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Oil Industry Faces Litigation Worth Billions in Louisiana Courts (1)

Aug. 13, 2020, 10:01 AMUpdated: Aug. 13, 2020, 4:42 PM

Louisiana local governments scored what they called an “extraordinary victory” this week as federal judges allowed them to use the state court system to seek billions of dollars from oil and gas companies for the state’s receding coastline.

The Aug. 10 ruling from the U.S. Court of Appeals for the Fifth Circuit gives Louisiana parishes their preferred forum to pursue claims that Exxon Mobil Corp., Chevron USA Inc., and other companies, both large and small, destroyed coastal marshes and wetlands by failing to follow state permits regulating well drilling, canal construction, waste disposal, and landscape restoration.

The litigation has enormously high stakes for the industry, as Louisiana parishes pursue 42 lawsuits aimed at making more than 200 companies cough up billions of dollars for the damage. The Fifth Circuit’s decision focuses on two cases from Plaquemines and Cameron parishes, but has implications for the dozens of others that have been caught in legal limbo for years.

While the ruling itself is narrow, it clears a path for the parishes’ lawsuits to move toward discovery and trial. State courts are generally seen as a more favorable venue for local governments.

“Once things start to get rolling in discovery and information starts coming out, it’s going to be harder and harder for the industry to try to make this just disappear,” said Karen Sokol, a law professor at Loyola University in New Orleans.

The coastal cases will now move back to state court where—barring any successful rehearing petition or U.S. Supreme Court bid by industry lawyers—plaintiffs will push for a prompt trial date, said Talbot, Carmouche & Marcello APLC attorney John Carmouche, who represents the parishes.

‘Protect Our Coast’

The ruling is “an extraordinary victory for the people of Louisiana,” Carmouche said. He added in a statement that the ruling paves the way to “protect our coast and its resources for future generations.”

But industry advocates stressed the decision was merely procedural and focused on a narrow timing issue: that the defendants were too late in raising certain arguments for moving the cases to federal court.

“Whether these cases move forward in federal court or state court, we will continue to defend against the meritless cases and show why the lawsuits do nothing for Louisiana’s coast,” leaders of the Louisiana Oil and Gas Association and Louisiana Mid-Continent Oil and Gas Association said in a joint statement. The trade groups’ membership includes defendants in the cases.

According to the Grow Louisiana Coalition, another industry group, the state’s oil and gas companies have funded more than $230 million in coastal building and protection projects.

The oil companies are exploring their legal options, Melissa Landry, spokeswoman for the legal teams representing BP America Production Company, Chevron, ConocoPhillips, ExxonMobil Pipeline Co., and Shell, said in a phone interview Thursday.

Coastal Land Loss

The litigation centers on the fate of Louisiana’s critical coastline. Nearly 2 million people live and work in the coastal wetlands that act as a buffer against hurricane storm surge, according to Louisiana’s Coastal Protection and Restoration Authority, a state agency. Ports in the region also supply 18% of the nation’s oil supply, according to the agency.

But nearly 1,900 square miles of land has been lost since the 1930s, and the state stands to lose another 4,120 square miles over the next 50 years, the agency said. The erosion threatens homes and businesses, as well as infrastructure, including flood protection systems.

Human-made factors contribute to land loss, amid natural threats posed by rising sea levels, subsidence, storms, and invasive species. Levees and floodgates on the Mississippi River deprive the coastal ecosystem of needed fresh water and sediment, while dredging canals for oil and gas exploration and pipelines has disrupted marshes.

The 42 lawsuits from coastal parishes say they want the oil and gas industry to pay for its role in the slow-moving disaster. Their claims differ from other cases against oil companies from state and local governments in Maryland, Colorado, California, and elsewhere, which focus on holding the industry financially responsible for the local impacts of climate change, primarily driven by use of fossil fuels.

The parishes are hoping to build on the success of private landowners who prevailed when they sued oil and gas companies for damages for not meeting lease provisions requiring them to restore property after drilling. The Louisiana Supreme Court upheld the precedent in 2003, putting the obligation of the restoration costs on the oil companies.

Carmouche announced a $100 million settlement in September 2019 with Freeport McMoRan Inc., but the deal remains tenuous. This spring, state lawmakers killed a bill that would have established a framework for spending the money. The presidents of two parishes that must approve the deal have also testified that flood control measures along the Mississippi River are to blame for coastal damage.

Legal Ping-Pong

The mass of lawsuits from the six Louisiana parishes involved has had industry on edge for years as individual cases bounced through state and federal courts. So far, the two sides have been stuck in a legal tug-of-war over where the litigation belongs.

Backed by the Louisiana Department of Natural Resources and the state attorney general, parish leaders filed their first claims in state court seven years ago. Industry lawyers unsuccessfully pushed to transfer them to the federal level, arguing that the litigation involved federal questions.

But the industry defendants tried again in 2018, linking their arguments to a new expert report that said the parishes’ claims were based in part on oil and gas drillers’ actions taken during World War II. The drillers were acting under the direction of federal government officials during the war, so legal claims related to those actions belong in federal court, they argued.

The Fifth Circuit rejected the latest argument as untimely, concluding that the 2018 report simply repeated information the parishes included in earlier legal filings.

The ruling, if it withstands potential challenges, means the cases will move ahead in Louisiana state courts, which Tulane Law School professor Oliver A. Houck said is important.

“Experiences show the venue in these cases is, when it’s federal, can be very hostile” to the plaintiffs, he said. Federal judges and juries tend to be more “removed from the action,” he said, and less likely to understand the on-the-ground impacts of coastal land loss.

“That’s exactly what the industry wants,” Houck said. “At least in state court, you’ve got a fighting chance.”

(Updates with comment from the oil companies' legal teams.)

To contact the reporters on this story: Ellen M. Gilmer in Washington at egilmer@bloombergindustry.com; Jennifer Kay in Miami at jkay@bloomberglaw.com

To contact the editors responsible for this story: Gregory Henderson at ghenderson@bloombergindustry.com; Chuck McCutcheon at cmccutcheon@bloombergenvironment.com; Anna Yukhananov at ayukhananov@bloombergindustry.com

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