Legal Docket: Oil spill liability

NICK EICHER, HOST: We’re back for another week of The World and Everything in It for a Monday. Today is the 16th of December, 2019. 

Good morning to you, I’m Nick Eicher.

MARY REICHARD, HOST: And I’m Mary Reichard. And good morning to you!

First, a little housekeeping is in order, Nick. We are now ten weeks into the new Supreme Court term and that means the justices are starting to hand down opinions. To keep it all straight, we’ll leave Legal Docket dedicated to oral arguments, and devote time on Tuesdays to report decisions. We’ll add days if necessary. And if a particularly relevant case comes down, say involving religious liberty, we’ll report that next day.

EICHER: All right. Good plan. Well, let’s now get into this week’s oral arguments. 

The first case today asks: who pays for cleanup of an oil spill caused by an anchor from an abandoned ship?

Here are the facts from 2004.

An oil refiner, CITGO, chartered an oil tanker owned by Frescati Shipping Company. The tanker would deliver crude oil from Venezuela to New Jersey. 

Frescati made the 1,900 mile journey and prepared to dock the tanker at a refinery. But then it struck that anchor on the Delaware River, and the collision caused a big spill: more than six-thousand barrels of crude oil. Cleanup cost: $143 million. That’s almost $25,000 per barrel of $38-a-barrel oil.

REICHARD: Federal law designates the ship owner as the initial party responsible for cleanup, so Frescati paid for that. Then the federal government reimbursed Frescati for more than half of its outlay, per that same law. Then both those parties, Frescati and the United States, sued CITGO for a portion of it.

What followed was years-long litigation. Different lower courts found CITGO not liable, then liable, then only partly so. 

The question for the Supreme Court is whether CITGO guaranteed that the ship would have a safe place to arrive in New Jersey. Or, alternatively,  if CITGO just agreed that it would use due diligence to ensure the ship would be safe.

CITGO’s lawyer, Carter Phillips, argued his client did all that it could reasonably be expected to do: use due diligence to choose a safe destination for the ship to dock. When you hear him refer to “the charterer,” he’s talking about CITGO.

PHILLIPS: The charterer is in the least effective position to prevent the injuries that will arise in these circumstances. And it makes no sense to put it on the backs of the party least capable of dealing with the problem because it creates insurance risks,  it imposes unlimited potential liability, which this Court has consistently recognized.

Everyone agrees that CITGO didn’t know and had no reason to know the anchor was in the river. It wasn’t navigating the tanker and it didn’t maintain the river.

What lawyer Phillips for CITGO pointed out was that the shipowner can still seek exoneration because of who was truly negligent:

PHILLIPS: The third-party here, the person who left the 
anchor in that waterway, didn’t  identify it, didn’t tell anybody about it, 
that’s the person who should be liable.
We can’t find that person. My client’s already spent more than $100 million on that fund. It is not of equitable result to impose another $140 million solely on the party least capable of avoiding this particular problem.

For Frescati the ship owner, though, CITGO chose the  docking site. The contract has an implied warranty it says that holds CITGO responsible for damages related to that location. So the court should interpret the contract in a way that makes CITGO strictly liable. 

That seemed to carry the day. Listen to this exchange between Phillips and Justice Brett Kavanaugh:

KAVANAUGH: Back to the text,  it does say “safe place or wharf which shall be designated and procured by the charterer.” … So, if it turns out not to be safe,  just as a matter of logic, it hasn’t designated or procured a safe place or wharf. 


PHILLIPS: Well… it seems to me the question, Justice Kavanaugh, really is, does safe mean that you…will assure that regardless of what  happens, … if it gets hit by a meteor, …if somebody, a vandal, goes… on the ship while it’s in a berth and blows it up, that that’s all on the charterer? Did the charterer assume all of those obligations? 

KAVANAUGH: Well, it says designated or procured, and procured a safe place. And it doesn’t say usually safe place. 
If it turns out not to be safe, then…

CITGO’s Phillips pointed to maritime law experts Gilmore and Black to bolster his case. But lawyer for the ship owner, Thomas Goldstein, thought Gilmore and Black are kind of old hat by now. 

Listen to this exchange with Goldstein and Justices Stephen Breyer and Elena Kagan. Goldstein starts: 

GOLDSTEIN: We have to realize when you have a situation of unknown and not reasonably knowable damages, someone is going to be strictly liable. It is inevitable. We’re just trying to figure out who it is. Our point is, he picked the contract, and the contract said, “it’ll be safe,” rather than the contract saying—

BREYER: But Gilmore and Black think that the language is ambiguous. Is that why they recommended the other?

GOLDSTEIN: Well, Gilmore — let’s just be clear. Gilmore and Black, written some 40 some years ago —

BREYER: Yeah, I knew Gilmore and Black in ’75. I should’ve asked them. (laughter) 

KAGAN: (later) …I mean, Mr. Goldstein, 
would it be fair to say Gilmore and Black were incredibly smart men? There are two kinds of treatises in the world. There’s the kind of treatise that just sets out the law. And there’s the kind of treatise that says we are incredibly smart men and we could do it better.

GOLDSTEIN: Yes. (Laughter.)


KAGAN: Don’t you think Gilmore and Black is the second kind of treatise?

Then Justice Samuel Alito jousted with Goldstein some more:

ALITO: Well, if we thought that the — the text was perfectly ambiguous, couldn’t we say we are incredibly smart people, and we think — (Laughter.) — that the better rule is the Gilmore and Black rule?

GOLDSTEIN: Justice Alito, I learned a long time ago that if the question is could the Supreme Court do X, the answer is yes.  (Laughter.)

The justices seemed to lean in favor of holding CITGO liable, based on the plain language of the contract. Harsh as that is, the lesson for the rest of us is to write a tight contract with liability clearly laid out.

This next case today involves IBM employees who invested their 401(k)s in company stock. Those plans are governed by ERISA, the Employee Retirement Income Security Act. 

Here, IBM employees say fund managers failed to do their jobs. They say managers are insiders with a fiduciary duty to protect retirement savings from fraud. 

After it came out that the microchip-making portion of IBM  was overvalued, company stock significantly dropped. Managers had not disclosed the overvaluation, nor had they prevented participants from buying it. 

So, the investor employees sued the fund managers. The question before the Supreme Court is fairly narrow: what must the employees lay out in the initial lawsuit?

The fund managers say ERISA doesn’t require them to disclose insider corporate information. 

Justice Alito seemed to agree.

ALITO: Do you think that it is workable, practical, to require an insider fiduciary to determine whether the disclosure of inside information to the public at a particular point in time will do more harm than good? … It just seems to me, in that situation, the fiduciary has to make a very complicated calculation.

Complicated or not, lawyer for the disgruntled employees argued insiders are in a better position to know when things go awry. Then they can act to protect the plan participants. He argued the court ought not create different standards for different fiduciaries. 

Yet fund manager lawyer Paul Clement seemed to have the upper hand. ERISA law isn’t the solution to this problem. Securities law is. And in typical Clement fashion, he pounded on that in his close:

CLEMENT: One thing I want to be emphatic that I disagree with my friend on the other side is he says that the reason that we want these insiders to serve as fiduciaries is so they can be sort of canaries in the coal mine, they can take early action based on their unique access to inside information. That is absolutely wrong.  All these funds are set up to make sure that doesn’t happen. Because if that did happen, these would all be latent security violations.

This area of the law is muddled and confusing. That’s why it comes up so often at the high court. Just this term, the justices will hear three ERISA disputes. 

So I won’t guess how the justices will decide.

Alright, final case today. 

If you’ve ever looked up a state law, maybe you’ve seen little notes or commentaries that go along with it. A summary of the law, or maybe the facts of a case where that law was applied. 

But can those “annotations” be copyrighted? That’s the dispute in this case between the state of Georgia and a publisher who bought all 186 volumes of the annotated statutes, scanned them and then put it all online. 

Georgia sued for copyright violation. It says it owns those annotations.

Now, everyone agrees that the law itself cannot be copyrighted.  The idea is a law that isn’t public, isn’t really a law. People have to know about it. That’s why Georgia puts the statutes without annotations online so everyone has access to the law for free.

But the annotations are written by a private firm, per contract with the state government.

Justice Neil Gorsuch wondered whether that makes any difference in this exchange with Joshua Johnson, lawyer for Georgia:

GORSUCH: Why would we allow the official law enacted by a legislature … equivalent of being approved by a judge in annotations … why would we allow the official law to be hidden behind a paywall?

JOHNSON: So I don’t think that adopting our position would cause the official law to be hidden behind a paywall. First, the law is available on Lexis’s website. And also, PRO is free to cut —

GORSUCH: But not the official annotations that the legislature has in some fashion or another given its official approval to.

Justice Gorsuch making the point that elected officials in one way or another are involved in approving the annotations, despite hiring a private contractor to write them. So that makes those words public domain in the same way the actual law is public domain.

But the state of Georgia argues if private companies can’t get paid for writing annotations, there’ll be fewer of them. And that hurts everybody.

My guess is that the majority of justices will say that because the annotations themselves do not have the force of law, they can be protected by copyright.

And that’s this week’s Legal Docket!

(AP Photo/J. Scott Applewhite) This Wednesday, Jan. 25, 2012 file photo shows the U.S. Supreme Court Building Washington. 

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