Sunday, January 02, 2000

Lawyers win tidy sum for oil company whistleblowers

The Cincinnati Enquirer

        A small Cincinnati law firm is driving major oil companies to the wall in what promises to become the nation's richest whistleblower case.

        They've extracted about $300 million, and $1 billion is in sight.

        “We were brought in to handle the false claims is sues,” said James B. Helmer Jr., of Helmer, Martins & Morgan.

        Mr. Helmer revived the moribund 1863 False Claims Act in the 1980s and became a central figure in this growing, if controversial, field of law.

        In the current case, more than a dozen oil companies are defendants in U.S. District Court in Lufkin, Texas.

        All are accused of violating the False Claims Act by systematically under-paying royalties on oil extracted from 27 million acres of land owned by the federal government and Indians in 21 states over the past decade.

        The companies deny any wrongdoing, an assertion repeated in all settlements.

        Mr. Helmer's firm and three others formed a strategic alliance to represent two crude-oil marketers from Atlantic Richfield, which accused competitors of cheating.

        They sued under the False Claims Act, which rewards successful whistleblowers with a share of everything recovered by the federal government from accused contractors.

        Recently, they concluded a $153 million settlement with Chevron Corp. ($95 million), BP Amoco PLC ($32 million) and Conoco Inc. ($26 million). Another $70 million settlement has been negotiated but is not final, Mr. Helmer said.Contributing will be Texaco Inc., Pennzoil-Quaker State Co., Sunoco Inc., Kerr-McGee Corp., Canadian Occidental Petroleum Ltd. and Union Pacific Resources Inc. Each company's share is confidential.

        In 1998, Mobil Corp. paid $45 million and OXY USA Inc. settled for $7.5 million last month.

        Smaller firms have settled for varying amounts, Mr. Helmer said. “It's left us with a feeling of accomplishing something for society. ... Those minerals belong to all of us.”

        Six major defendants have not settled: Exxon Corp., Unocal Corp., Shell Oil Corp., Marathon Oil Co., Phillips Petroleum Co. and Burlington Resources Inc.

        Mr. Helmer predicted they would settle individually for a total of $700 million rather than be left alone before a jury in mid-2000 and risk being hammered for an even greater loss.

        In a case such as this, he said of the defendants, “You don't want to be the last man standing.”

        Barring surprises, this will be another record settlement negotiated by Mr. Helmer under the False Claims Act.

        In 1989, the $3.5 million paid by GE Aircraft Engines in Evendale to settle four whistleblower suits was the record.

        Three years later, he recovered $70 million from GE in another whistleblower case involving foreign military sales.

        In 1997, that was eclipsed by another team of lawyers who won $325 million from SmithKline Beecham Clinical Laboratories, accused of fraudulent billing.

        That record will fall any day as more oil companies come to terms, Mr. Helmer said.

        At the heart of these battles is the 1863 False Claims Act, the “Lincoln Law” enacted to identify and punish profiteering contractors during the Civil War.

        The act encourages individuals to sue suspected cheaters in the name of the United States. Winning whistleblowers get a bounty of 15 percent to 30 percent of everything recovered. The rest goes to the U.S. Treasury. On top of that, losers pay whistleblowers' attorneys.

        In his initial False Claims suit against GE Aircraft Engines, Mr. Helmer represented GE machinist John Gravitt. A Marine who earned two Purple Hearts in Vietnam, Mr. Gravitt accused his employer of ignoring or rebuffing warnings about time-card cheating on Air Force contracts. By the time they were done:

        • Each time card — rather than periodic bills to the Air Force — was treated as a false claim.

        • The late Judge Carl B. Rubin rejected Justice Department attempts to settle with GE for $234,000.

        • Mr. Helmer and Mr. Gravitt helped persuade Congress in 1986 to raise the maximum penalty from $2,000 to $10,000 for each false claim and to increase the maximum overall penalty from double to treble the loss to the nation.

        • GE settled this and three other whistleblower cases for more than $3.5 million.

        • Mr. Gravitt and three other whistleblowers shared $770,000 from the settlement.

        • Mr. Helmer's fees bankrolled whistleblower cases in which he recovered another $70 million from GE. In turn, those victories financed further suits and helped his six-lawyer firm survive a couple of False Claims courtroom defeats that cost at least $2 million each.

        Meanwhile, an estimated $3 billion has been recovered using the False Claims Act and its 1986 amendments, of which Mr. Helmer estimated his firm has accounted for $500 million.

        The oil royalty case was filed in 1996 by attorney Michael Havard, to whom the two Atlantic Richfield employees brought their suspicions.

        False claims, however, was not his turf and he invited Mr. Helmer's firm into the case.

        Mr. Havard's Beaumont, Texas, firm represented that state in the successful national suit against the tobacco industry.

        There, small firms pooled their talents and resources and did what state attorneys general alone could not do: overwhelm tobacco defenses.

        “They were unbeatable and we picked up on that in our False Claims cases,” Mr. Helmer said.

        Although the Justice Department exercised its option under the False Claims Act to enter the case against some of the oil companies, pretrial preparation largely was left to the four law firms.

        Justice Department lawyers didn't try to cope with the millions of oil company documents provided in response to the whistleblowers' attorneys' requests. Shell Oil alone submitted 10,000 boxes of documents.

        “We had to staff up and fund that,” Mr. Helmer said. The law firms hired 35 day-shift lawyers plus paralegals to review documents and another 25 night-shift lawyers plus paralegals to review documents.

        Mr. Helmer said the firms shared that $60,000 weekly expense for much of the past two years.

        As part of the oil settlements approved by Judge John Hannah in Lufkin, the two whistleblowers agreed to share a 17 per cent bounty on cases involving royalties from federal lands.

        More was unnecessary, given the magnitude of the case, Mr. Helmer said. Also, the percentage was a compromise that reflected the differing bounties available (15 percent to 25 percent) where the government intervened against a given oil company or chose not to intervene (20 percent to 30 percent), Cincinnatian and partner Frederick M. Morgan Jr. said.

        Whistleblowers and attorneys are asking nothing for the relatively small recovered royalties from Indian lands; all of the money will go to the tribes, Mr. Morgan said.

        In addition, each oil company and coalition of whistleblower attorneys are negotiating the winning lawyers' fees. Law firm shares will reflect hours invested and expenses; Mr. Havard's fees also will recognize his role as the whistleblowers' original attorney.

        Mr. Morgan, partner Paul Martins and their three associates worked on other clients' cases, but the Cincinnatians sometimes dropped everything to work on the oil royalty case.

        “It's kept us extremely busy,” Mr. Helmer said.

        Not only did lawyers put in the long hours and spent tens of thousands on expenses in hope of winning, but the Cincinnatians also accepted less new work during the past three years, Mr. Helmer said.


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