In the BP case, the rule of law is on trial

The rule of law is the underpinning of our legal and economic systems.  In Louisiana, the rule of law is threatened by the rule of lawyers. In the next few weeks, the U.S. Supreme Court will decide whether to take up a class action case involving BP, the petroleum giant responsible for the 2010 oil spill in the Gulf of Mexico. The legal issue is whether a federal court can certify a class of plaintiffs that includes, in the words of BP’s petition, “vast numbers of members who have not suffered any injury caused by the defendant.” 

Only the Supreme Court can put a halt to what Judge Edith Clement, dissenting from the U.S. Fifth Circuit Court of Appeals decision favoring the Louisiana lawyers, warned was the judiciary becoming a “party to the fraud” against BP.

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Make no mistake; fraud it is.  The settlement agreement entered into by BP to provide compensation to those that suffered loss from the spill, states that in order to be eligible for compensation, claimants must affirm under penalty of perjury, that they suffered  “damages arising from” the Deep Water Horizon incident.  But the Louisiana legal system has obliterated these words from the agreement. 

The claims administrator, acting under the direction of the presiding judge, has authorized payments totaling hundreds of millions of dollars including:  $1.6 million to a General Motors dealer, whose revenues declined after the Pontiac brand was eliminated before the spill, and $231,000 to a marine towing business that took its single tugboat out of service before the spill for repairs.  BP’s petition includes 64 such claims, and there are many more. 

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. Immediately after the spill, BP acceded to President Obama’s request that BP establish a $20 billion fund to repair the damage done by the spill and compensate those injured.  But for contingency fee lawyers, this was the equivalent of chumming shark-infested waters.  Following up on its commitment to President Obama, BP endowed attorney Kenneth Feinberg with the independent authority to compensate those hurt by the spill. Over 16 months, Feinberg disbursed more than $6 billion to more than 200,000 people and businesses.  

Feinberg, who presided over the payment of billions of dollars to victims of the 9/11 attack, got up and running quickly and efficiently and over 16 months, disbursed more than $6 billion to more than 200,000 people and businesses.  But Feinberg was persona non grata to the contingency fee lawyers. First, he was only paying claims to those who had suffered losses because of the spill. Second, by providing efficient and timely payments, he was depriving the lawyers from their right to fully profit from this tragic disaster.   

With Feinberg pushed aside, BP’s plan to quickly compensate those who suffered losses from the spill was replaced by a class action mechanism controlled by the contingency fee lawyers.  Class actions enable lawyers to swoop up thousands, even millions, into a single lawsuit designed to impose a threat to the viability of the defendant corporation as well as huge discovery costs that in the words of the U.S. Supreme Court, will push “defendants to settle even anemic cases.”   

Class actions are in a class by themselves when it comes to generating fees amounting to billions of dollars annually for lawyers.  Indeed, as I note in Lawyer Barons, “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.” 

Driven by these powerful incentives, contingency fee lawyers have opened full throttles in their efforts to solicit clients, irrespective of whether they have suffered losses due to the spill. An article in Bloomberg Business Week cited Tampa attorney Kevin McLean, who has 260 clients filing claims against BP. “The craziest thing about the settlement,” wrote McLean in a solicitation letter, “is that you can be compensated for losses that are UNRELATED to the spill.”  He was right on both accounts. 

According to the magazine, one of McLean’s clients, “a real estate agent in Brandon, Fla., an hour from the Gulf, wants $80,000 from BP, reflecting a revenue dip in 2010 that ‘had nothing to do with the spill,’ the attorney candidly admits. (The culprit was the bursting of the Florida real estate bubble.) Under the settlement, though, ‘that’s a good claim,’ McLean says, ‘and we’re going to get paid.’” 

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 those years.  My research shows that since the early 1960’s, contingency fee lawyers’ effective hourly rates, in real terms, have risen by over 1400 percent.  The immense financial incentives to litigate have unleashed a litigation explosion unjustified by any rising level of injury.  These financial incentives have also turned the class action into a weapon of mass destruction. 

The BP petition before the Court 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.  At base, what is at stake is whether the rule of law or the rule of lawyers will prevail. 

The U.S. Supreme Court should accept review of this perversion of the legal process.  In fact, by granting certiorari and considering the case, the Supreme Court will be taking an important step toward rectifying some of the abuses of the class-action system that I have described in Lawyer Barons. 

Brickman is a professor of law and former acting dean at the Benjamin N. Cardozo School of Law of Yeshiva University, where he teaches Contracts and courses on legal ethics and the legal profession.

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