$7.5 Million in Damages Assessed Over Grounding of Freighter in 2005

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Eight years ago, on February 2, 2005, a 555-foot-long freighter ran aground on the reef outside Barber’s Point harbor.

Over the next nine days, a team of workers hastily put together by the Coast Guard, the ship’s owners, and the state offloaded the cargo of cement in the holds of the Cape Flattery and drained its fuel tanks. On February 11, the vessel was pulled free of the reef.

No substantial amounts of fuel spilled, although some of the cement ended up in the water as a result of what has been described as an “uncontrolled release” during the offloading process. Still more coral was destroyed by anchors and by tow lines as tugs attempted to coax the ship off the reef. The continuous grinding of the freighter on the reef for nearly a week also wrought substantial harm.

It took nearly eight years, but in December, the U.S. Fish and Wildlife Service, the National Oceanic and Atmospheric Administration, and the state of Hawai`i reached a settlement with the vessel’s owners to compensate for the damage to natural resources.

Under its terms, Cape Flattery Limited, the Hong Kong company that owned the vessel at the time, and Pacific Basin (HK) Limited, its operator, agree to pay a total of $7.5 million in damages.

The bulk of that — $5,881,180 — is to go to the Department of Interior, which is to use the money to design, implement, permit, monitor, and oversee restoration projects to address damages to the coral reef and associated resources. Interior will also receive $56,679 as reimbursement for the natural resource damages sustained during the grounding.

NOAA is to get $1,524,137 as reimbursement for damages to resources under its jurisdiction.

The state of Hawai`i will receive $38,004 as its portion of the settlement.

The consent agreement was signed last September by the attorney for the owner and operator of the vessel. The deputy attorney general representing the state affixed her signature on December 17. The senior attorney for the environment and natural resources division of the Department of Justice was the last to endorse the agreement, on December 18.

Three days later it was lodged with the Federal District Court in Honolulu.

A ‘Pulverized’ Reef

The assessment of damages followed years of study by federal and state biologists. In the end, they determined that some 19 acres of reef, at depths up to 100 feet, had been damaged or destroyed as the ship’s hull “pulverized” the reef, as FWS biologist Mike Molina and NOAA scientist Gerry Davis described it in one presentation. Estimates of the damaged area in 2005 ranged as high as 34 acres, according to a NOAA report.

The total number of coral colonies destroyed has been estimated at one million.

Actions to minimize the harm began almost immediately. Divers from several government agencies attempted to reattach pieces of coral that had been broken in the grounding. More than 800 coral colonies were cemented to about 100 “bases,” and divers righted more than 400 colonies that had been knocked over. In total, Davis and Molina estimated the emergency restoration stabilized less than one percent of the damaged area. The damage was extensively documented by all parties and was rigorously re-surveyed two years ago. Recent follow-up visits have shown that the reef is recovering naturally at expected rates, says NOAA reef restoration expert Matthew Parry.

Reduced Damages

By 2008, with settlement discussions among the parties continuing to occur, the federal government indicated that the damages could run as high as $15 million.

That disclosure apparently prompted Cape Flattery to sue the company it had hired to salvage the vessel and remove it from the reef, Titan Marine LLC. According to Molina’s and Davis’s presentation, the ship’s removal caused much more damage than the initial grounding.

Through its “gross negligence” and the use of submerged rather than floating tow lines, Titan Marine had caused the damage to the reef to be much greater than it otherwise would have been, the ship’s attorneys contended. Invoking a clause in the contract, Titan sought to have the dispute arbitrated, but in a decision eventually upheld in the 9th U.S. Circuit Court of Appeals, arbitration was denied. (The dispute over arbitration was appealed to the U.S. Supreme Court, which denied Titan’s request for review last April. To judge from the number of parties filing amicus briefs – representing bankers, salvage companies, law professors, and professional arbitrators – interest in the dispute was high. The original lawsuit is still being litigated in Federal District Court in Honolulu.)

Cape Flattery eventually agreed to the reduced amount of $7.5 million. By that time, the company had a good indication of how high damages could run. In February 2011, the U.S. Navy agreed to pay the state $8.5 million for damages caused when the USS Port Royal grounded off the Honolulu International Airport’s reef runway in 2009. The amount was in addition to the $6.5 million the Navy had already spent on restoration activities, which included reattaching 5,400 coral colonies. In that case, the damaged area was roughly half the area damaged by Cape Flattery.

Whether $5.8 million will be enough to fully restore the damaged reef — if that is even possible — remains to be seen. “The area is essentially healing itself,” Parry says. Even so, his office plans to release a draft restoration plan for public comment once an approved consent decree is filed with the court. NOAA will also likely hold public meetings on the plan.

Dave Gulko, a coral reef ecologist with the DLNR’s Division of Aquatic Resources, says that his division lacks the money and staff to monitor the site, and is very concerned about an invasive seaweed (Avrainvillea amadelpha) making use of the damaged area.

When ships ground, they create a kind of vacant parking lot on the sea floor where invasive algae can move in, says Parry, whose agency is also worried about Avrainvillea. So far, Avrainvillea densities in the damaged area aren’t any higher than in the surrounding areas, he says.

Jurisdiction

In the Port Royal case and many other reef damage cases, the state Department of Land and Natural Resources has been the lead — if not sole — enforcement agency involved. In addition to the Port Royal settlement, the Board of Land and Natural Resources has imposed hundreds of thousands of dollars in fines for damages caused by vessel groundings in recent years.

In the Cape Flattery case, however, because much of the damage resulted from responses to a substantial threat of an oil spill, NOAA, FWS, DLNR, and the state Department of Health agreed to pursue enforcement actions under the Oil Pollution Act of 1990 and applicable state law, a NOAA webpage on the incident states. (Federal agencies also took the lead in responding to the 2010 Barber’s Point grounding of the 734-foot Voge Trader. The Liberian-flagged coal carrier damaged a little less than an acre of coral. In 2011, the Land Board issued NOAA a permit to conduct restoration activities.)

Under the Oil Pollution Act, owners and operators of vessels that pose a threat of an oil discharge into navigable waters are liable for natural resource damages, including the cost of assessing those damages.

However, “[w]e don’t get damages per se. [The damages assessed] are really to rehabilitate the resource,” state deputy attorney general Kathleen Ho says. That’s why the state’s portion of the settlement is so small. It merely reflects the costs the state incurred, she says.

The settlement, if approved, doesn’t preclude the state from pursuing damages for the natural resource impacts, but it’s unlikely to happen because all claims usually are required to be brought in a single action, Ho says.

Whether or not NOAA and/or the state will pursue a similar case against the owners and operators of the Voge Trader remains to be seen. Parry says negotiations regarding a restoration plan and settlement agreement are still ongoing. So far, the parties involved agree on the type of restoration that needs to occur, but not on the scale, he says.

“We haven’t figured out what the settlement is going to look like. … the flavor of it,” Parry says. And that includes whether the settlement will be made under the Oil Pollution Act or state law or both.

Ho said she thought someone in her office was looking into the Voge Trader grounding, but could not say whether a state case was in the works.

In any case, “if the company wants to do restoration themselves … the settlement will look very different” from the Cape Flattery consent decree, Parry says.

Gulko says the DAR is trying to amend its rules to make it easier to pursue enforcement actions against those who ground boats and damage coral. He expects the proposed rule changes to come before the Land Board in the next month for approval to go out to public hearings.

The Cape Flattery, Port Royal, and Voge Trader groundings, among others, were the impetus behind some of the changes, he says.

“We’re trying to address what we’ve documented as some of the things responsible for large-scale coral damages in the state,” he says.

Public Comment

On January 8, the Department of Justice published notice of the draft settlement in the Federal Register, opening a 30-day comment period. The full consent decree is available online at: http://www.usdoj.gov/enrd/Consent_Decrees.html

— Patricia Tummons and Teresa Dawson

Volume 23, Number 8 February 2013

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