Now maybe the Gulf-oil-spill circus can finally end. The attorneys are settling. At the same time, Kenneth Feinberg, administrator of the victim-compensation fund, has proposed final terms that would govern all cases, including those involving victims who don’t have lawyers.
At least 30 law firms representing thousands of clients — including big hotels and condos in Florida — are considering dropping federal lawsuits and cutting deals for a share of Feinberg’s $20 billion fund. Although lawsuits, particularly by the states, will no doubt continue, the sheer size and number of the cases in play, as well as the clout of the attorneys backing them, may lure clients from the smaller group of lawyers that a federal judge selected to lead the litigation.
This is potentially good news. Protracted litigation — it’s been 20 years and the Exxon Valdez case still hasn’t wrapped up — is the last thing the people of the Gulf need. Even though the worst effects of the spill are behind us, environmentalists, journalists, and some politicians are still crying catastrophe, chasing away the tourists and scaring customers for Gulf seafood, hotel rooms, and real estate. Lawsuits and the accompanying propaganda would continue this travesty for years and encourage our wobbly president to duck the tough decision to push for more drilling.
Feinberg has commissioned a couple of reports that back up the idea that it’s possible to settle now. One, by marine biologist Wes Tunnell, predicts Gulf fisheries will completely recover by 2012, except for the oyster beds, which were damaged when Louisiana officials released fresh water from the Mississippi to push oil out of wetland areas. The fund would pay double 2010 losses to most, with oyster businesses getting four times their 2010 losses. Another report, on tourism, puts worst-case losses in excess of $20 billion but says a $500 million advertising campaign to correct misconceptions about the Gulf could mitigate those losses substantially.
The leader of the settlement faction, Daniel Becnel Jr. of Louisiana, tells National Review that not only did he broker the deal between the attorneys and Feinberg, but he earlier pressed President Obama to set up a compensation fund and special master à la Feinberg (an old friend) in the first place. In other words, despite the bluster, this is the endgame some attorneys sought all along — including the arrangement that gives lawyers who settle 10 to 12 percent of the take rather than the more typical 30 to 40 percent that will go to the ones who will run the litigation.
What do you call 30 law firms that would rather settle on the cheap than litigate? Forget jokes about bottom feeders’ fleeing oil litigation; simply say, hey, it’s good start. Conservatives are rightly concerned at the potential for abuse and the extralegal nature of the Feinberg operation, coming as it did after the constitutional abomination of the auto bailouts. We have courts to decide questions of liability, but also an oil-spill law that bypasses the courts to compensate victims directly and quickly. The Republican Congress has to keep a close eye on this one: Even if the suits are settled equitably, there remains the potential for the leftovers to turn into an enviro-community-activist slush fund.
Still, it’s hard to fault Becnel’s reasoning on the independent special master and the ultimate settlement: Close to half a million individual cases would overwhelm the court system and make the Exxon Valdez case look like a model of efficient jurisprudence. BP, which under oil-spill law normally would pay off claimants directly just as Exxon did, is not seen as an honest broker in a case that’s stirred passions across the Gulf. Even Feinberg is taking heat from the trial judge, some victims, and lawyers the judge has named to run the suit.
It’s important to keep in mind, though, that the claims process is legitimate. It is modeled on President Bush’s compensation panel for 9/11 victims, which has withstood a number of challenges to its constitutionality.
As for settling rather than fighting, Becnel wants payouts sooner rather than later, hopefully this month.
“You had the best fishing season you’ve ever had in Louisiana this year. You had the best shrimping season that you could expect. As a result, the problem is with perception. Every Tom, Dick, and Harry in Louisiana is buying shrimp and eating it, but people in Maryland or, let’s say, Washington, D.C., are thinking, well, the shrimp must be contaminated. Which is not true, but the perception is there, and it takes a number of years for that perception to go away.” Hoteliers, he says, had to cut rates to get business back, and it’s going to take a couple of years to push their prices back up to where they were before the spill.
Even lawyers who disagree with his take have joined Becnel in discussing settlements with clients, for purely practical reasons — their clients need the money now. Stuart Smith of Smith Stag LLC in New Orleans, a firebrand who runs a high-profile website that is the definitive clearinghouse for spill alarmism, says he isn’t pushing clients to settle, but he’s nonetheless asking them for the okay to start negotiating with Feinberg. Smith is no big fan of the spill-settlement czar and faults settlement proposals for not taking into account the potential for unknown long-term effects.
“I can’t imagine that this case will resolve itself without some sort of trial, either criminal or civil. We need a trial to get closure in this matter; there’s nothing better than our adversarial system for getting truth out,” he tells National Review.
The terms Feinberg is proposing seem designed to raid clients from the court-appointed litigators, who would get the bulk of contingency fees even if the original case had been brought by another attorney. Two hundred percent of actual losses in 2010 is the baseline, with more available if greater losses going forward are documented. Those who choose to sue, on the other hand, could be looking at a wait of five years or more for payouts while the appeals process grinds down. They might get punitive damages, which the Supreme Court in the Exxon Valdez suit limited to an amount equal to actual damages — less 30 to 40 percent contingency fees, that could end up being little more than they’d receive by settling now.
Punitive damages remain the golden goose for many plaintiffs’ lawyers, raising the possibility of a jackpot award. But in reality, the days of punitive awards based on massive multiples of actual, compensatory damages are gone, legal scholars say. In the Exxon cases, plaintiffs hung on for 20 years because of a shot at $5 billion in punitive damages. They were crushed when the Supreme Court overturned lower-court rulings and cut the award to roughly one tenth that. So much time has passed that the biggest remaining problem is finding the original plaintiffs to pay them. Almost 2,000 are missing.
Interestingly enough, Becnel, who’s been suing oil companies for 41 years, wants to see oil drilling resume quickly in the Gulf, particularly since the Egyptian unrest has once again highlighted the need for more domestic supply. In his original e-mail to the president, Becnel said Obama should avoid the “blame game” and make sure that “the future of the oil industries on the Louisiana and Texas coast is not threatened by a cessation of drilling activities and/or production activities, insofar as Louisiana and Texas depend on these industries for probably one third of their income in terms of taxation and/or jobs related to the oil industry.”
— Lou Dolinar is a retired columnist and reporter for Newsday. He is currently working on a book about what really happened in the Deepwater Horizon spill.