WSJ: A Bayou Legal Brawl
A Bayou Legal Brawl
Jindal says he'll sign bills limiting legacy drilling lawsuits.
WSJ Review & Outlook, June 7, 2012, 7:25 p.m. ET
Louisiana has had its fair share of oil troubles, from the Deepwater Horizon spill to federal foot-dragging on offshore permits. So congratulations to the state's political class for belatedly moving to plug the other drain on its oil resources: trial lawyers.
The Louisiana legislature last week sent Governor Bobby Jindal a pair of bills to end the legal racket known as "legacy lawsuits." For a decade, this booming litigation has cost the state thousands of jobs and billions in foregone investment.
In a legacy suit, trial lawyers scour property records and then sue on behalf of landowners, claiming billions in environmental damage from prior drilling. Any piece of land may have been leased over decades to many different drilling operators, so the suits seek to hold all predecessor companies liable. Over half the oil produced in Louisiana is now pumped by companies that have been hit with a legacy suit.
This legal boom began in 2003 when the Louisiana Supreme Court validated these suits and held that damage awards needn't be tethered to the land's value. Suits surged, and a study for the state legislature this year counted 271 current legacy lawsuits-more than half filed by one Louisiana law firm, Talbot, Carmouche & Marcello.
Louisiana didn't pass comprehensive drilling regulations until 1986, so some sites could use cleaning up. Yet the majority of these suits are frivolous, with the legislature study noting that more than three-fourths provided no evidence of environmental damage. This hasn't stopped the plaintiffs bar from alleging hundreds of millions worth of damage per suit to induce quick settlements. The lawyers take their cut, while landowners who get the rest are not obliged to use the payouts for environmental remediation.
Louisiana State University's Center for Energy Studies reported in February that Louisiana's onshore drilling industry has been stagnating, even as other oil-producing states grow briskly. The study estimated legacy lawsuits over the past eight years have discouraged the industry from drilling 1,200 new wells, losing $6.7 billion in drilling investment, $10.5 billion in economic output, and more than 30,000 job opportunities.
A 2006 reform contained too many loopholes and didn't stem the litigation. Governor Jindal has championed reform in many areas but was largely AWOL this spring as the state legislature debated reform. Only after Mr. Jindal was criticized by Louisiana Senator David Vitter did he emerge to broker legislation.
The resulting laws put the focus on clean-up over litigation. The bills require landowners to engage first with the state's Department of Natural Resources, which will evaluate environmental damage-if any. Plaintiffs firms can still sue, though the incentive to do so will be greatly diminished, given that the agency is unlikely to find evidence justifying big payouts. The new procedure will also cover existing suits, save the few that already have a trial date.
A spokesman for the Governor told us on Thursday that Mr. Jindal will sign the bills, which is great news for the Pelican State. There are few happy endings when fighting the trial bar, but this one will help Louisiana and U.S. energy production.