Closing BP's Escape Routes

by: Robert Weissman Op-Ed

http://www.truth-out.org/closing-bps-escape-routes60564

One of the benefits of the corporate form is that it gives giant corporations the ability to escape liability. BP may or may not choose to capitalize on such escapes, but it would be foolish to presume that it won't. …

Some of the ways that BP could substantially lower their payments on the oil “spill”.

1. The AH Robins/Dalkon Shield Bankruptcy Scam
A.H. Robins, the manufacturer of the defective Dalkon Shield intrauterine device, filed for Chapter 11 bankruptcy in 1985. Women who were victims of the dangerous device received less compensation than they otherwise would have. Meanwhile, with the company's otherwise open-ended liability demarcated in the bankruptcy process, Robins' value shot up. AHP (now part of Wyeth, itself now part of Pfizer) acquired the company at a premium, with the Robins family making off with hundreds of millions of dollars.

BP wouldn't follow the Robins' model exactly. The play for BP would not be to declare bankruptcy for the parent company, but for BP America or another subsidiary that could be tagged with the liability for the Gulf of Mexico gusher.

In advance of such a move, BP might try to move assets out of the designated subsidiary and into other subsidiaries in its vast network. Such asset shifting is not permissible, and creditors would challenge any such moves, if they could discover them. But using its labyrinthine structure, BP might hope to evade the creditors. Even without the asset shifting effort, bankruptcy for an affiliate could prove attractive for BP.

2. The Union Carbide Disappearance
Union Carbide was the company responsible for the world's worst industrial disaster. A gas escape from its chemical facility in Bhopal, India killed many thousands (likely tens of thousands) and severely injured tens of thousands more. After settling for a paltry amount with the Indian government, Union Carbide disappeared as a standalone company. It is now a subsidiary of Dow Chemical.

Says Dow: "Dow has no responsibility for Bhopal." Moreover, "The former Bhopal plant was owned and operated by Union Carbide India, Ltd. (UCIL), an Indian company, with shared ownership by Union Carbide Corporation, the Indian government, and private investors. Union Carbide sold its shares in UCIL in 1994, and UCIL was renamed Eveready Industries India, Ltd., which remains a significant Indian company today."

BP might conceivably be acquired by another oil major. Or, more likely, it might just sell some or all of its U.S. subsidiaries. If the liability cap in the Oil Pollution Act works to protect BP from legally recoverable claims (perhaps less likely than has been reported, since the cap does not apply to a spill caused by violation of applicable federal rules), an acquiring company could simply state that it refuses to make good on the liabilities that BP now says it will voluntarily accept. A new company would also benefit from operating BP assets with a new, uninjured brand name.

3. The Shell Company Game
A variant on the Union Carbide Disappearance gambit would involve selling one or more subsidiaries' assets, but leaving the current corporate structure in place. Liability would still attach to the old subsidiaries, but it would be devoid of assets to pay - if BP could find a way to move the cash it received for selling assets out of the subsidiary and out of reach of creditors.

Again, such a move should not be legal. But it would be a mistake to assume that formal legal rules provide guarantees when billions or tens of billions of dollars are at stake for a giant, global multinational.

4. The Exxon Hardball Approach
BP's lawyers are undoubtedly considering other, more straightforward approaches to limit the company's liability. Under the Exxon Hardball approach, BP would follow its oil company brethren's approach to the Valdez spill. Drag out compensation payments. Challenge adverse legal rulings. Rely on a corporate-friendly judiciary to overturn or scale back any large scale jury verdicts or government-proposed fines.

5. The Big Tobacco Global Deal
Another approach might be for BP to offer a "global settlement" of all claims arising from the Gulf Oil gusher. This would follow the precedent of Big Tobacco, which in 1997 offered to put hundreds of billions of dollars on the table, and accept some regulatory restraints, to settle lawsuits for its past misconduct and effectively preclude new litigation. (This deal was ultimately scuttled.) For BP, the play would be to put a "shock and awe" amount of money on the table to resolve all claims and penalties. Its aim would be to eliminate the prospect of getting hit with outsized punitive damages or fines, and escaping payment for ecological damage that may not be apparent for many years - amounts that might vastly exceed what BP pays.

Against this panoply of available maneuvers, public officials have limited options. The Obama administration is finally doing the right thing in, first, talking about the danger of BP draining company assets via dividend payments, and, second, demanding the establishment of an escrow fund. Calling attention to abusive corporate stratagems not yet underway is one of the best ways to prevent their deployment. And an escrow fund would establish a guaranteed pool of available money for victims - establishing the fund apart from BP's control is at least as important as ensuring fair and independent handling of victims' claims.

What this and future administrations also need is a way to exert control over companies facing environmental or other liabilities of the scale now facing BP - a kind of receivership to prevent manipulations of the corporate form to enable corporate goliaths to escape liability.

Forcing corporations to pay for the damage they cause is not sufficient to prevent them from recklessly endangering people and the planet, but it is certainly necessary. Permitting them to avoid liability and foist costs on to others is to ensure more and worse corporate catastrophes.