Louisiana oil companies decry 'abusive' rash of lawsuits, say industry hurting

03 23, 2012 by Fox News

Against a backdrop of rising gasoline prices and a presidential campaign tapping into consumer fears, Louisiana oil producers are pointing to a rare breed of legal sludge they say is choking their business, costing the state thousands of jobs and billions of dollars in lost investment.

The complaints from one of the Gulf Coast's most vital industries come as energy-focused Republican presidential candidates court Louisiana voters ahead of Saturday's primary. President Obama has been pushing his own message in the run-up to that contest, traveling around the country in an effort to demonstrate his friendliness to America's energy producers.

The administration continues to faces charges that it is slow-walking drilling permits in the wake of the 2010 BP spill. The Louisiana lawsuits, though, compound those concerns.

The lawsuits started to explode several years before the BP disaster and have shown no sign of abating . The oil industry is trying to draw attention to their charge that trial lawyers are running rampant through the state courts in a bid to milk energy producers regardless of whether the producers did anything wrong.

"This is what I call legalized extortion," Don Briggs, president of the Louisiana Oil & Gas Association, told FoxNews.com.

The claims in question are known as "legacy lawsuits."

They're not your typical lawsuits. In these cases, a plaintiff can bring a claim against an oil company for alleged environmental damage that occurred decades ago, long before the defendants were at the site. They are based on the "legacy" of alleged environmental damage inflicted by prior oil producers who can also be held liable.

Attorneys defend the suits, arguing that landowners would otherwise have to cope with costly environmental damage inflicted by the industry.

The claims were encouraged following a 2003 state Supreme Court decision that upheld a $33 million judgment for clean-up costs for a property worth a fraction of that amount. The ruling included a couple critical findings: The award did not have to be tied to the market value of the property and did not have to be used to fix up the property.

The decision created a lawsuit bonanza, according to the industry.

"That's like throwing blood into the water, and all the sharks started swimming," Briggs said.

Industry representatives say the looming cloud of lawsuits has chilled investment and that many smaller companies opt to settle because they don't have the money to sustain a drawn-out legal battle.

The industry has recently touted a new study out of the Louisiana State University Center for Energy Studies, which claimed the lawsuits are cutting down on Louisiana oil and gas drilling.

The study estimated that over eight years, the suits "led to a loss of some 1,200 new wells" -- translating to $6.8 billion in lost drilling investments for the state. The total economic loss was estimated at more than $10 billion. The study estimated the suits have cost roughly 30,000 jobs.

The research also showed the number of suits has spiked every year since 2005. A separate state study found that as of early 2012, there were at least 271 "legacy" suits filed in Louisiana.

Lawyers representing landowners in the state sharply contested the Louisiana State University study and plan to depose the author later this month. Attorney Don Carmouche said in a statement that the research was "flawed, erroneous and prejudiced."

But Scott Sinclair, a local oilman and president of Tensas Delta Exploration Company, said the claims have stifled his business. He's faced four suits in recent years.

"These are not only abusive but baseless claims," Sinclair said, adding that they've had "an effect on my relationship with my bankers."

Sinclair said his company, which has a 50 percent stake on 126,000 acres in the state, is looking at as many as 10 "drilling prospects" on the land but hasn't drilled there because of the suits. In total, he estimated the company can count 30 or more wells that haven't been drilled "solely" because of legacy lawsuits.

The lawsuits generally pertain to claims that oil companies decades ago stored waste material in unlined pits on Louisiana land, which released chemicals into the environment.

While industry representatives downplay the long-term damage caused by this practice, attorneys say it's heavily impacted landowners.

"These environmental conditions create long-term ... liabilities for the landowners and they don't go away," said Stuart Smith, a New Orleans-based attorney who represents more than 100 landowners in cases against major oil companies.

Smith said the landowners are liable for any hazardous substances on their property, meaning they could be sued by the Environmental Protection Agency if it's not cleaned up and could run into problems selling the land since they'd have to disclose those problems.

He said chemicals ranging from lead to Benzene to radioactive radium-226 have been found at these sites. Smith said one of his clients, with a $5 million piece of property, found it would cost more than that to clean up -- making the property "essentially worthless."

As for the Louisiana State University study, Smith charged that it was pushed out by the oil industry "to affect ongoing litigation."

"They're using it to try to taint the jury pool," he said.

Briggs denied that the industry financed the study.

Oil companies, in making their case that the suits are baseless, lately have pointed to a 2006 lecture given by Texas-based consultant W.D. Griffin, before a gathering at South Texas College of Law.

In a video of the lecture, obtained by FoxNews.com, Griffin tells the audience that the lawsuits are "like winning the lottery."

"Those type (of) lawsuits are big money," he said in the lecture.

Griffin urged lawyers to look for defendants with money to spare.

"Southern Louisiana has a rich crop of deep pockets," he said. "We've got to look for those deep pockets."

His slide show urged lawyers to make sure "at least one deep pocket is on the hook. If not, place project on shelf for later consideration, if any."

Griffin did not return a call from FoxNews.com.

Briggs said his group is trying to persuade the state legislature to step in and staunch the flow of claims. Lawmakers pushed through a reform law in 2006, but the industry claims it was not strong enough. Briggs' group is pushing a new proposal that would allow oil companies to take responsibility for any environmental cleanup without being liable for financial claims.

Environmental details about the cases are spotty. An early February report from the state's Department of Natural Resources showed that of 271 cases the office was reviewing, environmental data had not been received on 210 of them. But for the 61 cases in which the data was available, the report found 59 of the sites were deemed to pose "no demonstrable long-term threat" to safety or health.