Hurdles loom as Schuette seeks big Flint settlement

Jonathan Oosting
Detroit News Lansing Bureau

Lansing — Michigan Attorney General Bill Schuette is aiming to collect “hundreds of millions” of dollars from two engineering firms he claims contributed to the Flint water contamination crisis and hopes to do so in a few years — not a decade or more.

But legal experts say the state has to clear several legal hurdles before it could command a lucrative settlement or win damages at trial.

Schuette and Special Assistant Attorney General Noah Hall last month filed a civil suit against Veolia North America of Delaware and Lockwood, Andrews and Newnam of Texas, along with their parent companies. The state argues the firms “botched” water system work they were hired to do in Flint.

The companies are accused of professional negligence and public nuisances, claims they both deny. Veolia is also accused of fraud for safety assurances it made early in a manmade crisis that resulted in Flint’s children and other residents being exposed to dangerously high levels of lead.

In an interview last week with The Detroit News editorial board, Schuette compared the case with other high-profile negligence claims that produced large corporate settlements, such as this year’s Volkswagen diesel emissions case and the 1989 Exxon oil spill in Alaska. He said the state’s litigation could be considered a “taxpayer compensation suit,” with potential claims going into a trust fund the state could spend on nutrition, health care, education or other needs of Flint residents.

But the lawsuit features complexities not seen before in Michigan or perhaps the nation, said Wayne State University law professor Peter Henning, a former federal prosecutor.

“An issue in any tort-type case or negligence case is going to be causation,” Henning said. “There were a number of decisions that went into the Flint water crisis. Can you narrow it down to a couple companies’ liability? Those are the kinds of legal issues that are going to have to be fought out.”

Civil suits differ from criminal cases because the initial complaint marks the beginning of the investigative “discovery” process rather than the end, said University of Michigan law professor David Uhlmann, director of the Environmental Law and Policy Program and former chief of the U.S. Department of Justice’s Environmental Crimes Section.

“There’s settlement value to this case, because no company wants to be associated in any way with the Flint water crisis, but that does not reveal much about whether the case has merit,” said Uhlmann, who expressed concern that Schuette’s handling of the lawsuit could be political grandstanding.

“The attorney general could be talking about a settlement because the government’s claims are strong; it’s also possible that he’s already talking about a settlement because he doesn’t have a great case.”

VW ‘really stepped up’

While both LAN and Veolia are strongly denying culpability in the Flint crisis, Schuette and Hall compared the case with the 2010 Deepwater Horizon Oil spill in the Gulf of Mexico and subsequent settlements by British Petroleum.

“I told the legislative leaders, don’t put this in your calculation for fiscal year (2018), because BP took a long time,” Schuette said, referring to possible state budget implications.

BP reportedly paid billions of dollars in settlements within three years of the oil spill, which could be a positive time line for the state, said Hall, who noted that ExxonMobil spent two decades fighting a lawsuit after the Exxon Valdez tanker crashed off the coast of Alaska in 1989.

“At the other end of the spectrum was Volkswagen, which really stepped up, settled it, put money in to solve the problem and seems to be trying to move ahead now,” said Hall, referencing the German automaker’s quick response to an emissions scandal that came to light in September 2015.

Volkswagen last month agreed to spend $14.7 billion to settle consumer lawsuits and government allegations that it rigged hundreds of thousands of cars to cheat U.S. emission standards.

“My hope for the state and for the people is that Veolia does the responsible, good corporate citizen thing,” Hall said. “Step up, admit they messed up — I mean if Volkswagen can admit they messed up, Veolia can admit they messed up — and put the money in to get the problem fixed. Then they can get on with their business, and the state can get on fixing the problem.”

Although a quick settlement might help LAN and Veolia diminish bad publicity, Henning noted the firms may not face the same public relations pressure as a company like Volkswagen because they don’t interact directly with consumers on the same scale.

They also have not admitted any wrongdoing, and the Wayne State professor said they will likely try to get the case dismissed before even considering a settlement, a process that could take a year.

“It may be the state is not the right person to sue over negligence,” Henning said. “Typically the plaintiff in a negligence case is someone to whom you owe a duty. In professional negligence, it’s the person that hired you. In medical malpractice, it’s the patient or family.”

If the suit survives preliminary challenges, a potential settlement could depend on the size of LAN and Veolia’s insurance policies, said Tom Baker, an insurance law scholar at the University of Pennsylvania. The case could be more complicated if the state tries to go after LAN or Veolia assets beyond the value of their insurance.

“Even when you’re talking about big companies, it’s easier to get money out of insurance companies,” Baker said. “They’re in the business of paying claims, so they know how to manage claims and settle claims.”

The size of a potential state settlement with LAN or Veolia’s insurers could also be affected by a series of class-action lawsuits filed on behalf of Flint residents that name the companies, along with state and local government officials.

“These policies have what are called aggregate limits, which is the most that (insurers) have to pay for any one event,” Baker said. “These multiple lawsuits seem to me to be clearly about the same event, so it is going to be a fixed pot.”

Firms fighting back

LAN and Veolia have both vowed to fight the civil lawsuit and aggressively responded to allegations made in the complaint, giving no indication that they intend to settle the case.

Veolia, hired by Flint in early 2015 amid water quality complaints and trihalomethanes violations, said last week that public officials rejected recommendations it made in a final report delivered to then-Emergency Manager Gerald Ambrose and reviewed by a citizens advisory committee.

Veolia’s March 2015 report made no reference to potential lead contamination but did recommend that the city add corrosion control chemicals to minimize discoloration in the water from the Flint River it began using in April 2014. Experts say a lack of corrosion control chemicals allowed harsh water to damage aging pipes, which leached lead into the system.

“Despite these transparent, comprehensive and robust recommendations, public officials turned a blind eye, rejecting Veolia’s services and offer to help, and taking on the responsibility to test the drinking water for lead and copper on their own,” Veolia said.

LAN also has pointed the finger back at state and city officials. Flint contracted with the firm on multiple occasions, including June 2013, when then-Emergency Manager Ed Kurtz tapped the firm to begin preparing the city’s water treatment plant for full-time operation using the Flint River, which had historically been a backup source.

LAN argues the Michigan Department of Environmental Quality told Flint officials at a June 2013 meeting that full softening and corrosion control treatments the company had recommended would not be required to comply with the federal Lead and Copper Rule. LAN says it asked Flint to revisit the corrosion control issue immediately after the meeting but was told the city would do only what was required by the state.

“The City and MDEQ made all decisions related to treatment requirements, including corrosion control treatment,” the firm told Gov. Rick Syder’s Flint Water Advisory Task Force in a series of written responses it posted online. “LAN had no authority or responsibility to make such decisions.”

Schuette called Veolia’s public responses to the civil lawsuit “feeble.” Hall said LAN had a professional and ethical obligation to stop the Flint water plant from going online if it didn’t meet standards to protect public health.

“If public statements from Veolia and LAN are going to be their legal defenses, this is not going to be a difficult case,” Hall said. “Veolia is essentially saying we knew about the problem but didn’t do anything about it.”