Legacy of Disaster: Legal Landmines Litter Path from Tragedy to Justice

S&P Global Market Intelligence
Written By: Sarah Smith and Taylor Kuykendall
S&P Global Market Intelligence
Written By: Sarah Smith and Taylor Kuykendall

The court of public opinion is quick to convict when company mistakes take innocent lives. Juries are harder to convince.

Following the Upper Big Branch, Deepwater Horizon and San Bruno disasters in 2010, federal prosecutors announced bold plans to imprison a CEO for up to three decades on four felony charges, prove that rig supervisors committed manslaughter and exact $1.13 billion in punishment from a gas utility for reaping financial rewards from criminal behavior.

Although the companies — Massey Energy Co., BP plc and PG&E Corp. — ultimately faced high penalties and large settlements, prosecutors secured the conviction of just one top-level executive. That conviction on a lesser charge, along with deflated penalties in other cases, highlights the challenge prosecutors face to mount cases against companies or executives, legal experts told S&P Global Market Intelligence.

Booth Goodwin, then a U.S. attorney, tried and succeeded in 2016 to send coal executive Don Blankenship to prison for the Upper Big Branch mine explosion, which killed 29 workers, but the conviction sent a mixed message about holding executives accountable for their companies' failures.

The jury agreed that Blankenship had conspired to violate mine safety laws, convicting him of a misdemeanor. A pair of felony charges did not stick, though, meaning Blankenship avoided nearly three decades of potential prison time. He was sentenced to one year.

Blankenship's conviction could set a precedent in the pursuit of individual accountability. The guilty verdict was based on how he ran his company's operations.

Goodwin believes the conviction, even if only a misdemeanor, sends a clear message that executives are responsible for more than the corporation's finances. It is fitting to go after individuals who make criminal choices rather than punish the company on the whole, Goodwin said in an interview.

"It isn't fair to the company who has, oftentimes, innocent owners and some board members maybe that had no idea what was going on deeper into the company," he said.

Blankenship argued in a 68-page booklet penned from prison that ambitious prosecutors may be tempted to go headhunting to achieve political aims and predicted that his case could be the first of many vilifying "normal American executive decision making."

"Politicians put me in prison for political and self-serving reasons," Blankenship said, invoking the name of the booklet he wrote. "I am an American Political Prisoner."

Blankenship's attorney William Taylor said an interview with Blankenship was not possible and declined an interview himself.

Blankenship remains imprisoned with a May release date after a January federal appeals court decision rejected his attempt to have his conviction reversed. Blankenship's attorneys argued that the conviction had been based on erroneous legal rulings that favored the government’s prosecution theory and lowered the burden of proof.

"There is an obvious danger for unfair conviction when a man who is unpopular in parts of the community is prosecuted in the wake of — but ostensibly not for causing — a terrible tragedy," Blankenship’s defense argued.

Three state-based coal associations filed in support of Blankenship's appeal, fretting that everyday decisions made by executives could expose them to criminal liability. The appeals court, though, said operators could not simply waive repeated failures to comply with the law at a mine site as a byproduct of "tough decisions" in weighing productivity against safety and regulatory compliance.

"In particular, Congress repeatedly stated that the Mine Safety Act's enforcement provisions were designed to deter mine operators from choosing to prioritize production over safety compliance on grounds that it was 'cheaper to pay the penalties than to strive for a violation-free mine,'" the appeals court decision states. "Congress imposes penalties on corporate officers — like defendant — alongside enterprise penalties because it is often impossible to impose monetary penalties on corporations large enough to deter corporate misconduct."

Implications of executive prosecution

After PG&E's fatal 2010 natural gas pipeline explosion and fire, a 2014 indictment charged the company with 27 counts of violating the federal Pipeline Safety Act, along with one count of obstructing an agency proceeding. Altogether, the charges carried a $14 million potential fine.

The prosecution said PG&E's illegal actions inflicted $565 million in losses, opening the door for government attorneys to call for a penalty in excess of $1 billion.

The judge disagreed, so the prosecution tried a different tactic, alleging that PG&E gained $281 million from its illicit conduct. Had attorneys been able to prove that, they could have asked for a penalty as high as $562 million.

On the eve of the jury's deliberations in mid-2016, the prosecution walked back its maximum penalty request, acknowledging that the government would have a hard time definitively linking the individual criminal counts to PG&E's gains. This move sank the maximum penalty to $6 million.

Ultimately, the jury convicted on six of the 12 remaining charges, dropping the possible penalty down to $3 million.

The sentencing, handed down Jan. 26, required PG&E to pay that lowered maximum penalty and included additional punishments. The court sentenced the company to a five-year probation period and required that the utility submit itself to third-party monitoring. Company employees will have to complete 10,000 hours of community service, with high-level personnel performing a fifth of those hours. PG&E will also have to put full-page advertisements in The Wall Street Journal and the San Francisco Chronicle publicizing the company's crimes and punishments and how it will prevent future infractions.

"I find the crimes at issue to be very serious and to pose a great risk to public safety, and that's why I am going to impose the maximum possible fine and maximum possible probation terms allowable under the law," U.S. District Judge Thelton Henderson said at sentencing, according to the Associated Press.

The DOJ also struggled to make a case stick when it attempted to prosecute individuals tied to the BP Deepwater Horizon explosion, which killed 11 people and led to a catastrophic oil spill. Federal attorneys in 2012 charged two well-site leaders, Robert Kaluza and Donald Vidrine, with involuntary manslaughter, ship officer's manslaughter and Clean Water Act violations.

Eric Holder, who was U.S. attorney general at the time, said the indictments were "steps forward in our ongoing efforts to achieve justice for those whose lives, and livelihoods, were impacted by the largest environmental disaster in our nation's history, and to hold accountable those who bore responsibility for this tragedy."

The ship officer's manslaughter, known more commonly as seaman's manslaughter, counts were dismissed in late 2013 after the court decided that the statute was meant for marine workers and did not apply to well-site leaders. By the end of 2015, the involuntary manslaughter counts were also dismissed, with the DOJ saying it could "no longer meet the legal standard for instituting the involuntary manslaughter charges."

The day the court dismissed those charges, Vidrine pleaded guilty to the remaining misdemeanor Clean Water Act violation. He was ultimately sentenced to 10 months' probation. In February, a jury found Kaluza not guilty of his Clean Water Act charge.

Federal prosecutors had more success charging BP and some of the contractors who worked on the Deepwater Horizon rig.

BP agreed to a record $20.8 billion settlement over environmental damage and other claims by the five Gulf states and local governments. In a separate agreement, the company agreed to plead guilty to crimes including felony manslaughter and pay a record $4 billion in criminal fines and penalties. Transocean, owner of the Deepwater Horizon and drilling contractor for BP on the Macondo well, in 2013 settled criminal and civil charges for $1.4 billion. Contractor Halliburton agreed to pay out $1.1 billion to settle the majority of lawsuits over its role in the spill in late 2014.

The pendulum swings: Who is liable?

Prosecuting white-collar crimes presents unique difficulties, said University of Maryland law professor Rena Steinzor, author of the book Why Not Jail?

Explaining robbery to a jury is simple. Bringing the same jury up to speed on the finer points of finance, longwall mining machines, blowout preventers and pipeline welds is another story. "Even when the law is on the side of the prosecutor, it’s a beyond-a-reasonable-doubt standard, and some violations are hard to explain," Steinzor said.

Prosecutors also have to decide whether to pursue corporations or individuals, both likely to have access to a lot of financial resources for their defense. Better-funded defense teams can expend more time looking for technical flaws in the prosecution's case and take advantage of potential weaknesses, legal experts say.

Executives could increasingly be exposed to criminal and civil charges. Sally Yates, then deputy attorney general, in 2015 instructed prosecutors to take aim at individuals when investigating corporate wrongdoing. The so-called Yates memo spelled out incentives prosecutors can use to encourage companies that are facing charges to offer evidence pinpointing the source of a crime.

Incentivizing corporations to offer up evidence to avoid companywide prosecution may help pin corporate crime on specific people but may introduce challenging new dynamics, such as a "corporation versus its executives" mentality and scapegoating rather than responsibility, according to Herrick Lidstone, a law professor and managing director of Burns Figa & Will PC.

"If we put too much pressure on corporations … what's going to be the effect on the innocent executives? We're talking criminal sanctions here," said Lidstone, an energy industry attorney with a practice including corporate governance who wrote about the implications of the DOJ directive.

Although President Donald Trump campaigned on unburdening U.S. businesses, that attitude may not translate into softness on corporations in the courtroom. Trump's pick for attorney general, Sen. Jeff Sessions, R-Ala., has been adamant that corporate wrongdoers should be punished for their crimes.

Speaking specifically about BP's oil spill, Sessions shot down the idea that prosecutors should try to spare a company's innocent employees and shareholders from harm by easing up on the corporation overall.

"You are saying BP is too big to fail. They have got employees. ... This is a dangerous philosophy. Normally, I was taught, if they violated the law, you charge them. If they did not violate the law, you do not charge them," Sessions, whose home state was greatly affected by the spill, said in a 2010 hearing. "I have said repeatedly that BP is liable and should be held liable for their responsibilities to the extent of their existence. In other words, they are not too big to fail."

Years before the Yates memo, Sessions said that prosecutors should be able to push corporations to hand over information on criminal conduct within the company, especially if it helps "crooks in the corporation be sent to jail, where they ought to be."

But there is often more money to be made by prosecuting or settling with the involved companies, according to Brandon Garrett, a law professor at the University of Virginia.

"Corporate criminal enforcement has exploded in this country. Billion-dollar fines are now routine, where they were unimaginable a decade ago, across a range of industries, from Big Pharma to the largest megabanks to defense contractors and energy companies," Garrett wrote in the Virginia Law Review.

And when a settlement is achieved, it can help to alleviate the damage caused by the initial wrongdoing, even if no individuals are criminally punished.

In April 2016, BP agreed to the largest settlement in the history of federal law enforcement over claims related to the Deepwater Horizon oil spill. The $20.8 billion deal with state and federal agencies included the largest civil penalty ever paid under an environmental statute and the largest tab for natural resources damage.

Oil harmed more than 1,300 miles of shoreline, devastating the ecosystem, closing fisheries and hammering the tourism business in the five Gulf states. Much of that settlement was devoted to the work that has and will be done to mend what the spill destroyed.