allocation of jurisdiction.  Local governments have the primary responsibility of providing safe drinking water to their populations, and may be adversely affected by the fracking operations.  Also, local wastewater management facilities are being looked to for treatment of the residual water from the process, which includes unknown chemicals and contaminants from the product.  In some instances, local governments are being excluded from the approval process.  It does not appear that tribal and first nation governments have been consulted to any great extent.  On the federal level, U.S. EPA is not regulating the activity, although it is doing an extensive study of the potential impacts of fracking and related activities.  Environment Canada has been engaged in the oil sands matter primarily through the evaluation of the environmental monitoring program undertaken by Alberta and the companies involved.

The very successful model used in the U.S. for air, water, toxics, and hazardous waste since 1970 that has a strong Federal presence that establishes a legal framework and minimum protective standards across the county, with the option for states to receive delegation and implement programs with more stringent requirements if they wish, should be used for shale gas and oil extraction.  In addition, there need to be specific opportunities for local and tribal governments to participate in the process in a way that protects their interests.  Also, there must be ample opportunity for public participation.  This is the best way to reduce the likelihood of another very costly disaster down the road.

Resource extraction has always presented significant challenges to finding the right economic, social, and environmental balance in managing an activity for the broader good of the country.  In the context of the continuing concern about serving the energy needs of the United States, Canada, and the rest of the world, the question is what makes sense and is good public policy?  Perhaps we are still early enough in the history of this issue to make  changes to help prevent  serious and expensive  problems in the future.