Citgo Penalty in 2006 Louisiana Oil Spill Raised to $81 Million

After the appeals court ordered him to reconsider the evidence and the penalty in a case against Citgo over a 2006 oil spill, a federal judge has imposed an $81 million penalty on Citgo Petroleum Corp. for gross negligence the spill at a refinery in Lake Charles, Louisiana.

In 2013, the Fifth Circuit rejected the judge’s 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 and included $3 million in 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 against Citgo for failing to prevent the rain-induced leak 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 spill, 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.

In 2011, Judge Haik judged that Citgo had built an adequate system in 1994 but had not adequately updated and maintained it. Shortly before the spill, the company had been working on a plan to remove the excess oil but did not move quickly enough to prevent the disaster, the judge said. But when he imposed the original penalty, Judge Haik said Citgo’s conduct did not meet the threshold for gross negligence or willful misconduct. The original CWA penalty was $111 per barrel. 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, according to Law360. Citgo contended that it had already paid other penalties relating to the spill and that the harm done 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 had also paid $2 million in U.S. Coast Guard response costs.

In July 2013, the appeals court vacated the judgment, concluding that Judge Haik’s failure to quantify the economic benefit Citgo reaped by deferring its response to known deficiencies at the Lake Charles refinery for nearly a decade required reversal.

The gross negligence finding could carry CWA penalties of up to $4,300 per barrel of oil, but Judge Haik set the penalty 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.