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BP Bears Brunt of Liability for Macondo Spill and Accompanying Statutory Liability

Case: In Re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico on April 20, 2010
          Federal District Court, Eastern District of Louisiana
          MDL 2179 (Judge Barbier September 4, 2014)

The Phase One trial, the “Incident Phase,” focused on determining the allocation of fault and level of culpability of the various players for loss of well control, blowout, explosion, fire and the Macondo Spill. The trial proceeded from February 25, 2013 through April 17, 2013. Judge Carl J. Barbier handed down his decision this month, a decision which BP immediately advised they will appeal. The parties involved were the BP Entities, the Transocean Entities, and Halliburton Energy Services, Inc. (claims against Cameron International Corporation and M-I, LLC having been dismissed when they moved for judgment on partial findings during the trial).

The Findings of Fact and Conclusions of Law are lengthy, addressing in detail the events leading up to the casualty, but this report is limited to the legal determinations made by the Court in light of those factual findings. The Court decided culpability under the Clean Water Act (“CWA”), OPA and general maritime law.

The Court initially noted the CWA and OPA are federal statutes which apply uniformly across all states, such that interpreting the terms gross negligence and willful misconduct within them is a matter of federal law, which requires a uniform interpretation of the terms, rather than reference to the tort law of the state where the spill occurs. The Court also noted the terms have the same meaning in each of these statutes.

The Court held the discharge of oil was the result of BP’s gross negligence and willful misconduct under the Clean Water Act. In doing so, after much discussion and analysis, the Court adopted the United States’ definition of the terms. Gross negligence was defined as “an extreme departure from the care required under the circumstances or a failure to exercise even a slight care.” The Court noted that “gross negligence differs from ordinary negligence in terms of degree, and both are different in kind from reckless, wanton, and willful misconduct.” Applying this to the facts, and emphasizing a greater degree of care is required under circumstances presenting a greater apparent risk (and describing the multitude of indicators of greater risk present at the time these decisions were made), the Court held the BP company man’s misinterpretation of the negative pressure test as successful and his failure to order a new one after another shore side BP engineer interpreted it as failed constituted an extreme departure from the care required under the circumstances. In addition, the Court found the shore based engineer’s failure to order a new negative pressure test or pursue the issue further with the BP company man after he had interpreted the test as failed also constituted an extreme departure from the care required under the circumstances. The Court noted that conducting another negative pressure test would have imposed an extremely light burden compared to the extreme foreseeable consequences that could, and ultimately did result.

The Court noted BP and the United States generally agreed on the meaning of willful misconduct, but that BP included the term reckless within both gross negligence and willful misconduct, while the United States included it only in willful misconduct. Finding the Clean Water Act and OPA both refer to the terms gross negligence and willful misconduct in the disjunctive, the Court found reckless conduct could not fall within both, ultimately placing it within willful misconduct. The Court adopted the United States’ definition of willful misconduct as, “an act, intentionally done, with knowledge that the performance will probably result in injury, or done in such a way as to allow an inference of a reckless disregard of the probable consequences. If the harm results from an omission, the omission must be intentional, and the actor must either know the omission will result in damage or the circumstances surrounding the failure to act must allow an implication of a reckless disregard of the probable consequences.”

The Court found the BP company man “likely knew of facts . . . that would have led a reasonable company man in the industry to realize that deeming the negative pressure test ‘successful’ and displacing mud from the well would probably result in physical injuries, death, and severe property damage.” The Court further found that after speaking with the BP shore side engineer, the company man “absolutely knew of facts that would lead a reasonable company man to believe that not stopping the displacement and conducting a new test would probably result in physical injuries, death and severe property damage. However, did not stop the displacement; instead, he affirmatively ordered the displacement resume.” Additionally, the BP shore side engineer was found to have clearly understood the danger associated with misinterpreting the test, such that “his failure to investigate, particularly given the ease with which he could have done so, similarly amounts to recklessness.” As a result, the Court found both BP engineers to have acted recklessly with respect to the negative pressure test, which satisfied both parties’ definitions of willful misconduct.

The Court also noted that while a single act may qualify as gross negligence or willful misconduct, a series of negligent acts may also qualify. As an additional and alternative basis for finding both gross negligence and willful misconduct, the Court pointed to eight negligent acts of BP, three of which were noted to be profit-driven decisions, as the series of acts, which when taken together, “evince an extreme deviation from the standard of care and a conscious disregard of known risks,” qualifying as gross negligence and willful misconduct.

BP argued that in order for CWA penalties to be imputed to BP, the gross negligence or willful misconduct must be imputed to BP management, through proof of authorization or ratification, rather than being acts of their employees. In other words, BP argued the CWA does not assess penalties on a company for its vicarious liability for acts of its workers. The Court noted the history of the CWA, which earlier did require such proof, but further noted that when OPA rewrote the CWA penalty provision, Congress specifically removed the “privity and knowledge” requirement, requiring the conclusion that, “a corporation is vicariously liable under the CWA’s enhanced penalty provision for the gross negligence and/or willful misconduct of its employees.” The degree of culpability of BP under the CWA impacts the maximum penalty per barrel BP will face once the number of barrels released has been determined (this decision remains pending as part of the Phase Two trial, held from September 30, 2013 through October 18, 2013).

The Court next addressed the comparative fault of the three parties under general maritime law and whether any of them could be liable for punitive damages under general maritime law. The Court incorporated its earlier finding that BP’s conduct was reckless under the CWA, even though the standard may be somewhat different under general maritime law. By reference, the Court appears to have adopted the definition set forth in Exxon Shipping Co. v. Baker, 554 U.S. 471, 482-84 (2008), which is as follows, “Recklessness may consist of either of two different types of conduct. In one, the actor knows, or has reason to know. . . of facts which create a high degree of risk . . . of harm to another, and deliberately proceeds to act, or to fail to act, in conscious disregard of, or indifference to, that risk. In the other, the actor has such knowledge, or reason to know, of the facts, but does not realize or appreciate the high degree of risk involved, although a reasonable man in his position would do so.” The Court then found both Transocean and Halliburton to have been negligent, and assessed the comparative fault as follows: BP: 67%; Transocean: 30%; Halliburton: 3%.

The Court further found the conduct of BP was “egregious enough that exemplary or punitive damages would be appropriate.” Nevertheless, unlike the CWA, the Court noted that in the United States Fifth Circuit, the maritime rule is that “operational recklessness or disregard is generally insufficient to visit punitive damages upon the employer. Rather, the conduct must emanate from corporate policy or that a corporate official with policy-making authority participated in, approved of, or subsequently ratified the egregious conduct.” As the BP company man and the shore based BP engineer were not policy-making officials and as the reckless conduct did not emanate from corporate policy, the Court held BP could not be held liable for punitive damages under general maritime law in the Fifth Circuit. The Court did note that should it be determined that general maritime law as interpreted by the First or Ninth Circuits is applicable, as the Ninth Circuit requires only that the conduct be done by employees in a managerial capacity, which both engineers were, and as the First Circuit require this plus some level of corporate culpability, which he found in existence, punitive damages would be appropriate. Finally, the Court noted that even if punitive damages were appropriate, only commercial fishermen and those who could satisfy the threshold Robins Dry Dock rule would be entitled to such recovery.

The Court reminded that in light of his findings, the contractual indemnities and releases in favor of Transocean and Halliburton in their contracts with BP are fully enforceable.

The Court determined that Transocean was not entitled to limit its liability, as they were unable to establish lack of privity or knowledge, which in this context “is judged not only by what the corporation’s managing officers actually knew, but also by what they should have known with respect to conditions or actions likely to cause the loss.” The Court had earlier identified several errors made by the Transocean crew which were attributed to lack of training, noted faulty procedures agreed by management, and maintenance failures which involved Transocean management and were sufficient to establish privity or knowledge. The Court also noted that Limitation of Liability does not apply to oil spill claims under OPA.

The Court also reversed an earlier ruling which had determined the OPA limits of liability did not apply based on violation of two federal regulations. As the Court noted it had a far better understanding of the importance of cementing in offshore wells than when the original decision was made, the Court ruled BP did violate 30 C.F.R. § 250.420(a)(2), which requires the casing and cementing of all wells to prevent the direct or indirect release of fluids from any stratum through the wellbore into offshore waters.

The Court also noted it has previously ruled Transocean was not a responsible party with respect to the discharge of subsurface oil and therefore was not liable for removal costs or damages under OPA’s general liability provisions, while noting Transocean might be liable as an owner or operator of an “Outer Continental Shelf facility” to government entities for removal costs. After discussing the statute and legislative history, the Court held that Transocean was an operator under 33 U.S.C. § 2704(c), but then noted this liability is shifted to BP through their contract.

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