High-Stakes National and International Litigation: Management Issues

Abstract

An employee has just sued an oil and gas company for U.S. $1 billion on behalf of himself and countless unnamed people who have nearly identical claims. What does company management do? From equipment accidents to plant and pipeline explosions to gas releases and chemical spills, oil and gas executives regularly face risks that would terrify executives in other fields. The resulting lawsuits often mushroom into myriad class-action law-suits with plaintiffs clamoring for enormous damage recoveries. At the same time, “lesser” lawsuits in all shapes and forms abound, including litigation ranging from sexual harassment to royalty claims. Because of the oil industry’s sweeping size, scope, and complexity, the industry is not just fertile ground for legal action—it is a veritable petri dish. In the post-Sarbanes-Oxley world, more and more oil companies have come to believe that legal matters are just as much management business as legal business. The more that management knows about the broad issues of lawsuits, the more prepared it will be to know how to direct its lawyers and guide its case to a successful conclusion. Class-Action Lawsuits Because class-action lawsuits are potentially the most costly of all litigation that oil companies may face, it is helpful to know the basics. First, class-action suits can make cases involving large numbers of people more manageable for both sides: plaintiffs and defendants. For example, when scores of people claim to have suffered similar harms, it is impractical to bring each of these claims to trial individually. If a court agrees, a class-action lawsuit may proceed in the name of one or only a few individuals representing all similar claimants. Ultimately, all the unnamed claimants are governed by the issues determined to be common to the group. At the outset of class actions, management and its attorneys should make a pivotal decision—Does the company embrace the idea of a class action or not? Surprisingly, the answer is not always “no.” Occasionally, management may tolerate, if not welcome, a class action for sound management reasons. For instance, when any large business such as an oil company has a potential exposure, it should objectively analyze that exposure in terms of the size of the claim, the strength of its defense, and the cost to defend or settle later. As an example, one lawsuit for U.S. $1,500 scarcely qualifies as a significant exposure to any large company. But 10,000 carbon copies of that lawsuit can make just the attorneys’ time to manage and defend each one ruinous. Consider the number of formerly vibrant companies that ended up in bankruptcy as a result of thousands of asbestos claims. That is why, as odd as it sounds, the chant “Turn it into a class action” may occasionally be the company’s mantra as much as it is the claimant’s. As a result, the question is usually better asked as, “Forget the claimants; does a class action give the company a way to put a widespread exposure behind us at a wholesale cost rather than at 10,000 retail costs?”