Expensive Liability

Limiting the Horizon

BP Haliburten Mexico. Source DPA
Oil companies fear they will be forced to pay compensation to bystanders.
  • Why it matters

    Why it matters

    British and German firms believe that unlimited access to class action suits stemming from the 2010 oil spill could endanger investment in the United States.

  • Facts

    Facts

    • BP has already set aside more than $42 billion to cover costs related to the Deepwater Horizon disaster and paid out nearly $8 billion in one class action law suit.
    • The company does not dispute the settlement but wants to limit access to subsequent class action law suits by parties not affected by the damage.
    • A law firm that was no longer active at the time of the oil spill received $172,000 from the $8 billion settlement.
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    Audio

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Judges on the highest court in America doubtlessly are used to dealing with influential companies and interest groups. But a recent letter from Europe to the Supreme Court in Washington is sure to get the attention of the most powerful legal figures in the land.

It was submitted by the Federation of German Industries, the American Chamber of Commerce in Germany, the Confederation of British Industry and the British-American Business Council. Together, the groups represent more than 100,000 companies in Germany and 190,000 in Great Britain.

Handelsblatt has received a copy of the “amicus curiae” or friend of the court letter.  In U.S. law, it’s a way for third parties that could be affected by legal proceedings to offer information and concerns to the court.

The plaintiff to whom the Europeans are offering support is the oil giant BP. The broad-based alliance is trying to prevent feared class-action suits from gaining more ground years after the Deepwater Horizon environmental disaster. They warn that potentially exorbitant legal costs are endangering the United States’ attractiveness as a place to invest.

The issue now is follow-up suits stemming from the 2010 catastrophe, in which a BP oil-drilling platform exploded, killing 11 workers and polluting vast stretches of the Gulf of Mexico and U.S. coast. The British oil and gas company has already set aside more than $42 billion to cover costs related to the disaster. BP was confronted, among other things, with a class-action suit from companies and agreed to a settlement of almost $8 billion.

The oil company is not disputing that settlement. But it argues that compensation for damages is going to some firms that joined the class-action suit even though they weren’t directly affected by the catastrophe.

Part of the money has been paid out without any obligation to prove damages. One instance involved a law firm that was no longer active at the time of the oil spill but received $172,000 nevertheless.  After courts in the states of Louisiana and Texas approved this practice, BP turned to the Supreme Court for relief.

The oil company also asked for help from Europe – and is now receiving it. The American Chamber of Commerce in Germany initiated the letter because “it affects general conditions for investment in the United States,” said the association’s general manager, Andreas Povel. “The case is of fundamental importance.”

The plea in the friend-of-the-court letter is insistent. “The danger that an unlimited number of non-participants could join class-action suits constitutes a serious threat to British and German companies that play an important role in the U.S, economy,” the letter states.

That anxiety is supported by some big numbers. British and German firms have invested several hundred million dollars in the United States, the letter states, and created more than 1.5 million jobs there.

The letter also includes a blunt threat: “Like all companies that invest abroad, German and British firms carefully evaluate the risks with which they are confronted – and this includes the danger arising through class-action suits.”

The British government also recently offered BP support with an amicus letter. The letter says that procedures adopted in the years after the oil catastrophe undermine the trust that these sorts of conflicts will be resolved in a fair manner.

“The furious rush to sue for damages (has hurt) the productivity and innovative energy of America enormously.”

John Beisner, partner at the Skadden law firm

The risk of being liable for damages is already significantly higher in the United States than in other countries. Damage lawsuits cost the U.S. economy about $265 billion each year, according to the New York economic advisory firm, Towers Watson. When measured as a percentage of GDP, twice as much money is spent in the United States on legal proceedings than in England or Japan.

“The furious rush to sue for damages (has hurt) the productivity and innovative energy of America enormously,” said John Beisner, a partner at Skadden, a major New York law firm, in testimony before the Judiciary Committee of the U.S. House of Representatives.

Admittedly, damage compensation can be limited by skillfully worded contracts. But if a firm comes into contact with the general public, as in an oil spill or with faulty consumer products, limits on liability are not possible.

And as a rule, the issue is decided by a jury. According to Rudolph Houck, of the New York law firm Eaton & Van Winkle, juries bring an “irrational” element to the proceedings.  They often overestimate or underestimate probabilities and, according to their own make-up and background, can give unfair precedence to private companies or people.

“The question of liability is a serious topic for our members, for both large and middle-sized companies,” said Mr. Povel of the American Chamber of Commerce in Germany. That is also one of the sticking points in current negotiations over the transatlantic free trade treaty.

If the Supreme Court does not intervene in the BP case, the risks could increase even more, according to Mark Hilgard of the global law firm Mayer Brown. “The case is highly explosive,” said Mr. Hilgard. “If the Supreme Court does not revise the verdict, that could encourage freeloaders in other cases.”

Ultimately, that’s not in the interest of the damaged parties.

“When non-participants receive money, less remains for those who have really suffered,” Mr. Hilgard said.

Jürgen Flauger is an editor for Handelsblatt and writes on the energy sector. Carsten Herz and Thomas Jahn are Handelsblatt correspondents in London and New York respectively. To contact the authors: flauger@handelsblatt.comherz@handelsblatt.com, jahn@handelsblatt.com.

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