Transocean Punished for Legal Tactics in Old Spill

A U.S. judge has taken the unusual step of sanctioning a unit of Transocean Ltd, owner of the rig in the Gulf of Mexico spill, for “vexatious” tactics in fighting liability from a decades-old oil well spill in Louisiana.

Attorneys for the subsidiary, Santa Fe Minerals Inc., used dormant shell companies, improper bankruptcy petitions and “gamesmanship of the judicial system” over several years to avoid having a lawsuit heard in Louisiana court, according to a ruling on from a federal bankruptcy judge in Delaware.

The case involves a much smaller accident than the spill that followed last month’s sinking of the Deepwater Horizon, but it shows the tactics Transocean used to keep legal disputes out of Louisiana, tactics it appears to be using again: Transocean filed a request last week in a federal court in Texas to limit liability from the current spill.

“I’d be surprised by almost nothing Transocean does” to move the current cases to Texas, said Steve Herman, an attorney with Herman Herman Katz and Cotlar, a New Orleans firm that has named Transocean in four lawsuits stemming from the Horizon disaster.

Transocean did not immediately respond to a request for comment.

On Monday, the Delaware court sanctioned the Transocean subsidiary for its tactics relating to a long, slow spill that contaminated drinking water and sugar cane fields on William Tebow’s property in central Louisiana. Tebow filed a lawsuit in Louisiana in 2005.

The Delaware Bankruptcy Court judge, Kevin Gross, ordered Santa Fe Minerals and its parent companies, referred to as the GSF Entities, to pay for much of the $2 million in legal fees of the company that brought the complaint, Bass Enterprises Production Co, or BEPCO.

“The ‘villains’ in these cases are the GSF Entities. They caused the bankruptcy cases to be filed to protect their interests, funded the cases, misused Faure’s conflict of interest for their benefit and employed vexatious, aggressive litigation tactics against BEPCO,” wrote Gross.

Faure is David Faure, an assistant general counsel with GlobalSantaFe, according to the company’s website. GlobalSantaFe was acquired by Transocean in 2007.

Santa Fe and BEPCO companies have been battling for years over the spill.

Tebow’s lawsuit sought $320 million against BEPCO and Santa Fe Minerals, which both appeared on the mineral lease, although experts determined Santa Fe was at fault, according to court documents.

At first, Santa Fe’s attorneys hoped to defend against the lawsuit because the company had actually dissolved, has no operations and no employees. However, it later determined it was exposed to the lawsuit because it had failed to publish a dissolution notice.

Just days before that Louisiana trial was set to start, the legal gymnastics began.

Another company in the Transocean corporate family, also without staff or offices, 15375 Memorial Corp, received a line of credit for $500,000 from further up the corporate ladder. In exchange for the credit, 15375 Memorial agreed to accept all liabilities of Santa Fe.

15375 Memorial then filed for bankruptcy in Delaware, fully “aware that filing for bankruptcy would permit them to avoid liability in the Tebow action,” wrote an Appeals Court judge who reviewed the case.

Abandoned by its co-defendant, BEPCO settled the Tebow case for $20 million in 2007. But BEPCO took on the property damage claims and began to purse them against the Transocean subsidiaries.

The Transocean subsidiaries proposed reorganization plans that included releasing parent companies. Ultimately, the Third Circuit Court of Appeals determined late last year the bankruptcy was filed in bad faith, which is grounds for dismissal.

“The debtors bankruptcy petitions served no valid bankruptcy purpose and were used primarily as a litigation tactic to protect the debtors and their parent companies from liability in pending litigations,” according to the Appeals Court opinion.

In March, just one hour after Delaware’s bankruptcy court cleared the way for BEPCO to pursue its claims in Louisiana, Transocean filed a complaint in Texas seeking to have a court declare that Transocean is not a common business enterprise with the subsidiaries. Such an “alter ego” determination would prevent liability from reaching the parent company.

“BEPCO is incensed that the GSF Entities have again thwarted BEPCO’s effort to litigate its alter ego claims in Louisiana state court,” Delaware Judge Gross wrote, referring to the filing of the Texas complaint. “The court understands BEPCO’s frustration and agrees that the GSF Entities have once more exhibited gamesmanship with the judicial system.”

The bankruptcy case is In re 15375 Memorial Corp, U.S. Bankruptcy Court, District of Delaware, No. 06-50822.

The Louisiana state court case is BEPCO LP vs Santa Fe Minerals Inc, certain underwriters at Lloyd’s, London and London Market Companies; and XYZ Insurance Companies, 12th Judicial District Court for the Parish of Avoyelles, No. 2008-2006.

The Texas case is Transocean Worldwide Inc, GlobalSantaFe Corp, GlobalSantaFe Corpate Services Inc and Entities Holdings Inc vs BEPCO LP, Santa Fe Minerals Inc and 15735 Memorial Corp, District Court of Harris County, 2009-08284.

(Additional reporting by Braden Reddall in San Francisco)