In the wake of the Gulf oil spill, a hidden wave of economic waste needs sunlight. This tragedy does not involve oil staining the coastline and wreaking havoc on the environment or Gulf residents, but it is one that will deeply affect everyone involved. It is the economic waste brought about by random and explosive litigation, which threatens to drain away hundreds of millions of dollars from legitimate victims of the Gulf oil spill in the form of wasteful legal costs.
The $20 billion victims fund, recently announced by the president and paid for by BP, has the potential to provide a solution to this developing problem, but only if the fund is set up to draw clear liability lines and reduce litigation costs. This will not be easy. Already, dozens of plaintiffs’ firms throughout the United States have filed claims against BP, Transocean, Halliburton and others. Less than a month ago, about 200 personal injury lawyers gathered at the Ritz-Carlton Hotel in Orlando, Fla., in a “closed door” conference to discuss litigation strategy and jockey to be lead counsel in ensuing litigation.
While the facts and scope of the Gulf oil spill evolve daily, as do proposals for a permanent solution to the leak, plaintiffs’ lawyers are already dredging the shores for more class-action clients. A witness of this rush to the courthouse commented, “Only one animal has thrived in the Gulf oil spill, hundreds of sharks.” But when he looked more closely, he said, “No, they’re not sharks, they are plaintiffs’ lawyers.”
Although plaintiffs’ lawyers do have an important place in our society, their first goal is not always to be “champions of the people,” but to secure their own profits.It is important to make that distinction here, especially when it is doubtful that many of the plaintiffs’ lawyers are acquainted on an ongoing, personal basis with the people they claim to represent. Yet, to be fair, concern is also not limited to plaintiffs’ lawyers. Legal fees in this litigation will spread to hundreds of defense lawyers as well, positioning the Gulf oil spill as a great economic boon for the legal profession.
The proposed “fund” for victims may not abate these huge litigation costs. If there is no shield against lawsuits, weaker claims will go to the fund. Plaintiffs’ lawyers will then guide the stronger claims to the courthouse.
To make the fund work and reduce the litigation bonanza, the following must occur: Potential victims, many of whom have been mechanically placed in class actions, should be given a clear and voluntary choice: fund or litigation? The benefit and risks of each choice should be explained fully to them. The fund can be an important model for that choice. Clear guidelines must be established for who is eligible for the fund. Obviously, persons who suffered physical injury or damage to their own property should be eligible. It is less obvious with respect to claims for direct or indirect economic losses. Tort, or liability, law is as murky here as some of the Gulf tar balls.
For example, if a person negligently causes an accident in a tunnel, he is responsible for all direct physical and property harms that are caused by his negligence. But if someone behind the wrongdoer cannot open his business that day and loses earnings, tort law generally does not allow recovery for those damages. It is essential to draw clear and fair guidelines on this crucial point. Guidelines that are too strict may be unfair. Guidelines that are too loose will bankrupt the fund.
The challenging questions of who gets paid and how to reduce the legal costs should be addressed now by Congress. First, the fund should be used only to compensate plaintiffs who have suffered a material loss from the oil spill. Damages in nonpersonal injury cases also should be confined to actual economic loss. If BP directly or indirectly already paid the claimant for his loss, that should be deducted from the amount of the claim. Claimants should include those who can show by the preponderance of evidence specific economic loss, not generalities. Finally, a claim paid under the fund should be in lieu of any existing or future lawsuit.
Kenneth Feinberg was a good choice to administer the Sept. 11 Victim Compensation Fund, and that experience may assist him in administering this fund. However, this is much more complicated liability than compensating people who were injured or lost loved ones in a tragedy. The fund currently is not a savior; more than one devil is in the details.
Victor E. Schwartz is chairman of the Public Policy Group at Shook Hardy & Bacon, LLP, and is co-author of “Prosser, Wade and Schwartz Torts” (West Publishing Co., 12th edition in 2010), the leading torts case book in America.