By May 9, 2012 0 Comments Read More →

Legacy Lawsuit Strategy: Blame Natural Damages on Oil Companies

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Lawsuits against oil and gas companies in Louisiana have taken a toll on the industry and the state’s economy generally. But documents obtained by Scribe suggest plaintiffs’ attorneys in the lawsuits seek out litigation even when they know their claims are baseless.

A presentation (embedded below) given by a major energy consultant recently obtained by Scribe offers a glimpse into the tactics that these firms may use to extract large damages from oil and gas companies in the state.

The presentation offers a primer on how to “locate areas where I may successfully litigate for environmental damages,” and suggests that litigants find areas in the state that have likely been contaminated by naturally-occurring phenomena.

“It’s best to narrow one’s search to southern Louisiana,” the presentation advises, “since much if not all of the salt and hydrocarbon impacted soil could be the result of the salt domes or salt water invasion from the coast.”

The author of the presentation, consultant Bill Griffin, noted while giving the presentation that the salt dome phenomenon is naturally occurring. “But when I find these things,” Griffin says in the video above, “maybe I’m just going to contend that the oil companies did it, not the salt domes.” After all, he added, “it’s tough to name God as a defendant. The oil companies did it.”

Sugar cane farmers in Southern Louisiana have often used the crabgrass killer MSMA, notes another slide in the presentation. MSMA contains a significant amount of arsenic. The suggestion is that damage caused by chemicals used in sugar cane farming can be blamed on oil and gas companies.

The presentation also recommends focusing on Southern Louisiana due to its “rich environment of deep pockets,” including fossil fuel giants Chevron, Shell, BP, and Exxon. It recommends attorneys “insure [sic] at least one deep pocket is on the hook.”

In a conversation with Scribe, Griffin denied ever recommending that plaintiffs adopt this strategy in his consulting work. But his recommendations have been reflected in a plaintiff attorney industry in Louisiana that researchers at Louisiana State University say is wreaking financial havoc on the state and its oil and gas industry – a major driver of economic growth and tax revenue.

Louisiana law allows property owners to sue for “legacy” damages – damages to their property inflicted by oil and gas producers before the current owner acquired the property. If plaintiffs can show that their land was damaged in the course of fossil fuel extraction, they can be entitled to very large awards.

For trial lawyers, “it’s like winning the lottery,” Griffin claimed. Indeed, the cover slide of his presentation is a picture of a lottery ticket.

Act 312, a state law passed in 2006, was designed to ensure that damages awarded in legacy lawsuits actually go towards cleaning up the environmental contamination at issue. It requires the responsible party – in most cases, the oil and gas companies being sued – to deposit money in a court “registry,” from which funds are drawn for cleanup.

But industry representatives say the law left a gaping loophole by allowing trial lawyers to inflate awards by demanding excessive cleanup fees and hoping either that a jury will award proportionally large private damages, or that defendants will settle to avoid costly legal fees.

“We have found a direct link from the cost of the state’s plan and how much the jury awards in private claims,” Don Briggs, president of the Louisiana Oil and Gas Association, told Scribe. Since attorneys draw their fees from the private awards, they have an interest in ensuring that those sums are as high as possible.

In one prominent case, plaintiffs demanded $3.7 billion to clean up an underground aquifer they said was contaminated by salt (note the parallels to Griffin’s presentation) due to oil and gas drilling. Ninety-five percent of that award, they claimed, would go towards transporting contaminated water to a waste disposal site.

But the plaintiff’s attorney admitted under oath that the contaminated water could be dealt with on site for about $1 million – in other words, that there were available methods for remediation that would reduce the necessary damages by 95%. That case was settled under undisclosed terms.

Scott Sinclair, who owns the company that was the target of the lawsuit, would not discuss details of the settlement, but claimed, “the plaintiff’s modus operandi in these cases is to present staggeringly large damage amounts to judges and juries in the hope that such a large potential judgment will scare defendants into settling for much smaller, but still very lucrative, amounts.”

Sinclair says the multiple lawsuits against his company, Tensas Delta Exploration, have brought business to a grinding halt. “You can imagine what it is like for a small business to be under a threat (even the most unlikely threat) of a potential $4 Billion judgment,” he told Scribe. “Lenders don’t expand lines of credit. Investors find other places to put their capital. Industry partners that we regularly did business with stopped calling us. No one wants to be in a deal with a bankrupt partner.”

His experience is hardly unique. The aforementioned LSU study, conducted by David Dismukes, the associate executive director of the school’s Center for Energy Studies, found that legacy lawsuits had reduced Louisiana’s economic output by more than $10 billion, eliminated or prevented more than 30,000 jobs, and reduced wages for workers in Louisiana by more than $1.5 billion.

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Posted in: Daily News

About the Author:

The Louisiana Oil & Gas Association (known before 2006 as LIOGA) was organized in 1992 to represent the Independent and service sectors of the oil and gas industry in Louisiana; this representation includes exploration, production and oilfield services. Our primary goal is to provide our industry with a working environment that will enhance the industry. LOGA services its membership by creating incentives for Louisiana’s oil & gas industry, warding off tax increases, changing existing burdensome regulations, and educating the public and government of the importance of the oil and gas industry in the state of Louisiana.

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