[Senate Hearing 111-680]
[From the U.S. Government Publishing Office]
S. Hrg. 111-680
THE RISKY BUSINESS OF BIG OIL: HAVE RECENT COURT DECISIONS AND
LIABILITY CAPS ENCOURAGED IRRESPONSIBLE CORPORATE BEHAVIOR?
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
JUNE 8, 2010
__________
Serial No. J-111-96
__________
Printed for the use of the Committee on the Judiciary
----------
U.S. GOVERNMENT PRINTING OFFICE
61-745 PDF WASHINGTON : 2010
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin JEFF SESSIONS, Alabama
DIANNE FEINSTEIN, California ORRIN G. HATCH, Utah
RUSSELL D. FEINGOLD, Wisconsin CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York JON KYL, Arizona
RICHARD J. DURBIN, Illinois LINDSEY GRAHAM, South Carolina
BENJAMIN L. CARDIN, Maryland JOHN CORNYN, Texas
SHELDON WHITEHOUSE, Rhode Island TOM COBURN, Oklahoma
AMY KLOBUCHAR, Minnesota
EDWARD E. KAUFMAN, Delaware
ARLEN SPECTER, Pennsylvania
AL FRANKEN, Minnesota
Bruce A. Cohen, Chief Counsel and Staff Director
Matt Miner, Republican Chief Counsel
C O N T E N T S
----------
STATEMENTS OF COMMITTEE MEMBERS
Page
Feingold, Hon. Russell D., a U.S. Senator from the State of
Wisconsin, prepared statement.................................. 67
Franken, Hon. Al, a U.S. Senator from the State of Minnesota,
prepared statement............................................. 68
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 1
prepared statement........................................... 103
Sessions, Hon. Jeff, a U.S. Senator from the State of Alabama.... 3
Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode
Island......................................................... 6
prepared statement........................................... 108
WITNESSES
Coleman, W. Jackson, Managing Partner, EnergyNorthAmerica, LLC,
Washington, DC................................................. 10
Galligan, Tom, President and Professor of Humanities, Colby-
Sawyer College, New London, New Hampshire...................... 12
Jones, Christopher K., Baton Rouge, Louisiana.................... 8
SUBMISSIONS FOR THE RECORD
Clemons, Eric K., Professor, Wharton School, University of
Pennsylvania................................................... 37
Coleman, W. Jackson, Managing Partner, EnergyNorthAmerica, LLC,
Washington, DC, statement...................................... 39
Congressional Research Service, report........................... 55
Farady, Susan, Direct, Marine Affairs Institute, Roger Williams
University School of Law, Bristol Rhode Island, statement...... 63
Galligan, Tom, President and Professor of Humanities, Colby-
Sawyer College, New London, New Hampshire, statement........... 70
Greenstone, Michael, Politico, Arlington, Virginia, article...... 96
Jones, Christopher K., Baton Rouge, Louisiana, statement......... 98
Torgan, John, Narragansett Baykeeper, Providence, Rhode Island,
letter......................................................... 106
THE RISKY BUSINESS OF BIG OIL: HAVE RECENT COURT DECISIONS AND
LIABILITY CAPS ENCOURAGED IRRESPONSIBLE CORPORATE BEHAVIOR?
----------
TUESDAY, JUNE 8, 2010
U.S. Senate,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 10:07 a.m., in
room SD-226, Dirksen Senate Office Building, Hon. Patrick J.
Leahy, Chairman of the Committee, presiding.
Present: Senators Leahy, Feingold, Durbin, Whitehouse,
Klobuchar, Kaufman, Specter, Franken, Sessions, and Hatch.
OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM
THE STATE OF VERMONT
Chairman Leahy. Good morning. I appreciate everybody being
here. I know this may be an emotional meeting. I would ask
everybody to recognize the appropriate degree of decorum. I
understand we have families who have gone through terrible
tragedies and we should show the respect due for that.
It has now been 50 days since BP's Deepwater Horizon oil
rig exploded and oil began gushing into the Gulf of Mexico.
Deadly contamination has reached the shores and wetlands of the
gulf coast. Our Nation faces an environmental catastrophe.
Americans are angry.
In fact, the past week when I was home in Vermont, I cannot
recall when so many people have come up to me on one issue as
this, saying, ``What is happening? ''
The American people want to know how and why this happened.
As Attorney General Holder and others investigate this
disaster, I am confident that the facts will become known, and
if criminal conduct occurred, it should be and it will be
prosecuted to the fullest extent of the law.
Senators on both sides of the aisle believe that those
responsible for this disaster should be held fully accountable.
We cannot let big oil companies play roulette with our economic
and environmental resources. A region that has already suffered
so much from natural disasters has yet another tragedy on their
hands, this time at the hands of one of the largest oil
companies in the world.
Much attention is being given to the unfolding
environmental disaster, but I would hope that Americans would
never forget the 11 men who lost their lives--men who have left
behind children and wives, parents, brothers and sisters.
Christopher Jones, whose brother Gordon lost his life on the
oil rig, is with us here today to represent all these men and
these families. Mr. Jones, I am glad you are here. I know you
are accompanied by your father, Keith Jones. And I understand
from you, Mr. Jones Sr., that the President is having some of
the families to the White House later this week. Mr. Jones, you
and your family have our condolences. I know in the discussions
I have had with the President, he feels very strongly about
this. You should feel free to tell him exactly what you are
thinking and any suggestions you have. He actually wants to
hear what you have to say.
But you also have my commitment to work to achieve some
fairness under the law for your brother's family and the
families of all who lost their lives in this disaster. You
deserve a measure of justice.
Today's hearing will examine how the applicable laws have
shaped big oil's behavior. We have to find out whether our
legal system itself gives some kind of incentive to big oil
companies to cut corners.
We will ask whether the Supreme Court's decision in the
Exxon Valdez case and the current liability caps in the Oil
Pollution Act of 1990 and the Limitation of Liability Act
encourage corporate risk and misconduct. We are going to ask
whether current maritime statutes that compensate the survivors
of those killed are fair and whether the current legal
structure tempts corporations to devalue human life in their
calculus of profitability. No one's life should become an
asterisk in somebody's cost/benefit analysis. It is immoral.
The Death on the High Seas Act is the exclusive remedy for
the families of those killed in international waters. But this
law does not recognize all that is lost with the death of a
loved one, such as loss of consortium, care, or companionship.
These should not be any legal difference between loss at sea
and what happens when a BP employee is killed while working at
a facility on land. The disparity adds further insult to the 11
families who are victims of this tragedy.
Ten years ago, Congress amended the Death on the High Seas
Act to achieve fairness for those who perish in airline crashes
over international waters. It is time we modernized this law
again. Later today, I will introduce the Survivors Equality Act
to make sure these families are treated fairly.
Another law that Congress should consider updating is the
Limitation of Liability Act, which limits a vessel owner's
total liability to the post-incident value of the vessel. That
law was passed in 1851, for a different time and before the
Civil War. The company that owns the Deepwater Horizon,
Transocean, wasted no time filing a motion in Federal court to
limit its total liability under this arcane law to the value of
the sunken drilling rig. They want their liability limited to
the value of what is now a piece of junk sitting a mile below
the surface. That is perverse, and I think Congress should act
to avoid this absurd result.
Then, of course, there is the statutory liability cap of
$75 million on consequential damages in addition to the costs
of clean-up for an oil spill, and that needs reexamination.
Two years ago, an activist Supreme Court in the decision
Exxon v. Baker created an arbitrary limit on punitive damages
in maritime cases. When I chaired a hearing to examine the
decision, I expressed my concern at that time that the Supreme
Court's Exxon Valdez decision would encourage corporate
misconduct. Why? Because it reduced the consequences of their
misconduct to a discounted cost of doing business. That is
almost like saying we are giving you a green light to do
whatever you want to do. I cannot imagine why anybody would be
surprised that after the Supreme Court effectively capped
damages designed to punish corporate misconduct, oil companies
cut corners and sacrificed safety.
The Exxon Valdez decision was another in a string of
business-friendly Supreme Court decisions in which a narrow
majority has essentially written new law and disregarded laws
enacted by Congress. The impact on the lives and livelihoods of
Americans is enormous. Two years ago, we heard from Alaskan
fishermen. Now we are worried about the livelihoods of
shrimpers and oystermen in the gulf, people who have spent
decades, generations, obeying every single rule, building their
businesses, having something they can leave to their children,
and say they followed the rules. And because somebody else does
not, they lose it all.
I have joined Senator Whitehouse's effort to overturn the
Supreme Court's Exxon Valdez decision.
I am also looking into legislation to prevent corporations
from deducting punitive damage awards from their taxes so that
they bear the full cost of their extreme misconduct.
Our laws should encourage safety and accountability. Where
they do not create the right incentives, we have to change
them. Whether as the result of greed or incompetence or
negligence, BP's conduct has devastated the lives and
livelihoods of countless people and their communities and may
threaten the gulf coast's very way of life.
It has been said by others that BP spends millions and
millions of dollars writing ads saying how wonderful they are
and how environmentally conscious they are. They could spend a
lot more money helping the families that are suffering. The
American people deserve better from all big oil companies who
exploit our natural resources for enormous profit.
So in the months ahead, the people of the gulf coast will
work to reclaim their coastline, their livelihoods, their
wetlands, and their fisheries, and many of us here will help
them. But, unfortunately, the families of those who lost their
lives on that tragic day will not be able to reclaim their
loved ones. The 11 men who were killed on the Deepwater Horizon
rig deserved better, and we are going to try to make it better.
I pledged that to their families. I renew that pledge today.
I thank Senator Whitehouse for co-chairing this hearing and
all of our witnesses for being here. I am going to yield to
Senator Sessions, who actually does represent a Gulf State, and
then to Senator Whitehouse. Then we will begin the hearing.
Senator Sessions.
STATEMENT OF HON. JEFF SESSIONS, A U.S. SENATOR FROM THE STATE
OF ALABAMA
Senator Sessions. Thank you, Mr. Chairman. The Deepwater
Horizon disaster is now and remains a very serious threat to
our coastal environment, our coastal economy, and particularly,
our thoughts and prayers remain with those who, like
Christopher Jones, lost family members on that rig. Eleven
wonderful Americans lost their lives.
I had a long meeting with Governor Riley and Congressman
Bonner Friday in Mobile. We talked about the problems that the
Nation faces, and we listened to the mayors of Gulf Shores and
Orange Beach and Bayou La Batre and people who represented the
Mobile Bay area and the threats that are being faced there. And
there is quite a bit of concern, frankly, a lot of intensity of
feeling that things have not gone as well as they could, and we
do need to do better. We must do better. And I really want to
thank Governor Riley for his personal leadership in leading the
effort to coordinate the response with regard to the Alabama
area.
Today marks the 50th day that oil has been pouring into the
Gulf of Mexico, and it looks like it will be some time before
we are fully able to comprehend the impact of this spill and
the extent of the damage to our environment. Stopping this
leak, of course, is the top priority because defensive measures
trying to stop what has flowed out will never be able, as I
have learned, to completely stop the flow into our estuaries
and beaches, and even small amounts can cause serious damage.
The Coast Guard, BP, MMS, NOAA, and the EPA continue to
evaluate and implement sub-sea and sub-surface efforts to stop
the flow while closely monitoring its effect on the
environment. I am somewhat encouraged by yesterday's
announcement where Admiral Thad Allen confirmed that the
capturing by BP of around 462,000 gallons of oil a day, which
is a substantial increase from what was occurring Friday, that
is a positive step. If this procedure continues to work, I am
hopeful that the containment cap will begin to successfully
collect as much oil as the surface tankers can handle.
That being said, this is only the first step in what could
be a long process, and it is without question that the
potential environmental and economic impact of the accident is
unprecedented. BP is a multi-billion-dollar international
company. As I said shortly after this event occurred, they are
the responsible party. They are liable for the damages up to
the extent of their very financial existence, and they are not
too big to fail. I believed that then, and I believe that
today. They have made great profits, and so be it. But they
assume risk. They became and signed as the responsible party,
and I believe that they are going to have to honor that
commitment to be the responsible party.
In fact, in the first quarter of this year, BP's profits
averaged $93 million per day. BP is the one that under the law
and under the procedures of our drilling is the responsible
party. So I have questioned those executives, those at
Transocean and Halliburton, at the Energy Committee, of which I
am a member, and administration officials seeking explanations
for the cause of this accident and confidence and assurance
that the responsible parties will accept the full
responsibility for the damages.
Officials have repeatedly stated from BP that the company
will pay all clean-up costs and that it will ignore the $75
million liability cap established by the Oil Pollution Act of
1990. And, indeed, there is no cap on the clean-up costs. Every
dollar that is spent cleaning up any oil on the beaches and
estuaries, that will be--there is no cap on that. In addition,
there is no cap, as I understand it--and we will perhaps ask
our witnesses--on the individual lawsuits that can be brought
against them under State law.
Company spokesmen have said they will not seek
reimbursement from the U.S. Government from the Oil Spill
Liability Trust Fund. That remains to be seen how that will
play out, but it is certainly available, if need be.
Those corporate entities responsible will be held liable
for the actions. I think it is appropriate, Mr. Chairman, that
we analyze precisely the legal causes of actions that are
available and whether or not they appropriately fit the
circumstances of this case.
We also need to examine did the Government play an adequate
role in responding to the disasters. According to the Coast
Guard logs released by Congressman Darrell Issa, the Ranking
Member of the House Oversight and Government Reform Committee,
the administration knew that this was going to be a spill of
``national significance'' within 24 hours of the event. Those
logs also show discrepancies between the information they
contain and the previously released White House timeline of the
events.
While the title of this hearing obviously assumes a level
of irresponsible corporate behavior on behalf of entities like
BP, we need to examine also how well the administration
responded to this event. Instead of allocating administrations,
it appears we have had other actions that are less effective. I
think an appropriate evaluation of possible criminal activity
should be conducted, but it should be conducted in a fair and
just way.
We must be careful in implementing new policies to address
this incident. In late May, the President announced he is
extending the moratorium on permits to drill new deepwater
wells for 6 more months. I certainly think we need to be
careful about that and examine very carefully whether or not
and how we should go about further deepwater drilling. While
this moratorium can be necessary to review safety and
environmental regulations, it will clearly have a negative
impact on production, jobs, and revenues to States and the
Federal Government.
The offshore industry is responsible for nearly 200,000
jobs around the Gulf of Mexico and over $13 billion a year in
non-tax revenues for the gulf coast producing States. Total
revenue collected by the general treasury from all Federal
offshore operations totaled $5.9 billion in 2009 alone.
Drilling on the outer continental shelf is an important issue
not just for the Gulf States but the entire country. There are
several investigations into the cause of this rig explosion,
and the administration recently established an independent
commission to submit a plan to the President within 6 months
providing solutions to prevent and mitigate future spills from
offshore drilling.
I hope that we can complete that review and that it will be
effective in identifying the dangers and risks involved. But I
do hope that we will be able then to move forward with greater
energy independence and self-sufficiency by adopting the kind
of plan that will allow us to be successful. The greater our
dependence on foreign energy, the greater threat to America's
national security.
Offshore drilling in the Gulf of Mexico supplies 30 percent
of America's domestic energy production. Most people do not
fully realize that. And 80 percent of the gulf's oil--and I did
not realize this--comes from operation in more than 1,000 feet
of water. Eighty percent. For this reason, we must continue the
safe and secure offshore drilling. It is important to our
economy, jobs, and national security.
Mr. Chairman, our communities are hurting. We have got a
seafood industry that is basically shut down. Hundreds of low-
wage workers have lost their jobs. Probably almost half of the
rental capacity in our beachfront properties has been lost or
is beginning to be lost, and so it is a national issue. But
also we have thousands and thousands of good Americans who are
working on those rigs every day whose lives are at risk and
need to be assured that the production that is occurring is
safely done.
Thank you for allowing me to have these remarks.
Chairman Leahy. Senator Whitehouse.
STATEMENT OF HON. SHELDON WHITEHOUSE, A U.S. SENATOR FROM THE
STATE OF RHODE ISLAND
Senator Whitehouse. Thank you, Chairman Leahy, for holding
this hearing, and thank you for inviting me to co-chair it.
Like you, I believe that Congress must do whatever it can to
prevent another family from having to hear that their loved one
has perished on an oil rig. Congress must also take every
available measure to avoid the environmental destruction that
we are seeing unfold day after day as this spill continues.
Gordon Jones and ten other men died. The gulf has been
devastated. Something has to change.
How did it come to this? Well, we already know that BP,
Transocean, and Halliburton failed to meet important safety
standards. They undertook risky drilling without a proper
degree of care--5,000 feet below the surface of the gulf,
18,000 feet to the oil reservoir, amid methane hydrate deposits
that are highly dangerous when they get inside the drill
column. They were irresponsible. The result was tragedy.
Sadly, key regulatory agencies also appear to have been
asleep at the switch, shirking their responsibilities to
protect our oceans and American workers at sea. I am convinced
that something was fundamentally amiss at the Minerals
Management Service at the Department of Interior. I strongly
suspect that MMS had long since been captured by the oil
industry and that it had ceased to serve the public interest.
But regulatory agencies, even when functioning properly,
never have been America's sole line of defense against
disasters. We also should make sure that it is in a
corporation's clear economic interests to adhere scrupulously
to the law. Meaningful civil and criminal fines and damages are
one crucial tool for ensuring that a corporation takes proper
precautions to avoid tragic errors. In contrast, a corporation
that does not have to pay for its mistakes does not have to
worry about making them.
Unfortunately many of our current laws--whether by statute
or by court decision--cap the liability of big oil
corporations, both for worker injuries and deaths, and for
harms to the environment. Rather than making responsible
parties pay for harm done, they foist this burden onto the
families of the lost and onto the American taxpayers. As a
result, corporations lack proper market incentives to act
responsibly. That must not continue. Congress must act.
These restrictions on liability are, unfortunately,
consistent with attacks upon the institution of the jury by
powerful corporate interests. The Founders put the jury in the
Constitution and Bill of Rights three times, and for a reason:
to ensure that in at least one forum of government, the
powerful and the powerless have equal standing. Not for nothing
did de Tocqueville describe the jury as ``a mode of the
sovereignty of the people.'' That is as true today as it was at
our Nation's founding.
The tide of corporate money that influences politics stops
at the hard square corners of the jury box. That is why
corporations fight so hard to attack the institution of the
jury.
You know this as well as anyone, Mr. Chairman, and I am
proud to cosponsor the legislation you are introducing today.
It will eliminate the strange quirks in American law that, left
unchanged, would result in the survivors of the 11 men killed
on the Deepwater Horizon being treated unfairly. The Senate
should pass that legislation promptly. I also urge my
colleagues to support two bills that I have introduced. The
first would raise penalties for worker safety and environmental
violations under the Outer Continental Shelf Lands Act. The
second would overturn the Supreme Court's regrettable Exxon v.
Baker decision that capped maritime punitive damages at the
level of compensatory damages. The Exxon Court believed that
predictability for corporations was more important than
deterring misconduct. I disagree.
The people of my home state Rhode Island--the Ocean State--
would put our environment and our safety ahead of profits for
irresponsible corporations. In fact, that is exactly what Rhode
Islanders have done. John Torgan, the Narragansett Baykeeper in
Rhode Island, has submitted a letter which I will introduce for
the record, cataloguing the legislative and regulatory reforms
put in place after the 1996 North Cape/Scandia oil spill off
South Kingstown.
Rhode Islanders know what an oil spill can do to an
ecosystem. We know just how important penalties and fines are
to keeping seafarers safe and marine ecosystems healthy. Like
my fellow Rhode Islanders, I insist that, in the future, oil
companies do everything they can to prevent needless deaths and
catastrophic environmental harm, whether in the gulf, off the
coast of New England, or anywhere in our great country. Today's
hearing is an important step toward that goal, and I applaud
you for holding it, Mr. Chairman. Thank you very much.
Chairman Leahy. Thank you very much, Senator Whitehouse.
Our first witness is Christopher Jones. Mr. Jones is
currently a partner at the law firm of Keogh, Cox & Wilson in
Baton Rouge, Louisiana. More important than his professional
background, he is the brother of Gordon Jones, who was one of
the 11 rig workers who lost their lives the day of the
explosion.
Gordon Jones is survived by his wife, Michelle, two young
sons, Stafford and Maxwell. One of the sons, I understand, was
born very shortly after the accident. Is that correct?
Mr. Jones, please go ahead. The floor is yours.
STATEMENT OF CHRISTOPHER K. JONES, BATON ROUGE, LOUISIANA
Mr. Jones. Chairman Leahy, Ranking Member Sessions, and
other members of the Committee, thank you for the opportunity
to appear before you today.
My name is Chris Jones. Seated behind me is my father,
Keith Jones. Gordon is my only brother. Gordon is survived by
his wife, Michelle, and two sons, Stafford and Max. Stafford is
2 and Max was born 3 weeks ago. Gordon is also survived by a
mother, sister, in-laws, and other family members and many
friends who miss him very much. Words cannot describe what
Gordon meant to this family.
I appear before you as a representative of only one family
affected by this accident. Unfortunately, there are many more.
I stood with those other family members at a recent memorial
event, a service no one should ever have to experience.
Although we never met before this disaster, I want those other
family members to know that we grieve for them and are
committed to telling our story so we can try and correct the
inequities in the law and so no one else will find themselves
in that situation in the future.
Of course, you are aware that Gordon died aboard the
Transocean Deepwater Horizon oil drilling rig. He was employed
by M-I Swaco, a contractor for BP hired to provide mud
engineering services aboard the rig. He had worked aboard that
rig for the past 2 years and was excelling in his profession.
As many rig workers do, Gordon expected to gain experience on
this rig and continue to advance with his company. He never got
that opportunity.
This is a picture of the backyard fort Gordon built, with
Stafford's help, for Stafford and Max. Although you may not be
able to tell, it is not finished. Gordon planned to finish it
when he returned home. He will never get that chance.
Certainly, others will step in to make sure it is finished and
try to fill the tremendous void left by Gordon's death. But
this is yet another example of an incomplete life and what has
been lost. I am at least comforted that it will be finished,
and Stafford and Max will enjoy it for years to come and know
their father built it for them.
The next picture is taken shortly after Max's birth.
Notably absent is Gordon, whose presence in the delivery room
was limited to a single family photograph.
Last, I show you possibly the last picture taken of Gordon
before his death. It is taken just after Gordon gave Stafford
his first golf lesson, an experience Gordon thoroughly enjoyed.
You can see the joy in their faces. I am saddened that neither
will experience this same joy again.
I want to take this opportunity to address recent remarks
made by Tony Heyward, CEO of BP. In particular, he publicly
stated he wants his life back. Well, Mr. Heyward, I want my
brother's life back. And I know the families of the other ten
men want their lives back. We will never get Gordon's life
back, and his wife will live a life without a husband and her
two children a life without a father.
At the top of the United States Supreme Court building is
the phrase ``Equal Justice Under Law.'' As a United States
citizen, and as a lawyer, I agree with that principle.
Unfortunately, it does not exist in the cases of deaths
occurring in Federal waters. This is not a phrase that applies
to Michelle, Stafford, and Max in this instance. That is not
right, and I make this request for change for my family, the
families of the other ten men, and others who may find
themselves in our same position, and who will quickly learn
that our current laws do not protect those who need it most.
I want to be very specific. We are asking you to amend the
Death on the High Seas Act to allow for the recovery of non-
pecuniary damages. Currently, Michelle, Stafford, and Max can
only recover pecuniary damages.
Stafford and Max will never play in the father/son golf
tournament at the local golf course with their Dad, or
experience the thrill of their first Saturday night in Tiger
Stadium with their father at their side. Likewise, Michelle
will never again experience a quiet dinner at home after a hard
day with her true love. She will not celebrate another wedding
anniversary. The last one would have occurred only 3 days after
this accident. Most recently, Michelle did not have Gordon
there to comfort her in the delivery room and tell her how much
he loves her and the beautiful baby we now call Maxwell Gordon.
These are all experiences, among many, many others, for which
there is no compensation under the current law for maritime
victims. The overwhelming impression I have gotten from the
parties responsible for Gordon's death, besides that no one
wants to take responsibility for it, is that they are immunized
by the current law. Under the current law there is a finite,
maximum amount that Michelle and her boys can recover, and
nothing more.
Think of it as a liability cap. While some, but certainly
not all, of these same parties express their sympathies and
claim to want to do the ``right thing,'' they can also hide
behind the law and say they are protected from doing any more.
There is, of course, an exception for recovery of non-
pecuniary damages under DOHSA. This is for victims of
commercial airline accidents. In response to that event, this
Congress passed a retroactive amendment to DOHSA to allow for
the recovery of non-pecuniary damages. Currently, while victims
of airline accidents are allowed recovery of non-pecuniary
damages, victims of all other accidents occurring in Federal
waters are not, including aboard cruise ships, ferry boats, and
in this instance, oil rigs where hard-working men make their
living to support their families.
During this past month and a half, I have gained tremendous
perspective on things. Certain things that I thought were
important before April 20th are just not important any more.
This is important. This is important to Michelle, Stafford, and
Max, and all the other families affected by this tragic event.
You have an opportunity to make this right and create equal
justice under law for these families.
Thank you. My father and I are more than happy to answer
any questions you may have.
[The prepared statement of Mr. Jones appears as a
submission for the record.]
Chairman Leahy. Thank you, Mr. Jones.
Our next witness is--and I will go through all three
witnesses, and then we will go to questions--Jack Coleman. Mr.
Coleman is a managing partner for the energy consulting firm
EnergyNorthAmerica. He has served as counsel for the House
Committee on Natural Resources. He is a former senior attorney
for royalty and offshore minerals for MMS, the Minerals
Management Service, under Presidents George H.W. Bush and Bill
Clinton.
Mr. Coleman, please go ahead, sir.
STATEMENT OF W. JACKSON COLEMAN, MANAGING PARTNER,
ENERGYNORTHAMERICA, LLC, WASHINGTON, D.C.
Mr. Coleman. Thank you, Chairman Leahy, Ranking Member
Sessions, and Members of the Committee. It is a pleasure to be
here. I retired about a year ago after 27 years working for the
Federal Government, the last 6 years in the House of
Representatives. During that time, most of my work had been in
the area of offshore oil and gas, but here on the Hill, it was
also more in energy and minerals generally.
Prior to working as senior attorney for royalty and
offshore minerals, I also served for 3\1/2\ years as a senior
attorney for environmental protection for the Department of the
Interior. And prior to that, I was special assistant to the
Associate Administrator of NOAA for 3\1/2\ years. And I served
4 years on active duty in the Army, active duty as a Judge
Advocate General Corps officer. I am a native of Mississippi. I
went to Ole Miss, undergraduate and law school.
The focus of the hearing is, of course, on a variety of
liability issues related to offshore oil and gas production.
The ongoing, tragic oil spill in the Gulf of Mexico--tragic for
the families of those killed and injured, including the Jones
family represented here today, to all of whom I extend my deep
condolences, but also tragic for the environment and the energy
security aspirations of the American people--is unequaled in
size in our Nation's history and has resulted in numerous
legislative proposals to amend the Oil Pollution Act of 1990
and other applicable laws, and in actions by the administration
related to offshore oil and gas operations. I will focus my
testimony primarily on the breach of contract case law for
Federal offshore oil and gas leases and the potential liability
of the United States for breach of contract as a result of a
few of these legislative proposals and executive branch
actions. First, I would like to go over a few facts--Senator
Sessions has mentioned some of them--about the importance of
offshore energy to the Nation.
Currently, the United States consumes about 20 million
barrels of oil a day--20 million. About 60 percent of that, or
12 million barrels of oil, come from foreign sources. Our
largest source is Canada, but the majority of the rest comes
from overseas. Our yearly amount of imported oil totals about
4.2 billion barrels.
Many times I have heard statements that the United States
does not have much oil, does not have much natural resources.
This really needs to be put in the context of our use and the
context of what is available to us to produce. Certainly we do
not have the resources that Saudi Arabia has, but we do not
need to have the resources that Saudi Arabia has to make a very
important contribution to our energy security.
As of the time of the last Department of the Interior
Offshore Oil and Gas National Assessment in 2006, just over 14
billion barrels of oil had been produced from the Federal
offshore, but another 15 billion barrels as of that time had
already been discovered and were reserves available for
production. Further, there were another 86 billion barrels of
oil that are believed to be economically and technically
recoverable in the offshore that have not yet been drilled. And
that is just for the oil. So a total of 101 billion barrels in
the offshore, if these are made reasonably available to the
American people for production.
One of the things I would like to emphasize is this oil
belongs to the American people, and the bounty and the value of
this oil cannot be made and accessed for the benefit of the
American people if it is not made available, and that alone is
sufficient, just in the offshore, sufficient to take care of
all the imported oil needs at the current rates of the United
States for about 25 years. So that is not an inconsequential
amount of oil. It would take care of all of us, like I said,
including displacing all the Canadian oil.
Similarly, we have similar numbers for natural gas, enough
natural gas in the outer continental shelf, to at least--
conventional natural gas to at least take care of all the
natural gas needs for the Nation at the current rate for more
than 20 years.
Now, one might ask, What is the value of these reserves and
resources to the American people? And, frankly, if you use
standard pricing based on just the reserves and resources that
we have, without any other benefits, economic benefits, just
the royalties and the corporate taxes would bring in about $4.5
trillion from production of that, more than enough to pay off
about a third of the national debt without any tax increases.
When you add in the ability to produce methane hydrates, which
now international research has shown is likely, that would be
another $7.5 trillion. All of those methane hydrates, by the
way, 99 percent of them, are in the deep water, certainly
deeper than 2,500 feet. And so if we do not allow deepwater
drilling, that whole value of that will be unavailable for the
American people, and that is $7.5 trillion in corporate income
tax and royalties. So those two together, about $12 trillion.
Getting to the liability question, I had the honor of being
the lead attorney for the Interior Department on a case which
became Mobil v. U.S., which was decided in the year 2000, and
this involved a case where a rider, as part of the Oil
Pollution Act, the Outer Banks Protection Act, was added in
1990, which prohibited the Secretary of the Interior from
granting any permits to drill off North Carolina for more than
13 months. The Supreme Court, Justice Breyer writing the
opinion, decided that that was a material breach of the leases,
that the lessees had a right to rely on the law as it existed
at the time that the leases were issued. And, therefore, the
lessees recovered all of their expenses.
So this is an important matter, and I would encourage the
Committee to consider that when making changes for the Oil
Pollution Act liability damages.
[The prepared statement of Mr. Coleman appears as a
submission for the record.]
Chairman Leahy. And I should note to all witnesses, of
course, your full statements will be made part of the record,
and following the questions of the panel, if there are
additional things you feel that should have been added, we will
keep the record open for that.
Mr. Coleman. Thank you.
Chairman Leahy. Professor Tom Galligan is the current
president of Colby-Sawyer College and a professor of humanities
in New London, New Hampshire--a neighbor of sorts. I have been
many times to Colby-Sawyer, and New London, of course, is a
beautiful community. Prior to joining Colby-Sawyer College, he
served as dean of the law school at the University of
Tennessee. As I recall, you taught admiralty law. Is that
correct?
Mr. Galligan. That is right.
Chairman Leahy. Thank you. Professor Galligan, please go
ahead, sir.
STATEMENT OF TOM GALLIGAN, PRESIDENT AND PROFESSOR OF
HUMANITIES, COLBY-SAWYER COLLEGE, NEW LONDON, NEW HAMPSHIRE
Mr. Galligan. Chairman Leahy, Ranking Member Sessions,
Senator Whitehouse, and other members of the Committee, thank
you for inviting me to appear before you today. My name is Tom
Galligan, and I am the president of Colby-Sawyer College in New
London, New Hampshire.
The staggering consequences of the oil spill in the Gulf of
Mexico force us to ask whether our laws are fair, consistent,
and up-to-date. Do they provide adequate compensation? Do they
provide proper incentives to ensure efficient investments in
safety? Sadly, an analysis of the relevant laws reveals a
climate of limited liability, under-compensation, and the
possibility of increased risk.
Let me begin with a discussion of wrongful death recovery
for seamen under the Jones Act and for anyone killed on the
high seas under the Death on the High Seas Act. Both of those
statutes were passed in 1920, another era. As you said and as
Chris Jones said, neither of them, as interpreted, allows
recovery for loss of society damages to the survivors of those
killed in maritime disasters. Loss of society are damages for
companionship--for the loss of care, comfort, and companionship
caused by the death of a loved one. The majority of American
jurisdictions today do recognize some right to recover for loss
of society damages in wrongful death, but not the Jones Act and
not DOHSA. A spouse, child, parent, or a sibling who loses a
loved one suffers a very real loss, and the law should
recognize that loss.
As Chris Jones also noted, there is one exception to the
rule barring recovery of loss of society damages under DOHSA.
In 2000, after the Korean Air Line and TWA air disasters, you
retroactively amended DOHSA to provide recovery of loss of
society damages to the survivors of those killed in high seas
commercial aviation disasters. But for anyone else killed on
the high seas--on a cruise ship, on a ferry, on a semi-
submersible floating rig, or on a helicopter--the survivors do
not recover loss of society. The law should be the same for
all, and you can make the law the same for all by amending the
relevant statutes to provide recovery for loss of society. As I
understand, Senator Leahy, your proposed Survivors Equality Act
of 2010 would remedy that inequity.
Now, in fact, the climate of limitation fostered by the no
loss of society recovery rules has been expanded because some
courts have extended the Jones Act and DOHSA no recovery rules
to other maritime contexts and to other types of damages. Those
courts have done so based on your supposed intent in 1920 when
you enacted the Jones Act and DOHSA. Those judicial decisions
deprive injured persons and their relatives of compensation for
very real losses, and they also adversely impact the deterrent
effect of maritime tort law. Amending the Jones Act and DOHSA
would reverse that trend.
Now, of course, tort law is concerned with corrective
justice, with fairness, with consistency, and with
compensation. But it is also concerned with deterring unsafe
behavior that poses risks to people, property, and to the
environment. Tort law can encourage efficient investments in
safety so that society faces an optimal level of risk--no more,
no less. But if tort law under-compensates, it under-deters,
because when deciding what to do and how to do it, people will
consider the real anticipated costs of their actions. If the
law does not force a person to take account of the costs of
accidents when deciding what to do and how to do it, he or she
may well under-invest in safety and, therefore, increase risk
to people, to property, to businesses, and to natural
resources.
Under-compensation and under-deterrence in the maritime
setting are exacerbated by the Shipowners' Limitation of
Liability Act. Originally passed in 1851, the Act allows a
vessel owner to potentially limit its liability to the post-
voyage value of the vessel. The Act was passed before the
modern development of the corporate form and before the
evolution of bankruptcy law, and its operation today can lead
to drastic under-compensation for the victims of maritime
disasters.
Finally, these cumulative problems of limited liability in
maritime law might be alleviated by the recovery of punitive
damages, and the Supreme Court has twice in the past 2\1/2\
years recognized the right to recover punitive damages in
maritime cases. However, the Court has limited the recovery of
punitive damages in most maritime cases to a 1:1 ratio between
the punitive damages awarded and the compensatory damages
awarded. The ratio cap deprives a judge or a jury of the
traditionally available ability to tailor a punitive award
within constitutional due process limits to the particular
facts of the case, including the level of blameworthiness, the
harm suffered, the harm threatened, and the profitability of
the activity.
Senator Whitehouse's proposed bill on maritime punitive
damages would restore that traditional ability to tailor a
punitive award to the facts of the case.
Thank you, and I am happy to answer any questions.
[The prepared statement of Mr. Galligan appears as a
submission for the record.]
Chairman Leahy. Thank you very much, Professor.
Let me begin, Mr. Jones, with you. Obviously, I thank you
for your testimony, and you said you are representing one
family, but it is obvious you are also standing up for all the
families that were affected by the disaster.
We have talked a lot about the Death on the High Seas Act
as one of the few exclusive Federal remedies for the families
who lost their lives in the Deepwater Horizon. But the law
arbitrarily restricts recovery for the very significant loss
more than a dozen children in all, more than a dozen parents
and many widows are experiencing as a result of what happened.
If this had been an accident on land, if it had been at a
refinery or something on land, there would be protection. If
left unchanged, if we are unable to change the law, what is the
practical effect for your sister-in-law and for the two young
nephews that we just saw in the photographs?
Mr. Jones. Well, the way the current law is now, if it were
allowed to remain in effect as it is, these companies, the
parties responsible for Gordon's death, they want to go out and
get an economist, calculate what his earnings would be,
subtract out the income taxes he would have paid during his
earning life, his work life expectancy, subtract out what he
would have consumed himself, because that is what the law
allows, and they want to write a check and walk away.
Aside from the fact that that may not be enough to support
Michelle, Max, and Stafford, it does not allow for the
recovery, like many other laws for United States citizens, to
recover for life experiences, for the comfort and care that
Gordon would have provided his sons, and the support he would
have provided to his wife over the years.
Chairman Leahy. That is something that they could have
sought had it been an accident on land. You are a lawyer. I am
a lawyer. Can you tell me any logical reason why it should be
any different whether it was on the open sea or on land?
Mr. Jones. Absolutely not. As an example, I will refer to
the BP explosion that occurred on land in Texas several years
ago. I believe that BP paid $1.6 billion to the families of the
victims from that explosion. I do not even want to speculate
what could potentially be recovered by these families, but it
is certainly not that amount. In Texas, punitive damages were
allowed to be recovered, and they are not available here.
Chairman Leahy. But the deaths are still the same.
Mr. Jones. Oh, absolutely. Absolutely.
Chairman Leahy. In fact, to go back to something Professor
Galligan said when he talked about how careful you are if you
are running something like this, there is a direct corollary--
my words, but basically what you said--to how much liability
you might face. Would you agree with that? In other words, if
you thought, Boy, you are really going to have to pay for any
screw-up you cause, are you going to be a lot more careful?
Mr. Jones. Of course. And I know this: Having had
discussions with some of the attorneys involved in this case,
they want to pay what they are obligated to pay under the law.
They want to pay it and move on. I will give you an example of
another family, a family of another victim in this accident. He
had no dependents, no children, no spouse, and under the Death
on the High Seas Act, potentially the only thing that his
family can recover is his funeral expenses, and because no body
was found, that could be $1,000. So potentially they could
write a check for $1,000 and walk away.
Chairman Leahy. Transocean, as we talked about before,
wants to use the Limitation of Liability Act and say, ``We are
only limited to the value of our rig.'' It is down there
somewhere about a mile below the surface, but that is the value
of our liability. I mean, do you see any logic in that
whatsoever?
Mr. Jones. Of course not, and I did file that action in
Houston, Texas, and they represented to the court that the
value of the rig was zero. They hired an appraiser, an official
appraiser, who submitted a report to the court and said it was
valued at zero. And so they want to limit their liability to
the value of the rig and pending freight. That goes for not
just the victims--the families of these victims, but also all
the economic damages. And, realistically, the financial and
economic impact on the coast and the businesses is going to
dwarf any recovery potentially by the families. So think of it
in a bankruptcy context. You know, the families of these
victims could ultimately, at least from the rig owner, recover
pennies on the dollar.
Chairman Leahy. Nobody can call that fair.
Mr. Jones. Absolutely not.
Chairman Leahy. And we hear the arguments about the
increased liability, the increased regulation is going to make
production more expensive. Let us be serious about this. Do you
have any doubt in your mind that BP could have and should have
done a lot more to ensure the safety of the people on that rig?
Mr. Jones. What I am shocked at is their profits. We are
talking about billions of dollars here, billions of dollars in
profit, and for something like this to happen and to cause such
a dramatic impact on the lives of so many people, including the
families of the victims and all the people that have been
impacted along the gulf coast, it is mind-boggling how they can
throw up their hands and say that they could not have
anticipated this or not have had the resources in place to
prevent it.
Chairman Leahy. We will come back to this, but just
speaking personally, we sometimes forget we let the profit
motive outweigh the lives of people. And it is not just the 11
people on there. It is all those families that have played by
the rules generation after generation who fish and otherwise
use the resources. They played by the rules. We expected them
to play by the rules. They did what they were supposed to do.
Somebody did not do what they were supposed to do and ruined it
for them.
Senator Sessions.
Senator Sessions. Thank you, Mr. Chairman.
I agree with you, Mr. Jones, that the size and financial
scope of this industry, the risk that drilling presents,
indicates to me that the companies--this company particularly;
I do not know about the others, but I am worried about it--
failed to invest sufficiently in ensuring the safety of their
employees, and I believe that that is something that must
change out of this whole experience.
Mr. Coleman., or maybe you, Professor Galligan, the
question of punitive damages, Mr. Jones says that you are
limited only to compensatory damages. The Supreme Court case
did hold that punitive damages are recoverable but limited that
to the economic loss 1:1 ratio?
Mr. Galligan. Not just the economic loss, but the
compensatory damages. Whatever compensatory damages were
awarded, the 1:1 cap is the punitives could not in most cases
exceed the award of those compensatory damages.
I think that traditionally--let me expound on this a little
bit. Traditionally, punitive damages have not been available
under the Death on the High Seas Act or for a Jones Act seamen.
A case called Atlantic Sounding, which was decided last summer,
may open that question up again. But in DOHSA cases, punitive
damages may not be available at all, so the 1:1 cap may not
even apply there. But in other cases, yes, sir, 1:1.
Senator Sessions. Mr. Coleman, I have offered legislation I
think similar to Senator Whitehouse's that would raise the $75
million cap retroactively. The Congressional Research Service
says that is constitutional. The Deputy Attorney General, Mr.
Perrelli, testified recently at the Energy Committee hearing,
when I asked him about it, that he thought it was
constitutional, although the Department of Justice had not
recommended a retroactive legal policy. But I have to say some
of my staff doubt that. As a matter of fact, some of my staff
think it is unconstitutional to retroactively do that.
So I am a little concerned about it. That is why I asked
the Deputy Attorney General about that. What is your view about
the ability of Congress to alter the liability, the $75 million
limit, although I would note that BP has repeatedly and
insistently said they will not be bound by it and will pay
whatever the liability is.
Mr. Coleman. Yes, Senator, with regard to the
constitutional questions, they are, I think, more difficult
than the contractual issues. As I remember, the Associate
Attorney General said that there was more liability potential
for the Government in the contractual base than on the
constitutional issues.
I would say I would agree with your staff that there is
more risk on the constitutional issues than the testimony that
you have had before the Congress today. However, I am very
confirmed that on the contractual--on the breach of contract
issues, which would come into play in the case of a Court of
Federal Claims case, that any kind of change, material change
to the OPA 90 damages $75 million limitation would be a
material breach of the lease and would open up the United
States to enormous damages.
Senator Sessions. Well, it is just something I think we
need to wrestle with. I have always believed we should not
offer legislation that we reasonably believe is not
constitutional, even though it may sound good at the time and
is something we would like to accomplish. So I will continue to
review that.
Professor Galligan, it is generally easier, is it not, on
the question of initial liability under the Jones Act for a
plaintiff to get into court; whereas, if you have an action on
the shore that you have proof of negligence is very real and
can be a complete bar to the plaintiff going forward.
Traditionally, having been on the gulf coast like I have in
Mobile for most of my legal career, I have been aware that it
is easier to make out a case and to avoid dismissal of a case
or avoid summary judgment under the Jones Act, and that that
may be--is that a compensating reason for our sudden lack of
equality in actual damages recovery if you have an easier basis
to go forward with the lawsuit?
Mr. Galligan. I have never seen in the legislative history
any indication at all that Congress thought, when passing the
Jones Act, that by possibly easing the burden of the plaintiff
there was some quid pro quo with other recoverable damages.
However, I would also say this: First you have to establish
that you are a seamen, and that is not an easy hurdle to clear.
So, first, to have the availability of a Jones Act claim, you
have to establish that you are a seamen.
What you are talking about is that in an FELA case, Federal
Employer's Liability Act case, called Rogers many years ago,
the court--and the Jones Act incorporates the FELA so they go
hand in hand. The Supreme Court said you could recover if you
could prove cause in any way, caused in whole or in part. And
that has been interpreted to slightly reduce the burden of
proof on causation for the Jones Act seamen, but first he or
she has to establish status, then they have to establish a
breach of the duty of reasonable care. That same rule does not
apply in a general maritime law case if the claim is
unseaworthiness for a seamen or if it is a general maritime
tort law claim filed by anyone other than a seamen, nor does it
apply when the seamen seeks to recover from a third party. So
it is limited to the Jones Act claim, seamen against employer.
Senator Sessions. Mr. Coleman, do you want to briefly
comment on that? My time is up, but----
Mr. Coleman. Senator, I do not have any comment that would
disagree with what Professor Galligan said.
Senator Sessions. Thank you.
Thank you, Mr. Chairman.
Chairman Leahy. Senator Whitehouse.
Senator Whitehouse. [Presiding.] Thank you, Mr. Chairman,
and thank you again for holding this hearing.
Mr. Jones., could you tell me a little bit more about the
circumstances that exist right now between BP and your
brother's family? You indicated that he worked for a
contractor, a contractor to BP presumably.
Mr. Jones. Correct. Correct.
Senator Whitehouse. And if you could answer that in the
context of the limit on economic damages, that BP has been so
noisy about saying that it would not be bound by, that it would
go beyond the $75 million in economic damages and make sure
that everyone affected by this was made whole. I think that has
been their corporate statement. In terms of its measure against
your family's experience, what do they see?
Mr. Jones. Well, every time I wake up in Baton Rouge and
open up the Advocate, I see a full-page ad from BP that says
that they are going to make things right and they are going to
pay all legitimate claims, and we sat through a hearing a week
and a half ago where they continued repeating that saying that
they are going to pay all legitimate claims. Well, I do not
think that they are referring to our family's claim. I do not
think--and they have made no overtures to us. We have
actually--I have never spoken to somebody from BP. They have
made no phone call, no nothing, to make any effort to reach out
and at least extend their sympathies.
Senator Whitehouse. Well, wait a minute. Say that again?
Mr. Jones. Nobody from BP has contacted anybody within our
family to extend their sympathies. I am not asking them to take
responsibility, but--they made it to the memorial event a
couple of weeks ago. I heard that they were there, but we have
not heard from them.
Senator Whitehouse. You have not. OK.
How does the contractual relationship intervening between
Gordon and BP affect this, in your view?
Mr. Jones. First things first, is that I am not a maritime
attorney. I have learned about maritime law in the last month
and a half, of course. It is my understanding that there is an
agreement between the contractor, M-I Swaco, and BP whereby
there is potentially some type of indemnity. But Gordon's
family----
Senator Whitehouse. Meaning BP has agreed to indemnify----
Mr. Jones. M-I Swaco agrees to indemnify BP, but I am not--
I cannot really speak on that because I have never seen any
documents to that effect. That is just what I have heard.
As far as Gordon's family, they have potentially a recovery
against his employer, M-I Swaco, under the Jones Act, and----
Senator Whitehouse. And that is a limited recovery only to
the formula that you have described based on future earnings.
Mr. Jones. Of course. And then a claim under the Death on
the High Seas Act against all parties responsible. However,
regardless of what claims he has, there is a cap, and he cannot
recover anything more than that. And so regardless of who is at
fault and what percentage does the fault lay, or we ultimately
determine down the road--and there may be some subrogation
claims from one party to the next. But there is a cap, and they
can pay that and go home.
Senator Whitehouse. And somebody killed in an air travel
accident would not face that cap. Somebody killed in a traffic
accident in Louisiana would not face that cap. Somebody
killed--this is a cap that narrowly falls on this group of
victims.
Mr. Jones. And it is unfortunate that a catastrophic event
is what precipitates this legislation, and that is why that
specific exception to DOHSA was made and introduced in the
past, in 2000, after a tragic event much like this one. And
that is why we are here today, is to ask for that same
amendment so that everybody who perishes in Federal waters is
protected equally under the law and is allowed to recover non-
pecuniary damages, in which case there is no cap. That cap is
determined by the jury.
Senator Whitehouse. Do you have any reaction to Mr.
Coleman's suggestion that efforts to make things right for
Gordon's family would amount to a substantial impairment of the
contract that BP has with the U.S. Government and we should not
address it for that reason?
Mr. Jones. Well, like I said, I anticipate that all the
companies involved and responsible for Gordon's death are more
than happy--I mean, I heard that they made a grant of $500
million to LSU to fund conservation research and mitigation
efforts. I am sure they are more than willing to pay what they
are obligated to pay under the law to the families. As far as,
you know, everything else, I do not really have much of a
comment. I have personal thoughts, but, you know, that is
generally how I look at it, is that they want to pay what they
are obligated to pay under the law. It is almost like they are
restrained from doing any more and they are hiding behind that.
Senator Whitehouse. Well, I appreciate that.
Senator Feingold.
Senator Feingold. Thank you, Mr. Chairman, for holding this
hearing. I want to thank all the witnesses for joining us. And,
Mr. Jones, I want to express my most sincere condolences to you
and your family for the tragic loss of your brother.
This tragedy, which resulted in the loss of 11 lives and
now the biggest environmental disaster in United States
history, highlights the need for improved regulation and
updated laws. For starters, as the witnesses have indicated, we
need to ensure that the oil companies can be legally liable for
their actions.
One way to deter wrongdoing and encourage the kind of
responsible, careful drilling we need is to increase the
unrealistically low liability caps for damages caused by oil
spills, and in that vein, I am a cosponsor of Senator
Menendez's legislation to do just that, and I appreciate the
witnesses' additional valuable suggestions.
But it is not enough to hold big oil accountable. We also
have to end the cozy relationship between the Federal
Government and the oil companies it is supposed to regulate and
oversee. That means getting rid of unjustified taxpayer-funded
giveaways for the oil and gas industry, and it means making
sure the regulators are not simply acting as a rubber stamp.
Unfortunately, too often the Federal Government ends up
listening more to the powerful industry it is supposed to be
regulating than to the consumers it is supposed to be
protecting. So whether it is Wall Street or big oil who are
calling the shots, the result is rarely good for my
constituents in Wisconsin.
There are many other actions we need to take, such as
passing my ``use it or lose it'' legislation to ensure that oil
companies are diligently exploring the Federal leases they
currently have and restoring the Clean Water Act, which is the
main statute used to prosecute polluters who dump oil into the
waters of the United States.
Mr. Galligan, in your testimony you discuss the need for
these strong laws to deter risky actions. Attorney General
Holder recently announced that the Department of Justice is
undertaking a criminal investigation of the gulf oil spill, and
the Clean Water Act is the main law for imposing criminal
penalties for oil spills and other pollution violations.
Given the oil company's sizable annual profits, does a
maximum $25,000 per day fine, as the Act provides, appear to
you to be an effective deterrent?
Mr. Galligan. I think when you analyze deterrence, Senator,
you have to look at the whole package of deterrent measures
that are in place. So you have to look at criminal laws, you
have to look at regulations and regulatory fines, and you have
to look at civil liability.
I am not an expert in administrative law; however, $25,000
a day does not sound like an awful lot of money in light of the
terrible things that we have seen in this and other
environmental disasters.
Senator Feingold. Mr. Galligan, on another topic, I wanted
to ask you about Mr. Coleman's testimony that there are breach
of contract concerns with retroactively increasing liability
caps. Senator Sessions also inquired about this issue. The Oil
Pollution Act contains a provision that seems to give the
Federal Government the authority to retroactively modify the
$75 million damages cap without raising breach of contract or
constitutional concerns. Section 1018(c) of the Oil Pollution
Act states that, ``Nothing in this Act shall in any way affect
or be construed to affect the authority of the United States to
impose additional liability or additional requirements relating
to the discharge of oil.''
Mr. Galligan, do you agree that this is a significant
provision? And what is your response to Mr. Coleman's argument?
Mr. Galligan. I do agree that it is a significant
provision. I am not an expert on energy law contracts, so I
cannot express an opinion on the contractual issues. On the
constitutional issues, it is my understanding that as long as a
piece of legislation that is being retroactively imposed does
not otherwise violate a fundamental right, it will be reviewed
by courts under a rational basis test. And you ask yourself
then, would any retroactive enactment be rational? And where do
you look? You look at the policy reasons that underlie the
decision to apply retroactively.
Here, just let us take the Death on the High Seas Act
amendment. Here, to make the law modern, to make it fully
compensatory, and to make it consistent would seem to me to be
rational bases for a retroactive amendment.
Senator Feingold. I agree with that and I thank you for
that.
Let me ask that a May 12th memorandum from CRS on this
question be entered into the record, Mr. Chairman.
Senator Whitehouse. It will be.
Chairman Leahy. [Presiding.] Without objection.
Senator Feingold. I got a double approval there.
[The letter appears as a submission for the record.]
Senator Feingold. Mr. Jones provided some very personal
moving testimony on the need to update our maritime laws, and,
Mr. Galligan, you have made several suggestions for how
Congress can update the laws. So you think changes should apply
broadly to all vessels or narrowly target drilling rigs?
Mr. Galligan. I personally think that they should apply to
all vessels on the high seas because that would encourage
consistency. But God forbid there should be some disaster
involving a cruise ship, but it would seem to me it would be
tragic if in 5 years that happened, another group of people
were before you explaining why cruise ship victims were treated
less fairly than commercial aviation disaster victims or
victims of maritime environmental disasters.
Senator Feingold. I thank you, Professor.
Thank you, Mr. Chairman.
Chairman Leahy. Thank you.
Senator Durbin.
Senator Durbin. Thanks, Mr. Chairman.
Mr. Jones, I have been on this Committee for 12 years, and
we have considered this issue, capping the damages, issues of
medical malpractice, issues relating to mesothelioma and lung
cancer from asbestos, and there has been strong sentiment on
this Committee for a long period of time that we should limit
the amount that a jury could award in those cases. I have never
accepted it and have fought it for 12 years. I want to tell you
that the appearance of your father and yourself and your
testimony in 5 minutes did more to make the case than I have
ever made in 12 years. Showing those photos of your brother's
family and your brother, photos that would be shown to a jury,
I hope will start to convince some in Congress who believe that
we should cap the amount of money that could be awarded to a
family like that for the loss of your brother's life. So if for
no other reason, I thank you for coming today. I think you have
had a profound impact on all of us. I sincerely regret your
loss under these circumstances, and I do believe that your
brother's family is entitled to full recovery for their loss in
this, although money just will not buy your brother back. You
know that as well as I do, in your testimony.
Mr. Coleman, I am troubled. You have got a tough
responsibility here arguing a position which is not that
popular, so I respect you for coming here and giving it your
best professional effort. But I would say that there is one
sentence in your testimony that troubles me, particularly
troubles me. You say on page 15, ``I hope that our political
leaders will not implement what I believe to be reckless
policies that would imperil such an enormous source of jobs and
revenue.''
I want to tell you what I have heard. The leaders of major
oil companies other than BP are telling Members of Congress and
this administration privately that what BP did in this
circumstance was to materially misrepresent their capacity to
stop this type of blowout in the permits filed with the Federal
Government; and, further, to engage in what I consider to be
reckless misconduct in establishing a blowout preventer that
was not redundant, clearly failed, and now has contaminated one
of the most magnificent bodies of water in the world today.
So I would like you to balance for a moment that reckless
misconduct, as I see it, on the part of BP with what you
characterize as the possibility that we will enact reckless
policies--reckless policies like offering to Ms. Jones' family
the loss of companionship, as this father and husband is gone
for the rest of their lives; reckless policies like suggesting
that the current cap on liability does not even come close to
measure the loss that is going to be part of this disaster in
the Gulf of Mexico.
Can you really put these in the same level, the conduct of
BP and their reckless misconduct and what we are suggesting as
changes in the law?
Mr. Coleman. Senator, thank you for asking the question. I
am also a native of the gulf coast, the State of Mississippi,
and have enjoyed the gulf coast my entire life. Certainly my
comments in my testimony were not directed toward the Jones Act
issues. They were dealing with the Oil Pollution Act question
of lifting the $75 million damages limitation. In my testimony,
I did not come out against an increase in that for future
leases. I was dealing with it from a contract law point of view
and the great damage to the industry that would come about from
a $10 billion cap or unlimited cap on damages in addition the
full restitution--full response cost.
Senator Durbin. Well, let me ask you this question: If we
followed your logic here and did not increase the cap on
liability, and what you characterize as a small or medium-size
drilling operation engaged in the same type of activity as BP,
resulting in the same level of damages, who do you think should
pick up the cost of that?
Mr. Coleman. Senator, as you know--and, actually, I was
involved in reviewing the various drafts of the Oil Pollution
Act at the time and helping the Department of the Interior
determine what its position should be. I was part of the team
evaluating the impact of the Exxon Valdez and looking at the
liability opportunities for the Government to go after Exxon.
So this is not a matter that is new to me. But I do have to say
that--and I do believe that the caps potentially that were set
in 1990, which the Government--which the Congress gave the
executive branch the ability to increase over time by
regulation, which they failed to do, they probably should be
raised some. But the question----
Senator Durbin. Who is going to make up the difference? Who
makes up the difference if a small or medium-size company does
the same type of drilling operation, incurring the same type of
damages as BP, who then--are you saying taxpayers have to pay
for it?
Mr. Coleman. Under the Oil Pollution Act, above the damages
limitation the excess claims go to the Oil Spill Liability
Trust Fund.
Senator Durbin. What is the current balance in that fund?
Mr. Coleman. The current balance I understand is $1.6
billion.
Senator Durbin. And once we have exhausted that, who pays
for the difference?
Mr. Coleman. Under the law, that is the end of it.
Senator Durbin. That is not the end of it, no. It is the
taxpayers that step in.
Mr. Coleman. But I will add, though, as we have had
discussion today earlier, this is just dealing with the Federal
claims, under Federal law. The State law claims are unlimited,
and those particularly in this case are probably likely to be
larger than even the Federal claims.
Senator Durbin. Mr. Chairman, thank you for giving me an
additional minute here. I happen to believe that if you are
engaged in drilling and can create this level of damage, it
carries with it a responsibility that you accept liability for
the damage. If you cannot accept that liability, stay the hell
out of the business.
Thank you, Mr. Chairman.
Chairman Leahy. Especially a business where you may end up
with billions of dollars of profits.
Senator Klobuchar.
Senator Klobuchar. Thank you very much, Mr. Chairman.
Mr. Coleman, I wanted to follow up with Senator Durbin's
points, which I thought were very well taken, and he was
talking about going forward and how the liability caps would
work. But you actually argue that retroactively you do not
believe that we can change this $75 million cap. Is that right?
Mr. Coleman. You can do it. Congress can do it. It is just
that you cannot do it without paying for it. There will be a
contractual price to doing it. This is similar to what the
Supreme Court said in the Mobil case. Congress changed the law
after the fact, which they had the perfect right to do, but
there were contractual repercussions, contractual damages that
the Government incurred by that Congressional action.
Senator Klobuchar. Mr. Galligan and others disagree with
that, but I just again wanted to clarify along the lines of Mr.
Durbin's points that if, in fact, we do not change this, if we
are unable to be doing this retroactively, who do you think is
going to pay for this $8, $10 billion that BP caused damages?
Mr. Coleman. Well, once again, the OPA 90 damages
limitation retroactively against the lessees, it is my firm
belief would be a breach of contact. However, there are other
options. One of them has been suggested by Senator Vitter to
consider the BP written offer, basically an offer to change
their liability limits on this contract, so Congress could
enact a law which accepts that offer.
Another one is, of course, the Oil Spill Liability Trust
Fund. That does not raise contractual----
Senator Klobuchar. But isn't this the one that you just
told Senator Durbin has the $1.6 billion in it, and we are
looking at over almost $10 billion for this right now.
Mr. Coleman. You could adjust that and make it retroactive,
and claims from this accident could be paid out of that, and
you could provide additional fees or taxes to support that
fund.
Senator Klobuchar. Well, let me just give you some other
facts that make us concerned about just, you know, having BP
tell us they are going to do something. I am looking back at
the Exxon Valdez spill. I am familiar with this case because
actually the law firm that represented the fishermen was in
Minnesota. And BP said it is going to pay all legitimate
economic claims, but Exxon made the same statement after the
oil spill in Alaska. It then proceeded to litigate the claims
brought against it for nearly two decades.
What do you think we can do to ensure that families like
the Joneses will have a swift resolution of legitimate claims
against BP, Transocean, and other subcontractors? Because Exxon
was saying the exact same thing.
Mr. Coleman. I am certainly not involved in the claims
process, Senator. I did happen to see the testimony at the
House Judiciary Committee from the BP representative.
Basically, what is understand is that these claims are filed
with BP. If they pay them, then they pay them. If they do not,
they are rejected and sent to the Coast Guard for payment under
the Oil Spill Liability Trust Fund. I am not sure what else you
might be asking.
Senator Klobuchar. It is just that people make claims,
companies make claims, and they take big ads out and say
things, and then unless we have a way to hold them to it, we
cannot ensure that the Joneses and other families are going to
be compensated. That is what we are trying to do here.
Mr. Galligan, I wonder if you would respond to some of the
statements that Mr. Coleman made, and then also I am troubled
by the fact that Transocean has already filed a motion in
Federal court in Houston seeking to limit its liability under
the Limitation of Liability Act, that 1851 law, that would
limit Transocean's liability to $26 million, as has been
discussed. Is there any good reason to keep this law on the
books? Should we repeal it? And how do you respond to some of
the things that Mr. Coleman has said?
Mr. Galligan. Let me start by saying what I said before,
which is that I really cannot respond to what he said about the
breach of contract claims. When I was speaking about
retroactivity, I was speaking more from the constitutional
sense.
Let me also add, when you talk about claims--and I do not
think anybody has said this yet, and it is really important--
OPA 90 does not apply to personal injury and wrongful death
claims. OPA 90 does not apply to personal injury and wrongful
death claims. That would be maritime law and maritime tort law
solely.
As to the Limitation of Liability Act, I mentioned in my
statement it was passed in a very, very different historical
context. It was passed in 1851 to encourage investment in
maritime shipping and commerce. The corporate form had not
developed. Bankruptcy law had not developed. So you ask
yourself today, Is that law still salient from a policy
perspective? And what happens is the shipowner starts a
concursus proceeding in a Federal court somewhere, and it means
everybody who has a claim has to then file that claim in that
Federal court. What then happens is they say we want to go back
to State court for some issues, and they enter into
stipulations and they go back to State court. Then they come
back to Federal court. It is an expensive, time-consuming, slow
process.
Senator Klobuchar. OK. Mr. Jones, I am sure that is not
good to hear, and I just want to assure you that we will do
everything we can to help your family.
I was just struck by Senator Whitehouse's questions about
BP. So they were at the memorial service, but they never
contacted you. Did you get anything in writing from them? How
long had your brother worked for them?
Mr. Jones. Well, he had worked for his particular employer,
M-I Swaco, for about 5 years. He had worked on that particular
rig, which was operated by BP, for about 2 years. And for that
time he had helped BP make a lot of money.
The only reason I had heard that the BP executives were at
the memorial event--I did not see them until after when they
were running out the back door into dark-tinted-window SUVs to
avoid the media.
Senator Klobuchar. So you never got anything in writing or
a phone call.
Mr. Jones. No.
Senator Klobuchar. Did any of the other people killed on
that day get any--have you heard if they have gotten any
communication?
Mr. Jones. Really since--well, I came face to face with
several of the families. It was a very awkward, uncomfortable
situation. I have had some discussions with some of the family
members, not all, and so I cannot really speak for them.
Senator Klobuchar. All right. I am so sorry for your loss.
Thank you for being here today. It made a difference.
Chairman Leahy. Thank you very much.
Senator Franken.
Senator Franken. Thank you, Mr. Jones, and all of us
appreciate your being here, and we express our condolences to
you and your Dad and your entire family.
Mr. Coleman, as I understand from your written testimony,
you are saying that if we change our liability laws, it is
going to place an unacceptable, prohibitive cost on oil
companies, but someone needs to bear these costs. So basically
you are saying that the costs should be borne by Mr. Jones and
his family, by the fishermen, by the oystermen, by the
homeowners along the coast.
Don't you think that the oil companies who make such huge
profits should be the ones bearing these costs?
Mr. Coleman. Senator, I appreciate the question. As
Professor Galligan mentioned, the question of the loss and the
claims of the family of Gordon are not involved in the issue
that I was addressing, which is the damages liability cap under
the Oil Pollution Act. However, of course, lost income from
fishermen and other economic activities is involved in that.
Certainly I am very concerned about--extremely concerned about
the loss of income not only for the individual----
Senator Franken. Well, you write of non-pecuniary and
pecuniary damages and say that if those were allowed, the loss
of comfort and those kind of things, it would impose a burden
on the oil companies, on mom-and-pop companies. That is what I
get from your testimony.
Mr. Coleman. I did not address that issue at all in my
testimony, Senator.
Senator Franken. Well, in your written testimony you
question whether offshore drilling really poses ``an
unacceptable threat'' under ``current conditions'' that would
justify a moratorium. Are you saying that the BP rig was
operating in such an irresponsible and reckless fashion, that
it was run in such an egregiously negligent manner that it
would be irrational to put on a 6-month moratorium on new deep-
sea drilling?
Mr. Coleman. Once again, thank you for the question. My
statement with regard to that had nothing to do with the facts
of the BP case, because I do not know the facts. I am not the
investigator of it, and----
Senator Franken. And you write that----
Mr. Coleman. Those will be determined.
Senator Franken. Here you write, ``Further, a blanket 6-
month additional drilling moratorium because `under current
conditions deepwater drilling poses an unacceptable threat of
serious and irreparable harm or damage to wildlife and the
environment' is highly questionable.'' What current conditions
are referenced here that causes deepwater drilling to pose an
unacceptable threat? What is an unacceptable threat? Is the
fact that many thousands of deepwater wells have been drilled
before--you are speaking exactly to that. And what I am asking
you is the BP--is what we have just seen here such an outlier
that we should not have a 6-month moratorium?
Mr. Coleman. That is exactly what I was discussing,
Senator. You are exactly right.
Senator Franken. Well, you just said you were not
discussing that.
Mr. Coleman. Well, I did not discuss exactly what happened
with BP, but it is an aberration, and that is the point----
Senator Franken. It is an aberration. Let me ask you this:
If 8 weeks ago someone had said we should put a moratorium on
deepwater drilling, would you have said yes?
Mr. Coleman. I would absolutely say no, and I still say no
because----
Senator Franken. Have you been looking at what is happening
in your beloved coast?
Mr. Coleman. I absolutely have. But what we have----
Senator Franken. So, in retrospect, you would not have
stopped that drilling. I am asking you if 8 weeks ago you would
have stopped that drilling, and you say no.
Mr. Coleman. I would not because we have to be bound,
Senator, and the administration has to be bound by the
regulations in place and the contractual rights of the lessees,
and----
Senator Franken. Look, we are responsible----
Chairman Leahy. Just a minute. I want to hear the end--I
want to hear the rest of Mr. Coleman's answer.
Mr. Coleman. What matters from a contractual point of
view--and this was an issue. What did the notice to lessees say
in the Mobil case? That was extremely important before the
Supreme Court. If you take away a contractual right based on a
regulation that you cite and says it means one thing and it
does not mean that, then you have not followed the law. So what
I have been addressing in those questions that I included there
are--they cited that there is an unreasonable threat and risk
of damages. If that is what the statute--if that is what the
outer continental shelf statute mean, the provision that they
are citing to in that regulation, then we could never have any
wells drilled at all, because there is always a risk of a
blowout.
So that is the point that I was trying to make. There have
been 3,000 or 4,000 wells in this water depth, or similar to
it, without ever having a blowout. So is that an unreasonable
risk? And I would say from my legal judgment it is not an
unreasonable risk to allow more drilling.
Chairman Leahy. Senator Franken, I interrupted there.
Please go ahead.
Senator Franken. I am sorry, it is just that we have so
little time in these questions.
Chairman Leahy. I have just given you more time.
Senator Franken. Yes, I understand.
Mr. Jones, if 8 weeks ago you were asked should we put a
moratorium on drilling, in retrospect what would you say now?
Mr. Jones. Eight weeks ago, before the explosion, of
course. Then Gordon would still be here.
Senator Franken. Right. So there is a very different
perspective, isn't there? I mean, I do not understand your
reaction. You know, there are other BP deep wells, and what I
am asking you is: Is the conduct of the way this rig was run so
different from all the others that it does not warrant a look
at and a moratorium on this kind of drilling so that we learn
our lessons from this and prevent it from happening again? Or
are you willing to let this happen again?
Mr. Coleman. Senator, what I was saying is that we have had
thousands of these, similar types of wells drilled. There
obviously is something very unusual that happened on this one
case. Obviously, it needs to be fully investigated, and
whatever adjustments need to be, they need to be made. But we
have through our experience shown that this type of drilling
is, in the scope of, you know, comparable things, a very safe
way of producing energy.
Senator Franken. Thank you. I have used my time.
Chairman Leahy. Senator Kaufman.
Senator Kaufman. Thank you, Mr. Chairman, for holding this
hearing.
Just to follow up on that thought, I think if you had 3,000
wells out there and a well went down, you would say it is 1 in
3,000. But, you know, your testimony is quite eloquent in
talking about incentives, that we have to have the proper
incentives for offshore drilling. It seems to me that the one
thing that I have noticed about the way things could happen in
our present society is we just do not have disincentives for
bad behavior. And I think what Senator Durbin said earlier is--
one of the things many of us are concerned about is how do we
get the disincentive for the bad behavior. And could you just
give me your thoughts about how you think that there should be
a disincentive--if we sent a message after this example that BP
can really get away with this thing for relatively minor, are
you concerned that a corporate boardroom somewhere in the
future--and I am not talking about bad people. I teach a course
at Duke Law School with MBAs and law students, and the MBAs are
always very concerned about the fact that, you know, you have
got to look out for the shareholders' money, you have an
obligation.
So if you are sitting there and you are BP and you are
looking at what is going to happen if, in fact, you do not do
the proper safety and you do not put in the proper things, you
do not have the people out there, you do not take the chance--
which BP has been accused of in a number of cases of just
saying go ahead, we need this well, we need it fast, we need it
producing, do not worry about the concrete, do not worry about
the--do not worry about what we are going to do if something
goes wrong, do not worry about doing a relief well, let us just
go ahead and do it. Does that concern you at all in terms of
our present liability structure?
Mr. Coleman. Senator, I am a strong believer in regulation,
inspections, aggressive inspections. I do have questions as to
whether the inspections were handled properly in this
situation. Certainly one of the things that could be done is to
send out the inspectors to be there when they test the blowout
preventers and make sure that that works before you start
drilling. I think that would be a commonsense--just one thing,
and there are many others that could be done.
Certainly civil penalties are available under numerous
statutes for failure to perform in accordance with the
regulations as direct.
Senator Kaufman. What about kind of a private sector--I
mean, you are a private sector guy. I am a private sector guy.
What about a private sector approach which says, well, the
Government is going to do all that, but why don't we have some
trial attorneys out there trying to make sure that this
happens, and that in order to get them involved, you have to
have hard damages? What is your feeling about that?
Mr. Coleman. I must say I have found that the private
sector bar is very adept at doing--you know, taking on that
role. They do it aggressively, and I do not have a criticism of
lawyers taking the opportunity to see that the Government and
others in the private sector implement the laws, and----
Senator Kaufman. So you would not be opposed--I mean, you
think the idea--there is an idea out there that maybe there is
liability that the private sector could operate against,
punitive damages and things like that, that may have a value,
whether we are talking about the economic value or not, just
the idea that there is a disincentive to a corporation sitting
around deciding what they are going to do, if, in fact, they
know the payoff is going to be greater. And isn't that
important in terms of this BP case? Isn't it important that we
send a clear message that--taking your approach, which is these
are all wells, probably 3,000, no problem, but we have this
one, it really went bad. So if you are in the oil business and
you are out drilling in the gulf and you drill a well and you
do not do the proper things, you do not do the things that have
been raised here, and others, that you are going to have to pay
a major price for that--just that alone, not counting the
really most important thing which has been raised here, Mr.
Jones' brother and the families and all the rest of that, the
fishermen, the things that Senator Franken raised. Isn't there
an economic, straight up economic reason that BP should pay a
major price for this problem?
Mr. Coleman. Well, I agree from a public policy point of
view there needs to be a major price to be paid for this kind
of accident. And I would submit to you that there is--I think
everyone is seeing that there is a major price. Not only has
their share value gone down tremendously, they are projecting--
I have seen projections of up to 30-some-odd billion dollars
that may have to be paid under current law by BP for what has
happened here.
So I do think the idea that there is not enough--or that
there is not a significant price to pay is not accurate.
Senator Kaufman. But you do say it should be a significant
price to pay when you make a mistake like this, and that there
should be disincentives, because incentives are an important
part--there are incentives for drilling in the gulf, and there
are disincentives if you make a mistake.
Mr. Coleman. I agree, and our current law sets up those
very significant prices to pay.
Senator Kaufman. Thank you.
Mr. Jones, as with others, I am sorry about your loss, and
I think it does bring home much of what we are talking about
here. It comes down to people, and I think that this is--your
testimony is incredibly important. Just from talking to the
survivors' families, do you have any anecdotes you can say of
how they thought safety was handled on that rig?
Mr. Jones. Well, I have not had really much of an occasion
to speak to a lot of them, and those that would have known
about that are no longer here. We have had some discussions
with some of the survivors, some of the folks who were rescued
that came through the visitation line, which was not really an
appropriate time for us to discuss that. And to be quite honest
with you, we have not had a whole lot of time in the last month
and a half to really have a lot of those discussions. I have a
lot of anecdotal evidence, e-mails, comments that have been
made by a lot of different sources as to what happened, and,
you know, mentioned the BOPs, but the BOPs did not cause this.
The BOPs failed to prevent it.
So there is a lot of stuff that went wrong well before that
ever happened. So, you know, there is a lot that is going to
play out in the months and, unfortunately, years before there
is ultimately a result here, and that, you know, Michelle and
her boys and the other families can move on.
Senator Kaufman. You know, we heard a lot of testimony--
Senator Feingold raised it--about how much this is like Wall
Street, and there is one kind of common theme that weaves its
way through this thing. You know, it was Washington's fault. We
did not have the proper rules, we did not have the proper
regulators, we did not do the rest of that. We heard it from
Washington Mutual when we had the hearings on that. It is
almost like--and I agree that we do not have regulators. I
agree. One of the big problems is we do not have regulators.
You hit it right on the nail.
But, you know, sometimes it is like cops on the beat. You
know, because there is not a cop on the street corner does not
mean you can break a window and go in a jeweler's and steal the
stuff right out of the thing. And the idea there were not
regulators, you know, I just always kind of--I am big on the
fact that we have not regulated and we have to regulate, it is
important, just like we need cops on the beat, just like we
need referees on the football field. And we went through a
period where we had--where we just did not need to do that. And
so--but it does bother me when--and I know--Mr. Coleman, I am
not accusing you of making this argument, but the argument that
is constantly made is, well, you have got to understand it was
Washington's fault. And because there was not a cop on the
beat, we could go in there and do whatever we wanted. We could
not worry about safety. We could not do these other things.
So I think it is important to keep the fact we have a
responsibility of doing this, but I think corporate America did
not have the ability to go in and do what they did because
there were not regulators on the beat, and there clearly were
not regulators on the beat.
Thank you, Mr. Chairman.
Chairman Leahy. Thank you.
Senator Whitehouse, do you have further questions?
Senator Whitehouse. A few.
Professor Galligan, is it reasonable to assume that
corporations act in a way to maximize their own economic self-
interest?
Mr. Galligan. I think that is what they exist for.
Obviously, they are concerned with societal interests, but the
definition is to make a profit, and there is a duty to the
shareholders to do so.
Senator Whitehouse. Specifically, they are under a duty to
their shareholders to act in a way to maximize their own
economic self-interest as a matter of law. Correct?
Mr. Galligan. Correct.
Senator Whitehouse. If we switch to the question of
criminal restitution, I view this as a lay-down hand, really,
from a criminal point of view under the Rivers and Harbors Act.
It is a misdemeanor, but it triggers penalties and restitution
and other criminal consequences.
Is there anything that prevents, under the various
doctrines that govern criminal restitution, the restitution in
the criminal case from supplementing areas in which there is an
untoward or unnecessary, inappropriate cap or restraint on
liability that is revealed by these facts, for instance, to the
Gordon Jones family?
Mr. Galligan. Well, I am not a criminal lawyer, but I am
not aware of any limits. But at the same time, I am not aware
of any creative cases in which that kind of restitution has
been liberally extended, because there are constitutional
issues about a criminal defendant.
Senator Whitehouse. Mr. Coleman, the Exxon decision cut
very favorably toward the oil industry by limiting what had
heretofore been unlimited punitive damages. Did that affect any
existing agreements? And should the Government have
renegotiated at that point existing agreements because of a
material change in its contractual relationships?
Mr. Coleman. I do not see that that affected the contracts
that the Government has with any----
Senator Whitehouse. All right. Let us hypothesize that we
were here putting a restriction on liability, that we were
reducing--saying $75 million applied not just to economic
damages but to other damages as well. If that were the argument
that was being made here, if we were considering a piece of
legislation to reduce liability, would you be here arguing that
that was a material impairment of the contractual relationship
between the Government and the corporations and that,
therefore, the Government was in a position now to renegotiate
with all the corporations affected by that change?
Mr. Coleman. Senator, if the Congress were to have reduced
this $75 million down to $35 million or something like that,
then the $75 million remains the contractual deal, but from a
legal perspective, they would not have to pay more than $35
million. And so it would not be any----
Senator Whitehouse. So what you are suggesting is, in fact,
a one-way ratchet that works in favor of the corporations and
against the Government in every circumstance in which the
Government acts with respect to a corporate--the Congress acts
with respect to a contract with the Government?
Mr. Coleman. Well, there would be some exceptions, and this
would require lengthy briefs.
Senator Whitehouse. But generally----
Mr. Coleman. But generally----
Senator Whitehouse [continuing.] That is true, you would
create with your policy a one-way ratchet that worked only in
favor of the corporations and not in favor of the Government
when Congress changed the terms of a contract.
Mr. Coleman. It is a question of two parties to a contract,
Senator, and if one makes a unilateral change--the same would
be if the private sector party to the contract said they were
going to make a change, and they could repudiate the contract
just as the Government does. The Government would be entitled
to damages. So it is not a one-way street. It works both ways.
Senator Whitehouse. Well, it works only one way from
Congress' perspective, and that is in favor of the corporations
under your theory.
The final question I will ask is for Mr. Jones. You
mentioned the blowout preventer. We are told that in Norway and
in Brazil and in places where there is considerable drilling,
there is a device called an acoustic switch that is required,
that is a safety device that encourages the operation of
blowout preventers--it might actually have been helpful in this
particular case--and that the industry argued vociferously
against it because it costs $500,000 for that piece of
equipment. I just want to put that in the context of BP's first
quarter earnings this year. You also mentioned those. They
earned $5.6 billion in the first quarter of 2010. For that,
they could have bought 11,000 of these devices that are
required in other States. Instead, they argued against being
required to buy one.
How do you feel that the incentives and the economics work
in terms of how this affected the safety out on the Deepwater
Horizon?
Mr. Jones. Well, from a purely economic perspective, I
personally feel that if you are going to play and you are going
to make billions and billions and billions of dollars, then you
need to pay to avoid the threat that Mr. Coleman mentioned. You
know, even though this is an aberration, it is not an
aberration in my life. It is not an aberration in Michelle and
the boys' lives. You know, any threat is too much from my
perspective. I know that other people think differently about
that. I do not. Sitting here today, for the reason that I am
here, I do not think that way. And I think half a million
dollars is nothing compared to the loss that we have
experienced and all the other families have experienced.
Senator Whitehouse. Thank you, Mr. Jones.
Thank you, Mr. Chairman, again.
Chairman Leahy. Senator Klobuchar, do you have any further
questions?
Senator Klobuchar. Yes, I do. Thank you, Mr. Chairman.
Chairman Leahy. Go ahead, and then Senator Franken.
Senator Klobuchar. Thank you again. I was going back to--my
last questions were more on specifics of how the law works, but
I was thinking about this $75 million cap, and obviously we are
going to try very hard to lift it retroactively to find other
ways to do this. But the question I keep going back to is
whether or not BP would have acted so recklessly if it knew
that there was not a $75 million limit, if they could have
foreseen the damages, and that maybe they were in a comfort
zone because they knew that things--their maximum liability
would only be for so much. And, you know, would they have put
in a back-up blowout preventer, considered other safety
measures that would have prevented this disaster?
And so I am looking at this as how do we best incentivize
in a free market these companies to do the right thing.
Obviously, we want them to do their work, but we want them to
do the right thing and be incentivized not to cause damages to
the taxpayers. And, to me, if you really have a free market,
then they pay for those damages.
Mr. Galligan, Professor, do you want to start with that?
Mr. Galligan. I will, yes. The whole law and economics
theory of tort law is based on what you just said, which is
that for there to be an effective, optimal deterrence scheme in
tort law, you have to face the full costs of your activities,
because when you decide what to do and how to do it, if you do
not have to pay a cost, if you see a cap, if you see a
liability limitation, it is rational as an economic factor to
not consider that cap. That is the basis of Judge Calabrese's
work on law and economics; it is the basis of Judge Posner's
work on law and economics. And law and economics, as you know,
has become one of the prevalent theories, along with corrective
justice, for modern tort law.
Senator Klobuchar. I know that. I attended the University
of Chicago Law School, Professor.
Mr. Galligan. You do indeed know that, then.
Senator Klobuchar. I took a class from Professor
Easterbrook, so that is what I am----
Chairman Leahy. I wondered if you were going to point that
out.
Senator Klobuchar. So I just keep going back to that, and
this seems the antithesis of it. I am also thinking, being from
the Midwest with our ethanol industry, they have to get
insurance so they buy insurance, but--I mean, I will check it
out, but I am not aware that they have some major law put in
place that if an ethanol plant blew up in the middle of the
cornfield that they would suddenly have the Federal Government
coming in and protecting them with a liability limit. You know,
I want to look at it. But it does not--I know they have to get
insurance, but I have not heard that they have the protection
of these liability caps. So it almost seems like we are picking
one industry over another.
Are there other energy industries that have these liability
caps, Professor Galligan?
Mr. Galligan. I cannot--none that I am aware of to this
extent. Of course, I am really an expert in maritime law and
maritime tort law. But I think one thing you see here is the
accident of time. A statute passed in 1851, statutes passed in
1920 that have not really been reexamined and reconsidered,
except in limited contexts. And now is a chance to look at them
comprehensively.
Senator Klobuchar. OK. And then this issue of smaller oil
and gas producers, you know, we do not want to everyone be big.
We want to have smaller ones as well. Mr. Coleman said that
they could not meet the liability. But I cannot help but think
sometimes if you have a smaller company, then they have a
different role to play in exploration. Maybe they are doing
things that are less risky so that they can afford the
insurance, because in the end it seems inconsistent with free
market principles to allow companies to externalize the risk of
an oil spill and pass it on to society.
Do you want to comment on the size issue, Mr. Galligan?
Mr. Galligan. I think you are right on the size issue
because I think the key issue is not size but safety, and if--
whether large or small--the entity is unable to adequately and
efficiently invest in safety, then I think we want to deter
those operations, because we want to have a sufficiently safe
world. We have expectations about risk, and we want those
expectations to be consistent with fairness. So I think the
size issue goes hand in hand with the safety issue.
Senator Klobuchar. Mr. Coleman, do you want to respond to
any of this?
Mr. Coleman. Yes, I would, Senator. Thank you.
You know, with all due respect, all these things--the world
is filled with risk, and so, you know, if we stop doing things
that have risk to them, then we will not do much. There are
many industries and many activities in the commercial world
that have limitations on liability. Certainly the nuclear
industry has limitations on liability, shipping industries. It
is all a matter of balancing. I understand the difficult role
that people in Congress----
Senator Klobuchar. Ethanol, solar, wind, do they have
limits?
Mr. Coleman. Well, I am not sure whether the ethanol. I do
not think that the solar and wind folks do. But they are not in
a particularly highly risky endeavor.
Senator Klobuchar. Interesting. That is probably true.
Mr. Coleman. But even what the wind people--the impacts of
wind are extremely serious to many people considering the
amount of birds that are killed every year by windmills.
So everything has its own--if you do not have this offshore
oil and gas production in the United States, 1.7 or 1.8 million
barrels a year, you are going to have a lot more tankers
bringing that oil into this country. That is just a flat out
matter of the way it is going to be for decades. And so the
fact is the National Academy of Sciences says that is a more
dangerous way for the environment to have this oil brought to
this country.
Senator Klobuchar. And, you know, Mr. Coleman, two things.
One is that I do not think we should stop doing things that are
new and taking risks. I just think we have to protect the
taxpayers from taking those risks, because it was not their
decision to go down 5,000 feet and take this risk. And I think
we need to protect Mr. Jones' family from that. And so it is a
free market decision of how to make money.
So I am not saying that you should ban oil drilling. I am
not saying that we should take risks. I am just saying that we
have to assess what the potential damages are and make sure
that the people who are taking those risks pay them. And there
may be other places to drill--in North Dakota, I mean, you
know--that would come with it, with less risk that these
smaller businesses can do.
Finally, I am just sorry, but comparing the birds and the
windmills to the damage that we are seeing to not just the
wildlife but to Mr. Jones' family, I just do not think it is an
equal comparison.
Thank you.
Chairman Leahy. We are supposed to wrap this up by 12, but,
Senator Franken, please go ahead.
Senator Franken. Thank you for indulging me.
Chairman Leahy. You will have the last questions. Go ahead.
Senator Franken. OK. I will take up Amy's point. I have
never seen a solar panel or a wind turbine kill 11 people. I
have never seen a 50-day ethanol spill. And I think that we
have to rethink our entire energy portfolio and what we are
doing to drive the demand for oil. And I think that this is a
wake-up call.
You say that the American people, in your testimony--this
is from your written testimony--that the American people
continue to strongly support offshore oil and gas drilling.
There is a CBS poll that says 51 percent oppose it. You cite a
Rasmussen poll or statistic that 58 percent of the American
public supported offshore drilling as of June 1st. Did the
survey ask people whether they supported deep offshore
drilling?
Mr. Coleman. I am not certain, Senator.
Senator Franken. The one you cited.
Mr. Coleman. I think the question was: Do you support
continued offshore oil and gas drilling?
Senator Franken. And do you hear the President saying we
should suspend all offshore drilling?
Mr. Coleman. The President has suspended everything except
in 500 feet of water, and 92 percent of the oil that we have
yet to get is beyond that. So, in essence, he has basically
said he is putting 92 percent off limits as of the current
time.
Senator Franken. But the survey that you cited, you do not
even know--you cited a survey, but you do not know what the
questions on the survey were?
Mr. Coleman. I have read--I read the previous survey that
they asked, and this is a follow-on. I assume it was the same
question. It was just generally offshore drilling. Offshore oil
and gas, do you support that?
Senator Franken. The question was: Do you think offshore
drilling should be allowed?
Mr. Coleman. Well, that is----
Senator Franken. And, obviously, the President thinks
offshore drilling should be allowed. So the President would be
part of that 58 percent, right?
Mr. Coleman. Senator, I think the implication is that the
American people--they are talking about--they are seeing in
context this accident in 5,000 feet of water. That I think is
the most reasonable interpretation that they are thinking about
that kind of drilling.
Senator Franken. I do not necessarily buy that at all. OK.
There are some people who say that--you say that most of the
oil is in deep water. Right?
Mr. Coleman. Yes, sir.
Senator Franken. Ninety-two percent.
Mr. Coleman. According to the Government.
Senator Franken. OK. We have been hearing from certain
quarters that the environmentalists caused the deep-sea
drilling. But isn't it true that the deep-sea drilling is done
because that is where the oil is?
Mr. Coleman. Senator, as I said in my testimony, you need
to be allowed to be able to go where the oil is, and 92
percent----
Senator Franken. Right. I just want to speak to this. We
have heard in certain quarters, from William Kristol, from
Sarah Palin, that the environmentalists caused this spill
because they forced the oil companies to drill in deep water.
You seem to be an expert on deepwater drilling. Would those
statements be true?
Mr. Coleman. I can just say I do not know where they got
their talking points from, Senator. They did not get them from
me. In my view, the reason we are in deep water is because the
United States offshore oil and gas industry has driven the
development of technology to produce oil and gas. And as we
have driven the technology, we have been able to go further and
further in the offshore----
Senator Franken. OK. So we are in agreement here. We are in
agreement here. I want to end on that.
Mr. Coleman. That would be great.
Senator Franken. OK.
[Laughter.]
Senator Franken. So we are in agreement here that those
people who say that environmentalists caused this spill because
they forced the oil and gas industry to drill as far away from
shore as possible is maybe, oh, poppycock? Would you agree with
that?
Mr. Coleman. I would not agree with that completely,
Senator. I would say----
Senator Franken. Really?
Mr. Coleman. But I----
Senator Franken. So you think environmentalists caused this
spill?
Mr. Coleman. I do not believe that--I just did not agree
with your ``poppycock'' comment.
Senator Franken. But you do not think that is poppycock?
Mr. Coleman. No, sir.
Senator Franken. OK. That is interesting. OK, so
environmentalists--maybe we do not end up agreeing with each
other. Thank you.
Chairman Leahy. Can I just interject? If it is not
poppycock, what is it?
Mr. Coleman. I think the environmentalists have had impacts
on offshore oil and gas drilling. I do not say that it is--to
say that they have not had any impact on how far from shore
that you drill would not be accurate. They have absolutely
pushed to a degree getting further away from shore. There are
many--I can tell you many----
Senator Franken. But you say that 92 percent of the oil is
in deep water, and then you say that you have to drill where
the oil is, but then you say it is the environmentalists'
fault?
Mr. Coleman. I never said that.
Senator Franken. But then you would say that it is not
poppycock to say it is the environmentalists' fault. This does
not make sense to me.
Mr. Coleman. If I could, the----
Senator Franken. I am sorry, Mr. Chairman. I know you need
to go, and I apologize for--I think I should wrap up right
here. Please.
Chairman Leahy. I am reminded of the question, and I
whispered to Senator Whitehouse, when Willie Sutton was finally
arrested from his bank robbery spree, they said, ``Why do you
rob banks? '' He said, ``That is where the money is.''
Why do you drill deep? That is where the oil is.
Thank you. We will stand in recess----
Senator Whitehouse. Mr. Chairman, may I ask that two
documents--one, a letter to me from John Torgan, the
Narragansett Baykeeper in Rhode Island, and the other a letter
from Professor Susan Faraday at the Roger Williams University
School of Law Marine Affairs Institute--be made a part of the
record of this proceeding.
Chairman Leahy. Without objection.
[The letters appears as a submission for the record.]
Chairman Leahy. As I said before, if Senators have further
follow-up questions based on an answer given or if any of the
three testifying wish to add to their answers, they will be
given that opportunity.
We stand in recess. I thank you all very, very much.
[Whereupon, at 12:08 p.m., the Committee was adjourned.]
[Submissions for the record follow.]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]