Rant of the Week

Exxon Sues Itself


I’ll bet I know something about the 1994 Exxon Valdez oil spill in Prince Edward Sound that you don’t know.

The Exxon Valdez was the worst oil tanker spill of all time, polluting more than 1000 miles of Alaskan coastline and endangering a vital, delicate ecosystem. Lawsuits followed of course. BIG lawsuits.

The plaintiffs in the case against Exxon were awarded $5 billion, which is about as much as Exxon earns in profit each year. That’s a pretty fair fine, I think. What’s the use of a five or ten million dollar penalty when a corporation sees an amount like that as a mere operating expense? Do you think $5 billion is a deterrent? I think it is.

A group called the Seattle Seafood Processors banded together to sue Exxon for compensation for lost income and all that jazz. Exxon settled with this group out of court. The settlement was SECRET. They get to settle out of court, we get to wonder if they got anything, and Exxon gets to hide the cost of the settlement from their stockholders, the media, the public, and the other plaintiffs. Maybe there was something about their case that was peculiarly alarming to Exxon. Whatever.

Anyway, people did find out eventually that the agreed upon amount was $70 million. Good deal, right? I mean, these guys get to take a vacation and everything – they can’t fish anymore—and get paid for it! How much do you want to bet that they just laid off all their workers and kept the money for themselves? Well, hell, why not? This is America.

But here the story gets interesting. If somebody does some damage to you and you sue them and then you settle out of court, your case is done, right? You are out of the picture. You sign an agreement saying that Exxon has compensated you for your losses and you have no further claim.

That’s what you think. What happened is this: the Seattle Seven continued their lawsuit, with the full knowledge and consent of Exxon. The very lawsuit they had settled! And they won! Big time! $700 million! Hurray for the lawyers, who get to collect about $100 million of that for themselves. Hurray for America! Hurray for everyone!

Wait a minute. It seems that Exxon is now taking the Seattle Seven to court. What! How can this be? What a strange reversal! Did the Seattle Seven dump a bunch of dead fish on Exxon’s front lawn or something? No! It seems that Exxon had a secret deal with the Seattle Seven that stated that, in exchange for the $70 million, the Seattle Seven would continue their legal action and, if they won, Exxon would collect all of their winnings.

Whoa Nelly! What a concept! Exxon was betting that the Seattle Seven’s lawyers were really, really good, and would win a much larger settlement in court than $70 million. The Seattle Seven were pretty stupid, don’t you think? Why didn’t they hire worse lawyers (if such a thing is imaginable)? Then they wouldn’t have been out $630 million dollars.

But wait! Hold on to your hats! The Seattle Seven don’t want to give the $700 million to Exxon anymore. They want to keep it all for themselves! Well, for themselves and their lawyers. Exxon is quite upset about this turn of events. That’s why Exxon’s lawyers are taking the Seattle Seven to court. Give us back our money!

Do you have this all straight? Yes, you’re right: Exxon sued themselves. Can you picture their lawyers in their solemn robes, celebrating after the verdict? Woohoo! We got $700 million! We’re rich! Now we can pay off our lawyers!

Strange story, isn’t it? Why did Exxon make this preposterous deal? Nobody knows for sure. The only people who benefit, of course, are the lawyers. The lawyers who negotiated the deal for the Seattle Seven probably got most of the $70 million. The lawyers who won the lawsuit probably got about $200 million—I am NOT kidding. Contingency fees typically end up in the 25-40% range. Exxon’s lawyers got money too. How much? Well, if the tobacco industry settlement is any guide, they probably persuaded Exxon to sign an agreement paying them a percentage of the difference between the maximum amount of liability given a worst case judgment, and the deal that was actually struck. It sounds like they didn’t do very well. I’ll bet they thought the maximum liability would be somewhere in the $500 - $750 million range. I’m just guessing now. I’ll bet they expected to earn $100 million by keeping the liability below $1 billion.

I’ll bet they didn’t offer to give Exxon a refund of their fees because they did so poorly. That’s not the way life works for the rich, my friend. If you are a baseball player and you hit 30 homeruns, you will get a new contract worth $10 million. If you then hit 5 home runs, do you give the money back? Are you kidding? Do stock brokers convicted of swindling people out of millions of dollars suddenly walk or take public transit? But if you are supposed to load a truck in two hours and you do it in eight instead, do you think you’ll get paid?

The only advantage to Exxon—had the settlement agreement with the Seattle Seven stayed secret-- is that it looks like they are paying a lot more damages than they really are. The $700 million is part of a shared settlement with fishermen and hunters and others who were harmed by the Exxon Valdez disaster. The total of the settlement is $5 billion. It’s hard to believe that Exxon could be so stupid as to figure on coming out ahead of this deal. On the other hand, this is a corporation that hired an alcoholic captain to steer a vessel loaded with oil through one of the most hazardous and sensitive coastal ecosystems in North America.

Maybe the $700 million is tax deductible. Actually, since it is subtracted from their earnings, it quite probably is tax deductible. Who does pay the taxes on the $700 million? The Seattle Seven? For money they will never receive? Exxon? For a judgment they are paying themselves?

Exxon, incidentally, has not yet paid a penny of the $5 billion, though the judgment was awarded five years ago. Exxon is sitting on $5 billion that it owes other people. If you were sitting on $50 that you owed Exxon, you would be in jail in very short order, my friend.

A judge, meanwhile, has annulled the secret agreement between Exxon and the Seattle Seven and ordered Exxon to pay out the $700 million. Exxon is appealing. Well, why not? They have lawyers.

Well, let’s say you are as outraged as I am about this deal.

What are you going to do? Get a lawyer?

All Contents Copyright Bill Van Dyk
 1999 All Rights Reserved