Litigation and Trial - Max Kennerly : Philadelphia Trial Lawyer Max Kennerly : Business and Commercial Litigation : Civil Attorney : The Beasley Firm : Philadelphia Pennsylvania

Kenneth Feinberg, whose pro bono publico work in the 9/11 Compensation Fund was widely lauded, is back again administering the $20 billion BP Compensation Fund and is in the middle of a publicity tour on the Gulf of Mexico. C-SPAN just posted a video of him discussing the Fund and his work on it this morning.

Unlike with the 9/11 Fund, though, this time Feinberg is getting paid, and that raises a few questions.

Nobody questions Feinberg's integrity, but the whole point of having a nation of law, not men, is to make everyone accountable to that law, and Professor Byron Stier at the Mass Tort Litigation Blog raises the right issues:

The issue of Feinberg's compensation is interesting. Feinberg worked pro bono on the 9/11 victim compensation fund -- a remarkable and laudable commitment given the substantial time involved. I'm not suggesting that Feinberg should go on doing such monumental administrative tasks pro bono -- but is it appropriate for him to keep his compensation from BP confidential?

As with the 9/11 fund, Feinberg will likely have tremendous discretion in fashioning the administrative claim mechanism for the BP compensation fund. His exercise of discretion could possibly result in BP saving substantial funds, especially if any remainder of the $20 billion fund is to be returned to BP. Accordingly, a fair process at a minimum requires that both the amount of his compensation, and the method of compensation be disclosed publicly. If BP has the ability to review and cut his billable hours or his billable-hour rate, for example, Feinberg might have a conflict of interest that could lead him unconsciously to favor BP in structuring the administrative fund or making awards.

Andrew Perlman at Legal Ethics Forum follows up:

I haven't followed the details of the BP fund, but if there is little or no chance that there will be money in the fund after the awards are made (a seemingly plausible assumption), I'm not sure I see how Mr. Feinberg's behavior could be impacted (consciously or unconsciously) by his compensation.  BP is out the $20 billion regardless of how the proceeds are distributed.  Are there other ways in which Mr. Feinberg's conduct might be affected by how his compensation is structured?

I'm not Feinberg's accountant, but from the little bit I know about his practice — like his role in resolving the multibillion-dollar antitrust suit by AmEx against MBNA — I'm confident that Feinberg is doing quite well financially, and isn't planning on making this Fund into his own retirement. Similarly, in light of his unpaid commitment to the 9/11 Fund, I imagine he values his reputation, not to mention his dignity and integrity, over any quibbling over billable hours that he might get from BP.

On paper, there's no obvious reason for concern. But Roger Ebert's rules for critics comes to mind:

No commercial endorsements. This used to be a given in journalism ethics. A critic must be especially vigilant. If you express approval of a product, you must sincerely believe what you are saying. How will we know you're sincere? Because you have (1) accepted no money, (2) or donated the money to a charity, and (3) have not accepted a free example of the product, except in such cases as foodstuffs, where the difficulties are apparent. You gotta eat 'em to review 'em. The Sun-Times has a policy: All Christmas gifts must be returned, except for perishables like papayas, etc. Candy is not a perishable. Neither, to the incredulity of many reporters, is liquor. Back to endorsements. Were I to recommend, say, a rice cooker, that must not imply I obtained it for free, or that 100 lb. sacks of rice were being dropped at my door. I mention this because I may be compelled to recommend a rice cooker in the very near future, in defense of my Who's Who entry, which claims I can cook almost anything in a rice cooker.
...

No advertisements. Gene Siskel, who I frequently quote as a fierce paragon of high standards, used to quote what someone, maybe it was David Mamet, told him: "As a critic, everything you say depends on your credibility. When you sell that, somebody else owns it." Gene and I (regretfully) turned down offers in the extremely low seven figures  from a fast food chain and an airline. "After we retire, then it would be okay," we speculated. Even then, maybe not. Look at Fred Astaire. How many people thought they were paying him for their dance lessons? They look at "Swing Time" on TCM, and say, "There's that bastard who overcharged me for the mambo."

The emphasis of Mamet's quote is mine. Fact is, Feinberg is being paid by BP to run the Fund, and being paid by BP to promote the Fund. That's enough to create the appearance of impropriety.

Among judges, it is unnecessary to demonstrate the reality of impartiality; the paramount concern is the appearance of impropriety:

The goal of section 455(a) is to avoid even the appearance of partiality. If it would appear to a reasonable person that a judge has knowledge of facts that would give him an interest in the litigation then an appearance of partiality is created even though no actual partiality exists because the judge does not recall the facts, because the judge actually has no interest in the case or because the judge is pure in heart and incorruptible. The judge's forgetfulness, however, is not the sort of objectively ascertainable fact that can avoid the appearance of partiality. Hall v. Small Business Administration, 695 F. 2d 175, 179 (5th Cir. 1983). Under section 455(a), therefore, recusal is required even when a judge lacks actual knowledge of the facts indicating his interest or bias in the case if a reasonable person, knowing all the circumstances, would expect that the judge would have actual knowledge." 796 F. 2d, at 802.

Liljeberg v. Health Services Acquisition Corp., 486 US 847, 860-862 (1988)(quoting the Second Circuit).

So it goes with Ken Feinberg.

What will it take to fix that? Personally, I don't think we need to know every detail, but we do need to know more.

I don't need to know exactly how much he is being paid, but I do want to know if it is (a) hourly or fixed and (b) if it is significantly above or below his normal rate. Those two elements could, potentially, create an incentive either to draw out the work or to hurry through the claims to get back to his more profitable work.

Do I think he will do that? No, but that's not the issue: the issue is if it appears that his judgment could be affected by his compensation, and I think it's fair to say such an appearance exists. The victims of the spill — the ones who are being asked to trust his judgment — deserve to know a little more before they sign on.  

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Judicial supremacy made an unexpected comeback this week with Martin Feldman of the Eastern District of Louisiana, a "fair" and "terrifying" judge (who, for what it's worth, dismissed one of my cases a few months ago — no hard feelings), granting an injunction against the Secretary of the Interior from enforcing the Obama administration's moratorium on deepwater oil drilling because the moratorium was "arbitrary and capricious:"

After reviewing the Secretary’s Report, the Moratorium Memorandum, and the Notice to Lessees, the Court is unable to divine or fathom a relationship between the findings and the immense scope of the moratorium. The Report, invoked by the Secretary, describes the offshore oil industry in the Gulf and offers many compelling recommendations to improve safety. But it offers no time line for implementation, though many of the proposed changes are represented to be implemented immediately. The Report patently lacks any analysis of the asserted fear of threat of irreparable injury or safety hazards posed by the thirty-three permitted rigs also reached by the moratorium. It is incident specific and driven: Deepwater Horizon and BP only. None others. While the Report notes the increase in deepwater drilling over the past ten years and the increased safety risk associated with deepwater drilling, the parameters of “deepwater” remain confused. And drilling elsewhere simply seems driven by political or social agendas on all sides. The Report seems to define “deepwater” as drilling beyond a depth of 1000 feet by referencing the increased difficulty of drilling beyond this depth; similarly, the shallowest depth referenced in the maps and facts included in the Report is “less than 1000 feet.” But while there is no mention of the 500 feet depth anywhere in the Report itself, the Notice to Lessees suddenly defines “deepwater” as more than 500 feet.

... The Shallow Water Energy Security Coalition Presentation attempts at some clarification of the decision to define “deepwater” as depths greater than 500 feet. It is undisputed that at depths of over 500 feet, floating rigs must be used, and the Executive Summary to the Report refers to a moratorium on drilling using “floating rigs.” Other documents submitted summarize some of the tests and studies performed. For example, one study showed that at 3000psi, the shear rams on three of the six tested rigs failed to shear their samples; in the follow up study, various ram models were tested on 214 pipe samples and 7.5% were unsuccessful at shearing the pipe below 3000psi. How these studies support a finding that shear equipment does not work consistently at 500 feet is incomprehensible. If some drilling equipment parts are flawed, is it rational to say all are? Are all airplanes a danger because one was? All oil tankers like Exxon Valdez? All trains? All mines? That sort of thinking seems heavyhanded, and rather overbearing.

... While the implementation of regulations and a new culture of safety are supportable by the Report and the documents presented, the blanket moratorium, with no parameters, seems to assume that because one rig failed and although no one yet fully knows why, all companies and rigs drilling new wells over 500 feet also universally present an imminent danger.

On the record now before the Court, the defendants have failed to cogently reflect the decision to issue a blanket, generic, indeed punitive, moratorium with the facts developed during the thirty-day review. The plaintiffs have established a likelihood of successfully showing that the Administration acted arbitrarily and capriciously in issuing the moratorium.

Ashby Jones at the WSJ Law Blog has been all over the story, with lots of followup links and questions about Judge Feldman's oil industry investments.

I don't agree with the ruling; the government's assumption, as worded by Judge Feldman, "that because one rig failed and although no one yet fully knows why, all companies and rigs drilling new wells over 500 feet also universally present an imminent danger" is sound. We still don't know why the "failsafe" measures on the Deepwater Horizon failed to be safe. Although the government's conclusions included a number of inconsistencies, it's hard to argue that the government's chosen remedy — the moratorium — was not rationally related to the compelling national interest of limiting the amount of oil in the Gulf of Mexico to the millions of gallons already there.

But let me play devil's advocate for a moment. From a purely legal standpoint, the order isn't extraordinary. Although the writ of habeas corpus is rightly called "the Great Writ" by virtue of its ability to force the federal and the states' governments alike to release an individual from confinement, the Great Writ's less heralded cousin civil context is the Administrative Procedures Act, which is almost constitutional in its breadth and power:

 To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. The reviewing court shall—

 

(1) compel agency action unlawfully withheld or unreasonably delayed; and

(2) hold unlawful and set aside agency action, findings, and conclusions found to be—

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;

(B) contrary to constitutional right, power, privilege, or immunity;

(C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right;

(D) without observance of procedure required by law;

(E) unsupported by substantial evidence in a case subject to sections 556 and 557 of this title or otherwise reviewed on the record of an agency hearing provided by statute; or

(F) unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court. 

5 U.S.C. § 706.

There it is, plain as day, a statute enacted by the Congress the President empowering (commanding, some might say) federal judges to set aside any decision by any federal agency — the means by which the President and his Cabinet effectuate their policies — if they find that agency action to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law."

That's why the exercise of this power is not, by itself, noteworthy: it's exactly how our government's checks and balances are supposed to function. As another check on the system, despite some suggestions otherwise, federal appellate courts (like the Fifth Circuit) can and do engage in a searching analysis of injunctions. See Karaha Bodas v. Perusahaan Pertambangan Minyak, 335 F. 3d 357, 363-364 (5th Cir. 2003)(Reversing injunction, noting "Even though the ultimate decision whether to grant or deny a preliminary injunction is reviewed only for abuse of discretion, a decision grounded in erroneous legal principles is reviewed de novo. ... We have cautioned [that] a preliminary injunction is an extraordinary remedy which should only be granted if the party seeking the injunction has clearly carried the burden of persuasion on all four requirements. As a result, the decision to grant a preliminary injunction is to be treated as the exception rather than the rule.")

As favorable as the Fifth Circuit sometimes is to oil interests, there's good odds they would likely have reversed this injunction and sent it back for the District Court to craft a more limited remedy that preserved the moratorium against any oil platforms that were comparable to, or had comparable risks of, the Deepwater Horizon.

But the main point here is what happened as a result of the order: the Secretary of the Interior announced he would issue a new, more detailed, possibly more narrowly-crafted moratorium. And that's just what the APA was designed to do: to limit the ability of the federal government's agencies to impose their will on people, to force them to "refine" their actions when necessary. Moreover, at the moment, no additional damage is being done to the Gulf, and Judge Feldman has scheduled a conference call this morning to consider staying his injunction while the Department of the Interior appeals his ruling and issues a new moratorium.

Thus, as critical as I might be of the reasoning of the order, the fact of the order is something to herald: for once, your government is functioning the way it is supposed to.

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Some background: the Oil Pollution Act establishes strict liability for anyone who spills oil, but limits that liability in the case of offshore rigs to $75 million per spill, plus removal costs. Congress has contemplated removing those caps for the BP spill and all future spills.

Over at the National Law Journal, David Ingram reports that BP, in addition to spilling oil and other substances all over the Gulf of Mexico, is now blowing smoke in the Washington, DC vicinity:

A private consultant for energy companies told Congress on Tuesday that any effort to rewrite oil spill liability laws retroactively would likely face a legal challenge based on breach-of-contract claims.

W. Jackson Coleman, managing partner of EnergyNorthAmerica, said that if successful, those breach-of-contract claims could cost the federal government billions of dollars in payments to the oil and gas industry.

Coleman testified at a hearing of the Senate Judiciary Committee, which is considering legislation to lift limits on damage awards. A former lawyer for the Interior Department and for Republicans on the House Committee on Natural Resources, Coleman said the drilling leases purchased by oil and gas companies are contracts with the federal government, and that the contracts were signed with certain expectations about liability.

He said there is ample precedent for companies to sue when the federal government changes the terms of those leases.

In 2000, for example, the U.S. Supreme Court ruled that the federal government had to return $158 million to Mobil Oil Exploration & Producing Southeast Inc. and Marathon Oil Co. after Congress passed a law limiting drilling off the Outer Banks of North Carolina. Justice Stephen Breyer wrote for an 8-1 majority in the case, Mobil Oil Exploration v. United States. Coleman worked on the case when it was before the U.S. Court of Federal Claims and he was at the Interior Department.

"Certain expectations about liability?"

Since when could you sue the United States government for monetary damages over your "expectations" about its laws?

The Mobil Oil Exploration case was an entirely different situation. There, the government sold a bunch of leases and then passed laws that precluded them from complying with certain terms of the leases. Such is, undoubtedly, a breach of contract: the government did not do what it contracted to do.

In the Gulf of Mexico, BP bought leases from the United States government to conduct offshore drilling. The government complied with every last word of those lease contracts. All on its own, BP screwed up and initiated the revenge of the dinosaurs.

The fact that BP bought the leases with the "expectation" that they would be subject only to the liability caps in the Oil Pollution Act is irrelevant. The government changes its laws all the time, including those relating to liability. In MGM v. Grokster, for example, the Supreme Court invented a wholly-new cause of action for "contributory" copyright infringement, putting Grokster out of business.

In one sense, though, these arguments over the Oil Pollution Act may be a tempest in a teapot, or I suppose a drop in the bucket.

First, the Oil Pollution Act's caps don't apply if the spill was caused by "gross negligence or willful misconduct" or "the violation of an applicable Federal safety, construction, or operating regulation." From the little bit we know about Transocean using seawater instead of mud or cement, and about the impotence of the "failsafe" blowout preventer, at least one of those is going to be met, possibly all of them.

Second, there are a lot of ways to sue BP; the common law of Texas, Louisiana, Mississippi, Alabama, and Florida all allow full recovery under negligence and trespass claims when a person is damaged by someone else's irresponsible conduct.

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Did Halliburton improperly cement the drill hole at Deepwater Horizon? Did Transocean fail to activate the blowout preventer — or were the shear rams too weak to crimp pipes designed for deepwater drilling? Why didn't BP have any contingency planning in place for a spill of this magnitude?

Whatever the cause, my hometown of Ocean Springs, Mississippi, already smells like crude oil, and the oil itself is on the way.

That wasn't supposed to happen, not in a supposedly high-tech, sophisticated, safety-conscious industry with redundant environmental protections in place.

So what next?

If you've been affected, you don't need a lawyer to pursue some of your claims. As the White House Blog posted yesterday:

BP is now accepting claims for the Gulf Coast oil spill. Please call BP’s helpline at 1-800-440-0858. A BP fact sheet with additional information is available here. For those who have already pursued the BP claims process and are not satisfied with BP’s resolution, can call the Coast Guard at 1-800-280-7118. More information about what types of damages are eligible for compensation under the Oil Pollution Act as well as guidance on procedures to seek that compensation can be found here. 

The Coast Guard website has a little bit more detail about the types of compensation available here. If you're on the Gulf Coast, you should start keeping a journal of any expenses / damages you have due to the oil spill that fit those criteria.

You don't need a lawyer, but you should have one, in my opinion. The Oil Pollution Act doesn't cover personal injury or non-economic damages. Moreover, BP has every incentive to low-ball their estimates of the claims. BP already has been running around trying to trick people — including people volunteering to help the cleanup effort — into signing away their rights for less than $5,000.

Though you can call the Coast Guard if you don't like BP's estimate, and though the Coast Guard wants to be fair to you, truth is, it's not their job to advocate for you.

That would be your lawyer's job. Your lawyer will raise questions like: how can BP claim they will fairly value your claim when most of the damage has yet to be done?

Which brings us to the lawsuits. Dozens of putative class actions have already been filed. Let's take a look at the claims being advanced.

Gulf Shores West Beach Investments et al. v. BP, Transocean, Halliburton, and Cameron International, in the Southern District of Alabama, alleges negligence, "wantonness," nuisance, and strict liability.

Carrone and Landry v. BP et al., in the Eastern District of Louisiana, alleges negligence and violation of the Oil Pollution Act. 

Parker et al. v. Transocean et al., in the Southern District of Mississippi, alleges "negligence, gross negligence, willfully, wanton and careless disregard for the plaintiffs" (as a single claim) and strict liability.

You might be wondering: why are all the claims different? Don't the lawyers know what they're doing?

In short: the lawyers don't care if they get the claims right at this point. They want to be appointed the lawyers for the whole class of plaintiffs, and to try to get that they're in the oft-derided "race to the courthouse." 

Alabama, Louisiana and Mississippi are all in the Fifth Circuit, where, as a general matter:

The first-to-file rule is based on "principles of comity and sound judicial administration." Save Power Ltd. v. Syntek Fin. Corp., 121 F.3d 947, 950 (5th Cir. 1997). It "requires federal district courts — courts of coordinate jurisdiction and equal rank — to exercise care to avoid interference with each other's affairs." West Gulf Maritime Ass'n v. ILA Deep Sea Local 24, 751 F.2d 721, 728 (5th Cir. 1985).

"Under the first-to-file rule, when related cases are pending before two federal courts, the court in which the case was last filed may refuse to hear it if the issues raised by the cases substantially overlap." Cadle Co. v. Whataburger of Alice, Inc., 174 F.3d 599, 603 (5th Cir. 1999) (citing Save Power, 121 F.3d at 950; West Gulf Maritime, 751 F.2d at 728). The rule vests in the court in which the first of the two related actions was filed the responsibility of "determin[ing] whether subsequently filed cases involving substantially similar issues should proceed." Sutter Corp. v. P & P Indus., Inc., 125 F.3d 914, 920 (5th Cir. 1997). Therefore, the second-filed court should usually stay, dismiss, or transfer the action over which it is presiding in deference to the first-filed court. See West Gulf Maritime, 751 F.2d at 729 & n.1, 730. This enables the court in which the first related action was filed to "decide whether the second suit filed must be dismissed, stayed or transferred and consolidated." Sutter Corp., 125 F.3d at 920.

Twin City Insurance Company v. Key Energy Services, C.A. H-09-0352 (United States District Court, S.D. Texas, Houston Division)(2009).

Some lawyers read language like the above and, as a matter of habit, throw together a slapdash complaint the moment they see bad news in the papers.

This strategy used to work, and there are indeed old cases in which the class counsel was chosen almost entirely on the basis of the first-to-file.

But those days are behind us, and the first-to-file rule has little influence in the selection of class counsel these days. As the Third Circuit's Task Force Report on the Selection of Class Counsel quoted from a Delaware securities fraud case,

Although it might be thought, based on myths, fables, or mere urban legends, that the first to file a lawsuit in this Court wins some advantage in the race to represent the shareholder class, that assumption, in my opinion, has neither empirical nor logical support.

Too often judges of this Court face complaints filed hastily, minutes or hours after a transaction is announced, based on snippets from the print or electronic media. Such pleadings are remarkable, but only because of the speed with which they are filed in reaction to an announced transaction. It is not the race to the courthouse door, however, that impresses the members of this Court when it comes to deciding who should control and coordinate litigation on behalf of the shareholder class.

Indeed, with the Class Action Fairness Act — which puts class actions worth more than $5 million (with a few additional requirements) in federal court — the governing rule for most major class actions these days is Federal Rule of Civil Procedure 23(g), which says:

(g) Class Counsel.

(1) Appointing Class Counsel.

Unless a statute provides otherwise, a court that certifies a class must appoint class counsel. In appointing class counsel, the court:

(A) must consider:

(i) the work counsel has done in identifying or investigating potential claims in the action;

(ii) counsel's experience in handling class actions, other complex litigation, and the types of claims asserted in the action;

(iii) counsel's knowledge of the applicable law; and

(iv) the resources that counsel will commit to representing the class;

(B) may consider any other matter pertinent to counsel's ability to fairly and adequately represent the interests of the class;

Nothing about first-to-file.

Considering that the courts are supposed to evaluate "counsel's knowledge of the applicable law," I have to wonder how lawyers think the courts in these oil pollution cases will react when they see lawyers file slapdash complaints that, like two examples of the above, don't even cite the Oil Pollution Act? (Mistakes abound on that Act, too, like among the lawyers quoted this Business Week article, who ignored the limitations of the Oil Pollution Act, such as the absence of personal injury damages and the caps on damages unless the plaintiffs prove misconduct.)

* * *

One of the best parts of being a plaintiff's lawyer is that you get to be selective with your cases. You can take cases that inspire you. We've been in touch with environmental lawyers down on the Gulf Coast about the prosecution of these cases — it takes a lot cooperation, resources and determination to take on companies with combined annual revenues around a quarter-trillion dollars — and are setting up triage for cases here.

If you're looking for a couple quick bucks out of BP, call 1-800-440-0858.

If you're looking to fight for full, adequate and just compensation, drop me a line.

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