- - Thursday, November 13, 2014

ANALYSIS/OPINION:

A major development is coming in the legal battle surrounding the Deepwater Horizon oil spill. The U.S. Supreme Court will soon decide whether to review issues presented by BP’s class-action case. What’s at stake here is important not just for BP, but for all of us; namely, whether the rule of law or the rule of lawyers will prevail.

The BP petition presents a narrow issue: whether a class was properly certified consistent with Rule 23 of the Federal Rules of Procedure and Article III of the U.S. Constitution. In plain terms, it is whether a class action can be brought if substantial numbers of the class have not suffered any injury caused by the defendant.

The implications are broad. Rather than fighting claims in the courts for years, BP immediately began to pay them. Kenneth Feinberg, who supervised compensation to the families of Sept. 11 victims, was asked to oversee the fund to rush money to those who were harmed by the spill. In just 16 months, Mr. Feinberg, with the endorsement of President Obama, disbursed more than $6 billion to claimants.

While the system run by Mr. Feinberg was working well, it was replaced after BP entered into a settlement resolving private economic losses and property damages in 2012. The federal court named a local Louisiana lawyer, Patrick Juneau, as claims administrator of the Court Supervised Settlement Program.

That’s when the trouble began. First, BP noticed that Mr. Juneau was paying claims under erroneous accounting rules. BP got that fixed in the courts. Second, while Mr. Feinberg limited payments to companies whose losses were caused by the spill, Mr. Juneau approved claims by companies whose losses weren’t. This practice is counter to the settlement agreement.

In their applications for compensation from BP, businesses have to swear that their losses were a result of the spill and show that their earnings fell between a period before the spill and a period after. The problem is that many businesses cannot even plausibly claim that the decline of which they complain was the result of the spill. Their claims are getting approved anyway.

BP says there are likely many hundreds of such examples and more being paid every day. Some 64 of them, with payments totaling $76 million, were laid out in a legal filing. BP challenged this practice, and its lawyer, Ted Olson, the former U.S. solicitor general, has petitioned the U.S. Supreme Court to take the case.

The BP litigation illustrates the core theme in my book “Lawyer Barons: What Their Contingency Fees Really Cost America” (Cambridge University Press, 2011): “Contingency fees have empowered lawyers to shape our civil justice system in ways that further their financial interests while relegating the interests of the public to secondary importance.” We can see in the BP case how that shaping works.

As I note in my book, “nothing more epitomizes the ascendency of the contingency fee into the pantheon of elemental forces driving our legal and political systems than the contingency-fee-driven class action.” I have been teaching courses in legal ethics and the legal profession for 50 years and studying the effects of contingency fees on mass torts and class actions for 25 of them. My research shows that since the early 1960s, contingency-fee lawyers’ effective hourly rates, in real terms, have risen by more than 1,400 percent. Given these powerful incentives, contingency-fee lawyers have been unflagging in their efforts to solicit clients, regardless of whether they have suffered losses as a result of the spill.

BP appealed to the U.S. 5th Circuit Court of Appeals on this matter and lost in a sharply split decision. Judge Edith Clement, a highly respected appeals court judge, minced no words in her dissent, warning that the judiciary itself was becoming a “party to the fraud” against BP.

Make no mistake: Fraud it is. The settlement agreement entered into by BP states that in order to be eligible for compensation, claimants must swear under penalty of perjury that they suffered “damages arising from” the Deepwater Horizon incident. “Louisiana justice” has obliterated these words from the agreement.

Now the U.S. Supreme Court has the opportunity to make things right by accepting review of this perversion of the legal process — and it should. By granting certiorari, the Supreme Court would be taking an important step toward rectifying some of the abuses of the class-action system.

Lester Brickman is a professor of law and former acting dean at the Benjamin N. Cardozo School of Law of Yeshiva University.


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