I previously criticized the abuse of the Clean Water Act’s citizen suit provisions to extort lucrative settlements for inconsequential or exceedingly minor regulatory violations. At first blush, that might seem inconsistent with libertarian’s general preference for privatization. It also appears to run counter to the libertarian or anarchist preference for the nuisance system over regulation.
Appearances can be deceiving. Simply put, the Clean Water Act’s private enforcement provisions are a Frankenstein mutation of the nuisance system.
The nuisance system allows individual property owners to sue people for harming their property and thereby force them to either stop injuring them or compensate them. That works pretty well when (a) the sources of pollution are easily identified, (b) their effects can be clearly traced, and (c) litigation is not inordinately expensive. Except for this last criterion, these are generally satisfied for the types of pollution that comes to most peoples’ minds when they picture water pollution.
Of course, litigation is not cheap or easy. So there’s a good argument for improving the nuisance system by allowing property owners to recoup their costs from an upstream polluter. This reform can reduce transaction costs and make it both more likely that a property owner can successfully defend her rights and that she can do so without litigation. A polluter who thinks a property owner is likely to succeed with her nuisance claim will be more willing to voluntarily adjust its behavior or compensate the victim to avoid costly attorney’s fees.
But the Clean Water Act’s private enforcement provisions are a far cry from this. Unlike the nuisance system, they do not require that an individual plaintiff suffer a direct and perceptible injury to her property. Exacerbating this problem, they provide attorney’s fees that can far exceed any actual damage done by the violator. The windfall profits that result create a perverse incentive for environmental groups to use the provisions as a fundraising tool, by extorting attorney’s fees from property owners and small businesses for trivial or spurious violations.
Since the stormwater regulations are deceptively broad, almost any business or property owner could be vulnerable to a lawsuit. Yet few have any reason to suspect they might be in violation. This makes stormwater claims an ideal tool for extorting money from property owners. Through nothing more than a Google search, opportunistic groups can get lists of businesses in an industry and send them form letters threatening a lawsuit, unless they mend their ways and pay up.
Although little time is required to make such threats, the attorneys can demand tens of thousands of dollars for their efforts. Since many of them work for nonprofit groups, at nonprofit salaries, this is an extremely lucrative practice. A few weeks of work targeting businesses that lack the knowledge or means to defend against a lawsuit could easily return attorney’s fees several times the nonprofit attorney’s annual salary. And, if the property owner doesn’t settle, the potential attorney’s fees continue to grow as the case proceeds.
This encourages litigation for litigation’s sake. That’s not the purpose underlying the nuisance system. Nor is it good public policy.