The Donovan Law Group

Oil Spill Settlements, Especially the BP Oil Spill Settlement, Are Wrong For America!

The BP Oil Spill Settlement Is Wrong For America!

By

Brian J. Donovan

Tampa, FL (March 31, 2014) – Oil spill settlements, especially the BP oil spill settlement, are wrong for America!

The BP Oil Spill Multidistrict Litigation (“MDL 2179”) officially started on August 10, 2010. The Transfer Order issued on that date by the United States Judicial Panel on Multidistrict Litigation (“JPML”) clearly states: “…. Centralization may also facilitate closer coordination with Kenneth Feinberg’s administration of the BP compensation fund.” From the very beginning, the purpose of MDL 2179 was to replace democratic adversarial litigation with a fund approach to compensating victims of the BP oil spill. The vast majority of BP oil spill victims would never have their day in court. Judicial economy, rather than justice, was the primary objective.

The fund approach to resolving mass claims, i.e., those claims resulting from the BP oil spill incident, ought to be viewed with a significant degree of concern. The precedent established by the JPML and the MDL 2179 Court is clear: A “Responsible Party” under the Oil Pollution Act of 1990 (“OPA 90”) may now enter into a contract with a politically well-connected third party “Claims Administrator,” i.e., Kenneth R. Feinberg and Feinberg Rozen, LLP, d/b/a Gulf Coast Claims Facility (“GCCF”). This third party “Administrator / Straw Person,” directly and excessively compensated by the party responsible for the oil spill incident, may totally disregard OPA 90, operate the claims process of the responsible party as fraudulently and negligently as it desires for the sole purpose of limiting the liability of, and providing closure to, the responsible party, and the third party “Administrator / Straw Person” shall never be held accountable for its tortious acts.

The operation of the GCCF has allowed BP to control, manage, and settle its liabilities on highly preferential terms; has permitted members of the MDL 2179 Plaintiffs’ Steering Committee, who are directly appointed by Judge Barbier, to be excessively compensated for merely negotiating a collusive settlement agreement; and has enabled judges to clear their dockets of large numbers of cases. In sum, fund approaches to resolving massive liabilities shift power over claims resolution entirely into the hands of self-interested parties and largely evade judicial scrutiny and oversight.

Judicial economy is undoubtedly well-served by MDL consolidation when scores of similar cases are pending in the courts. Nevertheless, the excessive delay and marginalization of juror fact finding (i.e., dearth of jury trials) associated with traditional MDL practice are developments that cannot be defended. The appropriate focus for fund resolution of mass claims should be justice for the claimants, not merely judicial economy and closure for the corporate misfeasor.

In sum, the major oil companies own Congress and the federal judicial system.

However, we can change that in regard to catastrophic oil spills by demanding that Congress holds responsible parties accountable. Proper enforcement of the Oil Pollution Act of 1990 and the Oil Spill Liability Trust Fund (“OSLTF”) will eliminate the need for costly and protracted litigation.

Demand that Congress requires responsible parties to pay the full costs and damages resulting from an oil spill incident by defining the term “expenditure,” under the OSLTF, as “an expenditure that is not reimbursed by the responsible party.”

Spread the word and sign the petition: The Intended Purpose of the OSLTF Is to Fully Compensate Oil Spill Victims via Subrogation

Tagged with:

BP Oil Spill Victims: Kenneth Feinberg Should Not be the Sole Focus of Anger

BP Oil Spill Victims: Kenneth Feinberg Should Not be the Sole Focus of Anger

By Brian J. Donovan

December 30, 2010

The Gulf Coast Claims Facility (GCCF) was meant to replace the inefficient claims process which BP had established to fulfill its obligations as a responsible party pursuant to the Oil Pollution Act of 1990 (OPA). BP and the Obama administration agreed to appoint Kenneth Feinberg, a Washington lawyer and Democratic Party supporter who administered the claims process for victims of 9/11, to run the allegedly independent GCCF. Unfortunately, in lieu of ensuring that BP oil spill victims are made whole, the primary goal of GCCF and Feinberg is the limitation of BP’s liability via the systematic postponement, reduction and denial of claims against BP.

Feinberg has been both admired and vilified as the administrator of GCCF. An article in the January issue of the ABA Journal refers to Feinberg as a “Master of Disasters.” Conversely, on December 21, 2010, members of the plaintiffs’ bar filed a Motion in federal court asking Judge Carl J. Barbier to intervene and ensure Feinberg’s comments to GCCF claimants who may be able to sue “are neither confusing nor misleading.” The Motion also questions Feinberg’s independence from BP.

Feinberg is neither a “Master of Disasters” nor the personification of evil. “Administrator” Feinberg is merely a defense attorney zealously advocating on behalf of his client BP.

Anger can be wasted energy which overwhelms and debilitates victims. However, anger, properly channeled, can also serve to motivate victims to take action. In the case of the BP oil spill, victims should not focus their anger on Feinberg but should properly channel their anger by focusing on: (a) an administration that ignores the Oil Pollution Act of 1990 and refuses to hold BP accountable; (b) a Congress that introduces unnecessary, and potentially unconstitutional, retroactive legislation in response to the BP oil spill; and (c) a plaintiffs’ bar that values profit over justice.

THE OBAMA ADMINISTRATION

Failure of President Obama to Partially Federalize the BP Oil Spill Incident
“Under OPA, BP, the responsible party, has the primary responsibility to clean up its oil spill” had been repeated, in one form or another, so many times by President Obama that it became the truth. The truth is that President Obama, under OPA, had the primary responsibility to “ensure effective and immediate removal of a discharge, and mitigation or prevention of a substantial threat of a discharge, of oil.”

Simply stated, Section 4201 of OPA provided President Obama with three options:
(1) perform cleanup immediately (“federalize” the spill);
(2) monitor the response efforts of the spiller; or
(3) direct the spiller’s cleanup activities.

Pursuant to OPA Section 4201, and given that the BP oil spill was a “discharge posing substantial threat to public health or welfare,” President Obama should have federalized the collection of the oil that was released into the sea and the restoration of the coastal areas impacted by the oil. Both of these activities could have been done without having to federalize the operational priority of stopping the flow of oil from the well.

The failure of President Obama to partially federalize the BP oil spill incident, allowed BP to:
(a) use an excessive and unprecedented amount of dispersant both on the surface and underwater. This toxic “out-of-sight, out-of-mind” strategy resulted in tiny dispersed droplets of oil sinking or remaining suspended in deep water rather than floating to the surface and collecting in a continuous slick. Rather than being collected, the dispersed oil is now on the seabed, where it is toxic food for microscopic organisms at the bottom of the food chain and will eventually wind up in shellfish and other organisms; and
(b) prohibit independent measurement of the amount of oil being released into the Gulf of Mexico by unbiased third party scientists and engineers. BP, with the full support of the federal government, knowingly and systematically underestimated the size of the gusher to limit the financial impact on the company. Under the Clean Water Act (CWA), BP faces fines of up to $4,300 for each barrel spilled. Furthermore, pursuant to Section 2702 of OPA 90, BP should be required to pay royalties (18.75%) owed to the federal government for the oil gushing from the well.

Negotiation of the Deepwater Horizon Oil Spill Trust
On June 16, 2010, President Obama announced that BP agreed to set aside $20 billion to pay economic damage claims to individuals and businesses affected by the Deepwater Horizon incident. The White House press release stated, “BP will provide assurance for these commitments by setting aside $20 billion in U.S. assets.”

BP created the Deepwater Horizon Oil Spill Trust on August 6, 2010. The Trust Agreement provides, “To secure the payment and performance of its obligations to make the contributions to the Trust hereunder, BP hereby agrees to grant, convey, and/or assign to the Trust first priority perfected security interests in production payments pertaining to BP’s U.S. oil and natural gas production.”

The fact that future production payments pertaining to BP’s U.S. oil and natural gas production, rather than hard U.S. assets, are being used as collateral by BP guarantees BP’s continued long-term operation in the offshore Gulf of Mexico E&P sector. Ironically, the federal government has acquired a vested interest in ensuring the financial well-being of BP.

Given that BP’s financial health and its ability to meet its obligations under GCCF are now tied together, CWA fines and OPA royalty payments for each barrel of oil spilled will most likely be kept to a minimum.

Failure of President Obama to Block BP’s Tax Credit
Adding insult to injury, on July 27, 2010, BP revealed that it is taking a charge of $32.2 billion (and thereby claiming a $9.9 billion tax credit) to reflect the impact of the Gulf of Mexico oil spill, including costs to date of $2.9 billion for the response and a charge of $29.3 billion for future costs, including the funding of the $20 billion escrow fund.

During negotiations with BP in regard to creating the Deepwater Horizon Oil Spill Trust, President Obama failed to even mention that BP should not claim a tax credit. As a result, BP is allowed to substantially offset the amount it is paying to meet its responsibilities for cleanup and compensating victims. In short, President Obama has permitted BP to shift these costs indirectly to U.S. taxpayers.

Failure of President Obama to Fully Utilize the Oil Spill Liability Trust Fund (OSLTF)
During town hall meetings organized to promote GCCF, Feinberg repeatedly tells victims of the BP oil spill, “the litigation route in court will mean uncertainty, years of delay and a big cut for the lawyers.” “I am determined to come up with a system that will be more generous, more beneficial, than if you go and file a lawsuit.” “It is not in your interest to tie up you and the courts in years of uncertain protracted litigation when there is an alternative that has been created,” Feinberg says. He adds, “I take the position, if I don’t find you eligible, no court will find you eligible.” Feinberg and the Obama administration intentionally fail to mention that litigation is not the only alternative to GCCF. A financially viable OSLTF is a better alternative.

Under OPA, claims for damages must be presented first to the responsible party. 33 U.S.C. § 2713(a) In the event that a claim for damages is either denied or not paid by the responsible party within 90 days, the claimant may elect to commence an action in court against the responsible party or to present the claim to OSLTF. 33 U.S.C. § 2713(c)

Although Congress created OSLTF in 1986, Congress did not authorize its use or provide taxing authority to support it until after the Exxon Valdez incident in 1989. OPA, signed into law on August 18, 1990, provided the statutory authorization and funding necessary for OSLTF. The National Pollution Funds Center (NPFC), an administrative agency of USCG, manages OSLTF and acts as the implementing agency of OPA. Since 2003, USCG has operated in the Department of Homeland Security.

A primary purpose of OSLTF is to compensate persons for removal costs and damages resulting from an oil spill incident. In essence, OSLTF is an insurance policy, or backstop, for victims of an oil spill incident who are not fully compensated by the responsible party.

As Representative Lent explained in urging passage of OPA, “The thrust of this legislation is to eliminate, to the extent possible, the need for an injured person to seek recourse through the litigation process.” Prior to OPA, federal funding for oil spill damage recovery was difficult for private parties. To address this issue, Congress established OSLTF under section 9509 of the Internal Revenue Code of 1986 (26 U.S.C. 9509).

OSLTF is currently funded by: a per barrel tax of 8 cents on petroleum products either produced in the United States or imported from other countries, reimbursements from responsible parties for costs of removal and damages, fines and penalties paid pursuant to various statutes, and interest earned on U.S. Treasury investments. On September 30, 2010, the unaudited OSLTF balance was approximately $1.69 billion.

OSLTF: The Issue of Subrogation
Any person, including OSLTF, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law. 33 U.S.C. § 2715(a) Moreover, at the request of the Secretary of the Department of Homeland Security, the Attorney General shall commence an action on behalf of OSLTF  to recover any compensation paid by OSLTF to any claimant pursuant to OPA, and all costs incurred by OSLTF by reason of the claim, including interest (including prejudgment interest), administrative and adjudicative costs, and attorney’s fees. Such an action may be commenced against any responsible party or guarantor, or against any other person who is liable, pursuant to any law, to the compensated claimant or to OSLTF, for the cost or damages for which the compensation was paid. 33 U.S.C. § 2715(c)

CONGRESS

Proposed Retroactive OPA Legislation
The maximum amount which may be paid from OSLTF with respect to any single incident shall not exceed $1 billion. 26 U.S.C. § 9509(c)(2)(A) Furthermore, except in the case of payments of removal costs, a payment may be made from OSLTF only if the amount in OSLTF after such payment will not be less than $30,000,000. 26 U.S.C. § 9509(c)(2)(B)

The cost of this catastrophic BP oil spill will far exceed the current OSLTF per incident expenditure limit. In response, since the BP oil spill disaster of April, 2010, several bills have been introduced in Congress to amend OPA to increase the liability limit of the responsible party and OSLTF’s per incident expenditure limit for oil spills. For example, H.R. 4213, the American Jobs and Closing Tax Loopholes Act, passed by the House on May 28, 2010, includes provisions that would raise the per barrel tax used to fund OSLTF to 34 cents and increases the per incident expenditure limit to $5 billion, including up to $2.5 billion in natural resource damage claims.

An important question is whether this legislation can and should be applied retroactively to the BP oil spill disaster of April, 2010. The constitutional issues that may be raised from retroactive application of this legislation are based on the Ex Post Facto Clause, Substantive Due Process, the Takings Clause, the Bill of Attainder Clause, and the Impairment of Contracts Clause.

OSLTF: The Need to Properly Define “Expenditure”
This is an incident of first impression for OSLTF. The BP oil spill of April 22, 2010, a catastrophic oil spill incident, represents the first time that the viability of OSLTF has been threatened. Federal statutes and relevant regulations neither specifically address such a scenario nor provide authority for further compensation. However, OPA legislative history and statements from OPA drafters indicate that drafters intended OSLTF to cover “catastrophic spills.”

The question is if an expenditure is reimbursed, is it still an expenditure? OSLTF is established under Internal Revenue Code. 26 U.S.C § 9509 Under the Internal Revenue Code, a reimbursed expenditure is not deductible. It is not considered to be an expenditure. Therefore, under OSLTF, why should an expenditure, reimbursed by the responsible party, be defined as an expenditure?

Legislative history and the Internal Revenue Code strongly support the conclusion that, in the case of a catastrophic oil spill, the proper definition of the term “expenditure,” under OSLTF, means “an expenditure that is not reimbursed by the responsible party.”

The advantage of defining an expenditure, under OSLTF, as “an expenditure that is not reimbursed by the responsible party,” is twofold:
(a) It eliminates, without the need to pass retroactive legislation, the $1 billion cap which may be paid from the OSLTF with respect to any single incident and allows OSLTF to maintain a balance of at least $1 billion for the purpose of paying claims for damages resulting from other oil spill incidents. As the OSLTF pool of $1 billion is depleted by payments made to oil spill claimants, it is replenished, by virtue of subrogation, by reimbursements made to OSLTF by the responsible party; and
(b) It ensures that the cost of a catastrophic oil spill incident shall be borne by the responsible party, not the federal taxpayer.

THE PLAINTIFFS’ BAR

Class Action Lawsuits
On December 21, 2010, attorneys representing victims of the BP oil spill of April, 2010 filed a Motion in the United States District Court for the Eastern District of Louisiana requesting Judge Carl J. Barbier to issue an order governing ex parte communication between the BP Defendants and putative class members.

Specifically, the plaintiffs’ attorneys seek to ensure that Feinberg’s communications with putative class members are neither “confusing nor misleading.”

The Motion notes, in part, that “Feinberg has, in various ways, communicated the following messages to both represented parties and putative class members:
• Don’t seek the advice of a lawyer;
• If you litigate, it will take years;
• If you hire a lawyer, he or she will take 40% of your recovery;
• I, and the GCCF, are “independent;”
• We are making “independent” findings or determinations regarding the merits of your claims;
• I will give you more money than you will get (with another lawyer) in litigation; and
• My offer will be based upon the best available independent scientific evidence.”

This Motion filed by the plaintiffs’ attorneys is disingenuous and self-serving. If Feinberg is ordered to ensure that his communications are neither “confusing or misleading,” then the BP plaintiffs’ attorneys should also be ordered to inform their potential clients of the following:

I. A class action lawsuit, brought pursuant to Rule 23 of the Federal Rules of Civil Procedure, was never intended to address mass torts. The Supreme Court observed that, while the text of Rule 23(b)(3) does not preclude certification in cases with significant damages, the drafters “had dominantly in mind” the use of the class action to aggregate relatively small individual recoveries into a case that would be worthwhile for an attorney to litigate. Amchem Products, Inc. v. Windsor, 117 S.Ct. at 2244.

II. Given that the damages suffered by the vast majority of individual potential plaintiffs as a result of the BP oil spill of April, 2010 are potentially so great, it should be economically feasible for many individual plaintiffs to file individual lawsuits. Here, class treatment would not be necessary to permit effective litigation of the claim. An individual lawsuit will: (a) ensure the plaintiff that the plaintiff’s attorney has his or her best interests in mind; (b) protect the plaintiff’s due process rights; (c) ensure that the plaintiff is not a victim of a so-called “faux” class action case, i.e., a case in which individual class members receive little or no compensation and only plaintiffs‘ counsel stand to benefit from class certification; (d) give the plaintiff control over the prosecution of the case; (e) allow the plaintiff to present evidence of exposure, injury, and damages relating to his or her particular claim; and (f) allow the plaintiff to make the decision on whether or when to settle.

III. BP, the responsible party, is a powerful and well-funded defendant, does not lack imagination or incentive to pose innumerable legal barriers, and will aggressively assert its legal rights and otherwise use the law, the courts and the judicial system to serve its interests. BP can afford to stall, and actually benefits from delay, but its victims cannot afford to wait for years to be fully compensated for their losses.

IV. In the event that a claim for damages is either denied or not paid by GCCF within 90 days, the claimant should immediately present the claim to OSLTF prior to commencing an action in court against BP, et al.

CONCLUSION

As of the date of this article, it has been 254 days since the blowout of the BP offshore well in the Gulf of Mexico.

In lieu of ensuring that BP oil spill victims are made whole, the primary goal of GCCF and Feinberg is the limitation of BP’s liability via the systematic postponement, reduction and denial of claims against BP. Victims of the BP oil spill must understand that “Administrator” Feinberg is merely a defense attorney zealously advocating on behalf of his client BP.

Victims of the BP oil spill should not focus their anger on Feinberg but should properly channel their anger by focusing on: (a) an administration that refuses to hold BP accountable and ensure that victims of the BP oil spill are fully compensated via OSLTF; (b) a Congress that introduces unnecessary, and potentially unconstitutional, retroactive legislation in response to the BP oil spill; and (c) a plaintiffs’ bar that values profit over justice.

The question is whether victims of the BP oil spill will have to pay three times: (a) once for the massive BP oil spill, the environmental and economic damages of which will devastate their way of life and leave many in financial ruin; (b) again by being mislead by the Obama administration and undercompensated by GCCF; and (c) a third time for daring to demand justice, which will consume their time, energy and hopes for years to come if they are held hostage by protracted class action or individual lawsuits.

It is the Obama administration’s duty to guarantee the claims process established by BP provides at least the same protections and rights mandated by OPA. The Secretary of DHS is uniquely positioned, and has a duty pursuant to 33 U.S.C. § 2715(c), to ensure that victims of the BP oil spill are: (a) not victimized by BP/GCCF; (b) not forced into joining class action lawsuits by the Plaintiffs’ Bar; and (c) made whole by the OSLTF.

The primary focus of anger for BP oil spill victims should center on the fact that there is no need to be held hostage by GCCF. A victim of the BP oil spill may merely present a claim for damages to BP/GCCF and wait 90 days. If BP/GCCF does not pay the claim, the victim may present the claim to OSLTF. At that point, OSLTF may pay the victim and then the U.S. Attorney General may commence an action on behalf of OSLTF against BP and collect the amount from BP. “Any person, including OSLTF, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law.” Moreover, once “expenditure” is properly defined,  it eliminates, without the need to pass retroactive legislation, the $1 billion cap which may be paid from OSLTF with respect to any single incident. As the OSLTF pool of $1 billion is depleted by payments made to oil spill claimants, it is replenished, by virtue of subrogation, by reimbursements made to OSLTF by the responsible party.

Brian J. Donovan can be reached at BrianJDonovan@verizon.net.

UPDATE

Second Lawsuit Filed Against Kenneth R. Feinberg, Feinberg Rozen, LLP and Gulf Coast Claims Facility

Tagged with: ,

BP Oil Spill: Failure to Act by the Obama Administration and Congress Threatens the Financial Viability of the Oil Spill Liability Trust Fund (OSLTF)

Posted in Feinberg, GCCF, Napolitano, Obama, oil spill, OPA, OSLTF by renergie on December 6, 2010

BP Oil Spill: Failure to Act by the Obama Administration and Congress Threatens the Financial Viability

of the Oil Spill Liability Trust Fund (OSLTF)
_______________________________

Oil Spill Victims are Left with an Uncertain Future

By Brian J. Donovan

December 6, 2010

Although Congress created the OSLTF in 1986, Congress did not authorize its use or provide taxing authority to support it until after the Exxon Valdez incident in 1989. The Oil Pollution Act of 1990 (OPA), signed into law on August 18, 1990, provided the statutory authorization and funding necessary for the OSLTF. The National Pollution Funds Center (NPFC), an administrative agency of the United States Coast Guard (USCG), manages the OSLTF and acts as the implementing agency of OPA. Since 2003, the USCG has operated in the Department of Homeland Security.

A primary purpose of the OSLTF is to compensate persons for removal costs and damages resulting from an oil spill incident. In essence, the OSLTF is an insurance policy, or backstop, for victims of an oil spill incident who are not fully compensated by the responsible party.

OPA established an expenditure cap of $1 billion per oil spill incident. This $1 billion expenditure limit includes $500 million for natural resource damage assessments and claims. Although not allowed to be taken into consideration by the NPFC, $1 billion today does not have the same value as it did in 1990, when OPA was enacted. If the $1 billion amount had been adjusted for inflation, it would be approximately $1.6 billion in today’s dollars. Coincidentally, on September 30, 2010, the unaudited OSLTF balance was approximately $1.69 billion.

To date, NPFC has billed the responsible party for the BP oil spill $581 million for response activities performed by nine federal government agencies and various state government agencies. As of October 12, 2010, BP has paid NPFC $518.4 million.

Victims of the BP oil spill are at risk as a result of the cap. The cap is for total expenditures. This $1 billion expenditure limit applies even if the OSLTF is fully reimbursed by the responsible party and net expenditures are zero. The OSLTF will very likely reach the $1 billion per incident cap on total expenditures in the near future.

The advantage of defining an expenditure, under the OSLTF, as “an expenditure that is not reimbursed by the responsible party,” is twofold:
(a) It eliminates, without the need to pass retroactive legislation, the $1 billion cap which may be paid from the OSLTF with respect to any single incident and allows the OSLTF to maintain a balance of at least $1 billion for the purpose of paying claims for damages resulting from other oil spill incidents. As the OSLTF pool of $1 billion is depleted by payments made to oil spill claimants, it is replenished, by virtue of subrogation, by reimbursements made to the OSLTF by the responsible party; and
(b) It ensures that the cost of a catastrophic oil spill incident shall be borne by the responsible party, not the federal taxpayer.

On November 27, 2010, The Donovan Law Group sent a letter to the Honorable Janet Napolitano, Secretary of the Department of Homeland Security, explaining the need to  properly define the term “expenditure” under the OSLTF.

The full text of the letter follows. Links have been added for clarification.

November 27, 2010

VIA CERTIFIED MAIL
RETURN RECEIPT REQUESTED

The Honorable Janet Napolitano
Office of the Secretary
Department of Homeland Security
245 Murray Lane, SW
Washington, DC 20528

Re: BP Oil Spill – The Need to Properly Define “Expenditure”
Under the Oil Spill Liability Trust Fund (OSLTF)

Dear Secretary Napolitano:

I am writing in regard to the need to properly define the term “expenditure” under the OSLTF. Under the OSLTF, expenditure should mean “an expenditure that is not reimbursed by the responsible party.” Defining the term in any other manner ignores the legislative intent of Congress and the Internal Revenue Code.

The question is whether victims of the BP oil spill of April 22, 2010 will have to pay three times: (a) once for the oil spill, the environmental and economic damages of which will devastate their way of life and leave many in financial ruin; (b) again by being mislead and undercompensated by GCCF; and (c) a third time for daring to demand justice, which will consume their time, energy and hopes for years to come if they are held hostage by protracted individual lawsuits or class action lawsuits.

The damages suffered by victims of the BP oil spill incident of April 22, 2010 will be enormous and on-going. The livelihoods of all persons whose businesses rely on the natural resources of the Gulf Coast are at risk. Commercial fishermen, oyster harvesters, shrimpers, and  businesses involved, directly or indirectly, in processing and packaging for the seafood industry will experience the end of a way of life that, in many cases, has been passed down from one generation to the next.

BP and Oxford Economics estimate the total cost to clean up this unprecedented spill to be in the tens of billions of dollars. On November 2, 2010, BP raised its estimated cost of cleaning up the Macondo oil spill incident to $40 billion. Other independent third party estimates range between $60 billion and $90 billion.

Secretary Janet Napolitano
November 27, 2010
Page 2

How will victims of this unprecedented oil spill be fully compensated for their losses? Theoretically, there are three potential avenues of compensation which victims of this oil spill may pursue to be made whole: (a) the Gulf Coast Claims Facility (GCCF); (b) litigation; and (c) the Oil Spill Liability Trust Fund (OSLTF).

GULF COAST CLAIMS FACILITY (GCCF)

GCCF was meant to replace the inefficient claims process which BP had established to fulfill its obligations as a responsible party pursuant to the Oil Pollution Act of 1990 (OPA). It was not the legislative intent of Congress for OPA to limit an oil spill victim’s right to seek full compensation from the responsible party. BP and Kenneth Feinberg, the GCCF claims administrator, allege that GCCF (and the protocols under which it operates) are structured to be compliant with OPA. However, as explained in my letter, dated October 18, 2010 and received by your office on October 25, 2010, GCCF is in violation of OPA. In lieu of ensuring that oil spill victims are made whole, GCCF’s primary goal appears to be the limitation of BP’s liability via the systematic postponement, reduction or denial of claims against BP.

LITIGATION

Kenneth Feinberg uses the fear of costly and protracted litigation to coerce victims of the BP oil spill to accept grossly inadequate settlements from GCCF. During town hall meetings organized to promote GCCF, Feinberg repeatedly tells victims of the BP oil spill, “the litigation route in court will mean uncertainty, years of delay and a big cut for the lawyers.” “I am determined to come up with a system that will be more generous, more beneficial, than if you go and file a lawsuit.” “It is not in your interest to tie up you and the courts in years of uncertain protracted litigation when there is an alternative that has been created,” Feinberg says. He adds, “I take the position, if I don’t find you eligible, no court will find you eligible.” Mr. Feinberg intentionally fails to mention that litigation is not the only alternative to GCCF.

BP, the responsible party, is a powerful and well-funded defendant, does not lack imagination or incentive to pose innumerable legal barriers, and will aggressively assert its legal rights and otherwise use the law, the courts and the judicial system to serve its interests. BP can afford to stall, and actually benefits from delay, but its victims cannot afford to wait for years to be fully compensated for their losses.

Secretary Janet Napolitano
November 27, 2010
Page 3

OIL SPILL LIABILITY TRUST FUND (OSLTF)

As Representative Lent explained in urging passage of OPA, “The thrust of this legislation is to eliminate, to the extent possible, the need for an injured person to seek recourse through the litigation process.” See 135 Cong. Rec. H7962 (daily ed. Nov. 2, 1989) Prior to OPA, federal funding for oil spill damage recovery was difficult for private parties. To address this issue, Congress established the OSLTF under section 9509 of the Internal Revenue Code of 1986 (26 U.S.C. 9509).

The OSLTF is currently funded by: a per barrel tax of 8 cents on petroleum products either produced in the United States or imported from other countries, reimbursements from responsible parties for costs of removal and damages, fines and penalties paid pursuant to various statutes, and interest earned on U.S. Treasury investments. On September 30, 2010, the unaudited OSLTF balance was approximately $1.69 billion.

Under OPA, claims for damages must be presented first to the responsible party. 33 U.S.C. § 2713(a) In the event that a claim for damages is either denied or not paid by the responsible party within 90 days, the claimant may elect to commence an action in court against the responsible party or to present the claim to the OSLTF. 33 U.S.C. § 2713(c)

 

Expenditure
The maximum amount which may be paid from the OSLTF with respect to any single incident shall not exceed $1 billion. 26 U.S.C. § 9509(c)(2)(A) Furthermore, except in the case of payments of removal costs, a payment may be made from the OSLTF only if the amount in the OSLTF after such payment will not be less than $30,000,000. 26 U.S.C. § 9509(c)(2)(B)

This is an incident of first impression for the OSLTF. The BP oil spill of April 22, 2010, a catastrophic oil spill incident, represents the first time that the viability of the OSLTF has been threatened. Federal statutes and relevant regulations neither specifically address such a scenario nor provide authority for further compensation. However, OPA legislative history and statements from OPA drafters indicate that drafters intended the OSLTF to cover “catastrophic spills.” See U.S. Congress, House Committee on Merchant Marine and Fisheries, Report accompanying H.R. 1465, Oil Pollution Prevention, Removal, Liability, and Compensation Act of 1989, 1989, H.Rept. 101-242, Part 2, 101st Cong., 1st sess., p. 36

If an expenditure is reimbursed, is it still an expenditure? The OSLTF is established under Internal Revenue Code. 26 U.S.C § 9509 Under the Internal Revenue Code, a reimbursed expenditure is not deductible. It is not considered to be an expenditure. Therefore, under the OSLTF, why should an expenditure, reimbursed by the responsible party, be defined as an expenditure?

Secretary Janet Napolitano
November 27, 2010
Page 4

Legislative history and the Internal Revenue Code strongly support the conclusion that, in the case of a catastrophic oil spill, the proper definition of the term “expenditure,” under the OSLTF, means “an expenditure that is not reimbursed by the responsible party.”

 

Subrogation
Any person, including the OSLTF, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law. 33 U.S.C. § 2715(a)

Moreover, at the request of the Secretary, the Attorney General shall commence an action on behalf of the OSLTF to recover any compensation paid by the OSLTF to any claimant pursuant to OPA, and all costs incurred by the OSLTF by reason of the claim, including interest (including prejudgment interest), administrative and adjudicative costs, and attorney’s fees. Such an action may be commenced against any responsible party or guarantor, or against any other person who is liable, pursuant to any law, to the compensated claimant or to the OSLTF, for the cost or damages for which the compensation was paid. 33 U.S.C. § 2715(c) Thus, a responsible party may ultimately pay a claim that was initially denied, or not addressed for more than 90 days, by the responsible party.

 

Proposed Retroactive OPA Legislation
The cost of this catastrophic BP oil spill will far exceed the current OSLTF per incident expenditure limit. In response, since the BP oil spill disaster of April, 2010, bills have been introduced to amend OPA to increase the liability limit of the responsible party and the OSLTF’s per incident expenditure limit for oil spills. For example, H.R. 4213, the American Jobs and Closing Tax Loopholes Act, passed by the House on May 28, 2010, includes provisions that would raise the per barrel tax used to fund the OSLTF to 34 cents and increases the per incident expenditure limit to $5 billion, including up to $2.5 billion in natural resource damage claims.

An important question is whether this legislation can and should be applied retroactively to the BP oil spill disaster of April, 2010. The constitutional issues that may be raised from retroactive application of this legislation are based on the Ex Post Facto Clause, Substantive Due Process, the Takings Clause, the Bill of Attainder Clause, and the Impairment of Contracts Clause.

Secretary Janet Napolitano
November 27, 2010
Page 5

CONCLUSION

The advantage of defining an expenditure, under the OSLTF, as “an expenditure that is not reimbursed by the responsible party,” is twofold:
(a) It eliminates, without the need to pass retroactive legislation, the $1 billion cap which may be paid from the OSLTF with respect to any single incident and allows the OSLTF to maintain a balance of at least $1 billion for the purpose of paying claims for damages resulting from other oil spill incidents. As the OSLTF pool of $1 billion is depleted by payments made to oil spill claimants, it is replenished, by virtue of subrogation, by reimbursements made to the OSLTF by the responsible party; and
(b) It ensures that the cost of a catastrophic oil spill incident shall be borne by the responsible party, not the federal taxpayer.

Thank you for your prompt attention to this issue. If you have any questions, please do not hesitate to contact me at 352-328-7469 or via e-mail at BrianJDonovan@verizon.net.
Very truly yours,

Brian J. Donovan
BJD/rc

cc:   The Honorable Edward J. Markey           The Honorable Daniel K. Inouye
The Honorable James L. Oberstar           The Honorable Barbara Boxer
The Honorable Elijah E. Cummings         The Honorable Joseph I. Lieberman
The Honorable Corrine Brown                  The Honorable Troy King
The Honorable Anh “Joseph” Cao            The Honorable David R. Obey
The Honorable John Conyers, Jr.             The Honorable Henry A. Waxman
The Honorable John L. Mica                     The Honorable Bennie G. Thompson
The Honorable Jeff Bingaman                  The Honorable Nick J. Rahall, II
The Honorable Bill Nelson                          The Honorable Charles W. Boustany, Jr.
The Honorable Bobby Jindal                     The Honorable Eric H. Holder, Jr.

BP Oil Spill Victims: Gulf Coast Claims Facility, Litigation or Oil Spill Liability Trust Fund?

BP Oil Spill Victims: Gulf Coast Claims Facility, Litigation or Oil Spill Liability Trust Fund?

By Brian J. Donovan

November 3, 2010

INTRODUCTION

During town hall meetings organized to promote the Gulf Coast Claims Facility (GCCF), Kenneth Feinberg repeatedly tells victims of the BP oil spill, “the litigation route in court will mean uncertainty, years of delay and a big cut for the lawyers.” “I am determined to come up with a system that will be more generous, more beneficial, than if you go and file a lawsuit.” “It is not in your interest to tie up you and the courts in years of uncertain protracted litigation when there is an alternative that has been created,” Feinberg says. He adds, “I take the position, if I don’t find you eligible, no court will find you eligible.” Mr. Feinberg intentionally fails to mention that litigation is not the only alternative to GCCF.

The recently released documentary film Crude Justice, produced by the Alliance for Justice (AFJ), explores the difficulties victims of the BP oil spill will face when seeking access to justice “in the face of corporate domination of the courts, statutes favoring big business, judges with ties to the oil and gas industries, and the uncertainties that accompany an incident where the long-term effects may not be known for years.” According to Nan Aron, the president of the AFJ, victims of the BP oil spill “have two basic paths toward just and fair compensation. On the one hand, a victim can take BP’s offer of short-term help for current losses and then, later, a final payment, one condition of which is that he or she forgoes the right to sue BP in the future. On the other, victims have the right to pursue their claims through the courts, which have the advantage of having rules and procedures that theoretically should level the playing field, but which have the disadvantage of being in a region well stocked with judges who are thoroughly embedded in an oil culture. The route through the courts also takes plaintiffs on a path that leads ultimately to a strongly pro-corporate Supreme Court.” Ms. Aron also fails to mention that litigation is not the only alternative to GCCF.

Contrary to what BP and AFJ would like the American public to believe, GCCF and litigation are not the only avenues of compensation open to BP oil spill victims. A financially viable Oil Spill Liability Trust Fund (the “Fund”) is a third, and probably the best, avenue.

This article briefly discusses: (a) how GCCF, without any legal authority for doing so, circumvents many of the rights provided to oil spill victims under the Oil Pollution Act of 1990 (OPA); (b) why litigation, especially class action litigation, is not in the best interests of victims of the BP oil spill; and (c) why the Fund is probably the best avenue of compensation open to BP oil spill victims.

GULF COAST CLAIMS FACILITY

GCCF was meant to replace the inefficient claims process which BP had established to fulfill its obligations as a responsible party pursuant to OPA. Unfortunately, in lieu of making oil spill victims whole, GCCF’s primary goal appears to be the limitation of BP’s liability via the systematic postponement,  reduction or denial of claims against BP.

It was not the legislative intent of Congress for OPA to limit an oil spill victim’s right to seek full compensation from the responsible party.

BP and Feinberg allege that GCCF (and the protocols under which it operates) are structured to be compliant with OPA. The truth is that GCCF violates OPA, and thereby limits BP’s liability, in the following eight ways:
(a) paying only for harm or damage that is proximately caused by the BP oil spill and taking into account geographic proximity, nature of industry, and dependence upon injured natural resources;
(b) a single six-month emergency advance payment for lost income;
(c) a single final settlement payment;
(d) a limitation that no claim may be submitted to the GCCF “more than three years after the date the Protocol becomes operative;”
(e) an intentionally misleading claims procedure;
(f) failure to provide for interest on the amount paid in satisfaction of a claim;
(g) requirement that the claimant sign a general release of all rights the claimant may have against BP in order to receive the final settlement; and
(h) the intentional and systematic delay of payment of legitimate claims.

LITIGATION

Class Action Lawsuit
Teams of lawyers from across the country have descended on the Gulf Coast to file potential class action lawsuits, brought pursuant to Rule 23 of the Federal Rules of Civil Procedure, to recover damages suffered by plaintiffs and the class members as a result of the oil spill that resulted from the explosion and subsequent sinking of the Deepwater Horizon on April 22, 2010.

A class action lawsuit, brought pursuant to Rule 23 of the Federal Rules of Civil Procedure, was never intended to address mass torts. The Supreme Court observed that, while the text of Rule 23(b)(3) does not preclude certification in cases with significant damages, the drafters “had dominantly in mind” the use of the class action to aggregate relatively small individual recoveries into a case that would be worthwhile for an attorney to litigate. Amchem Products, Inc. v. Windsor, 117 S.Ct. at 2244.

Individual Lawsuit
Given that the damages suffered by the vast majority of individual potential plaintiffs as a result of the BP oil spill of April, 2010 are potentially so great, it should be economically feasible for many individual plaintiffs to file individual lawsuits. Here, class treatment would not be necessary to permit effective litigation of the claim. An individual lawsuit will: (a) ensure the plaintiff that the plaintiff’s attorney has his or her best interests in mind; (b) protect the plaintiff’s due process rights; (c) ensure that the plaintiff is not a victim of a so-called “faux” class action case, i.e., a case in which individual class members receive little or no compensation and only plaintiffs‘ counsel stand to benefit from class certification; (d) give the plaintiff control over the prosecution of the case; (e) allow the plaintiff to present evidence of exposure, injury, and damages relating to his or her particular claim; and (f) allow the plaintiff to make the decision on whether or when to settle.

Victims of the BP oil spill must realize that BP p.l.c., the responsible party, is a powerful and well-funded defendant, does not lack imagination or incentive to pose innumerable legal barriers, and will aggressively assert its legal rights and otherwise use the law, the courts and the judicial system to serve its interests. BP can afford to stall, and actually benefits from delay, but its victims cannot afford to wait for years to be fully compensated for their losses.

OIL SPILL LIABILITY TRUST FUND

The intent of Congress when it enacted OPA was “to eliminate, to the extent possible, the need for an injured person to seek recourse through the litigation process.” Prior to OPA, federal funding for oil spill damage recovery was difficult for private parties. To help address this issue, Congress established the Fund. The Fund, and not BP’s GCCF or costly and protracted litigation, will ensure BP oil spill victims are made whole.

Under OPA, claims for damages must be presented first to the responsible party. 33 U.S.C. § 2713(a) In the event that a claim for damages is either denied or not paid by the responsible party within 90 days, the claimant may elect to commence an action in court against the responsible party or to present the claim to the Fund. 33 U.S.C. § 2713(c)

The maximum amount of money that may be withdrawn from the Fund is $1 billion per incident. 26 U.S.C. § 9509(c)(2)(A) However, any person, including the Fund, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law. 33 U.S.C. § 2715(a)

Moreover, at the request of the Secretary, the Attorney General shall commence an action on behalf of the Fund to recover any compensation paid by the Fund to any claimant pursuant to OPA, and all costs incurred by the Fund by reason of the claim, including interest (including prejudgment interest), administrative and adjudicative costs, and attorney’s fees. Such an action may be commenced against any responsible party or guarantor, or against any other person who is liable, pursuant to any law, to the compensated claimant or to the Fund, for the cost or damages for which the compensation was paid. 33 U.S.C. § 2715(c)

On October 18, 2010, in order to ensure the financial viability of the Fund, The Donovan Law Group sent a letter to the Honorable Janet Napolitano, Secretary of the Department of Homeland Security, asking the Secretary to immediately request the Attorney General, pursuant to 33 U.S.C. § 2715, to commence an action against BP on behalf of the Fund to recover any compensation paid by the Fund to any claimant pursuant to OPA.

CONCLUSION

As of the date of this article, it has been 197 days since the blowout of the BP offshore oil well in the Gulf of Mexico.

The question is whether victims of the BP oil spill will have to pay thrice: (a) once for the  gusher, the environmental and economic damages of which will devastate their way of life and leave many in financial ruin; (b) again by being mislead and undercompensated by GCCF; and (c) a third time for daring to demand justice, which will consume their time, energy and hopes for years to come if they are held hostage by protracted class action or individual lawsuits.

It is the federal government’s duty to guarantee the claims process established by BP provides at least the same protections and rights mandated by OPA. The Secretary of DHS is uniquely positioned, and has a duty pursuant to 33 U.S.C. § 2715(c), to ensure that victims of the BP oil spill are: (a) not victimized by GCCF; (b) not forced into filing unnecessary lawsuits; and (c) made whole by the Fund.
 

About the Author
Brian J. Donovan is an attorney and marine engineer with thirty-five years of international business experience.

Mr. Donovan, a member of The Florida Bar, The U.S. District Court, Middle District of Florida and The United States Court of Appeals for the Eleventh Circuit, holds a J.D. from Syracuse University College of Law (where he was recipient of the “Global Law & Practice Award” as the outstanding graduate in the areas of International Law and International Business Law) and a B.S., with honors, in Marine/Mechanical and Nuclear Engineering from the United States Merchant Marine Academy.

Mr. Donovan, with deep family roots in southern Louisiana, has first-hand knowledge of the catastrophic devastation of the Louisiana Gulf Coast caused by hurricanes Katrina and Rita. He fully appreciates that the damage caused by Katrina and Rita may pale in comparison to the massive and potentially unprecedented environmental and economic impact of the BP oil gusher of April, 2010.

BP Oil Spill: Letter Requests Secretary Napolitano to Take Action

BP Oil Spill: Letter Requests Secretary Napolitano to Take Action
______________________

Gulf Coast Claims Facility and Litigation Are Not the Only
Avenues of Compensation Open to BP Oil Spill Victims

By Brian J. Donovan

October 29, 2010

Contrary to what BP, and the recently released documentary film titled Crude Justice, would like the American public to believe, the Gulf Coast Claims Facility and litigation are not the only avenues of compensation open to BP oil spill victims. A financially viable Oil Spill Liability Trust Fund is a third option.

On October 18, 2010, The Donovan Law Group sent a letter to the Honorable Janet Napolitano, Secretary of the Department of Homeland Security, asking the Secretary to immediately request the Attorney General, pursuant to 33 U.S.C. § 2715, to commence an action against BP on behalf of the Oil Spill Liability Trust Fund (the “Fund”) to recover any compensation paid by the Fund to any claimant pursuant to OPA.

The full text of the letter follows.

October 18, 2010

VIA CERTIFIED MAIL
RETURN RECEIPT REQUESTED

The Honorable Janet Napolitano
Office of the Secretary
Department of Homeland Security
245 Murray Lane, SW
Washington, DC 20528

Re: BP Oil Spill and the Oil Pollution Act of 1990 (OPA)
Subrogation Rights for Payments Made for Damages, 33 U.S.C. § 2715

Dear Secretary Napolitano:

I am writing in regard to the above-referenced matter.

During town hall meetings organized to promote the Gulf Coast Claims Facility (GCCF), Kenneth Feinberg repeatedly tells victims of the BP oil spill, “the litigation route in court will mean uncertainty, years of delay and a big cut for the lawyers.” “I am determined to come up with a system that will be more generous, more beneficial, than if you go and file a lawsuit.” “It is not in your interest to tie up you and the courts in years of uncertain protracted litigation when there is an alternative that has been created,” Feinberg says. He adds, “I take the position, if I don’t find you eligible, no court will find you eligible.” Mr. Feinberg intentionally fails to mention that litigation is not the only alternative to GCCF.

The intent of Congress when it enacted OPA was “to eliminate, to the extent possible, the need for an injured person to seek recourse through the litigation process.” As explained below, I believe the Oil Spill Liability Trust Fund (the “Fund”), and not costly and protracted litigation, will ensure injured persons are fully compensated for damages which they suffered resulting from the oil spill caused by the blowout of the BP offshore oil well on April 20, 2010.

The following briefly discusses: (a) the Fund and subrogation rights under OPA; (b) how GCCF, without any legal authority for doing so, circumvents many of the rights provided to oil spill victims under OPA; and (c) why litigation, especially class action litigation, is not in the best interests of victims of the BP oil spill.

Secretary Janet Napolitano
October 18, 2010
Page 2

I. Subrogation

Under OPA, claims for damages must be presented first to the responsible party. 33 U.S.C. § 2713(a) In the event that a claim for damages is either denied or not paid by the responsible party within 90 days, the claimant may elect to commence an action in court against the responsible party or to present the claim to the Fund. 33 U.S.C. § 2713(c)

The maximum amount of money that may be withdrawn from the Fund is $1 billion per incident. 26 U.S.C. § 9509(c)(2)(A)

However, any person, including the Fund, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law. 33 U.S.C. § 2715(a)

Moreover, at the request of the Secretary, the Attorney General shall commence an action on behalf of the Fund to recover any compensation paid by the Fund to any claimant pursuant to OPA, and all costs incurred by the Fund by reason of the claim, including interest (including prejudgment interest), administrative and adjudicative costs, and attorney’s fees. Such an action may be commenced against any responsible party or guarantor, or against any other person who is liable, pursuant to any law, to the compensated claimant or to the Fund, for the cost or damages for which the compensation was paid. 33 U.S.C. § 2715(c)

In order to ensure the financial viability of the Fund, I ask you to immediately request the Attorney General to commence an action against BP on behalf of the Fund to recover any compensation paid by the Fund to any claimant pursuant to OPA.

The question is whether victims of the BP oil gusher will have to pay thrice: (a) once for the gusher, the environmental and economic damages of which will devastate their way of life and leave many in financial ruin; (b) again by being mislead and undercompensated by GCCF; and (c) a third time for daring to demand justice, which will consume their time, energy and hopes for years to come if they are held hostage by protracted individual lawsuits or class action lawsuits.

II. How GCCF, Without Any Legal Authority For Doing So, Circumvents Many of the  Rights Provided to Oil Spill Victims Under OPA

GCCF was meant to replace the inefficient claims process which BP had established to fulfill its obligations as a responsible party pursuant to OPA. Unfortunately, in lieu of making oil spill victims whole, GCCF’s primary goal appears to be the limitation of BP’s liability via the systematic postponement,  reduction or denial of claims against BP.

Secretary Janet Napolitano
October 18, 2010
Page 3

GCCF limits BP’s liability via circumventing OPA in the following ways:

A. Proximate Causation
The GCCF Protocol states, “The GCCF will only pay for harm or damage that is proximately caused by the Spill. The GCCF will take into account, among other things, geographic proximity, nature of industry, and dependence upon injured natural resources.”

GCCF’s requirement that a claimant has the increased burden of proving “proximate causation” between his or her damages and the Deepwater Horizon incident is a clear violation of OPA. Furthermore, paying for damages based on geographic proximity and nature of industry is also a clear violation of OPA.

OPA is a strict liability statute. In order to recover damages, a claimant merely needs to show that his or her damages “resulted from” the oil spill. OPA states, “The responsible party for a vessel or a facility from which oil is discharged, or which poses the substantial threat of a discharge of oil, into or upon the navigable waters or adjoining shorelines or the exclusive economic zone is liable for the removal costs and damages that result from such incident.” See 33 U.S.C. § 2702(a)

B. Single Emergency Advance Payment
The GCCF Protocol provides, “Emergency Advance Payment applications may be submitted during the period August 23 – November 23, 2010. After that date, applications for Emergency Advance Payments will no longer be accepted.”

A single six-month emergency advance payment for lost income is in violation of OPA. Moreover, the lack of a procedure for the payment or settlement of claims for interim, short-term damages beyond 90 days, as required by 33 U.S.C. § 2705, is also in violation of OPA.

OPA specifically provides for interim partial payments. “The responsible party shall establish a procedure for the payment or settlement of claims for interim, short-term damages. Payment or settlement of a claim for interim, short-term damages representing less than the full amount of damages to which the claimant ultimately may be entitled shall not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim.” See 33 U.S.C. § 2705(a).  The fact that a single payment does not preclude recovery by the claimant for future damages demonstrates that the legislative intent of Congress was for the responsible party to pay a series of partial claims in order to ensure that victims of the oil spill are fully compensated. Each of these partial claims would be paid after the date on which the claimant discovers damages resulting from the oil spill.

Secretary Janet Napolitano
October 18, 2010
Page 4

C. Single Final Settlement
A single final settlement payment is in violation of OPA.

OPA provides: (a) “Payment or settlement of a claim for interim, short-term damages representing less than the full amount of damages to which the claimant ultimately may be entitled shall not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim.” See 33 U.S.C. § 2705(a); and (b) Any person, including the Oil Spill Liability Trust Fund, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law. Moreover, payment of such a claim shall not foreclose a claimant’s right to recovery of all damages to which the claimant otherwise is entitled under OPA or under any other law. See 33 U.S.C. § 2715(b)(2)

D. Period of Limitations
A limitation that no claim may be submitted to the GCCF “more than three years after the date the Protocol becomes operative,” is in violation of OPA.

Under OPA, an action for damages shall be barred unless the action is brought within three years after the date on which the loss and the connection of the loss with the discharge in question are reasonably discoverable with the exercise of due care. 33 U.S.C. § 2717(f)(1)(A)

The damages suffered by victims of the BP oil gusher will be enormous and on-going. The livelihoods of all persons whose businesses rely on the natural resources of the Gulf Coast are at risk. Commercial fishermen, oyster harvesters, shrimpers, and  businesses involved, directly or indirectly, in processing and packaging for the seafood industry will experience the end of a way of life that, in many cases, has been passed down from one generation to the next.

It is too early to calculate the economic damages for many potential claimants. GCCF’s “take it or leave it” final settlement requires a financially stressed victim to file a claim before the individual or business knows, and is able to corroborate, the full extent of the damages incurred as a result of the oil spill.

More importantly, how can a person predict the long-term health effects of his or her exposure to the oil? The benzene in spilled oil can cause leukemia and lymphoma which may not be diagnosed for several years after the date the GCCF Protocol becomes operative.

Secretary Janet Napolitano
October 18, 2010
Page 5

E. Intentionally Misleading Claims Procedure
Under OPA, claims for damages must be presented first to the responsible party. 33 U.S.C. § 2713(a). The term “claim” means “a request, made in writing for a sum certain, for compensation for damages or removal costs resulting from an oil spill incident.” 33 U.S.C. § 2701(3) In the event that a claim for damages is not paid by the responsible party within 90 days, the claimant may elect to commence an action in court against the responsible party or to present the claim to the Fund.

The GCCF Protocol: (a) fails to acknowledge that the filing of a claim with GCCF satisfies 33 U.S.C. § 2713(a); and (b) is ambiguous as to when the 90-day OPA clock for payment starts. The GCCF Protocol states, “Whether or not a claim has been presented shall be governed by OPA and applicable law.” Moreover, GCCF requires that every claimant who has a pending claim with BP will have to refile his or her claim on an 18-page claims form. Does this refiling restart the 90-day clock? What if a claimant fails to refile his or her claim? GCCF is meant to facilitate settlement. It is not meant to confuse claimants or incite litigation as a result of an intentionally misleading claims procedure.

F. Interest on the Amount Paid
Pursuant to OPA, 33 U.S.C. § 2705(a), the responsible party or the responsible party’s guarantor is liable to a claimant for interest on the amount paid in satisfaction of a claim. The period for which interest shall be paid is the period beginning on the 30th day following the date on which the claim is presented to the responsible party or guarantor and ending on the date on which the claim is paid.

The GCCF Protocol, in violation of OPA, fails to provide for interest on the amount paid in satisfaction of a claim.

G. Waiver of Right to Sue
GCCF’s requirement that the claimant sign a general release of all rights the claimant may have against BP in order to receive the final settlement is in violation of OPA.

OPA provides: (a) “Payment or settlement of a claim for interim, short-term damages representing less than the full amount of damages to which the claimant ultimately may be entitled shall not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim.” 33 U.S.C. § 2705(a); and (b) Any person, including the Fund, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law. Moreover, payment of such a claim shall not foreclose a claimant’s right to recovery of all damages to which the claimant otherwise is entitled under OPA or under any other law. 33 U.S.C. § 2715(b)(2).

Secretary Janet Napolitano
October 18, 2010
Page 6

Partial payments, including a partial “final settlement” payment, do not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim. If the claimant must sign a general release of all rights the claimant may have against BP in order to receive this partial “final settlement” payment, this required GCCF waiver of the right to sue by the claimant is in violation of OPA.

III. Why Litigation, Especially Class Action Litigation, is Not in the Best Interests of Victims of the BP Oil Spill

BP p.l.c., the responsible party, is a powerful and well-funded defendant, does not lack imagination or incentive to pose innumerable legal barriers, and will aggressively assert its legal rights and otherwise use the law, the courts and the judicial system to serve its interests. BP can afford to stall, and actually benefits from delay, but its victims cannot afford to wait for years to be fully compensated for their losses.

For a detailed discussion of why class action litigation may not be in the best interests of BP oil spill victims, visit: https://donovanlawgroup.wordpress.com/2010/05/09/bp-oil-spill-of-april-2010-why-class-action-lawsuits-may-not-be-in-the-best-interests-of-potential-plaintiffs/

IV. Conclusion

The question is whether victims of the BP oil gusher will have to pay thrice: (a) once for the gusher, the environmental and economic damages of which will devastate their way of life and leave many in financial ruin; (b) again by being mislead and undercompensated by GCCF; and (c) a third time for daring to demand justice, which will consume their time, energy and hopes for years to come if they are held hostage by protracted individual lawsuits or class action lawsuits.

Proponents of the BP claims process and GCCF routinely ask, “But GCCF does not prohibit victims from rejecting the lump-sum payment in the hopes of attaining a larger settlement through litigation, correct?” This is true if the victims have not already starved to death. The BP claims process and GCCF have been a delaying tactic. Some claimants, including my clients, have already been waiting for over 90 days because BP, and now GCCF, have placed their claims on hold. Unfortunately, the purpose of GCCF is to limit BP’s liability, not to fully compensate victims as expeditiously as possible.

Secretary Janet Napolitano
October 18, 2010
Page 7

As of the date of this letter, it has been 181 days since the blowout of the BP offshore oil well in the Gulf of Mexico. Time is of the essence. The economic stress that victims of the BP oil spill continue to experience as a result of the disruption of their business activities caused by the BP oil spill is significant. GCCF’s tactics of: (a) delaying payment by placing claims “under review” for an indefinite period of time; (b) eventually denying claims; and (c) offering a “take it or leave it” final settlement which requires a financially stressed victim to file a claim before the individual or business knows, and is able to corroborate, the full extent of the damages incurred as a result of the oil spill are unacceptable.

It is the federal government’s duty to guarantee the claims process established by BP provides at least the same protections and rights mandated by OPA. As Secretary of DHS, OPA uniquely positions you to ensure that victims of the BP oil spill are: (a) made whole; (b) not victimized by GCCF; and (c) not forced into filing unnecessary lawsuits.

I ask you to immediately request the Attorney General to commence an action against BP on behalf of the Fund to recover any compensation paid by the Fund to any claimant pursuant to OPA.

Thank you for your prompt attention to this matter. If you have any questions, please do not hesitate to contact me at 352-328-7469 or via e-mail at BrianJDonovan@verizon.net.

Very truly yours,
Brian J. Donovan

BJD/rc

cc:   The Honorable Edward J. Markey
The Honorable Jeff Sessions
The Honorable Eric H. Holder, Jr.

Tagged with: , , ,

The Gulf Coast Claims Facility Limits BP’s Liability and Guarantees the Oil Company’s Continued Operation in the Gulf of Mexico

The Gulf Coast Claims Facility Limits BP’s Liability
and
Guarantees the Oil Company’s Continued Operation in the Gulf of Mexico

________________________

The Obama Administration Has Acquired a Vested Interest in
Ensuring the Financial Well-Being of BP

By Brian J. Donovan

August 23, 2010

INTRODUCTION

On June 16, 2010, President Obama announced that BP has agreed to set aside $20 billion to pay economic damage claims to individuals and businesses affected by the Deepwater Horizon incident.

President Obama stated, “This $20 billion will provide substantial assurance that the claims people and businesses have will be honored. It’s also important to emphasize this is not a cap.  The people of the Gulf have my commitment that BP will meet its obligations to them. BP has publicly pledged to make good on the claims that it owes to the people in the Gulf, and so the agreement we reached sets up a financial and legal framework to do it.

Another important element is that this $20 billion fund will not be controlled by either BP or by the government. It will be put in a escrow account, administered by an impartial, independent third party. So if you or your business has suffered an economic loss as a result of this spill, you’ll be eligible to file a claim for part of this $20 billion. This fund does not supersede either individuals’ rights or states’ rights to present claims in court. BP will also continue to be liable for the environmental disaster it has caused, and we’re going to continue to work to make sure that they address it.”

BP and the Obama administration agreed to appoint Kenneth Feinberg, a Washington lawyer and Democratic Party supporter who administered the claims process for victims of 9/11, to run the independent claims process known as the Gulf Coast Claims Facility (GCCF).

As of August 19, 2010, approximately four months after the date of the Deepwater Horizon incident, BP had made 153,650 payments to claimants for a total amount of $389 million. This equates to an average of only $2,532 per payment!

Effective August 23, 2010, GCCF will be the only authorized organization managing individual and business claims related to the Deepwater Horizon incident. GCCF is intended to replace BP’s claims facility for individuals and businesses. Feinberg alleges GCCF is structured to be compliant with the Oil Pollution Act of 1990 (OPA).

This article briefly addresses: (a) how GCCF limits BP’s liability via the systematic postponement, reduction or denial of claims against BP; (b) how GCCF guarantees BP’s continued long-term operation in the offshore Gulf of Mexico E&P sector; and (c) why GCCF is not necessary to ensure that victims of the BP oil spill are fully compensated for incurred damages.

HOW GCCF LIMITS BP’S LIABILITY VIA THE SYSTEMATIC POSTPONEMENT,
REDUCTION OR DENIAL OF CLAIMS AGAINST BP

GCCF was meant to replace the inefficient claims process which BP had established to fulfill its obligations as a responsible party pursuant to OPA. Unfortunately, in lieu of making oil spill victims whole, GCCF’s primary goal appears to be the limitation of BP’s liability via the systematic postponement,  reduction or denial of claims against BP.

GCCF will limit BP’s liability via circumventing OPA as follows:

Proximate Causation
The GCCF Protocol states, “The GCCF will only pay for harm or damage that is proximately caused by the Spill. The GCCF will take into account, among other things, geographic proximity, nature of industry, and dependence upon injured natural resources.”

GCCF’s requirement that a claimant has the increased burden of proving “proximate causation” between his or her damages and the Deepwater Horizon incident is a clear violation of OPA. Furthermore, paying for damages based on geographic proximity and nature of industry is also a clear violation of OPA.

OPA is a strict liability statute. In order to recover damages, a claimant merely needs to show that his or her damages “resulted from” the oil spill. OPA states, “The responsible party for a vessel or a facility from which oil is discharged, or which poses the substantial threat of a discharge of oil, into or upon the navigable waters or adjoining shorelines or the exclusive economic zone is liable for the removal costs and damages that result from such incident.”
See 33 U.S.C. § 2702(a)

Single Emergency Advance Payment
The GCCF Protocol provides, “Emergency Advance Payment applications may be submitted during the period August 23 ‐ November 23, 2010. After that date, applications for Emergency Advance Payments will no longer be accepted.”

A single six-month emergency advance payment for lost income is in violation of OPA. Moreover, the lack of a procedure for the payment or settlement of claims for interim, short-term damages beyond 90 days, as required by 33 U.S.C. § 2705, is also in violation of OPA.

The OPA specifically provides for interim partial payments. “The responsible party shall establish a procedure for the payment or settlement of claims for interim, short-term damages. Payment or settlement of a claim for interim, short-term damages representing less than the full amount of damages to which the claimant ultimately may be entitled shall not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim.” See 33 U.S.C. § 2705(a).  The fact that a single payment does not preclude recovery by the claimant for future damages demonstrates that the legislative intent of Congress was for the responsible party to pay a series of partial claims in order to ensure that victims of the oil spill are fully compensated. Each of these partial claims would be paid after the date on which the claimant discovers damages resulting from the oil spill.

Single Final Settlement
A single final settlement payment is in violation of OPA.

OPA provides:
(a) “Payment or settlement of a claim for interim, short-term damages representing less than the full amount of damages to which the claimant ultimately may be entitled shall not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim.” See 33 U.S.C. § 2705(a); and
(b) Any person, including the Oil Spill Liability Trust Fund, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law. Moreover, payment of such a claim shall not foreclose a claimant’s right to recovery of all damages to which the claimant otherwise is entitled under OPA or under any other law. See 33 U.S.C. § 2715(b)(2)

Period of Limitations
A limitation that no claim may be submitted to the GCCF “more than three years after the date the Protocol becomes operative,” is in violation of OPA.

Under OPA, an action for damages shall be barred unless the action is brought within 3 years after the date on which the loss and the connection of the loss with the discharge in question are reasonably discoverable with the exercise of due care. See 33 U.S.C. § 2717(f)(1)(A)

The damages suffered by victims of the BP oil gusher will be enormous and on-going. The livelihoods of all persons whose businesses rely on the natural resources of the Gulf Coast are at risk. Commercial fishermen, oyster harvesters, shrimpers, and  businesses involved, directly or indirectly, in processing and packaging for the seafood industry will experience the end of a way of life that, in many cases, has been passed down from one generation to the next.

It is too early to calculate the economic damages for many potential claimants. GCCF’s “take it or leave it” final settlement requires a financially stressed victim to file a claim before the individual or business knows, and is able to corroborate, the full extent of the damages incurred as a result of the oil spill.

More importantly, how can a person predict the long-term health effects of his or her exposure to the oil? The benzene in spilled oil can cause leukemia and lymphoma which may not be diagnosed for several years after the date the GCCF Protocol becomes operative.

Claims Procedure
Under OPA, claims for damages must be presented first to the responsible party. 33 U.S.C. § 2713(a). The term “claim” means “a request, made in writing for a sum certain, for compensation for damages or removal costs resulting from an oil spill incident.” 33 U.S.C. § 2701(3). In the event that a claim for damages is not paid by the responsible party within 90 days, the claimant may elect to commence an action in court against the responsible party or to present the claim to the Oil Spill Liability Trust Fund.

The GCCF Protocol is ambiguous as to when the 90-day OPA clock for payment starts. The GCCF Protocol states, “Whether or not a claim has been presented shall be governed by OPA and applicable law.” Moreover, GCCF requires that every claimant who has a pending claim with BP will have to refile his or her claim on an 18-page claims form. Does this refiling restart the 90-day clock? What if a claimant fails to refile his or her claim? GCCF is meant to facilitate settlement. It is not meant to confuse claimants or incite litigation as a result of an intentionally misleading claims procedure.

Waiver of Right to Sue
GCCF’s requirement that the claimant sign a general release of all rights the claimant may have against BP in order to receive the final settlement is in violation of OPA.

OPA provides:
(a) “Payment or settlement of a claim for interim, short-term damages representing less than the full amount of damages to which the claimant ultimately may be entitled shall not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim.” See 33 U.S.C. § 2705(a); and
(b) Any person, including the Oil Spill Liability Trust Fund, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law. Moreover, payment of such a claim shall not foreclose a claimant’s right to recovery of all damages to which the claimant otherwise is entitled under OPA or under any other law. See 33 U.S.C. § 2715(b)(2).

Partial payments, including a partial “final settlement” payment, do not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim. If the claimant must sign a general release of all rights the claimant may have against BP in order to receive this partial “final settlement” payment, this required GCCF waiver of the right to sue by the claimant is in violation of OPA.

HOW GCCF GUARANTEES BP’S CONTINUED LONG-TERM OPERATION
IN THE OFFSHORE GULF OF MEXICO E&P SECTOR

On June 16, 2010, President Obama announced that BP has agreed to set aside $20 billion to pay economic damage claims to individuals and businesses affected by the Deepwater Horizon incident. The White House press release stated, “BP will provide assurance for these commitments by setting aside $20 billion in U.S. assets.”

BP created the Deepwater Horizon Oil Spill Trust on August 6, 2010. The Trust Agreement states that BP “has unknown potential liabilities under federal, state and local law for damages arising from or related to the oil spill caused by the explosion at the Deepwater Horizon oil rig in the Gulf of Mexico (the “Oil Spill”), including claims under the Oil Pollution Act, natural resource damages and related costs (including assessment costs), state and local government response costs and certain other claims for damages.”

The Trust Agreement further provides, “To secure the payment and performance of its obligations to make the contributions to the Trust hereunder, BP hereby agrees to grant, convey, and/or assign to the Trust first priority perfected security interests in production payments pertaining to BP’s U.S. oil and natural gas production (“Production Payments”) (which Production Payments shall be issued and held in a newly formed limited liability company subsidiary of BP that shall have no business or operations other than holding such Production Payments).”

BP will not set aside $20 billion in U.S. assets as collateral. The collateral to secure BP’s performance of its obligations to pay damages related to the Deepwater Horizon oil spill will be in the form of future production payments pertaining to BP’s U.S. oil and natural gas production. In essence, the Obama administration has chosen to be BP’s joint venture partner by allowing future drilling revenues to be used as collateral for the GCCF escrow account!

Adding insult to injury, on July 27, 2010, BP revealed that it is taking a charge of $32.2 billion (and thereby claiming a $9.9 billion tax credit) to reflect the impact of the Gulf of Mexico oil spill, including costs to date of $2.9 billion for the response and a charge of $29.3 billion for future costs, including the funding of the $20 billion escrow fund.

Under the Clean Water Act (CWA), BP faces fines of up to $4,300 for each barrel spilled. Furthermore, pursuant to Section 2702 of OPA, BP would be required to pay royalties (18.75%) owed to the federal government for the oil that gushed from the well. BP’s liability, based upon estimates for oil containment, collection and clean-up, GCCF, and penalties and fines should total between $66.3 billion and $90.2 billion. Given that BP’s financial health and its ability to meet its obligations under GCCF are now tied together, CWA fines and OPA royalty payments for each barrel of oil spilled will most likely be kept to a minimum. Ironically, the federal government has acquired a vested interest in ensuring the financial well-being of BP.

WHY GCCF IS NOT NECESSARY TO ENSURE THAT VICTIMS OF THE BP OIL SPILL
ARE FULLY COMPENSATED FOR INCURRED DAMAGES

Limitations on Liability for Damages under OPA
Pursuant to OPA, for an offshore facility the total of the liability of a responsible party and any removal costs incurred by, or on behalf of, the responsible party, with respect to each incident shall not exceed the total of all removal costs plus $75,000,000. 33 U.S.C. § 2704

However, this limit on liability “does not apply if the incident was proximately caused by gross negligence, willful misconduct of, or the violation of an applicable federal safety, construction, or operating regulation by, the responsible party, an agent or employee of the responsible party, or a person acting pursuant to a contractual relationship with the responsible party.” 33 U.S.C. §§ 2704(c)(1)(A) and (B)

Given BP’s documented violation of federal safety regulations aboard the Deepwater Horizon, e.g., using an improper cementing technique to seal the well, failing to adequately test and maintain blowout prevention equipment and drilling deeper than BP’s federal permit allowed, there will be no limitation on BP’s liability.

Presentation and the Oil Spill Liability Trust Fund
Under OPA, claims for damages must be presented first to the responsible party. 33 U.S.C. § 2713(a). In the event that a claim for damages is not paid by the responsible party within 90 days, the claimant may elect to commence an action in court against the responsible party or to present the claim to the Oil Spill Liability Trust Fund (the “Fund”). 33 U.S.C. § 2713(c)

The Fund is a federally administered trust fund that may be used to pay costs related to federal and state oil spill removal activities; costs incurred by federal, state, and Indian tribe trustees for natural resource damage assessments; and unpaid damages claims. 33 U.S.C. § 2712

The Fund is financed by a per-barrel tax on crude oil received at United States refineries, and on petroleum products imported into the U.S. for consumption. The maximum amount of money that may be withdrawn from the Fund is $1 billion per incident. 26 U.S.C. § 9509(c)(2)(A)

United States Attorney General
Currently, the Fund may not receive advances from the United States Treasury, as its authority to borrow expired December 31, 1994. The United States Attorney General, however, may commence an action on behalf of the Fund, against a responsible party, to recover any money paid by the Fund to any claimant pursuant to OPA. 33 U.S.C. § 2715(c)

Loan Program
Moreover, pursuant to OPA, the President shall establish a loan program under the Oil Spill Liability Trust Fund to provide interim assistance to fishermen and aquaculture producer claimants during the claims procedure. A loan may be made only to a fisherman or aquaculture producer that: (a) has incurred damages for which claims are authorized under OPA; (b) has made a claim pursuant to OPA that is pending; and (c) has not received an interim payment for the amount of the claim, or part thereof, that is pending. 33 U.S.C. § 2713(f)

No Need for GCCF
There is no need for GCCF. A victim may merely present a claim for damages to BP and wait 90 days. If BP does not pay the claim, the victim may present the claim to the Fund. The Fund could either pay the victim or provide a temporary loan to the victim and then the U.S. Attorney General may commence an action on behalf of the Fund against BP and collect the amount from BP. “Any person, including the Fund, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law.” 33 U.S.C. § 2715

The Litigation Option
Proponents of the BP claims process and GCCF routinely ask, “But the GCCF does not prohibit victims from rejecting the lump-sum payment in the hopes of attaining a larger settlement through litigation, correct?”

This is true if the victims have not already starved to death. The BP claims process has been a delaying tactic. Some claimants have already been waiting for over 90 days because BP has placed their claims on hold. It is doubtful GCCF will be any different after Feinberg takes over claims management on August 23rd. The purpose of GCCF is to limit BP’s liability, not to fully compensate victims as expeditiously as possible.

Granted, litigation would be time consuming. However, the lawsuits would force BP to spend a great deal of management’s time (during the discovery process) and money (legal fees). The suits would most likely be settled out of court but the difference would be that the victims would have more control of the process. With GCCF, victims are basically relegated to wasting precious time begging and pleading for compensation from Feinberg.

CONCLUSION

It was not the legislative intent of Congress for OPA to limit an oil spill victim’s right to seek full compensation from the responsible party. Unfortunately, GCCF, with the complete political and financial support of the Obama administration but without any legal authority for doing so, circumvents many of the rights provided to oil spill victims under OPA. The fact that future production payments pertaining to BP’s U.S. oil and natural gas production, rather than hard U.S. assets, are being used as collateral by BP guarantees BP’s continued long-term operation in the offshore Gulf of Mexico E&P sector. Ironically, the federal government has acquired a vested interest in ensuring the financial well-being of BP.

Fortunately, there is no need for GCCF. A victim may merely present a claim for damages to BP and wait 90 days. If BP does not pay the claim, the victim may present the claim to the Fund. The Fund could either pay the victim the amount owed or provide a temporary loan to the victim and then the U.S. Attorney General may commence an action on behalf of the Fund against BP and collect the amount from BP. “Any person, including the Fund, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law.” 33 U.S.C. § 2715

Each individual claimant/potential plaintiff who has suffered damages as a result of the BP oil spill of April, 2010 should immediately seek competent legal counsel to directly represent his or her interests. Most attorneys should be willing to represent claimants on a contingent fee basis. A contingent fee of seven to ten percent would be money well spent. Given that the damages suffered by the vast majority of individual potential plaintiffs as a result of the BP oil spill of April, 2010 are potentially so great and will be on-going, class treatment may not be necessary to permit effective litigation of the claim. Here, where the amount of damages suffered by the individual is so great, the filing of an individual lawsuit should be economically feasible and may be in the best interests of the plaintiff. This decision should be made by the potential plaintiff only after a thorough consultation with his or her legal counsel.

APPENDICES

References
Adams, Mike, “First Amendment suspended in the Gulf of Mexico as spill cover-up goes Orwellian,” NaturalNews (July 3, 2010), available at: http://www.naturalnews.com/029130_Gulf_of_Mexico_censorship.html

Bhattacharyya, S., P.L. Klerks, and J.A. Nyman. 2003. Toxicity to freshwater organisms from oils and oil spill chemical treatments in laboratory microcosms. Environmental Pollution 122:205-215.

Chokkavelu, Anand, “The BP Stat That Will Shock You,” Motley Fool (July 9, 2010), available at: http://www.msnbc.msn.com/id/38165954/ns/business-motley_fool/

Clean Water Act

Coleman, Leigh and Younglai, Rachelle, “Spill puts Obama’s oil fund chief on hostile turf,” Reuters (July 27, 2010)

EPA: http://www.epa.gov/oem/content/lawsregs/opaover.htm

Fed. R. Civ. Proc. 23(h), Federal Rules of Civil Procedure

Fisher, Daniel and Hawkins, Asher, “BP’s Legal Blowout,” Forbes.com (July 14, 2010)

Greenwald, Glenn, “The BP/Government police state,” Salon (July 5, 2010), available at: http://www.salon.com/news/opinion/glenn_greenwald/2010/07/05/bp/index.html

Hals, Tom, “Analysis: BP investors face tough road in court fights,” Reuters (July 16, 2010)

Hudson, Kris and Baskin, Brian, “Fears Mount That Fund Won’t Cover All Damages,” The Wall Street Journal (July 15, 2010)

Kindy, Kimberly, “Recovery effort falls vastly short of BP’s promises,” Washington Post (July 6, 2010), available at:
http://www.washingtonpost.com/wp-dyn/content/article/2010/07/05/AR2010070502937.html

Kirby, Brendan, “BP, federal government remain silent on when company will fund Gulf oil spill account,” Press-Register (July 26, 2010)

Lustgarten, Abrahm, “Chemicals Meant To Break Up BP Oil Spill Present New Environmental Concerns,” ProPublica (April 30, 2010), available at: http://www.propublica.org/article/bp-gulf-oil-spill-dispersants-0430

MMS: http://www.mms.gov/

Murtaugh, Dan, “Attorney General Eric Holder says he’ll try to address oil spill claims concerns,” Press-Register (July 15, 2010)

Murtaugh, Dan, “Feinberg says BP hasn’t put money in escrow account yet,” Press-Register (July 24, 2010)

National Contingency Plan

NOAA: http://www.noaa.gov/

Oil Pollution Act of 1990

Peters, Jeremy W., “Efforts to Limit the Flow of Spill News,” The New York Times (June 9, 2010)

Philips, Matthew, “BP’s Photo Blockade of the Gulf Oil Spill,” Newsweek (May 26, 2010), available at: http://www.newsweek.com/2010/05/26/the-missing-oil-spill-photos.html

Schoof, Renee and Bolstad, Erika, “BP well may be spewing 100,000 barrels a day, scientist says,” McClatchy Newspapers (June 7, 2010), available at: http://www.mcclatchydc.com/2010/06/07/95467/bp-well-may-be-spewing.html

Schoof, Renee, “Scientists propose big experiment to study Gulf oil spill,” McClatchy Newspapers (July 11, 20100, available at:
http://www.miamiherald.com/2010/07/11/1725271/scientists-propose-big-experiment.html

Schwartz, John, “More Delicate Diplomacy for the Overseer of the Compensation Fund,” The New York Times (July 16, 2010)

Stier, Byron G., “Ken Feinberg Compensation for Administering BP Fund – A Problem and Possible Solution,” available at: http://lawprofessors.typepad.com/mass_tort_litigation/2010/07/ken-feinberg-compensation-for-administering-bp-fund-a-problem-and-possible-solution.html

USA Today: http://content.usatoday.com/communities/greenhouse/post/2010/05/how-responsible-is-us-government-for-gulf-oil-spill/

USCG: http://www.uscg.mil/

Walsh, Bryan, “The Oil Spill and the Perils of Losing Trust,” Time (July 7, 2010), available at: http://ecocentric.blogs.time.com/2010/07/07/the-oil-spill-and-the-perils-of-losing-trust/

 

Further Reading
Is The Gulf Coast Claims Facility in Violation of The Oil Pollution Act of 1990?

Is the BP Oil Spill Victim Compensation Fund Legitimate?

Will Victims of the BP Oil Gusher Also Be Victims of Class Action Lawsuits and the BP Oil Spill Victim Compensation Fund?

BP’s Strategy to Limit Liability in Regard to Its Gulf Oil Gusher

Why BP Does Not Want an Accurate Measurement of the Gulf Oil Spill

The Oil Pollution Act Provides for the Federalization of the BP Oil Spill

BP is Not the Only Responsible Party

BP Oil Spill of April, 2010: Why Class Action Lawsuits May Not be in the Best Interests of Potential Plaintiffs

 

About the Author
Brian J. Donovan is an attorney and marine engineer with thirty-five years of international business experience.

Mr. Donovan, a member of The Florida Bar, The U.S. District Court, Middle District of Florida and The United States Court of Appeals for the Eleventh Circuit, holds a J.D. from Syracuse University College of Law (where he was recipient of the “Global Law & Practice Award” as the outstanding graduate in the areas of International Law and International Business Law) and a B.S., with honors, in Marine/Mechanical and Nuclear Engineering from the United States Merchant Marine Academy.

Mr. Donovan, with deep family roots in southern Louisiana, has first-hand knowledge of the catastrophic devastation of the Louisiana Gulf Coast caused by hurricanes Katrina and Rita. He fully appreciates that the damage caused by Katrina and Rita may pale in comparison to the massive and potentially unprecedented environmental and economic impact of the BP oil gusher of April, 2010.

Is The Gulf Coast Claims Facility in Violation of The Oil Pollution Act of 1990?

Is The Gulf Coast Claims Facility in Violation of The Oil Pollution Act of 1990?

By Brian J. Donovan

August 10, 2010

INTRODUCTION

On June 16, 2010 President Obama announced that BP has agreed to set aside $20 billion to pay economic damage claims to people and businesses that have been affected by the BP oil gusher. President Obama stated, “This $20 billion will provide substantial assurance that the claims people and businesses have will be honored. It’s also important to emphasize this is not a cap.  The people of the Gulf have my commitment that BP will meet its obligations to them. BP has publicly pledged to make good on the claims that it owes to the people in the Gulf, and so the agreement we reached sets up a financial and legal framework to do it.

Another important element is that this $20 billion fund will not be controlled by either BP or by the government. It will be put in a escrow account, administered by an impartial, independent third party. So if you or your business has suffered an economic loss as a result of this spill, you’ll be eligible to file a claim for part of this $20 billion. This fund does not supersede either individuals’ rights or states’ rights to present claims in court. BP will also continue to be liable for the environmental disaster it has caused, and we’re going to continue to work to make sure that they address it.”

BP and the Obama administration agreed to appoint Kenneth Feinberg, a Washington lawyer and Democratic Party supporter who administered the claims process for victims of 9/11, to run the independent claims process known as the Gulf Coast Claims Facility (GCCF). The GCCF is also commonly referred to as the BP Oil Spill Victim Compensation Fund (BPOSVCF).

This article addresses the issue of whether the proposed GCCF protocol is in violation of the Oil Pollution Act of 1990 (OPA).

THE OIL POLLUTION ACT OF 1990

Elements of Liability
The responsible party for a vessel or a facility from which oil is discharged, or which poses the substantial threat of a discharge of oil, into or upon the navigable waters or adjoining shorelines or the exclusive economic zone is liable for the removal costs and damages that result from such incident. See 33 U.S.C. § 2702(a)

Covered Damages
Under OPA, “damages” means “damages specified in 33 U.S.C. § 2702(b), and includes the cost of assessing these damages.” 33 U.S.C. § 2701(5)

The damages to people and businesses specified in 33 U.S.C. § 2702(b) include, but are not limited to, the following:

(A) Real or Personal Property
Damages for injury to, or economic losses resulting from destruction of, real or personal property, which shall be recoverable by a claimant who owns or leases that property. 33 U.S.C. § 2702(b)(2)(B)

(B) Subsistence Use
Damages for loss of subsistence use of natural resources, which shall be recoverable by any claimant who so uses natural resources which have been injured, destroyed, or lost, without regard to the ownership or management of the resources. 33 U.S.C. § 2702(b)(2)(C)

Under OPA, “natural resources” includes land, fish, wildlife, biota, air, water, ground water, drinking water supplies, and other such resources belonging to, managed by, held in trust by, appertaining to, or otherwise controlled by the United States (including the resources of the exclusive economic zone), any State or local government or Indian tribe, or any foreign government. 33 U.S.C. § 2701(20)

(C) Profits and Earning Capacity
Damages equal to the loss of profits or impairment of earning capacity due to the injury, destruction, or loss of real property, personal property, or natural resources, which shall be recoverable by any claimant. 33 U.S.C. § 2702(b)(2)(E)

Partial Payment of Claims
Pursuant to the Oil Pollution Act of 1990 (OPA), “the responsible party shall establish a procedure for the payment or settlement of claims for interim, short-term damages. Payment or settlement of a claim for interim, short-term damages representing less than the full amount of damages to which the claimant ultimately may be entitled shall not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim.” See 33 U.S.C. § 2705(a)

Period of Limitations
An action for damages under OPA shall be barred unless the action is brought within 3 years after the date on which the loss and the connection of the loss with the discharge in question are reasonably discoverable with the exercise of due care. See 33 U.S.C. § 2717(f)(1)(A)

Subrogation
Any person, including the Oil Spill Liability Trust Fund, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law. Moreover, payment of such a claim shall not foreclose a claimant’s right to recovery of all damages to which the claimant otherwise is entitled under OPA or under any other law. See 33 U.S.C. § 2715(b)(2)

Interest
The responsible party or the responsible party’s guarantor is liable to a claimant for interest on the amount paid in satisfaction of a claim under the OPA.  The period for which interest shall be paid is the period beginning on the 30th day following the date on which the claim is presented to the responsible party or guarantor and ending on the date on which the claim is paid. However, if in any period a claimant is not paid due to reasons beyond the control of the responsible party or because it would not serve the interests of justice, no interest shall accrue during that period.

OPA Claims Procedure
Claims for damages must be presented first to the responsible party. 33 U.S.C. § 2713(a). Under OPA, the term “claim” means “a request, made in writing for a sum certain, for compensation for damages or removal costs resulting from an oil spill incident.” 33 U.S.C. § 2701(3). In the event that a claim for damages is not paid by the responsible party within 90 days, the claimant may elect to commence an action in court against the responsible party or to present the claim to the Oil Spill Liability Trust Fund.

Loan Program
The President shall establish a loan program under the Oil Spill Liability Trust Fund to provide interim assistance to fishermen and aquaculture producer claimants during the claims procedure. A loan may be made only to a fisherman or aquaculture producer that: (a) has incurred damages for which claims are authorized under OPA; (b) has made a claim pursuant to OPA that is pending; and (c) has not received an interim payment for the amount of the claim, or part thereof, that is pending.

GCCF VIOLATIONS OF OPA

GCCF will operate for three years. Feinberg explains the compensation plan includes two components: a no-obligation six month emergency payment for lost income and a final lump-sum payment with acceptance of release for BP. A claim for the six month emergency payment must be made within 90 days from the day the well is capped. If claimants choose to accept the second and final GCCF offer, they waive any right to bring further court proceedings against BP.

Single Emergency Payment
A single six month emergency payment for lost income is in violation of OPA. Moreover, the lack of a procedure for the payment or settlement of claims for interim, short-term damages beyond 90 days, as required by 33 U.S.C. § 2705, is also in violation of OPA.

It was not the legislative intent of Congress for OPA to limit an oil spill victim’s right to seek full compensation from the responsible party.

The OPA specifically provides for interim partial payments. As noted above, “the responsible party shall establish a procedure for the payment or settlement of claims for interim, short-term damages. Payment or settlement of a claim for interim, short-term damages representing less than the full amount of damages to which the claimant ultimately may be entitled shall not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim.” See 33 U.S.C. § 2705(a).  The fact that a single payment does not preclude recovery by the claimant for future damages demonstrates that the legislative intent of Congress was for the responsible party to pay a series of partial claims in order to ensure that victims of the oil spill are fully compensated. Each of these partial claims would be paid after the date on which the claimant discovers damages resulting from the oil spill.

Final Settlement
A single final settlement payment is in violation of OPA.

It was not the legislative intent of Congress for OPA to limit an oil spill victim’s right to seek full compensation from the responsible party.

OPA provides:
(a) “Payment or settlement of a claim for interim, short-term damages representing less than the full amount of damages to which the claimant ultimately may be entitled shall not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim.” See 33 U.S.C. § 2705(a); and
(b) Any person, including the Oil Spill Liability Trust Fund, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law. Moreover, payment of such a claim shall not foreclose a claimant’s right to recovery of all damages to which the claimant otherwise is entitled under OPA or under any other law. See 33 U.S.C. § 2715(b)(2)

Period of Limitations
A limitation that no claim may be submitted to the GCCF “more than three years after the date the Protocol becomes operative,” is in violation of OPA.

Under OPA, an action for damages shall be barred unless the action is brought within 3 years after the date on which the loss and the connection of the loss with the discharge in question are reasonably discoverable with the exercise of due care. See 33 U.S.C. § 2717(f)(1)(A)

The damages suffered by victims of the BP oil gusher will be enormous and on-going. The livelihoods of all persons whose businesses rely on the natural resources of the Gulf Coast are at risk. Commercial fishermen, oyster harvesters, shrimpers, and  businesses involved, directly or indirectly, in processing and packaging for the seafood industry will experience the end of a way of life that, in many cases, has been passed down from one generation to the next.

It is too early to calculate the damages for many potential claimants. GCCF’s “take it or leave it” final settlement requires a financially stressed victim to file a claim before the individual or business knows, and is able to corroborate, the full extent of the damages incurred as a result of the oil spill.

For example, many businesses are concerned it will be difficult, if not impossible, to forecast the long-term recovery of the crab and shrimp populations, or how quickly U.S. consumers will re-embrace Gulf seafood, among other things. So far, economic damage estimates vary widely. Greater New Orleans Inc., the economic-development agency for the 10-parish area, published preliminary estimates that the region’s fishing industry stands to suffer annual losses ranging from $900 million to $3.3 billion.

Gary Bauer, president of Pontchartrain Blue Crab Inc., a seafood wholesaler and processor on Salt Bayou east of New Orleans, said his sales of blue crab and shrimp have dropped to 20% of their normal $8 million-a-year pace. In addition, foreign seafood suppliers are moving in on his network of grocers, restaurants and other buyers, further denting his long-term prospects. “Are we going to have a crab season next year, and are there going to be fishermen who will fish next year?” Mr. Bauer said. “How does BP reimburse for that? I spent 10 years of my life building a brand, and they destroyed it.”

Wayne Hess, manager of American Seafood Inc., a processor and wholesaler in New Orleans, said his sales were down roughly 30% from their annual average of $5 million to $7 million. “How am I supposed to project my losses not knowing how all of the different species we carry will be affected in the next year to five years?” he said. “The female crabs that are mating right now don’t drop their eggs until October or December. Those larvae may not make it.”

More importantly, how can a person predict the long-term health effects of his or her exposure to the oil? The benzene in spilled oil can cause leukemia and lymphoma which may not be diagnosed for several years after the date the GCCF Protocol becomes operative.

Waiver of Right to Sue
GCCF’s requirement that the claimant sign a general release of all rights the claimant may have against BP in order to receive the final settlement is in violation of OPA.

It was not the legislative intent of Congress for OPA to limit an oil spill victim’s right to seek full compensation from the responsible party.

OPA provides:
(a) “Payment or settlement of a claim for interim, short-term damages representing less than the full amount of damages to which the claimant ultimately may be entitled shall not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim.” See 33 U.S.C. § 2705(a); and
(b) Any person, including the Oil Spill Liability Trust Fund, who pays compensation pursuant to OPA to any claimant for damages shall be subrogated to all rights, claims, and causes of action that the claimant has under any other law. Moreover, payment of such a claim shall not foreclose a claimant’s right to recovery of all damages to which the claimant otherwise is entitled under OPA or under any other law. See 33 U.S.C. § 2715(b)(2).

Partial payments, including a partial “final settlement” payment, do not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim. If the claimant must sign a general release of all rights the claimant may have against BP in order to receive this partial “final settlement” payment, this required GCCF waiver of the right to sue by the claimant is in violation of OPA.

GCCF is an attempt to buy peace by overwhelming potential claimants/plaintiffs with “easy” money. Companies have tried this before, with mixed success. Asbestos manufacturers failed miserably when they negotiated a global settlement with plaintiff lawyers in the early 1990s under which they’d pay out $300 million to injured workers in exchange for having cases of workers who were exposed, but not sick, valued at zero. The Supreme Court rejected the settlement in 1997 because it bound future claimants to terms they had no part in negotiating. Similarly in this case, claimants have no way to predict or negotiate the full extent of the damages, including the long-term health effects, incurred as a result of the oil spill.

Intentional and Systematic Delay of Payment
The intentional and systematic delay of payment of claims that has been employed by BP is in violation of OPA. There is no reason to believe that GCCF will be any different.

As of August 10, 2010, BP has made 146,000 payments to claimants for a total amount of $330 million. This equates to an average of only $2,260 per payment!

“Delay, deny, defend” is a strategy commonly employed by unscrupulous insurance companies. The strategy currently being employed by BP is similar: “Delay payment, starve claimant, and offer claimant five to ten percent of all damages to which the claimant is entitled. If the financially ruined claimant rejects the final settlement offer, he or she may sue.”

Four Tactics Currently Used by BP to Delay Payments
(1) Providing documentation that is acceptable to BP has been a significant challenge for claimants so far. Arbitrarily requesting unnecessary additional corroborating documentation after a claim has been filed is merely one tactic BP uses to delay payment to claimants.

(2) A second tactic employed by BP is to delay a claim by arguing “the oil is not physically at the claimant’s location.” This is in violation of OPA. In the case of an OPA claim, the claimant is simply required to demonstrate that the damages incurred resulted from the BP oil release. See 33 U.S.C. § 2702(a)

(3) A third delaying tactic is a requirement by BP for claimants who seek lost profits to demonstrate that their loss was caused by damage or loss to property or resources “that are used by the Claimant.” This is in violation of OPA. Damages “equal to the loss of profits or impairment of earning capacity due to the injury, destruction, or loss of real property, personal property, or natural resources” are recoverable by any claimant against the responsible party under OPA. 33 U.S.C. § 2702(b)(2)(E). Moreover, “the responsible party is liable for damages that result from such incident.” See 33 U.S.C. § 2702(a)

(4) Furthermore, a limitation that payment on claims will be reduced by payments received from collateral sources is inconsistent with the liability of a responsible party under OPA. In no event should a collateral source limitation interfere with the expeditious and complete recovery by any individual or business claimant.

Appeals Process
A panel of three judges will be available to hear appeals of the GCCF administrator’s decisions. The panel will review claims that are denied or offers deemed to be insufficient by a claimant.

Under the proposed GCCF protocol, a claimant only has seven days to appeal a decision to the Appeals Board. This is insufficient time and in violation of OPA.

Interest
Pursuant to OPA, the responsible party or the responsible party’s guarantor is liable to a claimant for interest on the amount paid in satisfaction of a claim. The period for which interest shall be paid is the period beginning on the 30th day following the date on which the claim is presented to the responsible party or guarantor and ending on the date on which the claim is paid. However, if in any period a claimant is not paid due to reasons beyond the control of the responsible party, no interest shall accrue during that period. Here, GCCF will argue that the “insufficient documentation” submitted by the claimant was beyond BP’s control.

Kenneth Feinberg has promised to pay claims as expeditiously as possible. Therefore, (a) interest should to be factored into the total amount of damages filed by the claimant. This is interest from the date of financial loss to the date on which the claim is presented; and (b) a claim should also stipulate that GCCF will pay a per diem penalty if the claim is not paid within 30 days from the date on which the claim is presented.

CONCLUSION

It was not the legislative intent of Congress for OPA to limit an oil spill victim’s right to seek full compensation from the responsible party.

The proposed GCCF protocol is in violation of OPA for the following seven reasons:
(a) a single six month emergency payment for lost income;
(b) a single final settlement payment;
(c) a limitation that no claim may be submitted to the GCCF “more than three years after the date the Protocol becomes operative;”
(d) GCCF’s requirement that the claimant sign a general release of all rights the claimant may have against BP in order to receive the final settlement;
(e) BP’s current intentional and systematic delay of payment of claims which GCCF will most likely continue;
(f) insufficient time to appeal a GCCF decision; and
(g) GCCF’s failure to provide for interest on the amount paid in satisfaction of a claim and penalties for delayed payment of a claim.

Memories fade with the passage of time. If GCCF is merely a delaying tactic on the part of BP to postpone the day of financial judgment, lawsuits should be filed by BP’s victims and witnesses should be deposed as soon as possible. In the absence of a well-funded and transparent GCCF that fully compensates oil spill victims in an expeditious manner, postponing litigation will only benefit BP.

APPENDICES

References
Adams, Mike, “First Amendment suspended in the Gulf of Mexico as spill cover-up goes Orwellian,” NaturalNews (July 3, 2010), available at: http://www.naturalnews.com/029130_Gulf_of_Mexico_censorship.html

Bhattacharyya, S., P.L. Klerks, and J.A. Nyman. 2003. Toxicity to freshwater organisms from oils and oil spill chemical treatments in laboratory microcosms. Environmental Pollution 122:205-215.

Chokkavelu, Anand, “The BP Stat That Will Shock You,” Motley Fool (July 9, 2010), available at: http://www.msnbc.msn.com/id/38165954/ns/business-motley_fool/

Clean Water Act

Coleman, Leigh and Younglai, Rachelle, “Spill puts Obama’s oil fund chief on hostile turf,” Reuters (July 27, 2010)

EPA: http://www.epa.gov/oem/content/lawsregs/opaover.htm

Fed. R. Civ. Proc. 23(h), Federal Rules of Civil Procedure

Fisher, Daniel and Hawkins, Asher, “BP’s Legal Blowout,” Forbes.com (July 14, 2010)

Greenwald, Glenn, “The BP/Government police state,” Salon (July 5, 2010), available at: http://www.salon.com/news/opinion/glenn_greenwald/2010/07/05/bp/index.html

Hals, Tom, “Analysis: BP investors face tough road in court fights,” Reuters (July 16, 2010)

Hudson, Kris and Baskin, Brian, “Fears Mount That Fund Won’t Cover All Damages,” The Wall Street Journal (July 15, 2010)

Kindy, Kimberly, “Recovery effort falls vastly short of BP’s promises,” Washington Post (July 6, 2010), available at:
http://www.washingtonpost.com/wp-dyn/content/article/2010/07/05/AR2010070502937.html

Kirby, Brendan, “BP, federal government remain silent on when company will fund Gulf oil spill account,” Press-Register (July 26, 2010)

Lustgarten, Abrahm, “Chemicals Meant To Break Up BP Oil Spill Present New Environmental Concerns,” ProPublica (April 30, 2010), available at: http://www.propublica.org/article/bp-gulf-oil-spill-dispersants-0430

MMS: http://www.mms.gov/

Murtaugh, Dan, “Attorney General Eric Holder says he’ll try to address oil spill claims concerns,” Press-Register (July 15, 2010)

Murtaugh, Dan, “Feinberg says BP hasn’t put money in escrow account yet,” Press-Register (July 24, 2010)

National Contingency Plan

NOAA: http://www.noaa.gov/

Oil Pollution Act of 1990

Peters, Jeremy W., “Efforts to Limit the Flow of Spill News,” The New York Times (June 9, 2010)

Philips, Matthew, “BP’s Photo Blockade of the Gulf Oil Spill,” Newsweek (May 26, 2010), available at: http://www.newsweek.com/2010/05/26/the-missing-oil-spill-photos.html

Schoof, Renee and Bolstad, Erika, “BP well may be spewing 100,000 barrels a day, scientist says,” McClatchy Newspapers (June 7, 2010), available at: http://www.mcclatchydc.com/2010/06/07/95467/bp-well-may-be-spewing.html

Schoof, Renee, “Scientists propose big experiment to study Gulf oil spill,” McClatchy Newspapers (July 11, 20100, available at:
http://www.miamiherald.com/2010/07/11/1725271/scientists-propose-big-experiment.html

Schwartz, John, “More Delicate Diplomacy for the Overseer of the Compensation Fund,” The New York Times (July 16, 2010)

Stier, Byron G., “Ken Feinberg Compensation for Administering BP Fund – A Problem and Possible Solution,” available at: http://lawprofessors.typepad.com/mass_tort_litigation/2010/07/ken-feinberg-compensation-for-administering-bp-fund-a-problem-and-possible-solution.html

USA Today: http://content.usatoday.com/communities/greenhouse/post/2010/05/how-responsible-is-us-government-for-gulf-oil-spill/

USCG: http://www.uscg.mil/

Walsh, Bryan, “The Oil Spill and the Perils of Losing Trust,” Time (July 7, 2010), available at: http://ecocentric.blogs.time.com/2010/07/07/the-oil-spill-and-the-perils-of-losing-trust/
 

 

Further Reading
The Gulf Coast Claims Facility Limits BP’s Liability and Guarantees the Oil Company’s Continued Operation in the Gulf of Mexico

Is the BP Oil Spill Victim Compensation Fund Legitimate?

Will Victims of the BP Oil Gusher Also Be Victims of Class Action Lawsuits and the BP Oil Spill Victim Compensation Fund?

BP’s Strategy to Limit Liability in Regard to Its Gulf Oil Gusher

Why BP Does Not Want an Accurate Measurement of the Gulf Oil Spill

The Oil Pollution Act Provides for the Federalization of the BP Oil Spill

BP is Not the Only Responsible Party

BP Oil Spill of April, 2010: Why Class Action Lawsuits May Not be in the Best Interests of Potential Plaintiffs
 

 

About the Author
Brian J. Donovan is an attorney and marine engineer with thirty-five years of international business experience.

Mr. Donovan, a member of The Florida Bar, The U.S. District Court, Middle District of Florida and The United States Court of Appeals for the Eleventh Circuit, holds a J.D. from Syracuse University College of Law (where he was recipient of the “Global Law & Practice Award” as the outstanding graduate in the areas of International Law and International Business Law) and a B.S., with honors, in Marine/Mechanical and Nuclear Engineering from the United States Merchant Marine Academy.

Mr. Donovan, with deep family roots in southern Louisiana, has first-hand knowledge of the catastrophic devastation of the Louisiana Gulf Coast caused by hurricanes Katrina and Rita. He fully appreciates that the damage caused by Katrina and Rita may pale in comparison to the massive and potentially unprecedented environmental and economic impact of the BP oil gusher of April, 2010.

Is The BP Oil Spill Victim Compensation Fund Legitimate?

Is The BP Oil Spill Victim Compensation Fund Legitimate?

By Brian J. Donovan

July 27, 2010

INTRODUCTION

On June 16, 2010 President Obama announced that BP has agreed to set aside $20 billion to pay economic damage claims to people and businesses that have been affected by the BP oil gusher. President Obama stated, “This $20 billion will provide substantial assurance that the claims people and businesses have will be honored. It’s also important to emphasize this is not a cap.  The people of the Gulf have my commitment that BP will meet its obligations to them. BP has publicly pledged to make good on the claims that it owes to the people in the Gulf, and so the agreement we reached sets up a financial and legal framework to do it.

Another important element is that this $20 billion fund will not be controlled by either BP or by the government. It will be put in a escrow account, administered by an impartial, independent third party. So if you or your business has suffered an economic loss as a result of this spill, you’ll be eligible to file a claim for part of this $20 billion. This fund does not supersede either individuals’ rights or states’ rights to present claims in court. BP will also continue to be liable for the environmental disaster it has caused, and we’re going to continue to work to make sure that they address it.”

BP and the Obama administration agreed to appoint Kenneth Feinberg, a Washington lawyer and Democratic Party supporter who administered the claims process for victims of 9/11, to run the independent claims process commonly referred to as the BP Oil Spill Victim Compensation Fund (BPOSVCF).  Feinberg declines to comment on how much BP is paying him to run the BPOSVCF.

BP OIL SPILL LIABILITY

Estimates of BP’s oil spill liability by financial analysts and environmental economists range from $60 billion to $90 billion. The truth is that these are merely guesstimates. The actual cost will not be known for years.

Containment, Collection and Clean-up
To date, BP has spent $4 billion on oil containment, collection and clean-up. This equates to approximately $40 million per day. Assuming clean-up continues for 750 days, at this rate the cost would total $30 billion.

BPOSVCF
BPOSVCF addresses compensation for victims of the BP oil spill. BP allegedly intends to deposit $20 billion in an escrow account to fund the BPOSVCF. The amount of compensation payable to victims for “legitimate” claims is not capped and could total $40 billion.

Penalties and Fines
Under the Clean Water Act (CWA), BP faces fines of up to $4,300 for each barrel spilled. Furthermore, pursuant to Section 2702 of Oil Pollution Act of 1990 (OPA), BP would be required to pay royalties (18.75%) owed to the federal government for the oil gushing from the well.

As of July 27, 2010, regardless of whether you prefer to say “spill” or “gusher,” these are the numbers to consider:

Total Amount of Oil Released to Date: 4,675,000 barrels
Amount of Oil Recovered by BP to Date (via Containment Cap): 826,800 barrels
Oily Water Recovered (via Skimming): 823,810 barrels of oily water = 82,381 barrels of oil
Oil Consumed by Controlled Burns: 264,286 barrels
Total Amount of Unrecovered Oil in the Gulf of Mexico to Date: 3,501,533 barrels

In this case, it may be argued “Barrels Spilled” means either:
(a) Total Amount of Oil Released to Date: 4,675,000 barrels or
(b) “Oil Consumed by Controlled Burns” + “Total Amount of Unrecovered Oil in the Gulf of Mexico” = 264,286 + 3,501,533 = 3,765,819 barrels of oil spilled.

The definition of “Barrels Spilled” will probably be determined by whether BP has sold the oil that it has recovered via the containment cap and skimming. As explained below, on June 8, 2010, BP announced it would donate the net revenue from the sale of oil recovered via the containment cap and skimming to a wildlife fund to help restore and improve wildlife habitat in Louisiana, Mississippi, Alabama, and Florida.

Under the CWA alone, gross negligence penalties based upon 4,675,000 barrels of oil spilled would equal $20.1 billion; gross negligence penalties based upon 3,765,819 barrels of oil spilled would equal $16.2 billion.

Under OPA, BP is required to pay a royalty of 18.75% to the federal government for the oil gushing from the well. Assuming oil is selling at an average of $70 a barrel, U.S. taxpayers should receive a royalty payment of $61.4 million from BP for the total amount of oil released to date.

BP’s liability, based upon the above-estimated amounts for oil containment, collection and clean-up, BPOSVCF and penalties and fines would total between $66.3 billion and $90.2 billion.

THE FUND

Funding of BPOSVCF
In a June 16, 2010 news release, BP stated it will pay $3 billion into the fund in the third quarter of this year and another $2 billion in the fourth quarter. That will be followed by quarterly payments of $1.25 billion until the full $20 billion has been paid. The company said the fund will be backed by the assets of its U.S. subsidiary.

On July 24, 2010, the Press-Register reported, “BP spokesman Justin Saia said the company’s agreement with the White House is still being finalized. ‘Funds will be made available immediately upon the conclusion of this process,’ he said.”

On July 26, 2010, the Press-Register reported, “BP spokesman Daren Beaudo said the company had no new information on the negotiations surrounding the $20 billion pledge. Neither Beaudo, nor the U.S. Department of Justice, which is handling negotiations for the government, would discuss how long those talks might take, whether there are serious substantive differences or where the deposited money would be held while claims are processed.”

BP’s Ability to Fund BPOSVCF
BP’s current operating income is estimated to be $34 billion in 2010. BP has the fourth highest revenues and profits of the Fortune 500.

According to estimates from bond rating agency Moody’s, BP has total proven reserves of approximately 18 billion barrels of oil in the ground.

In releasing second-quarter results on July 27, 2010, BP said it was taking a pretax charge of $32 billion to cover damages, business claims and cleanup costs related to its oil spill. That total will be offset against its U.S. tax bill, resulting in a $10 billion reduction in taxes, the company said. Although legal, it would be adding insult to injury to allow BP’s costs from its oil spill to come out of taxes it owes to the U.S. government. According to its 2009 annual report, BP paid $10.4 billion in taxes world-wide last year.

BP has the responsibility and financial wherewithal to fully compensate each and every BP oil gusher victim.
 

The Potential Benefits

The potential benefits of the BPOSVCF include:
(a) the facilitation of settlement for those claims where litigation otherwise would not be brought because the value of individual claims is so small that it is not economically feasible to bring individual lawsuits. Such negative value claims may be feasible only when grouped in a class action, where the overhead of bringing the lawsuit is shared among all class members;

(b) the protection of BP from financial uncertainty due to ongoing and potentially inconsistent litigation;

(c) the protection of the interests of the BP victims if their claims are fully paid in a timely manner by BP;

(d) the provision of a convenient and economical means for disposing of legitimate claims: BPOSVCF could eliminate costly attorneys’ fees associated with time-consuming litigation due to the avoidance of pre-trial procedures, the reduced emphasis on evidentiary processes such as discovery, depositions, etc.;

(e) since BP and BP’s victims are directly engaged in the negotiation of the settlement, the BPOSVCF may be more collaborative and less antagonistic as compared to litigation thereby rebuilding the relationship between BP and the community;

(f) the BPOSVCF settlement is more likely to produce a final payment, resolution of the dispute and closure than is a trial court judgment which can be appealed; and

(g) the BPOSVCF saves the resources of the courts by permitting an issue to be settled in an economical fashion without the need for litigation.
 

The Potential Risks

The potential risks of the BPOSVCF include:
(a) the failure of BP to fund the BPOSVCF: The question is whether the BPOSVCF is merely another hollow BP promise similar to the “BP wildlife fund.” As of July 26, 2010, BP reports that it has made 77,880 payments to claimants for a total amount of $235 million. This equates to an average payment of only $3,018 per claimant.

(b) the fact that memories fade with the passage of time: Therefore, if the BPOSVCF is merely a delaying tactic on the part of BP to postpone the day of financial judgment, lawsuits should be filed by BP’s victims and witnesses should be deposed as soon as possible. In the absence of a well-funded BPOSVCF, postponing litigation will only benefit BP;

(c) the reality that BP’s victims face a settlement offer from BP without benefit of adversarial investigation;

(d) the BPOSVCF terminates emergency payment claims ninety days after the well is capped and allows for just one final lump-sum settlement payment thereafter;

(e) the fact that it is too early to calculate the damages for some potential claimants. For example, the benzene in spilled oil can cause leukemia and lymphoma which may not be diagnosed for several years;

(f) a continued delay in the funding of the BPOSVCF by BP which may place many claimants in the financial position of having to accept a final settlement offer from BP that is substantially lower than the amount an independent third-party mediator would consider to be fair and reasonable. Moreover, in order to receive the final settlement offer, the claimants must waive any right to bring further court proceedings against BP; and

(g) the unique nature of the BPOSVCF: In arbitration and mediation, the parties have considerable control over the selection of the arbitrator or mediator. The parties can agree on the type of experience and expertise the arbitrator or mediator should have. In this case, BP victims have no control over who hears their claims. BP victims must blindly trust the knowledge, experience and fairness of Kenneth Feinberg.

ADMINISTRATION OF THE FUND

BP and the Obama administration agreed to appoint Kenneth Feinberg, a Washington lawyer and Democratic Party supporter who administered the claims process for victims of 9/11, to run the BPOSVCF.  Feinberg is due to take full control by August 10, 2010.

The BPOSVCF will operate for three years. Feinberg explains the compensation plan includes two components: a no-obligation six month emergency payment for lost income and a final lump-sum payment with acceptance of release for BP. All victims can apply for the six month payment, up until ninety days after the well is capped. However, if claimants choose to accept the second and final BPOSVCF offer, they waive any right to bring further court proceedings against BP.

Feinberg plans to apply tort law principles in weighing claims, meaning plaintiffs will have to show that their losses wouldn’t have occurred “but for” the oil spill.

The Appearance of a Conflict of Interest
Reuters reports, “In Bayou La Batre, a small fishing community in south Alabama, Feinberg convened an early-morning session on Saturday (July 24, 2010) to listen to residents’ concerns and answer questions on the claims process.” “I learned today the depth of frustration in people here on the coast,” a visibly-tired looking Feinberg said. “I am your lawyer. I do not work for BP. I do not work for the White House. I work and answer to the residents of the Gulf.”

The residents of Bayou La Batre find that hard to believe. They know that Feinberg is being compensated by BP, travels on a private jet paid for by BP, and has requested that lawyers for BP, not attorneys general from the Gulf states, be involved in drafting releases that exempt BP – but not other potential defendants – from any future liability for the spill.

Bloomberg reports that on July 15, 2010, during a meeting with local government officials in Harahan, Louisiana, “Councilman Thomas Capella from Jefferson Parish, Louisiana asked Feinberg if claimants should hire an attorney. Feinberg said that’s not necessary because his office will have attorneys on staff to provide free services to individuals and businesses.” The fact that Feinberg’s attorneys intend to represent both BP and BP’s victims, clearly appears to be a conflict of interest to BP victims in Louisiana.
 

BPOSVCF Administrator’s Compensation
Feinberg declines to comment on how much BP is paying him to run the BPOSVCF. Is it appropriate for Feinberg to keep his compensation from BP confidential?

Professor Byron Stier, an expert in mass tort litigation and a member of the Southwestern Law School faculty, makes the following observations on his Mass Tort Litigation blog. Professor Stier states, “Feinberg will likely have tremendous discretion in fashioning the administrative claim mechanism for the BP compensation fund.  His exercise of discretion could possibly result in BP saving substantial funds, especially if any remainder of the $20 billion fund is to be returned to BP. Accordingly, a fair process at a minimum requires that both the amount of his compensation, and the method of compensation be disclosed publicly.  If BP has the ability to review and cut his billable hours or his billable-hour rate, for example, Feinberg might have a conflict of interest that could lead him unconsciously to favor BP in structuring the administrative fund or making awards.  As a result, in addition to public disclosure, an even better solution might be for BP and Feinberg also to agree to have a federal judge review Feinberg’s billable hours, billable-hour rate, and total fee, much as is already typically done by judges reviewing class counsel fee awards in class-action settlements under Rule 23.  See Fed. R. Civ. P. 23(h).

Federal judges have their compensation set publicly and in a manner that could not be said to incentivize them to favor one litigant over another.  We would never approve of a judge being paid confidentially by only one litigant – and we shouldn’t here either, especially when the claims structure could be seen as quasi-public in light of the President’s central involvement and comments that “in order to ensure that all legitimate claims are paid out in a fair and timely manner, the account must and will be administered by an independent, third party.”  Ultimately, removing the issue of Feinberg’s fees from any controversy would aid Feinberg in making the BP fund a success.”

Complete transparency is essential in order to avoid the appearance that the BPOSVCF is not being administered by an impartial, independent third party. Public disclosure of at least the following information is required to ensure this transparency:

(a) The final written agreement entered into between BP and the federal government;
(b) The final written agreement entered into between Mr. Feinberg and the federal government;
(c) The final written agreement entered into between Mr. Feinberg and BP;
(d) Any and all standard written agreements that may be entered into between BPOSVCF and claimants, e.g., emergency payment agreement and final settlement agreement with waiver;
(e) The name and location of the financial institution where the BPOSVCF escrow account is held;
(f) A monthly accounting of the escrow account;
(g) An itemized accounting of payments, if any, made to BP by the BPOSVCF; and
(h) A detailed accounting of the operating costs, including staff attorney compensation, of the BPOSVCF.

THE BP WILDLIFE FUND

On June 8, 2010, BP announced it would donate the net revenue from the sale of oil recovered via the containment cap and skimming to a wildlife fund to help restore and improve wildlife habitat in Louisiana, Mississippi, Alabama, and Florida.

McClatchy Newspapers reported, “The company said it doesn’t know exactly how much money it’ll donate to the fund, but all net revenue from the well will go to the fund. So will the net revenue from any oil skimmed from the ocean’s surface and sold to a refinery for processing.

The wildlife fund will create, restore, improve and protect wildlife habitat along the coastline of Louisiana, Mississippi, Alabama and Florida, Tony Hayward, the company’s chief executive, said in a statement. The company also took pains to note that its contribution is voluntary; the fund it’s creating is ‘over and above BP’s obligations under the Oil Pollution Act of 1990.’ The money will be made available to state agencies and non-profits that are focused on wildlife protection and restoration, the company said.”

According to the McClatchy article, Hayward stated, BP is “committed to protecting the ecosystems and wildlife on the Gulf Coast.” “We believe these funds will have a significant positive impact on the environment in this region.”

BP said it would continue to donate all net revenue from the well until it “is killed and oil is no longer coming from this source.”

As of July 27, 2010, let’s calculate how much the BP wildlife fund should have received:

Given:
Amount of Oil Recovered by BP to Date (via Containment Cap): 826,800 barrels
Oily Water Recovered (via Skimming): 823,810 barrels of oily water = 82,381 barrels of oil
Total Amount of Oil Recovered by BP to Date: 909,181 barrels

Assuming: (a) oil is selling at an average of $70 a barrel; (b) BP has to pay a royalty of 18.75% to the federal government; and (c) BP has to pay the 35 percent share it owes to its co-owners in the lease, as of July 27, 2010, the BP wildlife fund should have received $33.6 million from BP.

As of July 27, 2010, the BP wildlife fund remains merely another BP public relations stunt. BP has not formed a wildlife fund, established an escrow account for Tony Hayward’s promised wildlife fund or donated any percentage of the net revenue from the sale of oil recovered via the containment cap and skimming to a wildlife fund, state agency or non-profit to help restore and improve wildlife habitat in Louisiana, Mississippi, Alabama, and Florida.

CONCLUSION

It is too early to tell if the BPOSVCF is legitimate. This BP fund may be no better than the BP wildlife fund or it may be the vehicle that will rebuild the relationship between BP and the community. BP oil spill victims should treat the BPOSVCF like an approaching hurricane, “hope for the best, prepare for the worst.”

The people and businesses of the Gulf will be made whole either by negotiating a settlement with BP, via the BPOSVCF, or by filing a lawsuit against BP.  BP oil spill victims must realize that Kenneth Feinberg is not their lawyer. Each and every BPOSVCF claimant should immediately seek competent local legal counsel to represent his or her interests. Each and every BP oil spill victim should then immediately file a claim with BPOSVCF for a no-obligation six month emergency payment. The attorney will be able to advise the client on the maximum amount that may be recoverable under the emergency payment and will ensure that the claimant has the proper detailed documentation prior to submitting the claim. Most attorneys will be willing to provide this legal counsel on a pro bono basis. Upon receipt of the emergency payment, the claimant should consult with his or her legal counsel in regard to negotiating a final settlement with BP. The negotiating of a final settlement is complex and requires the claimant to waive any right to bring further court proceedings against BP. Here, it is essential for the claimant to be represented by legal counsel. Most attorneys will be willing to represent claimants during this phase of the negotiations on a contingent fee basis. A contingent fee of seven to ten percent would be money well spent. In order to be made whole, claimants must be willing to transform into plaintiffs if the final settlement offered by BP is unacceptable. However, BP oil spill victims should not become victims of class action lawsuits. Competent local legal counsel will be able to advise as to the proper litigation strategy.

The legitimacy of the BPOSVCF will not be determined by BP’s well-produced TV commercials or well-rehearsed townhall meetings. It will be defined by BP’s willingness to fully meet its obligations to the people and businesses of the Gulf in a transparent and timely manner.

APPENDICES

References
Adams, Mike, “First Amendment suspended in the Gulf of Mexico as spill cover-up goes Orwellian,” NaturalNews (July 3, 2010), available at: http://www.naturalnews.com/029130_Gulf_of_Mexico_censorship.html

Bhattacharyya, S., P.L. Klerks, and J.A. Nyman. 2003. Toxicity to freshwater organisms from oils and oil spill chemical treatments in laboratory microcosms. Environmental Pollution 122:205-215.

Chokkavelu, Anand, “The BP Stat That Will Shock You,” Motley Fool (July 9, 2010), available at: http://www.msnbc.msn.com/id/38165954/ns/business-motley_fool/

Clean Water Act

Coleman, Leigh and Younglai, Rachelle, “Spill puts Obama’s oil fund chief on hostile turf,” Reuters (July 27, 2010)

EPA: http://www.epa.gov/oem/content/lawsregs/opaover.htm

Fed. R. Civ. Proc. 23(h), Federal Rules of Civil Procedure

Fisher, Daniel and Hawkins, Asher, “BP’s Legal Blowout,” Forbes.com (July 14, 2010)

Greenwald, Glenn, “The BP/Government police state,” Salon (July 5, 2010), available at:
http://www.salon.com/news/opinion/glenn_greenwald/2010/07/05/bp/index.html

Hals, Tom, “Analysis: BP investors face tough road in court fights,” Reuters (July 16, 2010)

Hudson, Kris and Baskin, Brian, “Fears Mount That Fund Won’t Cover All Damages,” The Wall Street Journal (July 15, 2010)

Kindy, Kimberly, “Recovery effort falls vastly short of BP’s promises,” Washington Post (July 6, 2010), available at:
http://www.washingtonpost.com/wp-dyn/content/article/2010/07/05/AR2010070502937.html

Kirby, Brendan, “BP, federal government remain silent on when company will fund Gulf oil spill account,” Press-Register (July 26, 2010)

Lustgarten, Abrahm, “Chemicals Meant To Break Up BP Oil Spill Present New Environmental Concerns,” ProPublica (April 30, 2010), available at: http://www.propublica.org/article/bp-gulf-oil-spill-dispersants-0430

MMS: http://www.mms.gov/

Murtaugh, Dan, “Attorney General Eric Holder says he’ll try to address oil spill claims concerns,” Press-Register (July 15, 2010)

Murtaugh, Dan, “Feinberg says BP hasn’t put money in escrow account yet,” Press-Register (July 24, 2010)

National Contingency Plan

NOAA: http://www.noaa.gov/

Oil Pollution Act of 1990

Peters, Jeremy W., “Efforts to Limit the Flow of Spill News,” The New York Times (June 9, 2010)

Philips, Matthew, “BP’s Photo Blockade of the Gulf Oil Spill,” Newsweek (May 26, 2010), available at: http://www.newsweek.com/2010/05/26/the-missing-oil-spill-photos.html

Schoof, Renee and Bolstad, Erika, “BP well may be spewing 100,000 barrels a day, scientist says,” McClatchy Newspapers (June 7, 2010), available at: http://www.mcclatchydc.com/2010/06/07/95467/bp-well-may-be-spewing.html

Schoof, Renee, “Scientists propose big experiment to study Gulf oil spill,” McClatchy Newspapers (July 11, 20100, available at:
http://www.miamiherald.com/2010/07/11/1725271/scientists-propose-big-experiment.html

Schwartz, John, “More Delicate Diplomacy for the Overseer of the Compensation Fund,” The New York Times (July 16, 2010)

Stier, Byron G., “Ken Feinberg Compensation for Administering BP Fund – A Problem and Possible Solution,” available at: http://lawprofessors.typepad.com/mass_tort_litigation/2010/07/ken-feinberg-compensation-for-administering-bp-fund-a-problem-and-possible-solution.html

USA Today: http://content.usatoday.com/communities/greenhouse/post/2010/05/how-responsible-is-us-government-for-gulf-oil-spill/

USCG: http://www.uscg.mil/

Walsh, Bryan, “The Oil Spill and the Perils of Losing Trust,” Time (July 7, 2010), available at:
http://ecocentric.blogs.time.com/2010/07/07/the-oil-spill-and-the-perils-of-losing-trust/
 

 

About the Author
Brian J. Donovan is an attorney and marine engineer with thirty-five years of international business experience.

Mr. Donovan, a member of The Florida Bar, The U.S. District Court, Middle District of Florida and The United States Court of Appeals for the Eleventh Circuit, holds a J.D. from Syracuse University College of Law (where he was recipient of the “Global Law & Practice Award” as the outstanding graduate in the areas of International Law and International Business Law) and a B.S., with honors, in Marine/Mechanical and Nuclear Engineering from the United States Merchant Marine Academy.

Mr. Donovan, with deep family roots in southern Louisiana, has first-hand knowledge of the catastrophic devastation of the Louisiana Gulf Coast caused by hurricanes Katrina and Rita. He fully appreciates that the damage caused by Katrina and Rita may pale in comparison to the massive and potentially unprecedented environmental and economic impact of the BP oil gusher of April, 2010.

 

Further Reading
Will Victims of the BP Oil Gusher Also Be Victims of Class Action Lawsuits and the BP Oil Spill Victim Compensation Fund?

BP’s Strategy to Limit Liability in Regard to Its Gulf Oil Gusher

Why BP Does Not Want an Accurate Measurement of the Gulf Oil Spill

The Oil Pollution Act Provides for the Federalization of the BP Oil Spill

BP is Not the Only Responsible Party

BP Oil Spill of April, 2010: Why Class Action Lawsuits May Not be in the Best Interests of Potential Plaintiffs

Will Victims of the BP Oil Gusher Also Be Victims of Class Action Lawsuits and the BP Oil Spill Victim Compensation Fund?

Will Victims of the BP Oil Gusher Also Be Victims of Class Action Lawsuits
and the BP Oil Spill Victim Compensation Fund?

By Brian J. Donovan

July 16, 2010

INTRODUCTION

The question is whether victims of the BP oil gusher will have to pay thrice: (a) once for the gusher, the environmental and economic damages of which will devastate their way of life and leave many in financial ruin; (b) again for daring to demand justice, which will consume their time, energy and hopes for years to come if they are held hostage by class action lawsuits; and (c) a third time by being mislead and undercompensated by the “BP Oil Spill Victim Compensation Fund (BPOSVCF).”

THE BP OIL GUSHER

The damages suffered by victims of the BP oil gusher will be enormous and on-going. The livelihoods of all persons whose businesses rely on the natural resources of the Gulf Coast are at risk. Commercial fishermen, oyster harvesters, shrimpers, and  businesses involved, directly or indirectly, in processing and packaging for the seafood industry will experience the end of a way of life that, in many cases, has been passed down from one generation to the next.

Pursuant to the Oil Pollution Act of 1990 (OPA), for an offshore facility the total of the liability of a responsible party and any removal costs incurred by, or on behalf of, the responsible party, with respect to each incident shall not exceed the total of all removal costs plus $75,000,000.

However, this limit on liability “does not apply if the incident was proximately caused by gross negligence, willful misconduct of, or the violation of an applicable federal safety, construction, or operating regulation by, the responsible party, an agent or employee of the responsible party, or a person acting pursuant to a contractual relationship with the responsible party.”

OPA broadened the scope of damages (i.e., costs) for which an oil spiller would be liable. Under OPA, a responsible party is liable for all cleanup costs incurred, not only by a government entity, but also by a private party. In addition to cleanup costs, OPA significantly increased the range of liable damages to include the following:

• injury to natural resources,
• loss of personal property (and resultant economic losses),
• loss of subsistence use of natural resources,
• lost revenues resulting from destruction of property or natural resource injury,
• lost profits resulting from property loss or natural resource injury, and
• costs of providing extra public services during or after spill response.

Given BP’s documented violation of federal safety regulations aboard the Deepwater Horizon, e.g., using an improper cementing technique to seal the well, failing to adequately test and maintain blowout prevention equipment and drilling deeper than BP’s federal permit allowed, there will be no limitation on BP’s liability. (Oil Pollution Act of 1990, 33 U.S.C. 2704).

Furthermore, BP may be liable to the United States and to Louisiana for damages resulting from lost royalties. Pursuant to Section 2702 of OPA, “Notwithstanding any other provision or rule of law, and subject to the provisions of this Act, each responsible party for a vessel or a facility from which oil is discharged, or which poses the substantial threat of a discharge of oil, into or upon the navigable waters or adjoining shorelines or the exclusive economic zone is liable for the removal costs and damages specified in subsection (b) of this section that result from such incident…”, including revenue losses such as “taxes, royalties, rents, fees, or net profit shares due to the injury, destruction, or loss of real property, personal property, or natural resources, which shall be recoverable by the Government of the United States, a State, or a political subdivision thereof.” (Oil Pollution Act of 1990, 33 U.S.C. 2702(b)(2)(D)).

BP also faces uncapped liability under a little-known Clean Water Act (CWA) civil damages provision.

Pursuant to Section 1321 of the CWA, “Any person who is the owner, operator, or person in charge of any vessel, onshore facility, or offshore facility from which oil or a hazardous substance is discharged in violation of paragraph (3), shall be subject to a civil penalty in an amount up to $25,000 per day of violation or an amount up to $1,000 per barrel of oil or unit of reportable quantity of hazardous substances discharged. In any case in which a violation of paragraph (3) was the result of gross negligence or willful misconduct of a person described in subparagraph (A), the person shall be subject to a civil penalty of not less than $100,000, and not more than $3,000 per barrel of oil or unit of reportable quantity of hazardous substance discharged.” (Clean Water Act, 33 U.S.C. 1321).

Under the CWA, the basic fine is $1,100 per barrel spilled. But the penalty can rise to $4,300 a barrel if a federal court rules the spill resulted from gross negligence. As noted above, the fines were originally set at $1,000 to $3,000 but that was raised in 2004 to keep up with inflation. Accordingly, the number of barrels of oil being released from the well is going to be critical.

If the government pursues civil fines based on the volume of oil spilled, it would take into consideration whether BP has made its best effort to mitigate the spill, its prior history of offenses, if any, and whether BP can bear the cost of fines, among other factors. BP received the third-largest criminal penalty, of $50 million, for an environmental offense in U.S. history for a Texas City refinery fire in 2005. BP subsidiaries remain under federal probation for prior offenses in Texas and Alaska.

As of July 16, 2010, regardless of whether you prefer to say “spill” or “gusher,” these are the numbers to consider:

Total Amount of Oil Released to Date: 4,675,000 barrels
Amount of Oil Recovered by BP to Date (via Containment Cap): 826,800 barrels
Oily Water Recovered (via Skimming): 792,857 barrels of oily water = 79,286 barrels of oil
Oil Consumed by Controlled Burns: 261,191 barrels
Total Amount of Unrecovered Oil in the Gulf of Mexico to Date: 3,507,743 barrels

In this case, “Barrels Spilled” means “Oil Consumed by Controlled Burns” + “Total Amount of Unrecovered Oil in the Gulf of Mexico” = 261,191 + 3,507,743 = 3,768,934 barrels of oil spilled.

Under the CWA alone, gross negligence penalties based upon 3,768,934 barrels of oil spilled would equal $16,206,416,200. This equates to a penalty of approximately $191 million per day. BP’s net profits in the first quarter of 2010 were approximately $6.7 million per day.

It is obvious why BP, despite having the ability to obtain a very accurate flow rate, does not want a more accurate oil spill measurement. It is also very obvious why BP does not want to collect a great deal of the oil spill. Since April 22, 2010, BP admits that its skimming operations have been able to recover only 792,857 barrels of oily water. This equates to collecting a total of only 79,286 barrels of oil from the Gulf of Mexico since April 22, 2010.

The federal government has abdicated its responsibility. Pursuant to OPA Section 4201, and given that the BP oil spill is a “discharge posing substantial threat to public health or welfare,” President Obama should have federalized the collection of the oil that is in the sea and the restoration of the coastal areas impacted by the oil. Both of these activities could be done without having to federalize the operational priority of stopping the flow of oil from the well.

The Obama administration has no intention of holding BP accountable under either OPA 90 or CWA. Under the CWA, BP faces fines of up to $4,300 for each barrel spilled. Furthermore, pursuant to Section 2702 of OPA 90, BP would be required to pay royalties (18.75%) owed to the federal government for the oil gushing from the well.

If the federal government intended to collect $4,300 and a royalty of 18.75% for each barrel spilled, it would:

(a) try to have at least a very rough estimate of the number of barrels gushing from the BP well. This estimate does not exist. From April 28th to May 27th, the official estimated flow rate was 5,000 bbl/day. This intentionally underestimated amount of oil being released from the BP well was from NOAA, not BP. NOAA fully supported, and continues to fully support, BP’s strategy to underestimate the amount of oil being released from the well. “I think the estimate at the time was, and remains, a reasonable estimate,” said Dr. Lubchenco, the NOAA administrator. “Having greater precision about the flow rate would not really help in any way. We would be doing the same things.”

(b) collect every barrel of oil that is released into the Gulf of Mexico before it reaches the marshes of Louisiana and the beaches of Alabama, Mississippi and Florida. This would require stopping the use of dispersants to allow the oil to reach the surface and using tankers to collect the oil. To date, the federal government has allowed BP to use more than 1,840,000 gallons of oil dispersant.

An accurate measurement of the flow of oil and collection of the oil spilled into the Gulf of Mexico could change the way people remember this gusher and their opinion of BP.  Once the leak is plugged and the oil is dispersed throughout the oceans of the world, who’s to say for certain whether BP’s oil well blowout gushed an average of 1,000 or 100,000 bbl/day of oil?

CLASS ACTION LAWSUITS

Teams of lawyers from across the country have descended on the Gulf Coast to file potential class-action lawsuits to recover damages suffered by the lead plaintiff(s) and absent class members as a result of the BP oil gusher.

A class action is a procedural device that permits one or more plaintiffs to file and prosecute a lawsuit on behalf of a larger group. The larger group consists of the class members who have suffered the same wrong at the hands of the defendant but who are too numerous for the court to adequately manage the lawsuit if each class member were required to be joined as named plaintiffs.

In order to proceed as a class action, the case must be “certified” as a class action: that is, a court must determine that the class action criteria set forth in Rule 23 of the Federal Rules of Civil Procedure have been met. A class certified under Rule 23(b)(3) is distinct from a class certified under Rule 23(b)(1) or (2) in one important way. If a Rule 23(b)(3) class is certified, “notice” of the class action must be sent to class members and an opportunity to “opt-out” of the class must be provided. In contrast, a class certified under Rule 23(b)(1) or (2) is “mandatory,” notice is not required, and no class member may opt-out. Despite requirements regarding the notice that must be given to absent class members, there is always the possibility that many class members will not receive notice of the litigation or that such notice will be insufficient to fully inform them of their rights, thereby depriving them of any meaningful opportunity to opt-out.

If a class is certified and the class representatives are unsuccessful, the absent class members‘ claims will be “legally obliterated” by the result of the litigation, even though they did not actively participate in the suit.

The Supreme Court has observed that, while the text of Rule 23 does not preclude certification in cases with significant damages, the drafters “had dominantly in mind” the use of the class action to aggregate relatively small individual recoveries into a case that would be worthwhile for an attorney to litigate.

Given that the damages suffered by the vast majority of individual potential plaintiffs as a result of the BP oil gusher are potentially so great, it should be economically feasible for many individual plaintiffs to file individual lawsuits. Here, class treatment would not be necessary to permit effective litigation of the claim. An individual lawsuit would: (a) ensure the plaintiff that the plaintiff’s attorney has his or her best interests in mind; (b) protect the plaintiff’s due process rights; (c) ensure that the plaintiff is not a victim of a class action case in which individual class members receive little or no compensation and only plaintiffs‘ counsel stand to benefit from class certification; (d) give the plaintiff control over the prosecution of the case; (e) allow the plaintiff to present evidence of exposure, injury, and damages relating to his or her particular claim; and (f) allow the plaintiff to make the decision on whether or when to settle.

BP Plc, the responsible party, is a powerful and well-funded defendant, does not lack imagination or incentive to pose innumerable legal barriers, and will aggressively assert its legal rights and otherwise use the law, the courts and the judicial system to serve its interests. BP can afford to stall, and actually benefits from delay, but its victims cannot afford to wait for years to be fully compensated for their losses.

Victims of the BP oil gusher who have suffered significant losses should dare to demand justice by immediately seeking competent legal counsel, filing individual lawsuits, and actively participating in the litigation of their claims.

BP OIL SPILL VICTIM COMPENSATION FUND

On June 16, 2010 President Obama announced that BP has agreed to set aside $20 billion to pay economic damage claims to people and businesses that have been affected by the BP oil gusher. President Obama stated, “This $20 billion will provide substantial assurance that the claims people and businesses have will be honored. It’s also important to emphasize this is not a cap.  The people of the Gulf have my commitment that BP will meet its obligations to them. BP has publicly pledged to make good on the claims that it owes to the people in the Gulf, and so the agreement we reached sets up a financial and legal framework to do it.

Another important element is that this $20 billion fund will not be controlled by either BP or by the government. It will be put in a escrow account, administered by an impartial, independent third party. So if you or your business has suffered an economic loss as a result of this spill, you’ll be eligible to file a claim for part of this $20 billion. This fund does not supersede either individuals’ rights or states’ rights to present claims in court. BP will also continue to be liable for the environmental disaster it has caused, and we’re going to continue to work to make sure that they address it.”

The Obama administration indicated any money paid to claimants will be counted against future settlements, to prevent double-dipping.

BP and the Obama administration agreed to appoint Kenneth Feinberg, a Washington lawyer and Democratic Party supporter who administered the claims process for victims of 9/11, to run the independent claims process commonly referred to as the BP Oil Spill Victim Compensation Fund.  Feinberg declined to comment on how much BP is paying him to run the fund.

BP’s offer to settle quickly might be a savvy move if Feinberg can obtain ironclad releases from the shrimpers, hotel owners and thousands of other people who claim they’ve lost money because of the gusher. BP could save hundreds of millions of dollars in legal fees by preemptively funding the settlement. Feinberg said that at his request, lawyers for BP will be involved in drafting releases that exempt BP – but not other potential defendants – from any future liability for the spill. “This makes sense, since the release is designed to provide BP protection from lawsuits, and BP is paying $20 billion to satisfy claims,” Feinberg said in an e-mail message.

In theory, Feinberg and BP’s lawyers can craft an ironclad release, like the ones used to settle car-accident lawsuits every day. However, that could be a difficult proposition. “In practice, with this incident not only is there an ongoing catastrophe today, but its full effects won’t be felt for years,” said Burton LeBlanc, an attorney in the Baton Rouge, La., office of Baron & Budd, a Dallas firm that is prominent in asbestos and toxic-tort litigation. “The damages for some constituencies can’t be calculated yet.” Baron & Budd has even issued a news release reminding potential plaintiffs that the benzene in spilled oil can cause leukemia and lymphoma and pose “a serious health impact that can last for half a century.”

The BP fund is an attempt to buy peace by overwhelming potential plaintiffs with “easy” money. Companies have tried that before, with mixed success. Asbestos manufacturers failed miserably when they negotiated a global settlement with plaintiff lawyers in the early 1990s under which they’d pay out $300 million to injured workers in exchange for having cases of workers who were exposed, but not sick, valued at zero. The Supreme Court rejected the settlement in 1997 because it bound future claimants to terms they had no part in negotiating. The companies were out the $300 million and still faced thousands of asbestos lawsuits.

Feinberg’s Roadshow
On July 15, 2010, Feinberg, flying on a private jet paid for by BP, toured Louisiana and tried to assure affected residents they would be fairly compensated. He announced that he expects to set up shop for the independent BPOSVCF within the next two to three weeks. The BPOSVCF will operate for three years.

Feinberg explained the compensation plan includes two components: a no-obligation six month emergency payment for lost income and a final lump-sum payment with acceptance of release for BP. All victims can apply for the six month payment, up until ninety days after the well is capped. However, if claimants choose to accept the second and final BPOSVCF offer, they waive any right to bring further court proceedings against BP.

If victims do not consider the final offer sufficient, they may turn it down and pursue higher payments through the courts. However, Feinberg views the lack of court proceedings associated with his facility as a win-win for both sides. “Everyone should come in,” and the matter will be over with, in a matter of weeks or months, rather than years.

“When the oil has stopped, and we all know where it is heading, then I really urge you to come forward with a lump-sum request for payment,” Mr. Feinberg said on July 15th at a town-hall meeting attended by hundreds in Houma, La. Fielding repeated queries about how long-term damage from the spill will be measured, he said that his team would make its best estimates in calculating its final reimbursement offers.

Feinberg plans to apply tort-law principles in weighing claims, meaning plaintiffs will have to show that their losses wouldn’t have occurred “but for” the oil spill. “I am determined to come up with a system more generous and more beneficial than if you file a lawsuit,” Feinberg said.

Opposition to the BPOSVCF
On July 13, 2010, Alabama Attorney General Troy King wrote a letter to President Obama, urging the president to scrap Feinberg’s proposals for administering the BPOSVCF. “The document appears collusive at best and contrary to the public interest at worst,” King wrote to Obama. King said he was shocked that the Gulf states hadn’t been asked for input before Feinberg and BP reached the ninth draft of the plan. He called it “an illegal attempt” to limit BP’s liability under federal law. He also said that it aimed to keep people who have suffered damage out of state courts by making them sign a release waiving lawsuits or additional claims against BP.

“The federal government, especially the executive branch, has no business usurping state court jurisdiction and meddling in the state law liability arising from the oil spill,” King wrote.

Given that losses could continue for months or years after the gusher is stopped, King is justifiably concerned that the BPOSVCF would terminate interim claims ninety days after the well is capped and allow just one final claim thereafter.

On July 14, 2010, attorneys general from the five Gulf states met with U.S. Attorney General Eric Holder in Mobile, Alabama. Attorney General  Jim Hood of Mississippi and Attorney General Troy King of Alabama said the meeting was dominated by talk of a proposal Feinberg sent to the Gulf states that would have ended claims payments ninety days after the well is capped and required people to sign a release of liability before collecting their last payment from the BPOSVCF.

Hood said Holder recognized the flaws in the current BPOSVCF plan. “This is going to go on for three, five, ten years after the spill is stopped,” Hood said. Mr. Feinberg “can’t treat it like 9/11,” which, Hood said, for all of its horror, took place on a single day.

King said Holder would put together a panel of attorneys and officials, with heavy representation from the Gulf Coast, to draft a new proposal to submit to Feinberg. “The focus should be on protecting the Gulf states and making sure everyone is made whole,” said King.

Issues BP Victims Must Consider
Many businesses are concerned it will be difficult, if not impossible, to forecast the long-term recovery of the crab and shrimp populations, or how quickly U.S. consumers will re-embrace Gulf seafood, among other things.

Gary Bauer, president of Pontchartrain Blue Crab Inc., a seafood wholesaler and processor on Salt Bayou east of New Orleans, said his sales of blue crab and shrimp have dropped to 20% of their normal $8 million-a-year pace. In addition, foreign seafood suppliers are moving in on his network of grocers, restaurants and other buyers, further denting his long-term prospects. “Are we going to have a crab season next year, and are there going to be fishermen who will fish next year?” Mr. Bauer said. “How does BP reimburse for that? I spent 10 years of my life building a brand, and they destroyed it.”

Wayne Hess, manager of American Seafood Inc., a processor and wholesaler in New Orleans, said his sales were down roughly 30% from their annual average of $5 million to $7 million. “How am I supposed to project my losses not knowing how all of the different species we carry will be affected in the next year to five years?” he said. “The female crabs that are mating right now don’t drop their eggs until October or December. Those larvae may not make it.”

How can those in the tourism and fishing industries possibly know the extent of the damage to their business without knowing what next year’s season will be like? How can a person predict the long-term health effects of his or her exposure to the oil? As noted above, the benzene in spilled oil can cause leukemia and lymphoma and pose “a serious health impact that can last for half a century.”

So far, economic damage estimates vary widely. Greater New Orleans Inc., the economic-development agency for the 10-parish area, published preliminary estimates that the region’s fishing industry stands to suffer annual losses ranging from $900 million to $3.3 billion.

According to estimates from bond rating agency Moody’s, BP has total proven reserves of approximately 18 billion barrels of oil in the ground. BP has the ability and responsibility to fully compensate each and every BP oil gusher victim.

Conflict of Interest
“I’m working for you,” Feinberg repeatedly stated to the crowds of victims in Louisiana, and he called for local collaboration.

Feinberg is being compensated by BP, travels on a private jet paid for by BP, and has requested that lawyers for BP, not attorneys general from the Gulf states, be involved in drafting releases that exempt BP – but not other potential defendants – from any future liability for the spill.

An important rule of interpretation in administrative law is the “duck rule” – if it walks like a duck and quacks like a duck, it’s probably a duck. Abraham Lincoln reportedly explained a stronger version of this rule in his answer to the question, “If you call a dog’s tail a leg, how many legs does a dog have? Four. Just because you call the tail a leg doesn’t make it one.” Feinberg is a BP duck. Just because he says he is working for you doesn’t mean he is.

Councilman Thomas Capella from Jefferson Parish, Louisiana asked Feinberg if claimants should hire an attorney. Feinberg said that’s not necessary because his office will have attorneys on staff to provide free services to individuals and businesses. The fact that Feinberg’s attorneys intend to represent both BP and BP’s victims is an egregious conflict of interest.

“I am determined to come up with a system more generous and more beneficial than if you file a lawsuit,” Feinberg said. The question is whether the system will be more generous and more beneficial for BP or BP’s victims.

Animated and lively, with a little Bostonian humor, it has been reported Feinberg held the attention of the overflowing crowds during his recent roadshow in Louisiana. A reporter stated, “He jabs the air, punches up words to drive home a point and gets laughs with self-deprecating references to his Boston accent.” Rather than saying “cheese” when he posed for a photo with four police officers, he said, “Everybody file a claim?”

The following joke may be more appropriate for Feinberg’s BPOSVCF plan:

Question: What is the name of the bayou that is most representative of the federal government’s response to the victims of the BP oil gusher?
Answer: Bayou Self

CONCLUSION

Under the CWA alone, gross negligence penalties based upon 3,768,934 barrels of oil spilled would equal $16,206,416,200. Unfortunately, the federal government has no intention of holding BP accountable under either OPA 90 or CWA. Pursuant to OPA Section 4201, and given that the BP oil spill is a “discharge posing substantial threat to public health or welfare,” President Obama should have federalized the collection of the oil that is in the sea and the restoration of the coastal areas impacted by the oil. Both of these activities could be done without having to federalize the operational priority of stopping the flow of oil from the well. To date, the federal government has allowed BP to use more than 1,840,000 gallons of oil dispersant. Once the well is capped and the oil is dispersed throughout the oceans of the world, who’s to say for certain whether BP’s oil well blowout gushed an average of 1,000 or 100,000 bbl/day of oil?

Each individual potential plaintiff who has suffered damages as a result of the BP oil gusher should immediately seek competent legal counsel to directly represent his or her interests. If the amount of damages suffered by the individual potential plaintiff is small, it may not be economically feasible for the plaintiff to file an individual lawsuit. Accordingly, a class action lawsuit may be in the best interests of this plaintiff. However, given that the damages suffered by the vast majority of individual potential plaintiffs as a result of the BP oil gusher are potentially so great and will be on-going, class treatment would not be necessary to permit effective litigation of the claim. Here, when the amount of damages suffered by the individual is so great, the filing of an individual lawsuit should be economically feasible and may be in the best interests of the plaintiff. This decision should be made by the potential plaintiff only after a thorough consultation with his or her legal counsel.

The BPOSVCF is not administered by an impartial, independent third party. However, claimants will only waive their right to sue if they accept a final lump-sum payment. They can still sue if they only accept an initial emergency payment. Therefore, acceptance of a no-obligation six month emergency payment for lost income may be in the best interests of victims of the BP oil gusher. The decision to accept a final lump-sum payment, and thereby waive any right to bring further court proceedings against BP, should be made by the BP oil gusher victim only after a thorough consultation with his or her legal counsel.

APPENDICES

References
Adams, Mike, “First Amendment suspended in the Gulf of Mexico as spill cover-up goes Orwellian,” NaturalNews (July 3, 2010), available at: http://www.naturalnews.com/029130_Gulf_of_Mexico_censorship.html

Bhattacharyya, S., P.L. Klerks, and J.A. Nyman. 2003. Toxicity to freshwater organisms from oils and oil spill chemical treatments in laboratory microcosms. Environmental Pollution 122:205-215.

BP is Not the Only Responsible Party, available at: http://renergie.wordpress.com/2010/05/25/bp-is-not-the-only-responsible-party/

Chokkavelu, Anand, “The BP Stat That Will Shock You,” Motley Fool (July 9, 2010), available at: http://www.msnbc.msn.com/id/38165954/ns/business-motley_fool/

Clean Water Act

EPA: http://www.epa.gov/oem/content/lawsregs/opaover.htm

Fisher, Daniel and Hawkins, Asher, “BP’s Legal Blowout,” Forbes.com (July 14, 2010)

Greenwald, Glenn, “The BP/Government police state,” Salon (July 5, 2010), available at:
http://www.salon.com/news/opinion/glenn_greenwald/2010/07/05/bp/index.html

Hals, Tom, “Analysis: BP investors face tough road in court fights,” Reuters (July 16, 2010)

Hudson, Kris and Baskin, Brian, “Fears Mount That Fund Won’t Cover All Damages,” The Wall Street Journal (July 15, 2010)

Kindy, Kimberly, “Recovery effort falls vastly short of BP’s promises,” Washington Post
(July 6, 2010), available at:
http://www.washingtonpost.com/wp-dyn/content/article/2010/07/05/AR2010070502937.html

Lustgarten, Abrahm, “Chemicals Meant To Break Up BP Oil Spill Present New Environmental Concerns,” ProPublica (April 30, 2010), available at: http://www.propublica.org/article/bp-gulf-oil-spill-dispersants-0430

MMS: http://www.mms.gov/

Murtaugh, Dan, “Attorney General Eric Holder says he’ll try to address oil spill claims concerns,” Press-Register (July 15, 2010)

National Contingency Plan

NOAA: http://www.noaa.gov/

Oil Pollution Act of 1990

Peters, Jeremy W., “Efforts to Limit the Flow of Spill News,” The New York Times (June 9, 2010)

Philips, Matthew, “BP’s Photo Blockade of the Gulf Oil Spill,” Newsweek (May 26, 2010), available at: http://www.newsweek.com/2010/05/26/the-missing-oil-spill-photos.html

Schoof, Renee and Bolstad, Erika, “BP well may be spewing 100,000 barrels a day, scientist says,” McClatchy Newspapers (June 7, 2010), available at: http://www.mcclatchydc.com/2010/06/07/95467/bp-well-may-be-spewing.html

Schoof, Renee, “Scientists propose big experiment to study Gulf oil spill,” McClatchy Newspapers (July 11, 20100, available at:
http://www.miamiherald.com/2010/07/11/1725271/scientists-propose-big-experiment.html

Schwartz, John, “More Delicate Diplomacy for the Overseer of the Compensation Fund,” The New York Times (July 16, 2010)

USA Today: http://content.usatoday.com/communities/greenhouse/post/2010/05/how-responsible-is-us-government-for-gulf-oil-spill/

USCG: http://www.uscg.mil/

Walsh, Bryan, “The Oil Spill and the Perils of Losing Trust,” Time (July 7, 2010), available at:
http://ecocentric.blogs.time.com/2010/07/07/the-oil-spill-and-the-perils-of-losing-trust/
About the Author
Brian J. Donovan is an attorney and marine engineer with thirty-five years of international business experience.

Mr. Donovan, a member of The Florida Bar, The U.S. District Court, Middle District of Florida and The United States Court of Appeals for the Eleventh Circuit, holds a J.D. from Syracuse University College of Law (where he was recipient of the “Global Law & Practice Award” as the outstanding graduate in the areas of International Law and International Business Law) and a B.S., with honors, in Marine/Mechanical and Nuclear Engineering from the United States Merchant Marine Academy.

Mr. Donovan, with deep family roots in southern Louisiana, has first-hand knowledge of the catastrophic devastation of the Louisiana Gulf Coast caused by hurricanes Katrina and Rita. He fully appreciates that the damage caused by Katrina and Rita may pale in comparison to the massive and potentially unprecedented environmental and economic impact of the BP oil gusher of April, 2010.

Why BP Does Not Want an Accurate Measurement of the Gulf Oil Spill

Posted in BP, Clean Water Act, dispersants, measurement, oil spill, OPA 90, responsible party by renergie on June 14, 2010

Why BP Does Not Want an Accurate Measurement of the Gulf Oil Spill

By Brian J. Donovan

June 13, 2010

INTRODUCTION

The amount of oil that will ultimately be released into the waters of the Gulf of Mexico as a result of  the Deepwater Horizon blowout of April 20, 2010 may never be known.

On April 24, BP reported that approximately 1,000 barrels of oil per day (bbl/day) were being released into the Gulf.

On April 28, it was estimated that approximately 5,000 bbl/day were being released into the Gulf of Mexico. Repeated endlessly in news reports, this figure became conventional wisdom. However, the 5,000 bbl/day estimate was hastily produced in Seattle by a NOAA unit that responds to oil spills. It was calculated with a protocol known as the Bonn convention which calls for measuring the extent of an oil spill, using its color to judge the thickness of oil atop the water, and then multiplying. Alun Lewis, a British oil-spill consultant who is an authority on the Bonn convention, said the method was specifically not recommended for analyzing large spills like the one in the Gulf of Mexico, since the thickness was too difficult to judge in such a case.

On May 27, USGS Director Dr. Marcia McNutt, Chair of the National Incident Command’s Flow Rate Technical Group (FRTG), announced that the amount of oil flowing from BP’s leaking oil well was estimated to be 12,000 to 19,000 bbl/day.

On June 3, BP sawed off the riser pipe that had been kinked near the seafloor, constricting the flow of oil from the leak. The clean cut allowed the company to secure a containment cap to the pipe, capturing some of the escaping oil and funneling it to ships at the surface.

On June 10, is was guesstimated that the well was gushing 20,000 to 40,000 bbl/day. This latest figure is for the size of the leak prior to June 3, when BP sawed off a bent riser pipe, potentially increasing the amount of crude escaping by as much as 20 percent. According to Marcia McNutt, director of the U.S. Geological Survey, a projection for the current rate of oil flow has not been developed. Preliminary figures from a team of Woods Hole Oceanographic Institution scientists suggest the well could be leaking as much as 50,000 barrels a day, McNutt said.

According to Dr. McNutt, the “most credible estimate” for the size of the leak before the riser pipe was cut is 20,000 to 40,000 bbl/day. Based on the midpoint (30,000 bbl/day) of the latest approximation, from April 22 when the Deepwater Horizon rig sank until June 3 the well gushed 1.26 million barrels of oil, or 52.9 million gallons. The midpoint guesstimate of 30,000 bbl/day is six times more than the figure that BP and the federal government used from April 28 to May 27.

BP alleges that it is capturing about half of the new estimated flow rate from the Deepwater Horizon well, almost a mile down on the seabed of the Gulf of the Mexico, and siphoning it to ships on the surface.  BP reportedly collected 15,520 barrels of crude at the surface between noon on June 9 and noon on June 10, the last 24-hour period for which data is available. According to the midpoint of the latest estimates from the group of scientists, this means at least  15,500 bbl/day of crude oil are currently being released into the waters of the Gulf of Mexico.

BP does not want an accurate measurement of the Gulf oil spill for two reasons:
(a) the Oil Pollution Act of 1990; and (b) the Clean Water Act.

THE OIL POLLUTION ACT OF 1990

Pursuant to the Oil Pollution Act of 1990 (OPA), for an offshore facility the total of the liability of a responsible party and any removal costs incurred by, or on behalf of, the responsible party, with respect to each incident shall not exceed the total of all removal costs plus $75,000,000.

However, this limit on liability “does not apply if the incident was proximately caused by gross negligence, willful misconduct of, or the violation of an applicable Federal safety, construction, or operating regulation by, the responsible party, an agent or employee of the responsible party, or a person acting pursuant to a contractual relationship with the responsible party.”

OPA broadened the scope of damages (i.e., costs) for which an oil spiller would be liable. Under OPA, a responsible party is liable for all cleanup costs incurred, not only by a government entity, but also by a private party. In addition to cleanup costs, OPA significantly increased the range of liable damages to include the following:

• injury to natural resources,
• loss of personal property (and resultant economic losses),
• loss of subsistence use of natural resources,
• lost revenues resulting from destruction of property or natural resource injury,
• lost profits resulting from property loss or natural resource injury, and
• costs of providing extra public services during or after spill response.

Given BP’s documented violation of federal safety regulations aboard the Deepwater Horizon, e.g., using an improper cementing technique to seal the well, failing to adequately test and maintain blowout prevention equipment and drilling deeper than BP’s federal permit allowed, there will be no limitation on BP’s liability. (Oil Pollution Act of 1990, 33 U.S.C. 2704).

BP may be liable to the United States and to Louisiana for damages resulting from lost royalties. Pursuant to Section 2702 of OPA 90, “Notwithstanding any other provision or rule of law, and subject to the provisions of this Act, each responsible party for a vessel or a facility from which oil is discharged, or which poses the substantial threat of a discharge of oil, into or upon the navigable waters or adjoining shorelines or the exclusive economic zone is liable for the removal costs and damages specified in subsection (b) of this section that result from such incident…”, including revenue losses such as “taxes, royalties, rents, fees, or net profit shares due to the injury, destruction, or loss of real property, personal property, or natural resources, which shall be recoverable by the Government of the United States, a State, or a political subdivision thereof.” (Oil Pollution Act of 1990, 33 U.S.C. 2702(b)(2)(D)).

THE CLEAN WATER ACT

BP also faces uncapped liability under a little-known Clean Water Act (CWA) civil damages provision.

Pursuant to Section 1321 of the CWA, “Any person who is the owner, operator, or person in charge of any vessel, onshore facility, or offshore facility from which oil or a hazardous substance is discharged in violation of paragraph (3), shall be subject to a civil penalty in an amount up to $25,000 per day of violation or an amount up to $1,000 per barrel of oil or unit of reportable quantity of hazardous substances discharged. In any case in which a violation of paragraph (3) was the result of gross negligence or willful misconduct of a person described in subparagraph (A), the person shall be subject to a civil penalty of not less than $100,000, and not more than $3,000 per barrel of oil or unit of reportable quantity of hazardous substance discharged.” (Clean Water Act, 33 U.S.C. 1321).

Under the CWA, the basic fine is $1,100 per barrel spilled. But the penalty can rise to $4,300 a barrel if a federal court rules the spill resulted from gross negligence. As noted above, the fines were originally set at $1,000 to $3,000 but that was raised in 2004 to keep up with inflation. Accordingly, the number of barrels of oil being released from the well is going to be critical.

If the government pursues civil fines based on the volume of oil spilled, it would take into consideration whether BP has made its best effort to mitigate the spill, its prior history of offenses, if any, and whether BP can bear the cost of fines, among other factors. Interestedly, BP received the third-largest criminal penalty, of $50 million, for an environmental offense in U.S. history for a Texas City refinery fire in 2005. BP subsidiaries remain under federal probation for prior offenses in Texas and Alaska.

Under the CWA alone, gross negligence penalties based upon a discharge rate of 30,000 barrels per day would total $129 million per day. BP’s net profits in the first quarter of 2010 were approximately $6.7 million per day.

It is obvious why BP, despite having the ability to obtain a very accurate flow rate through ultrasound, does not want a more accurate measurement. It is also very obvious why BP does not want to collect a great deal of the oil spill. Since April 22, 2010, BP admits that it has been able to recover only approximately 475,000 barrels of “oily liquid.” This equates to collecting a total of only 47,000 to 71,000 barrels of oil.

BP’S STRATEGY IS TO SYSTEMATICALLY UNDERESTIMATE THE RATE OF THE OIL THAT’S BEING SPILLED INTO THE GULF OF MEXICO

BP’s strategy, to systematically underestimate the rate of the oil that’s being spilled into the Gulf of Mexico, involves: (a) prohibiting independent measurement of the rate of oil flow from the well by unbiased third party scientists and engineers by denying direct access to the Deepwater Horizon well; and (b) applying an unprecedented amount of dispersant to the oil spill both on the surface and underwater.

Denying Direct Access to the Deepwater Horizon Well
Dr. Ian R. MacDonald, an oceanographer at Florida State University who is an expert in the analysis of oil slicks, said he had made his own rough calculations using satellite imagery. They suggested that the leak could “easily be four or five times” the government estimate, he said. Steven Wereley, an associate professor of mechanical engineering at Purdue University, analyzed videotape of the seafloor gusher using a technique called particle image velocimetry.  A computer program simply tracks particles and calculates how fast they are moving. Wereley put the BP video of the gusher into his computer. He made a few simple calculations and came up with an astonishing value for the rate of the oil spill: 70,000 bbl/day.

Dr. MacDonald believes NOAA  has been slow to mount the research effort needed to analyze the leak and assess its effects. Sylvia Earle, a former chief scientist at NOAA and perhaps the country’s best-known oceanographer, said that she, too, was concerned by the pace of NOAA’s scientific response.

Prior to May 27, BP and the federal government had made no attempt to update its estimate of 5,000 bbl/day since releasing it on April 28th. “I think the estimate at the time was, and remains, a reasonable estimate,” said Dr. Lubchenco, the NOAA administrator. “Having greater precision about the flow rate would not really help in any way. We would be doing the same things.”

Scientists have come down hard on BP for refusing to take advantage of methods available to measure the oil. On May 13, The New York Times reported that BP was planning to fly scientists from the Woods Hole Oceanographic Institute to Louisiana to conduct volume measurements. The oceanographers were poised to use underwater ultrasound equipment to measure the flow of oil and gas from the ocean floor when BP canceled the trip.

On June 8, in responding to a question regarding the rate of the flow of oil from the BP well, Admiral Thad Allen told ABC News, “Everything we know and everything we see is through either the remote sensors or remote-operated vehicles that are like looking through a particular keyhole at a particular time.” Access to that keyhole is still completely controlled by BP.

An accurate measurement of the flow of oil could change the way people remember this spill and their opinion of BP.  Once the leak is plugged and the oil is dispersed throughout the oceans of the world, who’s to say for certain whether BP’s oil well blowout gushed an average of 5,000 or 80,000 bbl/day of oil? By allowing BP to obscure the spill’s true magnitude, the federal government appears to support BP’s strategy.

Dispersants: An Out-of-Sight, Out-of-Mind Strategy
To date, more than 1,000,000 (one million) gallons of dispersant have been poured into the Gulf of Mexico by BP since the April 22 sinking of the Deepwater Horizon rig, an unprecedented application and for a duration and at depths also without precedent. BP has an additional 805,000 gallons of dispersant on order.

Dispersants break oil into droplets that decompose more quickly. But scientists worry that extensive use of the chemicals in the BP spill is increasing marine life’s exposure to the toxins in oil. Environmentalists consider their use effective for ridding surface waters of oil but say when the toxins are broken down and become embedded on the sea bed they pose a significant threat to marine life. Experiments by John Nyman of Louisiana State University indicate that the combination of Louisiana crude and the dispersant used on the current spill is more toxic to marsh-dwelling invertebrates than oil alone would be.

BP is using the dispersant “Corexit 9500.” While Corexit 9500 is on the EPA’s approved list, BP is using this dispersant in unprecedented volumes and has been using it underwater at the source of the leak, a procedure that has never been tried before. The EPA has acknowledged that “much is unknown about the underwater use of dispersants.” Moreover, of all the chemicals approved by the EPA for use on oil spills, Corexit 9500 is among the most toxic to certain organisms. It also is among the least effective in breaking up the kind of oil that is prevalent in the area around the spill site, EPA tests concluded. Corexit might also be contributing to the formation of large undersea “oil plumes” thousands of feet below the surface. The undersea plumes may go a long way toward explaining the discrepancy between the flow estimates, suggesting that much of the oil emerging from the well could be lingering far below the sea surface.

Sylvia Earle, the National Geographic’s explorer-in-residence and former chief scientist at NOAA, stated that “the instructions for humans using Corexit warn that it is an eye and skin irritant, is harmful by inhalation, in contact with skin and if swallowed, and may cause injury to red blood cells, kidney or the liver.” “People are warned not to take Corexit internally,” she said, “but the fish, turtles, copepods and jellies have no choice.”

Earle further states, “We don’t know what the effect of dispersants applied a mile underwater is; there’s been no laboratory testing of that at all, or the effect of what it does when it combines with oil a mile underwater.” One problem with breaking down the oil is that it makes it easier for the many tiny underwater organisms to ingest this toxic soup. “The effort should be in recovering the oil, not making it more difficult to recover by dispersing it,” says Earle. The chemical assault appeared geared, she says, “to improving the appearance of the problem rather than solving the problem.”

Carl Safina, president and co-founder of Blue Ocean Institute, a New York-based conservation organization, believes BP’s dispersant strategy has more to do with PR than good science. “It takes something that we can see that we could at least partly deal with and dissolves it so we can’t see it and can’t deal with it,” he said. It’s not at all clear to me why we are dispersing the oil at all,” Safina said. “It’s an out-of-sight, out-of-mind strategy. It’s just to get it away from the cameras on the shoreline.

Sinking Agents
The National Oil and Hazardous Substances Pollution Contingency Plan, more commonly called the National Contingency Plan or NCP, is the federal government’s blueprint for responding to both oil spills and hazardous substance releases. The National Contingency Plan is the result of our country’s efforts to develop a national response capability and promote overall coordination among the hierarchy of responders and contingency plans.

Pursuant to NCP Section 300.310, “As appropriate, actions shall be taken to recover the oil or mitigate its effects. Of the numerous chemical or physical methods that may be used, the chosen methods shall be the most consistent with protecting public health and welfare and the environment. Sinking agents shall not be used.”

Sinking agents means those additives applied to oil discharges to sink floating pollutants below the water surface.

The question is whether BP’s dispersants are “sinking agents” when they are applied a mile underwater at the source of the well leak.

CONCLUSION

BP is knowingly and systematically underestimating the size of the spill to limit the financial impact on the company. Under the CWA, the company faces fines of up to $4,300 for each barrel spilled. Furthermore, pursuant to Section 2702 of OPA 90, BP may be required to pay royalties (18.75%) owed to the federal government for the oil gushing from the well.

APPENDICES

References
Bhattacharyya, S., P.L. Klerks, and J.A. Nyman. 2003. Toxicity to freshwater organisms from oils and oil spill chemical treatments in laboratory microcosms. Environmental Pollution 122:205-215.

BP is Not the Only Responsible Party, available at: http://renergie.wordpress.com/2010/05/25/bp-is-not-the-only-responsible-party/

Clean Water Act

EPA: http://www.epa.gov/oem/content/lawsregs/opaover.htm

MMS: http://www.mms.gov/

National Contingency Plan

NOAA: http://www.noaa.gov/

Oil Pollution Act of 1990

USA Today: http://content.usatoday.com/communities/greenhouse/post/2010/05/how-responsible-is-us-government-for-gulf-oil-spill/

USCG: http://www.uscg.mil/
 

 

 

About the Author
Brian J. Donovan is an attorney and marine engineer with thirty-five years of international business experience.

Mr. Donovan, a member of The Florida Bar, The U.S. District Court, Middle District of Florida and The United States Court of Appeals for the Eleventh Circuit, holds a J.D. from Syracuse University College of Law (where he was recipient of the “Global Law & Practice Award” as the outstanding graduate in the areas of International Law and International Business Law) and a B.S., with honors, in Marine/Mechanical and Nuclear Engineering from the United States Merchant Marine Academy.

Mr. Donovan, with deep family roots in southern Louisiana, has first-hand knowledge of the catastrophic devastation of the Louisiana Gulf Coast caused by hurricanes Katrina and Rita. He fully appreciates that the damage caused by Katrina and Rita may pale in comparison to the massive and potentially unprecedented environmental and economic impact of the BP oil spill of April, 2010.

Follow

Get every new post delivered to your Inbox.

Join 102 other followers