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Wednesday, July 17, 2024 | Back issues
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Oil Spill Cases to Rely on Federal Law in Blow to States

NEW ORLEANS (CN) - U.S. District Judge Carl Barbier ruled that Alabama and Louisiana may recover damages arising from the April 2010 explosion of the Deepwater Horizon rig, including punitive damages, under the federal Oil Pollution Act and maritime law. But Barbier said damages under state law cannot be applied.

Barbier this week granted in part and denied in part oil spill defendants' motions to dismiss complaints from the states of Alabama and Louisiana. In a separate ruling, Barbier said BP cannot use Transocean's liability insurance.

Barbier, who is overseeing the massive consolidated litigations, ruled that the states may recover damages under the Clean Water Act (CWA). But Barbier's order sets the maximum CWA fine as much as $1,300 less per barrel of spilled oil than was stated as recently as April this year in oil spill litigation documents.

Fines previously ranged between $1,100 and $4,300 per barrel for oil spilled. Barbier's ruling sets possible fines between $1,000 and $3,000 per barrel.

Because the Deepwater Horizon was operating on the Outer Continental Shelf in federal waters, Barbier concluded in a previous decision related to all B1 oil spill claims that maritime law preempted state law.

The B1 pleading bundle includes all claims for private or "nongovernmental economic loss and property damages." It includes claims for economic damages filed by fishermen, seafood processors and distributors, recreational and commercial businesses, plant and dock workers and those who worked for BP's Vessels of Opportunity program.

During the hearing on whether states' claims could apply, attorneys for the states argued that state law should "fill the gap" where federal and maritime laws do not apply.

But Barbier ruled that for state law and B1 bundle claims alike, "there were no substantive gaps for state law to fill. ... Thus, the B1 order stated that it would contravene one of maritime law's fundamental purposes - 'harmony and appropriate uniform rules relating to maritime matters' - if the defendants in the B1 master complaint were subjected to the various laws of each of the affected Gulf States into which oil passively flowed."

A footnote explains that it is not that state law cannot apply here; it is that it does not apply. The footnote states that during oral argument attorneys for the states pointed to instances of state law extending outside of state waters, as has sometimes happened. "However, as to a broader point implicated by these cases, the court notes that the B1 order did not conclude that state law could never apply outside state waters; rather, that state law could not apply in this circumstance: 'Thus, to the extent state law could apply to conduct outside state waters, in this case it must 'yield to the needs of a uniform federal maritime law."

In the September hearing on state law, attorneys for the states raised a concern that without having the power to impose severe fines, oil companies will have no incentive not to pollute state waters. They argued that because damages recovered under federal law go into the federally overseen oil spill liability trust fund, not directly to the states affected, the states might not be able to recover adequately.

Barbier disagreed with both assertions.

"As to the states' argument that without state penalties, there is no incentive for a defendant to prevent its oil spill from entering state waters, the court does not agree. The CWA and its corresponding regulations require owners or operators of vessels and facilities to submit a plan for responding to an oil spill. ... In the event of a spill, parties must immediately carry out provisions of its response plan, as well as notify the National Response Center. ... Failure to comply with the response plan or an order from the federal removal authority triggers specific CWA penalties. ... These penalties are separate from those imposed by the CWA when there is a 'harmful' discharge, which, given that they are based on either the days a discharge occurs or the volume of oil released, create another incentive to stop the source of a discharge (and thus limit the amount of oil that could potentially flow into state waters). ... Failure to report a discharge, provide assistance when requested by a responsible official, or comply with a federal removal order will also revoke OPA's [Oil Pollution Act] defenses and limit of liability. ... Thus, while they may not specifically target state waters, federal laws provide substantial incentives for a discharger to promptly and efficiently stop the spread of oil and remediate its effects. It is also worth noting that amounts paid pursuant to CWA penalties are applied to the Oil Spill Liability Trust Fund, which, in turn, are used to pay for future oil spill response actions, fund natural resource damage assessment and restoration, and pay uncompensated removal costs and damages claims. ... Thus, CWA penalties indirectly benefit all states."

(Although not stated in the ruling, since April, the maximum fine possible for CWA violations has shrunk in legal documents from $4,300 a barrel maximum, which BP previously rebutted on grounds that a different federal agency had said the maximum fine was $4,000, to now, as cited in this order, just $3,000 per barrel maximum fine for "willful misconduct.")

A document filed by BP in April argued that the $4,300 maximum fine could not be imposed on the oil company, even if it were found guilty of negligence, because a lower maximum of $4,000 already Oil Pollution Act been stated by the other federal agency.

BP's April document stated: "According to the government's December 2010 complaint, BP and other oil spill defendants will be subject fines of $1,100 to $4,300 per barrel of oil spilled."

BP said in the document that even if the government were to prove gross negligence or willful misconduct at trial, the maximum penalty for which BP could be held liable is $4,000 per barrel, not $4,300, as the U.S. complaint from December 2010 had stated.

Barbier's ruling said the states must present their OPA claims to BP as the Responsible Party before proceeding in court, but said that the states have already satisfactorily done so.

Attorneys were not immediately available for comment.

In the separate ruling on Transocean's insurance policy, Barbier ruled: "Because Transocean did not assume the oil pollution risks pertaining to the Deepwater Horizon incident - BP did - Transocean was not required to name BP as an additional insured as to those risks. Because there is no insurance obligation to those risks, BP is not an 'insured' (or 'additional insured') for those risks. Therefore, BP is not entitled to declaration of coverage it seeks."

The first trial in the oil spill litigation will be a limitation trial. It is set to begin Feb. 27 in New Orleans.

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