Deepwater Horizon: Clean Water Act civil penalty assessment explained

February 25, 2016

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On November 30, 2015, U.S. District Judge Carl Barbier issued a comprehensive opinion assessing a civil penalty in the amount of $159.5 million against Anadarko Petroleum Corporation (“Anadarko”), one of the defendants in the lawsuit commenced by the United States arising out of the Deepwater Horizon catastrophe on April 20, 2010. This ruling was part of the so-called “Penalty Phase” of the case, in which the court determined the amount of civil penalties to be paid by various defendants under the Clean Water Act, 33 USC §1321(b)(7).

Previously, Judge Barbier had held that, although Anadarko was a 25% owner of the Macando Well, it was a “non operator”and therefore not negligent as a matter of law. Based on its prior determination that the incident resulted in a spill of 3.19 billion barrels and the maximum civil penalty was $1,100 per barrel, the judge concluded that the maximum civil penalty that could be assessed against Anadarko was approximately $3.5 billion.

In order to determine the actual amount of the penalty as opposed to the maximum amount, the judge was required to consider eight factors listed under the CWA:

1)      Seriousness
of the violation – Anadarko admitted that the spill “was extremely serious by any measure” which would favor the maximum penalty

2)      Economic
benefit to the violator – the court found that Anadarko’s 25% share of “avoided costs” was about $3.375 million, which the court considered a minimal benefit to Anadarko and deemed this factor “neutral.”

3)      Culpability
– the court  held that Anadarko’s “lack of fault weighs heavily in favor of a minimum penalty.”

4)      Other
penalties paid in connection with this incident – although Anadarko had paid none, the court held this to be a neutral factor.

5)      Prior
violations – Anadarko had a history of prior, minor violations, and the court concluded that this factor had “reduced importance.”

6)      Mitigation
efforts – Anadarko was given only a limited role in the government led response, and the court was not inclined to increase or decrease the civil penalty based on this factor.

7)      Economic
impact of the penalty on the violator – the court found that a penalty of $159.5 million “will not be ruinous to Anadarko’s business.” In fact, Anadarko had conceded that it could even pay the maximum civil penalty if required.

8)      Any
other matters as justice may require – “this factor should be applied sparingly” and was not applicable in this instance.

In determining the amount of the civil penalty, Judger Barbier focused on how the “two most significant factors” – the seriousness of the incident and Anadarko’s lack of culpability – weighed against one another.  First, he noted that the primary goal of the civil penalty provisions in the CWA is punishment and deterrence.  Here, Anadarko was not at fault, and the Judge observed that assessing a high penalty against a non-culpable, non-operating co-owner of an offshore oil well might deter investment in such ventures, which was not necessarily the intention of Congress.  However, a high penalty might induce investors to be more selective about whom they select as an operator, which might serve to reduce the number of such incidents.

Ultimately, the judge concluded that Anadarko’s lack of culpability largely, although not entirely, negated the punishment and deterrence functions of the civil penalty. On the other hand the judge also noted that civil penalties shifted the financial burden of maintaining clean water to the “polluting enterprise” instead of the public and the seriousness factor was relevant for this purpose.

Weighing all of the above, Judge Barbier decided that Anadarko’s lack of culpability weighed more heavily in favor of a low penalty that the seriousness of the incident weighed in favor of a high penalty. Therefore, the judge assessed a penalty of $50 per barrel, resulting in a civil penalty of $159.5 million, which he noted was only 4.5% of the maximum civil penalty and “therefore at the low end of the spectrum.” In the judge’s opinion, this struck an “appropriate balance between Anadarko’s lack of culpability and the extreme seriousness of the spill, considering the purposes of the CWA and §1321(b)(7)’s civil penalty.

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