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From Products Liability Law Daily, October 17, 2013

$104.9 million award against Exxon and Mobil for MTBE contamination of water wells stands

By John W. Scanlan, J.D.

The U.S. Court of Appeals for the Second Circuit has denied a petition brought by Exxon Mobil and Mobil Oil for rehearing of its decision upholding an award of $104.9 million in compensatory damages to New York City for contaminating city water wells with methyl tertiary butyl ether (MTBE) (In re: Methyl Tertiary Butyl Ether (MBTE) Products Liability Litigation, October 15, 2013, en banc). The court rejected their arguments that the city’s claim was not ripe, that the claim was preempted by federal law, and that the decision was inconsistent with New York state law on drinking water contamination and market share liability.

Background. Methyl tertiary butyl ether (MTBE) was a gasoline additive used by many gasoline manufacturers to satisfy the oxygenate requirement of the Clean Air Act’s Reformulated Gasoline Program. Exxon and other companies used MTBE in the New York area beginning in the 1980s until its use was banned by the state in 2004. Congress ended the Reformulated Gasoline Program when it passed the Energy Policy Act of 2005. During the time MTBE was in use in gasoline in New York, gasoline leaks from underground storage tanks allegedly contaminated groundwater supplies, including those supplying the City-owned “Station Six” wells in Queens, New York, which the City had asserted at trial would be a significant part of its plan to deliver drinkable water to its residents in the future.

The City of New York, the New York City Water Board, and the New York City Municipal Water Finance Authority brought suit against Exxon Mobil Corp., Exxon Mobil Oil Corp., and Mobil Corp. (Exxon), along with a number of other companies (all of which except Exxon settled prior to trial). The jury found Exxon not liable on the strict liability claim for defective design, but found the company liable under New York law for failure to warn and negligence, along with other claims, and awarded $104.69 million in damages. The court found that there was no basis for awarding punitive damages as a matter of law. Both Exxon and the City appealed. On appeal, Exxon argued that the city’s suit was not ripe, the city’s claims were preempted, as the jury had found that there was no safer, feasible alternative to MTBE, and the district court extended market share liability contrary to New York law. The Second Circuit rejected Exxon’s arguments and affirmed the district court.

Ripeness. In their petition for rehearing, Exxon and Mobil asserted that the $104.9 million was awarded for wholly speculative injuries, in that the city has never used these wells because they had been previously been contaminated by other chemicals. The City had stated that it had a good faith intent to build a treatment plant within the next 15 years and begin using the water within 15 to 20 years. Suits for possible injuries “some day” in the “vague future” are barred by U.S. Supreme Court precedent, as are suits based on a “highly attenuated chain of possibilities,” the petitioners argued. The City cannot use these wells unless it constructs a facility to treat chemicals in the water that had nothing to do with Exxon, and whether the city will be harmed by MTBE contamination depends on whether it builds the treatment plant, how often it uses the wells as a backup water supply, whether future use will draw in contamination from remote MTBE spills, and whether that contamination will require treatment. A good faith intent to build a treatment plant years in the future did not render a claim ripe, the petitioners stated.

Preemption. The district court’s judgment, being based on state law, should have been preempted, the petitioners argued. The Second Circuit affirmed a tort award for conduct compelled by federal law, in that there was no safer feasible alternative for Exxon Mobil to comply with the Clean Air Act’s oxygenate requirement than to add MTBE to gasoline. Imposing a judgment of over $100 million on a defendant for complying with a federal law was an obstacle to the accomplishment of congressional purposes and objectives. The Second Circuit overlooked the issue of obstacle preemption and did not even mention the jury’s finding that there was no safer, feasible alternative available to the company, the petitioners argued. Although the court stated that preemption was irrelevant because the jury found that ExxonMobil used MTBE and committed related tortious acts, the petitioners said that the city had not introduced evidence that its asserted injuries were caused by particular ExxonMobil spills attributable to negligence.

Departure from New York laws on drinking water. The Second Circuit’s finding that the city had asserted a cognizable injury under New York law had no support in New York law, the petitioners claimed. State law provides that water is considered drinkable with MTBE contaminations at 10 parts per billion (ppb) or lower, and the jury had determined that MTBE contaminations would peak at 10 ppb. The panel held that a “reasonable water provider” in the city’s position would treat the water to reduce MTBE levels to be able to use it as a backup water source, but there was no basis in New York law for a “reasonable water provider test.” Holding Exxon and Mobil liable for injury to water that was still potable was a significant expansion of liability, according to the petitioners.

Market share liability. Finally, the petitioners asserted that, contrary to the court’s decision, market share liability was clearly inapplicable in this case. New York prohibits liability for mere market participation when “substantial factor” causation was based only on market share evidence, they cautioned, and the court’s decision created an “end run” around New York’s market share liability rules.

The case numbers are 10-4135 (Lead); 10-4329 (XAP).

Attorneys: Susan E. Amron for City of New York, The Water Board and Water Finance Agency. Traci L. Lovitt (Jones Day) for Mobil Oil Corporation and Exxon Mobil Corporation.

Companies: The Water Board; Water Finance Agency; Mobil Oil Corporation; Exxon Mobil Corporation

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