The Corporate Settlement: Unsung Victory or Shameful Abdication?

By Derek Willie

Derek Willie is a rising freshman at the University of Pennsylvania.

After years of political frenzy, the 2010 BP oil spill, the largest and most devastating oil spill in American history, has seemingly become a relic of the recent past. While it initially elicited transient fury from American environmentalists, awkward apologies from corporate sympathizers, and a few flagrantly inappropriate jeers of “drill baby drill” from fiery tea-partiers, the BP spill, and the resultant penalty for the oil giant, soon became mired in lengthy, complex legal battles with no end in sight. Accordingly, news of BP’s $18.7 billion settlement with the federal government and five gulf states that broke in early July evoked quiet feelings of relief and closure even among once vociferous commentators, culminating in a seemingly insignificant conclusion to a conflict that initially seemed bound to change the course of American energy and regulatory policy. [1]

Still, many view the putatively massive settlement as a tremendous success. The New York Times lauds the environmental benefits of the deal, noting that it will “provide a significant, continuing source of revenue for the repair and restoration of the Gulf of Mexico’s marshes, barrier islands, fisheries, deep-sea corals and other vulnerable elements of an ecosystem that had been ailing long before the spill.” [2] From a legal perspective, the deal concludes costly litigation that could have feasibly continued well into the next decade, as details of government negotiations remain confidential. [3] Even so, BP estimates that it will have paid an aggregate sum of almost $54 billion for the spill, a hefty price that the Times believes constitutes “a deterrent to careless behavior.” [4] The Washington Post agreed, arguing that the settlement’s terms are in accordance with President Obama’s post-spill objective of “demand[ing] accountability from BP without bankrupting the company” and praising the deal as “a milestone for the environment.” [5]

Conventional corporate wisdom, of course, endorses the settlement. What sane legal entity would forsake a gigantic settlement in pursuit of poetic justice at trial? However, the penalties derived from the Clean Water Act could have been significantly larger. [6] As one New Orleans attorney involved in the lawsuit remarked, “[BP was] losing at every count” during negotiations, reflecting the government’s enormous leverage over the legally humiliated oil company. [7] Nonetheless, the government wanted to settle, as it does in so many cases involving litigation against large corporations, especially banks. This propensity to settle is not at all unique to the BP cases, or even to the few cases whose negotiations had predicted palpably generous restitution for the government. We should thus inquire whether such settlements are indeed far-reaching, inexpensive victories for the government or, in reality, abdications of its premier responsibilities to enforce the law, to advocate on behalf of a legally wronged collective, and to punish transgressors.

If the government is shirking its legal responsibility by pursuing settlements over lawsuits, Wall Street is providing it with a myriad of opportunities to practice its legal irresponsibility. Los Angeles Times reporter Michael Hiltzik profiled a 2013 settlement between federal and state regulators and JP Morgan Chase, where they negotiated a $13 billion payment after the bank’s subsidiaries, Bear Sterns and Washington Mutual, were sued for their involvement in the collapse of the mortgage-backed security market. Ostensibly large, the sum contains $7 billion that is tax deductible, saving the bank billions, as well as $4 billion in mortgage relief that will likely allow it to reap more long-term profits. [8] Even after settling, the bank admitted no wrongdoing whatsoever, fired no one, and retained Jamie Dimon as CEO and Chairman. Furthermore, in Elizabeth Warren’s incisive letter to SEC Chair Mary Jo White, the Senator noted that out of 521 banks with which the SEC reached settlements, only 19 admitted guilt, amounting to less than four percent. [9]

While BP’s settlement and those of JP Morgan and other banks are not entirely analogous, they are similar enough to indicate an overarching governmental mindset with respect to corporate malfeasance: threaten corporations at the helm of a calamity or crisis, then attempt to settle with them. Whether or not the government’s proclivity to settle has substantially impacted the American public is unclear; nevertheless, the government’s ability to deter companies from committing future, similar crimes can certainly be called into question. Though there have been bipartisan efforts to render the terms of a settlement, specifically with financial institutions, more transparent, a renewed government commitment to fight such financial crimes in court and to indict responsible officials seems unlikely. [10]

Let the onslaught of corporate settlements not be simply an excuse to condemn our corporate legal tradition as such; let it be an opportunity to reexamine the efficacy of a potentially overused legal practice, and to emphasize the importance of accountability and justice in our system, even if it repels a few short-term foreign investors. Perhaps, when it comes to government lawsuits, we should reject conventional wisdom. Perhaps the government should not operate under the legal logic of a corporation, settling as soon as it has the chance, abandoning justice for efficiency. The BP oil spill was one of the largest environmental crises in history; it was one of the most disturbing demonstrations of corporate apathy and ineptitude in Modern America; it was inexcusable. Perhaps $18.7 billion wasn’t enough. Perhaps there was a prevailing lesson to be learned from a trial; a lesson that was lost in a sea of documents, and obscured by a shroud of smiles and handshakes.



[1] “BP Deal Will Lead to a Cleaner Gulf." The New York Times. July 7, 2015. Accessed July 13, 2015. http://www.nytimes.com/2015/07/08/opinion/bp-deal-will-lead-to-a-cleaner-gulf.html?_r=0.
[2] Ibid.
[3] Jessica Resnick-Ault, Dmitry Zhdannikov and Terry Wade. "BP Was Happy to Pay $18.7 Billion to Settle Gulf Oil Spill Claims." Business Insider. July 9, 2015. Accessed July 13, 2015. http://www.businessinsider.com/r-with-options-dwindling-bp-seized-a-chance-to-settle-oil-spill-case-2015-7.
[4] “BP Deal Will Lead to a Cleaner Gulf." The New York Times. July 7, 2015. Accessed July 13, 2015. http://www.nytimes.com/2015/07/08/opinion/bp-deal-will-lead-to-a-cleaner-gulf.html?_r=0.
[5] “A Milestone for the Environment in the Deepwater Horizon Disaster." Washington Post. July 2, 2015. Accessed July 13, 2015. http://www.washingtonpost.com/opinions/a-milestone-for-the-environment-in-the-deepwater-horizon-disaster/2015/07/02/5d397694-20f2-11e5-aeb9-a411a84c9d55_story.html.
[6] “BP Deal Will Lead to a Cleaner Gulf." The New York Times. July 7, 2015. Accessed July 13, 2015. http://www.nytimes.com/2015/07/08/opinion/bp-deal-will-lead-to-a-cleaner-gulf.html?_r=0.
[7] Jessica Resnick-Ault, Dmitry Zhdannikov and Terry Wade. "BP Was Happy to Pay $18.7 Billion to Settle Gulf Oil Spill Claims." Business Insider. July 9, 2015. Accessed July 13, 2015. http://www.businessinsider.com/r-with-options-dwindling-bp-seized-a-chance-to-settle-oil-spill-case-2015-7.
[8] Hiltzik, Michael. "Bottom Line on JPMorgan's $13-billion Settlement: Not Nearly Enough." Los Angeles Times. November 19, 2013. Accessed July 13, 2015. http://www.latimes.com/business/hiltzik/la-fi-mh-jpmorgans-20131119-story.html.
[9] Warren, Elizabeth. "Senator Warren's Letter to S.E.C." The New York Times. June 1, 2015. Accessed July 13, 2015. http://www.nytimes.com/interactive/2015/06/02/business/dealbook/document-senator-warrens-letter-to-sec.html.
[10] Hiltzik, Michael. "Sen. Warren: Getting at the Truth of Those Big, Bogus Bank Penalties." Los Angeles Times. January 10, 2014. Accessed July 13, 2015. http://articles.latimes.com/2014/jan/10/business/la-fi-mh-bank-settlements-20140110.

Photo Credit: Flickr User  DVIDSHUB

The opinions and views expressed through this publication are the opinions of the designated authors and do not reflect the opinions or views of the Penn Undergraduate Law Journal, our staff, or our clients.