Gulf Oil Spill MDL Court Issues Trial CMO

The court managing the Gulf oil spill MDL recently entered an important case management order defining the structure and scope of the upcoming trial on the Deepwater Horizon oil spill.  That Trial of Liability, Limitation, Exoneration, and Fault Allocation is scheduled to commence, as previously ordered in CMO No. 1 and CMO No. 2, on February 27, 2012.  See In re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010, MDL No. 2179 (E.D. La., Order 9/14/11).

Readers know we have been keeping an eye on this signficant litigation since the MDL was created. CMO No. 3 notes that the trial will address all allocation of fault issues that are to be tried to the bench without a jury, including the negligence, gross negligence, or other bases of liability of, and the proportion of liability allocatable to, the various defendants, third parties, and non-parties with respect to the issues, including limitation of liability.

The trial will be conducted in three phases.

Phase One [the Incident Phase] of the trial will address issues arising out of the conduct of various parties, third parties, and non-parties allegedly relevant to the loss of well control at the Macondo Well, the ensuing fire and explosion on the Deepwater Horizon vessel, the sinking of the Deepwater Horizon on April 22, 2010, and the initiation of the release of oil from the Macondo Well or Deepwater Horizon.

Phase Two of the trial will address Source Control and Quantification of Discharge issues. Source Control issues consist of issues pertaining to the conduct of various parties, third parties, and non-parties regarding stopping the release of hydrocarbons stemming from the Incident from April 22, 2010 through approximately September 19, 2010. Quantification of Discharge issues refer to  issues pertaining to the amount of oil actually released into the Gulf of Mexico as a result of the Incident from the time when these releases began until the Macondo Well was capped on approximately July 15, 2010 and then permanently cemented shut on approximately September 19, 2010.

Phase Three [Containment Phase] of the trial will address issues pertaining to the efforts by various parties, third parties, and non-parties aimed at containing oil discharged as a result of the Incident by, for example, controlled burning, application of dispersants, use of booms, skimming, etc. Phase Three of the trial will also address issues pertaining to the migration paths and end locations of oil released as a result of the Incident as carried by wind, currents, and other natural forces.

CMO No. 3 also addresses the sequence of proof for Phase One: first plaintiffs, then Transocean, then the other defendants. At the end of each Phase of the trial and after consideration of the parties' submissions, the Court may decide to issue partial Findings of Fact and  conclusions of Law for that Phase if it deems the record adequately developed. The Court said it anticipates that discovery and other pretrial proceedings for Phase Two of the trial and possibly for Phase Three of the trial will likely need to be conducted concurrently with pretrial proceedings for and the conduct of Phase One of the trial.

 

 


 

Medical Monitoring Claim Rejected in Rail Spill

The Sixth Circuit recently rejected the medical monitoring claims of a putative class of residents of a small Ohio town who alleged exposure to chemicals released after a CSX Transportation Inc. train accidentally derailed. Jonathan Hirsch et al. v. CSX Transportation Inc., No. 09-4548 (6th Cir. Sept. 8, 2011).

On October 10, 2007, thirty-one cars of a CSX train derailed and caught fire near the town of Painesville, Ohio. As a precaution, emergency personnel removed about 1,300 people from the surrounding half-mile radius. Most of what burned in this fire was non-toxic, but nine of the cars were carrying potentially hazardous materials. The plaintiffs claimed that 2,800 tons of burning material were sent into the surrounding atmosphere, and that, as a result, the level of dioxin in their town was significantly elevated.

While the fire was still burning, several residents of the town brought suit against CSX;  the district court did not allow the plaintiffs to pursue an independent cause of action for medical monitoring, but decided a court-supervised medical monitoring was available as an equitable remedy under Ohio law. See Wilson v. Brush Wellman, 817 N.E.2d 59, 63-65 (Ohio 2004); see also Day v. NLO, 851 F. Supp. 869, 880 (S.D. Ohio 1994).  Defendant then moved for summary judgment, which was granted. The district court held that the plaintiffs had failed to meet their burden to show that (1) the dioxin released into the air by the fire is a known cause of human disease; and (2) that the named plaintiffs were exposed to dioxin in an amount sufficient to cause a significantly increased risk of disease such that a reasonable physician would order medical monitoring. The plaintiffs timely appealed.

The court of appeals focused on the issues of causation and injury. Rather than traditional personal injuries, the alleged injuries consisted solely of the increased risk of—and corresponding cost of screening for—certain diseases that, according to plaintiffs, were more likely to occur as a result of the train crash. Assuming that Ohio would recognize such an injury, the remedy would be a medical monitoring program that would spare the Plaintiffs these expenses. But were plaintiffs actually at such an increased risk of disease that they were entitled to a medical monitoring program? Not every exposure, not every increased risk risk of disease warrants increased medical scrutiny. For the plaintiffs to prevail, there must be evidence that a reasonable physician would order medical monitoring for them.

Plaintiffs hired several experts to try to meet this burden. (No Daubert issue raised; the issue was sufficiency, not admissibility.). They offered a chemical engineer who tested the community for levels of dioxin. He assumed a normal background level of dioxin at 4 parts per trillion and took measurements around Painesville to compare with this baseline. His measurements
showed elevated levels near the crash site.  Plaintiffs had a chemist who speculated about train cargo, nature and amounts; then, a physicist who plotted the dispersion and concentration of the chemicals from the fire on a map for the purpose of showing which members of the community were exposed to what levels of dioxin. Then a medical doctor used this map to determine who in the community was likely exposed to levels of dioxin above what the EPA considers acceptable—levels at which the risk of cancer increases by "one case in one million exposed persons."

The court of appeals saw at least two problems with this offer.  One issue was the use of the regulatory level. The expert not only accepted the risk of one in a million as the threshold for monitoring, but appeared to have halved it. “One should be afforded the benefit of medical
monitoring, if one has sustained a dose equal to or in excess of 50% of the EPA maximum.” There was little explanation as to why he believed that reasonable physicians would order expensive and burdensome testing for such a small risk, but he explained he wanted "to err on the side of patient safety.”  However, a one-in-a-million chance is small. Indeed, it is proverbially small. If something has a one-in-a-million chance of causing cancer in an individual, then it will not cause cancer in 999,999. For some perspective, the National Safety Council estimates a person’s lifetime risk of dying in a motor vehicle accident as 1 in 88. The lifetime risk of dying in “air and space transport accidents” is roughly 1 in 7,000. The risk of being killed by lightning
is roughly 1 in 84,000, while the risk of being killed in a “fireworks discharge” stands at around 1 in 386,000. So, a small risk and no basis to say it called for medical monitoring.  Certainly the EPA didn't base its standard on any medical monitoring analysis.

Second, the doctor based based his assessment on the exposure map.  But the map was unreliable. The estimate of the total material burned was speculative. The expert admitted that “the fire temperature, particle size distribution, and fire area were not established.” And there were other sources of exposure not accounted for.

Plaintiffs thus alleged only a risk that bordered on legal insignificance, and failed to produce evidence establishing with any degree of certainty that they had even this hypothetical risk.

Summary judgment affirmed.

MDL Court Rules on Availability of Punitive Damages in Gulf Oil Spill Litigation

The MDL court overseeing the claims arising from the 2010 Gulf of Mexico oil spill has ruled that plaintiffs can seek punitive damages against allegedly responsible parties in economic loss and property damage suits. In Re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico on April 20, 2010, No. 2:10-md-02179 (E.D. La., 8/26/11).

Readers may recall that this MDL consists of hundreds of consolidated cases, with thousands of claimants, arising from the April 20, 2010 explosion, fire, and sinking of the Deepwater Horizon  mobile offshore drilling unit, which resulted in the release of millions of gallons of oil into the Gulf of Mexico before it was finally capped approximately three months later. In order to efficiently  manage this complex MDL, the court consolidated and organized the various types of claims (e.g., personal injury, environmental, property, and economic damages) into several “pleading bundles.”  One such pleading bundle includes all claims for private or non-governmental economic loss and property damages.  There are in excess of 100,000 individual claims encompassed within this bundle.

The court recently ruled on several pending motions to dismiss the claims by this sub-group of plaintiffs, but let's focus on the punitive damages claims. The court's analysis began with the Oil Pollution Act of 1990: the OPA is silent as to the availability of punitive damages. So the issue became whether plaintiffs who could assert general maritime claims pre-OPA enactment could still plausibly allege punitive damages under general maritime.  The court concluded they could.

First, punitive damages have long been available at common law, and the common-law tradition of punitive damages extends to maritime claims. The court reasoned that Congress had not occupied the entire field of oil spill liability in light of the OPA provision preserving admiralty and maritime law, “except as otherwise provided.” OPA does not mention punitive damages; thus, while punitive damages are not available under OPA, the court did not read OPA’s silence as meaning that punitive damages are precluded under general maritime law. The MDL court observed that Congress knows how to proscribe punitive damages when it intends to, as it did in the commercial aviation exception under the Death on the High Seas Act, 46 U.S.C. § 30307(b) (“punitive damages are not recoverable”).
 

Second, the court saw nothing to indicate that allowing a claim for punitive damages in this context would frustrate the OPA liability scheme. All claims against the allegedly Responsible Party must comply with OPA’s procedure, regardless of whether there is also cause of action against the Responsible Party under general maritime law. However, the behavior that would give rise to punitive damages under general maritime law–gross negligence–would also break OPA’s limit of liability. See 33 U.S.C. § 2704(a). Thus, the imposition of punitive damages under general maritime law would not, according to the court, circumvent OPA’s limitation of liability.

Finally on this issue, the court noted that some courts had held that the Trans-Alaska Pipeline Authorization Act (“TAPAA”), which provided “the liability regime governing certain types of Alaskan oil spills, imposing strict liability but also capping recovery,” did not restrict the availability of punitive damages.  OPA, like TAPAA, creates a liability regime governing oil spills, imposes strict liability on the Responsible Parties, includes liability limits, and is silent on the issue of punitive damages.

Thus, the court concluded, the OPA does not displace general maritime law claims for those plaintiffs who would have been able to bring such claims prior to OPA’s enactment. 


 

Marital Privilege Over Emails Rejected in Oil Spill Litigation

The massive litigation over the Gulf oil spill has spawned a wide range of significant legal issues.  Here's an interesting little one. The magistrate judge in the MDL has held that a BP drilling engineer cannot assert marital privilege regarding e-mails to his spouse sought by the plaintiffs. In re Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico on April 20, 2010, MDL 2179 (E.D. La., 3/28/11).

Mr. Morel was employed by BP as a drilling engineer on the Macondo Well.  Plaintiffs and several defendants wanted to depose him.  The witness asserted the marital privilege as to certain email communications which were produced by BP to the Plaintiff Steering Committee. He contended that 93 documents containing email communications between himself and his wife should be returned to him or destroyed. His wife was a production engineer for BP, with no duties relating to the well. 

All of the email communications at issue were made through their BP email accounts. But the witness urged that: (1) BP permitted the personal use of company email; (2) it did not indiscriminately or randomly monitor its employees’ emails; (3) no third party other than BP had a right to access Mr. Morel’s email account.  The court framed the issue as whether BP’s notification
statements and email policies were sufficient to defeat Mr. Morel’s assertion of the marital privilege over the emails.

BP computer screens included the statement that “[w]ithin the bounds of law, electronic transmissions through internal and external networks may be monitored to ensure compliance with internal policies and legitimate business purposes."  BP’s Code of Conduct Policy provided that: Personal data, information or electronic communications created or stored on company computers or other electronic media such as hand-held devices are not private.

Mr. Morel, however, argued that the determination of privilege should not be made on the basis of the written BP policies but on how those policies were implemented.

There are a number of cases finding that when an employer has a rule prohibiting personal computer use, an employee cannot reasonably expect privacy in their prohibited communications.   Miller v. Blattner, 676 F.Supp.2d 485 (E.D.La. 2009); Thygeson v. U.S. Bankcorp, 2004 WL 2066764 (D. Or.); Kelleher v. City of Reading, 2002 WL 1067442, *8 (E.D. Pa.).

BP had no such prohibition, but BP notified its employees that electronic communications could
be monitored and accessed by BP. There are a few cases indicating that policies short of a prohibition of personal use can defeat an expectation of privacy. Muick v. Glenayre Electronics, 280 F.3d 741 (7th Cir. 2002); United States v. Etkin, 2008 WL 482281 (S.D.N.Y); Sims v. Lakeside School, 2007 WL 2745367, *1 (W.D. Wash.).

Based on these cases, this court found that it was not objectively reasonable for an employee to have an expectation of privacy where the employers’ policies clearly demonstrate that the employee’s electronic communications may be monitored and accessed by the employer; and thus they were subject to production by a subpoena.
 

Update on Deepwater Horizon MDL

Judge Carl Barbier recently presided over the November status conference in the MDL involving the Gulf oil spill litigation.  In re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico on April 20, 2010, MDL No. 2179 (E.D. La.).

Liaison counsel reported on the number of cases, now up to roughly 300, and on the status of the related 17 or so cases in state courts. 

A major topic was the entry of an order regarding preservation of evidence recovered from the seabed or otherwise. The order also noted the equipment related to the Deepwater Horizon explosion that must be turned over to the government's Joint Investigation Team as it is recovered. The government reported that forensic testing had begun on the Blow Out Preventer, with a report estimated to be available in March, 2011. Counsel for the Justice Department also reported to the Court that a sample of cement from the site had been turned over to the Marine Board and was being held in a climate-controlled area while the parties discuss protocols for physical testing of the cement. (The Marine Board is the joint investigation by the U.S. Coast Guard and the Bureau of Ocean Energy Management, Regulation, & Enforcement.)

Defense counsel reported that the Gulf Coast Claims Facility  (GCCF) has paid out nearly $1.9 billion in claims so far, to 395,000 claimants, with about 150,000 other claims awaiting additional documentation.

The deadline for submission of Plaintiff Profile Forms is this month, and it is expected that the Forms will be used to help identify appropriate test cases.  The first trial slot is for February, 2012.

The parties reported that written discovery and depositions will begin in January, 2011.

The next status conference was set for December 17th.

 

  

Oil Spill MDL May Appoint Special Master

The judge overseeing the Gulf oil spill  MDL has given notice of its intent to appoint Duke Law Professor Francis McGovern, as a special master to help the parties address several complex issues arising from the Deepwater Horizon accident.  In re: Oil Spill by the Oil Rig "Deepwater Horizon" in the Gulf of Mexico, on April 20, 2010, MDL No. 2179 (E.D. La.).

In the order last week, the court accordingly, pursuant to Rule 53 of the Federal Rules of Civil
Procedure, provided notice to the parties of its intention to appoint a special master.  In mass tort litigation, courts often appoint special masters to assist in managing the matters, especially the discovery. Rule 53 permits the court to appoint a master for pretrial matters that cannot be addressed effectively or in a timely manner by the court. Appointment of a special master to supervise discovery may be appropriate where the financial stakes justify imposing the expense on the parties, and where the amount of activity required would impose undue burdens on a judge.

The Manual for Complex Litigation says that it is preferable for the court to appoint the special master with the parties' consent, and here the court is giving the parties an opportunity to weigh in.  The success of the special master in the role the court assigns depends in the first instance on the person selected.  Prof. McGovern is well known to our readers, having served as special master or mediator in dozens of major mass torts, including several asbestos matters, DDT toxic exposure litigation, the Dalkon-Shield controversy, and silicone gel breast implant litigation.  As an academic, he has advocated for enhanced roles for court appointed special masters as "case managers" and "settlement masters." As a practicing case manager, he has helped courts to organize the pretrial administration of a case, and used ADR techniques to help the parties agree on efficient discovery approaches and schedules. (But note the Manual for Complex Litigation advises against referral of extensive pretrial management to a special master, at Section 10.14). His role as settlement master in some cases has required that he develop innovative ways to implement potential settlements. In the Dalkon Shield litigation, he helped organize and administer the distribution of the $2.4 billion trust established to compensate 100,000 women who had sued the maker of the device.

He is also a prolific author on mass torts issues, including A Model Mass Tort: The PPA Experience, 54 Drake Law Review 621-638 (2006); A Model State Mass Tort Settlement Statute, 80 Tulane Law Review 1809-1826 (2006); and A Proposed Settlement Rule for Mass Torts, 74 UMKC Law Review 623-636 (2006).

The final order appointing the special master will specify the scope of the reference, the circumstances under which ex parte communication will be deemed appropriate, and other relevant details.  Ordinarily, the special master will produce a report on the matters in his or her charge, with findings of fact and conclusions of law which would be reviewed by the district court.

 

Update on Gulf Oil Spill Litigation

Couple of interesting issue being debated in the Gulf Oil Spill Litigation.  In re: Oil Spill by the Oil Rig "Deepwater Horizon" in the Gulf of Mexico on April 20, 2010, MDL-2179 (E.D. La.).

The first concerns control over the testing of key components of the rig, once they are recovered.  Readers know how important such testing can be in supporting or refuting causation theories. But the very act of testing, even if not destructive, potentially alters the condition of the product.  Who goes first; what tests get run in what order; who does the testing; how tests are done... all of these can be vitally important issues in accident investigation and product liability litigation.

Defendant Transocean Ltd. unit has asked the judge in the MDL to grant a motion for a protective order that would block the government's apparent plan to unilaterally control testing of the oil rig's blowout preventer. Press reports suggest the blowout preventer could be recovered from the Gulf floor in the near future. Transocean Offshore Deepwater Drilling Inc. and several other defendants thus filed a motion last week in the U.S. District Court for the Eastern District of Louisiana for an expedited hearing on the protective order covering the blowout preventer.

The federal government has indicated that it wants to take exclusive control of the blowout preventer, transport it to a government site, and then contract for forensic testing and analysis. The motion argues that while the government has solicited input from other parties on testing protocol, it never said it would pay attention to any of those suggestions.

The second issue is a battle between Transocean and co-defendant BP over document discovery. Transocean attorneys are claiming that BP has been withholding documents and limiting Transocean's access to sensitive information connected to the accident, including records of tests on the blowout preventer, lab reports on components of the rig such as the well cement mix, and data on equipment used to keep well pipes in place during cementing.  BP, for its part, calls the claim a "publicity stunt” designed to divert attention from Transocean's alleged role in the accident.  BP claims it has already turned over thousands of pages of documents, including materials on the initial exploration plan, lab tests and daily drilling reports, and mud log reports.

Third, the American Petroleum Institute and other parties who are defendant-intervenors have asked the MDL judge to remand one of the many coordinated cases.  Gulf Restoration Network et al. v. Salazar et al.  This one is the suit brought by environmental groups against the federal government, and the argument is that it is fundamentally different from the other cases because it focuses on administrative law issues regarding the government’s approval of offshore drilling plans.

The Gulf Restoration Network, along with the Sierra Club, accused the U.S. Department of the Interior of ignoring environmental regulations when it allegedly waived safety regulations to allow BP and Transocean to conduct offshore drilling exploration in the Gulf of Mexico.

The discovery for negligence claims at the core of the MDL, these moving parties assert, will not materially assist or advance a case that stems from the legal issue whether the federal government took proper steps in granting the companies the offshore drilling exploration permits.  In fact, the argument goes, keeping Gulf Restoration in the MDL would unreasonably delay what would normally be a quick resolution to an administrative law action.

 


 

JPML Orders Gulf Oil Spill MDL to Eastern District of Louisiana

The Judicial Panel on Multidistrict Litigation yesterday selected New Orleans as the site of the oil spill litigation MDL. The Panel ordered coordination, and transferred 77 lawsuits to the Eastern District of Louisiana before U.S. Judge Carl J. Barbier (and referred to more than 200 potential tag along actions). In Re: Oil Spill by the Oil Rig "Deepwater Horizon" in The Gulf of Mexico, MDL No. 2179 (Aug. 10, 2010). 

In its order, the Panel found that the cases indisputably share factual issues concerning the cause (or causes) of the Deepwater Horizon explosion/fire and the role, if any, that each defendant played in it. Centralization under Section 1407 would eliminate duplicative discovery, prevent inconsistent pretrial rulings, including rulings on class certification and other issues, and conserve the resources of the parties, their counsel, and the judiciary. Interestingly, the Panel noted that centralization may also facilitate closer coordination with Kenneth Feinberg’s administration of the BP compensation fund.

Over some objections, the Panel also concluded that it made sense to include the personal injury/wrongful death actions in the MDL. While these actions will require some amount of individualized discovery, in other respects they overlap with those that pursue only economic damage claims, found the Panel. The Order notes that the transferee judge has broad discretion to employ any number of pretrial techniques – such as establishing separate discovery and/or motion tracks – to address any differences among the cases and efficiently manage the various aspects of this litigation. See, e.g., In re Lehman Brothers Holdings, Inc., Securities & Employee Retirement Income Security Act (ERISA) Litigation, 598 F.Supp.2d 1362, 1364 (J.P.M.L. 2009). 

In terms of where the cases should be coordinated, the Panel noted that the parties advanced sound reasons for a large number of possible transferee districts and judges. They settled upon the Eastern District of Louisiana as the most appropriate district for this litigation. Without discounting the spill’s effects on other states, the Panel concluded that "if there is a geographic and psychological center of gravity in this docket, then the Eastern District of Louisiana is closest to it."

In selecting Judge Barbier, the Panel expressly declined the suggestion made at oral argument that, given the litigation’s scope and complexity, it should assign the docket to multiple transferee judges. "Experience teaches," said the Panel, that most, if not all, multidistrict proceedings do not require the oversight of more than one judge, provided that he or she has the time and resources to handle the assignment. Moreover, Judge Barbier has at his disposal all the many assets of the Eastern District of Louisiana which is accustomed to handling large MDLs. Judge Barbier may also, found the Panel, choose to employ special masters and other case administration tools to facilitate certain aspects of the litigation. See Manual for Complex Litigation, Fourth §§ 11.52, 11.53 (2004).


 

JPML Hears Oral Argument In Gulf Oil Spill MDL

The U.S. Judicial Panel on Multidistrict Litigation heard oral argument last week on the issue of consolidating the hundreds of cases arising from the Gulf oil spill. In re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico,  MDL No. 2179.

The MDL panel met this time in Boise, Idaho, and suspended the usual rule limiting oral
argument to 20 minutes.  Multiple attorneys representing the various parties in the pending cases addressed the panel.  Most defendants urged the cases be coordinated in the Southern District of Texas, while most plaintiffs, including some of the restaurant owners and fishermen affected by the spill, argued for the Eastern District of Louisiana, asserting that much of the injury/damages is centered there. A  few other plaintiffs pushed for the cases to be coordinated in Mississippi, Alabama, or Florida courts.

BP argued that the Texas forum was appropriate because this defendant's headquarters, documents, and key fact witnesses are all located there. The government wants the cases consolidated in New Orleans. But one issue is that 8 federal judges, including several in Louisiana, have recused themselves from the spill cases.  This led to discussion whether potential judicial conflicts should compel the panel to bring in a judge from outside the Gulf states. In New Orleans, the Eastern District of Louisiana has consolidated its 50+ oil spill cases before Judge Carl J. Barbier, who has issued interim case management orders and appointed interim liaison counsel for plaintiffs and defendants.  Some have argued this has effectively created an administrative framework that could be utilized were the Panel to send the MDL to New Orleans.

At last look, federal cases were spread around the country, including in New York and California and Illinois.  However, the busiest oil spill dockets are in the Eastern District of Louisiana, Southern District of Texas, Southern District of Alabama, and the three Florida district courts, each with more than 10 cases. 

As noted here, the litigation involves a wide variety of claims, from personal injury, to property or environmental damages, lost profits, and securities-based economic injury.  The panel asked whether the cases, even if consolidated, should be put in separate groupings.  Some plaintiffs' attorneys  argued it was particularly important to set up a separate track for personal-injury claims.  

 

"SPILL" Act Passes House

Readers may recall that last month we posted about H.R. 5503, the “Securing Protections for the Injured from Limitations on Liability Act” (SPILL Act). This is one of many pending and promised bills addressing legal liability issues arising from the Gulf Coast oil spill, including amendments to the Death on the High Seas Act.

Specifically, H.R. 5503 would:

  • Amend the Death on the High Seas Act to permit recovery of non-pecuniary damages (e.g., pain and suffering and loss of care, comfort, and companionship) by the decedent’s family, as well as standardizing the geographic threshold for its application, and permitting surviving family members to bring suit directly rather than through a personal representative.
  • Amend the Jones Act to permit recovery of non-pecuniary damages by the families of seamen who are killed.
  • Repeal the Limitation on Liability Act to the extent it limits the liability of vessel owners to the value of the vessel and its cargo.
  • Amend bankruptcy rules to prevent corporations allegedly responsible for damages under the Oil Pollution Act from certain moves seeking to sever their assets from the legal liabilities.

The bill was supposed to be in response to the Gulf Oil Spill. However, we cautioned that some of  its provisions were not limited to the subject matter of oil spills. For example, Section 5 of the bill as introduced, proposed to amend the Class Action Fairness Act to exclude from its reach any action brought by a State or subdivision of a State on behalf of its citizens. Such a provision could have significant effect on CAFA, far beyond the oil spill litigation. For example, it might impact cases like State ex rel. McGraw v. Comcast Corp., 2010 WL 1257639 (E.D. Pa. Mar. 31, 2010).

The version passed by the House apparently does not contain this provision.  It was passed on motion to suspend the rules and pass the bill, as amended, and agreed to by voice vote.  Republicans and industry groups had expressed some concerns, and since many of the provision purport to be retroactive, wondered what the rush was.  Supporters argued that some of the prevailing laws were written in the mid-19th century to protect American merchant ship owners, and that the liability system needs to be updated.

As amended, Section 2 amends the Death on the High Seas Act (chapter 303 of title 46, United States Code), Section 3 alters recoveries under the Jones Act; Section 4 would repeal the Limitation of  Liability Act and the Oil Pollution Act; and Section 5 would provide new bankruptcy protection for tort claims arising from oil incidents.

Beware of Legislative Moves Over The Gulf Oil Spill

Last week,  U.S. House Judiciary Committee Chairman John Conyers, Jr. (D-Mich.) and Congressman Charlie Melancon (D-LA) introduced H.R. 5503, the “Securing Protections for the Injured from Limitations on Liability Act” (SPILL Act).  This is one of many pending and promised bills addressing legal liability issues arising from the Gulf Coast oil spill, including amendments to the Death on the High Seas Act.

Specifically, H.R. 5503 would:

• Amend the Death on the High Seas Act to permit recovery of non-pecuniary damages (e.g., pain and suffering and loss of care, comfort, and companionship) by the decedent’s family, as well as standardizing the geographic threshold for its application, and permitting surviving family members to bring suit directly rather than through a personal representative.

• Amend the Jones Act to permit recovery of non-pecuniary damages by the families of seamen who are killed.

• Repeal the Limitation on Liability Act to the extent it limits the liability of vessel owners to the value of the vessel and its cargo.

• Amend bankruptcy rules to prevent corporations allegedly responsible for damages under the Oil Pollution Act from certain moves seeking to sever their assets from the legal liabilities.

The bill is supposed to be in response to the Gulf Oil Spill. However, many of its provisions are not limited to the subject matter of oil spills.  For example, Section 5 proposes to amend the Class Action Fairness Act  to exclude from its reach any action brought by a State or subdivision of a State on behalf of its citizens.  Such a provision could have significant effect on CAFA, far beyond the oil spill litigation. For example, it might impact cases like State ex rel. McGraw v. Comcast Corp., 2010 WL 1257639 (E.D. Pa. Mar. 31, 2010). In that case, the state of West Virginia, in its capacity as parens patriae, filed an action in state court alleging that a cable company's requirements concerning cable boxes constituted impermissible tying behavior, in violation of state antitrust and consumer protection laws. On removal, the federal court held that the action was a “class action” under the Class Action Fairness Act, under which the definition of a class action must be “interpreted liberally.”

The bill has been referred to the following committees: House Judiciary, Subcommittee on House Transportation and Infrastructure, Subcommittee on House Transportation and Infrastructure, Subcommittee on Coast Guard and Maritime Transportation.

Earlier this month, the House Subcommittee on Oversight and Investigations held a field hearing In Louisiana on the local impact of the Gulf oil spill.The House Subcommittee heard testimony from experts on the environment and wildlife, some of whom who warned that the full effects of the spill will not be known until the flow of oil is stopped.  But the most emotional testimony came from two widows, whose husbands died when the Deepwater Horizon Rig exploded in April. The widows urged Congress to reform the Death on the High Seas Act, but also noted that they fully support offshore drilling as essential to our nation's economy.

 

UPDATE: the House Judiciary Committee approved H.R. 5503, Securing Protections for the Injured from Limitations on Liability Act (SPILL Act), by a roll call vote of 16-11, with two Republicans, Reps. Lungren (R-Calif.) and Rooney (R-Fla.), joining the rest of the Democratic committee members in voting in favor.

Gulf Oil Spill Litigation

More than 100 federal and state court actions have been filed against BP PLC, Transocean Ltd., and other companies in connection with the Deepwater Horizon drilling rig accident in the Gulf of Mexico.  (The API has a Q&A on the accident, and the Unified Command on the incident offers updates.)  Like many mass accident scenarios, the spill has generated a variety of kinds of actions. The claims so far fall into several main categories, including personal injury/wrongful death, maritime torts, property damage/lost profits, shareholder claims, and environmental law actions.

The wrongful death actions arise from the 11 workers missing and presumed dead in the accident.  These cases were filed in federal and state courts in Louisiana and Texas.  Gulf-front property owners, fishermen, shrimpers, harvesters, seafood processors, and restaurants in Louisiana, Alabama, Mississippi and Florida are among the entities suing over alleged harm to their businesses and their economic livelihoods. Many of these suits are class actions with overlapping class definitions.  The plaintiffs typically allege that defendants knew of the dangers associated with deepwater drilling and failed to take appropriate safety measures to prevent damage to marine or coastal environments, where they work and earn their income.

These claims potentially implicate caps on damages under the Limitation of Liability Act, and the Oil Pollution Act, which currently caps certain oil spill liability at approximately $75 million.  Plaintiffs have asserted that there are various exemptions from this reach of the Oil Pollution Act, for gross negligence and certain cleanup costs.  Also, the Obama administration and Democrats in Congress have advocated raising the caps retroactively. Bills S. 3305  (the so-called Big Oil Bailout Prevention Liability Act of 2010) and H.R. 5214 would raise the liability for economic damages to $10 billion per spill from the current $75 million. In a Senate hearing, Interior Secretary Ken Salazar warned that raising the trust fund's liability cap to $10 billion would prevent smaller and mid-sized energy companies from operating offshore. Perhaps most importantly, there is some case law suggesting that the Oil Pollution Act will not preempt state common law tort liability.

The administration is also proposing a tax increase, to support the Oil Spill Liability Trust Fund, of a further 1 cent per barrel on petroleum. It is interesting that the administration has been criticized for the slowness of some of its responses to the spill, but is very quick to propose tax hikes, without an opportunity for all stakeholders to be heard and without careful consideration of the availability of the fund for future incidents. A White House summary of its proposals for legislation on oil spill response is available.

Some plaintiffs have proposed that the federal cases be coordinated in an MDL proceeding in the Eastern District of Louisiana.  In Re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL No. 2179 (filed 4/30/10). Certain defendants have suggested instead that the Southern District of Texas host the MDL. A large group of plaintiffs' attorneys had met in New Orleans early in the month to plot out litigation strategy.  Interestingly, the Mississippi Bar issued a statement advising potentially affected parties of the risk of improper solicitation by plaintiff attorneys.It will be fascinating to see if the defendants can remain similarly coordinated and avoid unnecessary finger-pointing.  The testimony of various executives for BP Plc, Transocean Ltd., and Halliburton in front of the Senate Energy and Natural Resources Committee and the Senate Environment and Public Works Committee that pointed out the responsibilities of the other companies, raises this issue. 

Another type of pending action is by various shareholders alleging securities fraud in a class action that asserts that defendants made false and misleading statements about their safety procedures. Allegedly as a result of the statements and the company's supposed failure to disclose prior safety issues, the stock prices had been inflated, tumbling after the accident.  Several shareholder derivative lawsuits were also filed against certain officers and directors of the defendants, claiming that they breached their fiduciary duties by supposedly ignoring critical safety issues. The suits also allege that defendants lobbied governmental authorities to reduce the extent of safety  regulation of the companies' gulf operations. (one would think that was protected speech)

Some litigation has named Interior Secretary Salazar and the U.S. Department of the Interior for their oversight of off-shore drilling operations. These case point to the rules regulating the oil companies' blowout and worst-case oil spill preparations.  Some have gone so far as to seek a halt to BP's operations at other oil drilling platforms.  Still others have focused on the oil companies' environmental impact statement posture as in violation of  the National Environmental Policy Act, and their seismic surveys and drilling operations as in violation of the Marine Mammal Protection Act and the Endangered Species Act.

Democratic Senators are pressuring the Justice Department to to open a criminal probe into the accident, and BP's statements to the federal government regarding its ability to respond to oil spills. Earlier this month, Florida Gov. Crist appointed two former Florida state attorneys general to head a newly formed legal team that will represent the state on issues related to the spill.

 

Supreme Court Reduces Punitive Damages Award in Exxon Valdez Case

The U.S. Supreme Court has issued an opinion reducing the amount of the award of punitive damages against Exxon Mobil Corp. related to the 1989 Exxon Valdez oil spill – from $2.5 billion to just $507 million, an amount equal to the compensatory damages in the case. Exxon Shipping Co. v. Baker, 2008 WL 2511219 (U.S., June 25, 2008).

In a 5-3 decision, the Court found that a 1-to-1 ratio of compensatory to punitive damages was appropriate in the case, in which more than 32,000 fishermen and Alaska native citizens sought remedies after the tanker accident spilled approximately 11 million gallons of oil into Prince William Sound. At Phase I of the trial, the jury found Exxon and the ship’s Captain Hazelwood reckless (and thus potentially liable for punitive damages) under instructions providing that a corporation is responsible for the reckless acts of employees acting in a managerial capacity in the scope of their employment. In Phase II, the jury awarded compensatory damages to some of the plaintiffs; others had settled their compensatory claims. In Phase III, the jury awarded $5,000 in punitive damages against Hazelwood and $5 billion against Exxon. The punitive issue has yo-yoed between the District Court and the Ninth Circuit, which eventually in December 2006, reduced the award to $2.5 billion, saying ExxonMobil’s conduct was not intentional and that the rate of punitive damages to actual economic harm exceeded what was appropriate under recent Supreme Court precedent.

Supreme Court View

The Court addressed several issues:

1. Because the Court was equally divided on whether maritime law allows corporate liability for punitive damages based on the acts of managerial agents, it left the Ninth Circuit's opinion undisturbed in this respect (the Ninth Circuit found that ExxonMobil was not exempt from punitive damages).

2. The Clean Water Act's water pollution penalties do not preempt punitive-damages awards in maritime spill cases. Nothing in the statute points to that result, and the Court had rejected similar attempts to sever remedies from their causes of action. There is no clear indication of  congressional intent to occupy the entire field of pollution remedies, nor is it likely that punitive damages for private harms will have any frustrating effect on the CWA's remedial scheme.

3. The punitive damages award against Exxon was excessive as a matter of maritime common law. In the circumstances of this case, the award should be limited to an amount equal to compensatory damages.

And it is this last point likely of most interest to readers of MassTortDefense. Since maritime
law falls under federal jurisdiction, the Court served as a common law court in the case. Rather than the constitutional due process analysis seen in recent punitive damages decisions, see, e.g., State Farm Mut. Automobile Ins. Co. v. Campbell, 538 U.S. 408, the approach was one of fashioning federal common law, giving observers, perhaps, some insight into the Court’s views of punitive generally.


The Court observed that one of the real problems with punitive damages is the stark unpredictability of punitive awards. Courts ought to be concerned with fairness and consistency, and the available punitive damages data suggest that the spread between high and low individual awards is unacceptably large. The spread in state civil trials is especially great, and the outlier cases subject defendants to punitive damages that dwarf the corresponding compensatories. These ranges might be acceptable if they resulted from honest efforts to reach a generally accepted optimal level of penalty and deterrence in specific cases involving a wide range of circumstances, but evidence suggests that is not the case.

The unpredictability of high punitive awards is in tension with their punitive function because of the implication of unfairness that an eccentrically high punitive verdict carries. A penalty should be reasonably predictable in its severity, so that even Justice Holmes's proverbial “bad man” can look ahead with some ability to know what the stakes are in choosing one course of action or another. And a penalty scheme ought to threaten defendants with a fair probability of suffering in like degree for like damage. Justice Souter thus argued that reducing punitive damages actually will better allow them to achieve their goal of acting as a deterrent and a punishment – by making them more predictable.


The Court was skeptical that verbal formulations are adequate insurance against unpredictable outlier punitive awards, and the option of setting a hard-dollar punitive cap was rejected because there is no “standard” tort or contract injury, making it difficult to settle upon a particular dollar figure that would be appropriate across the board. The most promising alternative was to peg punitive awards to compensatory damages using a ratio. This is the approach used in many states and in analogous federal statutes allowing multiple damages.

Based on studies of thousands of cases as to what punitive awards were appropriate in circumstances from the most blameworthy down to the least blameworthy conduct, from malice and avarice to recklessness to gross negligence, compensatory award exceed the punitive award in most cases. Accordingly, the Court found that a 1:1 ratio is a fair upper limit in maritime cases such as this.

Though the decision technically dealt only with maritime liability, some are hailing it as a reasonable way to assess punitive damages generally, particularly on a company that did not intentionally harm the environment. Time will tell whether the decision could have an effect far beyond federal maritime law, cabining unpredictable punitive damages (the way Metro-North Commuter R. Co. v. Buckley, 521 U.S. 424 (1997) impacted medical monitoring claims in the states).