Under the U.S. Supreme Court: Squeezing BP for damages

Under the U.S. Supreme Court: Squeezing BP for damages
A controlled burn of oil from the Deepwater Horizon/BP oil spill sends towers of fire hundreds of feet into the air over the Gulf of Mexico on June 9, 2010. UPI/John Masson/U.S. Coast Guard

WASHINGTON, June 20 (UPI) -- Now that the Obama administration has wrested a $20 billion recovery fund from BP to compensate economic victims of the gulf oil spill and clean up the huge mess, Congress must lift the federal liability cap.

Left in place, the cap would limit BP's liability to cleanup costs plus $75 million.


But if Congress removes the cap and establishes a new standard that reflects the immensity of the disaster, can the new yardstick be retroactively applied to BP? The federal courts, and ultimately the U.S. Supreme Court, would have the final say in the face of a legal challenge.

A challenge probably would not come from BP, but from BP shareholders, those who think the deal goes too far, Gulf Coast residents who feel the escrow fund does not go far enough, the British government or from pensioners who depend on BP dividends.


After agreeing to the U.S. escrow fund, BP said dividends would not be paid for the rest of the year.

A court case could end up as a fight between two provisions of the Constitution: The "ex post facto" clauses, which in general ban federal and state laws from being applied retroactively, and the "necessary and proper" clause, which gives the federal government the power to carry out actions in furtherance of its constitutional powers.

U.S. President Barack Obama announced the $20 billion fund after meeting with BP executives at the White House. The deal also includes a separate $100 million fund for oil workers put out of work by a deep sea drilling moratorium.

Washington attorney Kenneth Feinberg, who headed up the government-financed compensation fund for victims of the Sept. 11, 2001, terror attacks, was tapped to administer the fund.

Meanwhile, the political fight over the proposed fund and lifting the cap has abated somewhat, though it remains far from settled.

Senate Republicans have been blocking efforts to lift the liability cap for weeks, a number of news outlets report. There is some Republican support for lifting liability for BP alone, without affecting future spills or future polluters.

House Minority Leader John Boehner, R-Ohio, after first saying, "I think the people responsible in the oil spill, BP and the federal government, should take full responsibility for what's happening there," and speaking sarcastically about retroactively lifting the liability cap, backtracked.


Democrats -- smelling blood in the water -- jabbed at Boehner repeatedly for what seemed to be his position until the Ohio Republican clarified it on ABC News, saying: "I just think that BP ought to be held responsible for all of the costs that are involved in this. ... I think lifting the liability cap on BP and for this spill is appropriate." He stopped short, however, of endorsing any specific legislation.

Not so the U.S. Chamber of Commerce, an important GOP ally.

After hard-line statements reported in the Christian Science Monitor, Thomas Donohue, chamber president and chief executive officer, released a statement that could be taken a number of ways.

Donohue said: "While the depth and breadth of the consequences are unknown, clearly BP will have to assume its responsibilities over the long-term. Let me be clear: The recovery costs should not be on the backs of American taxpayers or the businesses that have been adversely affected by this tragedy."

But, he warned: "We believe that abandoning the rule of law and retroactively changing the liability cap is not the best approach. Any changes to the cap need to be done very carefully and with full consideration of the broad economic consequences to companies far beyond those directly involved in the spill."


Meanwhile, The Times of London reported political rumbling is not confined to this side of the Atlantic.

BP reportedly is drawing up a plan to defer a 1.75 billion pound (about $2.56 billion) payout to shareholders. But U.S. pressure on BP for dividend deferments and a compensation fund is causing fury among some British politicians.

About a fourth of BP's shares are owned by British pension funds and insurance companies, and if dividends are delayed, pensioners will suffer.

Matthew Alan Oakeshott, the baron who is chairman of an economic policy unit at the British Department of Business and the Liberal Democrat spokesman on pensions, said it was "contemptible and arguably illegal" to bully Britons out of their savings' income, The Times said.

Perhaps the closest analogy to the proposed BP fund is the federal Superfund law, 1980's Comprehensive Environmental Response, Compensation and Liability Act and its 1986 amendments.

The law gives the federal government the power to order those responsible for hazardous waste sites to clean them up at their own expense. But the Superfund law dealt only with cleanup liability, not compensation for collateral economic damage.

There have been no major constitutional challenges to the Superfund law, but the Supreme Court has upheld it when some of its minor provisions conflicted with state laws.


And as far as the Supreme Court is concerned, the justices have not considered all laws with retroactive effects toxic.

In 2003's Smith vs. Doe, the high court ruled 6-3 that Alaska's post-prison sexual offender registration law is constitutional even though it applies to defendants who finished serving their time before the law was enacted. Writing for the majority, Justice Anthony Kennedy said, "Because the Alaska Sex Offender Registration Act is non-punitive, its retroactive application does not violate the ex post facto clause."

This year, in May's U.S. vs. Comstock, the justices used the "necessary and proper" clause to rule 7-2 that federal judges may order a sexually dangerous prisoner held beyond a prison release date -- a clearly retroactive application.

The ruling upheld federal law, including parts of the Adam Walsh Child Protection and Safety Act of 2006, which allows U.S. judges to order some sexually dangerous, mentally ill prisoners into civil commitment after their sentences are served.

Writing for the majority, Justice Stephen Breyer said the law is constitutional under the "necessary and proper" clause of the Constitution, which says Congress has the power to make any law necessary and proper for carrying out the government's powers.


"There are sound reasons for (the law's) enactment," Breyer said. "The federal government, as custodian of its prisoners, has the constitutional power to act in order to protect nearby (and other) communities from the danger such prisoners may pose."

So would a lifting of the liability cap and its special application to BP survive constitutional challenge? Maybe. It would depend on how a majority of the justices view the nature of the fund.

Though many questions remain about the proposed BP fund -- such as whether it would be supported by new U.S. law rather than the simple lifting of the liability cap -- ultimately federal judges and the U.S. Supreme Court may be called upon to step in and resolve any conflict.

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