News BP and Gulf Coast States Jockey Over Settlement on Deepwater Horizon Oil Spill

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BP and Gulf Coast States Jockey Over Settlement on Deepwater Horizon Oil Spill
Feb 23rd 2013, 17:14

John Moore/Getty Images

A BP cleanup crew removing oil from a beach in May 2010 in Port Fourchon, La., after the Deepwater Horizon disaster.

With a major civil trial scheduled to start Monday in New Orleans against BP over damages related to the explosion of an offshore drilling rig in 2010, federal officials and those from the five affected Gulf Coast states are trying to pull together to strike an 11th-hour settlement to resolve the case.

A lawyer briefed on those talks said that the Justice Department and the five states — Alabama, Florida, Louisiana, Mississippi and Texas — have prepared an offer to resolve the two biggest issues central to series of trials against BP starting Monday.

Those issues are the fines that the company would pay for violations of the Clean Water Act related to the four million gallons of oil spilled after the rig, which it leased from Transocean, exploded. The primary issue is how much the company will have to pay for environmental damage caused by the oil to area, beaches, marshes, wildlife and fisheries.

The Wall Street Journal reported late Friday that federal and state officials were preparing a $16 billion settlement offer. "The ball is on BP's side of the table," said the lawyer, who spoke on condition of anonymity because he was not authorized to do so.

Both Justice Department officials and state officials could not be reached Saturday to comment on any possible offer.

A spokesman for BP, Geoff Morrell, said that the idea that the oil giant would accept a settlement demand of $16 billion was "far-fetched." The most BP is liable for under the Clean Water Act is about $17.5 billion and the company is subject to billions more in other environmental damage penalties.

"It wouldn't surprise me if they put something on the table at the 11th hour," Mr. Morrell said. "But we're going to trial Monday even if they put something on the table."

The lawyer briefed on the talks said that one problem with the current proposal by federal and state officials was that it did not resolve economic damages claimed by the states related to the spill. Such claims could still leave BP on the hook for billons more, in addition to the environmental damages.

One of the major stumbling blocks in reaching a settlement has been differences among the five states about how much BP should pay and how billions of dollars in potential settlement funds should be divided.

Officials in Louisiana believe it deserves the bulk of any settlement since that state's coastal waters, fisheries and businesses suffered the most. Florida and other states that escaped serious coastal damage instead want money earmarked for economic losses that those states sustained.

"There are a lot of moving parts," said Luther Strange, the attorney general of Alabama. "Personalities aside, the issues are so complex."

Also, billions of dollars could be assessed against BP in several ways, either through fines, or through penalties to redress environmental damage and payments to cover economic losses. And each of those methods represents a different set of stakes and consequences for each of the states and for BP.

For instance, BP would prefer to limit the fines, and make more payments through environmental damage penalties, because those penalties can be written off as tax deductions while fines cannot. But the states have more flexibility in spending money derived from fines.

To date, BP has agreed to pay an estimated $30 billion in fines, settlement payments and cleanup costs related to the Deepwater Horizon explosion, which killed 11 workers aboard the rig. And so far, company officials have said that they have no intention of acceding to what BP estimates are demands from the states for tens of billons of dollars more in damages.

Still, the stakes for BP in the trial are high. If the company is found in this first phrase of the trial to have acted with gross negligence, BP could face up to $17.5 billion in penalties, much of that in fines that would hit the bottom line hardest because those fines do not qualify as tax deductions.

The lack of a unified strategy to date among the states has also posed another problem for BP; companies are less likely to settle a major lawsuit if they know another one is waiting.

"There is no question that a settlement has been made more challenging because the states have competing interests," said David Uhlmann, a law professor at the University of Michigan and former head of the Justice Department's environmental crimes division.

Efforts to resolve the case through settlement were also inadvertently complicated by Congress when it passed a law in 2012 known as the Restore Act.

Essentially, the law was an effort by Congressional lawmakers from the Gulf Coast states to make sure that the bulk of fines and penalities paid by BP for violations of federal pollution laws ended up with the states rather than the federal government

Senator Mary Landrieu, Democrat of Louisiana, said that she and other lawmakers from the region were involved in intense negotiations giving each state the freedom to use much of the funding in whatever ways it wants, whether it would be for environmental or economic purposes.

The law "was an attempt to distribute the money fairly," Senator Landrieu said in an interview.

But the statue's potential impacts exacerbated what were already growing tensions among the states over how they would like to see any funds allocated, say between environmental damage and economic losses. "Up until last year, all the states were rowing together," said one lawyer who also spoke on the condition of anonymity.

The split between the Gulf Coast states surfaced again in November when the Justice Department announced the $4.5 billion settlement of criminal charges against BP. At the time, federal and state officials were also seeking to resolve the civil damage claims.

But those talks failed largely because of disagreements between Louisiana and other states on issues like the size of the settlement that BP was offering, said people briefed on the talks who spoke on the condition of anonymity.

These days, three Gulf Coast states — Florida, Mississipi and Texas — are not even parties in the lawsuit set to start Monday. That, however, would not preclude them from being involved in a settlement.

Mississippi officials are apparently seeking to bring a separate action against BP in state court, a forum that can be favorable to plaintiffs. Jan Schaefer, a spokesman for Mississippi Attorney General Jim Hood, said he declined comment.

Mr. Uhlmann of the University of Michigan, said the BP case could be resolved, but at this moment it might be more up to the states than the company.

"A settlement is still possible, but not if the states demand more in a settlement than BP is likely to pay even if it loses on every single issue at trial," he said.

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