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The 19th century maritime law that Transocean Ltd. cited in filing a lawsuit to limit its liability in the April 20 explosion of its Deepwater Horizon rig could also give the companies involved in the disaster an edge to move all the litigation surrounding the incident to Texas.
On May 13, Transocean filed a proceeding in Houston under an outmoded 1851 law known as the Limitation of Shipowner's Liability Act to limit its legal exposure to $26.8 million, or the value of the sunken rig and whatever freight it was carrying. The limitation of liability act also allows a vessel owner to consolidate all litigation over a shipping accident to a venue of its choosing, and like a bankruptcy filing, halts all proceedings in other courts.
In maritime law, a rig is considered a vessel. Attorneys say it's an uphill battle for vessel owners to successfully limit their liability in a such a proceeding, so the primary reason for filing may be to nudge the massive litigation that is expected over the rig explosion and oil leak to Houston.
"I think there was a considered thought process on behalf of BP and Transocean to hometown the litigation and do anything that they could do to get the litigation in Houston and out of Louisiana," said Scott Bickford, who filed the first lawsuit the day after the explosion in federal court in New Orleans on behalf of the family of a worker who was killed. "Why is this thing in Texas other than the fact that the wrong-doers are there? This is a terrible situation."
More than 100 cases have been filed in federal courts across the Gulf Coast over the rig explosion and oil spill, many of them in New Orleans, plus others in state court, and those proceedings are expected to be consolidated into one giant case.
Reserve plaintiff attorney Daniel Becnel has filed an application with a panel of federal judges that considers consolidation requests to hold the proceedings in New Orleans. BP, which leased the Macondo well where the Deepwater Horizon was drilling, has filed application with the panel to consolidate the proceedings in Houston. The U.S. Judicial Panel on Multi-District Litigation will meet in Boise, Idaho, on July 29 to consider arguments from both sides about where the proceedings should be held, and is expected to make a decision within a few weeks of the gathering.
But as Transocean's proceeding moves forward in Houston to determine whether the company is eligible limit its liability, all depositions and discovery of facts will take place within the context of that suit. As work on the Transocean case proceeds in Houston, it could preempt the work of the panel of federal judges or help make the case that Houston has already become the nucleus of the litigation.
"The center of the entire litigation will move away from Louisiana to a state that has absolutely no damage. The legal implications are you get Texas justice for Louisiana," Bickford said.
In Houston, Judge Keith Ellison has already stayed all legal proceedings involving Transocean because of Tranocean's suit. On Tuesday morning, Ellison will hold a status conference to clarify issues related to the stays and to set a date for a hearing on motions filed by Bickford to dismiss the limitation of liability proceeding or move it to Louisiana. Attorneys representing fishers and the Louisiana Environmental Action Network have made similar requests.
Consolidating lawsuits
Although Transocean seeks to limit its liability in the disaster to $26.8 million, the company has already collected $401 million from its rig insurers, according to a first quarter earnings conference call held April 26, just days after the explosion.
In a May 13 press release, Transocean said that it filed to limit its liability at the instruction of its insurers. "One of the primary goals of this filing is to consolidate in a single court many of the lawsuits that have been filed following the Deepwater Horizon casualty to initiate an orderly process for these lawsuits and claims before a single, impartial federal judge," the company said.
Transocean directed a reporter to this news release rather than talking about the case.
The news release also states that "this filing does not impact lawsuits filed under the Oil Pollution Act of 1990," but that's not what the actual suit says.
In its May 13 court filing, Transocean says it not only seeks to limit any liability from any injuries, losses or damages from the rig explosion, which fall under maritime law, but "including, without limitation, any claims asserted under the Oil Pollution Act...for hydrocarbons emanating from the sea floor."
The Oil Pollution Act was passed after the Exxon Valdez ran aground off of Alaska in 1989, releasing 11 million gallons of oil into the Prince William Sound. The law says that the polluter must pay for the cost of cleaning up and compensate people who suffer economic losses from the event. While the primary polluter is BP as the holder of the lease on the well, BP is entitled under the Oil Pollution Act to seek contributions from other parties that contributed to the disaster.
The limitation of liability suit in theory only attempts to corral proceedings against Transocean. But as a practical matter, most plaintiffs filing suit have named Transocean, BP and other companies involved in the drilling of the well as defendants.
Attorneys say that means that plaintiffs will need to file a claim against Transocean in the limitation of liability suit while they wage the rest of case against the other defendants in the courts where those cases were filed. But depositions and discovery will end up taking place in the Transocean suit, forcing other courts to refer back to it. Meanwhile, other corporations such as BP will probably end up filing claims against Transocean in the limitation of liability suit, further increasing the potential that that suit will become the center of gravity in the litigation.
"The limitation really just draws all of the litigation into one place," Bickford said.
Encouraging risky business
The limitation of liability law was passed in 1851 as an incentive for more Americans to get into the shipping industry and make the nation more competitive with others on the high seas.
Shipping was a high-risk business. With insurance still in its early stages of development and vessels sailing for months at a time without contact with their owners, it was easy for ships to get into accidents that could cost owners a bundle.
England passed a law limiting liability for vessel owners in 1734 to encourage more people to get involved in trade, and America followed suit. The U.S. law allows vessel owners who can demonstrate that the corporate office had no knowledge of problems leading to the accident to limit their liability to the value of the wrecked ship and its cargo so all of their assets wouldn't be seized because of bad navigational decisions by a rogue captain.
Martin Davies, a maritime law professor at Tulane University, said that the law puts vessel owners in the driver's seat because they're the plaintiff bringing the proceeding in their choice of venue.
Ironically, Davies said, while the law was conceived to encourage American participation in the shipping business, today it's used mainly by foreign-flagged vessels to limit their liability, sometimes against American interests.
But, Davies said, judges are often uncomfortable granting upfront limitations of liability, especially in situations like the Deepwater Horizon when lots of factors are in play and investigations are only in their earliest stages.
Maritime attorney Walter Leger said that he's only seen a couple of liability limitations granted in his 34-year career, but vessel owners can still use the law to their advantage.
When the Bright Field tanker hit the Riverwalk shopping mall in December 1996, for example, the vessel's owners in China tried to use the limitation of liability act to shield themselves. Leger said his legal team eventually turned up evidence of faxes from the ship that showed that the owners were aware that the vessel had been having engine trouble, a finding that would have made the owners ineligible to limit their liability. But getting to that point took a year and a half of depositions and fact-finding, and made the limitation of liability proceeding center stage for all disputes. After the faxes were discovered, the case settled.
Leger, who is representing St. Bernard Parish and other governmental entities in the litigation over the Deepwater Horizon and advising other plaintiff attorneys, predicted that the panel of federal judges meeting in Boise won't look lightly at the situation.
"In the modern context, the limitation of liability law is used as a shield and to select a forum," Leger said. "In effect, everybody gets brought into where the limitation of liability is. But the (panel of judges) will have something to say about it."
For now, Bickford is arguing in court that the limitation of liability proceeding should be moved to Louisiana, because that's where all of the environmental and economic damage, witnesses, injured parties and evidence are. Eventually, plaintiff attorneys will also try to show that Transocean was negligent, and had reason to know that all was not well aboard the Deepwater Horizon.
On May 13, Transocean filed a proceeding in Houston under an outmoded 1851 law known as the Limitation of Shipowner's Liability Act to limit its legal exposure to $26.8 million, or the value of the sunken rig and whatever freight it was carrying. The limitation of liability act also allows a vessel owner to consolidate all litigation over a shipping accident to a venue of its choosing, and like a bankruptcy filing, halts all proceedings in other courts.
In maritime law, a rig is considered a vessel. Attorneys say it's an uphill battle for vessel owners to successfully limit their liability in a such a proceeding, so the primary reason for filing may be to nudge the massive litigation that is expected over the rig explosion and oil leak to Houston.
"I think there was a considered thought process on behalf of BP and Transocean to hometown the litigation and do anything that they could do to get the litigation in Houston and out of Louisiana," said Scott Bickford, who filed the first lawsuit the day after the explosion in federal court in New Orleans on behalf of the family of a worker who was killed. "Why is this thing in Texas other than the fact that the wrong-doers are there? This is a terrible situation."
More than 100 cases have been filed in federal courts across the Gulf Coast over the rig explosion and oil spill, many of them in New Orleans, plus others in state court, and those proceedings are expected to be consolidated into one giant case.
Reserve plaintiff attorney Daniel Becnel has filed an application with a panel of federal judges that considers consolidation requests to hold the proceedings in New Orleans. BP, which leased the Macondo well where the Deepwater Horizon was drilling, has filed application with the panel to consolidate the proceedings in Houston. The U.S. Judicial Panel on Multi-District Litigation will meet in Boise, Idaho, on July 29 to consider arguments from both sides about where the proceedings should be held, and is expected to make a decision within a few weeks of the gathering.
But as Transocean's proceeding moves forward in Houston to determine whether the company is eligible limit its liability, all depositions and discovery of facts will take place within the context of that suit. As work on the Transocean case proceeds in Houston, it could preempt the work of the panel of federal judges or help make the case that Houston has already become the nucleus of the litigation.
"The center of the entire litigation will move away from Louisiana to a state that has absolutely no damage. The legal implications are you get Texas justice for Louisiana," Bickford said.
In Houston, Judge Keith Ellison has already stayed all legal proceedings involving Transocean because of Tranocean's suit. On Tuesday morning, Ellison will hold a status conference to clarify issues related to the stays and to set a date for a hearing on motions filed by Bickford to dismiss the limitation of liability proceeding or move it to Louisiana. Attorneys representing fishers and the Louisiana Environmental Action Network have made similar requests.
Consolidating lawsuits
Although Transocean seeks to limit its liability in the disaster to $26.8 million, the company has already collected $401 million from its rig insurers, according to a first quarter earnings conference call held April 26, just days after the explosion.
In a May 13 press release, Transocean said that it filed to limit its liability at the instruction of its insurers. "One of the primary goals of this filing is to consolidate in a single court many of the lawsuits that have been filed following the Deepwater Horizon casualty to initiate an orderly process for these lawsuits and claims before a single, impartial federal judge," the company said.
Transocean directed a reporter to this news release rather than talking about the case.
The news release also states that "this filing does not impact lawsuits filed under the Oil Pollution Act of 1990," but that's not what the actual suit says.
In its May 13 court filing, Transocean says it not only seeks to limit any liability from any injuries, losses or damages from the rig explosion, which fall under maritime law, but "including, without limitation, any claims asserted under the Oil Pollution Act...for hydrocarbons emanating from the sea floor."
The Oil Pollution Act was passed after the Exxon Valdez ran aground off of Alaska in 1989, releasing 11 million gallons of oil into the Prince William Sound. The law says that the polluter must pay for the cost of cleaning up and compensate people who suffer economic losses from the event. While the primary polluter is BP as the holder of the lease on the well, BP is entitled under the Oil Pollution Act to seek contributions from other parties that contributed to the disaster.
The limitation of liability suit in theory only attempts to corral proceedings against Transocean. But as a practical matter, most plaintiffs filing suit have named Transocean, BP and other companies involved in the drilling of the well as defendants.
Attorneys say that means that plaintiffs will need to file a claim against Transocean in the limitation of liability suit while they wage the rest of case against the other defendants in the courts where those cases were filed. But depositions and discovery will end up taking place in the Transocean suit, forcing other courts to refer back to it. Meanwhile, other corporations such as BP will probably end up filing claims against Transocean in the limitation of liability suit, further increasing the potential that that suit will become the center of gravity in the litigation.
"The limitation really just draws all of the litigation into one place," Bickford said.
Encouraging risky business
The limitation of liability law was passed in 1851 as an incentive for more Americans to get into the shipping industry and make the nation more competitive with others on the high seas.
Shipping was a high-risk business. With insurance still in its early stages of development and vessels sailing for months at a time without contact with their owners, it was easy for ships to get into accidents that could cost owners a bundle.
England passed a law limiting liability for vessel owners in 1734 to encourage more people to get involved in trade, and America followed suit. The U.S. law allows vessel owners who can demonstrate that the corporate office had no knowledge of problems leading to the accident to limit their liability to the value of the wrecked ship and its cargo so all of their assets wouldn't be seized because of bad navigational decisions by a rogue captain.
Martin Davies, a maritime law professor at Tulane University, said that the law puts vessel owners in the driver's seat because they're the plaintiff bringing the proceeding in their choice of venue.
Ironically, Davies said, while the law was conceived to encourage American participation in the shipping business, today it's used mainly by foreign-flagged vessels to limit their liability, sometimes against American interests.
But, Davies said, judges are often uncomfortable granting upfront limitations of liability, especially in situations like the Deepwater Horizon when lots of factors are in play and investigations are only in their earliest stages.
Maritime attorney Walter Leger said that he's only seen a couple of liability limitations granted in his 34-year career, but vessel owners can still use the law to their advantage.
When the Bright Field tanker hit the Riverwalk shopping mall in December 1996, for example, the vessel's owners in China tried to use the limitation of liability act to shield themselves. Leger said his legal team eventually turned up evidence of faxes from the ship that showed that the owners were aware that the vessel had been having engine trouble, a finding that would have made the owners ineligible to limit their liability. But getting to that point took a year and a half of depositions and fact-finding, and made the limitation of liability proceeding center stage for all disputes. After the faxes were discovered, the case settled.
Leger, who is representing St. Bernard Parish and other governmental entities in the litigation over the Deepwater Horizon and advising other plaintiff attorneys, predicted that the panel of federal judges meeting in Boise won't look lightly at the situation.
"In the modern context, the limitation of liability law is used as a shield and to select a forum," Leger said. "In effect, everybody gets brought into where the limitation of liability is. But the (panel of judges) will have something to say about it."
For now, Bickford is arguing in court that the limitation of liability proceeding should be moved to Louisiana, because that's where all of the environmental and economic damage, witnesses, injured parties and evidence are. Eventually, plaintiff attorneys will also try to show that Transocean was negligent, and had reason to know that all was not well aboard the Deepwater Horizon.
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