SandBar 9:2, July, 2010
Recommended citation: Pace, Niki L., Cleaning up the Gulf Oil Spill , 9:2 SandBar 4 (2010).
Cleaning up the Gulf Oil Spill
Niki L. Pace , J.D., L.L.M.
On April 20, 2010, the nation awoke to news of an explosion on the Deepwater Horizon oil rig. The rig was on fire. Two days later, the rig sank to the floor of the seabed. Eleven crew members are missing and presumed dead.1 Along with the tragic loss of life, the spill has resulted in the largest environmental disaster the U.S. has ever faced. The Obama administration has made it clear that the rig owner, BP, and other responsible parties will be held accountable for repairing damage to the Gulf of Mexico coastlines and fisheries. This article examines legal issues that have arisen in the aftermath and the current regulatory framework for addressing U.S. oil spills.
Background
Before sinking on April 22, the Deepwater Horizon oil rig was located approximately 40 miles off the coast of Louisiana in federal waters and was drilling at a depth of roughly 5,000 feet. Following the explosion, efforts to engage the emergency shutoff system (designed to minimize the amount of oil spilled) failed, allowing oil to continuously spill into Gulf waters. Initial reports estimated the leak at 1,000 barrels a day (42,000 gallons) but those estimates quickly rose to 5,000 barrels a day (210,000 gallons) and have now ballooned to between 35,000 and 60,000 barrels a day (between 1,470,000 and 2,520,000 gallons).2
On April 29, NOAA designated the oil spill a Spill of National Significance (SONS). A SONS is defined as, “a spill that, due to its severity, size, location, actual or potential impact on the public health and welfare or the environment, or the necessary response effort, is so complex that it requires extraordinary coordination of federal, state, local, and responsible party resources to contain and clean up the discharge.”3 The designation allows assets from other areas of the country, including other coastal areas, to be used to fight the spill.4
The Deepwater Horizon is owned by British Petroleum (BP) but operated by Transocean Ltd. At the time of the explosion, Halliburton was providing cementing services on the rig as well. The specific cause of the explosion is currently unknown but both the U.S. Coast Guard and the Minerals Management Service are conducting separate federal investigations into the matter.5 BP, along with federal agencies, made several unsuccessful attempts to plug the leak. Now, officials are banking on a relief well expected to be completed in August to stop the leak.
Meanwhile, tar balls have collected on the shores of Louisiana, Mississippi, Alabama, and Florida. Impacts to wildlife and shorelines from both the oil and the estimated 100,000 gallons of dispersant chemicals remain unclear. Federal fisheries adjacent to the oil slick areas have been closed, causing a rush for local seafood across the northern Gulf of Mexico.6
The federal government placed a six-month moratorium of deepwater drilling on the U.S. outer continental shelf. However, the U.S. District Court for the Eastern District of Louisiana has enjoined enforcement of the moratorium, finding that the administrative record on which the moratorium was based incomplete and that the specifics of the moratorium were arbitrary and capricious.7 Since the ruling, Interior Secretary Ken Salazar said that the U.S. will issue a new more flexible oil drilling moratorium, which would allow drilling in certain oil fields.8
On June 1, the Justice Department announced that it would launch an investigation of federal laws that may have been violated by the oil spill including the Clean Water Act (CWA), the Oil Pollution Act of 190 (OPA), and the Migratory Bird Treaty Act.9 Attorney General Eric H. Holder Jr. stated, “[W]e must also ensure that anyone found responsible for this spill is held accountable. That means enforcing the appropriate civil – and if warranted, criminal – authorities to the full extent of the law.”10
Clean Up Liability
Following the disastrous 1989 Exxon Valdez oil spill, Congress passed the Oil Pollution Act of 1990 (OPA) to protect public health and welfare and the environment. Along with Section 311 of the Clean Water Act (CWA), the OPA provides the primary basis for domestic oil spill regulation. The OPA provides the framework for recovering clean-up costs and also imposes liability for damage to natural resources.11 The CWA provides the framework for civil and criminal enforcement actions by the federal government.12 For hazardous substances other than petroleum products, the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) applies.13
U.S. law prohibits the discharge of oil or hazardous substances into navigable waters and adjoining shorelines.14 Under both the CWA and the OPA, navigable waters is broadly defined and includes waters subject to the ebb and flow of the tide, as well as wetlands adjacent to navigable waters.15 To fall within the scope of regulation, the discharge must be “harmful to the public health or welfare or the environment.”16 Environmental harms include damage to fish, shellfish, wildlife, public and private property, shorelines, and beaches.17 The OPA defines oil as any kind of oil “including petroleum, fuel oil, sludge, oil refuse, and oil mixed with wastes other than dredged spoil.”18
Under the OPA, responsible parties are strictly liable for cleanup costs and damages resulting from oil discharges. Responsible parties include the lessee or permittee of the area in which an offshore facility is located as well as owners and operators of vessels and pipelines.19 The OPA limits liability to the total of all removal costs plus $75,000,000 per incident, an increase over the CWA § 311 levels.20
In certain circumstances, the liability limits will be lifted. For instance, limits do not apply where the incident was caused by gross negligence, willful misconduct, or violation of a federal safety, construction, or operating regulation.21 Limits will also be removed where responsible parties fail to report the incident or refuse to cooperate in removal activities.22 In such situations, the government bears the burden of proof that the liability limits do not apply. BP, however, has agreed to waive liability limits under the Act.23
The OPA also provides affirmative defenses to liability. These defenses include an act of God, an act of war, an act or omission of a third party (other than an employee or agent of the responsible party), or any combination of the three. To assert the third party defense, the responsible party must establish that he exercised due care with respect to the oil spill and took precautions against foreseeable acts or omissions of the third party.24
Private Party Damages
The OPA allows private party recovery of three types of damages. First, individuals may recover damages for “injury to, or economic losses resulting from destruction of, real or personal property.”25 The second category of damages addresses losses resulting from use of natural resources.26 The third area of private party recovery deals with damages resulting from “the loss of profits or impairment of earning capacity due to the injury, destruction, or loss of real property, personal property, or natural resources.”27 In addition, private parties may pursue other claims for damages under maritime law and state law.
Oil Spill Liability Trust Fund
Another aspect of the OPA was the creation of the Oil Spill Liability Trust Fund (Fund) and the National Pollution Funds Center (NPFC). The NPFC, an administrative agency of the U.S. Coast Guard, administers the Fund. The primary purpose of the NPFC is to “1) ensure a rapid and effective federal response to a discharge; 2) implement and oversee a compensation mechanism, or claims process, to reimburse those damaged by discharges when the liable or responsible party cannot or does not pay; 3) establish a liability and compensation regime that serves as a deterrent to potential responsible parties; and 4) establish a mechanism through Certificates of Financial Responsibility (COFRs) to ensure that owners and operators of certain vessels have insurance in place or the funds to pay for oil spill response costs and damages up to certain limits.”28
Along with funding spill response, the NPFC may adjudicate third-party claims for unreimbursed response costs and damages.29 Before submitting claims to the NPFC, claims must first be submitted to, and denied by, the responsible party. Consideration by the NPFC requires the claimant produce a statement of the claim, evidence supporting how the loss occurred, and invoices documenting costs incurred by the claimant.30 If NPFC denies both the claim and reconsideration of the claim, the individual may seek judicial review in an applicable federal district court under the Administrative Procedures Act.31
BP Fund
In addition to the Fund, President Obama called for BP to set up an account to compensate victims. On June 16, BP agreed to create a $20 billion fund to compensate those affected by the spill.32 So far, nearly 65,000 claims have been made, and, as of press time, no claims have been denied.33
While claimants can still go to court against BP, the fund is intended as a buffer between claimants and the court system.34 Claimants may also seek compensation from the Oil Spill Liability Trust Fund, and interim payments from the BP fund would be subtracted from the final settlement award.35
Civil and Criminal Penalties
The federal government may assess civil penalties for unlawful discharges, failure to remove discharges, or failure to comply with an order or regulation relating to the discharge.36 Penalties may go up to $25,000 per day of violation or up to $1,000 per barrel discharged.37 For those spills caused by gross negligence or willful misconduct, the penalty shall not be less than $100,000.38 In assessing penalties, the following factors are considered: 1) seriousness of the violation; 2) economic benefit to the violator, if any; 3) the degree of culpability; 4) other penalties from the incident; 5) any history of prior violations; 6) the nature, extent, and degree of success of efforts by the violator to mitigate or minimize the spill; 7) the economic impacts of the penalty on the violator; and 8) other matters required by justice.39 Civil penalties are in addition to removal costs and may be imposed regardless of fault.
In passing the OPA, Congress amended the Clean Water Act’s list of criminal violations to include negligent discharge of oil.40 The decision to bring criminal charges by the federal government is discretionary, not mandatory. In deciding whether to pursue criminal prosecution, the government may consider factors such as prior history of the violator, the preventative measures taken, the need for deterrence, and the extent of cooperation.
Conclusion
Litigation is already underway in the Gulf of Mexico states. To date, more than 200 lawsuits have been filed with claimants ranging from commercial fisherman in Louisiana and Mississippi to condo and hotel owners in Alabama and Florida. Most lawsuits seek monetary compensation from BP for alleged losses of property or economic harms connected to the spill. Natural resource damages are also accruing. While the full ramifications of the spill cannot possibly be known at this early stage, these initial lawsuits foretell of potentially lengthy legal battles ahead.
Endnotes
1. Leslie Kaufman, Search Ends for Missing Oil Rig Workers, but Spill Seems Contained for Now, N.Y. Times, April 24, 2010, at A8.
2. Campbell Robertson, U.S. Intensifies Bid to Control Oil Spill in Gulf, N.Y. Times, April 30, 2010, at A1.
3. 40 C.F.R. 300.5.
4. Robertson, supra note 2.
5. John M. Broder et al., Amount of Spill Could Escalate, Company Admits, N.Y. Times, May 5, 2010, at A1.
6. Kim Severson, Fish Sells Out as Threat Creeps Closer, N.Y. Times, May 7, 2010, at A18.
7. Hornbeck Offshore Servs., L.L.C. v. Salazar, 2010 U.S. Dist. LEXIS 61303 (E.D. La. June 22, 2010).
8. Tom Doggett and Ayesha Rascoe, US to Issue More Flexible Oil Drilling Moratorium, money.cnn.com, June 23, 2010.
9. Attorney General Eric Holder, Remarks on Gulf Oil Spill (June 1, 2010) (available at http://www.justice.- gov/ag/speeches/2010/ag-speech-100601.html ).
10. Id.
11. Oil Pollution Act of 1990, 33 U.S.C. §§ 2701-2762.
12. Clean Water Act, 33 U.S.C. § 1321.
13. 42 U.S.C. § 9601-9675.
14. 33 U.S.C. § 1321(b)(1).
15. 33 U.S.C. § 2701(21); 40 C.F.R. § 110.1; 33 C.F.R. Part 2.
16. 33 U.S.C. § 1321(b)(3)-(4).
17. Id. § 1321(b)(4).
18. Id. § 2701(23).
19. Id. § 2701(32).
20. Id. § 2704(a)
21. Id. § 2704(c)(1).
22. Id. § 2704(c)(2)
23. John Curran, The Gulf Oil Disaster: Who’s Liable, and for How Much? Time, May 24, 2010.
24. Id. § 2703(a).
25. Id. § 2702(b)(2)(B).
26. Id. § 2702(b)(2)(C).
27. Id. § 2702(b)(2)(E).
28. John M. Woods, Going on Twenty Years – The Oil Pollution Act of 1990 and Claims Against the Oil Spill Liability Trust Fund, 83 Tul. L. Rev. 1323, 1324 (2009).
29. 33 U.S.C. § 2712(a).
30. 33 C.F.R. § 136.105.
31. 5 U.S.C. §§701-706; see also Woods, supra note 28, at 1325.
32. Jonathan Weisman and Guy Chazan, BP Agrees to $20 Billion Fund, The Wall Street Journal, June 23, 2010.
33. The Ongoing Administration-Wide Response to the Deepwater BP Oil Spill, Deepwater Horizon Incident Joint Information Center, June 19, 2010, http://www.d8externalaffairs.com/go/doc/2931/677099/ .
34. Weisman, supra note 32.
35. Id.
36. 33 U.S.C. § 1321(b)(7).
37. Id. § 1321(b)(7)(A).
38. Id. § 1321(b)(7)(D).
39. Id. § 1321(b)(8).
40. Id. § 1319(c).