Legal Briefing: Will BP Pay the Whole Price for Its Oil Spill? Definitely Maybe

A daily look at legal news and the business of law:

BP May Be On the Hook for All Its Gulf Damages

Much has been published during the last 24 hours about the possibility that BP (BP) may not have to pay for all the harm it has caused -- and is causing, and will continue to cause for the foreseeable future -- because the 1990 Oil Pollution Act caps the economic liability of an offshore oil rig spill at $75 million, a sum that's orders of magnitude below the losses that will be caused by the failure of the Deepwater Horizon rig. Fortunately for all of the fisherman, shrimpers, hotel workers and others whose livelihoods are dependent on (relatively) pristine Gulf coast waters and beaches, the liability cap is not absolute, and it's not clear that it will protect BP.

BP will face unlimited damages under the 1990 law if the accident was caused by BP's "gross negligence," or by BP's violations of federal safety, operational or construction regulations. In addition, BP could face liability under state laws because the 1990 federal law specifically doesn't preempt claims at the state or local levels. While the cause of the accident is not yet known, and thus no assessment of BP's role in causing it is possible at this point, a look at BP's recent history suggests that it shouldn't surprise anyone if the company is ultimately discovered to have caused the accident through gross negligence or regulatory violations.

For example, in 2005, an explosion at BP's Texas City refinery killed 15 people. Four years after the explosion, BP still had not addressed numerous "life threatening" safety violations at the plant, and four additional people had died in accidents there. As a result, the Department of Labor fined BP a record $87 million. In issuing the fine, Labor Secretary Hilda Solis cited "439 wilful [sic] and egregious" violations. If willful and egregious were proven in court, that would be gross negligence. In 2006, the biggest oil spill ever on Alaska's North Slope came from BP's pipeline. BP later pled guilty to a violation of the Clean Water Act, and the company was still under probation when it had another, smaller oil leak on the North Slope in 2009. A similar plea in the Deepwater Horizon case would void the $75 million cap.

Even if BP ultimately has to pay for all the harm this disaster causes, the idea of the $75 million cap is offensive given the extraordinarily deep pockets of the oil industry and the amount of damage oil spills can do. I hope Congress does remove the cap, as several U.S. senators proposed on Monday. The rest of the 1990 law includes many good features, among them a claims process that can get money to victims much faster than the court system can, according to an environmental lawyer quoted by The Wall Street Journal who used the process.

Selfishly, I hope not all victims settle with BP. There's nothing like a full-blown lawsuit to create a thorough public record of what a company did and did not do. And given the magnitude of the mess this spill has created, the public deserves a complete accounting.

Supreme Paranoia

Oh, for the bygone era of "We have nothing to fear but fear itself." The Supreme Court, one of the core symbols of the American system of rule of law and of the freedoms enshrined in our Constitution, has just taken the misguided step of closing its historic front entrance out of fears of terrorist attack. How much power are we going to concede to the vague, faceless threat of terrorism? Isn't America the home of the brave?

This action is a sad "two steps back" after the "one step forward" of partially reopening the Statute of Liberty's crown last summer. Perhaps the Pakistani terror group Tehrik-e-Taliban should post a video taking credit for this, rather than for the pathetic and ineffective Times Square bomb attempt. Scaring us into closing our highest court's historic front doors is a far more powerful act.

And in the Business of Law...

• Vinson & Elkins may be the first beneficiaries of BP's massive oil spill, according to American Lawyer.

• Goldman Sachs (GS) continues to buttress its legal team, currently negotiating to bring on Paul Weiss, according to AmLaw Litigation Daily. (Incidentally, check out The New York Times for the best overview of what the criminal investigation of Goldman means, even though it's too early for anyone to really know what it means yet.)

• And finally, for a glimpse into the glittering world of big firm law, check out the expenses Weil, Gotschall has been billing bankrupt Lehman Brothers: $2,100 in limo rides for one partner, a $700 per night hotel stay and more. Weil even billed for the petty, including $2.54 for "gum in airport", according to the ABA Journal.