The Gulf Coast Claims Facility and the Deepwater Horizon litigation: judicial regulation of private compensation schemes.

• Author: McDonell, Colin

INTRODUCTION I. THE GULF COAST CLAIMS FACILITY AND THE DEEPWATER HORIZON LITIGATION A. The Oil Pollution Act of 1990 B. The Gulf Coast Claims Facility C. The Multidistrict Litigation 1. The parties interested in judicial regulation 2. Supervision of communications 3. Nullification of releases and intervention into the claims process II. JUDICIAL REGULATION OF THE GULF COAST CLAIMS FACILITY A. The Dual Requirements of Standing and Adequacy B. Possible Claims and Potential Conflicts 1. Nullification or modification of releases 2. Supervision of communications 3. Intervention into the GCCF claims process CONCLUSION INTRODUCTION

The explosion of the oil rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010 resulted in millions of barrels of oil pouring into the Gulf, making it the largest disaster of its kind to date. (1) On June 16, 2010, President Obama announced that Kenneth Feinberg, who had previously administered a fund to compensate victims of 9/11, would oversee a $20 billion fund to compensate victims of the Deepwater Horizon oil spill. (2) This fund, the Gulf Coast Claims Facility (GCCF), opened on August 23, 2010, and has since paid out billions of dollars to hundreds of thousands of claimants. (3)

But the GCCF is not the only route to compensation for Deepwater Horizon victims. Hundreds of actions filed in federal court, many of them class actions, have been consolidated in New Orleans. Of the thousands of briefs, motions, and orders filed in the court, several dozen of them have concerned efforts to regulate the administration of the GCCF. The Plaintiffs' Steering Committee (PSC), and the attorneys general of states bordering the Gulf, have urged the court to invalidate or modify releases of liability, monitor communications between the GCCF and potential claimants, and even take over the private compensation process itself. These efforts have met resistance not only from BP, which operated the rig, but also from other plaintiffs' lawyers. They raise questions about what jurisdiction a court has to intervene in a private compensation scheme at the request of litigants who choose to seek compensation through the courts.

The focus of this Comment is on these efforts to control the GCCF through the court system. The Comment discusses several barriers that might deprive the court of jurisdiction to consider the PSC requests to regulate the GCCF, namely that (1) there may not exist a proper cause of action that would allow the court to grant the requested relief, (2) even when such a cause of action exists, the putative class may not contain plaintiffs with standing to bring the claim before the court, and (3) if the class is broad enough to include plaintiffs with standing to raise the request, then there might be too much intraclass disagreement about the propriety of judicial regulation for the class to be certifiable under Federal Rule of Civil Procedure 23(a)'s adequacy requirement. This Comment argues that the court ought to resolve these standing and adequacy issues in a way that will preserve the ability of the class to gain certification and bring other claims: by dismissing any claims for supervision that create substantial disagreement among class members on the grounds that an adequate representative of the class could not have standing with respect to that issue.

Part I gives an overview of the Oil Pollution Act of 1990 (OPA), (4) which provides the statutory framework for both the GCCF and the litigation, as well as a summary of the creation and mechanics of the GCCF. It then discusses the portion of the litigation dealing with requests for judicial regulation of the GCCF, explaining the progression of the litigation, the major points of dispute, and which parties were on which sides of the issues. Part II examines the legal basis for the requests for regulation, examining possible causes of action and whether the court has jurisdiction to hear them. This Part does not examine all challenges to the legality of the requests or analyze them on the merits, but instead pays particular attention to the way in which Article III standing and Federal Rule of Civil Procedure 23(a)'s adequacy requirement may bar the PSC from properly bringing the requests before the court. Finally, the Comment concludes with some observations about the propriety of greater judicial regulation of private mass-compensation schemes going forward. Private compensation schemes may benefit defendants and claimants alike by offering victims a more efficient alternative to litigation. If judicial intervention makes the GCCF a slower and more expensive route to compensation, the benefits of having a private compensation scheme alongside the court system might be lost.

1. THE GULF COAST CLAIMS FACILITY AND THE DEEPWATER HORIZON LITIGATION

   1. The Oil Pollution Act of 1990

      OPA created both the statutory framework that governs the Gulf Coast Claims Facility as well as the primary causes of action on which plaintiffs in the Deepwater Horizon litigation rely. Congress passed OPA in response to the eleven-million-gallon oil spill from the tanker Exxon Valdez off the coast of Alaska, the inadequate government and industry response in containing the spill, and various legal barriers to victim recovery. (5) The purpose of the legislation was to adequately compensate victims, provide for quick and efficient cleanup, minimize damage to wildlife and natural resources, and internalize costs within the oil industry. (6)

      Prior to the passage of OPA, it was difficult for victims to recover for economic losses caused by oil spills. Under federal maritime law, for example, plaintiffs could bring claims for economic loss only if the claims were accompanied by physical injury or property damage. (7) Under OPA, victims can recover lost profits or revenues without regard to any actual damage to their person or property. (8) OPA also imposes strict liability on responsible parties for recovery costs and six categories of damages. (9) In the absence of gross negligence or the violation of certain classes of federal regulations, however, total OPA liability of an offshore facility for a single oil spill is capped at $75 million. (10) But victims may be able to bring additional claims, as OPA does not preempt state laws that impose additional liability. (11)

      After an oil spill, the Coast Guard designates one or more sources of the spill as "responsible part[ies]." (12) Within fifteen days of such a designation, a responsible party must advertise procedures by which victims can present claims. (13) While requiring that the responsible party establish a procedure for the payment or settlement of claims for "interim, short-term damages," (14) OPA does not specify any further requirements for the payment or settlement procedures that the responsible party must establish.

      Before a victim can bring a claim in court under OPA, he must first present the claim to the responsible party in accordance with the advertised procedures. (15) Only if the responsible party denies all liability for a claim, or does not settle the claim within ninety days after the claim was presented, may the claimant then commence an action in court against the responsible party. (16) And if the claimant is paid only for interim, short-term damages, he retains the right to recover further damages in the future. (17)

      If a responsible party alleges that damages were caused solely by a third party, the responsible party has two options. First, the responsible party can pay the claim; the party is then entitled by subrogation to the rights of the claimant to recover from the third party. (18) If the responsible party pays only an interim claim for less than the full amount of damages to which the claimant may ultimately be entitled, the responsible party is subrogated only to the extent of the portion of damages paid. (19) Alternatively, the responsible party can avoid liability for the claim by proving by a preponderance of the evidence that the third party was solely responsible for the damage. (20)

      The scheme established by OPA reflects Congress's intent to facilitate speedy recovery and minimize litigation in a number of ways. (21) First, expanded liability allows victims to recover without proving negligence and, for economic damages, without proving accompanying injury to their person or property. Second, victims can seek recovery from any designated responsible party, generally leaving litigation over apportionment of blame to subrogation proceedings, and in any event placing the burden of shifting liability to a third party on the responsible party from whom the victim seeks compensation. Finally, by requiring that victims present claims to a responsible party before bringing a claim in court, OPA reduces litigation by giving the responsible party an opportunity to consider the victim's claim and settle.

   2. The Gulf Coast Claims Facility

      On April 20, 2010, the oil rig Deepwater Horizon exploded, spilling nearly five million barrels of oil into the Gulf of Mexico in the ensuing months. (22) The Coast Guard designated BP as a responsible party, and BP established an internal claims process. (23) In the first four months after the spill, BP received over 150,000 claims and paid about 125,000 of them, constituting a total payout of over $395 million. (24)

      After a meeting with BP's chairman on June 16, 2010, President Obama announced that BP had agreed to waive OPA's $75 million cap and set aside $20 billion in an escrow account for payment of claims, which would not represent a cap on BP's liability. (25) The funds would be distributed by an independent claims process administered by Kenneth Feinberg, who had administered the 9/11 Fund. (26) On August 6, BP executed a formal trust agreement, providing for contributions totaling $20 billion to pay claims resolved by the fund. (27)

      On August 23, 2010, Feinberg announced the opening of the Gulf Coast Claims Facility...