Sorting out Responsibility for the Deepwater Horizon Oil Spill

Legal accountability is on the way for those who bear responsibility for the Deepwater Horizon oil well blowout in the Gulf of Mexico.  Billions of dollars are at stake, but the Obama administration is likely to be quite accommodating if the oil company and its contractors (including the designated demon of the Bush era, Halliburton) pony up a settlement that appears reasonable.  With the threat of dragging government officials into court to account for their own actions in the cleanup, a tidy ending is likely to be attractive. 

There have been lots of recent events to catch up on.  As outlined previously on AT, the trial to set responsibility for the initial blowout phase (as distinguished from the containment phase) of the accident was scheduled to start on February 27, but there have been delays and settlements galore.  It does seem that Obama and the trial lawyers weren't really anxious for some maritime law football.

You can find the ongoing transactions at the New Orleans Times-Picayune's webpage, but here a few selected headlines.  You will find much more on the web page.

In BP oil spill case, court names mediator in $2.3 billion seafood claims settlement

That takes care of the legitimate claims of the fishermen.

BP oil spill claimants' legal fees might be paid by BP, plaintiff lawyers say

That means that the people with legitimate claims who naively believed the trial lawyers, who said that they could double-dip, and had 6% of their payments set aside to cover the lawyers' fees can now likely expect to get their 6% deduction back, with BP picking up the difference.

Gulf oil spill moratorium claims have no place in BP settlement

Those in the oil industry who suffered from the Obama administration's illegal drilling moratorium will have to wait for their day in a different court, as their complaints have been separated out from those of people harmed by the BP Macondo 252 well.  That trial should be a doozey.

Gulf oil spill companies face other liability apart from settlement

This is where we start to get down to brass tacks!  The federal and local governments have been salivating at the prospect of collecting huge fines under the Oil Pollution Act (OPA) and the Clean Water Act (CWA).  Fines of $1,100 per barrel for simple negligence and $4,300 per barrel for gross negligence have set visions of sugar plums dancing in the heads of budget-constrained politicians of all stripes.  Under the terms of the law, as interpreted by Judge Barbier, the drilling contractor, Transocean, is presumed to be responsible for all pollution released at the surface of the gulf, which limits Transocean's exposure to the point at which the Deepwater Horizon sank.

As general contractor, BP has overall responsibility for the project and therefore is presumed to be responsible for the balance of the spill from the wellhead at the sea floor.  That is where the big fines are.

What will come next is the allocation of responsibilities among BP, Transocean, and Halliburton on one side and the hungry governments on the other.  BP entered into indemnity clauses with the contractors, which BP has been using to deny responsibility for damages.  So in their intramural dispute, the question will hinge on whether those indemnity clauses are enforceable.  The judge has ruled that they would not be enforceable, and therefore the contractors would be on the hook, if there was gross negligence on the part of the vendors.  So that puts the bull's eye squarely on Halliburton to accept their share of the blame.  If Halliburton caves, then the unified position of the private sector is that the accident was a case of simple negligence, subject to the $1,100-per-barrel fine.  The size of the spill must be determined, and despite all the exaggerated claims of the Obama administration, the court will likely accept BP's lower estimate of 3.2 million barrels, putting the total fine at $3.52 billion, an amount BP has already set aside.  Split three ways, that is less than $1.1 billion for each of the three.

So the likely offer to Obama is to let them totally off the hook for a total of $3.5 billion plus the separate settlements with the affected private parties, or else!

Enquiring minds might ask, "Or else what?"  The answer is that we then get to the second phase of the litigation: determining who is responsible for the collection, containment, and cleanup of the oil spill after the president named a National Incident Commander and took charge of the situation.  Admiral Thad Allen and Energy Secretary Steven Chu would then become key witnesses, subject to cross-examination by BP, the company which directed the successful effort to "plug the damn hole"!  Until now, they have been prohibited from speaking out due to Interior Secretary Ken Salazar's boot being held firmly upon their necks!

If that trial, with Allen, Chu, and company under oath, ever came to pass, it would be a barn-burner.  But don't hold your breath.  It seems President Obama wants to forfeit ("vote present") rather than play maritime court football.  You would probably want to forfeit, too, if your star witness were Steven "Solyndra" Chu.