Citgo Refining and Marketing v. Garza, 13-03-267-CV.

• Decision Date: 30 September 2005
• Docket Number: No. 13-03-267-CV.,13-03-267-CV.
• Parties: CITGO REFINING AND MARKETING, INC., and Citgo Petroleum Corporation, Appellants, v. Amelia GARZA, et al., Appellees.
• Court: Texas Court of Appeals

187 S.W.3d 45

CITGO REFINING AND MARKETING, INC., and Citgo Petroleum Corporation, Appellants, v. Amelia GARZA, et al., Appellees.

No. 13-03-267-CV.

Court of Appeals of Texas, Corpus Christi-Edinburg.

September 30, 2005.

Opinion on Rehearing March 23, 2006.

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Jeffrey K. Sherwood, Akin, Gump, Strauss, Hauer & Feld, Washington, DC, J. Stephen Barrick, Akin, Gump, Strauss, Hauer & Feld, Houston, Frank E. Weathered, Dunn & Weathered, Corpus Christi, for Appellants.

Shari A. Wright, Dennis Craig Reich, Reich & Binstock, H. Lee Godfrey, Susman, Godfrey & Mcgowan, Houston, Steve T. Hastings, Law Office of Steve T. Hastings, Corpus Christi, for Appellees.

Before Justices HINOJOSA, YAÑEZ, and CASTILLO.

OPINION

Opinion by Justice CASTILLO.

Appellant, Citgo Refining and Marketing, Inc. and Citgo Petroleum Corp. ("Citgo") appeals from a final judgment finding breach of a settlement agreement. The underlying suit involves a class action against numerous defendants claiming damage to various parcels of real property and resulting diminution in value from airborne toxic contaminants. Appellees are representatives of the class and subclasses as originally certified by the trial court in an order dated November 14, 1995. Citgo (independent of other defendants) and appellees entered into a stand-alone settlement agreement in late September 1998. Appellees amended their pleadings to sue for breach of the settlement in March 2000. The parties tried the matter before the court in August 2001; an order finding breach issued October 17, 2001. A separate hearing on attorneys' fees was held in February 2002. In September 2002, the trial court held a hearing to determine fairness of the settlement agreement. Final judgment, finding the settlement to be fair, adequate and reasonable, and awarding damages in favor of appellees, issued April 4, 2003. This appeal ensued. We reverse and remand.

Background

The underlying suit sought certification of a class of real property owners alleging nuisance, trespass, and negligence of various defendants, including Citgo, for damages and resulting diminution in property value based upon airborne contamination. The trial court held a hearing on the certification issues in October 1995. The trial court issued an order certifying the class on November 14, 1995, composed of various subclasses based upon location of a class member's property and its date of acquisition. Three classes were certified: (1) the I-37 North Residential Property Damage Class ("I-37 North Class") (composed of several subclasses based upon date of acquisition of the property); (2) the I-37 North Free Phase Hydrocarbon Property Damage Subclass (a subclass of the North Class, a/k/a the "Oak Park Triangle"); and (3) the I-37 South Residential Property Damage Class ("I-37 South Class") (composed of several subclasses based upon (a) geography in relation to Leopard Street and (b) date of acquisition of the property). The order certifying the class, in addition to identifying the various classes and subclasses, states: "The Court finds the Plaintiffs' have satisfied their burden of presenting some evidence that reasonable class definitions and other conditions of Rule 42 are satisfied with respect to the Plaintiffs proposed property damage classes."¹ Certification of the class was appealed and affirmed in August 1996. See Amerada Hess Corp. v. Garza, 973 S.W.2d 667, 671, 682 (Tex.App.-Corpus Christi 1996) ("Garza I"). The matter was further appealed to the Supreme Court, but dismissed for want of jurisdiction. See Coastal Corp. v. Garza, 979 S.W.2d 318 (Tex.1998).²

In September 1997, Citgo and appellees reached a settlement agreement, by which Citgo would pay $12,292,758.19 to buy back properties located in the Oak Park Triangle, pay $3.55 million to the balance of the I-37 North class, and pay $1.45 million for the I-37 South class. Attached to and incorporated as part of the settlement agreement are various exhibits including, among other things, a breakdown of the valuation amount to be paid for each property in Oak Park (exhibit 3) and an Oak Park Protocol Agreement. The protocol agreement sets out that the offer for each parcel of property is based upon the adjusted assessed value of the parcel as of 1996, to which a factor is applied and other allowances are added. Exhibit 3 sets out the exact offer price for each parcel of property. The settlement called for all class representatives to sign the document no later than October 6, 1997.³ The agreement sets forth various conditions which must be satisfied before it is effective, including approval by the trial court. The parties agreed to seek preliminary approval at the hearing scheduled for October 10, 1997; there are provisions to provide for a continuance in the event approval was denied. If no court approval was secured, Citgo had no obligation to pay under the agreement. The agreement recites that by signing, the claimants provided a full release and discharge, along with a covenant not to sue or institute other legal, equitable or administrative proceedings against the settling defendants.⁴ The settlement is a stand-alone agreement between Citgo and the appellees, independent of any other settlements that might be reached with other defendants in the suit.

Appellees presented the settlement to the trial court for approval in October 1997. Plaintiffs' Motion for Preliminary Approval of Settlements and Approval of Notice actually requested approval not only of the Citgo settlement, but also of settlements with three other defendants, for a total of three separate settlement agreements. The motion reflects that the settlement with Citgo involves only release of property damage claims and any medical monitoring claims. The motion further states that "[a]s part of the settlement of CITGO, Class counsel and CITGO seek approval of a small additional class of all persons who own property in the Oak Park Areas, as of June 1, 1991 who have since sold such property.... This requires the creation of a small sub-class. . . ." In conjunction with the other settlements, appellees noted they were also filing contemporaneously a request for certification of a Commercial Settlement Class.

At the hearing held October 10, 1997,⁵ the trial court appointed a guardian ad litem to review the settlement and assist in determining its fairness to class members, expressing its concerns that dollars allotted for the Oak Park Triangle might be inadequate.⁶ On October 31, 1997, the ad litem reported to the court that the settlement reflected monies paid to Oak Park property owners were calculated upon the 1996 assessed value. The ad litem discusses a "settlement proposal" which impliedly incorporates the other settlements, including those either under consideration or already executed with other defendants, since in addition to the Oak Park Triangle funds (which dollars exactly match the monies contemplated in Citgo's settlement), additional substantial sums totaling $17 million are discussed as part of the settlement.⁷

On November 6, 1997, Citgo filed its Memorandum in Support of Motion to Approve Preliminary Settlement Class. Citgo explained the basis for its position that the monies tendered for the Oak Park Triangle, as well as for remaining class members, were fair and adequate. Much of this memorandum directly addresses concerns of the court and others as expressed at the October 10 hearing. Attached to the memorandum are detailed materials reflecting how the property valuations were derived and calculated.

Appellees' counsel forwarded a letter to the trial court on November 7, 1997, stating that the "parties have continued their efforts to settle the class action." The correspondence notes that the guardian ad litem was assigned to review only the proposal for the Oak Park Triangle, that the plaintiff class included many additional property owners, and that any settlement must treat all class members equally.

In a supplemental letter to the court dated November 17, 1997, the ad litem stated his conclusion that "the initial settlement proposal should be modified to reflect a redistribution of the offered funds." Although he notes that the proposed modification would not require an increase in any settlement monies offered by the settling defendants, the ad litem treats the various agreements as though each is contingent upon and interconnected with the others. He contemplates an increase in monies allotted to the Oak Park Triangle, principally from a potential settlement between the class and Amerada Hess. Importantly, he criticizes the Oak Park Triangle portion of the settlement proposal (to which Citgo alone was contributing) because it utilized 1996 property appraisal values as a basis for calculation of offer price. He recommended specific "revisions" to the proposal.⁸ He proposed that the settlement utilize an entirely different calculation to find a property value for the Oak Park Triangle, that persons owning single family residences as of September 29, 1997, receive an additional sum for each year they lived in their home, and a redistribution of monies allotted for attorneys' fees. He states that "no other settlement monies would be affected except for funds contributed in the future by [an as-yet unsettling defendant.]" He then states: "The suggested modifications to the initial settlement proposal are being presented to this Court after much consideration ... The proposed revisions have been discussed with class representatives and have communicated to me as being acceptable on behalf of the class." There is no statement that the proposed modifications were acceptable to Citgo, or any acknowledgment that Citgo's settlement is independent of and not part of a larger package.

Appellees' counsel subsequently communicated with the trial court on November 25, stating ...