One Step Closer… Fifth Circuit Affirms BP Loss on CWA Liability Regarding Gulf Spill

by Davis Wright Tremaine LLP

The Deepwater Horizon spill in the Gulf of Mexico occurred over four years ago, accompanied by numerous stories trumpeting the fact that BP would likely pay as much as $25 billion to the United States in civil penalties alone. With numbers like that in the air, and a judge who has forced the parties to move forward in litigation, typically a settlement follows. Not in this case however. But with a recent decision by the Fifth Circuit Court of Appeals, the dynamic might change.

There have been some settlements in the Clean Water Act penalty action brought by the US. Moex, a 10% passive investor in the BP lease, quickly settled its Clean Water Act (CWA) civil penalty liability to the US for approximately $80 million. That was the largest CWA civil penalty ever entered until Transocean, as owner and operator of the Deepwater Horizon, settled its CWA civil penalty liability for $1 billion.

BP and its other minority partner, Anadarko, however, chose to fight. That decision was not entirely surprising. At that time, with memories of the spill and its aftermath still fresh, the public pressure for a massive civil penalty was enormous, and BP may have felt that delaying negotiations might temper that. Perhaps more important, not long after the Deepwater Horizon CWA penalty action was filed, another oil company, Citgo, had become the first defendant to take a CWA penalty case to trial since the penalty provisions were significantly strengthened by the Oil Pollution Act of 1990, and had been hit with penalties far lower than demanded by the US in settlement.

Indeed, BP and Anadarko took Citgo one step farther, and argued that not only did their liability not amount to billions of dollars, they had no CWA civil penalty liability at all.

BP and Anadarko argued that CWA penalty liability is imposed on owners of facilities from which oil is discharged. They were admittedly owners of the well in the floor of the Gulf. But they argued that the discharge was not from the well to the ocean, but was from the riser that connected the well opening to the Deepwater Horizon drilling rig. That riser had broken off, causing oil to gush from the well through the riser into the ocean. Hence, Transocean, as the owner of the riser connected to the Deepwater Horizon, should be liable for any civil penalty, not BP and Anadarko.

Neither the trial nor the appellate court gave the argument much credence. The District Court held that the point of discharge is the point where the uncontrolled movement of oil began, and that was at the well, finding against BP and Anadarko and for the US on cross motions for summary judgment. The Court of Appeals affirmed on June 4, 2014, in a terse 10 page opinion. Rejecting Anadarko’s effort to reframe the discharge question as being the point where oil “enters the marine environment,” the court noted that there was no legal support for that position, and that once the cement in the well had failed, oil “‘flowed freely’ from the well and ultimately into navigable waters.” The court cited numerous decisions where liability had been imposed on the source facility regardless of whether the oil had flowed over intervening property or through ditches before reaching navigable waters. Since BP and Anadarko did not dispute ownership of the well, it affirmed their liability for civil penalties under the CWA.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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