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Judge Increases Citgo Penalty in 2006 Louisiana Oil Spill

Dec 31, 2015

A Louisiana federal judge has imposed an $81 million penalty on Citgo Petroleum Corp. for gross negligence stemming from a 2006 oil spill at a refinery in Lake Charles, Louisiana.

In 2013, the Fifth Circuit rejected the original $6 million penalty and negligence finding imposed against the company, Law360 reports.

The spill occurred in June 2006, after a heavy rainfall caused storage tanks to overflow at Citgo's Lake Charles refinery. When the storage tanks were emptied, a secondary holding pond leaked and millions of gallons of oil flowed into the Indian Marais stream.

The original penalty totaled $9 million, including $3 million to cover state law violations. U.S. District Judge Richard T. Haik Sr. said that evidence presented at trial did not support a finding of gross negligence or willful misconduct by Citgo for failing to prevent a rain-induced leak at the refinery that led to the oil spill, according to Law360. The Fifth Circuit ordered Haik to reassess the penalty and re-examine the possibility of gross negligence on Citgo's part, given the company’s history of past environmental violations.

After the review, Judge Haik said, "this court could not agree more with the opinion of the Fifth Circuit which stated, 'In our view, though, almost winning a highly risky gamble with the environment does not much affect the egregiousness of having been gambling in the first place.'" Haik noted that heavy rains are a common occurrence in Louisiana, and Citgo failed to take adequate measures to prevent the tragedy, according to Law360.

The suit, filed on behalf of the U.S. Environmental Protection Agency (EPA) in June 2008, alleged that Citgo was liable for billions of dollars in Clean Water Act (CWA) violations for the leak that caused one of the largest onshore spills in U.S. history.

Citgo had built a satisfactory system in 1994 but had not adequately updated and maintained it, according to Judge Haik's 2011 judgment. The company was working on a plan to remove the excess oil shortly before the spill but did not work quickly enough to prevent the disaster, the judge said. But in 2011, when he imposed the original penalty, the judge said Citgo’s conduct did not meet the threshold for gross negligence or willful misconduct. The original CWA penalty was $111 per barrel for the approximately 54,000 barrels of oil spilled.

The government appealed the $6 million penalty to the Fifth Circuit in December 2011, arguing that the penalty was too small, Law360 reports. Citgo contended that it had already paid other penalties relating to the spill and that the harm was not very serious. The company said it had paid a $13 million criminal fine and had spent $7 million in post-spill improvements to a wastewater treatment unit and paid $2 million in U.S. Coast Guard response costs.

The appeals court vacated the judgment in July 3013, concluding that Judge Haik's failure to quantify the economic benefit to Citgo of deferring for nearly a decade its response to known deficiencies at its Lake Charles plant required reversal.

The gross negligence finding can carry CWA penalties of up to $4,300 per barrel, but Judge Haik set the penalty amount at $1,500 per barrel, which equals $81 million, according to Law360. "Given the seriousness of this incident, the long range impact it had on the Lake Charles area, and all of the factors outlined above, an appropriate penalty belongs in a significantly higher range," Judge Haik said.

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