Emerging Issues in the Oilfield: Coping with the Criminalization of Oil & Gas Operations 6 th Oilfield Services Law Conference Christopher J. Bellotti, Halliburton Matthew S. Chester, Baker Donelson Kerry J. Miller, Baker Donelson Carter L. Williams, Baker Donelson 1
Demystifying the Process: What agencies work these cases? Three Companies and Three Individuals Charged in Fatal 2012 Gulf of Mexico Oil Drilling Platform Explosion PG&E Convicted of Obstruction of the Investigation of the National Transportation Safety Board and Felony Violations of the Natural Gas Pipeline Safety Act Blankenship Indicted on Multiple Charges Violations of safety standards led to UBB Explosion that took the lives of 29 miners DRD Towing Company and Its Owner Charged in Connection with Oil Spill in Mississippi River Oil Company Sentenced with Multiple Felonies Related to Violations of Offshore Oil Production Safety and Environmental Regulation W&T Offshore, Inc. Plead Guilty and is Sentenced for Violations of Clean Water Act Related to Offshore Production in Gulf of Mexico EPA DOT OIG FBI CGIS DOI STATE AGENCIES 2
Demystifying the Process: How does a criminal case start? Reactionary Cases Immediate, on-scene investigation/interviews Coordination between regulators and enforcers Predication What is the danger? Cannot control pace, breadth of investigation Other downsides costs, business, etc. Meat Grinder 3
Demystifying the Process: How does a criminal case get put together? How does a case get assembled? Interviews, grand jury subpoenas, document review Identification of culpability (criminal/civil; corporate/individual) Leverage How does a case get presented to a grand jury? Historical purpose One-sided rarely problematic Almost no chance of stopping the freight train 4
Selected Cases United States v. PG&E (PG&E Pipeline Explosion) United States v. Don Blankenship (Mine Safety Indictment) United States v. Energy Resource Technology (OCSLA, Clean Water Act no incident and self-reported violations!) United States v. Xplor Energy (CWA) California v. Plains All-American Pipeline California v. James Buchanan Deepwater Horizon Cases 5
PG&E: Prosecution & Conviction Sept. 2010 San Bruno, CA pipeline explosion Coordination between Criminal & Regulatory Authorities PG&E pays $1.6B fine to CPUC, but later July 29, 2014 28-count Superseding Indictment Government s case trimmed down via defensive motions: 16 counts dismissed on duplicity grounds Maximum fine amount reduced August 9, 2016 conviction: 5 felony counts of violating the Natural Gas Pipeline Safety Act; 1 felony count of obstruction of NTSB investigation; $3M maximum fine 6
Energy Resource Tech.: Prosecution & Conviction Multiple Incidents (2012, 2014, 2015) 4 Felony Counts Count 1: Hot work done w/in 10 ft. of wellbay [Feb. 2012] Count 2: Tested blowout preventer, should have retested (caught via BSEE inspection 2 days later) [Feb. 2012] Count 3: Tampering with Recording Samples (self-reported) [March 2014] Count 4: Known Discharge of a Pollutant (self-reported) [June 2015] 3 years probation, $4.2M financial penalty Immunity from E.D. La., W.D. La. (limited), and S.D. Tex. (limited) 7
Plains All-American: Incident and Indictment On May 19, 2015, a pipeline ruptured, releasing > 123,000 gallons (3,000 barrels) of crude oil in Pacific Ocean and onto beaches near Refugio State Beach causing damage to habitats and wildlife and millions of dollars in clean-up costs. On May 16, 2016, a grand jury indicted Plains All-American on 46 charges (4 felonies and 42 misdemeanors), including felony violations of state laws against spilling oil and hazardous substances into state water. 8
Plains All-American: Incident and Indictment Both company and employee charged criminally for failing to provide timely notice of the spill. PHMSA timeline: 10:55-10:56: leak occurs; 11:30: Plains shuts line; 2:56: Plains notifies NRC. DOJ also investigating potential violation of federal laws, including CWA. 9
Black Elk: Incident and Indictment On November 16, 2012, a welding accident aboard a Black Elk production platform in the Gulf of Mexico led to an explosion which caused the deaths of three welders and the release of a small quantity of oil into the Gulf of Mexico. The U.S. Attorney's Office, Eastern District of Louisiana, returned an indictment against Black Elk, contractors and individual employees in late 2015 for manslaughter, felony violations of OCSLA and a misdemeanor CWA charge. 10
Black Elk: Application of OCSLA to Contractors The Indictment sought to hold the Contractor-Defendants criminally liable through 43 U.S.C. 1350 of OCSLA. Section 1350 creates criminal liability for any knowing and willful violation of OCSLA s enabling regulations. Each of the OCSLA regulations cited in Counts 4-11 were drafted in the second person and speak to You. You is defined as a lessee, the owner or holder of operating rights, a designated operator or agent of the lessee(s), a pipeline right-of-way holder, or a State lessee granted a right-of-use and easement. 30 C.F.R. 250.105. The government conceded that none of the contractors had been designated as an agent of the lessee through a formal submission to BSEE or BOEM. The Court concluded that the Contractors were not subject to the OCSLA Regulations because they did not fit the statutory definition of You, which defines who the OCSLA Regulations apply to. 11
Black Elk: Court s Reasoning for Why OCSLA Does not Apply to Contractors The Court held that the Section of 30 C.F.R. 250.146(c), which states that the person actually performing the activity to which the requirement applies are jointly and severally responsible for complying with the regulation, does not impose criminal liability on contractors performing the work. The Court held that Section 250.146(c) is a compliance and not a criminal liability provision. The Court rejected the government s argument that the term Any person in the OCSLA criminal section (Section 1350(c)) does not apply to contractors. The Court held that it is axiomatic that a regulation must apply to a person before he or she can be held liable for violating it. Because the regulations only apply to You under the CFR, the contractors could not be Any person under the general OCSLA statute of 43 U.S.C. 1350(c). 12
Black Elk: Court s Reasoning for Why OCSLA Does not Apply to Contractors, cont d The Black Elk Court interpreted You as only applying to entities that have a relationship or privity with the government. Both lessees and operators consent to Departmental jurisdiction and regulation by BOEM and BSEE. In contrast, there is no such agreement made between to the government and contractors. Even BOEM made public comments stating that it does not regulate contractors; [it] regulates operators. 13
Black Elk: Court s Reasoning for Why OCSLA Does not Apply to Contractors, cont d. The Court then addressed the post-macondo practice of the BSEE issuing INCs to contractors. The Court noted that contractors had challenged BSEE s authority to issue INCs post-macondo. However, the only Interior Board of Land Appeals decision upholding an INC to a contractor was on appeal to the United States District Court for the Western District of Louisiana and therefore no district court has held that OCSLA s regulations were applicable to contractors. In summary, the Court concluded that only lessees and operators could be charged with criminal violations of OCSLA. The Court emphasized that a change in course to hold contractors liable for OCSLA violations must be initiated legislatively. 14
Black Elk: Status of Indictment Government has filed a Notice of Appeal to the Fifth Circuit the ruling regarding the applicability of OCSLA to contractors (DOJ approval was required to proceed with NOA). Counts remaining: Black Elk Manslaughter, OCSLA and CWA Grand Isle Manslaughter and CWA Wood Group, Dantin, Moss, Srubar CWA only Trial is scheduled for January 17, 2017. 15
Island Operating Co.: INC Litigation On June 3, 2012, two Island employees attempted an improper transfer of flammable liquid chemicals which caused a chemical fire that damaged tanks and nearby equipment but caused no injuries, fatalities, or structural damage to the Platform. On March 5, 2013, BSEE s District Supervisor issued an INC citing Island for having violated the general safety requirements of 30 C.F.R. 250.107(a), by failing to perform all operations on the Platform in a safe and workmanlike manner. 16
Island Operating Co.: INC Litigation The Interior Board of Land Appeals affirmed that BSEE has the authority to regulate and enforce the safety and environmental regulations promulgated pursuant to OCSLA. The Board concluded that OCSLA Section 1350(b) gave the Secretary of the Interior the authority to assess civil penalties against any person (including Island Operating Co., a contractor) who fails to comply with OCSLA, any of its regulations, or any lease term, so long as the Secretary gives notice and reasonable time for corrective action. 17
Island Operating Co.: INC Litigation Although the Board recognized that You as defined in 30 C.F.R. 250.105 does not include contractors, it pointed to 250.146(c) which states that whenever the regulations in 30 CFR part 250 require the lessee to meet a requirement or perform an action, the lessee, operator[,] and the person actually performing the activity which the requirement applies are jointly and severally responsible for complying with the regulation. The Board did not distinguish responsibility for compliance from actual accountability for the noncompliance. Instead, it concluded that the fact that contractors are responsible for complying with the regulations indicates that the government has the authority to hold contractors accountable for their noncompliance. Island Operating Co. filed an appeal of the Board s decision in the Western District of Louisiana. 18
Macondo: BP & Transocean s Guilty Pleas In late 2012, on the eve of the Civil Trial, BP pled guilty to: 11 felony counts of seaman's manslaughter simple negligence standard One count of obstruction of Congress and misdemeanor violations As part of its guilty plea agreement, BP agreed to pay a total of $4.5 billion in fines and restitution. As part of the plea agreement, Transocean agreed to pay $400 million in fines and restitution. Criminal Fines like the Civil DOJ Settlement amounts were allocated to various States and projects under the RESTORE ACT. In this regard, the criminal fines acted as offsets from civil liabilities to federal and state governments. 19
Macondo: Indictments Against BP Employees The Deepwater Horizon Task Force also brought indictments against four BP employees: Don Vidrine (April 20, 2010 On-Tour WSL) charged with manslaughter; pled guilty to misdemeanor; sentenced to 10 months of probation Robert Kaluza (April 20, 2010 Off-Tour WSL) acquitted on misdemeanor charge; manslaughter charges dismissed before trial David Rainey (Vice President of Exploration for the GoM for a subsidiary of BP plc, testified before Congress) acquitted Kurt Mix (engineer assisted with the response) pled guilty to misdemeanor; sentenced to 6 months probation 20
Yates Memo Corporate vs. Individual Prosecution September 2015: Justice Department issues Yates Memo re: Individual Accountability for Corporate Wrongdoing : Objective: combat corporate misconduct by seeking accountability from the individuals who perpetrated the wrongdoing. Rationale: Such accountability is important for several reasons: it deters future illegal activity, it incentivizes changes in corporate behavior, it ensures that the proper parties are held responsible for their actions, and it promotes the public s confidence in our justice system. 21
Yates Memo Six Points of Guidance To be eligible for any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in the corporate misconduct. Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation. Criminal and civil attorneys handling corporate investigations should be in routine communication with one another. Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals. Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires and declinations as to individuals in such cases must be memorialized. Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual s ability to pay. 22
Yates Memo Implications for Internal Investigations Pressure to waive privilege Risk of alienating employees Enhanced Upjohn warnings? Employee counsel? Willingness to cooperate? Response efforts? Yates Memo Driving Wedge Between Companies And Workers, Law360 (July 20, 2016) (Available at http://www.wsj.com/articles/i-was-an-oil-spillscapegoat-1447019267) 23
What Can You Do Now? Robust Compliance Program Demonstrated Committed to Compliance Plan for the inevitable! Conduct tabletops and drills 24
Best Practices if Investigation or Incident Does Happen Take reasonable steps to preserve all potentially relevant documents, data, and tangible things: Issue a litigation hold (follow up with periodic reminders) Partner with Legal, IT, and vendors to identify and preserve potentially relevant data Conduct custodial interviews Consider forensic images of devices of key players Take affirmative steps to monitor preservation of evidence Take custody of evidence where necessary Consider removing privileges or changing access to read only for sensitive databases 25
Best Practices if Investigation or Incident Does Happen Protect the company s interests: Remind employees of their rights May decline to be interviewed by the Government or terminate interview at any time In appropriate situations, provide employee counsel Get ahead of the issues Take notes, record questions asked by investigators Take similar photos/videos that investigators take Shadow agents conducting search warrant and prepare internal log of records seized; request copies before agent leaves Do not obstruct! Engage counsel / Utilize Relationships / Make compelling presentation to Government for Best Possible Result 26