Feds establish downtown bunker to build criminal, civil cases against BP in Gulf oil spill


NEW ORLEANS – A team of federal prosecutors from around the country has taken over a floor of the Texaco Building on Poydras Street, just across from the federal courthouse, as they begin quietly building what is expected to be a complex series of criminal and civil cases stemming from the BP oil spill.

Their effort launched with rare fanfare June 1, when U.S. Attorney General Eric Holder came to New Orleans to announce that FBI agents, along with prosecutors from Justice Department’s Civil Division, its Environmental and Natural Resources Division and from several U.S. attorneys’ offices along the Gulf Coast, had already been investigating possible criminal charges for weeks.

But apart from that unusual public announcement — which came at a time when the Obama administration was facing harsh criticism for its response to the runaway spill — the criminal inquiry has thus far been a cloak-and-dagger affair. A visitor to the building can’t even get off the elevator on the 10th floor, where the federal bunker is, without getting a pass from a security guard in the lobby. A newspaper reporter requesting such a pass was turned down.

The space is large enough for at least 60 people, according to a source familiar with the building.

There’s been no need to empanel a grand jury — at least not yet. The evidence has been pouring in — in the form of internal corporate e-mail messages and sworn testimony by witnesses,disclosed for the world to see and hear at hearings held by a Coast Guard and Interior Department investigative panel or by various congressional committees probing the April 20 explosions on the Deepwater Horizon oil rig.

In New Orleans, U.S. Attorney Jim Letten’s office has recently closed out a couple of old environmental cases to clear the decks for what could be the mother of all environmental cases. The federal government has hired an Ohio company, DNV Columbus Inc., to perform a forensic investigation of the massive blowout preventer that was recovered from a mile under the sea to try to determine why it failed to shut off the well when it blew.

Howard Stewart is down to lead the investigation from Justice Department headquarters in Washington, where his hard-edged ambition is well-known. When he was twice passed over to be chief of the Environmental Crimes Section in the late 1990s, he sued the U.S. attorney general, claiming racial discrimination, although he eventually lost his civil rights case on appeal.

Defense attorneys hired by various parties involved in the Gulf oil disaster are on edge, expecting Stewart to go for a big score and charge individuals, not just a company, with a crime — possibly with involuntary manslaughter.

That would make the case unusual in the annals of industrial or maritime accidents, observers say.

Valdez and Pinto

Dane Ciolino, a law professor at Loyola University, said that even though injuries and death are not infrequent on the high seas or in industrial accidents, they usually end with civil claims and rarely result in criminal charges. He sees two cases as particularly instructive as the feds continue their BP probe — the 1989 Exxon Valdez tanker spill in Alaska and the 1980 case against Ford for a rash of exploding Pintos. In both, the government ultimately decided not to pursue criminal charges against individuals.

In the Valdez case, the vessel’s pilot, Joseph Hazlewood, was accused of being drunk when the tanker ran aground and set off what was, until it was dwarfed by BP’s well blowout this year, the largest oil spill in U.S. history. Richard Stewart, who was assistant attorney general for the Environment and Natural Resources Division at the time, said the Justice Department considered whether to pursue charges against Exxon officials who may have known about Hazlewood’s drinking problem.

“We looked at it,” said Stewart, who is not related to Howard Stewart. “Alaska prosecuted Hazlewood, but we couldn’t find enough evidence of higher-ups’ involvement. That’s always a side thing, and I don’t think it’s going to be major issue in (the BP) case. I don’t think the department will go against very low-level people (at BP or rig company Transocean) unless they have evidence that someone did something really egregious.”

In the Pinto case, a deadly explosion in 1978 helped expose more than 500 burn deaths caused by a design flaw in the car’s fuel tank. It emerged that Ford officials had known about the defect, but determined it would cost far more to change it than it would to pay any resulting wrongful-death claims. An Indiana court rejected Ford’s argument that it was not a person and couldn’t be charged criminally, but a jury found the company not guilty anyway. Still, the public was angry that the government didn’t go after any individuals at Ford.

“People back then found that resolution unsatisfactory,” Ciolino said. “They felt culpable individuals were getting off the hook. That’s a criticism people generally have of a situation where only a corporation pleads guilty.”

That’s also what happened when 15 workers at BP’s Texas City refinery were killed in a 2005 explosion. The company pleaded guilty two years later to a felony for a lack of written procedures and for its failure to notify contractors of the danger of being in a trailer where people died in the blast. BP negotiated with the feds and agreed to pay a $50 million fine for that incident, and another $20 million in fines for failing to take precautions against a 2006 pipeline spill in Alaska.

Plenty of claims to BP’s coffers

The Deepwater Horizon case involves a staggering amount of money, and Justice Department prosecutors are going to have several avenues available to them to try to make BP or other responsible parties pay. But they may also have to keep an eye on BP’s bottom line, to make sure the company, or its subsidiary BP America, remains solvent enough to make victims of the rig explosion and spill whole.

First, the law is clear that BP must pay for ongoing cleanup of spilled oil, either by doing the work themselves or by paying for others to skim and collect the oil. The company has spent about $7.7 billion so far on cleanup, containment, relief wells and certain government spill response payments.

That’s completely separate from damage claims by businesses and individuals. BP has agreed to pay “all legitimate claims” of economic or personal injury or lost wages or profits from the spill or rig explosion, committing $20 billion for spill claims and $100 million for those who work on or in direct support of deepwater drilling rigs. So far, it has paid $1.8 billion to affected people, businesses or governments, either directly or through independent claims administrator Kenneth Feinberg.

In the interest of its own financial survival, BP was allowed to spread out the cost of the Feinberg fund over four years. It put $3 billion into escrow this quarter, will add another $2 billion in the last quarter of 2010 and then $1.25 billion each quarter through 2013.

Whether or not that $20 billion covers all of the claims handled by Feinberg, BP and others may also have to pay court settlements to people or entities that sued or will sue for damages.

Thirdly, under the Oil Pollution Act, the public trustees — federal and state governments and American Indian tribes — also have the right to bill the companies for the cost of projects to mitigate damages to natural resources. That is also expected to total in the billions of dollars.

A fourth source of potential civil costs is from various environmental laws that require responsible parties to pay fines for every barrel of oil spilled and every bird, dolphin or endangered species injured or killed. Primarily, a federal court may order BP or others to pay penalties under the Clean Water Act for the nearly 5 million barrels of oil that spewed into the Gulf. Robert Force, a professor of maritime law at Tulane University, said it’s not necessary for the government to prove negligence to impose these types of penalties. The mere discharge of that much oil could yield about $5 billion in fines.

If the Justice Department and other investigating agencies can show gross negligence or willful misconduct led to the spill, the fines could reach $18 billion.

Then, there are the criminal charges

These civil penalties, cleanup and containment costs and damage claims, which could total more than $50 billion, don’t include the consequences of any criminal charges, which could produce more fines. If individuals are found guilty of negligence leading to the spilling of oil, they could face more than $2 million in fines and up to two years in prison. BP, a third-party contractor or any of the firm’s employees could be charged with environmental crimes under several statutes if the Justice Department feels negligence led to the illegal discharge of oil into the Gulf. Force said several courts have found that the standard for negligence does not require the government to prove that someone knew their conduct would lead to a spill. Rather, he said, it’s only necessary to show that actions were taken that “could have led to a discharge,” and if they took “reasonable care” to avoid a spill.

“When you look at all the shortcuts they took (on the rig), there’s a good chance they might fall under negligence based on the standards of reasonable care,” Force said.

But with a traumatized public perhaps seeking a measure of retribution for a disaster that killed 11 rig workers and fouled the Gulf of Mexico, guilty verdicts for environmental crimes may not be enough. Lawyers representing individuals and corporate parties of interest in the case say they are worried the feds might pursue involuntary manslaughter charges against one or more of the people who made key decisions that increased risk of the well blowout that eventually occurred.

Three BP employees — on-rig supervisor Robert Kaluza and Houston-based engineers Mark Hafle and Brian Morel — have already invoked their Fifth Amendment rights against self-incrimination to avoid testifying to federal investigators. Kaluza’s fellow rig boss, Donald Vidrine, also hasn’t testified when summoned, citing illness.

Each has a criminal defense lawyer representing him. Attorneys for Kaluza, Morel and Vidrine declined comment for this story. Hafle’s lawyer, Mitchell Lansden of Houston, said his client, who testified in May and then refused to face the same Marine Board panel in August, has nothing to hide, but didn’t want to testify again because he felt the climate at the hearings had gotten too hostile.

“My client is a decent and honorable man, he’s a fine engineer and all his actions in this matter were done as a prudent engineer,” Lansden said of Hafle. “But there’s been a change in climate from the first time he testified.”

Pleading the Fifth is no indication of guilt, and other rig workers, engineers and executives could have exposure in the case. Lansden said he was definitely concerned about Hafle testifying again when he learned that the Justice Department had a staffed investigation in New Orleans “and I don’t know what direction it will go.”

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
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