Voyage Into Uncertainty: Assigning Liability for the Bay of Campeche Oil Spill

Mexico's recent emergence as owner of the largest oil reserves in the western hemisphere, if not the world, makes it ironic that its initial attempts to tap these holdings led to the largest oil spill in history. On June 3, 1979, a blowout occurred at the IXTOC I exploratory well in the Bay of Campeche of the Gulf of Mexico, resulting in a continuing discharge of approximately 30,000 barrels of oil per day. After a few days, the spill had exceeded the magnitude of the infamous Santa Barbara spill of 1969. Efforts to cap the well proved fruitless and in only six weeks it had surpassed the unprecedented spill from the wreck of the supertanker Amoco Cadiz, which devastated French shores in 1978. The legal issues raised by the blowout, including liability for cleanup and damages, may take as long to resolve as it takes the environment to be cleansed of the effects of the spill.

The blowout presented no immediate threat to the American coast because the drill site is 500 miles from the Texas border. Yet the threat was recognized immediately as a possibly serious one because of the extreme fragility of the ecological systems of the Texas gulf coast.¹ Implementing a mechanism established under the Clean Water Act of 1977,² The Coast Guard and the National Oceanic and Atmospheric Administration led a group of federal agencies in forming an emergency response team. The combination of Mexican cleanup efforts at the drill site, deployment of miles of containment booms along the Texas barrier islands, and mild weather has kept the direct damages below early predictions.

Nevertheless, the impacts of the blowout, totalling more than 13 million gallons already released, have been significant. More than a million gallons of oil have already washed up on Texas beaches. While injury to the region's exotic birds and land animals appears to be minimal, the government response team found it necessary to airlift 15,000 sea turtles to saferf waters. Much of the damage remains latent and unassessed, and economic costs include losses in the seafood industry, the depression of the local tourist trade, and the expense of the cleanup effort.³ Legal claims filed to date total nearly $400 million.

Litigation

In a preemptive strike, the American owner of the rented submersible drilling platform used at IXTOC I was the first to file a complaint in federal court. Sedco, Inc., a Texas-based oil drilling firm, filed a complaint on September 11 in the Southern District of Texas seeking exoneration from or a limitation upon its liability under admiralty law for damages caused by the spill. Asserting that it was threatened with a number of lawsuits, the company invoked the federal Limitation of Liability Act of 1851⁴ in an attempt to place a ceiling of $300,000 on damages which might subsequently be awarded against it. Sedco denied that it had been negligent or fwas otherwise liable for the incident, however. Second, Sedco moved for and obtained from the court an order directing that all legal claims arising from the blowout be presented to the court within six weeks of the filing of the complaint.⁵ Though that order was subsequently modified to permit suits raising different claims and against different parties,⁶ it had the intended effect: within 10 days three groups of plaintiffs submitted complaints seeking damages in excess of a third of a billion dollars. The United States and the State of Texas submitted complaints shortly thereafter.

The first complaint filed was a class action on behalf of all members of the local fishing and shellfish industry, who alleged that Sedco's negligence had irreparably harmed ocean life in the Gulf of Mexico and its estuaries. Consequent business losses were alleged to be $155 million. Simultaneously, the claimants instituted a separate action in the same court against two state-owned Mexican corporations, Petroleos Mexicanos (PEMEX) and Perforactiones Marinas Del Golfo (PERMARGO), which had leased the drilling equipment from Sedco and actually operated it at IXTOC I. The claimants then moved for and obtained consolidation of the two cases. Three days later another class of claimants joined the litigation, this one composed of municipalities, resort enterprises, seafood processors, and private individuals affected by the spill. They sought $100 million for loss of property, tax revenue, business revenue, and personal livelihood. The final class of claimants, consisting of national corporations engaged locally in tourism, sought an additional $100 million.

The State of Texas joined the fray a few weeks later by filing a claim in the original Sedco suit and a separate claim against PERMARGO. It declined, however, to name PEMEX as a defendant. The state relied essentially on its rights to recover monetary penalties under state and federal statutes. The United States joined the litigation even more cautiously. Apparently because of political considerations it went solely against Sedco, alleging numerous grounds for relief.

Legal Issues

For many reasons, the Sedco litigation promises to be as complex and demanding as any in recent memory. [9 ELR 10219] While some of the claims will turn on recently enacted and untested statutory provisions, it appears that two key issues involve difficult interpretations of the Limitation of Liability and Rivers and Harbors Acts, both of which date back to the 19th century. The burden of proving damages and causation would give pause to any seasoned trial lawyer. The possible liability of the Mexican defendants under principles of international law is exceedingly problematic. Simply managing the litigation as a class action presents awesome difficulties. Although the parties are deeply immersed in jurisdictional and other threshold skirmishes, the major areas of dispute on the merits are fairly identifiable.

Admiralty

Although Sedco's original complaint was brought in admiralty and the other parties have responded with claims alleging, inter alia, maritime tort, there is a substantial question whether under the factual circumstances, the court properly possesses admiralty jurisdiction. Traditionally, the law of admiralty applied to torts occurring in navigable waters or on the high seas.⁷ In 1972, however, the Supreme Court altered the test to require additionally that the injury be related to a "traditional maritime activity."⁸ Following this reasoning, the Ninth Circuit has observed that offshore drilling platforms have been treated by Congress as "artificial islands rather than as ships subject to admiralty jurisdiction."⁹ Nevertheless, the court has ruled that in ascertaining the existence of traditional maritime activity, the fact that the offending oil spill emanated from an offshore platform is not dispositive; it is equally appropriate to refer to the nature of the injury suffered by the plaintiff.¹⁰ Accordingly, following the Santa Barbara spill the court permitted the owners of pleasure boats to sue in admiralty for property losses and the loss of "navigation rights."¹¹ Similarly, commercial fishermen's lost profits were found sufficiently related to traditional maritime activity to support recovery in admiralty.¹²

Application of this analytical approach to the Sedco dispute suggests that the important questions will concern not the location of IXTOC I nor whether platform drilling is a "traditional maritime activity" but rather the nature of the injured rights for which compensation is being sought. The situation of the fishermen seeking recovery for lost profits is consistent with the circumstances of those affected by the Santa Barbara spill. At the opposite extreme, however, are the claims by municipalities for tax revenue foregone because of a decline in tourism. The State of Texas will be similarly hard pressed to show that its expenditures on a public relations campaign to offset unfavorable media coverage of the spill relate to "traditional maritime activities." Closer questions are presented by the claims of seafood processors and sellers of marine fuel.

Another thorny issue concerns the applicability of the Shipowners Limitation of Liability Act,¹³ which, in the event of an accident involving a "vessel," limits the owner's liability to the salvage value of the vessel and its "freight pending" i.e., charter contract.¹⁴ The absurdity of this 130-year-old provision was showcased in connection with the Torrey Canyon disaster, when a federal district court ruled that the Act operated to limit the claimants right of recovery to $50 — the value of the only lifeboat to be salvaged.¹⁵ It should be noted that the drilling rig at IXTOC I was completely destroyed the day after the blowout. Sedco has posted a surety bond in the amount of $300,000, the value of its lease with the Mexican defendants.

Obviously, a key question is whether the Sedco platform is a vessel under the Act. There appear to be no authorities supporting or contesting this thesis, no doubt because most American drilling platforms are located on the outer continental shelf, and thereby come within the purview of the Outer Continental Shelf Lands Act (OCSLA).¹⁶ One common-sense approach that has been judicially endorsed asks whether the alleged vessel is used or is capable of being used primarily for transportation.¹⁷ Limited liability has been denied owners of wharf boats¹⁸ and drydocks.¹⁹ On the other hand, owners of floating cranes²⁰ and derricks²¹ have been allowed to limit their liability. It is also relevant that § 311 of the Federal Water Pollution Control Act, which governs liability for oil spills, defines "vessel" to exclude offshore drilling facilities.²²

Given the absence of clear guidance, the determination of Sedco's liability will be difficult. If the court determines that it possesses jurisdiction because offshore drilling [9 ELR 10220] is a "traditional maritime activity," it may well find itself compelled to rule that the drilling rig in question is a "vessel" and that Sedco's liability is severely limited.

Significantly, the Limitation of Liability Act permits a vessel owner to limit its liability only where the tort was committed outside the owner's "privity and knowledge."²³ This phrase, which has been described as so devoid of meaning that it represents an "empty contain(er) into which the courts are free to pour whatever content they will,"²⁴ requires an owner to show that neither it nor its crew was aware of a dangerous condition or otherwise responsible for the tort.²⁵

Sedco has naturally denied any wrongdoing in connection with the Bay of Campeche spill. However, the fact that it maintained crewmen aboard the drilling rig indicates that their role in the incident may be a major battle-ground in the lawsuit. In considering these and other aspects of the company's claim for a limit on its liability, the court should be guided by the fact that the Limitation of Liability Act has been almost universally condemned as a useless throwback to an ancient era.²⁶ In doubtful cases it should be construed to permit full recovery.²⁷

Federal Water Pollution Control Act

In § 311 of the Federal Water Pollution Control Act (FWPCA),²⁸ Congress established a sweeping scheme governing spills of oil and hazardous substances, created liability for such spills, and provided means for cleaning up and repairing damaged natural resources. The equally detailed and aggressive regulatory structure embodied in the OCSLA must certainly have been viewed by Congress as the principal restraint upon oil spills from offshore drilling platforms.²⁹ Under the unique facts of the Sedco litigation, the OCSLA is inappropriate because it reaches only activities within waters subject to the jurisdiction and control of the United States.³⁰ Section 311 of the FWPCA, however, appears clearly to apply to the IXTOC I spill.³¹ An unpermitted discharge of oil "which may affect natural resources"³² of the United States subjects the owner to a Coast Guard-imposed fine of $5,000 and up to a $250,000 civil penalty in an action brought by the Environmental Protection Agency.³³

Of greater significance is the possibility of liability for cleanup costs incurred by the United States. Sections 311(c) and 311(d) permit the government to mobilize a massive response effort to clean up spills. In the case of offshore facilities, unless the owner/operator can prove that the discharge was caused solely by an act of God, act of war, negligence on the part of the United States, or act of a third party, it is liable for all cleanup costs, including the cost of restoring or replacing damaged natural resources,³⁴ subject to a ceiling of $50 million.³⁵ Moreover, if the United States can show that the spill resulted from "willful negligence or willful misconduct within the privity and knowledge of the owner" the $50 million ceiling is waived.³⁶

The statutory formulation leaves a long list of unanswered questions. First, was the IXTOC I spill caused solely by the Mexican defendants? If Sedco can show that it was without fault, it can avoid all liability for cleanup costs. Such a showing would also permit it to escape liability in maritime tort and to limit its liability under the Limitation of Liability Act. Such a showing would not, however, relieve it of liability for the mandatory Coast Guard fine under § 311(b)(6)(a).³⁷ Going even further, if the government can show that Sedco committed "willful negligence or willful misconduct," there will be no limit on the possible award.³⁸

Of key importance is the issue of whether Sedco may invoke the Limitation of Liability Act to avoid any judgment to which it might otherwise be subject under the FWPCA. There seems to be no ambiguity in § 311's statement that the liabilities and limitations it creates apply "notwithstanding other provision of law,"³⁹ yet confusion persists. The Supreme Court has expressly declined [9 ELR 10221] to resolve the conflict between these statutes,⁴⁰ although commentators⁴¹ and at least one court⁴² have suggested that the ancient limitation should bow to those set out in the FWPCA. Yet since no court has ruled on the matter, the Sedco court may be the first to confront it directly.

Rivers and Harbors Act

Section 13 of the Rivers and Harbors Act (the Refuse Act) provides in relevant part that:

[i]t shall not be lawful to throw, discharge, or deposit … from or out of any ship, barge, or other floating craft of any kind … any refuse matter of any kind or description whatever … into any navigable of the United States ….⁴³

The Refuse Act imposes liability without fault⁴⁴ for all discharges of refuse, including Oil.⁴⁵

The oil spilled in the Bay of Campeche should certainly be held to have entered the navigable waters of the United States, but it is debatable whether the Sedco rig is a "vessel" under the Rivers and Harbors Act. The statute's language and overall objectives (as reflected in the title) seem somewhat at odds with an extension of its purview to Mexican waters. This matter aside, the Act may factor significantly in the Sedco suits to the extent that it may be read to abolish the shipowner's limitation of liability. Several other sections of the Act, collectively known as the Wreck Act,⁴⁶ Have been held to override the 1851 statutory limitation.⁴⁷

International Law

In many respects the most facinating aspect of the Sedco litigation is the right of the claimants to recover damages from the state-owned Mexican defendants. These defendants are attractive targets because they represent a "deep pocket" with the capability to compensate the massive claims that have been filed. Additionally, they are the claimants' only hope of recovery if Sedco establishes that it was without fault for the oil spill or that it is entitled to limited liability for the accident.

The private claimants are relying upon the Foreign Sovereign Immunities Act of 1976⁴⁸ as a jurisdictional basis for their claims against PEMEX and PERMARGO. The Act provides that foreign countries and their corporate instrumentalities shall not be immune from the jurisdiction of the federal courts in cases involving claims arising from commercial activities carried on outside the United States but which cause a direct effect in the United States.⁴⁹ Jurisdictional immunity is similarly precluded as to claims for compensatory damages for property losses in the United States resulting from tortious acts or omissions of officials or employees of such foreign entities.⁵⁰

Assuming the claimants successfully invoke the Foreign Sovereign Immunities Act as a basis upon which the court can acquire personal jurisdiction over PEMEX and PERMARGO, they nonetheless must demonstrate the substantive validity of their claims under domestic or international law in order to recover. There are several international agreements in effect which affect liability for pollution of the seas by oil. Two of these are voluntary agreements entered into by the major international oil companies in the wake of the Torrey Canyon disaster.⁵¹ Also in existence are two international conventions which provide recovery for damages caused by oil spills.⁵² None of these agreements, however, concerns oil spills from fixed drilling platforms; they are focused exclusively on discharges from oil tankers. Nor do the United States and Mexico have any existing bilateral agreement governing this sort of transboundary problem. It thus appears that if the American claimants are to establish a right of recovery against the Mexican operation of the Sedco drilling rig, it must be according to general principles of international law.

There is a growing tension in international law between the traditional principle that every sovereign state has the right to do as it wishes within its own territory and the emerging rule that states may not interfere with the legitimate interests of other nations in environmental quality.⁵³ The latter approach, which incorporates the principle of strict liability for actions which produce substantial adverse effects within the territory of another nation appears to be taking hold. For example, in the Trail Smelter case,⁵⁴ a United States-Canada arbitration panel considered claims by residents of the State of Washington that noxious fumes from a Canadian smelting [9 ELR 10222] plant were destroying their crops. Citing "principles of international law," the panel found for the claimants and awarded compensatory and injunctive relief against the dischargers. The decision did not examine the culpability of the defendants. Similarly, in the Corfu Channel case⁵⁵ the International Court of Justice held Albania liable without fault for damages caused by explosive mines in her waters. On the basis of these cases and their common rationale, a strong argument can be made that the state-owned Mexican oil companies should be held accountable for all damages proximately resulting from the Bay of Campeche spill, regardless of whether the operators of the drilling platform were negligent.

Conclusion

The complexity of the substantive legal issues involved in In re Complaint of Sedco, Inc. is matched only by the difficulties that will be encountered in managing the case and proving or disproving the elements requisite to recovery. As the attorneys now wrangle over the conflict between two 19th century statutes, oil continues to ooze from the floor of the Gulf of Mexico and make its way, in some degree, to Texas shores. It is undisputed that much of the economic and ecological damages occasioned by the spill will not be estimable until years after the spill is capped.

The intense political dispute which has arisen over the incident cries out for strong bilateral or multilateral agreements setting a framework to smooth over similar controversies which will inevitably recur. In the meantime, this maze of litigation may produce interesting interpretations of the applicability of general international law principles to this sort of situation.More evident, and perhaps more important, however, is the need to take the most extreme precautions when exploiting the natural resources of the outer continental shelf.

1. Seven national wildlife refuges and 12 sanctuaries managed by the National Audubon Society are located on the Texas coast. The region's fish and shellfish resources are among the nation's most productive.

2. Clean Water Act § 311(c), 42 U.S.C. § 1321(c), ELR STAT. & REG. 42133-34.

3. Cleanup costs are approximately $75,000 per day. 81 AUDUBON 150, 156 (Nov. 1979).

4. 46 U.S.C. §§ 181-189.

5. In the Matter of the Complaint of Sedco, Inc., No. H-79-1880 (S.D. Tex. Sept. 11, 1979).

6. In the Matter of Sedco, Inc., No. H-79-1880 (S.D. Tex. Oct. 20, 1979).

7. See generally G. GILMORE & C. BLACK, THE LAW OF ADMIRALTY 21 (1957).

8. Executive Jet Aviation, Inc. v. City of Cleveland, 404 U.S. 249, 261 (1972) (injuries sustained from crash of aircraft in navigable waters not compensable in admiralty).

9. Union Oil Co. v. Oppen, 501 F.2d 558, 4 ELR 20618, 20620 (9th Cir. 1974) (referring to § 4(a) of the Outer Continental Shelf Lands Act, 43 U.S.C. § 1333(a), ELR STAT. & REG. 42457). See Rodrigue v. Aetna Casualty Co., 395 U.S. 352 (1969).

10. Oppen v. Aetna Ins. Co., 485 F.2d 252, 3 ELR 20808 (9th Cir. 1973).

11. 485 F.2d at 257, 3 ELR at 20810.

12. Union Oil Co. v. Oppen, 501 F.2d 558, 4 ELR 20618, 20619 (9th Cir. 1974).

13. 46 U.S.C. §§ 181-189.

14. 46 U.S.C § 183.

15. In re Barracuda Tanker Corp., 281 F. Supp. 228, 230 (S.D.N.Y. 1968). The Act has been described as "hopelessly anachronistic." University of Texas v. United States, 557 F.2d 438, 441 (5th Cir. 1977). See also W. RODGERS, ENVIRONMENTAL LAW, § 4.19 at 519 (1977); Mendelsohn & Fidell, Liability for Oil Pollution — United States Law, 10. J. MAR. L. & COM. 475-76 (1979).

16. See OCSLA §§ 23, 24, 43 U.S.C. §§ 1349, 1350, ELR STAT. & REG. 42466.

17. In re U.S. Air Force Texas Tower No. 4, 203 F. Supp. 215 (S.D.N.Y. 1962) ("Texas Tower" not a vessel).

18. Evansville & Bowling Green Packet Co. v. Chero Cola Bottling Co., 271 U.S. 19 (1926).

19. Benton v. Tietjen & Land Dry Dock Co., 219 F. 763 (D.N.J. 1915).

20. The O'Boyle No. 1, 64 F. Supp. 378 (S.D.N.Y. 1946).

21. Patton-Tully Tramp. Co. v. Turner, 269 F. 334 (4th Cir. 1920).

22. 33 U.S.C. §§ 1321(a)(3) & 1321(a)(11), ELR STAT. & REG. 42132.

23. 46 U.S.C. § 183.

24. G. GILMORE & C. BLACK, THE LAW OF ADMIRALTY 877 (2d ed. 1975).

25. See, e.g., In re Maritime Chinese Trust, Ltd., 361 F. Supp. 1175, 1177 (S.D.N.Y. 1972), aff'd 478 F.2d 1357 (2d Cir. 1973).

26. G. GILMORE & C. BLACK, THE LAW OF ADMIRALTY 822 (1957).

27. Id. See also University of Texas Medical Branch at Galveston v. United States, 557 F.2d 438, 454 nn.24-26 and accompanying text (5th Cir. 1977).

28. 33 U.S.C. § 1321, ELR STAT. & REG. 42132.

29. See generally Comment, First Circuit Lifts Injunction Against OCS Lease Sale, Ushers in 1978 Amendments to OCS Lands Act, 9 ELR 10068 (Apr. 1979).

30. OCSLA § 2(a), 43 U.S.C. § 1331(a), ELR STAT. & REG. 42456. See also § 301(8), 43 U.S.C. § 1811(8), ELR STAT. & REG. 42478, which defines the term "offshore facility" as those within the waters of the OCS.

31. "Offshore facility" is defined in § 311(a)(11) of the Act, to include "any facility of any kind" which is subject to the jurisdiction of the United States; owners of such facilities are subject to the full range of statutory sanctions. 33 U.S.C. § 1321(a)(11), ELR STAT. & REG. 42132. That the Sedco drilling platform was of American registry seems to bring it under American jurisdiction. See FWPCA § 311(a)(17), 33 U.S.C. § 1321(a)(17), ELR STAT. & REG. 42132 (the term "otherwise subject to the jurisdiction of the United States" refers to vessels of American registry).

32. FWPCA § 311(b)(3), 33 U.S.C. § 1321(b)(3), ELR STAT. & REG. 42133.

33. FWPCA §§ 311(b)(6)(A) & 311(b)(6)(B), 33 U.S.C. §§ 1321(b)(6)(A) & 1321(b)(6)(B), ELR STAT. & REG. 42133. Under the latter provision the maximum fine is $50,000 unless the government can establish "willful negligence" or willful misconduct by the spiller.

34. FWPCA § 311(f)(4), 33 U.S.C. § 1321(f)(4), ELR STAT. & REG. 42133.

35. FWPCA § 311(f)(3), 33 U.S.C. § 1321(f)(3), ELR STAT. & REG. 42134.

36. Id.

37. Nor would Sedco's lack of culpability bear on its possible liability under the Rivers and Harbors Act. See discussion at notes 43-44, infra.

38. The difficulty in applying these contradictory terms was well demonstrated by the Second Circuit in Complaint of Tug Ocean Prince, Inc., 584 F.2d 1151 (2d Cir. 1978).

39. 33 U.S.C. § 1321(f), ELR STAT. & REG. 42134. Assuming that customary rules of statutory interpretation control, this specific override provision in the FWPCA would supercede the preexisting provisions of the Limitation of Liability Act.

40. Askew v. American Waterways Operations, Inc., 411 U.S. 325, 332, 3 ELR 20362, 20364 (1973).

41. G. GILMORE & C. BLACK, THE LAW OF ADMIRALTY 828 (2d ed. 1975).

42. In re Steuart Transp. Co., 435 F. Supp. 798, 806 n.8, 7 ELR 20658, 20660 n.8 (E.D. Va. 1977) (dictum).

43. 33 U.S.C. § 407, ELR STAT. & REG. 41142.

44. See W. RODGERS, ENVIRONMENTAL LAW § 4.5 at 393-94 (1977).

45. United States v. Standard Oil Co., 384 U.S. 224 (1966).

46. 33 U.S.C. §§ 409, 411, 412, 414, 415. ELR STAT. & REG. 41142-44.

47. University of Texas Medical Branch at Galveston v. United States, 557 F.2d 438, 452 (5th Cir. 1977); Hines, Inc. v. United States, 552 F.2d 717, 718 (6th Cir. 1977). The Supreme Court has raised the same issue but not resolved it. Wyandotte Transp. Co. v. United States, 389 U.S. 191, 207 n.17 (1967).

48. 28 U.S.C. §§ 1602-1611.

49. 28 U.S.C. §§ 1330, 1605(a)(2).

50. Id. at § 1605(a)(5).

51. The Tanker Owner's Voluntary Agreement Concerning Liability for Oil Pollution, or TOVALOP, is reprinted in Hearings on S. 7 and S. 544 before the Subcommittee on Air and Water Pollution of the Senate Committee on Public Works, 91st Cong., 1st Sess. 261-65 (1969). This agreement was supplemented by the Contract Regarding an Interim Supplement to Tankers Liability, or CRISTAL.These agreements do little to make compensation available to victims of oil pollution. See Lettow, The Control of Marine Pollution, in FEDERAL ENVIRONMENTAL LAW 596, 615 (Dolgin & Guilbert, eds. 1974).

52. See International Convention on Civil Liability for Oil Pollution Damage, entered into force June 19, 1975, reprinted at ELR STAT. & REG. 40306; International Convention Relating to Intervention on the High Seas in Cases of Oil Pollution Casualties, reprinted at ELR STAT. & REG. 40301.

53. See Goldie, International Principles of Responsibility for Pollution, 9 COLUM. J. TRANSNAT'L L. 283 (1970); Utton, A Survey of National Laws on the Control of Pollution from Oil and Gas Operations on the Continental Shelf, 9 COLUM, J. TRANSNAT'L L. 331, 333 (1970).

54. Decisions of the Trail Smelter Arbitral Tribunal, 3 U.N.R.I.A.A. 1905 (1941), reprinted in 35 AM. J. INT'L L. 716 (1941).

55. [1949] I.C.J. 4.