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Battle Lines Drawn for BP’s Day in Court

Clifford Krauss
Wednesday, 20 Feb 2013 | 4:25 AM ET
Bob Dudley, CEO of BP.
Ben Stansall | AFP | Getty Images
Bob Dudley, CEO of BP.

Unless the Justice Department and BP reach a last-minute settlement, the British oil company will return to court on Monday to face tens of billions of dollars in civil claims from the 2010 explosion on the Deepwater Horizon rig in the Gulf of Mexico that could cripple the company for years to come.

For the last three years, BP's efforts to explore and produce oil across the globe have been overshadowed by the accident that left 11 workers dead and soiled hundreds of miles of Gulf Coast beaches. The company has been forced to plead guilty to several felony charges, pay large fines and shake up its management team. Compelled to sell off oil assets to meet its expanding liabilities from the blowout and spill, BP has shrunk considerably in size, and the trial promises to extend the company's distress.

The Federal District Court trial in New Orleans will bundle suits brought by the Justice Department, state governments, private business and individual claimants against BP and several of its contractors. Decisions on culpability and damages could be a year or more away, but they are likely to have profound impacts on environmental law and determine the viability of BP as a major oil company with global ambitions.

"BP and the government are taking a high-stakes gamble by going to trial," said David Uhlmann, a University of Michigan law professor and a former chief of the Justice Department's environmental crimes section, who expressed surprise that talks appear to have broken down. "The fate of Gulf Coast recovery efforts and billions of dollars in Clean Water Act penalties hang in the balance. Unless cooler heads prevail, and a settlement is reached, it now may be years before there is any certainty for BP and communities along the gulf."

Given the pretrial disputes between BP officials and federal prosecutors over the extent of the company's wrongdoing and the potential for billions of dollars in damages and mounting legal fees, it remains unclear whether any possibility for a settlement still exists on the eve of trial.

If the trial opens next week, the first of two trial phases is expected to center on whether BP and its contractors were guilty of gross negligence — tantamount to wanton and reckless behavior, or conscious disregard for reasonable care that is likely to cause harm or injury — in causing the Macondo well blowout.

BP pleaded guilty last year to 14 criminal charges, including manslaughter, admitted to negligence in misreading important tests before the blowout and agreed to pay $4.5 billion in fines and other penalties. Yet it plans to contend at trial that it should not be held solely responsible and that liability should be shared with contractors including Transocean, the rig owner and operator, and Halliburton, the company that cemented the well.

"Gross negligence is a very high bar that BP believes cannot be met in this case," said Rupert Bondy, BP's general counsel, in a statement on Monday. "This was a tragic accident, resulting from multiple causes and involving multiple parties. We firmly believe we were not grossly negligent."

The Justice Department plans to argue that BP, as the owner of the well which oversaw the services of both Transocean and Halliburton, was ultimately responsible for a series of errors that produced the environmental catastrophe. The government is expected to argue that BP executives and personnel made a number of reckless decisions.

"We are fully prepared to take this case to trial," said Wyn Hornbuckle, a Justice Department spokesman. "We intend to prove that BP was grossly negligent and that the company engaged in willful misconduct in causing this disastrous oil spill."

Alabama, Mississippi, Florida and Louisiana have presented tens of billions of dollars more in claims, including lost tax revenue due to lost jobs and business, as well as costs related to responding to the spill.

Lawyers for the tens of thousands of people and businesses seeking redress for damages said they will argue that BP, Transocean, Halliburton and Cameron, the manufacturer of the failed blowout preventer, are all negligent or grossly negligent for mismanaging safety procedures.

"We're confident that the evidence is compelling against these defendants," said Jim Roy, the plaintiffs' lead lawyer.

BP has set aside $42 billion for payments, much of which has come from divestments over the last three years, including the disposal of its stake in a Russian affiliate, TNK-BP.

The company has already spent more than $14 billion on spill response and cleanup, and nearly $10 billion in payments to affected local governments, individuals and businesses.

The second phase, scheduled to begin in September, will seek to determine how much oil was actually spilled in the gulf over the three months that the well was out of control.

Together, rulings on the two issues will determine how much BP will finally have to pay in fines. Under the Clean Water Act, fines could range from $1,100 for every barrel spilled through simple negligence to as much as $4,300 a barrel if the company were found to have been grossly negligent.

The federal government initially estimated that 4.9 million barrels of oil spilled in the accident, meaning liabilities of as much as $5.4 billion to $21 billion. BP has claimed that 3.1 million barrels should be the uppermost spill limit.

The company won a victory this week when the government agreed to its contention that it should not have to pay penalties for the leaked 810,000 barrels that it captured before polluting the environment. That means the maximum penalty would be $17.6 billion.

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The Justice Department has also filed criminal charges, including manslaughter, against four BP employees and accused them of covering up the severity of the spill. Lawyers for all have said they will contest the charges in court.

The highest-ranking BP executive to be charged was David Rainey, the company's former vice president for exploration in the gulf, on allegations of obstruction of Congress and making false statements in understating the rate at which oil was spilling.

Transocean has already pleaded guilty to a single misdemeanor criminal charge of violating the Clean Water Act and has agreed to pay $400 million in criminal penalties. The rig company has set aside $2 billion to cover costs from the civil lawsuit.

Halliburton has still not settled with the Justice Department, and may also face fines from the lawsuit. It has claimed it was following BP instructions.

BP has been negotiating with the Justice Department and five Gulf Coast states for more than a year to strike a deal to avoid a trial in New Orleans. Some legal experts say a settlement or at least a partial settlement including one or more companies could come before the trial, or after the trial has begun.

"You have the three potential defendants here pointing fingers at each other, and it's hard for the three to decide what percentage of responsibility each should take," said Edward F. Sherman, a law professor at Tulane. He said the various states represent another "wild card" because "they have distinct injuries and damages and the attorney general of each state is heavily involved and there is unique policy and politics in each state."

Judge Carl J. Barbier, an appointee of President Clinton's who has been hearing a variety of cases related to the oil spill since the summer of 2010, will preside.

Judge Barbier has already ruled that contracts between BP and its contractors protected the contractors from most spill costs, aside from punitive damages, even if they are all found to have been grossly negligent.

"The facts of the case are on Transocean's side, and our legal team is fully prepared to start proving that in New Orleans next week," Transocean said in a statement. Halliburton declined to comment and Cameron did not respond to a request for comment.

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