The BP Oil Spill Settlement and the Paradox of Public Litigation

Author:Samuel Issacharoff - D. Theodore Rave
Position:Reiss Professor of Constitutional Law, New York University School of Law - Assistant Professor, University of Houston Law Center
Pages:397-431
SUMMARY

The streamlined administrative program that BP set up to pay claims arising out of the Deepwater Horizon oil spill-the Gulf Coast Claims Facility (GCCF)-promised a significant transactioncost savings over litigation in the public court system. At least in theory, that savings should have worked to the benefit of BP and claimants alike, freeing up money to fund claimants’ recoveries that otherwise ... (see full summary)

 
FREE EXCERPT
The BP Oil Spill Settlement and the Paradox of
Public Litigation
Samuel Issacharoff*
D. Theodore Rave∗∗
ABSTRACT
The streamlined administrative program that BP set up to pay
claims arising out of the Deepwater Horizon oil spill—the Gulf
Coast Claims Facility (GCCF)—promised a significant transaction-
cost savings over litigation in the public court system. At least in
theory, that savings should have worked to the benefit of BP and
claimants alike, freeing up money to fund claimants’ recoveries that
otherwise would have gone to lawyers and other litigation costs. But
a comparison of the GCCF to the class action settlement that
replaced it reveals that the class settlement will result in greater
payments to claimants. Paradoxically, the dispute resolution system
with the higher built-in transaction costs appears to offer the parties
a superior result. This Article offers some hypotheses for why this
might be the case. The central claim is that claimants did better
under the higher-cost class action settlement because it allowed
them to offer the defendant something it valued—a greater degree of
finality than the GCCF could ever provide—in exchange for a
“peace premium.” And this Article analyzes some of the features of
the public system of class action litigation that enable parties to
obtain a greater degree of closure than a purely private dispute
resolution system like the GCCF, while at the same time providing
guarantees of transparency, consistency, and equitable treatment of
absentees.
Copyright 2014, by SAMUEL ISSACHAROFF AND D. THEODORE RAV E.
Reiss Professor of Constitutional Law, New York University School of
Law. In the interest of full disclosure, i t should be noted that this author ser ves as
counsel to the Plaintiffs’ Steering Committee in the settlement process. All
references and claims made in this Article are drawn exclusively from materials in
the public record.
∗∗ Assistant P rofessor, Univers ity of Houston La w Center. Thanks to Ryan
Bubb, Elizabeth Cabraser, John Costonis, Adam Cox, Brian Fitzpatrick, Paul
Hubble, Troy McKe nzie, Adam Sama ha, Cathy Sharkey, Peter Schuck, and
participants in NYU Summer Faculty Work shop as well as participants in this
Symposium for helpful comments on earlier drafts. Hal Laidlaw and Dohee Min
provided valuable research assistance.
398 LOUISIANA LAW REVIEW [Vol. 74
I. INTRODUCTION
After the Deepwater Horizon oil spill,1 BP did something
remarkable. It voluntarily (well, with a little prodding from
President Obama2) set up an administrative program, the Gulf Coast
Claims Facility (GCCF),3 that aimed to fully compensate all of the
victims of the spill. The GCCF’s funding was uncapped. BP brought
in the nation’s preeminent independent claims administrator,
Kenneth Feinberg, to run the program, free from BP’s interference.
BP paid all of the expenses. And it backed up all of this by setting
aside $20 billion in a trust fund, with an open-ended commitment
should that amount prove insufficient.4
In theory, the GCCF should have resolved the private claims
against BP in a streamlined and efficient manner. As envisioned
under the Oil Pollution Act of 1990 (OPA),5 the GCCF operated as a
private dispute resolution process that would offer swift recompense
in an informal administrative setting, allowing both claimants and
BP to realize savings over traditional litigation. This settlement
structure under OPA, again at least in theory, should have been the
best of all worlds.
To make sure that compensation reaches victims without undue
delay after an oil discharge, OPA makes the primary “responsible
party,” designated by the Coast Guard, strictly liable for all cleanup
costs and resulting economic harms and only later allows that party
to seek contribution from other potential wrongdoers in subsequent
proceedings.6 The statute requires the responsible party to set up and
publicize a procedure for expeditiously settling and paying claims—
including claims for interim, short-term damages—presented by
1. For a dra matic account of the events leading to the explosion and sinking
of the Deepwater Horizon oil drilling rig, see JOHN KONRAD & TOM SCHRODER,
FIRE ON THE HORIZON (2011).
2. President Barack Obama, Remarks by the President to t he Nation on the
BP Oil Spill (June 15, 2010), available at http://www.whitehouse. gov/the-pres s-
office/remarks-president-nation-bp-oil-spill.
3. See BDO CONSULTING, INDEPENDENT EVALUATION OF THE GULF COAST
CLAIMS FACILITY REPORT OF FINDINGS & OBSERVATIONS TO THE U.S.
DEPARTMENT OF JUSTICE, app. ex. L (Gulf Coast Claims Facility Protocol for
Emergency Advance Payments) (June 5, 2012), available at http://www.justice
.gov/iso/opa/resources/66520126611210351178.pdf [hereinafter DOJ AUDIT].
4. Press Release, The White House, FACT SHEET: Claims and Escrow
(June 16, 2010), available at http://www.whitehouse.gov/the-press-office/fact-
sheet-claims-and-escrow.
5. 33 U.S.C. §§ 271213 (2006).
6. Id. § 2702(a), (d)(1)(B). See also id. §§ 2709, 2715; In re Oil Spill by the
Oil Rig “Deepwater Horizon” in the Gulf of Mex., on Apr. 20, 2010, 808 F. Supp.
2d 943, 959 (E.D. La. 2011).
2014] THE PARADOX OF PUBLIC LITIGATION 399
individuals or businesses injured by the spill.7 And the statute
channels claims into this form of private dispute resolution by
prohibiting claimants from suing in court without first exhausting
the responsible party’s administrative claims process.8
Though the statutory text provides next to no guidance on what
the responsible party’s claims process should look like, the intent of
this scheme is clear: to promote settlement and discourage
litigation.9 OPA was born out of the 1989 Exxon Valdez oil spill in
Prince William Sound, Alaska, and Congress sought to avoid the
anguishing delays and protracted legal battles that followed that and
other spills. The Exxon Valdez spill showed that beyond the
immediate effects on the environment, a serious oil spill had the
capacity to impede maritime and fishing activity. For many
communities, such a disruption would have ripple effects into the
attendant support economy, resulting in a wide-scale economic
slowdown reaching well beyond those suffering the immediate
contact with the spilled oil. OPA was intended to prevent a
downward economic cascade by bringing a quick infusion of cash to
the afflicted community. Accordingly, it reflects a congressional
preference for informal private dispute resolution over litigation in
the public court system. OPA’s legislative history is replete with
statements that the “system of liability and compensation” it creates
“is intended to allow for quick and complete payment of reasonable
claims without resort to cumbersome litigation.”10
The GCCF was a manifestation of this statutory aim to
streamline the process of recovery, though it went far beyond
anything the statute actually anticipated. OPA simply was not
designed to deal with a disaster of the scale or complexity of the
Deepwater Horizon spill, as evidenced by its almost quaint $75
7. 33 U.S.C. §§ 2705(a), 2714 (2006).
8. Id. § 2713. See also In re Oil Spill, 808 F. Supp. 2d at 959, 964.
9. See In re Oil Spill, 808 F. Supp. 2d at 959 (“The intent is to encourage
settlement and re duce the need for litigation.”); Johnson v. Colonia l Pipeline Co.,
830 F. Supp. 309, 310 (E.D. Va. 1993) (“The purpose of the claim presentation
procedure is to promote settlement and avoid litigation. Congress believed that
lawsuits against parties are appropriate only ‘where attempts to reach a settlement
with the responsible party . . . were unsuccessful.’” (quoting H.R. REP. NO. 242, at
66 (1989))).
10. 135 CONG. REC. H7954-02, at H7965, 1989 WL 187822 (Nov. 2, 1989)
(statement of Rep. Hammersch midt). See also id. at H7962 (statement of Rep.
Lent) (“The thrust of this legislation is to eliminate, to the e xtent possible, the need
for an injured person to seek recourse through the litigation process, which—as we
all know—can take years.”); S. REP. NO. 101-99, at 25 (1990) (“It is the intent of
the Committee that claims should be expeditiously paid whenever possible, and
that claimants should not be left with the courts as their only recourse . . . .”).

To continue reading

FREE SIGN UP