America's Communities Will Suffer if Lawsuits Against Energy Producers Succeed
Lawsuit abuse is costing Americans plenty and Louisiana illustrates just how absurd it can become. Drivers in that state pay the second-highest auto insurance rates in America thanks, in part, to its minimum $50,000 claim for jury trials, which is the highest in America. Just to stay in business, auto insurers must pass along those costs to Louisiana’s drivers.
But the real canary in the coal mine is that other insurance companies have just packed up and left the state. That’s a crucially important point because a greedy group of Louisiana trial lawyers have now targeted the state’s oil and gas industry for a multi-billion-dollar shakedown. For residents, the potential consequences could not be more ominous.
Law firms have teamed up with at least six parish governments in lawsuits alleging that the energy industry alone is responsible for the state’s coastal erosion problem. Never mind the Corps of Engineers’ levee system that on one hand helps prevent the Mississippi River from flooding, but on the other, prevents soil-building silt from reaching the wetland areas. And disregard the erosion impact of hurricanes and other storms. None of that matters to the trial lawyers who would reap a huge contingency fee award if they win.
The rational business decision for oil and gas producers in a hostile and costly legal environment would be to follow the insurance companies’ example and leave the state. The cost to local communities would be on the scale of a natural disaster. For starters, consider that last year 44,580 people in the state were employed directly in oil and gas production, earning $4.3 billion annually. That’s an annual average wage of more than $96,500, nearly double the state average. That doesn’t count those who enjoy retirement benefits from the energy industry or all the other community jobs that the energy industry supports. Louisiana is a state that needs more well-paying jobs and not frivolous lawsuits that put those jobs in jeopardy.
Now consider the state’s, parishes’ and cities’ ability to fund essential services for their citizens. The oil and gas industry alone accounted for 10 to 15% of state and local tax revenues annually, on average, over the past two decades. In fiscal year 2013, for example, energy companies paid nearly $1.5 billion in state taxes, representing about 14.6% of all the taxes, licenses and fees received by the state. That same year, parishes and cities took in $410 million in ad valorem taxes from energy producers, refiners and pipeline companies. Between 2006 and 2016, the oil and natural gas industry paid $14 billion just for the opportunity to do business in the state, according to the Louisiana Department of Natural Resources. If those revenue streams dried up, tough conversations about cutbacks at schools, police departments and hospitals would be taking place. Tax increases to plug the shortfalls would be considered even as thousands hit the unemployment lines.
The magnitude of the lawsuits’ potential to visit hardship upon Louisiana’s families cannot be overstated. The shame is that the litigation is without merit. Every legitimate scientific study has concluded that there are a number of factors causing coastal erosion, most of which have nothing to do with oil and gas exploration and production. In fact, the industry is part of the solution, having donated thousands of acres for scientific coastal and environmental research and having provided 25% to 33% of the overall cost for coastal erosion prevention and restoration efforts.
The only reason the oil and gas industry is being targeted exclusively is because the greedy trial lawyers see dollar signs. But by no means, however, is litigating against oil and gas companies for cash strictly a homegrown Louisiana cottage industry. The financially struggling cities of San Francisco and Oakland recently launched a lawsuit against top energy producers for anticipated damages from climate change, only to have the judge toss the case. Other municipalities filed similar litigation and now find they have some explaining to do.
It seems the left hand isn’t watching what the far-left hand is up to. San Mateo County, California, for example, claims in its lawsuit against the energy industry that there’s a 93% risk of a devastating climate-change-related flood by 2050. Yet its municipal bond offering to potential investors dismissively notes that it’s “unable to predict whether sea-level rise or other impacts of climate change or flooding from a major storm will occur.” Such duplicity has opened the county to a potential SEC investigation for bond fraud and could result in taxpayers paying expensive legal fees.
If these baseless lawsuits by greedy plaintiff lawyers remain unchecked, it won’t be just oil and gas producers that get hurt. Consumers, taxpayers and families would also suffer the fallout. Ultimately, elected officials must be held accountable for reining in this manipulation of the courts for profit.
Horace Cooper is co-chairman of the Project 21 National Advisory Board, a senior fellow with the National Center for Public Policy Research and a legal commentator.