BP Gulf Oil Spill - Damages Part 1

Remedies
Spring 2015
Fordham Law School
The BP Horizon Gulf Oil Spill

Proving Damages
Part 1 - Common Law, OPA, GCCF
George W. Conk
Adjunct Professor of Law & Senior Fellow, Stein Center for Law & Ethics
Room 409
gconk@law.fordham.edu
212-636-7446
Torts Today: http://tortstoday.blogspot.com
Otherwise Commentaries on Law, Language & Politics
Blackstonetoday.blogspot.com
BP Proving Damages
s
part 1
1. Liability for the unintentional infliction of

economic loss: general principles
Restatement Economic Loss ( TD1 approved 2012)
(a) An
actor has no general
duty to avoid the unintentional

infliction of economic loss on
another.
Exceptions breach of
professional duties,
BP Proving Damages part 1
Pure Economic Loss
Pecuniary harm not resulting

from physical harm or physical
contact to the person or
property of the plaintif.
Business Torts - Introduction
The default rule
In general there is no liability in

tort for pure economic loss
caused unintentionally and
without dishonesty or disloyalty
Reasons for the economic loss rule
Indeterminate liability may

unreasonably burden business
Parties with contractual

relationships can better allocate
risks by agreement
Liability that bankrupts

businesses does little to
compensate victims of negligence
Reasons for the economic loss rule
If line-drawing is difficult,
prudence prefers private
ordering
Damage to person or property is

an efficient limiting rules of
thumb
Commercial expectations are

less important than personal
Indirect injury not protected
Robins Dry Dock & Repair Co. v. Flint,

275 U.S. 303 (1927) Justice Holmes:
a tort to the person or property of
one man does not make the
tortfeasor liable to another merely
because the injured person was
under a contract with that other
unknown to the doer of the wrong. . .
. The law does not spread its
protection so far.
7. Economic loss from injury to a third person or

to property not belonging to the claimant. (TD 2
Restatement Economic Loss 2014)
A claimant cannot recover for pure

economic loss caused by
(a) unintentional personal injury to

another party or
(b) unintentional injury to property in

which the claimant has no proprietary
interest
7 Illustration 3
Carrier in delivering toxic chemical
spills it on Factory grounds, requiring
shutdown for one week. Factory
owner recovers lost profits, but laid
off employees have no tort claim, nor
do customers of Factory.
Rationale - no causal relationship

between damage to property and
employees or customers losses
Such claims would open
floodgates.
7 Illustration 9
Barge spills oil, closing harbor,

delaying work by Contractor, and
wrecks Contractors equipment
Contractor recovers from Barge for
machinery damage but not for delay
if need to replace machinery did not
cause delay.
BUT 8 public nuisance rule may
apply
10
7 Comment (e)
(a) Fishermen operating on a lay or

share of catch basis have right to
recover directly for losses caused by
tortious damage to ship
(b) Oil spill damages natural
resource. Affected fishermen recover
under 8 public nuisance since they
suffered particular loss distinct from
that of general public
11
8. Public nuisance resulting in pure economic

loss (TD 2 Restatement Economic Harm 2014)
An actor whose wrongful conduct

harms or obstructs a public resource or
public property is subject to liability for
resulting economic loss if the
claimants losses are distinct in kind
from those suffered by members of the
affected community in general.
12
8 Public Nuisance
At common law may be strict liability

Special injury requirement block
large and unwieldy lawsuits
BUT
Often a matter of statutory law
Often broader than common law
allows
Statutes may allow more expansive
rights of recovery than common law
13
8 Illustration 1
Barge spills oil into bay. Hotel on nearby

beach suffers customer cancellations
Losses are similar in kind to those

shared by all businesses in area.
Carrier is not liable to Hotel
14
8 Illustration 2
Fishermen and clam diggers

sufer economic losses due to
environmental damage
Court rules their damages are

distinct in kind
Barge is liable for economic loss

due to public nuisance it created
15
Common law antecedents
1943 fishermen downstream of N.C.

pulp company can recover against
polluter who interfered with the
common resource
1945 fishing resort entitled to lost
profits due to Masonite s effluent
killing fish in Mississippi river
1974 St. Barbara Channel Oil Spill
- fishermen directly using the
resource owed duty due to high
degree of foreseeability of harm to
Business Torts BP Gulf Oil Spill
16
Claims NOT recognized in Exxon

Valdez cases, 767 F Supp. 1509 (1991)
Fishermen limited to lost catch not

decline in license value
Sellers of fishing goods and services
barred
Wholesalers, processors, lodges,
taxidermists, air services to fishing
ports barred
Cannery workers, guides,
photographers
17
In re Testabank , 750 F. 2d 1019 (5th

Cir.1985)
Majority:
Plaintiffs urge that the decisions in
Petition of Kinsman Transit Co., (2d
Cir. 1968) (Kinsman II), and Union Oil
Co. v. Oppen, (9th Cir. 1974), support
their arguments that the Robins Dry
Dock principle should be abandoned.
We disagree.
Spring 2012
18
In re Testabank
The policy considerations on which

both those decisions are bottomed
confirm our opinion that pragmatic
limitations on the doctrine of
foreseeability are both desirable and
necessary.
Spring 2012
19
Wisdom dissenting In re Testabank
Robins was a tort case grounded

on a contract. Whatever the
justification for the original
holding, this Court's requirement
of physical injury as a condition
to recovery is an unwarranted
step backwards in torts
jurisprudence.

Spring 2012
20
Wisdom dissenting In re Testabank
The resulting bar for claims of

economic loss unaccompanied by
any physical damage conflicts
with conventional tort principles
of foreseeability and proximate
cause.
I would analyze the plaintifs'
claims under these principles,
using the "particular damage"
requirement of public nuisance
law as an additional means of
limiting claims.
Spring 2012
21
Wisdom would allow claims of all who

make use of the sea in business
(1) commercial fishermen, crabbers,

oystermen, and shrimpers who
routinely operated in and around the
closed area;
(2) fishermen, crabbers, oystermen,
and shrimpers who engaged in these
practices only for recreation;
(3) operators of marinas and boat
rentals, and marine suppliers;
(4) tackle and bait shops;
Spring 2012
22
Limit of liability under OPA. 33 U.S.C.

2704(a)-(b) - $75 Million except for
gross negligence
BP has chosen to waive the

statutory limitation on liability under
OPA[but] BP and its affiliates are
not admitting anything about their
conduct and, indeed, specifically
deny that they have engaged in any
gross negligence in connection with
the Deepwater Horizon incident and
the resulting oil spill
23
Gross negligence
"Gross negligence means a failure to

use even slight care, or conduct that is
so careless as to show complete
disregard for the rights and safety of
others"
(PJI 2:10A [1988 Supp.]
24
Types of claims BP faces under statutes,

common law, and Oil Pollution Liability Act
Compensatory damages for:
- personal injury
- property damage
- natural resource users
Cleanup costs state, federal, and
private
Punitive damages
Civil fines & penalties
[CleanWaterAct,33 U.S.C. 1321(b)(7)]
[$3,0000/gallon subject to $50m cap
25
Jurisdiction and Choice of Law
Const. Art. III, S. 2 The judicial

power shall extendto all cases of
admiralty and maritime jurisdiction
All claims arise from an event in
federal waters beyond territory of
any state so federal law applies
Maritime law preempts all state law
claims
OPA claims arise directly under the
statute
26
Maritime law governs
All Personal injury, wrongful

death and property damage
claims
Product liability claims
Punitive damages
No maritime claims absent PD or
PI
B1 Order 8/26/2011 Judge Barbier,
EDLA
27
OPA liability is extensive

The House Report noted that
[t]he claimant need not be the
owner of the damaged property or
resources to recover for lost profits or
income.
28
OPA liability is extensive

Clearly, one major remedial purpose
of OPA was to allow a broader class
of claimants to recover for economic
losses than allowed under general
maritime law.
Congress was apparently moved by
the experience of the Alaskan
claimants whose actual losses were
not recoverable under existing law.
29
Proximate cause?
OPA does not expressly require

"proximate cause," but rather only
that the loss is "due to" or "resulting
from" the oil spill. While the Court
need not define the precise contours
of OPA causation at this time, it is
worth noting that during oral
argument both counsel for BP and
the PSC conceded that OPA causation
may lie somewhere between
traditional "proximate cause" and
simple "but for" causation.
30
Maritime law adopts Robins subject to

OPA exception - B1 Order
6. General maritime law claims that

do not allege physical damage to a
proprietary interest are dismissed
under the Robins Dry Dock rule,
unless the claim falls into the
commercial fishermen exception.
OPA claims for economic loss need
not allege physical damage to a
proprietary interest.
In re Oil Spill, 2011 U.S. Dist. LEXIS 96091 (E.D. La. 8/6/2011)
31
OPA Scope of Liability
OPA is a comprehensive statute

that "builds upon section 311 of
the Clean Water Act to create a
single Federal law providing
cleanup authority, penalties, and
liability for oil pollution.
32
OPA Scope of Liability
OPA broadened the scope of private

persons who are allowed to recover
for economic losses resulting from an
oil spill. OPA allows recovery for
economic losses "resulting from" or
"due to" the oil spill, regardless of
whether the claimant sustained
physical damage to a proprietary
interest. 33 U.S.C. 2702(b)(2)(E)
33
33 U.S.C. 2702. Elements of liability
(a) In general
...each responsible party for a vessel
or a facility from which oil is
discharged.... into or upon the
navigable waters or adjoining
shorelines ...is liable for the removal
costs and damages ...that result from
such incident.
What, if any limits does this imply?
34
OPA defenses, 33 U.S.C. 2703
1) ACT OF GOD; 2) ACT OF WAR
3) Act of a third party except

- 3rd party is employee, agent, or one
in any contractual relationship with
the responsible party and
Spill is caused solely by the 3rd
party and
The responsible party exercised due
care with respect to the oil and
foreseeable acts of third parties and
their foreseeable consequences
35
Oil Pollution Act 33 USC 2702 (1990)

(2) Damages
(A) Natural resources
(B) Real or personal property
(c) Subsistence use of natural
resources
(D) Revenues
(E) Profits and earning capacity
(F) Public services
36
2) Damages
(C) Subsistence use

Damages for loss of subsistence use
of natural resources, which shall be
recoverable by any claimant who so
uses natural resources which have
been injured, destroyed, or lost,
without regard to the ownership or
management of the resources.
37
2) Damages
(E) Profits and earning capacity

Damages equal to the loss of profits
or impairment of earning capacity
due to the injury, destruction, or loss
of real property, personal property,
or natural resources, which shall be
recoverable by any claimant.
Does due to add anything to result
from?
38
Goldberg Illustration
commercial fisherman
C is a commercial fisherman who

relies for his business on fisheries in
the Gulf of
Mexico. C claims that oil from a spill
for which Oil Co. is responsible has
polluted
the waters in which he fishes, and
that he has been and will be unable
to fish for a
period of time, resulting in lost
39
H shoreside hotel
Oil from the Oil Co. spill has not

reached the beach front that is
owned by H and reserved for use by
guests at H's hotel.
But oil has been found in the
immediate vicinity of H's hotel,
including in waters that H's guests
frequently use, and neighboring
beaches that H's guests routinely
visit.
40
Evaluation issues
Mitigation
Collateral source offsets
Prejudgment interest
Projections of future earnings (losses)
Taxes
Discounting future losses
41
E - shoreside hotel worker
E is an employee at H's hotel.

Because the hotel has lost business,
its managers have
reduced staff hours by 25%, as a
result of which E has suffered and
will suffer a 25%
reduction in his wages for a certain
period.
Suppose that E was laid off for 3
42
B - a barge owner
Oil spill leads to Coast Guard closure

of the waterway for 3 weeks.
B loses business because he cant

deliver goods south of the exclusion
zone
43
R operates a dockside
restaurant
The docks are empty the boats are

either away doing cleanup or caught
on the wrong side of the exclusion
zone seaward of the restaurant
44
W woodworker
Tourist business-reliant woodworker

sells furniture near shoreside towns
where beaches have been polluted.
Tourist trade drops drastically as do
sales.
45
Multi District Litigation

A font of equitable power
46
Multi-District Litigation 28 U.S.C. 1407
"(a) When civil actions involving one

or more common questions of fact
are pending in differentdistricts,
such actions may be transferred to
any district for coordinated or
consolidated pretrialproceedings.
Such transfers shall be made for
theconvenience of parties and
witnesses and will promote the just
and efficient conduct of
suchactions."
47
The MDL consists of
Hundreds of consolidated cases, with

(over 100,000) claimants
Arising from the April 20, 2010
explosion, fire, and sinking of the
DEEPWATER HORIZON mobile
offshore drilling unit ("MODU"), and
the subsequent discharge of millions
of gallons of oil into the Gulf of
Mexico before it was finally capped
approximately three months later.
48
The MDL consists of
The consolidated cases include

claims for the deaths of eleven
individuals, numerous claims for
personal injury, and various
claims for environmental and
economic damages.
Judge Carl Barbier 11/14/2011
49
Louisiana and Alabama state claims
Past, present, and future damage to

Natural resources and property
Economic losses (including lost
revenues, such as taxes)
Costs of responding to the oil spill
and performing removal actions,
increased or additional public
services
Long-term reputation damage or
"stigma" associated with the oil spill.
50
Damages Issues in the

BP Oil Spill
-Among those within the
scope of liability
51
2705. partial payment of claims
(a) General rule. The responsible

party shall establish a procedure for
the payment or settlement of claims
for interim, short-term damages.
Payment or settlement of a claim for
interim, short-term damages
representing less than the full amount
of damages to which the claimant
ultimately may be entitled shall not
preclude recovery by the claimant for
damages not reflected in the paid or
settled partial claim.
52
Presentment under OPA a

mandatory condition precedent
OPA 2713
All claims for removal costs or
damages shall be presented first to
the responsible party designated
under section 2714
If all liability is denied or the claim
is not settled by payment within 90
days after presentmentthe
claimant may elect to commence an
53
Claims paid by industry 2/10/12

Claims paid by industry
Fishing
Food, Beverage and Lodging
Multiple Industry / Business Types
No Industry Designation
Rental Property(ies)
Retail, Sales and Service
Seafood Processing and

Distribution
Tourism and Recreation
54
Claims options by BP/GCCF
Emergency payments
Interim claims
Quick final payments
Final payments
Any Final payment requires a general
release of BP and all of its
contractors
55
Types of claimants
Individuals
- employees of fishing and
covered coastal enterprises
- sole proprietors
Businesses
- shrimp and oyster
harvesters
56
Types of claimants
Coastal businesses
- chandlers and suppliers to
the fishing industry
- shoreline hotels and touristbased industries
- boat builders
57
Types of loss
lost catch
equipment or other property
damage
past loss of earnings
(individuals)
past lost profits
future losses
58
Valuation issues
Mitigation efforts
Collateral source offsets
Prejudgment interest
Projections of future lost
profits/earnings
Taxes
Discounting future losses
Liens
(Medicare/Medicaid/welfare/benefits)
59
Difficulties in estimation of
damages
Adequate documentation of past

profits or earnings
Past volatility in fish and

shellfish harvesting
Estimation of future health of

the fish and shellfish stocks
60
Reductions of damages
* costs saved
* benefits received
* mitigation by other
empolyment
* failure to mitigate losses
* ofsets for taxes
* prejudgment interest
* discounting future losses
61
Deductions - GCCF
Any prior payments to you by BP, the

GCCF, or the Coast Guard
Amounts received from
unemployment compensation,
severance pay
any other employment benefit will
be counted as income to you
On any Lost Income claim from an
Individual Claimant or a Business any
insurance or other income
replacement benefit
62
Deductions - GCCF
Insurance payments: for the

losses on injuries for which you
make claim
Any legally authorized liens,

garnishments or other
attachments against a claimant
and known to GCCF

Amounts received from charities will
not be deducted from your Interim
63
Cleanup costs
Federal cleanup
Vessels of opportunity
State cleanup eforts
64
Claim expenses
Counsel fees
Costs of administration/GCCF
Regulatory response compliance
65
Indemnification of co-venturers
Contractual indemnification for

losses sufered by 3rd parties
Lost vessel
Personal injury
Economic harm
66
Shipowner's Limitation of Liability Act

(1851)
Limitation proceeding - all persons

with maritime or state law claims
resulting from an oil spill must bring
their claims against it in one
proceeding at election of ship
owner.
67
A regulatory structure for interim claims

under the OPA?
A Designated Responsible Party

shall:
Promptly report to the
Commerce Department a plan
for timely and sufficient
compensation of those harmed
due to an oil spill, which plan
shall include:
68

under the OPA?
State the legal standards it will

apply regarding:
Scope of liability for damages
due to the spill
Proof of economic losses
Methodology for estimation of
future economic losses due to
the spill
Who will make the scope
determination? Appealable?
69

under the OPA?
State the financial capacity of

the company and to satisfy its
obligations for damages,
cleanup, and removal
Report expenses and payments
quarterly
Submit to periodic audit by
public authority
70
Counsel fees
Common benefit reserve
71
Common benefit reserve established
6% hold back from all settlements

paid by GCCf to private claimants in
the MDL action or in state court
actions represented by counsel who
have participated in or had access
to the discovery conducted in this
MDL
4% hold back from settlements paid
to states of Louisiana and Alabama
72
Plaintiffs Steering Committee

Status Report
Efort
Expense
Common benefit
All work on contingent fee basis
73
PSC role
Initiate, coordinate, and conduct

all pretrial discovery, motions,
hearings and trial on behalf of
plaintifs in all actions which are
consolidated in the multi district
litigation, in cooperation with
other counsel.
74
PSC organization
Principal Work Groups
Administrative Work Groups
Legal Research & Writing Work
Groups
Written Discovery
Science, Environmental and
Damages Work Groups
Jurisdiction
75
PSC organization
Deposition and Trial Prep Teams

Punitive Damages
Insurance
GCCF
76
Depositions
240 depositions
5,000 exhibits
50 expert liability deps

scheduled
77
Effort
340 lawyers from ninety law

firms have invested over 230,000
hours
Depositions
Depository 15.7 million docs to
date/ 70 lawyer staf
78
Costs incurred by common benefit

attorneys
Contributed over $11.54 million in

out-of-pocket held and shared
expenses for the common benefit of
claimants and litigants
$1.5 million in unpaid current
expenses
PSC and other Common Benefit
Attorneys have contributed an
additional $1.8 million to a joint
account for payment of further
shared expenses, as incurred.
79
Successful advocacy for GCCF

claimants (including non-clients)
Successful efforts for monitoring and

supervision of GCCF and
Feinberg/Feinberg Rozen
Advocacy for Vietnamese and nonEnglish-speaking claimants
Advocacy for full and transparent
audit of GCCF
Argued for application of general
maritime law and possible punitive
damages
80
The Deepwater Horizon

Is BP at risk of punitive damages?
81
Louisiana Civil Jury Insturction

18.02
La.Civil Code article 2315.4 provides

that in addition to the compensatory
damage award, if you decide to make
such an award, you may award the
plaintiff exemplary damages if he
proves
82
Louisiana Civil Jury Instruction 18.02
that the injuries on which the

action is based were caused by a
wanton and reckless disregard for
the rights and safety of others by a
defendant which was a cause in
fact of the resulting injuries.
83
2004 U.S. Minerals

Management Service study
Only 3 of 74 rigs studied had blowout

preventers strong enough to pinch
and cut the riser pipes through which
oil could flow
this grim snapshot illustrates the
lack of preparedness in the industry
to shear and seal the last line of
blowout defense
84
From the report of the National

Commission
The well blew out because a number

of separate risk factors, oversights,
and outright mistakes combined to
overwhelm the safeguards meant to
prevent just such an event from
happening.
But most of the mistakes and
oversights at Macondo can be traced
back to a single overarching failure
a failure of management.
85
From the National Commission Report
BPs management process did not

adequately identify or address risks
created by late changes to well
design and procedures.
BP did not have adequate controls in
place to ensure that key decisions in
the months leading up to the blowout
were safe or sound from an
engineering perspective.
86
While initial well design decisions

undergo a serious peer review
process and changes to well design
are subsequently subject to a
management of change (MOC)
process, changes to drilling
procedures in the weeks and days
before implementation are typically
87
At Macondo, such decisions appear

to have been made by the BP
Macondo team in ad hoc fashion
without any formal risk analysis or
internal expert review.
This appears to have been a key

causal factor of the blowout.
88

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Remedies

The BP Horizon Gulf Oil Spill

1. Liability for the unintentional infliction of

actor has no general

duty to avoid the unintentional

Pure Economic Loss

Pecuniary harm not resulting

Business Torts - Introduction

The default rule

In general there is no liability in

Business Torts - Introduction

Reasons for the economic loss rule

Indeterminate liability may

Parties with contractual

Liability that bankrupts

Reasons for the economic loss rule

Damage to person or property is

Commercial expectations are

Indirect injury not protected

Robins Dry Dock & Repair Co. v. Flint,

7. Economic loss from injury to a third person or

A claimant cannot recover for pure

(a) unintentional personal injury to

(b) unintentional injury to property in

BP Proving Damages part 1

Rationale - no causal relationship

Barge spills oil, closing harbor,

(a) Fishermen operating on a lay or

8. Public nuisance resulting in pure economic

An actor whose wrongful conduct

At common law may be strict liability

Barge spills oil into bay. Hotel on nearby

Losses are similar in kind to those

Carrier is not liable to Hotel

BP Proving Damages part 1

Fishermen and clam diggers

Court rules their damages are

Barge is liable for economic loss

Common law antecedents

1943 fishermen downstream of N.C.

Claims NOT recognized in Exxon

Fishermen limited to lost catch not

In re Testabank , 750 F. 2d 1019 (5th

The policy considerations on which

Wisdom dissenting In re Testabank

Robins was a tort case grounded

Business Torts BP Gulf Oil Spill

Wisdom dissenting In re Testabank

The resulting bar for claims of

Wisdom would allow claims of all who

(1) commercial fishermen, crabbers,

Limit of liability under OPA. 33 U.S.C.

BP has chosen to waive the

"Gross negligence means a failure to

BP Proving Damages part 1

Types of claims BP faces under statutes,

Jurisdiction and Choice of Law

Const. Art. III, S. 2 The judicial

Maritime law governs

All Personal injury, wrongful

OPA liability is extensive

BP Proving Damages part 1

OPA liability is extensive