Table Of Content^
DOE AND CONTRACTOR UTIGATION COSTS
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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 (chair-
man) 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 en-
vironmental 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 resi-
dents 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 in-
demnification that the government granted to its contractor em-
ployees 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 attor-
neys 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 contrac-
tors 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 at-
torneys, 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, rep-
resenting 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' expendi-
tures 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 tax-
payers.
Some experts hired by the law firms are scientists whose ques-
tionable 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 ques-
tions 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 institu-
tion, 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 facili-
ties 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
