Gulf states jockey on BP oil spill settlement

New York Times News ServiceFebruary 24, 2013 

With a major civil trial scheduled to start Monday in New Orleans against BP over damages related to the explosion of an offshore drilling rig in 2010, federal officials and those from the five affected Gulf Coast states are trying to pull together to strike an 11th-hour settlement in the case.

A lawyer briefed on those talks said that the Justice Department and the five states -- Alabama, Florida, Louisiana, Mississippi and Texas -- had reportedly prepared an offer to resolve the two biggest issues central to a series of trials against BP, the first of which starts Monday.

One of those issues is the fines that the company would pay for violations of the Clean Water Act related to the 4 million gallons of oil spilled after the explosion of the Deepwater Horizon rig, which BP

had leased from Transocean. The other point of dispute is how much the company will have to pay in penalties under a different environmental statute for damage caused by the oil to the area: beaches, marshes, wildlife and fisheries.

The Wall Street Journal reported late Friday that federal and state officials were preparing a $16 billion settlement offer that would cover both the Clean Water Act fines and environmental penalties related to the spill.

"The ball is on BP's side of the table," said the lawyer, who spoke on condition of anonymity because he was not authorized to do so.

Justice Department officials and state officials could not be reached Saturday to comment on any possible offer. A spokesman for BP, Geoff Morrell, "BP doesn't talk about possible offers or negotiations, but I can tell you we are ready for trial and looking forward to the opportunity to present our case starting Monday."

The lawyer briefed on the talks said that one problem with the current proposal by federal and state officials was that it did not resolve economic damages claimed by the states related to the spill. Such claims could still leave BP on the hook for billions more, in addition to the environmental damages.

The late negotiations among federal and state officials to find common ground represents progress, even if limited, in the search for a settlement. The five states have had sharp disagreements over how much BP should pay and how billions of dollars in potential settlement funds should be divided.

For example, only two of the states, Louisiana and Alabama, are participating in the trial starting on Monday, though Florida, Mississippi and Texas could be part of any settlement. Officials in Louisiana believe their state deserves the bulk of any settlement since that state's coastal waters, fisheries and businesses suffered the most. Florida and other states that escaped serious coastal damage instead want money earmarked for economic losses that they sustained.

"There are a lot of moving parts," said Luther Strange, the attorney general of Alabama.

"Personalities aside, the issues are so complex." Another lawyer briefed on the talks said he believed any proposal involving Louisiana would be significant because its participation would be critical to any settlement.

Also, billions of dollars could be assessed against BP in several ways, either through fines or through penalties to redress environmental damage and payments to cover economic losses. And each of those methods represents a different set of stakes and consequences for each of the states and for BP.

For instance, BP would prefer to limit the fines and make more payments through environmental damage penalties, because those penalties can be written off as tax deductions while fines cannot.

But the states have more flexibility in spending money derived from fines.

To date, BP has agreed to pay an estimated $30 billion in fines, settlement payments and cleanup costs related to the Deepwater Horizon explosion, which killed 11 workers aboard the rig. And so far, company officials have said that they have no intention of acceding to demands from the states for huge economic damages.

The stakes for BP in the trial are high. If the company is found in this first phase of the trial to have acted with gross negligence, BP could face up to $17.5 billion in penalties, much of that in fines that would hit the bottom line hardest because those fines do not qualify as tax deductions.

The lack of a unified strategy to date among the states has also posed another problem for BP; companies are less likely to settle a major lawsuit if they know yet another one is waiting.

"There is no question that a settlement has been made more challenging because the states have competing interests," said David M. Uhlmann, a law professor at the University of Michigan and former head of the Justice Department's environmental crimes division.

Efforts to resolve the case through settlement were also inadvertently complicated by Congress when it passed a law in 2012 known as the Restore Act.

Essentially, the law was an effort by congressional lawmakers from the Gulf Coast states to make sure the bulk of fines and penalties paid by BP for violations of federal pollution laws ended up with the states instead of the federal government.

Sen. Mary Landrieu, D-La., said she and other lawmakers from the region were involved in intense negotiations to give each state the freedom to use much of the funding in whatever ways it wants, whether for environmental or economic purposes.

The law "was an attempt to distribute the money fairly," Landrieu said in an interview.

But the statute worsened what were already growing tensions among the states over how they could use any funds from BP.

The split among the Gulf Coast states surfaced again in November when the Justice Department announced the $4.5 billion settlement of criminal charges against BP. At the time, federal and state officials were also seeking to resolve the civil damage claims.

But those talks failed largely because of disagreements between Louisiana and other states on issues such as the size of the settlement that BP was offering, said people briefed on the talks who spoke on the condition of anonymity.

Mississippi officials are apparently seeking to bring a separate action against BP in state court, a forum that can be favorable to plaintiffs. Jan Schaefer, a spokeswoman for Mississippi Attorney General Jim Hood, said he declined to comment.

Uhlmann of the University of Michigan said the BP case could be resolved, but at this moment it might be more up to the states than the company.

"A settlement is still possible, but not if the states demand more in a settlement than BP is likely to pay even if it loses on every single issue at trial," he said.

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