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November 20, 2008 5:45 AM

Big Auto Bailout Seekers Should Drop Civil Suits, Say Environmental Lawyers

Posted by Brian Baxter

U.S. auto industry executives were back on Capitol Hill Wednesday pleading for a $25 billion federal bridge loan as a means of averting bankruptcy. Carmakers can show they're serious about changing their broken business model by dropping federal civil suits challenging the legality of emissions laws in four states, say several environmental lawyers interviewed by The Am Law Daily.

Along with a handful of other auto manufacturers, the Big Three have pursued civil actions targeting global warming laws passed in four states: California, New Mexico, Rhode Island, and Vermont. They've relied on lawyers from Kirkland & Ellis, Gibson, Dunn & Crutcher, and Quinn Emanuel Urquhart Oliver & Hedges to handle the cases, which all stem from a 2002 law passed by California's state legislature aimed at gradually reducing greenhouse gas emissions from automobiles sold in-state.

Named after California state senator Fran Pavley, the law enables the state to regulate some car pollutants more forcefully. Under the Clean Air Act, once one state regulates a pollutant more stringently than the federal government, other states can opt-in to the stricter interpretation. Since 2002, 14 other states that represent roughly half of the total U.S. population have adopted the standards set forth by California's Pavley Act.

"I don't think taxpayers in the states that have adopted these standards are happy with the idea of subsidizing auto companies or paying the lawyers who are suing to overturn these state laws," says Sierra Club chief climate counsel David Bookbinder, who is involved in all four suits. "Call me cynical, but why would California taxpayers give their money to General Motors so they can sue to overturn the state's laws? It just doesn't make sense."

In order for states to enforce new emissions standards, California needs a waiver from the Environmental Protection Agency to apply the stricter protocols. Due to resistance by the Bush administration, this effort was unsuccessful and the subject of related litigation. (President-elect Barack Obama has indicated he will approve the EPA waiver.)

"[The automakers] are essentially saying that a federal law passed to regulate fuel economy preempts the rights of states to regulate greenhouse gases," says Matthew Pawa, name partner of a Newton Centre, Mass.-based firm that serves as outside counsel to several states and environmental organizations. "According to the automakers, that's because you can't regulate greenhouse gases without regulating fuel economy."

BEATING BIG AUTO

Since states can't get involved in each other's cases, environmental organizations like the Sierra Club, the Environmental Defense Fund, and the National Resources Defense Council agreed to coordinate the four suits as intervening defendants.

The primary plaintiffs are two large auto industry trade organizations: the Arlington, Va.-based Association of International Automobile Manufacturers (AIAM) and the Washington, D.C.-based Alliance of Automobile Manufacturers (AAM).

The AAM represents 11 automakers: BMW, Chrysler, Ford, General Motors, Jaguar, Land Rover, Mazda, Mitsubishi, Mercedes (Daimler), Toyota, and Volkswagen. The group retained Kirkland & Ellis partners Andrew Clubok, Stuart Drake, and Ashley Parrish as counsel.

AIAM members include Honda, Hyundai, Kia, and Nissan, all of which are being advised by former EPA general counsel and current Gibson Dunn environmental and natural resources partner Raymond Ludwiszewski.

Plaintiffs filed their first suit in U.S. district court in Fresno in December 2004, claiming the Pavley Act overstepped its bounds and was preempted by federal law. Subsequent actions were filed in federal courts in Vermont and Rhode Island in November 2005 and February 2006, respectively. Still, it wasn't long before the tide began to turn against Big Auto.

In September 2007 the environmental organizations and the state of Vermont won a 16-day bench trial in U.S. district court in Burlington. In a mammoth 244-page decision, chief U.S. district court judge William Sessions III rejected the argument by automakers that states cannot regulate vehicle emissions.

As a result the AAM--but not the AIAM--chose to bring in Kathleen Sullivan, chair of Quinn Emanuel's national appellate practice, for an appeal that's nearly fully briefed before the Second Circuit. (Sullivan and fellow Quinn Emanuel litigator Sanford Weisburst referred questions to an AAM spokesman; Kirkland lawyers did not respond to requests for comment.)

Two months later the California suit met a similar fate. Chief U.S. district court judge Anthony Ishii ruled in favor of the Golden State and several environmental organizations in an opinion handed down in June. An almost fully briefed appeal is currently before the Ninth Circuit.

Automakers received some good news in December 2007 when U.S. district court judge Ernest Torres in Providence issued a ruling allowing plaintiffs to challenge Rhode Island's vehicle emissions law. Defendants then asked for summary judgment based on the decisions in California and Vermont.

"When we were explaining what for [to Judge Torres], he stopped us at res judicata and said, 'That's all I want briefed,'" says the Sierra Club's Bookbinder. "He didn't want to hear anything about the merits, just whether or not he could dispose of this [case] on the basis of those other two decisions." (A decision is expected soon from the judge on the defendants motion to dismiss.)

Bookbinder says similar proceedings are occurring in U.S. district court in Albuquerque. But perhaps mindful of the problems they're facing in Rhode Island, Bookbinder says automakers have tried to adjust their strategy by having only auto dealers serve as plaintiffs in the New Mexico action.

"So now it's a question of whether [the auto dealers] are just serving as proxies, but of course you've got the same lawyers from Kirkland and nearly identical complaints," Bookbinder says. "They're not even subtle about it. When judges are telling you, 'We don't want to hear this anymore,' that should give [automakers] a clue."

NO WHITE FLAGS

But automakers aren't taking calls to give up their claims lying down. Gibson Dunn's Ludwiszewski says he's not aware of any AIAM member seeking U.S. government funds nor does he completely understand why federal funding would preclude civil suits against states.

"In the Second Circuit the federal government has filed an amicus brief on my client's behalf, so I don't know why some would say a condition for receiving federal money is giving up a lawsuit that the government itself agrees with," he adds. "It just seems like the environmental community is very worried about our lawsuits."

AAM spokesman Charles Territo says that his organization has no plans to abandon any civil suits and that those suits in question were not only brought by auto manufacturers, but by dealers, trade associations, and other concerned parties.

"This is an issue for the entire auto industry, not just domestic manufacturers," says Territo, adding that AAM is committed to adhering to soon-to-be-announced federally mandated fuel economy standards through 2015. "We just don't believe that the best way to achieve energy security and reduce greenhouse gas emissions is though a state-by-state patchwork of regulations."

Environmental defense lawyers claim that their auto industry counterparts are encouraging their clients to cling to the false hope that things will turn around legally.

"Having dealt with Detroit's lawyers for a long time, I can promise you that Kirkland is saying, 'Don't worry, we have them right where we want them! These are strategic losses!'" Bookbinder says. Yet he knows better than to expect a white flag from Big Auto.

"In some sense it's pathetic, but Detroit is hopeful enough to go along," says Bookbinder, noting that auto lawyers will promise everything from circuit splits to U.S. Supreme Court hearings in order to continue. "But it's not going to happen and they'll cling to these [cases] like a drowning man to a life raft. These are just some of the illusions that Detroit needs to be relieved of."

Instead of years of further litigation, Bookbinder suggests a one-line legislative fix that codifies the conclusion that two federal district courts have already come to: that the federal fuel economy law doesn't preempt California's tail pipe emissions standard.

Pawa, who took The American Lawyer for a ride in his own vegetable oil-powered car in November 2007, also thinks a federal bailout of the industry shouldn't occur unless Congress first addresses the confusion between federal and state laws. In his mind, the whole issue could have been avoided years ago.

"The irony is if they had gotten with the program on global warming and greenhouse gases 10 to 15 years ago, [automakers] wouldn't be in the fix they're in now because their cars would be far more in line with consumer tastes," Pawa says. "It's just an outrage that now they're asking for taxpayer dollars while trying to destroy taxpayer laws on one of the most important issues of our time."

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I was on the fence on this bailout issue until I read this story. It is preposterous to bail these companies out when they are fighting regulations that we support in California. We would basically be funding the litigation against us.

i think they’ll wait for the appellate rulings first before cutting bait. but dropping the suits now would be a good PR move, not to mind the thousands, if not millions, they’re burning through on legal fees at a time when you would think cash would be of the essence. but then again ‘big auto’ and ‘fiscal responsibility’ never did go hand-in-hand.

All of these bail out plans make me sad. How did it even get to this point?

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