The US District Court for the Southern District of Texas issued its third opinion on August 19 in the decade-long fight between Exxon Mobil Corporation (ExxonMobil) and the US government over who is responsible for the costs incurred in remediating ExxonMobil’s Baytown and Baton Rouge refineries and nearby chemical facilities (the plants), which were used to produce aviation fuel and rubber during World War II and the Korean War under extensive government control.
In Exxon Mobil Corporation v. United States of America, No. 10-2386, the court held a bench trial solely on the issue of allocation of past response costs and future costs, after previously deciding liability, statute of limitation, allocation methodology and various related issues in the long-running Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) action. US District Judge Lee Rosenthal presided over the bench trial, a portion of which was held virtually due to the coronavirus (COVID-19) pandemic. The court found that the government was responsible for certain allocated shares of past response costs incurred at the plants, and awarded ExxonMobil $20,328,670, and allocated a future share of response costs to the government.
ExxonMobil sued the US government 10 years ago to recover more than $45 million in cleanup costs associated with groundwater contamination at the Baytown refinery, and in 2011, the company filed a second suit for costs associated with the Baton Rouge refinery. The cases were later consolidated. ExxonMobil alleged that the government was liable as a past operator of the plants due to the government’s substantial control and active involvement in activities there. In particular, ExxonMobil argued that because the government had imposed strict administrative controls over the oil and gas industry during World War II through the Petroleum Administration for War, including dictating that the refineries produce aviation gasoline, rubber, asphalt, and other materials necessary for the war effort, the government was liable under CERCLA for a portion of the costs spent to remediate pollution at the plants.
The litigation proceeded in three phases. In June 2015, the court first held that both ExxonMobil and the government were liable under CERCLA. In particular, the court found that the government was liable as a past operator at the plants because the government played a substantial role in overseeing day-to-day plant operations and made specific decisions about waste disposal and environmental compliance at the plants. The government's organization of, and direction over, operations at the plants, including disposal mechanisms, satisfied the US Supreme Court’s standard for past operator liability under CERCLA.
In August 2018, Judge Rosenthal granted in part and denied in part cross-motions for summary judgment filed by the parties. This ruling determined that ExxonMobil’s costs were “necessary costs of response” eligible for CERCLA recovery, that ExxonMobil’s cleanup could be characterized as a single “removal” action under CERCLA and was not barred by the statute of limitations, that ExxonMobil “substantially complied” with the National Contingency Plan in incurring its response costs, that ExxonMobil was entitled to a declaratory judgment for future costs, and that the court would use a “production-based” analysis to allocate costs between the parties.
The bench trial began in March 2020. The only dispute at issue in the bench trial was the allocation of ExxonMobil’s past response costs, and the share of future costs to be allocated to the government. Allocation under CERCLA is a matter of equity left to the district court’s discretion under CERCLA Section 113. The court applied the “Gore” factors and the “Torres” factors to conclude that the government’s knowledge and acquiescence in the contamination-causing activities at the plants, the value of the war materials produced at the plants to support the national defense efforts, certain cost reimbursement provisions in the wartime contracts, and the plants’ substantial post-war waste handling improvements all supported a “substantial” or “increased” allocation of the response costs to the government.
The court thus concluded that the government was liable for an allocated share of 24.67% for cleanup costs incurred at the Baytown refinery, 36.54% of the cleanup costs incurred at the Baytown Ordnance Works/Tankfarm 3000 Area, and 14.4% for cleanup costs incurred at the Baton Rouge refinery. Combining those percentages, the government was ultimately found liable for a total of $20,328,670 in past response costs. The court also found that the government was liable for a portion of ExxonMobil’s future cleanup costs incurred from 2020 and beyond in the amount of 24.67% for refinery costs at Baytown, 36.54% for Baytown Ordnance Works costs, and 14.4% for refinery costs at Baton Rouge. These percentages represented only slight reductions from ExxonMobil’s proposal for allocation to the government, and were a far cry from the government’s proposed allocations of 2.36% for Baytown, 1.86% for Baytown Ordnance Works, and 0.46% for Baton Rouge.
In considering the equitable factors, the court explained the pervasive control exercised by federal agencies in coordinating the manufacture and distribution of war materials to meet the United States’ military demand. For example, the government exercised control over the access to raw materials required to run petroleum refineries. With respect to the Baytown and Baton Rouge refineries, the government mandated that they prioritize production of war materials so that they would produce large quantities quickly, which ultimately led to neglect in maintenance and repairs, and also led to “defer[ed] environmental protection structures and improved waste-handling processes.” The court found that the government’s control over the refineries and the refineries’ restricted access to materials and labor caused the neglect in the maintenance and repairs, which led to an increase in hazardous substances created during the refining process. The court held that “because the war effort caused much of the delay in the steps taken to reduce and control the hazardous substances generated during the war, and because the production levels and commensurate need for pollution control was much lower before the war, the government should contribute more to the added remediation costs that the delay has caused.”
The government attempted to limit its liability by arguing that some products produced by the refineries were not for war purposes. The court rejected this argument, stating that although refineries produced “commercial” products during the war, that fact did not reduce the government’s allocation amount. Evidence demonstrated that the commercial products produced during the war were also war materials, and a lot of those products were sold to the government for its military needs, such as gasoline for the military’s vehicles. In summary, while Judge Rosenthal admitted that there was difficulty in pinpointing the exact sources of contamination, she ultimately allocated a substantial amount of costs to the government for its role at the plants.
Exxon Mobil represents a significant development amid the government’s ongoing efforts to escape or reduce its share of liability for costs associated with wartime pollution. To this day, many sites remain contaminated by wartime operations involving the United States military. In her opinion, Judge Rosenthal acknowledged the difficulties associated with allocating costs in cases like these, where the events took place nearly three quarters of a century ago (or more): “Instead of live percipient witnesses, the court heard from experts in forensic environmental history and engineering. Instead of electronic documents, the court examined an archive of contemporaneous prewar, wartime, and postwar correspondence, photographs, and other documents.” The decision brings into sharper focus the difficulty in allocating response costs under such conditions, but nevertheless demonstrates that courts are willing to allocate substantial costs to the government due to its unique role in contributing to the contamination associated with former wartime production facilities.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Ella Foley Gannon