Will Feds Offer BP a Sweetheart Settlement?


BP Chief Executive Robert Dudley says his company is ready to settle with the U.S. government for its role in the worst oil spill in our nation’s history – as long as the terms are “fair and reasonable.” Really? BP demanding fairness and reason is like a drunken sailor demanding piety and abstinence. But I’ll take a deep breath and save my railing for another day.

Clearly, these are relative terms, but we’re getting our first real sense this week of what “fair and reasonable” might actually look like, at least in the eyes of the Justice Department surrounding the most important environmental litigation in recent history. Here’s how New York Times legal reporter John Schwartz set it up in his Feb. 20 report:

On Friday, Moex Offshore became the first company among the defendants to settle with the government. Moex, which owned 10 percent of the well but did not have a role in operating it, agreed to pay $90 million to federal and state governments. The Department of Justice said the deal included $70 million in civil penalties, the most ever under the 1972 federal Clean Water Act – a record that is likely to be broken before long.

Although BP would be held to different terms as the operator of the Macondo Well, according to one oil and gas analyst at Oppenheimer in New York, the Moex settlement hints that the British oil giant could pay as little as $585 million in civil pollution penalties. “This is only the civil part and does not include possible criminal charges and penalties,” said analyst Fadel Gheit. Examples of possible criminal charges include knowingly violating federal regulations, tampering with evidence and obstructing justice.

No wonder BP is tripping over itself to settle ahead of the Feb. 27 trial date. No wonder the company’s stock price soared to its highest perch since March 2011. A $585 million payout would amount to less than 20 percent of the $3.5 billion BP set aside to cover Clean Water Act fines. BP officials came up with the $3.5 billion provision by assuming a $1,100-per-barrel fine and its own estimate of 3.2 million barrels spilled. Remember those initial lowball oil-flow estimates? This is where they translate into lower fines. Just for the record, government scientists put the total spill volume at 4.1 million barrels. And there’s also the possibility of greatly increased civil fines if BP is found to be grossly negligent in causing the spill, but that charge of wrongdoing must be proven inside a courtroom. More from the New York Times report:

BP, which has already paid billions of dollars for cleanup and compensation, will try to avoid a finding of gross negligence that could greatly increase its penalties. Under the Clean Water Act, such a finding could raise the civil penalties from $1,100 per barrel of oil spilled to $4,300 per barrel. The company will argue that it met industry standards and that federal regulators had approved its drilling plan.

The biggest liability risk to the companies comes from the federal government’s case. The Clean Water Act fines alone could be as high as $17.6 billion. The potential for criminal penalties could send costs still higher, with fines potentially reaching $40 billion, Professor Uhlmann said. He suggested that BP could end up agreeing to pay as much as $20 billion in civil and criminal penalties combined, Transocean as much as $4 billion and Halliburton as much as $2 billion.

Legal experts (myself included) are predicting BP will reach an agreement with the government sometime this week or early next. Based on the oil giant’s well-documented, wildly irresponsible behavior surrounding the spill – from egregious safety lapses to reckless cost-cutting efforts – the Justice Department should accept nothing less than $30 billion (though I fear it may be less in light of relatively lenient Moex deal).

The feds should negotiate the pollution fines tied to the Clean Water Act from the top – $4,300, which assumes gross negligence – down. Multiple investigations found that BP acted recklessly leading up to the explosion that triggered the disaster. And BP officials, in essence, acknowledged federal safety violations and gross negligence when they waived the initial $75 million “spill damage” liability cap. Consider this from a May 21, 2010, Bloomberg report:

The U.S. Oil Pollution Act of 1990 requires parties responsible for a spill to pay cleanup costs, while it limits payouts for private economic and public natural-resource claims to $75 million. Exceptions include gross negligence, willful misconduct and the violation of safety rules.

BP has said the cap is “irrelevant” and that it will pay “legitimate” claims. The offer, experts and lawyers suing BP said, is hollow in light of violations they claim led to the Gulf disaster – violations that remove the $75 million ceiling.

“They know perfectly well there will be some violation of federal safety regulations, so there will be no cap,” said Jeffrey Rachlinski, an environmental law professor at Cornell University in Ithaca, New York.

In other words, when BP said the cap was “irrelevant,” the company was acknowledging “gross negligence, willful misconduct and the violation of safety rules” – and the company should be fined accordingly. Nothing less will do.

A sweetheart settlement would send the message to every oil company operating on U.S. soil or in U.S. waters that they can flout regulatory oversight, cause the worst oil spill in U.S. history and get away with it. A lowball deal would confirm all of our worst fears that from the very beginning – manifested in everything from lowball spill estimates to “the oil is gone” declarations – the White House has colluded with BP to minimize the oil giant’s legal liability. You could argue that a settlement would be best for all parties, including spill victims who would receive compensation much quicker, but it must be a legitimate settlement, not a slap on the wrist.

More from NYT reporter John Schwartz:

To many familiar with the case, there is little question that BP would be better off settling. “The incentives are very large for BP to get out,” said Edward F. Sherman, a law professor at Tulane University here.

For one thing, a settlement with the federal government could involve a resolution of criminal charges, which have yet to be filed. Pressure on BP to settle also comes from the company’s continuing desire to drill in the gulf, said David M. Uhlmann, who headed the Justice Department’s environmental crimes section from 2000 to 2007 and is now a professor at the University of Michigan Law School. “Making peace with the government has to be part of any strategy,” he said.

A settlement would also spare BP weeks, even months, of searing front-page news coverage, detailing the company’s mistakes and failures leading up to the spill.

I should mention that there are other plaintiff attorneys who believe the trial will go forward – and I hope they’re right. My clients, including commercial fishermen and charter boat captains, are almost guaranteed to get fairer compensation if we proceed to trial. The downside is they may have to wait years before getting a dime. More from the Times:

James Roy, one of the leaders of the plaintiffs’ steering committee, would not comment on negotiations except to say, when asked whether he expected the case to end in the courtroom or at the negotiating table: “We believe it’s the courtroom. There’s just too many moving parts.”

If the trial does go forward, Judge Barbier will hear the case without a jury. He has structured the proceedings in three stages. The first phase will involve apportioning the blame for the blast among the defendants. The next phases will deal with efforts to seal the damaged well and questions of environmental damage and health effects related to the cleanup. The litigation could stretch into 2013.

The plaintiffs’ attorneys are expected to argue that the company put schedule and cost ahead of safety, and that the accident was rooted as much in a lax culture of safety at BP as in the acts of any individual on the rig.

Indeed we will argue those points and others, if given the opportunity. I’m a firm believer in the necessity of trials as a means to hold defendants fully accountable for their actions and to ensure those damaged are fairly compensated. In the absence of a trial, we must ensure the settlement, or punishment, fits the crime. In this case, the historic environmental crime warrants a historic settlement. Nothing less will do.

BP has demanded “fair and reasonable” settlement terms, but it is the Gulf Coast that should be making those kinds of requests not the perpetrator of the worst environmental disaster in U.S. history. I hope our government negotiators keep that in mind.

We will see if the feds do the right thing and demand a legitimate settlement. As I mentioned, I believe $30 billion is the right number, anything less simply wouldn’t be fair or reasonable.

Read the NYT report by John Schwartz here: http://www.nytimes.com/2012/02/21/us/ahead-of-bp-oil-spill-trial-settlement-talks-pick-up.html

Read the Bloomberg report on waiving the liability cap here: http://www.bloomberg.com/news/2010-05-21/bp-waiver-of-75-million-spill-damage-cap-may-recognize-liability-reality.html

© Smith Stag, LLC 2012 – All Rights Reserved


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

Follow Us

© Stuart H Smith, LLC
Share This