THE OIL POLLUTION ACT OF 1990

Today’s Liability and Enforcement Issues

Delivered by William H. Bode, Esquire
Managing Partner, Bode & Grenier, LLP
Washington, D.C.
at the 24th Annual ILTA International Operating Conference and Trade Show

TWENTY YEARS AGO, IN THE WAKE OF THE EXXON VALDEZ DISASTER, SECRETARY OF TRANSPORTATION SAMUEL SKINNER AND EPA ADMINISTRATOR WILLIAM K. REILLY WERE ASKED BY THE FIRST BUSH ADMINISTRATION TO STUDY THE INCIDENT AND PROVIDE A REPORT ADDRESSING THE PREPAREDNESS FOR, RESPONSE TO, AND LESSONS LEARNED FROM IT. IN THE EXECUTIVE SUMMARY OF THAT REPORT – ISSUED IN MAY 1989 – SECRETARY SKINNER AND ADMINISTRATOR REILLY WARNED THAT “[C]ONTINGENCY PLANNING IN THE FUTURE NEEDS TO INCORPORATE REALISTIC WORST-CASE SCENARIOS.” IT IS ONE OF THOSE HYPOTHETICAL “WORST-CASE SCENARIOS” – BUT ONE I DOUBT ANY ONE OF US CONTEMPLATED IN 1989 – THAT I PROPOSE TO USE TODAY AS A VEHICLE FOR DISCUSSING THE OIL POLLUTION ACT.

OUR EVENT IS A TERRORIST ATTACK ON A PETROLEUM TERMINAL OWNED AND OPERATED BY THE HAPLESS OIL COMPANY.

LET’S ASSUME THAT THE TERRORISTS, USING EXPLOSIVES, BLOW UP HAPLESS TANKS CONTAINING GASOLINE AND MIDDLE DISTILLATES. THE RESULTING FIRE DESTROYS BUILDINGS NOT ONLY AT THE TERMINAL FACILITY, BUT ALSO ON NEIGHBORING PROPERTY BELONGING TO A COMPETITOR. APPROXIMATELY THREE MILLION GALLONS OF REFINED PETROLEUM PRODUCTS FLOW INTO A NEARBY DITCH, AND, FROM THERE, INTO AN ADJOINING STREAM. DAMAGE TO THE NEARBY BUSINESS AND SURROUNDING ENVIRONMENT IS EXTENSIVE.

WHAT ARE THE LEGAL IMPLICATIONS FOR THE FACILITY OWNER UNDER THE OPA?

THE OIL POLLUTION ACT OF 1990 – WHOSE PASSAGE WAS PROMPTED IN LARGE MEASURE BY THE EXXON VALDEZ FIASCO – MANDATED A NUMBER OF CHANGES IN THE MANNER IN WHICH PETROLEUM IS SHIPPED AND STORED, AS ALL OF YOU ARE SO WELL AWARE. MY PRESENTATION TODAY, HOWEVER, CONCENTRATES INSTEAD ON THREE OF THE ACT’S MAJOR PROVISONS CONCERNING LEGAL RESPONSIBILTY.

FIRST : THE IMPOSITION OF LEGAL LIABILITY ON A “RESPONSIBLE PARTY;”

SECOND : THE DEFENSES THAT CAN SHIELD A “RESPONSIBLE PARTY” FROM LIABILITY; AND

THIRD : THE MECHANISMS FOR THE PAYMENT OF REMOVAL COSTS AND DAMAGAES.

LET’S BEGIN WITH THE LIABILITY Of A “RESPONSIBLE PARTY.”

LIABILITY UNDER OPA

THE LIABILITY PROVISIONS OF THE OIL POLLUTION ACT ARE MODELED AFTER THOSE IN CERCLA AND ARE STRAIGHTFORWARD, CLEAR AND FAIRLY ALL ENCOMPASSING:

EACH RESPONSIBLE PARTY FOR A … FACILITY FROM WHICH OIL IS DISCHARGED … INTO OR UPON THE NAVIGABLE WATERS OR ADJOINING SHORELINES ... IS LIABLE FOR THE REMOVAL COSTS AND DAMAGES.

MOREOVER, THE DEFINITIONS OF THE KEY WORDS IN THAT LIABILITY PROVISION ARE BROAD – AND HAVE OFTEN BEEN CONSTRUED BROADLY BY THE COURTS.

FOR EXAMPLE, THE “FACILITY” UNMISTAKABLY INCLUDES A TERMINAL AND ITS ASSOCIATED PIPELINES:

FACILITYMEANS ANY STRUCTURE, GROUP OF STRUCTURES, EQUIPMENT, OR DEVICE....WHICH IS USED FOR ONE OR MORE OF THE FOLLOWING PURPOSES: EXPLORING FOR, DRILLING FOR, PRODUCING, STORING, HANDLING, TRANSFERRING, PROCESSING, OR TRANSPORTING OIL. THIS TERM INCLUDES ANY MOTOR VEHICLE, ROLLING STOCK, OR PIPELINE USED FOR ONE OR MORE OF THESE PURPOSES.

THE DEFINITION OF “RESPONSIBLE PARTY” CASTS A SIMILARLY WIDE NET:

“RESPONSIBLE PARTY” MEANS THE FOLLOWING:
  • VESSELS. -
IN THE CASE OF A VESSEL, ANY PERSON OWNING, OPERATING, OR DEMISE CHARTERING THE VESSEL.

  • ON SHORE FACILITES.-
IN THE CASE OF AN ONSHORE FACILITY …ANY PERSON OWNING OR OPERATING THE FACILITY.

(C) OFFSHORE FACILITY

THE CASE LAW UNDER OPA SHOWS THAT THE EPA WILL SEEK TO HOLD LIABLE EVERY “PERSON” WITHIN THE DEFINITION OF “RESPONSIBLE PARTY.” THUS, IN A SINGLE SUIT FILED BY THE AGENCY, EPA SOUGHT TO HOLD RESPONSIBLE: (a) THE OWNER OF A FACILTY; (b) THE THEN CURRENT LESSEE OF THE FACILITY, AND (c) A CONTRACT OPERATOR.

ADDITIONALLY, IN CASES IT DEEMS APPROPRIATE, EPA HAS FILED SUIT NAMING THE PRESIDENT OF A FACILITY, A VICE-PRESIDENT FOR ENVIRONMENT, AND A SAFETY/ENVIRONMENTAL OFFICER AS LIABLE PARTIES.

THUS, VIRTUALLY ANYONE WITH ANY RELEVANT OWNERSHIP, MANAGEMENT OR SUPERVISORY AUTHORITY MUST – AT HIS OR HER OWN PERIL – BE FAMILIAR WITH THESE RULES.


DEFENSES TO LIABILITY

FOLLOWING OUR HYPOTHETICAL, ASSUME THAT HAPLESS OIL BELIEVES THAT IT MAY HAVE SOME LIABILITY – AN ASSESSMENT WITH WHICH HAPLESS’S COUNSEL READILY CONCURS. ARE THERE DEFENSES TO THAT LIABILITY UNDER THE OPA? AFTER ALL, IT WAS THE TERRORISTS WHO ACTUALLY CAUSED THE DISCHARGE! THE ANSWER IS YES. IN ITS WISDOM, CONGRESS ACTUALLY PROVIDED TWO DEFENSES TO THE OTHERWISE ABSOLUTE LIABLITY THAT MAY BE INVOKED: THE “ACT OF WAR” DEFENSE AND THE “THIRD PARTY” DEFENSE.

BUT THE FIRST QUESTION OUR OWNER/OPERATOR (OR ITS LAWYERS) SHOULD BE ASKING – BEFORE EVEN CONSIDERING THESE DEFENSES -- IS WHETHER OPA APPLIES AT ALL.

OPA APPLIES ONLY WHEN THE DISCHARGE ENTERS THE “NAVIGABLE WATERS” OF THE UNITED STATES. WHAT ABOUT OUR HYPOTHETICAL CASE HERE? WELL, THAT MAY DEPEND ON WHERE THE “HERE” IS.

SOME COURTS HAVE DEFINED THE TERM “NAVIGABLE WATERS” VERY BROADLY. INDEED, A COURT IN NEW JERSEY TOOK WHAT ALMOST SEEMS TO BE A RUBE GOLDBERG APPROACH – FINDING THAT THE DISCHARGE OF OIL ONTO A NON-NAVIGABLE WETLAND, THAT (IN TURN) DRAINED INTO A DITCH ADJACENT TO A NON-NAVIGABLE TRIBUTARY, THAT THEN DRAINED INTO A TRIBUTARY, WHICH DRAINED INTO A NAVIGABLE RIVER CONSTITUTED WHAT THE COURT FOUND TO BE A SUFFICIENT “HYDROLOGICAL NEXUS” TO CONFER JURISDICTION UNDER THE OPA.

HAPPILY, THE 5TH CIRCUIT COURT OF APPEALS, WHICH HAS RESPONSIBILITY FOR TEXAS AND LOUISIANA, RULED IN THERICE v. HARKEN EXPLORATION CASE THAT A DISCHARGE INTO A CREEK IN THE TEXAS PANHANDLE, 500 MILES FROM ANY OCEAN OR SHORELINE, WAS TOO TENUOUS A CONNECTION TO BRING OPA INTO PLAY.

ON JANUARY 15, 2003, THE EPA ENTERED THE FRAY WITH A NOTICE OF RULEMAKING PROVIDING A REGULATORY DEFINITION OF “WATERS OF THE UNITED STATES.”

THE BROAD DEFINITION OF “NAVIGABLE WATERS” THEREIN PROMPTED A LAWSUIT BY MARATHON OIL AND THE AMERICAN PETROLEUM INSTITUTE. ON MARCH 31, 2008, THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA VACATED THE EPA’S BROAD DEFINITION OF “NAVIGABLE WATERS” IN AMERICAN PETROLEUM INSTITUTE V. JOHNSON, 541 F. SUPP. 2D165 (D.D.C.). THE COURT HELD THAT THE EPA DID NOT EXHIBIT REASONED DECISION MAKING AND THAT THE BROAD DEFINITION WAS ARBITRARY AND CAPRICIOUS. THE DEFINITION WAS, THEREFORE, VACATED, AND THE PREVIOUS VERSION OF THE DEFINITION WAS REINSTATED.

ADDING TO THE MIX, THE COAST GUARD ON APRIL 6, 2004, ENTERED INTO A SETTLEMENT AGREEMENT WITH THE WILDLIFE FEDERATION IN A SUIT INVOLVING COSTCO CORPORATON AND THE HINTON DEVELOPMENT CORPORATION. IN THE SETTLEMENT, THE COAST GUARD COMMITTED TO ABIDE BY THE NINTH CIRCUIT COURT OF APPEALS DECISION IN HEADWATERS, INC. V. TALENT IRRIGATION DISTRICT IN DETERMINING ITS JURISDICTION OVER NAVIGABLE WATERS. THE PETROLUEM INDUSTRY HAS SOME CONCERNS ABOUT THIS ACCORD PARTICULARLY WITH THE BREADTH OF SOME OF THE LANGUAGE IN THE HEADWATERS DECISION THAT COULD EXTEND JURISDICITION FOR PETROLEUM DISCHARGES OVER TRIBUTARIES THAT FLOW INTERMITTENTLY.

THE BOTTOM LINE NOW IS THAT THE EPA AND COAST GUARD ARE LIKELY TO ASSERT JURISDICTION OVER SPILLS WHEN THERE EXISTS EVEN A REMOTE POSSIBILILTY OF CAUSING A SHEEN ON A STREAM OR RIVER. THE COURTS ARE LIKELY TO GIVE SUBSTANTIAL DEFERENCE TO THE AGENCIES UNTIL THE D.C. COURT OF APPEALS (AND POSSIBLY THE SUPREME COURT) RULES IN THE MARATHON/API CASE.

BACK TO OUR TERRORIST SCENARIO. FOR SIMPLICITY, LET’S ASSUME THAT THE NOW DECIMATED TERMINAL WAS SERVED BY OCEAN TANKERS; IN SUCH A CASE, WE CAN SAFELY ASSUME THAT OPA JURISDICTION APPLIES. AS A RESULT, IT IS TIME TO CONSIDER DEFENSES.

THE FIRST DEFENSE THAT MAY SHIELD OUR FACILITY OWNER/OPERATOR FROM LIABILITY IS THE “ACT OF WAR” DEFENSE. OPA PROVIDES THAT DISCHARGES ARISING FROM “ACTS OF WAR” ARE NOT THE LEGAL (OR, AS A RESULT, THE FINANCIAL) RESPONSIBILITY OF THE FACILITY OWNERS OR OPERATORS. SO THE QUESTION BECOMES: IS A TERRORIST ATTACK OR “JIHAD” PLANNED BY AL QAEDA AN ACT OF WAR? WE NOW ENTER MURKIER WATERS.

OPA DOES NOT DEFINE “ACT OF WAR” -- BUT THE COURTS HAVE NARROWLY DEFINED THE TERM UNDER CERCLA. LEGAL TREATISES ON THE MATTER ARGUE THAT THE ACT OF WAR DEFENSE SHOULD BE LIMITED TO HOSTILE ACTS ARISING FROM GOVERNMENT SPONSORSHIP OR FROM FORMALIZED HOSTILITIES. THE EVENTS OF 9-11, HOWEVER, MAY HAVE CHANGED THIS PARTICULAR AVENUE IN THE LEGAL LANDSCAPE. BY SPECIAL PROCLAMATION, THE PRESIDENT LABELLED THE WORLD TRADE CENTER AND PENTAGON ATTACKS AN “ACT OF WAR.” IT IS THEREFORE CONCEIVABLE THAT AN ISOLATED TERRORIST ATTACK ON A PETROLEUM TERMINAL WOULD BE TREATED SIMILARLY. BUT THERE ARE NO GUARANTEES THAT THIS WOULD HAPPEN; AND WITHOUT A SPECIFIC PRESIDENTIAL PROCLAMATION THE “ACT OF WAR” DEFENSE WOULD NOT LIKELY SHIELD HAPLESS OIL FROM LIABILITY.

THE SO-CALLED “THIRD PARTY” DEFENSE IS MUCH MORE PROMISING HERE. OPA PROVIDES THAT A COMPLETE DEFENSE TO LIABILITY IS AVAILABLE TO A RESPONSIBLE PARTY (SUCH AS A FACILITY OWNER) WHO ESTABLISHES THAT THE DISCHARGE IN QUESTION WAS CAUSED SOLELY BY: “AN ACT…OF A THIRD PARTY” AND THAT THE THIRD PARTY --

* IS NOT AN EMPLOYEE OR AGENT OF THE RESPONSIBLE PARTY (OR ARGUABLY PART OF A CONSPIRACY INVOLVING AN EMPLOYEE OR AGENT); AND

* IS NOT IN A CONTRACTUAL RELATIONSHIP WITH THE FACILITY OWNER/OPERATOR.

THE INQUIRY, HOWEVER, DOES NOT STOP THERE. TO SUCCESSFULLY INVOKE THE THIRD PARTY DEFENSE, THE RESPONSIBLE PARTY MUST ALSO SHOW BY A PREPONDERANCE OF THE EVIDENCE (MEANING, MUST PROVE THAT IT IS MORE LIKELY THAN NOT) THAT HE –
  • (A) EXERCISED DUE CARE WITH RESPECT TO THE OIL CONCERNED…AND
  • (B) TOOK PRECAUTIONS AGAINST FORESEEABLE ACTS OR OMISSIONS.
THIS IS VERY IMPORTANT, FOR THE STAKES HERE CAN BE HUGE. IF NO DEFENSES CAN BE SUCCESSFULLY RAISED, A FACILITY OPERATOR CAN BE LIABLE FOR REMOVAL COSTS AND DAMAGES IN THE MILLIONS OF DOLLARS. BY CONTRAST, IF THE “THIRD PARTY” DEFENSE IS SUCCESSFUL, THE REMOVAL COSTS, AND SOME OF THE DAMAGES INCURRED BY THE FACILITY OWNER, ARE PAID FROM THE OIL SPILL LIABILITY TRUST FUND.

WHAT THEN IS THE STANDARD OF CARE THAT HAPLESS OIL MUST HAVE EXERCISED TO AVOID LIABILITY FOR THE DISCHARGE CAUSED BY OUR HYPOTHETICAL TERRORIST ATTACK?

A REVIEW OF CASE AND ADMINISTRATIVE LAW, AND EPA AND COAST GUARD GUIDANCE DOCUMENTS, SUGGESTS THAT FACILITIES FULLY COMPLIANT WITH ALL SPCC REGULATIONS WILL BE DEEMED TO HAVE EXERCISED DUE CARE. BY COMPARISON, A FACILITY THAT IS NOT FULLY COMPLIANT WITH THE REGULATONS, OR THAT HAS NOT UPDATED ITS SPCC PLAN BY AUGUST 13, 2004, COULD BE DEEMED TO HAVE FAILED TO EXERCISE DUE CARE. THIS RESULT WOULD PROBABLY ARISE EVEN IF THAT OMISSION DID NOT INCREASE THE SEVERITY OF THE DISCHARGE – OR ITS HARMFUL EFFECTS. AS YOU CAN SEE, IN THIS ARENA, CAREFUL ATTENTION TO DETAILS CAN YIELD MILLIONS IN SAVINGS SHOULD THE “WORST CASE SCENARIO” OCCUR.

BUT WHAT ABOUT THE SECOND REQUIREMENT – PROOF THAT OUR HYPOTHETICAL OWNER/OPERATOR TOOK “PRECAUTIONS AGAINST ACTS”? WHAT DOES THAT MEAN? AND HOW WOULD HE PROVE IT?

UNFORTUNATELY, THIS REQUIREMENT IS BOTH MORE PROBLEMATIC AND UNTESTED IN THE COURTS. MOREOVER, IT MAY DEPEND ENTIRELY ON THE EXTANT PATTERN OF FACTS. CONSIDER THE FOLLOWING:

LET’S ASSUME THAT THE OFFICE OF HOMELAND SECURITY HAS ISSUED A “YELLOW ALERT” IN THE GEOGRAPHICAL AREA WHERE THE HAPLESS OIL TERMINAL IS LOCATED. DOES THIS MEAN THAT THE FACILITY MUST HEIGHTEN ITS OWN OVERSIGHT PROCEDURES OR RISK FORFEITING ITS RIGHT TO INVOKE THE “THIRD PARTY” DEFENSE IN THE EVENT OF CATASTROPHE? IF SO, WHAT STEPS, EXACTLY, MUST THE FACILITY TAKE? HOW SHOULD IT DO SO? FOR EXAMPLE, WOULD IT BE REQUIRED TO POST ADDITIONAL SECURITY PERSONNEL? ONE THING SEEMS FAIRLY CERTAIN: AT A MINIMUM, KEY SECURITY PERSONNEL SHOULD BE NOTIFIED OF THE ALERT. AN ORANGE ALERT MAY REQUIRE THE POSTING OF ADDITIONAL SECURITY GUARDS OR OTHER ENHANCED SECURITY MEASURES.

NEXT ASSUME THAT THE FACILITY OPERATOR RECEIVED A TELEPHONE THREAT OF AN ATTACK. WHAT IS THEN REQUIRED? CERTAINLY, EVEN IF THE CALL IS CONSIDERED A “CRANK” CALL, APPROPRIATE AUTHORITIES SHOULD BE ALERTED, INCLUDING THOSE WHO WOULD BE NOTIFIED IN CASE OF AN ACTUAL SPILL. DOCUMENTATION REGARDING THE NOTIFICATION SHOULD BE PRESERVED. ADDITIONAL SECURITY MEASURES WOULD ALSO APPEAR NECESSARY. EMPLOYERS SHOULD CONSIDER NOTIFYING EMPLOYEES OF THE THREAT BY E-MAIL. IN CERTAIN CIRCUMSTANCES, A PERIMETER SECURITY PATROL WOULD BE WARRANTED.

IN ADDITION TO LESSENING THE ACTUAL RISK OF DAMAGE FROM AN ATTACK (IF NOT THE POSSIBILITY OF THE ATTACK ITSELF), THESE PRECAUTIONS (AND OTHERS LIKE THEM) ARE ALL CRITICAL FROM A FINANCIAL STANDPOINT BECAUSE OF THE VERY HIGH STAKES INVOLVED. SPECIFICALLY, THE DETERMINATION BY THE EPA/COAST GUARD THAT A RESPONSIBLE PARTY IN FACT EXERCISED “DUE CARE” AND “TOOK PRECAUTIONS AGAINST FORESEEABLE RISKS” CAN HAVE ENORMOUS POSITIVE MONETARY CONSEQUENCES.

A FAVORABLE RULING MEANS THAT THE COSTS OF REMOVAL AND DAMAGES ARE PAID OUT OF THE OIL SPILL FUND. A CONTRARY CONCLUSION OPENS THE RESPONSIBLE PARTY TO LIABILITY FOR POTENTIALLY DEVASTATING REMOVAL COSTS AND DAMAGES.

And while we’re on the subject of appropriate precautions, let me issue a not so subtle warning about “precautions” that should never be taken.


A NOT SO SUBTLE WARNING

NEEDLESS TO SAY, IF THERE IS EVER A TIME TO OUT EAGLE SCOUT THE EAGLE SCOUTS, IT IS WHEN THE EPA COMES KNOCKING.

FOR THESE REASONS, ALL PROCEDURES (INCLUDING, JUST AS AN EXAMPLE, RECORD RETENTION POLICIES) SHOULD BE REVIEWED WITH THE “WORST CASE SCENARIO” IN MIND. BUT IN NO EVENT – LET ME REPEAT: NO EVENT – SHOULD ANY STEPS BE TAKEN TO OBSTRUCT ANY INVESTIGATION, EVEN IF THE PROCEDURES FAILED OR MISTAKES WERE MADE.

CONSIDER THIS SCENARIO: PRIOR TO THE ARRIVAL OF THE EPA, AN E-MAIL IS SENT AROUND SAYING: “PLEASE BE AWARE OF COMPANY POLICY THAT E-MAILS OLDER THAN 30 DAYS SHOULD BE DESTROYED.” CONSISTENT WITH THIS DIRECTION, AN E-MAIL NOTING A CRANK CALL ABOUT A “PIPE-BOMB” IS ELIDED. THE EPA INVESTIGATORS ARRIVE AND INQUIRE WHETHER ANY DOCUMENTS HAVE BEEN DESTROYED; THE COMPANY EXECUTIVE RESPONDS THAT NONE HAVE BEEN.

THE FIRST SITUATION IS THAT WHICH CONFRONTED FRANK QUATTRONE, FORMER INVESTMENT BANKER AT CREDIT SUISSE FIRST BOSTON , AT HIS CRIMINAL TRIAL. THE SECOND SITUATION IS THAT WHICH CONFRONTED MARTHA STEWART AT HER CRIMINAL TRIAL. BOTH ARE NOW FEDERAL CONVICTS. AND LADIES AND GENTLEMEN, THAT IS A JOB DESCRIPTION NONE OF US WANTS.

THE LESSON MUST BE CLEARLY UNDERSTOOD. A PERSON DEEMED TO HAVE OBSTRUCTED THE CONDUCT OF A CIVIL INVESTIGATION CAN BE SUBJECT TO SERIOUS CRIMINAL SANCTIONS. NEVER DESTROY OR ELIDE ANY DOCUMENT THAT MIGHT BE EVEN TANGENTIALLY RELEVANT TO ANY EPA/COAST GUARD INVESTIGATION, AND NEVER LIE TO A GOVERNMENT INVESTIGATOR.

SO EVEN IF MISTAKES HAVE BEEN MADE, DO NOT COMPOUND THEM.


COST RECOVERY

NOW LET’S EXAMINE WHAT COSTS MAY BE RECOVERED FROM THE OIL SPILL FUND BY THE FACILITY OWNER WHO SUCCESSFULLY RAISES THE THIRD PARTY DEFENSE.

IN SO DOING, LET’S ALSO CONSIDER WHAT COSTS MUST BE PAID BY THE RESPONSIBLE PARTY WHO IS THE VICTIM OF A TERRORIST ATTACK – BUT HAS BEEN UNSUCCESFUL IN RAISING ANY DEFENSE TO LIABILITY.


REMOVAL COSTS AND DAMAGES

OPA PROVIDES FOR RECOVERY OF WHAT IT CALLS “REMOVAL COSTS” AND “DAMAGES.” THESE ARE:

  • REMOVAL COSTS CONSISTENT WITH THE NATIONAL CONTINGENCY PLAN;
  • DAMAGES TO NATURAL RESOURCES (WHICH INCLUDES INJURY TO, DESTRUCTION OF, LOSS OF, OR LOSS OF USE OF, NATURAL RESOURCES, INCLUDING THE REASONABLE COSTS OF ASSESSING WHAT THOSE DAMAGES ARE);
  • DAMAGE TO REAL OR PERSONAL PROPERTY (INCLUDING INJURY TO, OR ECONOMIC LOSSES RESULTING FROM, THE DESTRUCTION OF REAL OR PERSONAL PROPERTY);
  • DAMAGES FOR SUBSISTENCE (LOSS OF SUBSISTENCE USE OF NATURAL RESOURCES THAT HAVE BEEN INJURED, DESTROYED, OR LOST);
  • DAMAGES FOR LOST REVENUES (NET LOSS OF TAXES, ROYALTIES, RENTS, FEES, OR NET PROFIT SHARES DUE TO THE LOSS OF REAL PROPERTY, PERSONAL PROPERTY, OR NATURAL RESOURCES BY GOVERNMENTAL UNIT);
  • DAMAGES FOR LOST PROFITS (LOST PROFITS OR IMPAIRMENT OF EARNING CAPACITY DUE TO THE INJURY, DESTRUCTION, OR LOSS OF REAL PROPERTY, PERSONAL PROPERY, OR NATURAL RESOURCES);
  • DAMAGES TO PUBLIC SERVICES (INCREASED COSTS OF PUBLIC SERVICES, INCLUDING PROTECTION FROM FIRE, SAFETY, OR HEALTH HAZARDS RECOVERABLE BY GOVERNMENTAL UNITS).
AS YOU CAN SEE, THE SCOPE OF DAMAGES RECOVERABLE IN THE EVENT OF A DISCHARGE IS ALMOST ALL ENCOMPASSING. THE INDUSTRY DID PREVAIL IN ONE SKIRMISH, HOWEVER. THE NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION (NOAA) -- THE AGENCY ENTRUSTED WITH DEFINING BY REGULATION “NATURAL RESOURCE DAMAGES” -- INITIALLY INCLUDED IN THE “RECOVERABLE” CATEGORY ALL ATTORNEYS’ FEES INCURRED IN INVESTIGATING A DISCHARGE. IN AN INDUSTRY LAWSUIT CHALLENGING THIS PROVISION, WHICH WAS LED BY GENERAL ELECTRIC, THE COURT RULED THAT ATTORNEYS FEES MAY NOT BE INCLUDED AS DAMAGES. BUT THE COURT REASONED, THE FEES OF ATTORNEYS PERFORMINGING BUSINESS, AS DISTINGUISED FROM LEGAL, FUNCTIONS MAY BE INCLUDED.

BUT CAN A TERMINAL OPERATOR WHO SUCCESSFULLY ERECTS THE THIRD PARTY DEFENSE RECOVER FROM THE OIL SPILL FUND THE COST OF PETROLEUM LOST DUE TO THE TERRORIST ATTACK? IN OUR HYPOTHEICAL, AS YOU WILL RECALL, THE LOSS WAS 3 MILLION GALLONS OF GASOLINE AND DISTILLATES. THE FOURTH CIRCUIT COURT OF APPEALS ADDRESSED THE SCOPE OF DAMAGES RECOVERABLE FROM THE OIL SPILL FUND BY A RESPONSIBLE PARTY IN A CASE INVOLVING GATLIN OIL, A COMPANY IN NORTH CAROLINA . THE FACTS ARE INSTRUCTIVE.

AT MIDNIGHT ONE MARCH EVENING, A VANDAL JAMMED OPEN SEVEN OF GATLIN’S ABOVE-GROUND FUEL STORAGE TANKS, CAUSING AN OIL SPILL IN THE RANGE OF 20,000 TO 30,000 GALLONS. VAPORS FROM THE DISCHARGED OIL IGNITED A FIRE THAT BURNED FOR SEVERAL HOURS, AND, BEFORE BEING PUT OUT, DESTROYED A WAREHOUSE, THE BULK PLANT, INVENTORY AND OTHER PROPERTY, A LOADING DOCK, SEVERAL VEHICLES, AND MOST OF THE DISCHARGED FUEL. GATLIN COMPLIED WITH THE DIRECTIONS OF THE FEDERAL ON-SCENE COORDINATOR, AND WITH THE DIRECTIVES OF THE NORTH CAROLINA ENVIRONMENTAL AUTHORITIES, OVERSEEING THE CLEAN-UP. THE COMPANY THEN DUTIFULLY FILED A CLAIM WITH THE OIL SPILL LIABILITY TRUST FUND FOR $850,000 PLUS INTEREST, REPRESENTING THE DAMAGES IT HAD INCURRED.

THE U.S. COAST GUARD, WHICH ADMINISTERS THE OIL SPILL FUND, DENIED MOST OF THE CLAIMS OF GATLIN OIL, GRANTING AN AWARD OF ONLY $6,959 (THAT IS, LESS THAN ONE PERCENT OF WHAT GATLIN OIL HAD REQUESTED). GATLIN THEN FILED SUIT IN THE APPROPRIATE FEDERAL TRIAL COURT, WHICH PROVIDED A LARGER AWARD, AND, SUBSEQUENTLY, THE COAST GUARD APPEALED. THE MATTER WAS FINALLY RESOLVED – NEARLY FIVE YEARS TO THE DAY AFTER THE VANDAL STRUCK -- BY THE FOURTH CIRCUIT COURT OF APPEALS. THAT COURT HELD THAT GATLIN:

  • “WAS ENTITLED TO A COMPLETE DEFENSE BECAUSE AN UNKNOWN VANDAL CAUSED THE OIL SPILL”;
  • “WAS ENTITLED TO FULL COMPENSATION FOR REMOVAL COSTS THAT THE FEDERAL COORDINATOR DETERMINED WERE CONSISTENT WITH THE NATIONAL CONTINGENCY PLAN”;
  • “WAS ENTITLED TO FULL COMPENSATION FOR LOSS OF EARNINGS AND EARNING CAPACITY CAUSED …CARRYING OUT THE DIRECTIVES OF THE FEDERAL COORDINATOR”; BUT
  • WAS NOT ENTITLED TO “RECOVER FROM THE FUND COMPENSATION FOR FIRE DAMAGE BECAUSE THE EVIDENCE DID NOT ESTABLISH THAT THE FIRE CAUSED THE DISCHARGE OF OIL INTO NAVIGABLE WATERS”;
  • WAS NOT ENTITLED TO RECOVER FOR COSTS IT INCURRED IN FOLLOWING THE ORDERS OF THE NORTH CAROLINA ENVIRONMETNAL AUTHORITIES; AND
  • WAS NOT ENTITLED TO RECOVER INTEREST.
IN OUR HYPOTHETICAL, THE EXPLOSIONS AND RESULTING FIRE CAUSED THE DISCHARGE OF OIL. UNDER THE REASONING OF THE GATLIN COURT , THEN, THE TERMINAL OPERATOR IN OUR CASE WOULD BE ENTITLED TO RECOVER ALL COSTS ASSOCIATED WITH THE FIRE, INCLUDING THE LOSS OF FUEL. INDEED, SUBSTANTIAL MONIES HAVE BEEN PAID OUT BY THE FUND TO COMPENSATE FOR LOSSES SUFFERED BY FACILITIES.

CAREFUL PREPARATION AND IMPLEMENTATION OF A SPCC PLAN, AS WE HAVE SEEN, CAN PROVIDE A RICH REWARD IN THE EVENT OF A TERRORIST ATTACK ON A TERMINAL FACILITY. THE FACILITY OWNER MAY RECOVER FROM THE OIL SPILL FUND A SUBSTANTIAL PORTION OF THE COSTS INCURRED AS A RESULT OF THE ACT.

BUT NONE OF US SHOULD FORGET THE OTHER SIDE OF THAT COIN. THE FAILURE TO COMPLY CAN RESULT IN THE IMPOSITON OF PENALTIES. THE CLEAN WATER ACT, AS AMENDED BY THE OIL POLLUTION ACT, LISTS VARIOUS CRITERIA FOR IMPOSING CIVIL PENALTIES, INCLUDING THE SERIOUSNESS OF THE VIOLATION, THE DEGREE OF CULPABILITY INVOLVED, ANY HISTORY OF PRIOR VIOLATIONS, ANY OTHER PENALTIES IMPOSED FOR THE SAME VIOLATION, AND THE ECONOMIC IMPACT OF THE PENALTY ON THE VIOLATOR.

IN CONCLUSION, WHEN WE CONSIDER A TERRORIST ATTACK ON A TERMINAL FACILITY, WE MUST REMEMBER THAT VIRTUE AND VIGILANCE HAVE THEIR OWN REWARDS. A CAREFULLY PREPARED AND IMPLEMENTED SPPC PLAN CAN GIVE THE FACILITY OPERATOR THE BASIS FOR A DEFENSE AGAINST LIABILITY AND THE RIGHT TO RECOVER RESULTING DAMAGES FROM THE OIL SPILL LIABILITY TRUST FUND. AND PLEASE LADIES AND GENTLEMEN, DO NOT ATTEMPT TO CHANGE THE RECORD WHEN THE EPA INVESTIGATORS COME KNOCKING!