Handout for Presentation: In the Wake of the BP Deepwater Horizon Disaster

I. Wh at Happened? Handout for Presentation: In the Wake of the BP Deepwater Horizon Disaster Facts A. April 20, 2010 Deepwater Horizon oil rig explodes in Gulf of Mexico 1. Kills 11 platform workers 2. Happened during the course of cementing work B. April 22 Deepwater Horizon sinks and well begins leaking oil and gas 1. As rig sinks, it breaks off the riser pipe carrying oil to the surface from the seafloor, leaving the pipe leaking oil from several places 2. Blowout preventer (BOP) fails to activate and seal wellhead (located 1 mile below surface) well begins spewing oil into Gulf C. April 22 to July 15 well leaks average 53,000 barrels of crude oil per day D. May 2 NOAA issues fishing bans on commercial and recreational fishing E. Starting June 1 oil washes up on Alabama beaches, oyster beds and fisheries closed, swimming advisories issued II. BP s Response A. Attempt to Stop Leak 1. May 2 begin drilling relief wells ( bottom/static kill ) estimated to take 3 months 2. May 6 BP lowers 100 ton containment dome over largest leak to siphon oil fails because cold water at this depth combined with gas from leak and created crystals, blocking opening at top of dome 3. May 16 inserts tube into leaking riser which diverts some oil to the surface 4. May 27 top kill approach pumps heavy drilling fluids into BOP fails 5. June 3 BP removed damaged riser tube from to p of BOP and covered pipe with cap connected to a riser to capture oil arguably increased leak 6. June 16 second containment system connected directly to BOP to siphon oil to vessel on surface 7. July 10 containment cap replaced with better fitting cap 8. *July 15 BP shut off pipes funneling oil to surface, signaling stoppage of leak 9. Aug. 4 static kill cementing procedure performed at well still not permanently sealed 10. Sept. 16 drilling of relief wells completed (after being delayed by storms in Gulf) new BOP to be installed on well before bottom kill procedure performed 11. Sept. 19 bottom kill performed well permanently sealed Steve McKinney, Chair Environmental & Natural Resources Section Telephone: (205) 226 3496 Fax: (205) 488 5814 smckinney@balch.com www.balch.com

B. Efforts to Contain Oil 1. Containment booms deployed 2. Controlled burning of oil 3. Chemical dispersants used to accelerate dispersal process may have significant side effects (causing health problems with clean up workers, killing sea life) 4. Skimmers eventually used (Jones Act myth ) III. Current Status A. Leak stopped July 15, 2010 B. Largest marine oil spill in history of petroleum industry C. Well leaked an estimated total of 4.9 million barrels of crude oil over 87 day period D. Oil seems to have disappeared faster than expected, though much may remain below the surface and/or has been carried away with ocean currents some oil removed by burning, skimming, clean up efforts, evaporation, winds from storms breaking it up, oil eating microbes in Gulf, and natural breakdown IV. Damages/Consequences A. Environmental damage marshlands, sensitive coastal areas and species within them (including several endangered species) are threatened by oil and chemicals in dispersants. Most concerned about the oyster beds, sea grass, and marshes. Short term environmental damages not as bad as expected, but long term effects unknown B. Economic damages biggest impact from oil spill was on the coastal economies from lost tourism and cancelled trips to the beach C. Gulf s fishing/harvesting/processing industry suffering D. Gulf s seafood industry suffering (oil in food chain, stigma associated with Gulf seafood) E. Although there is technically little crude oil left in Gulf, lots of carbon still remains (either in the form of bacterial build up or on the sea floor), and the effects are unknown I. Oil Pollution Act of 1990 (OPA) Legal Background A. Passed in response to rising public concern following the Exxon Valdez oil spill disaster off the coast of Alaska in 1989, OPA improved the nation s ability to prevent and respond to oil spills by establishing provisions that provide the money and resources necessary for the federal government to respond to and mitigate the damages from oil spills. 33 U.S.C. 2701 to 2762. B. OPA created the national Oil Spill Liability Trust Fund (the Fund), which is funded by a tax on the industry and is available to provide up to $ 1 billion per spill incident. 29 U.S.C. 9509. However, the Fund is a back up source of funding for oil spills. C. Under OPA, designated responsible parties (RP) must pay for damages caused by a spill. 33 U. S.C. 2705. 1. For offshore facilities, the RP is the lessee or permittee of the area in which facility is located or holder of right of use and easement granted under applicable State law or the Outer Continental Shelf Lands Act (43 U.S.C. 1301 1356). Id. 2701(32). 2

2. The US Coast Guard (USCG) administers OPA through its National Pollution Funds Center and has issued detailed regulations for filing, processing, settling, and adjudicating claims on the Fund. See 33 C.F.R. Part 136. USCG has officially designated BP and Transocean as RPs (letters sent to RPs on April 28, 2010). a. BP (as owner/operator of well and holder of lease from Minerals Management Service) accepted responsibility. b. Transocean (owner of Deepwater Horizon) denied it (May 3 letter to USCG). c. Pursuant to OPA, BP was required to establish and administer a claims process for impacted individuals and businesses. 33 U.S.C. 2714(b). d. Claims made against RPs are limited to $75 million for each incident unless gross negligence, willful misconduct, or a violation of a federal safety, construction or operating standard is found. Id. 2704(c)(1). e. On October 18, 2010, BP confirmed in a court filing that it would waive the statutory limitation on liability, but denied that it was grossly negligent. 3. Other Potentially Responsible Parties: a. Halliburton involved in cementing operations b. c. Cameron International manufacturer of BOP that failed to activate Anadarko Petroleum Corp. 25% interest in Macondo well d. Mitsui Oil Exploration Co. 10% interest in well e. M I, LLC supplied the drilling fluid for cementing operations D. What Types of Recovery are Available? 1. Removal Costs anyone who helped clean up the spill (including States, local governments, and Indian tribes) can recover these costs. 33 U.S.C. 2702(a). 2. Natural Resource Damages the United States, individual States, Indian tribes, and foreign trustees can recover damages for injury to or destr uction of natural resources, including the costs of assessing the damages. Id. 2702(b)(2). 3. Real or Personal Property Damages the owner or lessee of real or personal property can recover damages for injury to their property or economic losses from the destruction of such property. Id. 4. Profits and Earning Capacity any person can recover damages for the loss of profits or earning capacity due to the injury or destruction of real or personal property or natural resources. Id. 5. Revenues & Public Services States and their political subdivisions can recover lost revenues such as taxes, royalties, rents, and fees, and also costs for providing increased or additional public services during or after removal activities. Id. E. Partial Payments, Interest and the Savings Clauses 1. Under OPA, individuals and businesses with losses or damages that seek immediate payment from an RP or the Fund are not precluded from seeking additional compensation if their losses or damages continue or worsen. Id. 2715(b)(2) (interim payments shall not foreclose a claimant s right to recovery of all damages to which the claimant otherwise is entitled under this Act or under any other law ). 2. If the RP denies or fails to rule on the claim in within 30 days, a later successful claimant may recover interest. Id. 2705(b). 3. There is a 3 year statute of limitations for filing claims. The date the statute of limitations begins to run depends on the type of costs or damages being asserted. Id. 2717(f)(3). 3

4. The savings clauses of OPA provide that states may enact laws establishing liability for oil spills in excess of OPA s liability limits. Id. 2718(a), (c) ( Nothing in this Act or the [Limitation of Liability Act] shall... affect, or be construed or interpreted to affect or modify in any way the obligations or liabilities of any person under... State law, including common law. ); U.S. v. Locke, 529 U.S. 89, 105 (2000) (Court ruled that purpose of savings clauses of OPA 90 is to preserve state laws which establish liability rules and financial requirements relating to oil spills. ); Bouchard Transp. Co., Inc. v. Updegraffe, 147 F.3d 1344, 1347 (11th Cir. 1998) ( OPA 90... explicitly permits states to adopt laws imposing additional liability for oil spills above the liability limits established by OPA 90.... ). F. Natur al Resource Damage Assessment (NRDA) 1. Under OPA, state and federal trustees may recover for injury to, destruction of, loss of, or loss of use of, natural resources, including the reasonable costs of assessing the damage. 33 U.S.C. 2702(b)(2)(A). 2. The measure of natural resource damages is the cost of restoring, rehabilitating, replacing, or acquiring the equivalent of, the damaged natural resource. Id. 2706(d)(1)(A). 3. Trustees are responsible for developing a restoration plan pursuant to OPA s implementing regulations, 15 C.F.R. 990.10 to 66. a. The Trustee Council is meeting monthly to assess damages to the Gulf and to devel op restoration projects. i) The Trustee Council is composed of federal and state designated trustees for Texas, Louisiana, Mississippi, Florida, and Alabama. Federal Trustees include the U.S. Department of Interior [Fish & Wildlife Service, National Park Service, and Bureau of Land Management and Bureau of Indian Affairs], the National Oceanic and Atmospheric Administration, and the U.S. Department of Defense. b. Technical Working Groups (TWGs) are assessing the injuries. c. A programmatic environmental impact statement is being developed for implementation of restoration projects. G. Filin g Claims 1. Before a claimant can sue in court or present a claim to the Fund for damages under OPA, he or she must first file a claim with the RP. 33 U.S.C. 2713(a), (c). 2. If the claim is denied or not settled by the RP within 90 days, then a party can sue or file a claim against the Fund. Id. II. Gulf Coast Claims Facility (GCCF) A. BP agreed to place in escrow $20 billion to fund an independent claims process. B. The GCCF is administered by government appointed pay czar Ken Feinberg. On Aug. 23, the claims process transitioned from BP to the GCCF. C. Feinber g has received lots of criticism for not paying claims fast enough and for the GCCF s lack of transparency. 1. The GCCF has also been accused of misleading the public regarding the process and standards and manipulating claimants towards final settlement D. On Oct. 28, Feinberg announced that oil spill claimants can receive interim payments for three years without waiving their right to sue BP. However, once a final claim settlement is 4

issued by the GCCF, claimants must sign away their rights to sue BP and any other responsible party. E. Claims require lots of documentation, including documentation that doesn t exist for some Gulf businesses that rely on tourism. F. Types of Claims 1. Emergency Claims covering six months of loss were available from August 23 to November 23, 2010. 2. N ow available: a. Final Claim: a one time, lump sum payment for all past, present and future documented damage. A final payment requires the claimant to sign a full release that will prevent the claimant from filing suit against BP or other defendants for claims arising out of the spill. The GCCF will issue payment to claimants within 14 days of receiving the signed release. b. Interim Claim: payments covering past documented damages. No release is required and the claimant can resubmit an additional claim once every quarter as long as additional damage can be documented. Interim payments are available through August 23, 2013. After that time, claims will be received by BP instead of the GCCF. c. Quick Pay Option: a one time quick payment of $5,000 for individuals and $25,000 for businesses who have already received emergency payments or who receive interim payment. No further proof of damage is required, but claimants must sign the same liability release waiver required for final payments. Payments are to be made within two weeks of filing. G. In December, the plaintiff s steering committee (PSC) for the Deepwater Horizon Multidistrict Litigation filed a motion in the U.S. District Court for the Eastern District of Louisiana, requesting that Judge Carl Barbier supervise the GCCF process. See Doc. 912, In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, 2:10 md 2179. 1. The PSC argued that Feinberg and BP were misleading claimants about the independence of the fund, and asked Judge Barbier to order changes to the liability release form. Mississippi, Louisiana, Florida and Alabama expressed support for the motion. a. The PSC asked that only BP be released from liability, that the release be limited to damages asserted or that could have been asserted based on the information available at the time of submission of the final claim, and that claimants retain the right to sue BP for punitive damages and other companies for compensatory and punitive damages. 2. On February 2, 2011, Judge Barbier ruled that Feinberg was not independent fr om BP and that it was misleading for Feinberg to call himself a neutral party in administering the GCCF. a. Judge Barbier ordered Feinberg and all his representatives to clearly disclose their role as acting for and on behalf of BP in fulfilling its statutory obligations... under the Oil Pollution Act of 1990, and to advise claimants that the pro bono attorneys and community representatives retained to assist the GCCF claimants are being paid by BP. b. Judge Barbier also ordered Feinberg to stop giving legal advice to unrepresented claimants and to inform claimants of the existence of the 5

MDL, and their right to consult a lawyer and be added to the many U.S. lawsuits that seek damages independently of the fund. 3. The parties submitted briefs in mid February regarding the liability release issue and the question of whether and how BP as the responsible party is fully complying with the mandates of OPA. H. In late February, oil spill victims in Florida and Louisiana filed suit against BP in their respective state courts to undo agreed settlements or to recover more money. 1. The suits allege negligence and fraud in compensating oil spill victims, and seek economic, compensatory and punitive damages from the GCCF. III. Clean Water Act (CWA) A. Sectio n 311 of the CWA imposes civil penalties on parties responsible for oil spills. 33 U.S.C. 1321(b)(7). 1. Fines range from $1,100 to $4,300 per barrel of spilled oil (depending on degree of negligence). Id. B. Penalties are paid to the Oil Spill Liability Trust Fund and may only be used for certain purpos es (e.g., oil removal, cleanup, research and development). Id. 1321(s). C. States also have environmental enforcement statutes 1. The Alabama Water Pollution Control Act requires any person discharging pollution into state waters to obtain a permit prior to the discharge. ALA. CODE 22 22 9(i)(3). 2. Compensatory and punitive damages are recoverable when the pollution resulted from willful or wanton conduct on the part of the defendant. Id. 22 22 9(m). 3. Penalties can be up to $25,000 per day of violation. Id. 4. State statutes also influence how common law claims are decided. Section 22 22 9(i)(4) of the AWPCA provides that [a]ny and all pollution is a public nuisance. In addition, the Alabama Code includes an oyster statute that gives shore owners riparian rights over oyster cultures that extend out to 600 yards from the shoreline. Id. 9 12 22. This means private owners of coastal lands can bring common law claims for damage to cultured oyster beds adjacent to their property. IV. Multidistrict Litigation (MDL) A. Background 1. Over 350 lawsuits have been filed against BP and others, including Nalco, the company that supplied the dispersants for the cleanup. 2. In early May, BP filed a motion to consolidate all of the oil spill cases before one MDL in Houston and to stay proceedings. The Judicial Panel on Multidistrict Litigation ruled in early August that the MDL will take place in New Orleans (E.D. La.) under Judge Carl Barbier. See In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, 2:10 md 2179. B. Claims 1. OPA 2. Common Law Claimsa. Negligence failure to exercise ordinary care both in the operation of the Deepwater Horizon and in the response to the spill. b. Wantonness reckless indifference to the rights of others. 6

c. Nuisance oil and chemical dispersants have interfered with the use and enjoyment of properties and businesses and have diminished the value of properties and businesses. d. Trespass oil and dispersants have contaminated real and personal property along the coast. e. Strict liability engaging in abnormally dangerous and/or ultrahazardous activities. f. Products liability failure of BOP to activate. g. Pursuant to OPA s savings clauses, punitive damages may be recovered where permitted. 3. State Statutes and State OPAs 4. Federal maritime law a. Many people relied on federal maritime law after the Exxon Valdez spill in 1989 (before OPA was passed). Federal maritime tort law allows for the recovery of punitive damages on top of compensatory damages, but this issue was contested in the Exxon Valdez case. See Exxon Shipping Co. v. Baker, 128 S. Ct. 2605, 2611 (2008). b. Limitation of Liability Act of 1851, 46 U.S.C. 181 196. a. In early May, Transocean filed an action in federal district court in Houston (S.D. Tex.) under the Limitation of Liability Act (LOLA), an old maritime statute that allows vessel owners to limit their liability to the post accident value of the vessel (or $27 million the current value of the sunken Deepwater Horizon oil rig), provided that the accident did not result from the owner s negligence. However, since the passage of OPA, courts have consistently held that LOLA does not apply to claims for damages from oil spills under OPA. See Bouchard Transp., 147 F.3d at 1348. In response to several challenges to Transocean s filing, Transocean later modified its position on June 13, stating it never intended to limit claims under OPA or state statutes. C. Status 1. A plaintiff s steering committee (PSC) was established to coordinat e for all plaintiffs. 2. The parties agreed to group claims into four pleading bundles : (1) personal injury and death; (2) private individuals and business loss claims; (3) public damage claims; and (4) injunctive and regulatory claims. All subsequently added cases shall be assigned to a pleading bundle. 3. Master complaints for each pleading bundle and responses have been filed. 4. Depositions took place in February and March. 5. The first test trial for claims filed under OPA is set for June, 2011. The trial date for the Limitation of Liability trial is set for February, 2012. Judge Barbier reasoned that an early trial o n LOLA would help apportion liability of fault among defendants. 6. A government coordinating counsel has been appointed for federal and state cases. D. Government Actions 1. Alabama filed suit in August. The complaint asserts common law and OPA causes of action. It will likely be amended to include state enforcement claims under the Alabama Water Pollution Control Act and possible others. 7

2. The United States filed suit in December, seeking declaratory judgment on liability and CWA civil penalties. 3. Louisiana filed a civil penalty action in March. V. Restoration Commissions/Reports A. Mabus Report 1. At the request of President Obama, Secretary of the Navy Ray Mabus, who heads up the federal government s recovery efforts in the Gulf Coast region, examined the next steps for recovery in the Gulf Coast. 2. On Sept. 28, Mabus released his report, which includes a proposal to dedicate CWA civil penalties to the Gulf Coast states, rather than the Fund (as is required under the CWA, 33 U.S.C. 1321(s)). In addition, the Mabus report calls for the development of an intergovernmental Gulf Coast task force, and coordinated recovery efforts that focus on the environment, the economy, and health and human services. B. The Gulf Coast Ecosystem Restoration Task Force 1. Formed by President Obama on October 5, 2010. 2. The role of the Task Force, which is headed by Environmental Protection Agency Administrator Lisa Jackson, is to lead the national transition from emergency response to coastal recovery. C. The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling 1. Formed by President Obama on May 21, 2010 in order to investigate the root causes of the DH explosion and to develop options to prevent and mitigate a future spill. 2. Key areas of inquiry for the Commission included: the Macondo well explosion and drilling safety; the roll of offshore oil drilling in domestic energy policy; regulatory oversight of offshore drilling; oil spill response; spill impacts and assessment; and restoration approaches and options. 3. The commission is co chaired by former EPA Administrator William K. Reilly and Senator Bob Graham. 4. The final report on the Commission s findings was presented to President Obama on January 12, 2011. D. The Deepwater Horizon Accident Investigation Report 1. Released by BP on September 7. 2. Report concludes that the accident was caused by a complex and interlinked series of mechanical, engineering, operational, and human failures by multiple companies VI. Congressional Oversight ommittees A. Several different Congressional c have held hearings with BP and other RPs regarding the oil spill incident. B. Documents released by Congress in June from BP s internal investigation show BP chose riskier procedures to save time and money (among documents is an email from a BP engineer describing the Macondo well as a nightmare well ). C. Numerous bills have been introduced in response to the spill. 8

D. Congress must pass CWA civil penalty legislation to reallocate the CWA civil penalty money fairly among the Gulf Coast states (Alabama, Florida, Mississippi, Louisiana and Texas). The legislation should state that the money can be use for the environmental and economic recovery purposes. Transocean NOAA s DH/BP ~Useful Websites~ Deepwater Horizon Response Website: http://www.restorethegulf.gov/ Environmental Protection Agency: http://www.epa.gov/bpspill/ Oil Spill News: http://www.al.com/news/gulf oil spill/ BP Gulf of Mexico Response: http://www.bp.com/sectionbodycopy.do?categoryid=41&contentid=7067505 DisasterAssistance.gov Deepwater BP Oil Spill: http://www.disasterassistance.gov/disasterinformation/deepwater.html Response Home: http://www.deepwater.com/fw/main/response Home 910.html The White House: http://www.whitehouse.gov/search/site/bp%20oil Oil Spill Response: http://response.restoration.noaa.gov/dwh.php? entry_id=809 Gulf Coast Claims Facility: http://www.gulfcoastclaimsfacility.com/ ~Links to Key Statutes and Regulations~ OPA: http://frwebgate.access.gpo.gov/cgi bin/usc.cgi?action=browse&title=33u SCC40 15 CFR Part 990: NRDA: http://law.justia.com/cfr/title15/15 3.1.2.5.20.html NOAA s Damage Assessment Program Guidance: http://www.darrp.noaa.g ov/library/1_d.html Clean Water Act: http://epw.senate.gov/water.pdf 9

Appendices NRDA: DOI s Notice of Intent to Conduct Restoration Planning, 75 Fed. Reg. 60800 (Oct. 1, 2010) DOI s Notice of Intent to Begin Restoration Scoping and Prepare a Programmatic Environmental Impact Statement (PEIS), 76 Fed. Reg. 9327 (Feb. 17, 2011) GCCF: Protocol for Interim and Final Claims Release Form Program Statistics (as of March 23, 2011) Litigation: US DOJ Lawsuit Judge Barbier s Order re Plaintiff Steering Committee s Motion for Supervision of GCCF Recovery/Restoration Commissions: President Obama s Executive Order Establishing Gulf Coast Ecosystem Restoration Task Force President Obama s Executive Order Establishing National Commission on DH Oil Spill and Offshore Drilling 10