Louisiana looms large in oil spill case

BP has negotiated settlements with thousands of individuals harmed in the 2010 Gulf of Mexico oil spill, and cut a plea bargain on federal criminal charges.

Yet a plaintiff looms that could demand and possibly win civil damage payments that would dwarf the billions BP already has paid or committed: The state of Louisiana.

With a coast just 50 miles from BP’s Macondo offshore well and the millions of gallons of crude oil it spilled, Louisiana took the worst hit and is poised to be a key player as federal and state governments work to settle with, or go to trial against, BP and possibly others linked to the disaster.

Louisiana officials contend that the cost of restoring the state’s beaches, wetlands and other natural resources will far exceed widely reported estimates that BP will pay $15 billion to $20 billion to settle federal and state civil claims.

“The dollars that have been reported in the press, there is absolutely no way that you could reconcile that level of funding with the liability that BP has outstanding,” said Garret Graves, executive assistant to Louisiana Gov. Bobby Jindal for coastal activities. “There is no way you can stand up before the people in the Gulf and try to defend those numbers, when you look at what is happening and the natural resource injuries.”

Those injuries are a big part of what could drive up damages due Louisiana, under a provision of the Oil Pollution Act of 1990 that requires a polluter to fund the expense of restoring the environment to its prior condition.

The federal government says BP’s well spilled 4.9 million barrels of oil – more than 200 million gallons. BP has disputed that number without proposing its own, but what isn’t disputed is that an enormous amount of crude flowed in the three months before the well finally was capped, and the amount spilled will be part of the damage calculation.

BP has said that it is preparing for trial on all claims, including those from Louisiana.

“BP will vigorously defend against those claims, which must be tethered to reality and based on actual environmental and economic damages,” said Scott Dean, a company spokesman.

Graves declined to say how much Louisiana is seeking for its natural resource claims, but cited fines for other oil spills in the last 20 years for comparison.

The settlement for the 1989 Exxon Valdez tanker spill in Alaska’s Prince William Sound came to $5,842 per barrel adjusted for inflation, Graves said.

At that rate, based on the government’s Gulf spill estimate, parties responsible would owe more than $28 billion for natural resource damages alone.

A 2004 spill into Puget Sound near Tacoma, Wash., from a vessel operated by ConocoPhillips subsidiary Polar Tankers, resulted in a $3,021-per-barrel settlement – which would total almost $15 billion for 4.9 million barrels.

Natural resources damages would be in addition to fines under the Clean Water Act.

That act defines a range of fines, with the high end assessed if there is a legal determination of gross negligence.

Based on the 4.9 million-barrel estimate in the Gulf spill, BP could face Clean Water Act claims ranging from $5 billion to $20 billion.

As to the natural resources claims, the damage assessment is likely to fall short of Louisiana’s expectations, said David Uhlmann, a former head of the Justice Department’s environmental-crimes section who now teaches law at the University of Michigan.

“The natural resources damage claim is likely to be in the single-digit billions, not the double-digit billions,” Uhlmann said. “BP is a very wealthy company but they do not have unlimited resources, and it’s not realistic to expect BP to agree to pay anywhere close to $20 billion for natural resource damages. You can’t extract in settlement negotiations sums of money that a court would never award if the case went to trial and BP lost on every claim.”

By contrast to the Clean Water Act fines, natural resources damages are tied an assessment of the actual costs associated with restoring an environment harmed by a spill.

“Under the Clean Water Act, the civil penalties are just that – penalties,” said Blaine LeCesne, a tort law professor at Loyola University, who has closely followed the case. “But the natural resource fines are remedial – they are used to pay for damages.”

One of the challenges in determining natural resources damages is that they can take years to emerge and longer to assess formally.

In the case of the Gulf spill, the assessment is under discussion by the National Oceanic and Atmospheric Administration, the Department of the Interior, representatives from each of the Gulf Coast states, and BP.

Graves said hundreds of environmental assessments are under way, measuring the spill’s myriad potential effects on animals from microorganisms to whales, and on air and water quality.

Graves said that estimates of the damage are being used to calculate the potential cost to restore the coast. Louisiana is also demanding a “re-opener” agreement, which would give Louisiana the right to ask for more money later if the restoration costs proved to be higher.

Louisiana is also making claims based on maritime laws, which provide for punitive damages that LeCesne said could add significantly to Louisiana’s total claim.

In addition, Graves said, the state is alleging it lost more than $1 billion in tax revenue as a result of diminished economic activity.

While these claims could add up to a startling total, LeCesne said the individual components all have a strong legal basis, and probably are complicating efforts at negotiating a global settlement between BP and federal and state governments.

“The cost of restoring coastline which has eroded at an accelerated rate, the destruction of the wetlands, the effects on the wildlife and the potential long term effects on the fishing industry – those are very expensive propositions,” LeCesne said.