Auto industry’s litigation strategy may have backfired in showrooms
Official White House Photo by Pete Souza
None of the employees at Turlock Auto Plaza in California’s smoggy Central Valley could be reached for comment Tuesday on President Obama’s historic deal with automakers to make cars cleaner and more efficient. The plaza’s Dodge, Chrysler, Jeep and Subaru dealerships all shut in December, victims of declining sales. Forty-two people lost their jobs, a big hit in the little farming town off the 99 freeway.
The dealerships were owned by Tom Field’s Motor Inc., one of the named plaintiffs in a series of costly lawsuits brought by the nation’s automakers against California and other states. Those lawsuits challenged the so-called Pavley law and similar regulations in 14 states mandating that cars be built with higher gas mileage and to produce less greenhouse gas emissions. This week, faced with bankruptcy and sagging revenues themselves, the automakers folded.
Automakers can claim a victory of sorts, in that they secured a single national fuel-economy set of rules. Left in the dust, some said, are the dealers who followed manufacturers’ orders.
“These guys got used as the front men, and it’s the ultimate irony,” said Jim Marston, a senior Environmental Defense Fund attorney who battled the automakers in court in four states.
“Rather than embrace the Pavley regulation, and go out and make cars that people in the 21st century were going to buy, the manufacturers kept building and trying to sell Suburbans and Escalades and Dodge Ram trucks that sold in 1995, but were no longer profitable or marketable in 2005. And their lawsuit against Pavley gave a false sense of security.”
Marston said the law firm of Kirkland & Ellis actively sought dealers in the Central Valley area so the auto industry could file its lawsuit in Fresno, putting them in the position to have a conservative judge appointed by former president Reagan decide the case. But that judge retired, and another federal district court judge ruled against the automakers last year. They promptly appealed to a higher court.
“They (the dealers) didn’t think up this lawsuit, and they didn’t hire the lawyers. They were recruited by the manufacturers and the lawyers who were paid by the manufacturers, who used their names,” said Marston. “They did what the manufacturers told them to do, and they were badly burned. It’s sad.”
California State Sen. Fran Pavley (D), a former schoolteacher who thought up the idea of an emissions law after seeing her students suffer from asthma, agreed with Marston.
“They chose to send in their lawyers instead of their engineers, and the lost time they’ve spent fighting this is almost as costly as the dollars they’ve spent in attorneys’ fees,” she said.
The lead attorney for Kirkland & Ellis on the cases said he was in a meeting Tuesday and could not immediately comment. Asked about the venue shopping allegation, Charles Territo of the Alliance of Automobile Manufacturers said, “We don’t comment on legal strategy.”
Territo said it was completely wrong to blame the manufacturers and their investment and design decisions for contributing to the closure of dealers in the Central Valley or elsewhere. He said automakers had spent $79 billion last year on research and development, more than any other industry, and that more than 120 models achieving 30 mpg or more were already available in showrooms.
The financial difficulties being faced by the auto industry today are not a reuslt of a lack of fuel efficient products,” said Territo. “California is facing an economic crisis of its own unlike any it’s ever seen. The reasons for those dealerships closing have a lot more to do with the current economic situation nationwide than with any decisions those dealers made. The vehicles that those manufacturers sold were vehicles that were used to build homes, and to farm, and as the housing bubble burst, so did the fate of those dealers.”
He acknowledged the automakers had long fought more stringent national as well as state fuel efficiency standards, but said that the deal reached with Obama was fundamentally structurally different than what California and each other state had proposed, allowing automakers to average sales nationwide for instance. He said whatever their past concerns, the automakers were firmly committed to the new federal standards proposed by Obama.
In reality, automakers are very close to meeting the fuel efficiency standards that were required under the law for the 2009 model year because of voluntary design changes after gasoline prices soared and concerns grew about global warming. Automaker alliance chief Dave McCurdy in a statement said the industry had been ahead of the curve in developing more fuel efficient technologies, and got what they were seeking all along with one national standard rather than a patchwork of different state standards. President Obama and White House officials echoed that as they strove to maintain the peace, politely dismissing statements by California Gov. Arnold Schwarzenegger (R) and others that a deal was struck because of GM’s and Chrysler’s woes.
Courtesy Sen. Fran PavleyOn Tuesday, Pavley was in the front row in the White House Rose Garden next to staunch auto industry defender Rep. John Dingell (D-Mich.), watching as the nation’s ten largest automakers, the UAW and leading environmental groups all buried the hatchet, agreeing to adopt her standards as the law of the land.
“It was an amazing day,” she said. “Almost as good as the bill signing overlooking the Golden Gate bridge back in July 2002 with Robert Redford. It was like Cinderella at the ball.”
She had a special moment with Obama when he shook her hand quizzically after his remarks, and she told him that she was the author of the original bill. She said the president told her he wished he had known, that he would have acknowledged her in his remarks. He also told her that based on his own political career, “I have a special fondness for state legislators.”
Others were equally thrilled about the deal, but were skeptical of any notion that the industry could claim it is getting what it wanted all along with the tough national standard announced by the White House.
“They’re lying sacks of shit,” said David Bookbinder, Sierra Club’s chief climate counsel. Bookbinder said in addition to venue shopping, the automakers’ attorneys had “forced all those nice engineers to perjure themselves in court” by testifying that there was no way that the fuel-efficient cars ordered by Pavley could be built. “They put a whole bunch of people from Chrysler and GM on the stand, saying it’s impossible to do this, it’s not humanly possible, they could never build these cars.”
“Look they’re going to say whatever they’re going to say,” the Auto alliance’s Territo said when asked about Bookbinder’s comment. “But there are no facts to support their claims, and their comments are misleading and disingenuous at best, and reckless at worst.”
Bookbinder said he had done rough calculations of the automakers’ attorneys’ fees and concluded they exceeded $25 million. The environmental groups spent about $2 million combined defending regulations in different states, Marston said. California spent more than $4 million, said deputy attorney general Kate Kenealy, and Vermont, New Mexico and other states were forced to spend significant resources as well because of the automakers’ lawsuits.
Pavley and Kenealy said California’s signing on to the federal deal was absolutely contingent on the state finally being granted a waiver to administer its own emissions program if the federal deal falls apart. Both said they expected the waiver to be granted within the month, and all of the costly lawsuits to be dropped by summer. Federal transportation and environmental protection officials must complete a joint rulemaking process that could take until next year.
“I don’t believe that’s part of the agreement. That may be their understanding,” Territo said about the waiver being part of the deal announced Tuesday. But he added that no matter what, “I don’t think we’re thinking that this deal is going to fall apart. We’re committed. We’re not in the business of making promises to the president of the United States of America and backing away from them. That may be something that they’re considering, but for us, we’ve given our word.”
Bookbinder was equally sanguine. “It’s wired. There’s a deal. This little side show is over, and now we can move on to coal.”
But Kenealy was more cautious in her assessment. “I don’t know if it’s ever going to be completely done,” she said. “We will continue to be vigilant to get this deal implemented.”
Video: President Obama announces new fuel-economy standards (May 19):