Legal Eagles (And Otters, Pelicans, Shellfish And Dolphins)

Fortune's Roger Parloff has a good primer on the legal liabilities that BP faces because of the oil spill.  He notes that the big question -- does that $75 million liability cap mean BP walks away with a slap on the wrist -- depends on what the DoJ finds.

Is BP really protected by a $75 million cap on damages?

Probably not. In the wake of the Exxon Valdez oil spill of 1989, Congress passed the Oil Pollution Act of 1990, known as OPA (pronounced like 'Oprah' without the 'r'). For leaks from offshore oil rigs like this one, OPA limits the liability of the responsible party -- BP in this instance -- to $75 million in economic damages, but there are several mammoth exceptions. To begin with, the limitation does not apply to any of BP's liability for state and federal cleanup costs, for which BP  is 100% responsible. As of early June, these costs had already come to about $990 million, according to BP, and the company seems to be just getting started. (BP has also committed to spending another $360 million to fund the building of barrier islands off the coast of Louisiana.)

But the key, ginormous loophole in the $75 million OPA limit is that BP isn't allowed to take advantage of it if the company -- or any of its contractors, Kende stresses -- acted with gross negligence or violated any federal safety law or regulation. In other words, if either BP or rig-owner Transocean Ltd., or cement contractor Halliburton Energy Services , or the blowout preventer manufacturer Cameron International violated some safety rule -- the limit vanishes. (If a subcontractor is the one responsible, BP might then be able to go after that company for contribution or indemnification.)

"I think there are enough regulations in this area," says Kende, "that something was probably done wrong" by someone, though he acknowledges that that's speculation on his part.

Considering the musical chairs of blame game that we've seen from the beginning on this, it's clear that somebody was negligent and violated one or more regulations.  If that's true, then BP is on the hook for all of it:  the state and municipality claims for lost tax revenue from lost tourism, the individual claims for the destruction of the fishing industry and tourism industry along the coast, the criminal claims for causing the deaths of the rig workers, the direct cost of the cleanup, plus whatever federal penalties can be assessed under the Clean Water Act, which in the case of negligence, would be $4300 per barrel of oil spilled.

That works out to $102 a gallon, kids.  We're well over 22 million gallons as of this morning and that cap is still spewing out oil.  That's two billion and some change if you believe the 12,000 barrels of oil a day number, and the number itself is probably multiple times that, which would multiply the fine.

Now imagine this mess keeps going for another eight weeks.

Now imagine this mess keeps going for another eight months.  Those fines just from the Clean Water Act could total tens of billions.  And that's before the lawyers.

I don't see how BP survives without filing for bankruptcy.  I believe it will happen sooner rather than later, too.