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Oil Companies Must Pay Nearly $50M to United States for WWII Environmental Pollution Cleanup

December 17, 2020

The US District Court for the Central District of California issued an opinion on December 10 in the decades-long fight between the US Environmental Protection Agency and several oil companies over payment of the United States’ costs incurred in remediating the McColl Superfund Site used for the manufacturing of aviation fuel during World War II. In United States of America v. Shell Oil Co., No. 91-00589, the court granted the United States’ motion for summary judgment and awarded the United States $49,861,337.62 in past cleanup costs.

Background and Prior Rulings

During World War II, the US government exercised significant control over the means of production of aviation fuel (avgas), which was critical to the war effort. The government sought to maximize avgas production by assisting oil companies in exchanging and blending various avgas components in ways that allowed increases to overall production. These oil companies owned and operated refinery facilities and produced avgas under contracts with the government. These production processes led to the discharge of hazardous substances, including acid sludge, at a 22-acre site in Fullerton, California, known as the McColl Superfund Site (McColl Site). The oil companies dumped 72,600 cubic yards of petroleum refinery waste at the McColl Site.

In 1991, the United States and the State of California brought suit against the oil companies under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) to recover cleanup costs incurred at the McColl Site. The oil companies countersued, arguing that the United States was also liable for cleanup costs as a potentially responsible party (PRP) due to the government’s control over avgas production.

In 2002, the US Court of Appeals for the Ninth Circuit held that the oil companies were liable for all cleanup costs at the McColl Site except the costs associated specifically with the disposal of benzol acid waste, which were the responsibility of the government. The parties later stipulated that this represented a 6.25% share of the cleanup liability. The United States filed its summary judgment motion on the one remaining area of dispute: recoupment of past costs. The United States sought all of the costs that the US Environmental Protection Agency (EPA) and US Department of Justice (DOJ) incurred from the period 1990 to 2019, plus prejudgment interest, less the 6.25% share.

Separately, in 2006, the oil companies countersued the United States for breach of contract in the US Court of Federal Claims, arguing that a clause in their contracts with the government—in which the government agreed to reimburse them for any “charges” that the oil companies may be required to pay “by reason of” the production, manufacture, sale, or delivery of avgas—required the government to reimburse them for costs incurred related to the McColl Site cleanup. Following a decade of litigation on the contract claims, the US Court of Appeals for the Federal Circuit affirmed an award of nearly $100 million in the oil companies’ favor, upholding the lower court’s finding that the government had breached these contracts and the oil companies must be compensated for damages caused by the breach.

Summary Judgment Ruling

The United States moved on summary judgment to recover $49 million in past response costs plus prejudgment interest, providing environmental reports and cost documentation to support the costs it had incurred. The oil companies opposed the motion on several grounds.

First, the oil companies argued that the United States could not recover its costs under CERCLA Section 107, but rather were limited to a CERCLA Section 113 claim for contribution. Under CERCLA, private parties may recover the cost of environmental cleanups from other parties under either a Section 107 cost recovery action or a Section 113 contribution action. Section 107 actions allow parties to recoup their response costs, while Section 113 actions allow PRPs to sue other PRPs for contribution. The oil companies argued that the United States could not recover under Section 107 because the United States was adjudicated as a PRP, because the United States had partially settled with the State of California, and because the parties privately stipulated to an allocation of cleanup costs at the McColl Site under Section 113(f).

The court held that these conditions had not triggered a right to contribution under Section 113, and that Section 107 was the proper vehicle for recovery. The court also held that Section 107(a)(4), allowing for the recovery of “all costs of removal or remedial action incurred by the United States Government . . . not inconsistent with the national contingency plan,” applied to the United States’ claim. The oil companies attempted to demonstrate that the United States lost its ability to recover under that provision since it was a PRP, but the court rejected that argument as inconsistent with the statute.

Next, the oil companies argued that the issue of consistency of costs with the National Contingency Plan (NCP) was a question of fact for the jury. The court rejected this argument, finding that the recovery of costs under CERCLA is appropriate on summary judgment so long as the opposing party fails to come forward with a genuine dispute of material facts. The oil companies attempted to do so here, with respect to the United States’ direct costs, indirect costs, and annual allocations.

The court found that summary judgment was appropriate for all of these costs because the oil companies failed to point to specific evidence rising to the level of a genuine dispute of fact, or to challenge any specific costs or rates. While the oil companies pointed to certain “accounting irregularities,” the court found that the specific accounting report had been resolved nearly 20 years ago, and irregularities related to other Superfund sites were irrelevant to this dispute.

Implications

The district court’s decision represents a significant development amid the United States’ ongoing efforts to recoup costs associated with the cleanup of wartime pollution. Judge Carney’s ruling allows the United States to proceed with CERCLA Section 107 cost recovery claims, even in situations where the government, as a PRP, has privately stipulated to an allocation of cleanup costs under Section 113(f).

The decision also brings into sharp focus the difficulties in challenging the United States’ claims for cost recovery as inconsistent with the NCP. The court’s opinion provides only limited guidance of what might be needed to oppose summary judgment on these grounds, such as pointing to specific information that the United States has failed to provide or specific evidence that would show that the United States’ response actions were arbitrary and capricious.

Contacts

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:

Washington, DC
Duke McCall
Randy Levine

San Francisco
Ella Foley Gannon

Los Angeles
Jim Dragna
Rick Rothman
Denise Fellers

Boston
Bob McDonnell

Princeton
John McGahren
Stephanie Feingold

Philadelphia
Glen Stuart

Dallas/Houston
Stephen Fitzgerald