First Gulf Oil Settlement Sets Record for Clean Water Act Penalty
February 18, 2012 On Friday, February 17, 2012, the U.S. Department of Justice (DOJ) announced a groundbreaking settlement in a case arising out of the Deepwater Horizon oil spill.
MOEX Offshore 2007 LLC (MOEX), a minority partner in BP’s Macondo well whose parent company is Mitsui & Co. Ltd. of Japan, has agreed to pay the U.S. $90 million to settle its share of liability out of the Deepwater Horizon spill which began with a fire on April 20, 2010 that led to the deaths of eleven workers, the blow out of the Macondo well one mile below the surface, the sinking of the Deepwater Horizon rig, the nation’s worst oil spill and a protracted and widely reported effort to stop the release of crude that affected the Gulf region. The settlement, which relates to government claims for violations of environmental laws, does not involve claims of affected Gulf coast residents and businesses which are being handled in most cases through a separate claims process.
MOEX will pay $70 million in civil penalties to resolve alleged violations of the federal Clean Water Act associated with the spill and another $20 million to facilitate land acquisition projects in the Gulf states affected by the spill. The penalties will be spilt between the United States, which will receive $45 million, and affected states. The federal share will be deposited into the Oil Spill Liability Trust Fund where the monies will be available to assist with response to future spills. The remaining $25 million will be shared by the states of Louisiana, Alabama, Florida, Mississippi and Texas. In addition to the penalty payments, $20 million will be used to acquire ecologically sensitive lands and shoreline on the Gulf of Mexico and to transfer that land to states, non-profits or land trusts to protect those areas from future development.
The $70 million civil penalty is the largest ever collected under the federal Clean Water Act that was enacted in 1972. U.S. Attorney General Eric Holder said: “This landmark settlement is an important step – but only a first step – toward achieving accountability and protecting the future of the Gulf ecosystem by funding critical habitat preservation projects.”
MOEX, which held a 10 percent share of BP’s Macondo well, is the first company involved in the Deepwater Horizon disaster to settle with the federal government. The federal government has also filed suit against BP, rig owner Transocean Ltd. and another minority partner in the well, Anadarko Petroleum Corp. A DOJ press release describing the details of the MOEX settlement can be found at: http://www.justice.gov/opa/pr/2012/February/12-ag-231.html.
A trial in federal district court is scheduled to start in New Orleans, Louisiana on Monday, February 27, 2012. At trial, the cause of the well blowout that spewed millions of gallons of oil into the Gulf of Mexico is to be determined and, assuming a liability finding is made, fault will be apportioned between various parties with ties to the Deepwater Horizon spill. The DOJ has filed a motion where it is seeking to hold BP, Transocean and Anadarko liable and seek fines of as much as $1,100 per barrel of oil that was spilled, without having to provide liability at trial. The Clean Water Act also permits federal authorities to seek as much as $4,300 for each spilled barrel if there is a finding of gross negligence. Federal authorities maintain that 4.1 million barrels of oil were spilled putting the defendants at risk of penalties as high as $17.6 billion. Financial reports indicate that BP has set aside $3.5 billion for federal Clean Water Act penalties.
Sources indicate that settlement discussions are ongoing between the U.S. and the defendants. It is possible that further settlements could be reached before the pending trial date. Given MOEX’s 10 percent share of well ownership, penalties sought and collected from the other parties may be substantially higher than those involved in the initial settlement.
The environmental law attorneys at Hessian & McKasy track developments in environmental law. Our attorneys assist clients with environmental health and safety audits, the defense of environmental enforcement cases brought by federal and state authorities as well as the development of environmental health and safety management programs and sustainability initiatives.
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