Deepwater Horizon Oil Spill Legal Update: Judge Makes Findings Of Gross Negligence And Negligence

While the Deepwater Horizon oil spill has largely disappeared from the news headlines, for the parties involved in the litigation, the legal machinations, particularly with respect to liability, have a long way still to go.

In the first of several related rulings, on September 4, 2014, U.S. District Judge Carl Barbier (the presiding judge of MDL 2179, the limitation and liability action regarding the Deepwater Horizon oil spill) issued a ruling allocating liability in the United States' Clean Water Act (CWA) enforcement action against BP, Transocean, and Halliburton. Specifically, the court ruled that BP was grossly negligent and 67 percent at fault, Transocean was negligent and 30 percent at fault, and Halliburton was negligent and 3 percent at fault. The finding that BP's actions were grossly negligent lifts the maximum CWA civil penalty from $1,100 per barrel of oil discharged to $4,400 per barrel. Using the EPA's estimate of 4.9 million barrels discharged, which BP has strenuously disputed, the penalties assessed could be in excess of $20 billion. Additionally, the court found that BP's actions would typically have merited a punitive damages award, but held that punitive damages are prohibited in this instance by specific 5th Circuit precedent.

In October 2013, the court completed the trial regarding the total number of barrels discharged but has not yet released its findings. Additionally, the court is set to commence the "Penalty Phase" of the trial - in which the parties will present evidence related to the CWA penalty factors, which will be used to determine the fine to be assessed per released barrel - in January 2015. Once the court determines the number of barrels discharged and the applicable fine per barrel, it will determine BP's ultimate liability in CWA fines (the fines assessed will vary depending on the allocation of fault, but BP is indemnifying both Halliburton and Transocean).

In reviewing the court's decision, there are a number of important legal theories that the court relied on in making its decision, which should be "takeaways" for the oil and gas industry:

Causation: According to the court, liability under the CWA requires more than simple "but for" causation but less than many proximate causation tests. If a company's negligent act is "a substantial factor in causing the injuries," then it may be found liable under the CWA. Gross Negligence: The court described gross negligence under the CWA as "an extreme...