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Tort Lawyers and Attorneys General: A Corruptible Combination

Real Clear Markets, February 8, 2018

By: Jeff Patch

Like former high school football stars in middle age, plaintiffs’ attorneys, who make their money by taking a percentage of the damage awards to clients, have been trying to relive their glory days of tobacco settlements. Back in the 1990s, five Texas lawyers earned $3.3 billion, a firm in Tampa scored $3.4 billion and a Mississippi attorney made an estimated $1.6 billion.

The lawyers’ playbook: team up with state attorneys general (AGs) to sue businesses.

“The novel, liability-expanding theories underlying these lawsuits are often developed by private lawyers, then ‘pitched’ to state attorneys general as money-making enterprises,” according to a 2013 report by the Institute for Legal Reform of the U.S. Chamber of Commerce.

Over the past 20 years, plaintiffs’ attorneys applied this model to lawsuits against drug, financial-services, food, financial companies and more – with some success, but never on the scale of tobacco. Now, some tort lawyers believe they have found a new pot of gold: suing energy companies for supposedly worsening the effects of climate change on local communities.

But that gambit appears to be backfiring. The municipal clients of the tort lawyers may themselves end up on the receiving end of lawsuits – filed by angry bondholders and ordinary taxpayers. It’s a sordid tale, but with a nice twist.

In 2016, the Virgin Islands engaged Cohen Millstein Sellers & Toll, a large plaintiffs’ firm, to pursue a racketeering case against ExxonMobil. The U.S. territory was part of a coalition that included 18 states, organized by New York’s attorney general, Eric Schneiderman, to go after energy companies for allegedly distorting or suppressing knowledge of the dangers of global warming.

“Nearly every speaker expressly cited the state AGs’ successful victory over the tobacco industry as a template for this action,” Margaret Little of the Federalist Society wrote, describing the coalition’s press conference. “The state AGs’ wildly successful settlement with the tobacco industry… shifted a quarter of a trillion dollars to the states and their attorneys… New targets need to be identified and demonized.”

The AG coalition’sroots stem from a 2012 meeting in the stylish California beach town of La Jolla. The lawyers and environmental activists who gathered there produced a report entitled “Establishing Accountability for Climate Change Damages: Lessons from Tobacco Control.” While the Schneiderman coalition soon collapsed (their problem was that energy companies never hid their research), plaintiffs’ attorneys and local governments consulted another page from the La Jolla playbook and last year began suing energy companies for threatening their cities and counties with rising seas.

But these attempts seem bound to fail as well – for a different reason. In filing their lawsuits against energy companies, the governments predicted doom and gloom, but they neglected to warn purchasers of their bonds of the impending disaster. As a result, perhaps misinformed about the true risks they faced, holders of municipal securities may have their own cause of action. Local issuers may have to ratchet up interest rates to attract future bond buyers, adding to the burden of taxpayers.

For example, the City of Oakland in September sued five energy companies, including Exxon and Chevron, claiming that fossil-fuel production was causing “ongoing and increasingly severe sea level rise harms to Oakland.” The lawsuit predicted that by 2050, “a ‘100-year flood’ in the Oakland vicinity is expected to occur… once every 2.3 years.” By 2100, Oakland will suffer more than five feet of sea level rise, says the suit, threatening the city sewer system and other property “with a total replacement cost of between $22 billion and $38 billion.”

However, in its bond prospectus Oakland stated that “[t]he City is unable to predict when seismic events, fires or other natural events, such as sea rise or other impacts of climate change or flooding from a major storm, could occur, when they may occur, and, if any such events occur, whether they will have a material adverse effect on the business operations or financial condition of the City or the local economy.”

Oakland’s city attorney, Barbara Parker, told Scientific American that she chose sea-level rise as the focus of the case because it was an easy symptom of climate change to understand. “That's what you can clearly see, and it's been proven, and you can see it every day,” she said. But if anyone can already see sea-level rise “every day,” then Oakland admitting in its prospectus that there is no way to predict whether it will occur makes this completely nonsensical.

An architect of the Oakland strategy is Matthew Pawa, an environmental lawyer who last year joined Hagens Berman Sobol Shapiro, a large plaintiffs’ firm whose managing partner represented 13 states in tobacco cases in the 1990s. Pawa, who held a seminar at the La Jolla conference, also represents San Francisco in the climate-change suits. That city, too, neglected to inform bondholders of the terrible risks it claims in the sea-level litigation.

While the legal arguments are attenuated and rife with hypocrisy, the worst part of these lawsuits is the fraught connection between government legal officials and for-profit attorneys. Those relationships present many possibilities for corruption.

Consider Richard (“Dickie”) Scruggs, the Mississippi lawyer with billion-dollar payday in the tobacco suits. He practically invented lawyer-government legal collusion when he teamed up with his friend, Michael Moore, the state’s AG, in filing asbestos litigation in 1988. A major donor to state and national Democratic candidates, Scruggs eventually served six years in prison for bribery.

“I think we need plaintiffs’ attorneys, but we need the process in which they represent the public to be purged of political overtones,” said John Coffee, a law professor at Columbia University. “This was probably the biggest pay-to-play issue of all time.”

The lawyer-AG nexus raises other public policy concerns. Private attorneys are, in effect, acting as government lawyers, trying to maximize their personal interests at the same time supposedly acting for the public good. That is an insurmountable conflict. It would be repugnant if a state prosecutor were being paid millions as a reward for winning convictions in a civil--or even a criminal--case, but that is what is now happening with the California climate-change suits.

Following a 2016 court decision that struck down a contingency-fee deal between the Cohen Millstein firm and the New Hampshire AG, an editorial in the Manchester Union Leader called the lawyers “privateers.” The state, said the newspaper, had tried to create “a team of lawyers with the power of the state with none of the accountability.”

Exactly. And meanwhile, the La Jolla playbook crowd continues to play a weak hand. Unfortunately, taxpayers in California may, in the end, have to ante up.