A Delaware judge has sanctioned a subsidiary company of Transocean Ltd, owner of the Deepwater Horizon, for abusing the court system with “vexatious” tactics in an effort to shed its legal liability for a previous Louisiana oil spill. In addition to using “gamesmanship of the legal system,” the Transocean attorneys also established empty shell companies and then filed deceitful bankruptcy petitions to frustrate and thwart complainants, according to the court.
Transocean’s devious legal strategies center on a case involving a much smaller oil spill than the one created when the Deepwater Horizon exploded and sank into the Gulf of Mexico last month. That lawsuit was filed by Louisiana farmer William Tebow in 2005 after he discovered that a long, slow spill had contaminated his sugar cane fields and drinking water.
Tebow sought $320 million in damages against Santa Fe Minerals and Bass Enterprises Production Co., or BEPCO, the two companies that appeared on the mineral lease. Although experts found that Santa Fe Minerals was at fault, according to court documents, BEPCO was left with the liability and eventually settled the case in 2007 for $20 million.
BEPCO then pursued legal action against Santa Fe Minerals.
On Monday, Delaware Bankruptcy Court Judge Kevin Gross ordered Santa Fe and its parent companies, referred to as the GSF entities, to pay for about $2 million in BEPCO’s legal fees.
After Tebow filed his lawsuit, Santa Fe hoped to defend itself because it had actually dissolved and was without operations or employees. However, the court found that it had failed to publish a dissolution notice and therefore was still exposed to Tebow’s lawsuit.
Days before the Louisiana trial began, another Transocean entity referred to as 15375 Memorial Corp., also without operations or staff, received a $500,000 line of credit from Transocean’s upper ranks. 15375 Memorial Corp then agreed to accept all of Santa Fe’s liabilities in exchange for the line of credit.
Having done that, Memorial Corp then filed for bankruptcy in Delaware knowing that filing for bankruptcy would enable it to avoid liability in the Tebow lawsuit. When BEPCO pursued legal action against Transocean’s subsidiaries, the subsidiaries proposed plans to reorganize under bankruptcy and release the parent companies from liability.
Fortunately, however, the Third Circuit Court of Appeals found that the bankruptcy plan was filed in bad faith and therefore subject to dismissal.
“The debtors bankruptcy petitions served no valid bankruptcy purpose and were used primarily as a litigation tactic to protect the debtors and their parent companies from liability in pending litigations,” according to the Appeals Court opinion.
Then, an hour before the Delaware bankruptcy court cleared the way for BEPCO to pursue its claims in Louisiana, Transocean filed a motion in Texas to have the court there declare that Transocean was not a common enterprise with its subsidiaries. That declaration would, again, effectively prevent the liability of the subsidiaries from reaching the parent company.
Referring to Transocean’s Texas filing, Judge Gross said that “BEPCO is incensed” that Transocean’s subsidiaries again dodged legal accountability. “The court understands BEPCO’s frustration and agrees that the GSF Entities have once more exhibited gamesmanship with the judicial system,” he wrote.
Transocean’s efforts to keep lawsuits out of Louisiana are being replayed again amidst the Deepwater Horizon spill. Last week, Transocean filed a request in a Texas federal court to limit its liability for current spill. Likewise BP is also seeking a Texas court and judge for the mounting number of lawsuits being filed against it. Such litigation tactics, which Judge Gross described as “villainous, vexatious, and aggressive,” echo Exxon’s abuse of the legal system to fight its liability in the 1989 Valdez oil spill in Alaska, which continues to clog courtrooms and cost taxpayers money to this day.