Deepwater Horizon Oil Disaster: State & Government Claims

1. Deepwater Horizon Oil Disaster: State & Government Claims • Presented by Rhon Jones • Beasley, Allen, Crow, Methvin, Portis, & Miles, P.C. • February 6, 2011

2. Special Concerns for GovernmentEntities • Emergency Response and Mitigation Costs • Clean up and Natural Resource Restoration • Loss of Natural Resources • Loss of Revenue (taxes, royalties, fees, rent, etc.) • Potential Human Health Hazards • Increased Public Service Costs • Loss of Public Confidence in the Government

3. A Three-Front WarFront One - Loss Prevention • The failure to mitigate damages is a formidable weapon utilized by Defendants in environmental cases … BP and other Defendants are sure to use it. • Keys: • Be proactive early; • Concentrate on long-term mitigation and response-funding strategies. • The uniqueness of an area must be taken into account. BP will most assuredly attempt a cookie cutter approach that may work for some - but not all, locations. • Confirm approvals through written confirmation • Awareness and action can prevent future “Monday morning quarterbacking” by BP.

4. A Three-Front WarFront Two - Loss Assessment • Disasters of this magnitude require a complete and forward - looking assessment of damages. • Short and long term losses must be taken into account. • To accomplish, one must hire competent experts in a variety of scientific and financial / economic disciplines. • In addition, legal counsel must work closely with govt entity employees, commissioners and leadership to understand the complexities of the govt entity.

5. A Three Front WarFront Three - Loss Recovery • BP has generally been slow to respond to interim claims, and will more than likely challenge final, year-end claims for lost revenue, royalties and taxes. • The govt entity must be prepared to press forward quickly should BP delay, deny or “nickel and dime” govt proposals. • As explained in additional slides, the govt entity is entitled to a host of response and damage costs pursuant to the Oil Pollution Act and state law.

6. Mississippi Florida Alabama Louisiana May 1, 2010

7. The Oil Pollution Act of 1990 • Removal Costs: Costs associated with removing / preparation of oil discharge. 33 U.S.C. 2701(a) - (b)(1)(A)-(B). • Damages • Natural Resources: injury, destruction, loss, loss of use, and reasonable costs associated with assessing damages. 2701(b)(2)(A). • Real or Personal Property: Injury to, or economic losses resulting from destruction of real or personal property that the entity owns. 2701(b)(2)(B). • Subsistence use: Loss of subsistence use of natural resources recoverable any party that utilizes those damaged resources for subsistence use. 2701(b)(2)(C). • Revenues: net loss of taxes, royalties, rents, fees or net profit shares due to injury/destruction of natural resources, real or personal property - limited recovery by US govt, a state or a political subdivision thereof. 2701(b)(2)(D). • Profits and Earning Capacity: loss of profits / impairment of earning capacity associated with injury / destruction of real property, personal property or loss in natural resources. 2701(b)(2)(E). • Public Services: net costs of providing increased or additional public services during or after removal activities, including protection from fire, safety, or health hazards, caused by a discharge of oil. Recoverable by a State, or a political subdivision of a State. 2701(b)(2)(F).

8. BP Government Entity Claims Process Guidelines

9. Costs BP Are Likely to Argue as Non-Reimbursable • Examples of costs that BP may view as non-reimbursable include: • Costs that were not incurred as a “direct result”of the Deepwater Horizon Incident or that were “not necessary”to respond to the Deepwater Horizon Incident. • Costs for equipment, personnel, or materials that BP determined to • be “duplicative” • BP demands: • BP demands reams of data, but only uses that which can benefit them • BP wants a Release that extends to all responsible parties • BP insists on using its own methodology for calculating future losses • BP wants offsets for grants paid to mitigate their damages

10. BP’s approach to economic damages BP will allow this growth factor for post-spill months. This is undervaluing claimants’ damages. March and April 2010 should not be the only benchmarks for damages. This is especially true in economies which have a Spring Break indicator, where research shows a rising economy, and where 2009 was the lowest year in the local recession.

11. The Oil Pollution Act of 1990 Loss of Revenue Claims Better Loss Revenue Calculations • BP should not be entitled to double credits. Any grants or claims given by BP will not be offset from a government’s final revenue loss, as this was mitigation (and such mitigation would be seen in the actual revenues received by a government). • For example, BP receives an offset for income taxes to the extent claims are paid and claimants ultimately pay income tax on monies received from BP. • Use both accountants and economists to calculate the long-term historical trends to note that this year was to see an increase in revenues • Check this approach by comparing to past budgets and projected revenues (noting that governments allow for a safety net) • Use the NRDA results to assist in calculating future losses, accounting also for the affect on the Gulf’s “brand”

12. What We Learned • Everything is on BP’s terms under their claims process. • By forcing govt agencies through unified command and other federal agencies, BP can create a more bureaucratic system for the entity to deal through. • There will be major arguments over • Whether the costs are those the entity “would have reasonably incurred” anyway. • Whether documentation meets BP’s standards • Whether the entity mitigated its costs

13. Payment Denied or Ignored-What Now? • Other Options after OPA Presentment: • File claim with the Oil Spill Liability Trust Fund • File suit under the OPA against the responsible party. • Include state law causes of action. (The OPA doesn’t preempt these claims. 33 U.S.C. § 2718. State law claims may open the door to punitive damages.)

14. Official OPA Claim Presentment • A claimant must meet the OPA’s strict notice requirements: • “All claims for removal costs or damages shall be presented first to the responsible party.” 33 U.S.C. § 2713(a). • Note: Under 33 U.S.C. § 2717(f)(2), state and local governments do not have to go through the claim presentment process before filing suit to recover removal costs. • Note: “damages” under the OPA means damages specified in section 1002(b), and includes the cost of assessing these damages. Thus, it is a reasonable conclusion that claimants may also seek costs associated with hiring accountants and other experts to assess losses. • Under the OPA, once the claim is submitted to the responsible party, the 90 day notice window begins to run. • Claimants are not required to speak to an adjuster in order to activate the 90 day notice window. • Claimants are not at the mercy of BP’s opinion on what constitutes proper documentation. • Claimants should always create a written paper trail of correspondence with BP.

15. The Oil Spill Liability Trust Fund • The Oil Spill Liability Trust Fund (Fund) is a billion dollar fund established as a funding source for removal costs and damages from oil spills or substantial threats of oil spills to navigable waters of the United States. • A party may not submit a claim to the Fund unless it was first presented to the RP pursuant to the OPA. 33 U.S.C. § 2713(a). • A Brief History Lesson: • The OPA of 1990 established a tax which fills the Fund. • Oil companies pay 8 cents per barrel they produce or import into the Fund. • Fund is used to compensate for losses from an oil spill accident. • Up to $1 billion of the reserve can be used for an incident. • Currently, the fund contains $1.6 billion. • CWA Civil Penalties go to the Fund-- $1,100 per barrel of oil or hazardous substance discharged ($4,300 if grossly negligent). Some presenting ideas for BP’s civil penalties to go directly into Gulf Restoration. This might be $5.4 Billion -- $21.1 Billion.

16. Oil Spill Liability Trust FundSpecific Parameters • Two Major Components • Emergency Fund: Available for Federal On-Scene Coordinators (FOSCs) to respond to oil discharges and for Federal natural resource trustees to initiate natural resource damage assessments. The Emergency Fund is capitalized by an annual $50 million apportionment from the Fund. • Remaining Principle and Balance: Used to pay claims and to fund appropriations by Congress to Federal agencies to administer the provisions of OPA and support research and development. • Manager: The United States Coast Guard’s National Pollution Funds Center (NPFC), in Arlington, Virginia, manages use of the Fund. • The general requirements for submitting a claim to the Fund are found in 33 CFR § 136.105. Courts have found these guidelines instructive for submitting notice to the RP as well.

17. The Oil Spill Liability Trust FundSeek Relief or File Suit? • The Fund will not process a claimant’s claim if he has filed suits against the RP under the OPA. 33 U.S.C. § 2713(b)(2). • The decision will depend on the govt entity’s position • An entity desperate for money may be better suited for trying the fund first … • However, if a Claimant can remain patient, it will probably do better to file suit under the OPA. • The threat of the courtroom under a strict liability statute rather than the Fund process may pressure BP into dealing more generously / expeditiously with govt entities.

18. May 24, 2010

19. File Suit Against the Responsible Party • Suit would involve an OPA claim (assuming the party has met the OPA’s requirements for presentment) and various state law remedies. However …. • The Economic Loss Rule • Basic Rule: A plaintiff cannot sue in tort for purely monetary losses caused by the Defendant’s conduct without showing a physical injury to the Plaintiff or his property. • Except for commercial fishermen, the economic loss rule will likely apply to common law actions. • The Impact: Lost profits, diminution of value, costs to replace and repair, lost wages and future earning capacity likely barred.

20. Why the Economic Loss Rule is Important • If you do not have a physical injury to yourself or your property because of oil (e.g., oil splattered over your home), defendants will likely argue that you cannot recover for pure economic damages to common law claims. • The Good News: The OPA overrules the economic loss rule in most instances - permitting you to recover purely economic losses either through the OPA instead of or in addition to state law. • Additionally, Florida law does not use the economic loss rule in the Florida private cause of action for pollution. Curd v. Mosaic Fertilizer, 2010 Fla. LEXIS 944, *18 (Fla. June 17, 2010).

21. July 28, 2010

22. Process for receiving Natural Resources Damages: NRDA • Responsible parties are liable for “damages for injury to, destruction of, or loss of use of natural resources, including the reasonable costs of assessing the damage which shall be recoverable by a US trustee, a state trustee… or a foreign trustee” 33 USC §2702 (b)(2)(A). • Liability is strict, joint and several • Prejudgment interest is allowed • Parties are liable only to the designated Trustees of the various federal, state, & tribal entities (although other trustees may be appointed by the President or Governors)

23. OPA Natural Resource Damage Assessments State, tribal, & federal trustees together make an assessment of the damages through a Trustee Council. • The Federal Lead Trustee is the US Fish & Wildlife Service. • Other trustees include: National Park Service, Bureau of Land Managements, & Bureau of Indian Affairs of the Department of Interior; National Oceanic & Atmospheric Administration (NOAA) of the Department of Commerce; and the Department of Defense.

24. OPA Natural Resource Damage Assessments • Three-Phased Assessment • Pre-assessment Phase – Trustees determine if they have the jurisdiction to pursue restoration under OPA and, if so, whether it is appropriate to do so. Are response actions adequate? Are there feasible compensatory restoration actions? • The Notice of Intent to Conduct Restoration Planning was issued by all trustees in September 2010 to the Responsible Parties. • Restoration Planning Phase – Trustees evaluate the potential injuries to natural resources and services and use that information to determine the need for and scale of restoration actions through two basic components: injury assessment and restoration planning. Trustees conduct investigations, provide causation between injury an discharge, and draft a restoration plan. Trustees choose plans based on cost effectiveness, likelihood of success, & effect on public health and safety. • Restoration Implementation Phase – Trustees present the Final Restoration Plan to the responsible parties to either implement or fund the trustees’ costs of implementing the plan. If RPs decline to pay the claim, OPA authorizes trustees to bring a civil action for damages or to seek payment from the Oil Spill Liability Trust Fund for such damages (and allow the fund to recover payment from the RPs as appropriate). 15 C.F.R. 990 et seq.

25. OPA Natural Resource Damage Assessments • Trustees have broad discretion to decide how to assess natural resource damages. 15 C.F.R. 990.27. However, they usually use the guidelines as, if followed, the results carry a “rebuttable presumption” in court. OPA Sec. 2706(e)(2). • No double recovery permitted (which is why trustees should work together). • District courts have jurisdiction to hear NRD cases but unlike CERCLA,OPA also provides state courts with jurisdiction to hear damage claims. 33 USC § 2717 (b) & (c). • Defendant has a right to a trial by jury. U.S. v. Viking Resources, 607 Fed. Supp. 2d 808 (S.D. Tex. 2009)

26. Calculating Natural Resource Damages • Calculating damages revolves around two principal methods: • restoration costs (cost to restore or replace natural resource), and • contingent valuation methods (CVM: survey technique to determine damage derived from using the resource) • There is a preference in the regulations to return the injured resources to baseline and provide compensation for interim losses (i.e. rehabilitation and restoration) • Purpose of NRD is to restore the resource and damages must be based principally on restoration costs rather than “use values”. Ohio v. Department of Interior. • In general, courts accept restoration cost and market analyses better than survey evidence (CVM) in assessing damages. • Courts have rejected CVM: Idaho v. Refrigerated Transp., Inc. and US v. Montrose • Utility of CVM and non-use value analysis best only in cases where no practical substitute for the resource exists (i.e. one of a kind national park)

27. Louisiana’s trustees • Oil Spill Coordinator’s Office (Lead Administrative Trustee), • Coastal Protection and Restoration Authority, • Department of Environmental Quality, D • Department of Wildlife and Fisheries, and • Department of Natural Resources

28. Louisiana Oil Spill Prevention & Response Act • Strict liability for natural resource damages, economic damages, loss of public services, & revenue • Strict liability for RPs for “all reasonable actions to abate, contain and remove” oil pollution. La. R.S. 30:2463 (A)(2). • Damage cap of $75M, with exceptions for gross negligence, etc. • Requires complete comprehensive assessment within 20 months of cleanup. La. R.S. 30:2480(E). • 60 days after completion of assessment or statutory mediation, RP shall make full payment for NRD or initiate NRD itself. • Statutory mediation prerequisite to bringing civil action & is elective by any party. It must conclude within 135 days of receipt of assessment. La. R.S. 30:2451 et seq.

29. Florida’s trustees • The Board of Trustees of the Internal Improvement Trust Fund (the Governor & his cabinet) are the official trustees, but they have given over actual authority to the • Florida Department of Environmental Protection (DEP). • Fla. Stat. 253.002. 

30. Florida Pollutant Discharge Prevention and Control Act • “The Legislature finds and declares that the highest and best use of the seacoast of the state is as a source of public and private recreation.” Fla. Stat. § 376.021(1) • “The discharge of pollutants into or upon any coastal waters, estuaries, tidal flats, beaches, and lands adjoining the seacoast of the state . . . is prohibited.” § 376.041.   • The law provides liability for clean-up costs, natural resource damages, & property damages. § 376.12. • “In any such suit, it shall not be necessary for the person to plead or prove negligence in any form or manner. Such person need only plead and prove the fact of the prohibited discharge or other pollutive condition and that it occurred.” § 376.205 • “The court, in issuing any final judgment in such action, may award costs of litigation, including reasonable attorney's and expert witness fees, to any party. . .” § 376.205

31. Alabama’s trustees • Department of Conservation and Natural Resources • (lead trustee) and the • Geological Survey of Alabama.

32. Alabama Act Regarding Liability for Persons Responding to Oil Spills • “Notwithstanding any other provision of law, a person is not liable for removal costs or damages which result from actions taken or omitted to be taken in the course of rendering care, assistance, or advice consistent with the National Contingency Plan or as otherwise directed by the Federal On-Scene Coordinator or by any state official with responsibility for oil spill response.” Code of Ala. § 6-5-332.2.  • The above does not apply to a responsible party, with respect to personal injury or wrongful death, or if the person is grossly negligent or engages in wanton or willful misconduct. Id. at (c)(2). • Also, “A responsible party is liable for any removal costs and damages that another person is relieved of under subdivision (1).” Id. at (c)(3). • “Nothing in this section affects the liability of a responsible party for oil spill response under state law.” Id. at (c)(4). • Alabama Water Pollution Control Act • Liability for damages when the pollution is caused by a negligent act or omission. • Punitive damages when there is willful/wanton conduct and possibly gross negligence. Ala. Code § 22-22-9(m).  • However, if the pollution caused damage to fish and/or other wildlife in excess of $5,000, the damage is presumed to have been the direct and proximate result of negligence of the responsible person, and the burden shall be upon that person to provide freedom of negligence in causing the pollution in such cases. Ala. Code § 22-22-9(n).  

33. Mississippi’s trustee • Department of Environmental Quality (DEQ).

34. Mississippi Liability of Persons Responding to Oil Spills Act • “Notwithstanding any other provision of law, a person is not liable for removal costs or damages which result from actions taken or omitted to be taken in the course of rendering care, assistance or advice consistent with the National Contingency Plan or as otherwise directed by the federal on-scene coordinator or by the state official with responsibility for oil spill response.” Miss. Code § 49-18-1—5. • The above does not apply to a responsible party, with respect to personal injury or wrongful death, or if the person is grossly negligent or engages in wanton or willful misconduct. Miss. Code Ann. § 49-18-5(2). • Also, “A responsible party is liable for any removal costs and damages that another person is relieved of under subdivision (1).” Id. at (3). • “Nothing in this section affects the liability of a responsible party for oil spill response under state law.” Id. at (4). Mississippi Air and Water Pollution Control Law “[I]t is hereby declared to be the public policy of this state to conserve the air and waters of the state and to protect, maintain and improve the quality thereof for public use, for the propagation of wildlife, fish and aquatic life, and for domestic, agricultural, industrial, recreational and other legitimate beneficial uses.” Miss. Code § 49-17-3; 49-17-1—43.

35. Texas’s trustees • Texas General Land Office (lead agency) • Parks and Wildlife Department, and • Commission on Environmental Quality.

36. Texas Oil Spill Prevention and Response Act of 1991 • “[A]ny person responsible for an actual or threatened unauthorized discharge of oil from an offshore drilling or production facility is liable for all response costs from the actual or threatened discharge” and “all damages other than natural resources damages.” Texas Natural Resource Code § 40.202. • “The total liability for all natural resource damages of any person responsible for an actual or threatened unauthorized discharge of oil from a terminal facility shall not exceed” $350,000,000. Id. at § 40.203. • However, “If any actual or threatened unauthorized discharge of oil was the result of gross negligence or wilful misconduct or a violation of any applicable federal or state safety, construction, or operating regulation, the person responsible for such gross negligence or wilful misconduct or a violation of any applicable federal or state safety, construction, or operating regulation is liable for the full amount of all damages to natural resources.” Id. at § 40.203. • The state is also entitled to receive attorneys fees. Id. at § 40.202 • There may be administrative penalties assessed as well.Id. at § 40.252.

37. Multi-District Litigation • The federal Multi-District Litigation program gathers cases over the same product or incident in a single federal court. • One judge oversees pretrial evidence gathering, streamlining document exchanges and avoiding duplication. • Consolidating the cases into a multidistrict litigation (MDL) allows the committee overseeing the process to put more pressure and focus on moving the case forward, moving cases more quickly to resolution. Lawyers will coordinate the litigation and work together on issues of discovery. • This includes the federal government’s case and the State of Alabama’s cases. • The Gulf Oil Spill MDL is in the U.S. District Court of the Eastern District of Louisiana under Judge Carl Barbier.

38. Plaintiff’s Steering Committee • The PSC helps direct litigation related to the BP oil disaster. • The PSC has forced BP to answer 2 important questions recently: • BP has told the Court that it waives the $75 Million cap on damages for negligence. • BP has told the Court that presentment to the GCCF is equivalent to presentment to BP directly. • The Court has appointed Coordinating Counsel for State Interests and Federal Government Interests. It has denied the separate government track requested by the State of Louisiana.

39. MDL timeline • June 2011– OPA test cases • February 2012-- personal injury / wrongful death test cases • February 2012-- Robins Dry Dock test cases regarding liability, limitation, exoneration and fault allocation. • July 2012– phase 2 trials on the questions of • damages and punitive damages.

40. Practical Counsel for GovernmentsUnderstanding the Valuation Issues • Take into account the various Taxing Authorities • Cities, counties / parishes and states; • Fee-based losses (tourism, licensing); • Mitigation Expenditures • Disaster is compounded by the recession: Where is the break even point for governments?