Barbier must decide how ancient liability act applies to Transocean

Steve Korris Oct. 18, 2010, 3:29am


Litigation over the Deepwater Horizon rig explosion and oil spill swings on a rusty hinge 159 years old.

Before proceedings can reach full speed, U.S. District Judge Carl Barbier must decide how the Limitation of Liability Act of 1851 applies to rig owner Transocean.

Barbier set a limitation trial next October, but lawyers convinced him to postpone it to February 2012.

Transocean currently holds an order from U.S. District Judge Keith Ellison of Houston, limiting its liability to the value of the rig and its freight, about $27 million.

Ellison set a Nov. 15 deadline for claims against Transocean.

Although Ellison transferred the case to Barbier, who presides
over explosion and spill cases from many federal courts, the deadline still stood as of Oct. 14.

Plaintiffs have moved for an extension to April 20.

The limitation action so isolates Transocean from other defendants that its name doesn't appear on a management proposal the others submitted to Barbier on Oct. 6.

Other defendants would likely not mind early trial on liability for the explosion, but might dread one that also resolves liability for the spill.

An early trial would please plaintiffs, if Barbier includes test cases seeking recovery of economic losses from the spill under the Oil Pollution Act of 1990.

On Oct. 6, they asked him to include one or more Oil Pollution Act claims at trial.

They proposed a second phase trial on damages in July 2012.

In response, BP lawyer Don Haycraft of New Orleans wrote that no Oil Pollution Act case should be set for trial before the limitation act is concluded.

"Serious practical complexities would be involved in any test case trial of economic loss claims in the limitation proceeding," he wrote.

He wrote that proximate causation for injury and death claims is simpler than for economic damage claims.

He wrote that allocating fault for the spill would involve a broader range of defendants than allocating fault for the explosion.

"Finally, the economic damage claims could implicate the indemnities for pollution costs in the drilling contract between Transocean and BP and the related indemnities for pollution costs in the contracts between Transocean and Cameron," he wrote.

Cameron International provided blowout prevention services to the rig.

"The indemnity issues in the drilling contract, moreover, may be subject to mandatory arbitration under the terms of the drilling contract," Haycraft wrote.

"Other indemnity obligations among the parties may be implicated as well."

He asked Barbier to resolve indemnity issues before trying economic damage claims.

BP and the independent Gulf Coast Claims Facility have paid more than $1 billion on Oil Pollution Act claims, Haycraft indicated.

He requested substantial time for them to settle the vast majority of claims.

He advised Barbier that at a trial over economic losses, some plaintiffs will act on an assumption that they can pursue claims under state law.

"But that assumption is incorrect," he wrote.

State law can only apply on the Outer Continental Shelf as a surrogate covering gaps in federal law, he wrote.

"The relevant issues are complex, however, and the court should also expect them to be contentious," he wrote.

Haycraft predicted private plaintiffs might recover for harm to natural resources that states must pay to restore.

The Oil Pollution Act bars double recovery, he wrote, so states can't recover their costs if private plaintiffs have recovered.

The United States opposes any application of the Limitation Act to the spill.

Assistant Attorney General Tony West wrote in June that it can't enjoin environmental claims of the U.S. or of private parties suing under state or federal environmental laws.

He wrote that the Oil Pollution Act repealed the Limitation Act as to oil spills.

Casting Transocean as greedy villain, he wrote that it issued about $1 billion in dividends to shareholders after filing its limitation petition.

"Transocean announced that it actually booked a $270 million accounting gain on the difference between the real value of the Deepwater Horizon and the amount received in hull insurance following the vessel's sinking," he wrote.

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