A federal judge in Delaware has ordered a lawsuit by St. Joe Co. against Transocean over the Deepwater Horizon oil spill back to state court, raising the odds the drilling company will be dragged into litigation it was hoping to avoid.
The decision issued yesterday by U.S. District Judge Leonard P. Stark increases the risk Transocean will be held liable by a jury for some of the costs associated with the spill. If that happens, plaintiffs might assert that finding in the hundreds of cases now being consolidated in New Orleans.
“At that point the only discussion would be over damages,” said William Brewer of Bickel & Brewer, the Dallas law firm representing St. Joe in its unconventional strategy of concentrating on BP contractors instead of the British oil company itself. “This is a very significant development for St. Joe given the size of our claims.”
St. Joe is seeking more than $500 million for the diminished value of some 600,000 acres it is developing in Florida. The claim is based on the decline in St. Joe shares after the spill, which have since rebounded as 29% owner Fairholme Funds won a struggle for control of the firm. Its shares were unchanged midday Wednesday.
Transocean immediately filed a notice of appeal with the Third Circuit Court of Appeals. The company, which is based for tax purposes in Zug, Switzerland but also incorporated in Delaware, has maintained its liability is limited under a federal oil-spill law as well as an indemnification from BP.
Transocean owned the Deepwater Horizon, which exploded and sank on April 20, 2010 while it was under contract to well operator BP. BP has set aside $20 billion to pay claims and another $20 billion in potential extra costs.
St. Joe hired Bickel & Brewer to pursue a risky litigation strategy against BP contractors Transocean, Halliburton and Schlumberger in state court in Delaware, where the targets are incorporated, instead of joining the more than 400 spill cases consolidated in federal court in New Orleans. The plan was to end-run the consolidated proceedings to get a judgment or favorable settlement while plaintiffs are still working their way through the complicated “multidistrict litigation” process in New Orleans.
Transocean argued it was immune to such suits under federal laws designed to streamline litigation over oil spills. But Stark, in his 30-page decision, said that even if federal law eventually trumps, the rules of civil procedure don’t give federal courts jurisdiction over such cases simply because the defendant asserts a federal defense. In other words, the case stays in state court until a judge there determines whether federal law prohibits it from proceeding. State courts can consider matters of federal law in addition to claims based on common-law concepts such as negligence, which is what St. Joe is asserting.
The decision is a big win for St. Joe and Brewer, who told me back in February that if he can keep his cases in Delaware state court “within 18 months, we get a jury in the box.” The threat of a jury finding of gross negligence might induce Transocean to settle, since that could be applied to all the other cases pending in federal court in New Orleans and elsewhere. If the case proceeds in Delaware state court, Transocean might feel pressure to drag in Halliburton and Schlumberger, Brewer said, to try and share liability in a process known as inpleading.
Those two companies convinced another federal judge in Delaware to transfer their St. Joe cases to New Orleans. They could find themselves back in state court in Delaware, however, if Transocean drags them into the lawsuit against it.
“I am sure Transocean will be endlessly creative in filing dilatory motions to try and slow this down,” said Brewer, who is seeking a trial date as early as this summer. The Delaware judge can’t transfer the case to New Orleans, she said, but she can rule on Transocean’s central argument that federal law preempts St. Joe’s state-law claims.
Brewer said St. Joe is still committed to the litigation. Bloomberg News earlier this month reported that new St. Joe Chief Executive Bruce Berkowitz said it might end Gulf of Mexic0-related litigation.
Transocean had sought a stay in the action until the federal court in New Orleans has time to consider its request for a transfer and St. Joe’s remand request. Stark said there is a risk of conflicting decisions but that isn’t the fault of St. Joe, but of all the other plaintiffs suing Transocean in courts around the country.