Senate Committee Wrestles With Oil Spill Liability Issues
by David Ingram at Law.com
A private consultant for energy companies told Congress on Tuesday that any effort to rewrite oil spill liability laws retroactively would likely face a legal challenge based on breach-of-contract claims.
W. Jackson Coleman, managing partner of EnergyNorthAmerica, said that if successful, those breach-of-contract claims could cost the federal government billions of dollars in payments to the oil and gas industry.
Coleman testified at a hearing of the Senate Judiciary Committee, which is considering legislation to lift limits on damage awards. A former lawyer for the Interior Department and for Republicans on the House Committee on Natural Resources, Coleman said the drilling leases purchased by oil and gas companies are contracts with the federal government, and that the contracts were signed with certain expectations about liability.
He said there is ample precedent for companies to sue when the federal government changes the terms of those leases.
In 2000, for example, the U.S. Supreme Court ruled that the federal government had to return $158 million to Mobil Oil Exploration & Producing Southeast Inc. and Marathon Oil Co. after Congress passed a law limiting drilling off the Outer Banks of North Carolina. Justice Stephen Breyer wrote for an 8-1 majority in the case, Mobil Oil Exploration v. United States. Coleman worked on the case when it was before the U.S. Court of Federal Claims and he was at the Interior Department.
"In the Gulf of Mexico alone, there are currently over 6,600 oil and gas leases covering 35 million acres that were bought for an average of about $300 per acre in recent years," Coleman said in written testimony.
"By committing a breach of contract on its Gulf of Mexico leases," he added, "the federal government would expose the American public to far more than $10 billion in claims from current leaseholders, not counting likely claims for lost profits. An additional $3 billion would be at risk for leases bought offshore Alaska."
A second witness Tuesday echoed that argument in live testimony. Thomas Galligan Jr., the president of Colby Sawyer College and a specialist in maritime tort law, said he was concerned that changes to liability laws could "open up the United States to enormous damages." He later cautioned that he is not an expert in contract law.
Sen. Amy Klobuchar, D-Minn., was among several senators who expressed anger at the possibility of payments to leaseholders. "Who do you think is going to pay?" she asked.
One possible defense for the government could be found in the Oil Pollution Act of 1990 (pdf). Sen. Russ Feingold, D-Wis., noted at Tuesday's hearing that the act attempts to preserve the federal government's authority "to impose additional liability or additional requirements" related to oil spills. However, a report from the Congressional Research Service warns that the provision could be construed narrowly and not apply here.
The Justice Department, which would need to defend any new law, is already anticipating breach-of-contract claims. Associate Attorney General Thomas Perrelli raised such claims as a possibility -- in addition to claims based on the constitutionality of retroactive laws -- in testimony May 25 before the Senate Committee on Energy and Natural Resources.
BP PLC officials have promised to pay "all legitimate claims" in connection with the Gulf Coast oil spill, and federal law requires those responsible for the spill to pay all clean-up costs. But the law limits payments for some claims to $75 million.
Christopher Jones of Baton Rouge, La., whose brother died after the explosion on the Deepwater Horizon oil rig, testified Tuesday that his brother's family is entitled under current law only to pecuniary damages from the responsible parties.
"While some, but certainly not all, of these same parties express their sympathies, and claim to want to do the 'right thing,' they can hide behind the law and say they are protected from doing any more," Jones said.