• Court Issues Ruling on Phase One of Deepwater Horizon Trial, Finding BP, Transocean and Halliburton at Fault
  • January 16, 2015 | Author: William C. Baldwin
  • Law Firm: Jones Walker LLP - New Orleans Office
  • On September 4, 2014, Judge Carl Barbier of the United States District Court for the Eastern District of Louisiana issued findings of fact and conclusions of law in the first phase of Transocean's limitation of liability action and the United States' penalty action arising out of the Deepwater Horizon explosion and resulting oil spill. Phase One primarily addressed "fault determinations relating to the loss of well control, the ensuing explosion and fire, the sinking of the DEEPWATER HORIZON, and the initiation of the release of oil from the well."

    In a lengthy decision, the court found that BP was grossly negligent in allowing the discharge of oil from the Macondo well. The court's ruling exposes BP to enhanced civil penalties per barrel of oil discharged under the Clean Water Act. In its ruling, the court emphasized that "gross negligence" is a nebulous concept subject to multiple definitions depending on the legal context and jurisdiction, and the court stressed that gross negligence differs from negligence in degree. The court found that BP acted recklessly with respect to Macondo, noting that BP's actions also met the definition of "gross negligence" even if the standard of gross negligence is less than that of recklessness. In finding BP grossly negligent, Judge Barbier focused on the safety-critical negative pressure test and BP's failure to properly interpret the test (or re-run the test after the first test was a failure). The court further held that a corporation is vicariously liable under the Clean Water Act's enhanced penalty provision for its employee's gross negligence; and therefore, BP was exposed to enhanced penalties under the Clean Water Act. However, the court held that BP was not liable for punitive damages under the general maritime law because the individuals within BP whose acts were deemed grossly negligent were not policy-making officials and their reckless conduct did not emanate from corporate policy. Under applicable Fifth Circuit precedent, the court found that, while BP's conduct warranted the imposition of punitive damages under general maritime law, BP could not be held liable for such damages.

    In addition, the court also found that Transocean and Halliburton were negligent in causing the blowout, explosion, and oil spill. The court assigned 67 percent fault to BP, 30 percent fault to Transocean and 3 percent fault to Halliburton. Transocean's liability stemmed from its role in the negative pressure test, as well as other issues related to well control failures and BOP maintenance. Halliburton's liability stemmed from well monitoring, which the court described as relatively small and shared by Transocean's drill crew. The court found that the cement job for the well, even if defective, was not a cause of the blowout.

    While the court's findings in phase one will likely be appealed, the decision is obviously of great importance given the magnitude of the Deepwater Horizon litigation and the many issues on which the decision touches. The court's decision includes a detailed discussion of gross negligence and egregious acts under the general maritime law in the context of punitive damages, and provides a unique result where a company can be exposed to enhanced civil penalties under the Clean Water Act but not punitive damages under the general maritime law. In addition, the court's decision also highlights the importance of clearly and unequivocally allocating risk by contract in advance of a disaster. As noted in the court's decision, the court held that the contractual indemnity and release provisions in favor of Transocean and Halliburton were valid and enforceable against BP.