The Department of Justice is suing BP, seeking to recover damages for harms from the 2010 Gulf of Mexico oil spill. These kinds of large environmental damage cases often (I would guess usually) settle. The case arising from the Exxon Valdez spill is the canonical example (litigation continued for decades but the federal government settled quickly). But the two sides don't seem close right now. Their disagreement became public with a "strongly worded" court filing last week criticizing BP's arguments that many seem to think shows that settlement is unlikely.
In general, I think settlement is still the most likely outcome. But the memo is evidence that the parties are not close right now. I don't know what the reason for that is, but a possibility is DOJ's allegation of "gross negligence" and "willful misconduct" by BP. These aren't just insults - the Oil Pollution Act strips firms of the liability caps they would otherwise benefit from if either can be shown. In the Gulf spill case, this is huge. Damages were probably in the tens of billions of $ (though very hard to quantify), but OPA caps them at $75m. Without the cap, damages could be much, much higher. (Note that civil fines and private damages awards will also increase the amount BP must pay, but this number still clearly matters).
There's a problem, though - it's not clear what "gross negligence" or "willful misconduct" mean. Think you know? Read 71 pages of just one scholar's legal analysis here and see if you still think so. I, for one, have almost no idea. Figuring out whether a firm meets these standards is hard, and more importantly, hard to predict.
Settlement depends on both sides having some overlap in their range of expected results from the case, taking into account litigation and other costs, and finding that overlap through the negotiation process. That's a lot harder when not only the facts but the fundamental legal standards are so complex. And it may be impossible when the amount of damages differs by orders of magnitude based on the application of such ambiguous standards.
I'm not suggesting the case won't settle. The money at stake makes me think it will, but on the other hand litigation costs are such small potatoes in comparison that there's little relative cost of dragging things out.
But there's a lesson here for policymakers. When big money legal effects (like liability caps) depend on ambiguous legal terms that courts are forced to define, the chances of settlement go down, possibly by quite a bit. Uncertainty has its own costs - litigation costs are obvious, but the same divergence in views that makes settlement hard also means firms may have very different views than government (or other firms) on how much they are deterred by the threat of liability. More concrete legal standards are probably better, especially when so much is at stake.
