On September 4, 2014, U.S. District Judge Carl Barbier issued findings of fact and conclusions of law for the trial of the MDL of the Gulf Oil Spill, which included findings that the oil spill was the result of BP Exploration & Production, Inc.'s ("BP") gross negligence and willful misconduct and that BP is therefore potentially liable for a quadrupling of fines assessed under the Clean Water Act ("CWA"). This article focuses on two important conclusions of law issued by the Judge Barbier regarding: (1) the standard for "Gross Negligence" and "Willful Misconduct" under the CWA, and (2) the standard for vicarious liability for Punitive Damages under Maritime Law. Because there does not appear to be much precedent on the first issue and the U.S. Courts of Appeals are divided on the second issue, these conclusions of law will likely be immediately appealed to the Fifth Circuit, and potentially to the U.S. Supreme Court.
All of the statements herein regarding Judge Barbier's decisions are taken directly from his opinion, In re Oil Spill by the Oil Rig "Deep water Horizon in the Gulf of Mexico, 2014 WL 4375933 (E.D. La. Sept. 4, 2014).
Decision Regarding the Standards for "Gross Negligence" and "Willful Misconduct under the Clean Water Act
The maximum amount of the CWA civil penalty is $1,100 per barrel of oil discharged. However, the maximum amount per barrel is nearly quadrupled when the discharge results from gross negligence or willful misconduct.
The CWA does not define "gross negligence or willful misconduct." The United States and BP disagreed over the meaning of "gross negligence."
The government argued that gross negligence, like ordinary negligence, requires only objective, not subjective, proof. While ordinary negligence is a failure to exercise the degree of care that someone of ordinary prudence would have exercised in the same circumstances, gross negligence is an extreme departure from the care required under the circumstances or a failure to exercise even slight care.
In contrast, BP argued that gross negligence has objective and subjective elements. Like the United States, BP contends that gross negligence requires an extreme departure from the ordinary standard of care (objective element). However, BP also argued that the actor must have a "culpable mental state" (subjective element). Under BP's argument, the subjective element requires that the actor must have actual, subjective awareness of the risk involved, but nevertheless proceeded with conscious indifference to the rights, safety, or welfare of others.
According to Judge Barbier, the United States and BP generally agree over the meaning of "willful misconduct." The government argued that willful misconduct is an act, intentionally done, with knowledge that the performance will probably result in injury, or done in such a way as to allow an inference of a reckless disregard of the probable consequences. If the harm results from an omission, the omission must be intentional, and the actor must either know the omission will result in damage or the circumstances surrounding the failure to act must allow an implication of a reckless disregard of the probable consequences.
BP argued that willful misconduct "entails an even more culpable state of mind than 'gross negligence.'" BP states that "[w]illful misconduct includes the defendant actually intending to cause injury (actual intent), as well as the defendant knowing that its conduct will naturally or probably cause injury (constructive intent or recklessness)."
According to Judge Barbier, BP places reckless conduct in both "gross negligence" and "willful misconduct" and the United States avoids this overlap by confining "reckless" to "willful misconduct." Judge Barbier reasoned that: "Because 'gross negligence' and 'willful misconduct' are distinct under the CWA, 'reckless' conduct cannot be included in both terms. Given that the United States and BP agree that reckless conduct is included in 'willful misconduct,' reckless conduct cannot be included in 'gross negligence.' Therefore, the United States' definitions [of gross negligence and willful conduct] must be correct."
Judge Barbier notes that the Fifth Circuit addressed the meaning "gross negligence" under the CWA inUnited States v. Citgo Petroleum Corp., 723 F.3d 547, 554-55 (5th Cir. 2013), but he concluded that this opinion was vague and contradictory and therefore offered no assistance.
Given that state law definitions of gross negligence and willful misconduct varied when the CWA was passed, it is surprising that Congress did not define these terms. Judge Barbier found the legislative history of the CWA showed conflicting views regarding the definition of "gross negligence."
BP's appeal will likely resolve this issue because the Fifth Circuit likely cannot review whether the evidence is sufficient to support Judge Barbier's fact findings that the oil spill resulted from both gross negligence and willful misconduct under the CWA, without first determining which party's definition of these terms is correct.
Decision Regarding the Standard for Vicarious Liability for Punitive Damages under Maritime Law
Judge Barbier also addressed BP's potential liability to individual MDL plaintiffs for punitive damages under General Maritime Law. Punitive damages may be imposed under general maritime law for reckless, willful, and wanton conduct. Judge Barbier found that the conduct exhibited by BP's employees would make an award of punitive damages appropriate. However, Judge Barbier recognized that the maritime rule in the Fifth Circuit is that operational recklessness or willful disregard is generally insufficient to visit punitive damages on the employer. Rather, the conduct must emanate from corporate policy or that a corporate official with policy-making authority participated in, approved of, or subsequently ratified the egregious conduct. See P & E Boat Rentals, Inc., 872 F.2d 642, 652-53 (5th Cir. 1989). Judge Barbier found that the BP employees who he found to have acted recklessly were not policy-making officials and that reckless conduct did not emanate from corporate policy, and therefore concluded that BP was not liable for punitive damages under general maritime law.
The State of Alabama urged Judge Barbier to make additional conclusions of law that not all Circuits follow the same rule as the Fifth Circuit because some cases may ultimately be resolved under the law of other Circuits. Judge Barbier obliged this request. He concluded that the Ninth Circuit's maritime rule follows the Restatement, which allows punitive damages against the corporate entity when the actor was in a "managerial capacity" and performing within the scope of his employment. See Protectus Alpha Nav. Co., Ltd. v. N. Pac. Grain Growers, Inc., 767 F.2d 1379, 1386–87 (9th Cir. 1985). Judge Barbier found that the BP employees were in a "managerial capacity" and their actions arose within the scope of their employment, and therefore concluded that BP would be liable for punitive damages under this standard.
Judge Barbier also concluded that the First Circuit appears to also use the managerial agent theory, but with the added requirement that there be "some level of [corporate] culpability for the misconduct." See CEH, Inc. v. F/V Seafarer, 70 F.3d 694, 705 (1st Cir. 1995). He found that punitive liability would also attach to BP under this standard.
Significantly, the Eleventh Circuit, which has jurisdiction over federal district courts in Alabama and Florida (states with Gulf of Mexico coastlines), has not ruled on this issue.
Likely Appeals to the Fifth Circuit and the U.S. Supreme Court
In Exxon Shipping Co. v. Baker, 554 U.S. 471, 484 (2008), the U.S. Supreme Court granted certiorari to attempt to resolve this conflict among the Circuits, but because the Justices were evenly split four-to-four on this issue (Justice Alito having recused himself), the Ninth Circuit's decision to allow Exxon's vicarious liability for punitive damages remained undisturbed.
The parties are likely to take immediate interlocutory appeals of Judge Barbier's rulings to the Fifth Circuit, which could result in an expedited decision of these issues by the Fifth Circuit. Because the large amount at stake and the scarcity of or conflicting precedent, the parties will likely seek review of the Fifth Circuit's ultimate decision by the U.S. Supreme Court.
In view of the Supreme Court's inability to reach a decision in Exxon Shipping Co., it might welcome another opportunity to attempt to resolve this conflict among the Circuits on the standard for vicarious liability for punitive damages under Maritime Law. The Supreme Court may also seize this opportunity to clearly define legal standard for "gross negligence" and "willful misconduct" under the Clean Water Act.
The appeal of Judge Barbier's decision and possible further appeal of any Fifth Circuit decision should be closely watched by the Energy Industry.