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From Products Liability Law Daily, July 29, 2013

Award of $104.9 million to NYC for MTBE contamination of well water by Exxon upheld

By John W. Scanlan, J.D.

A jury verdict finding that ExxonMobil was liable for contaminating New York City water wells with methyl tertiary butyl ether (MTBE) and awarding the City $104.9 million in compensatory damages was upheld by the U.S. Court of Appeals for the Second Circuit (In re: Methyl Tertiary Butyl Ether (MBTE) Products Liability Litigation, July 26, 2013, Carney, S.). The case was selected to serve as a bellwether trial for the MTBE multi-district litigation.

Background. In 1990, the Clean Air Act (CAA) was amended to establish the Reformulated Gasoline Program (RPG Program), which required that gasoline contain at least two percent oxygen by weight in order to reduce tailpipe emissions by increasing octane. The Environmental Protection Agency (EPA) identified several additives that could be blended into reformulated gasoline to satisfy the oxygenate requirement, including MTBE. 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.

MTBE causes water to have a foul smell and taste. It has also been identified as an animal carcinogen and a possible human carcinogen. During the time MTBE was in use in gasoline in New York, gasoline leaks from underground storage tanks contaminated groundwater supplies, including those supplying the City-owned “Station Six” wells in Queens, New York, which the City asserted 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).

Although the jury found Exxon not liable on the strict liability claim for defective design, it found Exxon 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.

Preemption. The failure to warn, negligence, and other state tort claims were not preempted by the Clean Air Amendments of 1990’s RPG Program. The statute did not require that Exxon use MTBE in its gasoline because the use of other oxygenates was permissible. Therefore, a jury verdict would not be subjecting Exxon to requirements with which it would be impossible to comply.

The jury’s rejection of the design defect claim did not amount to a finding that there was no safer, feasible alternative to the use of MTBE as a method of complying with the RPG Program. The City had the burden of proving the existence of a safer, feasible alternative in order to prevail on its claim, but Exxon had the high burden of showing that federal and state law requirements directly conflicted in order to establish preemption due to impossibility. If there was any alternative that would allow for compliance with both, even if that alternative was not the most practical or cost effective, there was no conflict, the court said. Exxon asserted that ethanol could not have been used as an oxygenate in its gasoline instead of MTBE because the supply was insufficient, suppliers could not ship it through pipelines, and gasoline with ethanol could not be mixed with gasoline containing MTBE from other gasoline manufacturers. However, Exxon’s expert testified that the supply of ethanol could increase to meet demand and that ethanol could be transported using trains, trucks, or barges. Evidence in the record indicated that the additional cost to Exxon of using ethanol instead of MTBE would not be prohibitive. Furthermore, the legislative history did not establish that Congress had a “clear and manifest intent” to preempt state tort judgments that might be based upon the use of an approved oxygenate over another approved oxygenate that was slightly more expensive.

Finally, the jury did not impose liability on Exxon solely because of its use of MBTE. In order for it to find Exxon liable for every claim but design defect, the jury had to find that Exxon had engaged in tortious conduct.

Injury as a matter of New York law. The maximum contaminant level (MCL) provided by New York law did not establish whether the City has been injured either for purposes of standing or for establishing injury as a matter of law. The City proved that it suffered actual injury as a result of the MTBE contamination, even though the contamination did not exceed the MCL. From 1989 through most of 2003, the MCL for MTBE in drinking water under New York law was 50 ppb, until it was reduced to 10 ppb effective December 24, 2003. The Second Circuit agreed with the district court that the proper question for the jury was whether a reasonable water provider in the City’s position would treat the water to reduce levels or minimize effects of MTBE in the combined outflow of the Station Six wells in order to use the water as a backup source of drinking water. The court stated that it would not establish a bright-line rule that a water provider could not bring a suit until the MTBE contamination level reached a point that it could not be served to the public.

Statute of limitations. A reasonable juror could have found that the City’s claims were not barred by the three-year statute of limitations. Exxon asserted that the City first discovered that it had been injured more than three years before it brought the suit. Testimony that the City anticipated in 1999 that there would be a need to remediate MTBE in the future due to the presence of numerous potential sources of MTBE within one mile of Station Six did not mean it knew then that Station Six already had been contaminated or that any contamination was significant enough to justify immediate or specific remediation. Exxon did not provide evidence that was sufficient to require a reasonable juror to find that a reasonable water provider would have treated groundwater containing MTBE at concentrations of 1.5 ppb and 0.73 ppb, which were first detected in 2000, given that the case involved a core municipal function and implicated an unusually compelling public interest.

Expert testimony. The jury’s finding that MTBE levels would peak in 2033 at 10 ppb was not speculation, even though the only expert to testify on this issue testified that peak would be either (under one analysis) 35 ppb in 2024, or (under a second analysis) in a range from de minimis levels to 23 ppb and would last through 2024. Even though the jury’s verdict and the expert’s opinion differed, it was not irrational for the jury to reach the result that it did. The role of an expert is to provide groundwork to aid a jury in reaching its verdict, not to displace the jury, and that the jury can accept or reject all or part of an expert’s testimony. The jury’s verdict fell within range of the expert’s opinion, the court noted.

Also, it was not erroneous for the expert to base his opinion on the assumption that Station Six would operate on a continuous basis for 24 years. Witnesses testified that it was common practice for water providers to assume continuous use of backup facilities because of the unpredictability of water emergencies.

Causation. The jury’s verdict that Exxon was liable as a manufacturer, refiner, supplier, or seller of gasoline containing MTBE was not improperly based on a market-share theory of liability. The district court merely instructed the jury that it could consider market-share data as one piece of circumstantial evidence that Exxon was a cause of the City’s injury. The court stated that the City had, in fact, identified Exxon as the precise defendant whose product allegedly injured it, and testimony established that Exxon’s gasoline found its way into every underground storage tank in Queens during the relevant period. Gas from different manufacturers was commingled before the gas was distributed and, thus, Exxon gas was present in every retail gas station and in their underground tanks; Exxon sold about 25 percent of the gas in Queens during the relevant period; and there was expert testimony that underground gas leaks happen routinely. All this evidence served as proof that Exxon gas more likely than not played a substantial role in the City’s injury.

Negligence. Exxon was negligent as direct spiller of MTBE-containing gasoline because it failed to ensure that it was properly stored and dispensed at service stations owned or controlled by it. There was “ample” evidence in the record of spills and leaks, and the jury could have concluded that these releases were negligent.

Strict liability failure to warn. The district court did not err in instructing the jury on the failure to warn claim. The duty to warn includes a duty to third persons exposed to a foreseeable and unreasonable risk of harm. The court provided general instructions on the duty to warn, and also noted that the City contended that Exxon failed to warn “distributors, customers, station owners, its employees, gasoline truck drivers, and the city water providers and the public” of the dangers of gasoline containing MTBE. The court rejected Exxon’s argument that it had no duty to warn gas station operators because the dangers of spilling gasoline were common knowledge, given the unique properties of MTBE. Even though operators had been warned about the danger of gasoline spills, they had not been warned about the risks involving spills of MTBE gasoline. There was a significant amount of evidence in the record indicating that warning gas stations would have reduced MTBE contamination. Many gas stations had chosen not to replace leaky underground storage systems in the 1980s and 1990s because the cost of their replacement was believed to outweigh the damage from leaking gas, but they would have taken a different view if MTBE dangers had been warned against, the court reasoned.

Compensatory damages. Compensatory damages awarded the City were properly offset by the costs of fixing damages caused by other pollutants. Perchloroethylene (PCE), used in dry cleaning and textile processing, was present in the groundwater in the Station Six wells. The jury found that removing the PCE contamination would cost $70 million, and reduced the original award of $250.5 million in compensatory damages by that amount. The City argued that this would represent a windfall to Exxon, but the Second Circuit said that the city misunderstood the nature of compensatory damages, which are meant to restore an injured party to the position in which it would have been if the wrong hadn’t been committed. It was undisputed that the presence of PCE and other contaminants prevented the use of drinking water from the Station Six wells, and it would need to be decontaminated even without the presence of the MTBE.

Punitive damages. The Second Circuit upheld the district court’s ruling that the City’s evidence was insufficient as a matter of law to support the award of punitive damages. Most of the conduct causing the City’s injuries resulted in levels of MTBE below the legally acceptable MCL at the time the conduct occurred. Even though a jury could conclude that the City was injured by MTBE contaminant levels below the MCL, punishing Exxon for this would not advance a strong public policy of the state or protect against a severe risk to the public. Based on the evidence, no reasonable jury could have concluded that Exxon was aware of and consciously disregarded a substantial and unjustifiable risk that a reasonable water provider would be forced to treat its water supply for MTBE contamination as a result of its actions. Exxon was required by federal law to use an oxygenate in its gasoline. While there was a significant quantity of evidence regarding Exxon’s knowledge of MTBE’s effects on the odor and taste of water, the health of persons consuming it, and on the tendency of MTBE leaks to spread quickly, there was no evidence demonstrating that Exxon knew of how MTBE contamination would affect groundwater some distance from spill sites. In light of the 10 ppb maximum contamination level found by the jury, no reasonable jury could have found that Exxon conduct’s created substantial and unjustified risk that MTBE levels would exceed New York’s MCL, when the MCL was 50 ppb during most of the time at issue.

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

Attorneys: Paul M. Smith (Jenner & Block LLP), Susan E. Amron (New York City Law Department), Victor M. Sher (Sher Leff LLP) the City of New York, the New York City Water Board, and the New York City Municipal Water Finance Authority. Paul D. Clement (Bancroft PLLC), Traci L. Lovitt (Jones Day), Peter John Sacripanti (McDermott Will & Emery LLP) for Exxon Mobil Corp.; Exxon Mobile Oil Corp.; Mobil Corp.

Companies: Exxon Mobil Corp.; Exxon Mobile Oil Corp.; Mobil Corp.

MainStory: TopStory PreemptionNews WarningsNews DesignManufacturingNews DamagesNews SofLReposeNews ConnecticutNews NewYorkNews VermontNews

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