With BP now facing a price tag for the 2010 Gulf of Mexico oil spill that could rise to $50 billion, legal experts and industry analysts are watching for signs of whether the company may seek to renew settlement negotiations with the federal government as it appeals a federal judge’s ruling last week that its actions leading to the disaster “amounted to gross negligence and willful misconduct.”
“BP’s conduct was reckless,” U.S. District Judge Carl Barbier wrote in his long-awaited 153-page ruling, released Thursday.
Barbier, who has overseen the sprawling oil spill litigation, found that many of BP’s actions that preceded the fire and explosion onboard the Deepwater Horizon drilling rig on April 20, 2010, constituted “an extreme deviation from the standard of care and a conscious disregard of known risks.”
Assigning liability for the disaster among its three main players — BP, Transocean and Halliburton — was the focus of an eight-week federal civil trial in New Orleans in 2013. That was the first phase of a three-phase legal process for determining how much BP will end up paying in fines.
The second phase is determining how much oil actually poured into the Gulf and onto beaches and wetlands during the 87-day spill.
Depending on what figure Barbier settles on, BP’s fines under the federal Clean Water Act could range from $10.5 billion to almost $18 billion.
David Logan, a law professor at Roger Williams University in Rhode Island, said Barbier’s ruling offers “a judicial determination of culpability” that marks a turning point in the ongoing litigation, more than four years since the spill.
“We now have something that is, for the time being at least, binding on the actors in the civil litigation,” Logan said. “That’s a big change, and it definitely puts more pressure on BP to consider offering a big amount of money.”
BP has promised to appeal. Spokesman Geoff Morrell said Thursday that “proving gross negligence is a very high bar that was not met.”
The British oil giant “believes that the finding that it was grossly negligent with respect to the accident and that its activities at the Macondo well amounted to willful misconduct is not supported by the evidence at trial,” Morrell said.
Barbier is scheduled to hold a trial starting in January to decide exactly how much BP must pay in penalties.
Fines and damage claims
Last week’s ruling came nearly two years after BP agreed to plead guilty to 11 counts of felony manslaughter, obstruction of Congress and a series of environmental crimes, and to pay a $4 billion fine. That’s on top of more than $27 billion paid to cover oil-spill response and cleanup efforts and payments to businesses and individuals who suffered losses stemming from the disaster.
Federal government experts estimate that 4.2 million barrels of oil poured into the Gulf after the blowout, though BP contends the figure is closer to 2.45 million barrels, setting up the sharp difference in possible Clean Water Act penalties. Having found the company was guilty of gross negligence, Barbier can fine it as much as $4,300 per barrel — compared with the $1,100 per barrel it could have been forced to pay if not found grossly negligent.
As the ruling began to sink in last week, many observers, including Loyola Law School professor Dane Ciolino, said they felt BP faces an uphill climb in trying to have the finding of negligence reduced on appeal.
Ciolino said he believes the 5th U.S. Circuit Court of Appeals is going to be “very deferential to Judge Barbier on his factual findings.”
“He sat through the trial and made credibility calls based on witness testimony from the witness stand,” Ciolino said, “and these issues are very fact-intensive, about what BP knew and what BP’s motivations were.”
In late 2012, as BP was facing between $5.4 billion and $21 billion in civil penalties under the Clean Water Act, The Wall Street Journal — citing a person familiar with the negotiations — reported that talks between the federal government and BP on a possible settlement were still about $6 billion apart, and that BP was concerned about agreeing to a figure near the higher end of that range because that could imply it admitted a higher degree of negligence and change the landscape for other pending lawsuits.
Other companies settled
Meanwhile, Halliburton separately agreed last week to pay as much as $1.1 billion to settle most plaintiffs’ claims for damages stemming from its role in the accident and spill. If approved by Barbier, that settlement — which was agreed to by attorneys for Halliburton and plaintiffs’ lawyers — would mean that some claimants who have already won money from BP could be in line for extra compensation from Halliburton.
Transocean last year agreed to pay $1.4 billion in civil and criminal fines and penalties, mostly to resolve federal Clean Water Act civil penalty claims.
David Uhlmann, a law professor at the University of Michigan and a former head of the Justice Department’s Environmental Crimes Section, said Barbier’s latest ruling “significantly increases their potential liability and removed any doubt about the extent of their misconduct in the days and hours leading up to the spill.”
BP could still be forced to pay claims from five Gulf Coast states, including Louisiana, that weren’t part of the $9.2 billion settlement for economic damage claims the company negotiated with plaintiffs’ lawyers, which included $2.3 billion to pay for seafood-related losses.
Overall, Barbier’s ruling pegged BP’s share of the blame for the 2010 disaster at 67 percent. Swiss-based Transocean Ltd., which owned the drilling rig and supplied the crew, was assigned 30 percent of the blame, with 3 percent assessed to the well’s Houston-based cement contractor, Halliburton.
Uhlmann said it is “still possible” that BP will reach a negotiated settlement with the federal government, but he noted that several pieces would have to come together, including that attorneys representing the Gulf states would be “willing to accept more modest natural resource damage awards or settlements” than they have said they are seeking.
“The settlement value of the case’s civil penalties went up, so BP is going to have to pay more next week to settle the Clean Water Act penalties than they would’ve been required to pay last week,” he said.
Industry analysts say years could pass before BP is forced to start paying the fines, given the anticipated appeals process and its likely effort to negotiate to make the payments over a span of several years.
Motivation for BP to settle?
Despite the huge costs involved, Brian Youngberg, an analyst with Edward Jones & Co. in St. Louis who follows BP, said the giant company can afford to pay them. He believes that earlier settlement talks fizzled in large part due to BP’s reluctance to admit it was guilty of an elevated degree of negligence, which could cast “further stigma on the company and its brand.”
Although Barbier has now made much of that decision for the company, Youngberg said it’s still unclear whether that would further motivate lawyers for BP to resume discussions, especially now that it has lost some leverage after Barbier’s ruling.
“It makes a settlement harder from that standpoint,” he said.
Some observers point to the Exxon Valdez oil spill, which in 1989 dumped 11 million gallons of oil along more than 1,200 miles of Alaskan shoreline. Exxon Mobil Corp. was initially ordered by a jury in 1996 to pay litigants $5 billion, a figure that was later cut to almost $508 million on appeal.
“It’s really the (determination of) gross negligence is what they have opposed all along,” Youngberg said. “Any previous settlement talks would supposedly have required them to agree that it was gross negligence, and that really has been a sticking point for them. They do not feel that’s just, so settlement talks have been probably more, or about as much, about that as the actual dollar amount they’d have to pay.”
Editor’s note: This story was changed on Sept. 8, 2014 to reflect that David Logan is a law professor at Roger Williams University, not the University of Rhode Island.
Follow Richard Thompson on Twitter, @rthompsonMSY.