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CITGO’s Bid to Avoid Oil Spill Liability Probed by Supreme Court

Nov. 5, 2019, 5:26 PM

Supreme Court justices appeared skeptical Nov. 5 of a refining company’s argument that it shouldn’t be on the hook for a 6,000-barrel oil spill in the Delaware River.

During oral arguments, several justices pushed back on CITGO Asphalt Refining Co.'s contention that it isn’t financially responsible for the 2004 accident, in which a ship struck an abandoned anchor while en route to deliver oil from Venezuela to a refinery near Philadelphia.

“It’s not a safe port,” Chief Justice John Roberts said, getting to the heart of the dispute.

The question in the case is whether CITGO, which chartered the Athos I tanker, made a guarantee that the ship would have a safe place to arrive in Paulsboro, N.J., or if it merely committed to due diligence that it would be safe.

“It doesn’t say ‘usually’ safe place,” Justice Brett Kavanaugh said of the contract language in question.

The outcome of the maritime law case will affect who must pay for future oil spills and other accidents.

Case History

The case began after the Athos I struck the abandoned anchor in the river, and shipowner Frescati Shipping Co. spent $143 million on cleanup efforts under the Oil Pollution Act.

The U.S. government later reimbursed more than half of the company’s costs, thanks to the statute’s cap on shipowners’ liability.

Frescati and the federal government are trying to recoup their costs from CITGO, relying on the refining company’s contract for the ship, known as a voyage charter. The charter stipulated that CITGO was responsible for ensuring a safe port and berth for the Athos I.

Frescati and government lawyers told the Supreme Court that that was a promise CITGO failed to keep. The refiner countered that the clause was simply a commitment to due diligence, on its part, that the berth and port would be safe, not a guarantee.

The U.S. Court of Appeals for the Third Circuit sided with Frescati, adopting an interpretation used in the Second Circuit and in United Kingdom courts when reviewing voyage charters.

The Fifth Circuit has adopted a conflicting standard, saying the safe berth clause isn’t a guarantee. CITGO is urging the Supreme Court to adopt the Fifth Circuit’s approach.

“Any rule that would expose a defendant to limitless liability” would disrupt marine commerce and wouldn’t be sensible, Sidley Austin LLP attorney Carter G. Phillips, representing CITGO, told the court, calling the anchor’s presence in the river “unknown and unknowable.”

Contract Language

The justices kept returning to the contract language during oral arguments. Justice Elena Kagan said the case should be decided on the terms of the charter, not on what CITGO thinks would be “sensible.”

The contract requires CITGO to “designate and procure” a safe berth.

“You either did or you didn’t,” Roberts said.

Erica L. Ross, assistant to the U.S. solicitor general, argued that CITGO could have anticipated that debris could be present along the industrial Delaware River.

Justice Ruth Bader Ginsburg noted that shipping companies and charterers have a variety of options for boilerplate contract provisions, and the parties in this case chose the “safe berth” language, not a looser standard available in other charters.

Justice Samuel Alito, however, questioned how clear the contract language really was. “What if we think it can be read both ways?” he asked.

The case is CITGO Asphalt Ref. Co. v. Frescati Shipping Co., U.S., No. 18-565, oral arguments held 11/5/19.

To contact the reporter on this story: Ellen M. Gilmer in Washington at egilmer@bloombergenvironment.com

To contact the editors responsible for this story: Gregory Henderson at ghenderson@bloombergenvironment.com; Rob Tricchinelli at rtricchinelli@bloombergenvironment.com

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