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BP’s $20 Billion Fund May Not Stop Spill Lawsuits, Judge Says

BP Plc contract workers clean up oil
BP Plc contract workers are reflected in a pool of oil as they use a vacuum hose to clean the beach at Grand Isle State Park in Grand Isle, Louisiana. Photographer: Derick E. Hingle/Bloomberg

BP Plc’s $20 billion oil spill fund, established at the request of U.S. President Barack Obama, may not stop more than 230 lawsuits filed by people and businesses harmed by the worst environmental disaster in U.S. history, a judge said.

U.S. District Judge Carl Barbier said while BP’s new fund is a welcome step, he believes some spill damage claims won’t be resolved through either the interim-claims process BP has set up under the Oil Pollution Act of 1990 or by the panel of mediators, led by Ken Feinberg, appointed by Obama to administer the fund.

“Hopefully, everybody will be satisfied through the OPA 90 claims process, and nobody will end up in court,” lawyer Steve Herman, who represents multiple hotels and fishing industry workers, told Barbier yesterday at a hearing in federal court in New Orleans.

“I’m not as optimistic as you,” Barbier told Herman and more than 75 other lawyers for fishermen, seafood processors, property owners and tourism-related businesses suing BP.

Barbier said judges will be required to decide which damage claims are too “remote” from the oil spill to be legally valid. According to data compiled by Bloomberg, litigation against BP and other companies involved in the Gulf spill now extends beyond the Gulf Coast, including cases filed in Kentucky, South Carolina and Alaska.

Up the Chain

“It could be geographic remoteness or legal remoteness,” Barbier said. “It’ll be about where the line is drawn up the chain.”

U.S. Justice Department lawyers, in a June 10 filing made public yesterday, urged a panel of judges to gather all the federal court suits before a single judge in New Orleans for pre-trial proceedings. The government didn’t identify the judge. BP officials have asked that the cases be sent to U.S. District Judge Lynn Hughes in Houston.

New Orleans “is centrally located and is geographically closest to the key events giving rise to liability in these matters,” U.S. lawyers said in the nine-page filing.

Most of the at least 232 cases filed in state and federal courts so far against London-based BP are proposed class actions representing potentially thousands of commercial fishermen, shrimpers, seafood processors, property owners and tourism-related businesses harmed by the spill, the largest in U.S. history.

Wrongful-Death Suits

The company also faces wrongful-death suits brought by the families of workers killed in the April 20 explosion of the Deepwater Horizon drilling rig. On June 2, Credit Suisse Group AG estimated that the combined cleanup, restoration and litigation costs of the spill may top $37 billion.

“BP continues to believe that the federal district court in Houston will provide the most convenient location for all of the related cases, and has the judicial resources and experience necessary to properly manage a large and complex group of cases,” Robert Wine, a company spokesman, said in an e-mailed statement.

In a case filed yesterday in federal court in New Orleans, BP and a Nalco Holding Co. unit, the maker of a chemical dispersant used to deal with the Gulf of Mexico oil spill, were sued by Louisiana residents claiming the product is four times more toxic than the oil itself.

BP has been using the dispersant to break up oil and reduce harm to the coast. The plaintiffs claim BP used the dispersant to save money “and lessen the public reaction to the oil spill” by forcing it to the bottom of the Gulf.

Class Action

The lawsuit is a proposed class action that would include all workers and Gulf Coast residents claiming harm from the chemical. The plaintiffs are seeking at least $5 million in actual damages and unspecified punitive damages.

“The dispersant has been sprayed over the Gulf of Mexico and has caused a toxic chemical to be a permanent part of the sea bed and food chain in the bio structure,” according to the complaint. The chemical causes “an even more dangerous condition to exist in the Gulf of Mexico than if the oil was allowed to float to the shoreline,” the residents said in the complaint.

Charlie Pajor, a spokesman for Naperville, Illinois-based Nalco, declined to comment on the lawsuit. “We feel our product is safe and effective,” he said in a phone interview.

Toby Odone, a BP spokesman, declined to comment.

Georgia, South Carolina

Beachfront property owners in Georgia and South Carolina have sued over vacation cancellations, even though the drifting oil has yet to enter the Atlantic Ocean. Companies that supply coastal restaurants, seafood processors and oilfield services firms also have sued or are evaluating claims over lost profits from the closure of beaches and fisheries, Herman said in an interview before yesterday’s hearing in New Orleans.

As of yesterday, “BP has paid 60,000 claims totaling nearly $100 million,” BP’s lead lawyer Don Haycraft told Barbier at the hearing. All of these claims have been resolved so far through the OPA 90 claims process.

Barbier told lawyers he expects the OPA 90 interim-claims process will be “subsumed” into BP’s new fund at some point, although he wasn’t clear on details of how that will work.

New Orleans lawyer Val Exnicios, who represents the United Commercial Fisherman’s Association, said no one is sure yet how the Feinberg-controlled fund will interact with the spill-claims litigation.

Referee Claims

“All I want is for the fishermen to be made whole for their losses, for as long as it takes,” Exnicios said in an interview before the hearing. Judges and juries will likely be required to referee certain types of claims that BP doesn’t want to pay, he said.

“For some of these fishermen, this has been their livelihoods for generations, and that way of life may be gone for good,” Exnicios said. “I don’t think BP is going to want to pay them for that.”

The multidistrict case is In re Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico on April 20, 2010, U.S. Judicial Panel on Multidistrict Litigation, MDL-2179, Washington. The dispersants case is Parker v. Nalco Co., 2:10-cv-01749, U.S. District Court, Eastern District of Louisiana (New Orleans).

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