Appellate court asks judge to reconsider CITGO penalty

A federal appeals court has ordered a district judge to reconsider a $6 million penalty against CITGO Petroleum in a lawsuit over a 2006 oil spill at the company’s Lake Charles refinery.

The 5th U.S. Circuit Court of Appeals ruling this month in New Orleans does not give explicit instructions to bump up the penalty, but instructs U.S. District Judge Richard Haik to re-evaluate the company’s prior environmental violations and its decision to put off needed upgrades that might have prevented the spill.

The Justice Department, which brought the suit, had sought penalties of $247 million against the company, arguing that CITGO had cut corners on safety to improve its bottom line.

At issue in the case is a June 2006 oil spill that happened when heavy rains caused two “slop oil” tanks at the refinery to overflow, sending a mixture of oily wastewater and other pollutants from the refinery into nearby waterways, including the Calcasieu River.

CITGO did not dispute fault in the case, and the only issue at the bench trial before Haik in 2011 was how much it should pay in damages.

The judge based his penalty on a $111 per-barrel fine for the 54,000 barrels that CITGO argued were spilled.

The Justice Department argued the amount was actually 76,800 barrels and contested the $111-per-barrel penalty as unreasonably low, considering the CITGO faces potential fines of up to $1,100 per barrel.

The federal appeals court ruling did not fault the judge for using CITGO’s lower estimate on the amount of oil spilled.

However, the appellate court did direct Haik to take another look at the per-barrel penalty and stated in the ruling that the judge “discounted the seriousness of CITGO’s multi-year wait before it began taking the corrective measures required at this plant.”

According to the appellate court’s ruling, CITGO had been aware of the need for environmental upgrades but had put off doing the work despite the recommendations of its own employees and consultants.

In addition to the $6 million federal penalty, Haik mandated several measures to prevent future spills at the refinery and imposed an additional $3 million penalty to be paid to the state Department of Environmental Quality.

CITGO did not appeal the state penalty and paid it last year.

CITGO also paid a $13 million fine after the corporation pleaded guilty in 2008 to a criminal Clean Water Act charge in the spill.