In the News Law360

SD Justices Rule BP Didn't Double Dip for Gas Tank Cleanup

Kirkland partners Martin Roth and David Zott spoke with Law360 regarding two separate state Supreme Court victories that they achieved for client BP the week of Aug. 10. The  cases concerned allegations that BP wrongly collected multiple payments related to leaking gasoline tank cleanups.

South Dakota's high court has affirmed BP doesn't have to pay back money it received from a fund created by the state for the cleanup of leaking underground petroleum storage tanks because the money wasn't collected on top of coverage from its insurer.

 In a unanimous opinion Wednesday, the South Dakota Supreme Court affirmed a lower court opinion in full. The panel shot down the state and fund's argument that money received by BP from a settlement with its insurer covered the gas tank cleanup, ruling those funds were issued to cover BP's potential liabilities stemming from claims before 1985. Contamination from the gas tanks was not discovered until 1987, the panel said.

 South Dakota's legislature created the Petroleum Release Compensation Fund in 1988 to help owners of underground gas tanks pay for the cleanup of leaks or spills. The fund was financed by bulk gasoline marketers and importers, such as BP, paying a 2-cent-per-gallon tax in the state, according to the opinion.

 BP received roughly $3.1 million from the fund for the cleanup of 27 sites it owned in the state. According to the opinion, the problems with the sites began between 1987 and 1998. When applying for the funds, BP said it had no outside insurance policy that would pay for the cleanup.

 In 1993, BP sued its insurers for coverage of pollution costs at 23 unrelated industrial sites based on policies it purchased between 1959 and 1985. None of the sites involved underground storage tanks nor were they in South Dakota, according to the opinion.

 BP ultimately settled with its insurers for roughly $205 million in funds, a fraction of the $2.7 billion of costs that it expected to incur related to the 23 industrial sites. South Dakota then sued the company, arguing the settlement proceeds should be used to repay the $3.1 million it had received from the fund.

 Later, the state and fund added a claim seeking to recoup additional money paid to the current owners of property purchased from BP, arguing the company should also be liable for those costs.

 The lower court and the state's supreme court disagreed on both fronts, finding that the money received by BP from its insurers was not related to the underground storage tank cleanup and granted summary judgment in favor of BP.

 With Wednesday's most recent victory, BP has defeated at least eight suits lodging similar accusations, including an order Monday from the Montana Supreme Court signing off on the voluntary dismissal of an appeal challenging a favorable outcome for BP. Kirkland & Ellis LLP has advised the company through the litigation since 2012.

 Kirkland partner Martin L. Roth, who has been working on the litigation from the beginning, told Law360 Thursday that having BP's trust to "aggressively defend" the company against the suits when so many other major energy players had settled similar claims was exciting. He added the caliber of his fellow lawyers working on the suits was essential.

 "We had a team that could really simplify what you can probably tell from our short conversation is a relatively complex issue," Roth said. "And we made clear to these judges that BP, as a participant in the fund, comported with what they were supposed to do, and shouldn't be liable to pay back money they were rightfully reimbursed in the first place."

 One of his fellow lawyers, Kirkland partner David Zott, also spoke with Law360 Thursday, noting that showing the court that the language in BP's insurance policies does away with the claims against it was a crucial aspect of the litigation.

 "It was really a fight between 'can you limit the analysis to the four corners of these agreements' or 'are the plaintiffs able to create a fact issue by hiring experts who say there's at least potential for insurance and that should be enough to trigger a responsibility to disclose it to the state?'" Zott said. "That was really, I think, the clash."

 Representatives for the state couldn't immediately be reached for comment Thursday.

 South Dakota and the fund was represented by Judith K. Zeigler Wehrkamp of the state's attorney general's office, Matthew J. Herman and Robert M. Foote of Foote Mielke Chavez & O'Neil LLC and Michael L. Murphy of Bailey & Glasser LLP.

 BP was represented by David Zott, Martin Roth, Daniel Siegfried, Eric White, Rachel Haig and Cameron Ginder of Kirkland & Ellis LLP and Jeffery D. Collins and Thomas G. Fritz of Lynn Jackson Shultz & Lebrun PC.

 The suit is The State of South Dakota et al. v. BP plc et. al., case number 28933-a-SRJ, in the South Dakota Supreme Court.