BP Spill Fight Looms With Feds, Despite Settlement Of Private Claims

BP has finalized a $7.8 billion settlement with more than 100,000 businesses and individuals harmed by the 2010 Gulf of Mexico oil spill, just days before the second anniversary of the rig explosion that triggered one of the worst environmental disasters in U.S. history, the company said Wednesday.

The settlement covers private economic losses and medical claims tied to the spill and will compensate fishermen, hoteliers and thousands of other businesses and individuals on the Gulf.

In a statement, Robert Dudley, BP's chief executive, said the payout offered those affected by the catastrophe "full and fair compensation, without waiting for the outcome of a lengthy trial process."

Yet legal experts said the settlement with the private plaintiffs, while significant, represents a relatively minor step for the company in the resolution of the spill litigation. Still looming is a massive civil trial that pits BP and its corporate partners on the doomed Deepwater Horizon rig against the federal government and a half-dozen Gulf states, as well as possible federal criminal charges related to the disaster.

Federal and state claims could yield penalties and fines totaling as much as $60 billion, according to Robert Verchick, an environmental law professor at Loyola University School of Law in New Orleans.

"There is still the potential that BP could get walloped pretty hard," Verchick said.

The government's case may be bolstered by new test results reported this week that show sick and deformed fish and other sea life in the vicinity of BP's ruptured well, which released an estimated 4 million barrels of oil into the Gulf of Mexico. The findings include large numbers of eyeless and deformed shrimp caught in Barataria Bay, a highly productive estuary hard-hit by the spill and where vast amounts of chemical dispersant were deployed to break up floating oil.

The spill's impact on the environment will play a major role in determining the extent of the damages BP and its partners must pay the government.

In a statement responding to the reports of ill and deformed sea life, BP asserted that federal agencies had found that seafood in the Gulf "is as safe now as it was before the accident." The company also said that it has devoted $500 million to studying the spill's impact on the environment.

The civil trial over the BP spill was originally scheduled to begin in late February in U.S. District Court in New Orleans, but was postponed several times as the separate agreement with the private plaintiffs was hammered out. With the settlement finalized, pending the approval of a federal judge, the civil trial is likely to resume in short order.

Both the government and BP face pressures to settle before trial, legal experts said, and negotiations between the two have been underway for months. In a conference call in February, Dudley said that the company was "ready to settle" but was "preparing vigorously" for trial.

One major stumbling block to a settlement in the government suits is the lingering possibility of criminal charges against the companies and individual employees involved in the spill.

A federal grand jury in New Orleans has been probing the oil spill for at least a year, and is focusing on possible deceitful statements made to the federal government by individuals involved in the drilling of the well, and on possible negligence and other wrongdoing related to the rig explosion, according to sources with knowledge of the investigation.

In February, U.S. Attorney General Eric Holder said that "within months" the Justice Department would "have something to say" regarding a decision whether to pursue criminal charges against BP and its corporate partners on the rig.

BP is unlikely to settle the civil claims with any potential criminal penalties hanging over its head, Verchick said. But the prospect of criminal charges also increases the pressure on BP to cut a deal with the government.

"As long as the prospect of those criminal charges is out there, it really pushes BP to the settlement table," he said.

Another motivation for BP to settle is the looming disclosure of approximately 72 million pages of internal company documents produced during discovery. At trial, those documents would be entered into evidence and become public record, potentially exposing embarrassing and damaging information about company practices.

The federal government faces its own pressures in the case. BP has a long history of corporate malfeasance , including criminal convictions in Alaska for toxic dumping and pipeline spills and a refinery explosion in Texas that killed 15 people, making them a repeat corporate offender.

"Their record speaks for itself. They grew as fast as they did by taking really big risks," said Jamison Colburn, an environmental law professor at Penn State University.

Any potential government deal must take BP's checkered past into account, and will likely be harshly criticized if it is perceived as too favorable to the company, Colburn said.

BP's sheer size and profitability also raise the bar for any proposed settlement, with the Justice Department unlikely to approve an agreement that does not appear to serve as a sufficient deterrent to future misdeeds. The company earned more than $25 billion in profits in 2011.

"In this case, you have a spill of unprecedented magnitude, but you also have a company that could pay its fines out of its quarterly profits," Colburn said.