Just Say Pay: Public/Private Lawsuits Threaten Companies With Rough Justice

When it comes to avoiding public/private lawsuits against your company, follow in the footsteps of Facebook CEO Mark Zuckerberg and take responsibility for everything
When it comes to avoiding public/private lawsuits against your company, follow in the footsteps of Facebook CEO Mark Zuckerberg and take responsibility for everything

Some of the biggest lawsuits pending in federal courts today involve products that are completely legal, heavily regulated and used by millions of consumers every day. But none of that matters when private lawyers join forces with public entities to sue. Then it’s mostly a matter of how unpopular the industry is—and how many billions of dollars it can pay to be rid of the litigation.

Opioid manufacturers and distributors are in a fight for survival as hundreds of cities, counties and states sue them over the costs associated with addiction. Never mind the fact the Drug Enforcement Administration sets the number of opioid pills that can be manufactured each year and tracks each one from factory floor to retail pharmacist’s window. Private lawyers working under contingency-fee contracts are using novel theories of public nuisance law to seek billions of dollars in damages for the industry’s supposedly reckless marketing and distribution practices.

California cities are using similar theories to sue ExxonMobil, Royal Dutch Shell and other big oil companies over global warming. They didn’t seek the usual remedy for a public nuisance—eliminating the nuisance—because removing gasoline from the market would cause riots in the streets. They sought billions for an “abatement fund” to cover infrastructure they say will be needed as global warming causes sea levels to rise. A  federal  judge  recently  dismissed  the  suit,  noting  that  the  dangers  should  be  addressed  by  political  branches  and  that  “using  lawsuits  to  vilify  the  men  and  women  who  provide  the  energy  we  all  need  is  neither  honest  nor  constructive.”

Still, such cases face thickets of court rulings that would make them seem impossible to win. By recruiting hundreds of municipal plaintiffs and even entire states, plaintiff lawyers know they can present such a serious financial threat that fiduciary responsibility requires target companies to consider settling.

“It’s what you might call a shock and awe strategy,” says Mark Behrens, co-chair of the Public Policy Litigation group at Shook, Hardy & Bacon, a prominent corporate defense firm. “It’s that fiduciary duty that can compel a defendant to settle, even if there’s a high probability of winning on the merits.”

The shock-and-awe strategy started with tobacco, where private lawyers and state attorneys general used the threat of lawsuits by all 50 states to wrest a $200 billion settlement from cigarette manufacturers (not incidentally, it included more than $14 billion in fees for the lawyers).  Many of the same lawyers moved on to firearms, pharmaceuticals, Volkswagen’s doctored diesels and even supposedly defective Intel microprocessor chips.

Is there any way to combat public/private litigation? Congress passed a law to end the firearms lawsuits, and industry associations like the U.S. Chamber are pushing laws to limit when and how governments can hire private lawyers. They’ve also won reforms in most states to reduce bonds defendants must post before they can appeal large verdicts.

But the best tactic may be humility. Once your company appears on the front page of The New York Times or a member of Congress starts calling for hearings, it’s too late. The trial lawyers have marshaled their forces and are getting ready to attack. Then it’s best to follow Facebook CEO Mark Zuckerberg’s lead and take responsibility for everything. His appearance in Congress after revelations about the misuse of personal data may have derailed the next big public/private lawsuit, Behrens says.

“He was well coached,” Behrens says. “He did a masterful job of dissipating public anger.”

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