Orignally posted by Sue Reisinger - Law.com - June 7, 2010
BP told its investors Monday that it has spent over $1.25 billion in costs since April 20 for the Deepwater Horizon oil spill disaster, and that rate of spending "is expected to continue for some time."
While most of the money is going to containment and cleanup of the largest oil spill in U.S history, the amount probably includes the mere beginning of legal costs to prepare for the more than 130 lawsuits that have been filed so far. Legal experts say the spill presents complex issues far beyond any other U.S. environmental disaster.
London-based BP said so far some 37,000 claims have been submitted and more than 18,000 payments totaling $48 million have been paid to people and companies affected by the spill. It also has paid $170 million to Louisiana, Alabama, Mississippi, and Florida to help with their responses, according to BP's almost daily filings this week with the Securities and Exchange Commission.
The payments do not include any civil or criminal penalties that may be assessed, nor the $69 million bill that the White House said the federal government sent BP on Thursday to cover its costs so far in responding to the spill. They also don't include what could be several billion dollars in settlements with the families of 11 workers killed and 17 injured in the blast.
BP's legal department didn't return messages seeking comment.
Some analysts predict the long-term costs to BP could be in the tens of billions of dollars. "The costs of containment, removal and clean up are likely to be largely complete in 2010," the company said in its press release. But it added, "The longer-term costs of environmental remediation, claims, and litigation are not predictable at this stage, but they will be sizeable and are likely to be spread over many years."
A global insurance white paper written last month by Cozen & O'Connor states that the catastrophe "can be expected to give rise to a multitude of third party claims directly against the responsible parties," including all workers and businesses damaged. The report points out that BP "is almost completely self-insured."
Attorney Joseph Pizzurro said any court fight over damages will go on for years. Pizzurro is managing partner of Curtis, Mallet-Prevost, Colt & Mosle, the New York law firm that represented the affected French towns in the Amoco Cadiz oil spill in the North Atlantic in 1978. That spill totaled 65 million gallons.
After 10 years of litigation, a federal judge in Chicago awarded the Amoco spill victims $117.5 million in damages — in most cases only a fraction of what victims claimed. While Amoco involved French citizens suing what was then a U.S. company, Pizzurro pointed out that the Gulf spill will mean U.S. citizens will be suing a British company, and the victims should fare better. [Amoco Corporation is now part of BP.]
Still, there are key questions about damages. "How does one quantify the kind of injury that people will be alleging?" Pizzurro asked. "Long term ecological damage presents a whole set of issues that have to be dealt with, including lost incomes of fishermen and businesses on the Gulf."
Pizzurro said the Exxon Valdez spill near Alaska in 1989 was much smaller, at 10 million gallons, but the victims collected more than in the Amoco suit. Exxon Mobil Corp. paid $507 million in compensatory damages, plus $507 million in punitive damages. The latter figure wasn't decided until mid-2008 by the Supreme Court.
Exxon also paid $2.1 billion in cleanup costs, a $25 million fine (reduced from $150 million) and $100 million in restitution to settle criminal charges. The company also entered into a consent order requiring it to pay $900 million to restore the immediate environment, together with $303 million in settlements with private parties, according to an American Bar Association news article written by attorney Douglas M. Motzenbecker, of the Newark office of Podvey, Meanor, Catenacci, Hildner, Cocoziello & Chattman.
The BP spill differs from Exxon's in several ways, Pizzurro said, but mainly because of the size of the BP spill and the number of victims. The U.S. government last week estimated that BP's undersea well was spewing between 500,000 and 855,000 gallons of oil per day into the Gulf. Or roughly the equivalent of an Exxon Valdez spill every two weeks that it continues.
"And there are probably more people in the New Orleans metro area alone than the whole state of Alaska," he added, let alone the four other Gulf states that are affected.
What will likely be hundreds of lawsuits will be joined into a multi-district litigation before one federal court somewhere, probably in New Orleans, Pizzurro said. But BP is arguing for it to be heard in Houston, where the company has centralized many of its North American operations.
If he were BP's general counsel, Pizzurro said he would be trying to find the fastest and most economical way of resolving complaints. "I'd be trying to settle with as many people as possible now, so in six months or a year when the litigation really starts to go, I've narrowed the range of potential liability as much as I could," he said.
Besides the lawsuits, BP faces tough civil and criminal investigations by the U.S. government.
The Oil Pollution Act of 1990, enacted after the Exxon Valdez spill, imposes strict liability and monetary penalties for every barrel of spilled oil. The Clean Water Act carries both civil and criminal penalties for polluting waterways.
And other laws come into play, including the Marine Mammal Protection Act because BP failed to obtain federal permits to drill in areas containing endangered whales; the Migratory Bird Act Treaty; the Endangered Species Act, which provides penalties for injury and death to wildlife and bird species; and perhaps a charge for giving misleading or false information to federal authorities in its drilling plan, which claimed BP had the technology to respond quickly to any blowout.
Then come the criminal issues. Thomas Hagemann, a white collar criminal defense attorney at Gardere Wynne Sewell in Houston, said it's too early to tell how serious the criminal-side of the picture might be for BP. If the government can prove "willful blindness or deliberate ignorance" on the part of BP, the consequences for the company could be quite serious, said Hagemann, a former federal prosecutor in Los Angeles — "especially since BP has a prior criminal conviction."
He was referring to BP's 2009 conviction on one criminal count of violating the Clean Air Act related to the 2005 explosion at its Texas City refinery. That blast killed 15 people and injured hundreds. BP paid $2.1 billion in settlements with blast victims, plus a $50 million criminal fine, and an $87 million fine by the Occupational Safety and Health Administraiton.
BP was placed on three years probation in that plea deal. Last month plaintiffs' lawyer Brent Coon asked the federal court in Houston to revoke BP's probation because the new spill violated its promise not to violate air pollution laws again. Coon is with Brent Coon & Associates in Beaumont, Texas.
That prior conviction ups the ante in any criminal case involving the new spill, according to Hagemann. "If it's found that something that amounts to 'knowing endangerment' happened in the Gulf, this could be the mother of all criminal penalties for BP," Hagemann said.
Adding to BP's problems is the drop in its stock price of nearly 15 percent. And Thursday Moody's Investors Service downgraded BP's ratings for the second time since the spill.
Even before Moody's acted, Great Britain's Guardian newspaper wrote on June 2 that analysts there were deeply concerned about BP's survival. It quoted Dougie Youngson, an oil analyst at Arbuthnot, as saying, "This situation has now gone far beyond concerns of ... shareholder dividend payouts being cut — it's got the real smell of death. This could break BP. Given the collapse in the share price and the potential for it to fall further, we expect that it could become a takeover target."
But in its Friday press release, BP tried to reassure investors.
"We will meet our obligations both as a responsible company and also as a necessary step to rebuilding trust in BP as a long term member of the business communities in the U.S. and around the world," Chairman Carl-Henric Svanberg said.