In a wide-ranging, nearly four-hour hearing this Wednesday, members of the House Committee on Oversight and Reform took a deep dive into the shadowy third-party litigation financing industry and the ethical issues that arise when well-funded activists manipulate the civil justice system.
While some members of the Committee framed this potentially ethically-challenged financing method as providing greater access to the justice system for plaintiffs who otherwise may not be able to afford lengthy and costly litigation, the reality is that’s not typically what it’s used for. Third-party financing is more often used to bring frivolous or politically motivated lawsuits that enrich plaintiffs’ lawyers.
Committee Chair James Comer (R-KY) focused his opening statement on how third-party litigation funding allows left-wing nonprofits and donors to advance political agendas through costly litigation:
“We know that activist groups use this funding to push policies that they could not enact through the legislative process. Some left-wing groups funneled millions to law firms to sue companies across the country on questionable legal grounds. They’re trying to use the courts to put these companies out of business or limit their ability to bring new products to market.”
The energy sector is a common target of these donor-funded legal attacks. At Wednesday’s Oversight hearing, Erik Milito, President of the National Ocean Industries Association (NOIA), gave testimony on how activist opponents of American energy projects, from offshore oil to wind, “have managed to bypass Congress and their public regulatory process through what has become regulation through litigation.”
As Mr. Milito pointed out, just last month activist groups successfully deployed “sue and settle” tactics to pressure the Biden administration into withdrawing a massive region of the Gulf of Mexico from energy development. Another witness, Mining Minnesota’s Julie Lucas, testified about how the “near-constant act of litigation” from environmental groups opposing mining projects delays project investments and community improvements.
All of the witnesses called to testify at Wednesday’s hearing agreed that the lack of transparency in third-party litigation funding is a serious concern and that special interests can warp the incentives of the civil justice system.
Members Scrutinize Sher Edling’s Funding Sources
Rep. Jake LaTurner (R-KS) honed in on who stands to benefit from promoting climate lawsuits across the country, describing how the beneficiaries are wealthy progressive funders and foreign billionaires who have ideological and financial incentives to attack the American energy industry:
“In recent years, a number of investors including Arabella Advisors, George Soros, and Leonardo DiCaprio, as well as foreign funders like Christopher Hohn and Hansjörg Wyss, have funneled tens of millions of dollars into organizations that fund climate litigation targeting American energy producers.”
As Energy In Depth has previously discussed, these wealthy donors bankroll both the outside counsel and the purported “in-house” counsel bringing the lawsuits on behalf of states and municipalities. Rep. LaTurner explained that even though climate lawsuits are kept afloat by millions of dollars in grant funding, Sher Edling, the private law firm engaged on dozens of the cases, hinges its legal representation on generous contingency fee agreements that would result in a windfall for the firm if even one of the lawsuits is successful:
“The Soros backed New Venture Fund and the DiCaprio-backed Resources Legacy Fund have given millions to the California law firm Sher Edling, which is responsible for bringing over a dozen climate litigation cases. In addition to this special interest funding, Sher Edling is entering into fee agreements, where it stands to make tens of millions of dollars.
“And it doesn’t end there. Michael Bloomberg is funding a program through NYU Law, where they place attorneys in state attorneys general offices, where those embedded attorneys are working on the same climate litigation where Sher Edling is also receiving a contingency fee.”
Importantly, these channels of influence weren’t apparent at the start. Since third-party litigation funding is almost entirely unregulated, the respective roles of Michael Bloomberg, Leonardo DiCaprio, Chris Hohn, and other actors were revealed over several years through investigative journalism, litigation proceedings, and Freedom of Information Act requests.
There are active efforts in Congress to shed light on the third-party litigation financing system. In 2021, Sen. Chuck Grassley (R-Iowa) and Rep. Darrell Issa (R-California) introduced the “Litigation Funding Transparency Act” which would create a uniform disclosure rule for all class action and multi-district lawsuits in federal courts.
Sen. Grassley has been particularly attentive to how litigation funders target the American energy industry. During a Senate Budget Committee hearing in June, Ranking Member Grassley questioned Harvard professor and longtime climate litigation proponent Naomi Oreskes about Sher Edling’s funding sources and whether Ms. Oreskes herself had ever been retained by Sher Edling (spoiler alert: she has).
Litigation Supporters Pushing “Fundamental Systems Change” in Colorado
Rep. Lauren Boebert (R-CO), who represents the energy-rich West Slope region of Colorado, also took issue with the out-of-state environmental activist groups that use litigation and other tactics to attack the state’s oil and natural gas industry:
“The Communities I represent – Colorado’s third district – are literally being regulated into poverty because of these extremist environmental organizations that are circumventing our jobs here in Congress.” (emphasis added)
As Rep. Boebert explained, ideological billionaires and wealthy foundations fund environmental groups, which pursue climate lawsuits that “deprive communities of employment opportunities, improvements to outdated infrastructure, cheaper products, corporate tax revenue and economic certainty.”
In the case of Boulder’s climate suit, nonprofit attorneys from Earth Rights International representing Boulder County pro bono are receiving hundreds of thousands of dollars from the Rockefellers and dark money pass-through organizations like the Tides Foundation, “attempting to circumvent this body [Congress] by legislation via lawsuit,” according to Rep. Boebert.
The Boulder plaintiffs’ own words back up Rep. Boebert’s claims. As a Boulder City official admitted, the goal of climate litigation is to push “fundamental systems change” to drive oil and natural gas companies out of business; an idea that would never pass through legislative means.
The Boulder lawsuit isn’t just an unpopular strategy among Republicans – the Democratic Governor of Colorado, Jared Polis, and the state’s Democratic Attorney General, Phil Weiser, both refuse to support lawsuits against energy companies, with Weiser stating clearly, “our carbon footprint has been reduced by substituting natural gas for coal.”
Bottom Line: The climate litigation campaign wasn’t the only example of third-party litigation funding examined at this week’s Oversight hearing, but it was a particularly egregious one. Reps. Boebert and LaTurner put an essential spotlight on the wealthy foundations and foreign billionaires attempting to bypass congressional authority by pushing radical policy through litigation that attacks American energy and with it, the many jobs, livelihoods, and benefits it produces.
