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Big winners in the Gulf? Lawyers

By Bradford P. Anderson, Special to CNN
  • Bradford Anderson says thousands of claims already made, some paid, in Gulf oil spill
  • But Oil Pollution Act caps liability at $75 million, he says, gives oil companies good deal
  • Already lawyer strategies make it hard for claimants to seek redress, he says
  • Anderson: If Congress removes liability cap, companies would act more responsibly

Editor's note: Bradford Anderson is a law lecturer for Graduate Business Programs at the Orfalea College of Business at California Polytechnic State University in San Luis Obispo, California where he teaches business law and legal strategy. He has been practicing law for 23 years.

(CNN) -- The oil hasn't stopped gushing, but the spill in the Gulf is already spewing a multitude of lawsuits.

Thousands of claims point the finger of blame at BP, which operates the well; Transocean, owner of the drill rig; Cameron International, the manufacturer of the blowout protection valve; and Halliburton, which performed work on the well just before the explosion that led to the spill.

As with the Exxon Valdez disaster, litigation could easily continue for nearly 20 years, and massive legal fees will be earned by -- or at least paid to -- attorneys representing each side. BP told Congress that it "will pay all necessary cleanup costs and is committed to paying legitimate claims for other loss and damages caused by the spill." What that ends up meaning depends largely on the legal limits in place -- and, of course, the lawyers.

The company has reportedly already paid about $50 million to claimants, but the federal Oil Pollution Act of 1990 contains a cap of $75 million, plus cleanup costs (although the act does not pre-empt state laws). Meanwhile, the president and some members of Congress have said they'd like to make a retroactive increase to the cap. Sen. Robert Menendez has sponsored a bill aimed at raising it to $10 billion.

Eliminating the cap altogether would make more sense. The whole concept of placing such a limit on liability runs counter to a legal system where we value protection of lives and property rights, and where we make everyone else pay for all damage caused by their negligence or other wrongdoing. But oil is special to Americans, and Congress made sure that oil companies received special treatment in the form of the liability cap.

It's already challenging enough for aggrieved parties to be compensated. Within the cap, and despite the voluntary payment of some claims by BP, from here the process at least partly devolves into a system of strategic legal maneuvers where the issue is not about just doing what is right, but about jousting with the best legal talent. Our adversarial legal system focuses on the skill of lawyers attempting to outdo each other like peacocks in a tail feather display championship.

Claims from fishermen, for example, can meet with adversarial arguments saying that they should have fished elsewhere (mitigation of damages, as we lawyers call it). Or oil company defense lawyers can argue that the asserted damages are purely speculative, because no one knows if or how many fish would have actually been caught or that this would have been a down year anyway.

But a new game changer was introduced last week, when Attorney General Eric Holder announced an investigation that could lead to both civil and criminal charges against BP and other potential responsible parties. If the incident is shown to be a case of gross negligence or willful misconduct, the express provisions of the Oil Pollution Act remove the cap of liability.

The federal investigation also allows the government to pursue obstruction of justice charges against any individuals who provide misleading information or destroy evidence. If criminal charges are successful, responsible individuals -- typically senior supervisory personnel -- could face imprisonment, while financial proceeds from them and the company could be recovered.

From a corporate governance perspective, one would think that BP would duck and hide behind the cap of liability, but perhaps a strategy of paying claims in excess of the cap will help mitigate criminal charges and penalties, and actually be the "cheap" way out of their mess.

If the liability caps are lifted and BP incurs massive damages, a worst case scenario could include bankruptcy, in which case senior secured creditors, such as banks and other lenders, would be in the catbird seat, having first dibs on all the company's assets, while those who received damage judgments against BP would be forced to look for scraps on the floor.

BP shareholders, who have already filed a derivative lawsuit seeking to have company executives pay for the losses they have incurred due to poor management decisions, would be last in the collection line.

In the end, I envision that BP and the other entities responsible in the Gulf oil spill will pay for some of the cleanup costs and human damages. Meanwhile, natural habitats and harmed animals will recover little, because our legal system fails to adequately address long-term environmental injury. And all the money in the world cannot recreate a lost animal species.

Lawyers will litigate damages for years, possibly including a giant reduction of punitive damages, as with the Exxon Valdez where a jury awarded $5 billion in such damages, later cut in half by the federal 9th Circuit Court of Appeals, and then whittled down by the U.S. Supreme Court to $507 million

So what can anyone who isn't a lawyer do? If we want an economic incentive to avoid future disasters of this magnitude, we must press Congress to eliminate any and all caps on liability for oil spills, and impose higher fines for environmental damage. Unfortunately, as oil consumers, we would be required to pay the additional costs for this environmental protection through higher oil and gas prices.

Given that nobody really wants to pay more at the pump, there is always the good chance that business for the oil industry will return to normal -- until we have the same discussion at the next big spill.

The opinions expressed in this commentary are solely those of Bradford Anderson.

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