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Dispute Rages on BP Liability for Wages, as President Pushes

Source: WSJ

Posted on 11 Jun 2010

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White House officials said Thursday they might ask Congress for new laws to force BP PLC to compensate a broad range of people affected by the oil spill, including oil workers idled by the government's moratorium on deepwater drilling.

President Barack Obama, after a meeting with congressional leaders, said Congress must "update the laws to make sure that the people in the Gulf, the fishermen, the hotel owners, families who are dependent for their livelihoods in the Gulf, that they are all made whole."

But there was disagreement in the legal community about whether the White House could hold BP liable for all the costs of the Gulf spill, including the lost salaries of workers laid off following the government's moratorium on deepwater drilling.

Meanwhile, the White House backed off an earlier suggestion that it could try to stop the oil giant from paying a multibillion dollar dividend to shareholders.

Under current laws, experts said making BP liable for the lost wages could be difficult, though not impossible.

While many law professors and corporate attorneys said the notion is doubtful, some said that creative Justice Department attorneys could use language in the Oil Pollution Act of 1990 to try to expand BP's liability.

Part of the act says that the defendant is responsible for damages tied to loss of profits or "impairment of earning capacity." However, it also specifies that the loss must be due to "the injury, destruction, or loss of real property, personal property, or natural resources."

BP could argue that the oil workers were harmed not by the spill, but by the government's regulatory action. "The spill didn't stop them from being able to work," a former senior Justice Department official said, recounting BP's potential argument. "It was the government's action of stopping drilling for a certain period of time."

Jeff Gordon, a law professor at Columbia University, said the issue of salaries seemed likely more a sign that the Obama administration was pressuring BP politically. It could be trying to send a message that if BP picks up the tab for out-of-work oil employees during the moratorium, the government will take that cooperation into consideration when it considers any criminal indictments or other action. "There's a signaling game going on," Mr. Gordon said.

Congress is already moving to act. Rep. John Conyers, a Michigan Democrat who chairs the House Judiciary Committee, introduced a bill Thursday that would sharply expand oil companies' liability for spills.

U.S. officials on Thursday moved to tone down other legal threats. At a congressional hearing on Wednesday, Thomas Perrelli, associate attorney general, seemed to suggest that the Justice Department was preparing to bar BP from paying out a dividend to its shareholders.

On Thursday, however, U.S. officials clarified that they weren't seeking a court order to block BP's dividend—at least for now. A federal law enforcement official said Thursday that, in his testimony, Mr. Perrelli "wasn't signaling that we're preparing an injunction or that we're worried about the ability of BP to pay. In fact we think they have plenty of money to pay and we want to make sure they do."

As many as 50,000 barrels of oil per day may have flowed into the Gulf before it was partly contained on June 3, the U.S. Geological Survey says. Purdue University's Steven Wereley, a key member of the group making the assessment, talks with WSJ's Robert Lee Hotz about the new flow estimates.

The U.S. Constitution specifies that property cannot be seized by the government without due process, so it would be difficult for the Justice Department to seek control of BP's dividend before it has even filed a lawsuit against the company.

The government would have to convince a court that by paying dividends now, BP would be unable to pay unspecified future obligations that could arise from any lawsuit. It could argue that any dividend would amount to "fraudulent conveyance" because BP would be unable to meet future obligations.

"I could imagine that creative interpretation in federal court in Louisiana," which has been hardest hit by the spill, said John Coffee, a law professor at Columbia University. "The likely step is judicial relief that would preserve the status quo and even that requires a court to accept a novel and somewhat creative interpretation of the law," he said.

Given the public anger, some say it is possible the government could overcome legal hurdles.

"I could see in an environment of anti-oil company and public outrage that somebody in the government could wave around this language," said Richard Squire, a law professor at Fordham University. "It's not inconceivable."

A former U.S. Labor secretary, Robert Reich, has even raised the possibility that the government could take control of BP by putting it under temporary receivership. That would give it greater influence over the payment of dividends, claims and cleanup costs, but would also wreak collateral damage.

For starters, 12% of dividends paid to pensioners in the U.K. come from BP. Also, in bankruptcy court, claimants would be among the last in line after creditors and employees.

Legal experts point to the asbestos suits in the 1980s against insulation-manufacturer Johns Manville Co., which sent it into bankruptcy court. At the time it was one of the biggest companies in the U.S. to file for bankruptcy protection. Because the company's responsibility first was to creditors, claimants received little and only after several years of litigation over the bankruptcy.


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