Feds: BP its own worst enemy in civil trial

NEW ORLEANS – BP’s own statements, and analyses prepared by people it hired, may make it difficult to defend itself against billions of dollars more in penalties related to the 2010 Gulf of Mexico oil spill.

As a civil trial is set to get under way in federal court Monday in New Orleans over a web of litigation related to the disaster, the U.S. government believes it has an ace in the hole – the British oil giant itself.

Justice Department lawyers say they have proof that three months after BP’s Macondo well blew out and the Deepwater Horizon rig exploded off Louisiana, killing 11 workers, company engineers reached conclusions “strikingly similar” to what government scientists found about how much oil was flowing. They suggest the company has reversed course since then to limit its exposure.

“The government obviously has a very strong case,” said Eric Schaeffer, who led the Environmental Protection Agency’s civil enforcement office from 1997 to 2002. “That’s always awkward for a company when it’s trying to show its data is correct and the government can argue its data kept changing.”

With so much at stake, the sides have continued to talk about possible settlements, and could settle even after the trial starts.

Lawyers involved in the case say that if BP and the U.S. government settled the Clean Water Act claims, the states settled their natural resources damage claims with BP, or some of the other parties also reached deals, the court might delay the trial to reorganize the case.

The Justice Department and several Gulf Coast states have prepared a last-minute offer to BP to resolve civil claims related to the spill. But it’s not clear how much will be offered and when – or whether BP would accept such an offer. The people who spoke to the Houston Chronicle declined to comment on any figures being discussed.

One of the difficulties with any settlement prior to trial at this late stage is that there have been differences among the states and federal government on the best way to proceed.

According to a recent BP filing, the cumulative amount of economic damage claims being asserted by the Gulf states and local communities is roughly $34 billion. That figure does not include federal Clean Water Act claims or natural resources damage claims. BP faces a maximum Clean Water Act penalty of $17.6 billion.

Undeterred, BP has enlisted lawyers from across the globe to mount the company’s defense, and they surely will argue that the government’s spill numbers kept changing, too. Initial estimates were that crude was coming from the well at 1,000 to 5,000 barrels a day, but later estimates exceeded 50,000 barrels a day.

How much oil spilled is one of the biggest issues in the case in terms of dollars at stake, although it won’t be decided until the second phase of the trial.

An army of lawyers

In a recent court filing, the Justice Department said it is seeking to introduce nine exhibits it says will help prove the government’s flow calculations are accurate. The exhibits include documents prepared by BP’s own contractors.

Asked about its trial plans, the Justice Department said in a statement, “We are seeking civil penalties and a judgment that BP and others are liable without limitation for removal costs and natural resource damages – exposure that could amount to billions of dollars.”

BP’s chief lawyer, Rupert Bondy, said its case will be vigorous and the government faces a high bar to prove gross negligence – the finding required for assessment of the highest penalties.

BP hasn’t released its own total flow rate estimate. In a statement, the company says courts historically have awarded only a fraction of the statutory maximum penalty.

An army of lawyers has descended on the Big Easy in advance of the trial before U.S. District Judge Carl Barbier.

Parties include plaintiffs’ attorneys who represent individuals and businesses affected by the spill, the Justice Department, several Gulf states, well owner BP, rig owner Transocean, cement contractor Halliburton and blowout preventer maker Cameron.

Other fines, payments

The $17.6 billion maximum Clean Water Act penalty BP faces would require the court to find that the spill resulted from gross negligence and agree with the government’s estimated spill total of 4.1 million barrels of oil. That’s down from an original $21 billion maximum after the government agreed Tuesday not to count 800,000 barrels of oil that was discharged by the well but collected at the wellhead by various siphoning methods BP used.

BP also could face compensatory and punitive damages for the effects of the spill on the Gulf Coast, on top of the $24 billion it already has spent on cleanup costs and compensating victims.

That doesn’t count the $4 billion criminal fine another judge in January ordered it to pay under a plea bargain in which BP pleaded guilty to manslaughter and other charges. Transocean has pleaded guilty to violating the Clean Water Act and will pay $1.4 billion in civil and criminal penalties. Four current and former BP employees are awaiting trial on criminal charges related to the disaster.

BP is likely to argue that in determining any Clean Water Act penalty, the court should consider the money the company already has spent. It also could ask for consideration based on the quality of its spill response.

Some of the other companies’ liability could be limited by indemnity clauses in their contracts with BP related to the well job. Several of the companies have made civil claims against each other.

During the first phase of the trial, expected to last up to three months, Barbier will hear evidence on the causes of the well blowout and will determine how to allocate fault, which may or may not include percentages of blame.

The second phase will address the amount of oil that spilled.

At some point during the trial or after, Barbier also is expected to determine if the disaster resulted from gross negligence.

Long and complicated

Further proceedings could determine how much in punitive damages should be assessed, and separate trials could determine damage awards for individuals and businesses that opted out of a multibillion-dollar settlement last year between BP and private parties claiming economic or health damages.

It’s a lengthy process. It’s also complicated, as even the companies disagree on the exact course the trial will take.

That’s not surprising because there never has been a trial quite like this.

A lot will happen the first week, including opening statements, testimony from key witnesses and video presentation of former BP chief executive Tony Hayward’s deposition in the civil case. Outgoing Energy Secretary Steven Chu also was deposed in the case, though it is unclear if he will be called to testify.

Surprises ahead?

After three years of investigations and public disclosures it’s unlikely that the trial will include major revelations about the disaster. Lawyers involved in the case nonetheless promise a few surprises.

Plaintiffs’ lawyers will arguethat BP was over budget and behind schedule on the well job and chose fast and cheap over safe and prudent.

They also will accuse Transocean of not maintaining the rig properly, allowing it to become unseaworthy, and Halliburton of providing cement that wasn’t up to the task of keeping oil and gas from surging out of control into the well.

BP argues that the disaster resulted from multiple causes and that multiple companies share the responsibility.

Schaeffer, the former EPA official, said that for the government to meet the standard for proving the other big issue in the case – gross negligence – it would have to show there was reckless disregard for safety and the environment, that the company turned a blind eye to safety to maximize profits and minimize costs.

“If I had to dumb it down,” Schaeffer said, “it’s like, ‘You should have known better.’?”