Managing Claims Arising from the Gulf Coast Oil Spill: Multi-District Litigation vs. the $20 Billion Fund

By Scott Summy

The oil spill in the Gulf of Mexico has been an overwhelming tragedy for our environment and for coastal communities all along the Gulf Coast. It has impacted fishing, tourism, and many other businesses in communities that depend on these industries. Local and state governments are losing revenues as well. And thousands upon thousands of families along the coast are seeing their lives in disarray and their communities threatened.

Many questions have been raised about how claims for damages from the Gulf of Mexico oil spill will be handled. There is understandable urgency in the need for financial recovery for the families and businesses affected, but on the other hand, it is far from clear what the full extent of damages will be. Indeed, given that the cleanup itself is expected to take many years and that the spill may destroy estuaries, interrupt breeding cycles and impact fishing populations for an unknown period of time, it could take a decade or more to achieve certainty about the full extent of the damage done by the spill.
In this case, oil spill claims may proceed via one of two courses: individuals and businesses that are harmed directly or indirectly by the oil spill may elect to proceed either through the court system or through the independent $20 billion fund that has been so widely reported. While the scope of the fund is still being clarified, at this time it appears that claims by government entities—for natural resources damages or lost revenues, for example—would be pursued solely through the court system. Within the court system, multi-district litigation procedures will provide an efficient, coordinated approach to the cases.

MDL

Individuals and businesses will have the option of pursuing a claim through the court system, while, at present, it seems likely that all claims by government entities—including claims for cleanup costs, natural resources damages, lost tax revenues and cost of services arising from the oil spill—will proceed through the court system.
For claims that proceed through the court system, multi-district litigation (MDL) procedures can be a valuable tool to coordinate and consolidate pretrial proceedings.

At a hearing on July 29th in Boise, Idaho, the United States Judicial Panel on Multi- District Litigation will consider transfer of oil spill cases to a centralized MDL court. While transfer of the cases seems a given, the proper judge to shepherd the cases is far from settled. Some plaintiffs’ attorneys—and the federal government—have taken the position that the cases should be consolidated in the Eastern District of Louisiana in New Orleans because New Orleans is located closest to the focal events that triggered the spill—as well as to the source of the spill itself. So far, damages have also been most extensive in Louisiana, and more claims have been filed in Louisiana than any other state. BP has moved to have the cases transferred to the Southern District of Texas in Houston, where its own headquarters is located.