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A Few More Thoughts On The Very Stupid Oil-As-Nuisance Litigations

A Few More Thoughts On The Very Stupid Oil-As-Nuisance Litigations

It occurs to me to address the question of exactly what about the “oil-as-nuisance” litigations is stupid, and what is not as stupid. The matters that I refer to include the cases, discussed in the last post, of the cities of Oakland and San Francisco against five of the largest oil companies, recently reinstated by the Ninth Circuit Court of Appeals and sent to be heard in the California state courts. The matters in question also include numerous other very similar cases (often with page after page of the complaints copied word-for-word from each other) brought by many other California cities and counties, as well as by various other jurisdictions around the country, not the least of them being my own New York City.

To begin with the “stupid” category, there is the fundamental mangling of the whole concept of a legally actionable nuisance. The classic examples of actionable nuisance involve the polluting next door neighbor, whose sewage or coal ash inundate your property; or the extremely noisy bar downstairs that makes your apartment uninhabitable. But here, we are all using the oil, getting from it our light and heat and transportation. As I wrote in a post in June 2018 (reporting on the then-recent trial court dismissal of the Oakland and San Francisco cases):

Although the named plaintiffs are just a few cities, and the defendants are just a few oil companies, the underlying theory is that everyone who uses fossil fuels is harming everyone who lives on the planet. We’re all potential plaintiffs, and we’re all potential defendants! And we’ll fix everything by suing ourselves! It’s a particularly absurd instance of the usual touching faith of progressives in the efficacy of our flawed institutions to fix all human problems by issuing some kinds of orders from on high.

So let’s move over to the “not as stupid” category. In that category, we have the environmental lawyers who cook these things up. As I understand it, the lead guy devising the national strategy on this is named Matthew Pawa, a lawyer who practices out of Newton, Massachusetts. Go to the end of the New York City complaint, and you will find his name, along those of many colleagues at his own firm and other firms that regularly work with him. Pawa and his colleagues pose as environmental crusaders, people who are going to use the tools of the law to save the planet and bring about environmental justice. Are they really? The whole idea is preposterous. Even if you firmly believe that use of petroleum and products derived from it is destroying the planet and must be stopped, the chance that that result will be brought about by these lawsuits is zero. What does nothave a zero chance — indeed, what has a very substantial chance of occurring — is that these lawsuits will make Mr. Pawa and his colleagues very, very rich.

Now consider the position of the defendants, the oil “majors” Exxon, Chevron, ConocoPhillips, Royal Dutch Shell and BP. At least until the very recent sharp drop in the price of oil occasioned by the Coronavirus pandemic, these companies were making very good money producing and selling oil around the world; and with high likelihood the profitability of the oil business will return shortly to normal levels. As noted in Thursday’s post, these companies have excellent defenses on the merits of these cases. The “nuisance” legal theory is nonsensical. And nothing about “science” supports the idea that increased emissions of CO2 over time will swamp the plaintiff cities with rising seas, let alone subject them to other speculative horribles like more hurricanes, floods, tornadoes, locusts, or whatever. And the five defendants are a relatively small and decreasing piece of the world emissions picture, which is increasingly coming to be dominated by production from new sources and by generation of electricity in the third world (China, India, Africa, South Asia), mostly from coal. As noted on Thursday, Christopher Monckton was urging the defendants to emphasize science as a defense, where they have far the better case. I joined Monckton in that urging.

But unfortunately, that urging does not comport with the usual psychology of major corporate defendants in litigation situations where billions of dollars might be at stake. Here’s the usual psychology of the corporate executives: never let your company go to a trial where there is even a small possibility that the judgment could be monetary damages so large as to threaten the corporate franchise. It doesn’t matter how strong your case is. The judge may be crazy. Or you could get a jury that goes crazy. Or (as here) the plaintiffs could set you up so that you need to defend your position before not one but twenty or fifty judges and/or juries, any one of which could go crazy even after you have won the first ten or twenty cases.

Which brings me to the model of the great tobacco settlement back in 1998. Without the slightest doubt, this is the holy grail that Mr. Pawa and his colleagues are seeking. The tobacco companies agreed to provide a large and continuing stream of revenue to all the states and municipalities that had brought litigation. Of course, that agreement had the effect of driving up the price of cigarettes and other tobacco products. So the states agreed to restrict entry into the market for selling cigarettes only to companies that were participating in the settlement. That way, the defendants could safely raise their prices without facing additional competition. (Were you aware of that piece of the tobacco settlement?)

You could look at the tobacco settlement and say, that doesn’t make a lot of sense. After all, the states could have just imposed higher taxes on cigarettes and other tobacco products, which would have had basically the same effects of raising prices of the cigarettes, getting money for the states, and applying equally to new entrants to the market. Yes, but here are the differences: (1) the politicians didn’t have to actually pass a tax in the legislature, (2) the politicians could claim to be somehow punishing “big tobacco,” even as the costs of course got passed right on to their citizens, and (3) the plaintiff lawyers raked off multiple billions of dollars. Meanwhile, there was a decline in tobacco usage, but the amount of that that is attributable to the higher prices from the settlement is dubious. Certainly, there never was any possibility that a settlement in this form was going to eliminate tobacco usage, or even put a big dent in it. And indeed, once the settlement was in place, the states became effective partners of the tobacco companies, dependent on them for important ongoing revenues.

The oil companies are all of course very well aware of this history. Indeed, Wachtell Lipton, the firm representing ConocoPhillips in the oil-as-nuisance cases, was at the center of the tobacco settlement 22 years ago. The oil majors really won’t even mind forking over a few annual tens of billions of dollars each into a master national settlement fund, as long as they can increase their prices sufficiently to cover the outlay. And that can be accomplished by the settling states passing laws that no other oil company is allowed to sell into their states unless it joins the master settlement and makes payments based on its market share.

It’s a win win! The politicians claim credit for punishing the evil oil companies, and raise billions of dollars for pet projects that never need to be justified to taxpayers. The oil companies get permanent protection from the tide of lawsuits, at a cost of marginal decline in volume of sales. But after all, their growth markets are in the third world anyway. The plaintiffs’ lawyers walk away with billions.

What’s not to like? This is where we get back to the “stupid” category. First, every American (or at least those in the settling states) gets hit with higher prices for gasoline, maybe by 10% or even 20% or 30%. Everyone is poorer by that much. The poor get hit the hardest.

And what about the effect on the environment? At best we might be talking about a decline of 5% or so in the use of petroleum-derived fuels in the U.S. Even if you believe the most alarmist climate models, the effect on world temperatures would be in the hundredths of one degree — not even within the measurement accuracy of any known instrumentation. But then, “saving the planet” was never really the point. That was just the cover story.