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^ DOE AND CONTRACTOR UTIGATION COSTS \ Y 4, EN 2/3; 103-131 ODE and Contractor Litigation Costs... HEARING BEFORE THE SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS OF THE COMMITTEE ON ENERGY AND COMMERCE HOUSE OP REPRESENTATIVES ONE HUNDRED THIRD CONGRESS SECOND SESSION JULY 13, 1994 Serial No. 103-131 Printed for the use of the Committee on Energy and Commerce U.S. GOVERNMENT PRINTING OFFICE 83-966CC WASHINGTON : 1994 ForsalebytheU.S.GovernmentPrintingOffice SujjerintendentofDocuments.CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-046065-4 '^ DOE AND CONTRACTOR LITIGATION COSTS \ Y 4, EN 2/3; 103-131 DOE and Contractor Litigation Costs... HEAEING BEFORE THE SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS OF THE COMMITTEE ON ENERGY AND COMMERCE HOUSE OF REPRESENTATIVES ONE HUNDRED THIRD CONGRESS SECOND SESSION JULY 13, 1994 Serial No. 103-131 Printed for the use of the Committee on Energy and Commerce -^Cl U.S. GOVERNMENT PRINTING OFFICE 83-966CC WASHINGTON : 1994 ForsaiebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-046065-4 COMMITTEE ON ENERGY AND COMMERCE JOHN D. DINGELL. Michigan, Chairman HENRY A. WAXMAN, CaUfornia CARLOS J. MOORHEAD, CaUfornia EPHDIWLAIPRDR.J.SHMAARRPK,EYIn,diMaansasachusetts TJAHCOKMAFSIEJL.DSB,LITLeExYa,sJr., Virginia AL SWIFT, Washington MICHAEL G. OXLEY, Ohio CARDISS COLLINS, Illinois MICHAEL BILIRAKIS, Florida MIKE SYNAR, Oklahoma DAN SCHAEFER, Colorado W.J. "BILLY" TAUZm, Louisiana JOE BARTON. Texas RON WYDEN, Oregon ALEX MCMILLAN, North CaroUna RALPH M. HALL, Texas J. DENNIS HASTERT, Ilhnois BILL RICHARDSON, New Mexico FRED UPTON, Michigan JIM SLATTERY, Kansas CLIFF STEARNS, Florida JOHN BRYANT, Texas BILL PAXON, New York RICK BOUCHER, Virginia PAUL E. GILLMOR, Ohio JIM COOPER, Tennessee SCOTT KLUG, Wisconsin J. ROY ROWLAND, Georgia GARY A. FRANKS, Connecticut THOMAS J. MANTON, New York JAMES C. GREENWOOD, Pennsylvania EDOLPHUS TOWNS, New York MICHAEL D. CRAPO, Idaho GERRY E. STUDDS, Massachusetts RICHARD H. LEHMAN, Cahfomia FRANK PALLONE, Jr., New Jersey CRAIG A. WASHINGTON, Texas LYNN SCHENK, California SHERROD BROWN, Ohio MIKE KREIDLER, Washington MARJORIE MARGOLIES-MEZVINSKY, Pennsylvania BLANCHE M. LAMBERT, Arkansas Alan J. Roth, StaffDirector and ChiefCounsel Dennis B. Fitzgibbons, Deputy StaffDirector Margaret A. Durbin, Minority ChiefCounsel and StaffDirector Subcommittee on Oversight and Investigations JOHN D. DINGELL, Michigan, Chairman SHERROD BROWN, Ohio DAN SCHAEFER, Colorado MARJORIE MARGOLIES-MEZVINSKY, CARLOS J. MOORHEAD, California Pennsylvania JOE BARTON, Texas HENRY A. WAXMAN, California FRED UPTON, Michigan CARDISS COLLINS, Illinois RON WYDEN, Oregon JOHN BRYANT, Texas Reid P.F. Stuntz, StaffDirectorIChiefCounsel Bruce F. Chafin, Special Assistant Robert L. Roach, SpecialAssistant Jeffrey L. Hodges, Research Analyst Dennis B. Wilson, Minority Counsel (II) CONTENTS Page Testimonyof: Nordnaus, Robert R., General Counsel, Department ofEnergy 65 Rezendes, Victor S., Director, Energy and Science Issues, Resources, Community, and Economic Development Division, General Accounting Office 18 Schulze, John R., SeniorEvaluator, General AccountingOfBce 18 Solheim, Tracy K., Evaluatorin Charge, GeneralAccountingOffice 18 Wagoner, John D., Manager, Richland Operations Office, Department ofEnergy 145 (HI) DOE AND CONTRACTOR LITIGATION COSTS WEDNESDAY, JULY 13, 1994 House of Representatives, Committee on Energy and Commerce, Subcommittee on Oversight and Investigations, Washington, DC. The subcommittee met, pursuant to notice, at 10:20 a.m., in room 2123, Rayburn House Office Building, Hon. John D. Dingell (chairman) presiding. Mr. Dingell. Good morning. The subcommittee will come to order. During the past year, Secretary Hazel O'Leary has fostered a new openness and a new confidence at the Department of Energy. This has finally begun to reveal a more complete picture of the environmental damage and the health effects of radiation caused by the Nation's nuclear weapons production complex. It has become clear that the Department of Energy and the contractors who ran the plants made production of nuclear weapons their top priority. The health and safety of workers and the health and safety of residents living downwind of these sites and in the general environ- ment of these sites, as well as the protection of the people there, came in a distant second. Today's hearing addresses waste and abuse in the Department's responses to legal challenges involving health, safety, and the environmental consequences of this policy. The Department of Energy has created an unfortunate situation, in which the taxpayers wind up holding the bag. The blanket indemnification that the government granted to its contractor employees at its weapons plants now binds the taxpayers to reimburse contractors for virtually all liability resulting from the most egre- gious forms of misbehavior by the contractors and everybody else. As a result, DOE is faced with a dilemma when its contractors are sued by individuals who claim that they are injured as a result of living near or working at weapons plants. The American taxpayers are footing the bill and they deserve a vigorous, effectively man- aged, and efficiently run defense against any claim that is unjusti- fied. On the other hand, the Department often is not in a position to say that harm has not been done to individuals working in and living near these facilities. The government has a duty to be just to its people in all ways. One hopes that those who were truly injured would receive fair compensation for their injuries, and that those responsible for those injuries would also receive what they rightly deserve. In 1989, the government settled a lawsuit, dubbed Fernald I, at the weapons facility outside of Cincinnati, Ohio. Immediately after (1) DOE the settlement, decided to allow the contractors to hire their own outside law firms to conduct what has been described as a "scorched earth" defense against class action suits at Femald and six other bomb complex sites. Rather than attempting to separate claims with merit from those which are specious, the government unleashed a horde of lawyers with the direction to win at all costs. It is too early to tell if they will win, but clearly they have done it at all costs which will be paid by the taxpayers. The DOE further set out and created the stage for abuse by set- ting the contractors and their counsel free to conduct the cases with virtually no oversight, no guidance, no supervision, and no scrutiny. The DOE did n—ot impose government travel, meal and en- tertainment restrictions allowing the contractors and their attorneys to charge whatever they like. The DOE did not even get copies ofthe attorneys' bills. The costs for outside attorneys for a 3-year period were reviewed by the subcommittee staff with the invaluable help of Mr. John W. Toothman, a litigation consultant with an institution called The Devil's Advocate. His review and expert analysis of the law firm billings will be forwarded to the Department of Energy. And the committee will watch how it is that the Department addresses those analyses. Also, the GAO has reviewed the billings of 9 major DOE contractors and 16 outside law firms. The billings of one contractor, Na- tional Lead of Ohio, and its outside law firm, will not be discussed today in view of the current trial concerning the DOE's Femald plant. These reviews showed that the cases were over-staffed and re- sulted in questionable and excessive expenditures. Firms threw in hordes of attorneys, clerks, and even summer interns into these cases. Overkill would not describe the matter. It would simply be an understatement. This was a lawyer's delight. We saw here the lawyers enjo3dng the services of a cash cow without limit or con- straint or end. In February 1992, the Hanford case involved 6 contractors, 12 law firms, and over 100 people. Included in that were some 62 attorneys, 25 of whom made better than $200 an hour or more. The total cost—to the government for activities that month alone were $421,500 almost a half million dollars for that 1 month. Over the same period of 3 years, Perkins Coie, a firm representing Greneral Electric, GE, assigned 44 lawyers to the case—, including 21 associ- ates and 22 partners and 1 contract attorney 18 of whom charged over $200 an hour. Shea & Gardner, representing Rockwell, assigned 31 attorneys to the Rocky Flats case. Gibson, Dunn & Crutcher, representing At- lantic Richfield Hanford Company, ARHCO, at Hanford, at one point or another assigned 64 people to the case. These included at least 26 lawyers, 5 ofwhom were billing at over $300 an hour. The law firms turned administrative services into major profit centers. Gibson, Dunn & Crutcher ran up a bill of $175,000 for photocopying; Kirkland & Ellis, representing Dow at Rocky Flats, incurred $90,000 for photocopying; and Helsell, Fetterman, representing Rockwell at Hanford, charged $57,000. Firms charged as much as a $1.75 per page for telefaxing. Gib- son, Dunn & Crutcher ran up a bill of $49,000 over 3 years, over half of which was for in-house faxing. In other words, the firm made a profit on government business by sending faxes to itself. DOE contractors, outside attorneys, and experts lived the good life, all at government expense. Meetings and trips quickly became convenient excuses for first-class airfare, dinners and lunches at fine restaurants, and stays at luxury hotels, and all of the other good things that everybody, including lawyers, look forward to. Even costs for liquor were paid by the contractors and billed, of course, to the government. Four attorneys from Kirkland & Ellis, Shea & Gardner, Perkins Coie, Gibson, Dunn & Crutcher treated themselves to a $382 meal at Lusardi's in New York. A senior attorney for Kirkland & Ellis stayed overnight at the Willard Hotel at a cost of $215 per night on many occasions when he visited Washington, DC. Contractors who were supposed to oversee law firms' expenditures became the beneficiaries of largesse. Senior partners at Per- kins Coie would take a senior GE official out to eat and then bill the client's account. GE in turn would bill the government. Meals at $60 to $80 per person were routine for another law firm's attorneys and their clients at GE. These included such cul- inary feasts as two GE attorneys and three Perkins Coie attorneys billing $448 dinners at Ray's Boathouse in Seattle. Two Perkins Coie attorneys and an expert witness billed $201 for dinner at the Bombay Club in Washington, DC, three GE employees and four Perkins Coie attorneys billed $538 for dinner at McCormick and Schmick's in Seattle, Washington. Experts and consultants were brought into the cases with little regard for the cost. One expert and his firm have received over $800,000 in fees from Kirkland & Ellis between October 1990 and January 1994. A GE/Perkins Coie consultant received $279,000 in slightly over 2 years. An expert for Kirkland & Ellis charged his rate of $250 per hour even when traveling and eating. Thus, the government ended up paying thousands of dollars for very few hours of real consulting and for a very small benefit to the taxpayers. Some experts hired by the law firms are scientists whose questionable human radiation experimentation activities are currently being investigated by the Department of Energy. They, of course, are now useless as witnesses in court proceedings because of questions which would be asked them about previous activities. The government even paid to use its own scientists as experts. Scientists who are contractor employees of DOE labs at Lawrence Livermore and Brookhaven, amongst others, while already being paid by the government at the laboratories, have also contracted out at lucrative fees to these same law firms as expert witnesses. During the subcommittee staffs review, questionable items were also found hidden under miscellaneous costs, which is always a nice place for the subcommittee to look, including memberships in local activist groups, or downwinders, who are associated with the plaintiffs. In other words, ARHCO attorneys had their secretaries, whose names would not be recognizable, infiltrate these groups at the expense ofthe taxpayers. In another example, GE had paid over $37,000 to a local public DOE relations firm in Seattle. Ironically, not only paid the firm to read news clips, but they also did background investigations on, guess who, the staff of Secretary O'Leary. One firm memorandum questions whether O'Lear/s staff could be in collusion with the downwinders. This Sony record of waste and abuse reminds me of John Jamdyce's description of the chancery case Jamdyce and Jamdyce in Charles Dickens' "Bleak House." Those who remember Dickens will remember that this was a wonderful piece of satire on the practice of law in Britain, and it involved the way that a lawsuit could be made a lucrative undertaking on behalf of the law firm. It also tells us of a where a young attorney came in and story concluded that lawsuit and was, of course, fired for his disloyalty to the firm and for having terminated what had been the mainstay ofincome ofthat particular firm. The quote is an interesting one. It says this, and this is John Jamdyce saying this: "The lawyers have twisted it into such a state of bedevilment that the original merits of the case have long disappeared from the face of the earth....It's about nothing but costs, now. We are always appearing, and disappearing, and swear- and and and and and ing, interrogating, filing, cross-filing, arguing, sealing, and motioning, and referring, and reporting, and revolving about the Lord Chancellor and all his satellites, and equitably waltzing ourselves offto dusty death, about costs. That is the great question. All the rest, by some extraordinary means, has melted away." This cannot be tolerated. Today we will hear first from the Gen- eral Accounting Office, to whom we express our thanks for their most valuable help. Then we will hear from Mr. Robert R. Nordhaus, the DOE General Counsel, a graduate of this institution, an old friend and a fine attorney for whom I have great affec- tion and respect. It appears that Mr. Nordhaus is attempting to get this bizarre situation under control. He will have a difficult task in which he can look forward to the continued assistance of the subcommittee in his valiant effort. The Chair now recognizes the distinguished gentleman from Col- orado, Mr. Schaefer, for such opening statement as he chooses to make. Mr. Schaefer. Thank you, Mr. Chairman. Today the subcommittee examines the Department of Energy's management of legal costs incurred by management and operation contractors in defending class action lawsuits brought by residents located around DOE defense nuclear facilities. The Department of Energy has been paying over $30 million a year to reimburse such contractors, a not inconsiderable expense. I commend you, Mr. Chairman, for your diligence and leadership in inquiring whether taxpayers are receiving a fair value for this money. Since their beginning in World War II, the defense nuclear facilities have been run by management and operation contractors under very broad indemnification agreements with the Department of Energy and its predecessor agencies. When class action lawsuits were filed against the contractors that had operated a number of