In recent years, there has been a dramatic increase in the volume of crude oil being shipped by rail from North Dakota’s Bakken Shale to oil refineries throughout the United States and Canada – and with that increase, several train derailments resulting in oil spills or explosions. The worst of these occurred in July 2013, when an unattended 74-car freight train carrying crude oil from the Bakken Shale derailed and exploded in Lac-Mégantic, Quebec, destroying more than 30 buildings, roughly half of the downtown area of the small town; killing 47 people; and releasing a large quantity of oil into the environment. Soon after the disaster, Montreal, Maine & Atlantic Railway Ltd. (MMA), the train operator, and its Canadian subsidiary filed for bankruptcy in the United States Bankruptcy Court for the District of Maine as well as in Quebec Superior Court, and several lawsuits were filed against MMA and other companies relating to personal injuries, deaths, and property damage resulting from the disaster. Now, two years after the disaster, 22 entities and groups of entities facing potential liability for the disaster-including oil companies, insurers, tank car manufacturers, and others-have agreed in proposed settlements to pay a total of $345 million into a compensation fund for deaths and damage caused by the train explosion.
The proposed settlements, which would provide those contributing to the compensation fund with a full release from legal liability relating to the disaster in the United States and Canada, are currently before the courts in both countries for consideration and approval. Among the companies that have agreed to contribute to the fund are Royal Dutch Shell PLC, Marathon Oil Corp., ConocoPhillips, and Irving Oil Ltd. Pursuant to the proposed settlements, the Province of Quebec, the city of Lac-Mégantic and the Canadian government would receive the largest share of the funds, followed by families of those who died, personal injury claimants, and property damage claimants. There is only one party facing potential liability-Canadian Pacific Railway-that has not agreed to participate in the settlements and has challenged the settlements on various grounds.
During MMA’s bankruptcy proceedings, the issue of the oil companies’ responsibility for the disaster has been in dispute. The trustee has argued that oil producers knew the oil they were selling was dangerously volatile and failed to take action to make transporting it safer, while oil companies have argued that their responsibility should be limited to properly labeling the crude oil. Further, the terms of the proposed settlements do not disclose the specific dollar amounts that various companies have agreed to contribute to the fund. Rather, Robert J. Keach, the trustee in the MMA bankruptcy proceedings in Maine, has filed a motion authorizing the filing of the settlement agreements under seal. The trustee’s motion argues that the settlement amounts constitute “commercial information” allowed to be sealed under the Bankruptcy Code; that the settlement agreements contain “no seal, no deal” clauses; and that if the settlement amounts are disclosed, the settlement agreements will become void. The motion further asserts that if the settlements were to fall through, the settling parties would be harmed because the amount they had been willing to pay in settlement would be known by future litigants.
The trustee’s proposal to seal the settlement agreements has raised objections from parties to the bankruptcy proceedings as well as observers. Most notably, the Office of the U.S. Trustee (part of the Justice Department) has filed an objection arguing that efforts to keep the settlement agreements secret “violate[s] the strong public policy in favor of public access to documents filed with the bankruptcy court” and that other courts have rejected the argument that making the settlement amounts public will hurt the companies’ chances in future litigation. An objection has also been filed by one of MMA’s creditors which seeks discovery regarding the settlement agreements. Canadian Pacific has also objected, seeking information not only about the settlement amounts but also the claims preserved in the settlement agreements against non-settling parties. The court’s resolution of this issue of sealing the terms of the settlements could affect both the future of the proposed global settlement of the Lac-Mégantic claims as well as public access to settlement documents in future bankruptcy cases.
As discussed in a previous Firm Line piece by Kevin Huddell, oil train derailments in recent years have raised important questions about railroad safety in transporting crude oil and the role of oil companies in ensuring that crude oil is safe for transport. Since the explosion in Lac-Mégantic, some new regulations in the U.S. and Canada, such as those issued by the Department of Transportation in April, have been implemented, requiring railroads carrying crude oil to take greater precautions, including slowing down oil trains, increasing inspections, and phasing in stronger tanker cars that are less likely to rupture in an accident. In addition, North Dakota has enacted regulations requiring oil companies to remove propane, butane, and other volatile gases from oil prior to rail transport. The Department of Transportation’s new rules have been criticized and challenged by energy industry representatives as costly and likely to yield few safety benefits. Meanwhile, some members of Congress argue that the regulations do not go far enough and call for stricter regulations to protect the public, particularly a national volatility standard for crude oil transported by rail.
The proposed Lac-Mégantic settlements, if approved by the courts, will be a major step forward in compensating the victims of that disaster. However, continued efforts at improving safety regulations will be essential if, in the future, such disasters are to be prevented.
- Oil Firms Agree to Pay Millions in Compensation for Quebec Train Blast
- Transparency Sought in Train Derailment Settlement
- MMA bankruptcy case docket
- New Oil Train Rules Are Hit From All Sides
- Canada Toughens Rules for Carrying Crude Oil by Rail
- Canadian Pacific Asks Judge Not to Approve Lac- Mégantic Derailment Settlement