Citgo Asks Justices to Let It Off the Hook for Oil-Spill Cleanup

WASHINGTON (CN) — In 2004, an oil tanker struck a submerged anchor in the Delaware River as it made its way to New Jersey, spilling over 200,000 gallons of oil into the waterway. The owner of the abandoned anchor was never identified after an investigation by the U.S. Coast Guard.

The Supreme Court is seen in Washington on June 17, 2019.  (AP Photo/J. Scott Applewhite)

The question of who will be on the hook for more than $140 million in cleanup costs landed in the U.S. Supreme Court on Tuesday after bouncing around the lower courts for more than a decade.

The vessel’s owner, Frescati Shipping Company Ltd., and the U.S. government paid for the cleanup in the immediate aftermath of the spill. However, the Oil Pollution Act of 1990 allows the government to recoup the funds from liable parties after the fact.

The government and Frescati sued Citgo Asphalt Refining Company, Citgo Petroleum Corporation and Citgo East Coast Oil Corporation – collectively referred to as CARCO – which controlled the port in Paulsboro, New Jersey, and chartered the oil tanker Athos.

After the case spent years in court, U.S. District Judge Joel Slomsky in Pennsylvania found that Citgo only had to pick up half of the spill costs, but the Third Circuit reversed last year.

The Philadelphia-based appeals court found that the lower court was mostly correct in its ruling, but that it erred in apportioning responsibility for the cleanup costs.  It rejected Citgo’s argument that it was the Coast Guard’s responsibility to keep the waterways clear, and when the Athos hit the abandoned anchor, the agency’s failure to remove the obstruction removed its liability.

Contractual stipulations were at the center of Tuesday’s arguments in the nation’s highest court, including a safe-berth clause from a standard form normally used to contract ships. This clause says ships must have a safe port to load and unload cargo that is designated by the entity contracting the vessel.

Carter Phillips, an attorney with Sidley Austin LLP, argued his client Citgo Asphalt Refining Company – which directed the ship to the New Jersey port – had done its contractually obligated due diligence by selecting a known, safe harbor. The possibility of an anchor rising and puncturing the hole of the vessel was unforeseeable, he said.

Justice Elena Kagan said under basic contract rules, material statements of fact constitute warranties, including ensuring the reliability or safety of a transported product.

“I mean, what would be the difference if I said to you, I’m going to sell you a working car for $1,000 and then I give you the car and it breaks down two minutes later? I mean, would you think that’s anything other than a warranty? Even though, like I said, I didn’t know that this car was ready to break down. It’s unknown and unknowable,” Kagan said.

“My guess is that’s something that is at least potentially knowable, although I can envision a circumstance where it wouldn’t be,” Phillips responded. “Here, you’re talking about something that is absolutely unknown and unknowable under these particular circumstances.”

Goldstein & Russell attorney Thomas Goldstein, arguing for Frescati, said all parts of a port, including submerged debris, are characteristics of the port. He asserted this means Citgo Asphalt Refining had a responsibility of knowing a submerged anchor was a hazard, before accepting the charter.

He contrasted the situation with an accident in which the person navigating the vessel was negligent. If the ship’s master is negligent, the charterer is not responsible for the damages, he said.

“We have to realize when you have a situation of unknown and not reasonably knowable damages, someone is going to be strictly liable. It is inevitable,” Goldstein said. “We’re just trying to figure out who it is.”

Erica Ross, assistant to the solicitor general at the Department of Justice, argued for the government and said both parties entered into a contract that had the choice of safe-berth clauses and chose one without due diligence language. Citgo Asphalt Refining had an obligation to ensure the port was safe, she said, even in the event of unforeseeable or unknowable circumstances.

Justice Neil Gorsuch asked Ross the difference between the types of contracts, saying they would essentially be argued similarly due to their exceptions of abnormal occurrences.

“You’ve argued for something more like strict liability, right, that it’s a warranty absolute. But you’ve also recognized, at least in passing, that there’s an exception to that warranty for abnormal circumstances, whatever that is,” Gorsuch said. “At the end of the day, don’t the two wind up in the same place?”

“Petitioners didn’t preserve this argument below when they used abnormal occurrence. They were saying something very different in the context,” Ross said of arguments in the lower courts. “But, nonetheless, there is evidence in the record that debris of this sort on the floor of the Delaware River is not anywhere near abnormal, given the fact that it’s an industrial river.”

The justices are expected to issue a ruling early next year.

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