BP’s “Well from Hell” and a Very Big Class Action

April 20 is the fifth anniversary of the explosion on the Deepwater Horizon oil rig, which began spewing over 200 million gallons of BP crude oil into the Gulf of Mexico.

Two years after the spill, the damages claimed by some 100, 000 individuals and businesses were combined into a single civil case in U.S. District Court in New Orleans. Most of those claims were covered in a settled agreement reached in February 2012, the night before going to trial. In the resulting settlement document, which ran to more than 1, 000 pages, BP agreed to pay what was then estimated to be $7.9 billion in damages, though the estimate has since risen. And in September, 2014, U.S. District Court Judge Carl Barbier issued his findings of fact regarding this first phase of the civil litigation, including the critical finding that BP acted with “gross negligence” and “willful misconduct.” 

For a recap and highlights of the evidence that led to this settlement and the judge’s findings, we talked recently with Robert Cunningham, a Mobile attorney on the plaintiffs’ trial team — one of several teams chosen by the leadership of the plaintiffs’ steering committee (PSC). He is a senior partner with Cunningham Bounds LLC.

The scope of phase one of the litigation, the class settlement, was to determine liability — liability for a wide range of damages, including environmental damages. The second phase addressed source control (containing the leak) and the amount of oil spilled. Phase three, which was just completed recently, was to determine the amount of damages and penalties under the Clean Water Act. 

The vast majority of the individual plaintiffs were encompassed in the class settlement. People not included in that are those who elected not to be included and chose to prove their individual damages at future trials.

- Sponsor -

The PSC was divided into teams at the early start of the litigation, and the trial team went to London and took the depositions of witnesses from BP, the video versions of which were used as part of the case presented. We took over 300 depositions — some of them two- and three-day depositions, and the majority were taken in New Orleans. But some were taken in London, high-level executives. (Tony) Hayward (former CEO of BP PLC) was no longer employed by BP, and there was no way to legally require him to appear in court in Louisiana. We also took a deposition of the chairman of the board, and there was no way to force him to come to the States.

The key point — and the judge talks about it at length in the 153 pages of his opinion — comes down to the simplest of tests. It’s a test that the well site leaders do before they conclude their work, before they can seal a well — a negative pressure test. They conducted that critical test, but the results were ambivalent. There is no gray area with this test. If it’s a good negative pressure test, you know it’s ok to seal the well. But if there is any ambivalence, then you don’t proceed with abandoning the well, taking the risk of a blowout. They did proceed, and there was a blowout.

After the blowout, one of the well site leaders tried to explain, in an email to a BP executive in Houston, why they went ahead and abandoned the well. He attributed the ambivalent results of the negative pressure test to what he called “the bladder effect.” The response of the executive in Houston was a whole paragraph of question marks. “Bladder effect?” He’d never heard of such a thing. 

There was evidence to support the proposition that in the last few months they (BP) were way behind schedule and over budget. They had had numerous well control events trying to handle the high pressure that goes with this type of deep well, and they came to call it “the well from hell.” They wanted to get it closed and get out of there. That motivated a lot of what took place in the last days of the blowout. 

Total damages were estimated at the time to be $7.9 billion. We estimated it to be far higher, and, as it turns out, it is going to be far higher. BP now estimates it will be in excess of $10 billion. 

When it became apparent to BP they had grossly underestimated what the claims payout would be, it became a case of buyer’s remorse, so they wanted out of the settlement and used, as a pretext, a few fraudulent claims that had been submitted, and they initiated a propaganda campaign, running ads in the New York Times and Washington Post and Wall Street Journal,  saying that the claims process was corrupt. And they made the same claims to the District Court and Fifth Circuit Court and finally to the Supreme Court, and they have been rejected at every step. 

The settlement includes punitive damages in the background, as a risk to BP, and the formulas in the settlement took into consideration punitive damages, which enhanced the amount awarded, and BP still bears that. But, following the settlement, the judge in his ruling found that he was constrained from awarding punitive damages under the law in the 5th Circuit.

The settlement includes as a big part of it the medical damages to people who suffered injuries during the cleanup and by just having it in their front yard. There are several formulas in the settlement agreement that determine if you qualify.  It was not clear that all the medical damages had emerged by the time of the settlement, so the settlement has a back-end litigation option that people can take if they develop health damages down the road.  

The primary vehicle for determining longer-term environmental impact is the Natural Resource Damage Act. NRDA assessments will be ongoing. The United States and the individual states are the trustees in that assessment, and BP is required to fund it. 

I would certainly hope so (that the fines and damages paid by BP make the company more careful). But you have to keep in mind that at the time of the spill, BP was on criminal probation for the (2005) Texas City (oil refinery) disaster, which involved multiple deaths and injuries. And I would have thought the fines in that case — multiple lawsuits and bad publicity and negative outcomes — would have been a deterrent. But it happened again in this case. It seems to me that there is still a risk there that they don’t get it. 

Note: BP PLC’s 2014 annual report, released March 3, reported a 40 percent increase in serious spills in 2014. 

Chris McFadyen is the editorial director of Business Alabama.

Interview by Chris McFadyen

The latest Alabama business news delivered to your inbox