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Thursday, October 30, 2014

UPDATE: Two oil companies and levee board settle for $50,000

Posted By on Thu, Oct 30, 2014 at 9:06 PM

click to enlarge Shell Beach, as seen from the air. - CREATIVE COMMONS/RAY DEVLIN
  • Shell Beach, as seen from the air.

Two privately held Texas oil companies that were among nearly 90 defendants named in the Southeast Louisiana Flood Protection Authority-East’s (SLFPA-E) landmark environmental lawsuit have settled with the flood authority for a combined total of $50,000 in damages, according to documents filed in federal court and statements by the attorneys involved.

The terms of the settlement were announced a few hours after attorneys for SLFPA-E, White Oak Operating Co., L.L.C. and Chroma Operating, Inc. filed a “Joint Motion for Order of Dismissal With Prejudice” in federal court on Thursday. Parties typically file joint motions to dismiss when they have reached an out-of-court settlement. Because the SLFPA-E is a public entity, the terms of the settlement had to be made public.

While the dollar amount of the settlement seems small at first glance, the fact that two oil companies have agreed to pay damages for increased public exposure to hurricane-related flooding due to their operations in coastal wetlands is huge, even if they don't expressly admit responsibility. The settlement marks the first time an admission of this kind, along with payment of damages, has ever been made by energy companies.

White Oak and Chroma, a pair of related companies based in Houston, are among the smallest operators in the area that is the subject of the lawsuit. Their operations were limited to less than 100 linear feet of a single spoil bank, among nearly 700 miles of pipeline and access canals that are the subject of the litigation, and they operated there for only two years, according to documents attached to the original lawsuit. That makes them among the smallest players involved in the suit, not only financially but also in terms of actual damages caused by their activities.

Both White Oak and Chroma are privately held companies, in contrast to some of the publicly traded “majors” that are also defendants in the case. White Oak and Chroma probably needed to get the potential exposure for damages off their balance sheets in order to look better to potential lenders and/or investors — and to eliminate any actual exposure. The lawsuit seeks to hold all defendants “jointly” liable, which means any or all of them could be targeted for collection of all potential damage awards — which could total in the billions.

The terms of the settlement include a full and complete release in exchange for $50,000 paid to SLFPA-E. "Every dollar will be used for coastal restoration and important projects to protect lives and property in the SLFPA-E territory," said Steve Estopinal, chairman of the SLFPA-E board.

This settlement comes very early in the litigation process. Both sides are still arguing technical legal points, including whether recent anti-lawsuit legislation even applies to this case (and, if it does, whether the new law is constitutional). Neither side has taken the first deposition. That signals a genuine concern, if not fear, among some defendants that the lawsuit represents a serious legal threat to their bottom lines.

The SLFPA-E lawsuit alleges that southeast Louisiana wetlands that protect greater New Orleans from hurricanes and storm surges were damaged over the course of 80 years by more than 1,000 miles of oil and gas canals that were carved out of coastal lands. The canals caused massive coastal erosion, which exposed metro New Orleans to increased chances of storm-related flooding and, in turn, higher flood insurance rates and higher costs of building levees.

Mathematically and legally, the fact that White Oak and Chroma operated in a tiny portion of the affected wetlands for only two of the past 80 years explains the relatively small settlement amount. While settlements do not always come down to a precise mathematical formula, the $50,000 paid by White Oak and Chroma actually portends billions in potential damages against larger companies that operated in much larger “footprints” over much longer periods of time.

Moreover, it’s significant that the energy industry defendants clearly are not united in the assertion that the lawsuit is “frivolous,” as Gov. Bobby Jindal and other critics of the litigation have claimed. And, as often happens in criminal cases, the first defendants to negotiate a settlement in multi-party civil cases typically get the best deals.

“Given that [the flood protection authority] named White Oak and Chroma for the same relatively limited footprint, and that at this early point in the litigation the parties had clear and simple positions, we are pleased to have come to what all sides feel are reasonable, responsible terms,” attorneys for both sides said in a prepared statement.

Two decades ago, when a group of big-time plaintiff lawyers and the State of Louisiana sued the major tobacco companies, Big Tobacco initially took a “no prisoners” position — until one of the smaller companies settled. That crack in the defendants’ wall was all it took to bring the rest of them to the negotiating table. The end result was a multi-billion-dollar settlement.

It’s too early to tell if that scenario will play out with the energy defendants in the SLFPA-E lawsuit, but the other defendants cannot possibly welcome news that two of their number are already cutting their losses and settling. It would not be surprising to see additional defendants — small and not so small — reaching out-of-court settlements in the weeks and months ahead.

It also will be interesting to see how this development plays out politically. At a minimum, the decision by some energy defendants to settle with SLFPA-E completely undercuts, if not outright disproves, the “frivolous lawsuit” meme that Gov. Bobby Jindal, former coastal “czar” Garret Graves (who is now a candidate for Congress in the 6th District) and legislative foes of the lawsuit have parroted ever since the suit was filed in July 2013. If the suit were truly “frivolous,” as Jindal continues to claim, defendants in the energy industry (who are accustomed to environmental litigation) would not have settled — particularly when a lawsuit breaks new legal and environmental ground, as the SLFPA-E suit clearly does.

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