United States: Deepwater Horizon Oil Spill Legal Update: Judge Makes Findings Of Gross Negligence And Negligence

While the Deepwater Horizon oil spill has largely disappeared from the news headlines, for the parties involved in the litigation, the legal machinations, particularly with respect to liability, have a long way still to go.

In the first of several related rulings, on September 4, 2014, U.S. District Judge Carl Barbier (the presiding judge of MDL 2179, the limitation and liability action regarding the Deepwater Horizon oil spill) issued a ruling allocating liability in the United States' Clean Water Act (CWA) enforcement action against BP, Transocean, and Halliburton. Specifically, the court ruled that BP was grossly negligent and 67 percent at fault, Transocean was negligent and 30 percent at fault, and Halliburton was negligent and 3 percent at fault. The finding that BP's actions were grossly negligent lifts the maximum CWA civil penalty from $1,100 per barrel of oil discharged to $4,400 per barrel. Using the EPA's estimate of 4.9 million barrels discharged, which BP has strenuously disputed, the penalties assessed could be in excess of $20 billion. Additionally, the court found that BP's actions would typically have merited a punitive damages award, but held that punitive damages are prohibited in this instance by specific 5th Circuit precedent.

In October 2013, the court completed the trial regarding the total number of barrels discharged but has not yet released its findings. Additionally, the court is set to commence the "Penalty Phase" of the trial – in which the parties will present evidence related to the CWA penalty factors, which will be used to determine the fine to be assessed per released barrel – in January 2015. Once the court determines the number of barrels discharged and the applicable fine per barrel, it will determine BP's ultimate liability in CWA fines (the fines assessed will vary depending on the allocation of fault, but BP is indemnifying both Halliburton and Transocean).

In reviewing the court's decision, there are a number of important legal theories that the court relied on in making its decision, which should be "takeaways" for the oil and gas industry:

  • Causation: According to the court, liability under the CWA requires more than simple "but for" causation but less than many proximate causation tests. If a company's negligent act is "a substantial factor in causing the injuries," then it may be found liable under the CWA.
  • Gross Negligence: The court described gross negligence under the CWA as "an extreme departure from the care required under the circumstances or a failure to exercise even slight care." Further, it stated that a finding of gross negligence requires only objective proof and does not additionally require subjective proof of a "culpable mental state" as BP argued. It is possible that BP will challenge the gross negligence standard used by the court on appeal.
  • Attribution of Employee Conduct: The court found that "a corporation is vicariously liable under the CWA . . . for the gross negligence and/or willful misconduct of its employees" and rejected BP's contention that the company is liable only for "authorized" employee actions or actions that are subsequently ratified by the company.
  • Punitive Damages: The court stated that BP's conduct was sufficiently egregious to justify an award of punitive damages, but held that 5th Circuit law prohibits punitive damages in this scenario.1 The court went out of its way, however, to state that it would have awarded punitive damages under 1st and 9th Circuit law.

The court's findings of fact and corresponding analysis also give insight into the actions and events that the court found particularly significant and, in some respects, provide useful guidance to the industry regarding which "best practices" could be used to help head off a finding of gross negligence in the future. The following is a list of some of those findings:

  • The court focused intensely on whether certain decisions actually were – or theoretically could have been – "motivated by profits" or based on financial pressure.
  • The court viewed deviations from the original drilling plan or from established "best practices" skeptically, particularly if those decisions saved time or money. However, in at least once instance, the court determined that following the drilling plan and best practices was insufficient. The court took a more favorable view of deviations when there was formal deliberation and debate prior to making the change to the drilling plan.
  • If a test result deviated from the expected or modeled result, the court generally expected the test to be rerun or the results to be investigated and understood before moving forward.
  • The court stated that "a greater degree of care is required when the circumstances present a greater apparent risk" and found that cumulative decisions that increased risks, even when the individual decisions themselves were not unreasonable, further "raise[d] the standard of care" required. In other words, when the drilling is difficult or complicated, an even higher standard of care (and perhaps even more testing) must be taken during each subsequent step in the drilling process. For example, the court found that, due to the previous drilling complications, "the negative pressure test at the Macondo well demanded a level of care exceeding the 'high' care typically required during such a test."
  • The court took a favorable view of explicit actions prioritizing safety (e.g., demonstrable responsiveness to kicks) when determining that Transocean and Halliburton were only negligent.
  • While the court did not find that violating a regulation or law itself constituted negligence as a matter of law, regulatory violations were given significant weight in the analysis. Complying with the applicable regulations was not sufficient, however, as the court stated that "[a]lthough MMS regulations at the time did not explicitly require a negative pressure test, no party disputes that it is a safety-critical test." The misinterpretation of this unrequired negative pressure test was one of the court's main bases for the finding of gross negligence against BP.
  • The court undertook a formalistic analysis of entity responsibility, looking to the contractual documents for allocations of responsibility.
  • Some harmful evidence was generated during BP's post-accident internal investigation. For instance, while neither participant to the 8:52 pm phone call regarding the interpretation of the negative pressure test testified at trial, the court relied on notes regarding their post-accident statements to BP's incident investigation team to establish BP's actual knowledge that the negative pressure test was unsuccessful.

The court's decision provides useful insight into how a reviewing body, in the wake of a significant environmental, health, and safety incident, may view the decisions and actions taken by major players in the oil and gas sector, both pre- and post-incident. As a result, the sector has an opportunity to learn from the incident and to adjust or adopt new best practices in order to promote increased safety in the oil patch and to avoid the unfortunate string of events that led to the Macondo well blowout.

BP has engaged in an extensive appeals process regarding Judge Barbier's previous rulings related to the implementation of two large settlement agreements that BP entered into with private plaintiffs throughout the Gulf of Mexico region – and the relationship between BP and the court has, at times, been acrimonious. Given the extraordinarily high stakes involved, it is almost certain that BP will appeal at least portions of the court's recent ruling.

Footnote

1 The court found that, in the 5th Circuit, "operational recklessness or willful disregard" is generally insufficient to support an award for punitive damages. Instead, there must be a showing that the offensive conduct "emanates from corporate policy or that a corporate official with policy-making authority participated in, approved of, or subsequently ratified the egregious conduct." Citing P & E Boat Rentals, Inc. v. Ennia Gen. Ins. Co., 872 F.2d 642, 652-53 (5th Cir. 1989).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions