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Earth Day Special Report

Spillover Effect

BP faces potential criminal charges and years of civil litigation in the wake of the Gulf disaster.

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In the Gulf of Mexico: Biggest oil spill ever.(Win McNamee/Getty Images)

CLARIFICATION: This story has been updated to clarify comments by attorney David Uhlmann about the federal government’s role in the legal case and the potential size of the criminal penalties.

A year after one of its hired drilling rigs exploded in the Gulf of Mexico, the worst may be yet to come for global energy-giant BP.

 

A federal task force was organized this spring to step up a criminal investigation of BP and other companies involved in the April 20, 2010, explosion that killed 11 workers and led to the biggest oil spill in U.S. history. Just weeks after the Justice Department probe was reconstituted, word leaked about possible manslaughter charges in the case, and the Gulf crisis that had begun to fade from many memories was suddenly back in the media spotlight.

People who live in the region, of course, haven’t forgotten about the torturous, three-month struggle to cap BP’s gushing Macondo well, located a mile deep in the ocean and less than 50 miles from the Louisiana shore. According to government estimates, the spill released more than 200 million gallons of oil and untold volumes of natural gas. Nearly 2 million gallons of chemical dispersants were also dumped into the water in an effort to break down the oil more quickly; scientists will be studying for years the potential effects on health and the environment. The reminders of the disaster remain visible nearly every day: Since January, for example, residents have reported seeing dolphin carcasses washing up on beaches, and marine scientists are investigating whether the deaths could be linked to the BP spill.

While cleanup efforts continue on the 650 miles of beaches and coastal habitat affected by the spill, more than 350 civil lawsuits against BP and its contractors have been consolidated into a gargantuan federal case in New Orleans. U.S. District Judge Carl Barbier is presiding over complaints seeking economic or health-related damages in the case, which some have labeled “the mother of all litigation.” It is likely to drag on for years. In Houston, U.S. District Judge Keith Ellison is hearing a separate case that consolidates seven lawsuits filed by investor groups.

 

 

“To say there is stress on individuals and families doesn’t do the word ‘stress’ justice.” —Rep. Jo Bonner, R-Ala., on the slow pace of compensation

At the same time, a $20 billion fund established by BP to compensate victims opting not to file lawsuits is gradually being dispensed by arbitrator Kenneth Feinberg, a Washington-based lawyer. (See NJ, 9/18/10, p. 30.) Earlier this month, the Gulf Coast Claims Facility reported that out of more than 500,000 individuals and businesses that have filed claims, about 174,000 had been paid a total of $3.7 billion.

 

 

The slow pace of compensation for victims has infuriated lawmakers, including Sen. Bill Nelson, D-Fla., who has called for Feinberg’s resignation. A Florida woman who lost much of her income last year when beach rentals collapsed saw her home go into foreclosure while she was waiting for a claim to be paid, Nelson told The News Herald of Panama City in February. “This is outrageous,” he said. “I want the accountability; I want the transparency immediately forthcoming, or else the president ought to consider putting someone else [in charge of] running the claims facility.”

The process has been “imperfect,” said Rep. Kathy Castor, D-Fla., although she added that Feinberg and BP have moved to speed things up since the deadline for filing claims was reached last November.

Rep. Jo Bonner, R-Ala., who represents two coastal counties that he called “the economic epicenter of this tragedy” because of their heavy reliance on tourism dollars, was much harsher in his assessment of the compensation-fund process. “It is abysmal,” he said.

As of early April, only 233 of 6,800 business claims filed in Alabama had been paid, and many owners are giving up hope, Bonner said. Calls to a help line jumped from 192 in February to 795 in March, largely because people have reached the end of their rope, he said. “To say there is stress on individuals and families doesn’t do the word ‘stress’ justice,” Bonner said.

 

See You in Court

Castor and Rep. Steve Scalise, R-La., recently formed a Gulf Coast caucus in the House and are focused on passing legislation that would direct that 80 percent of all fines and penalties collected by the Justice Department in spill prosecutions go back to the Gulf for restoration projects. “I think that because the BP disaster did so much damage to our economy, a portion of it should go to economic development,” Castor said. “When the BP disaster hit, it was almost like a second wave because of the economic downturn.”

How big the penalties will be is the $64 million question for BP or, more accurately, the $41 billion question. That is the figure the company has projected as its total costs for the spill—aside from the $20 billion compensation fund—and it has already sold enough assets, including oil and gas fields in Texas, in the past year to cover more than half that amount. But payouts could climb past that figure if the government and the courts come down hard on the London-based company.

This article appears in the April 16, 2011 edition of National Journal Magazine.

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