Legacy lawsuits

Legacy lawsuits

Are they a matter of corporate responsibility or a costly gravy train?

David Russell is president of McGowan Working Partners, a Jackson, Miss.-based oil and gas company that has operations in about 20 oilfields in Louisiana. He says his firm was once sued for $725 million over environmental contamination at a site it controlled in Richland Parish. Actual cost of the cleanup: $400,000.

McGowan buys leases from larger companies and uses water to flush out oil the big boys left behind. It's a business model Russell says puts his firm in the line of fire of attorneys filing what the industry calls “legacy lawsuits.”

A firm like McGowan might be the second, third or fifth company to work a particular oilfield. But under current law, it can be held responsible for environmental contamination the first company might have caused during the 1950s. To get to the older, and likely deeper-pocketed, company that caused the mess in the first place, a plaintiff will sometimes sue everyone in the entire ownership chain.

Russell says his firm performs an environmental assessment of every site it buys.

“The cost of getting it in compliance with state regulations is not that onerous,” he says. “What you cannot afford to do is to litigate for five years and pay defense attorneys and expert fees, and pay a settlement. That's what people like us can't afford to do. We call it dying a death by a thousand cuts.”

So-called legacy lawsuits have only become a hotter topic since the Legislature last seriously addressed the issue in 2006. A recent (and hotly disputed) LSU report claims such suits cost the state billions. Landowners say the industry wants to shirk its responsibilities, while industry representatives say such suits are more about extorting money than cleaning up environmental messes.

The industry says shutting down the legacy lawsuit gravy train is its top legislative priority this year. But powerful landowners, aided by trial attorneys, including Gov. Bobby Jindal's former executive counsel, are aligned on the other side.

Where lies the fault?

Don Carmouche is a Baton Rouge attorney who, by his own estimation, has filed about 100 legacy lawsuits over the years. Carmouche would prefer not to sue companies like McGowan that didn't actually cause the problems he says his clients are trying to remedy. The fault lies with the Exxons, Chevrons and BPs, he says, international companies that only pretended to be good corporate citizens.

“They were lying to us,” Carmouche says. “They hid the documents [that] were never given to the state regulators like they were required to do.”

For decades, it was standard practice to dump the wastewater taken from oil wells into open pits, leaving behind salt water—which could seep into drinking water and kill crops—along with other sorts of toxic nastiness. Industry representatives tend to describe the practice as a symptom of a less enlightened time when no one knew any better.

But Carmouche has unearthed reams of documents and internal memos that appear to show the oil industry knew they were hurting the environment and risking lawsuits.

“We feel that an open type disposal pit will result in salt water seepage which will injure timber and grazing land and subject us to damage suits brought about by the land owners,” reads one 1951 Texaco memo. A 1932 memo by an American Petroleum Institute official warns that “The industry cannot escape the moral responsibility for the effect of such wastes.”

In 1986, the state gave companies a three-year window to close their pits without sanction before tougher rules went into effect. Unfortunately, Carmouche says, state regulators didn't have the manpower to properly monitor the process, and companies' cleanups often were cosmetic at best. And landowners, and their crops and livestock, continue to suffer the consequences, he says.

A study by David Dismukes, associate director of LSU's Center for Energy Studies, says legacy lawsuits have cost the state $6.7 billion and over 30,000 jobs by discouraging production in Louisiana. Carmouche disputes the report's conclusions and wants to depose Dismukes to find out how he came up with his numbers. The center's advisory council is almost entirely made up of energy industry representatives, which leads Carmouche to question its objectivity.

The first step

The Louisiana Oil & Gas Association says its members should be allowed to take responsibility for a site's cleanup, without also taking on the private damage claims for, say, cattle that died from drinking tainted water. In neighboring states, landowners must approach the relevant regulatory agency before suing for damages, Russell says.

“Once you address the regulatory problems, it's not worth the contingency fee [to a lawyer] for a plaintiff to come after you,” he says.

In 2003, in Louisiana's Corbello v. Iowa Production decision, landowners were awarded $33 million to restore a property that was only worth $108,000. That case helped lead in 2006 to the passage of Act 312.

Gifford Briggs, LOGA's vice president, says the intent of the act is that, once a court decides who's responsible for a particular mess, the matter is referred to the Department of Natural Resources.

The department's Office of Conservation holds a public hearing, and a cleanup plan is created before a court assesses any damages, which Briggs says gives the court access to an independent expert assessment of how much a cleanup should cost.

The Louisiana Supreme Court found Act 312 unconstitutional, however, and Russell says the number of suits has only increased since 2006, to the point where McGowan is unable to obtain insurance in Louisiana to cover what's known as “historical contamination.”

Of the 271 Act 312 lawsuits counted by DNR as of Feb. 1, the department says only one has gone through the complete hearing process. DNR also says Conservation has not received environmental test data collected in accordance with department standards in 210 of the 271 cases, a statistic industry supporters say shows many landowners are only interested in money, not cleaning up environmental damage.

Carmouche says for every case he brings, he delivers boxes of supporting documents to DNR. LOGA wants DNR to issue its opinion first, he says, so it will be the department and the oil company against the landowner at trial. He says the department doesn't have the resources to challenge the experts and studies the industry will bring to the table, and says DNR has a conflict of interest because of its role in promoting oil and gas production.

Protection from liability

More than a dozen competing bills this session deal with Act 312 lawsuits. Some lawmakers have proposed eliminating indemnity clauses in oilfield sales contracts. In theory, this approach might protect independents from liability; it might also encourage the big companies to simply sit on an oilfield rather than sell it and risk becoming the sole target of a suit.

DNR Secretary Scott Angelle, who also serves as Jindal's legislative liaison, did not respond to an interview request for this story. LOGA rejected a recent compromise proposal by Angelle that it says would have favored trial lawyers over the industry. Under Angelle's proposal, Briggs says, the results of the state's environmental hearing would not be admissible in court unless DNR chooses to intervene in the litigation.

The Jindal administration has called for a compromise that would be fair to landowners and the industry while protecting the environment. LOGA President Don Briggs says the administration has provided little help to the industry on the legacy lawsuit issue. Attorney Jimmy Faircloth, who represents the Louisiana Landowners Association, is Jindal's former executive counsel.

“We've worked with Secretary Angelle, trying to find solutions,” he says. “But it's all weighted on the other side.”

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