Exxon Mobil Corp. v. United States

• Decision Date: 17 August 2018
• Docket Number: Civil Action Nos. H-10-2386,H-11-1814
• Citation: 335 F.Supp.3d 889
• Parties: EXXON MOBIL CORPORATION, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Southern District of Texas

335 F.Supp.3d 889

EXXON MOBIL CORPORATION, Plaintiff,

v.UNITED STATES of America, Defendant.

Civil Action Nos. H-10-2386

H-11-1814

United States District Court, S.D. Texas, Houston Division.

Signed August 17, 2018

Daniel M. Steinway, Michael Patrick McGovern, Baker Botts LLP, Washington, DC, Tynan Buthod, Baker Botts LLP, Houston, TX, for Plaintiff.

Brian H. Lynk, US Dept. of Justice Environmental Defense Section, Erica M. Zilioli, Justin D. Heminger, Michael D. Rowe, US Department of Justice, Washington, DC, Stephanie J. Talbert, U.S. Department of Justice Environmental Defense Section, Denver, CO, for Defendant.

MEMORANDUM AND OPINION

Lee H. Rosenthal, Chief United States District Judge

The Second World War and the Korean Conflict ended over 65 years ago and took place thousands of miles away, but some effects of those wars are present and nearby. These consolidated cases address responsibility for the costs of cleaning up environmental damage from the production of materials the military needed during World War II and the Korean Conflict. These cases involve two of the country's largest and longest-running oil refineries and the chemical plants, or "Plancors," on and adjacent to them, one in Baytown, Texas, the other in Baton Rouge, Louisiana.

During World War II, the United States entered into contracts with Humble Oil and Standard Oil to produce high-octane aviation gas and other products needed for combat. Exxon Mobil Corporation is the successor entity for both Humble Oil and Standard Oil.¹ Under the contracts, the United States encouraged Exxon to produce as much as possible to meet the military needs. Exxon, like other oil companies that entered into similar contracts, retained ownership and day-to-day operational control over the work, including waste management. The Baytown and Baton Rouge refineries and plants disposed of hazardous waste in nearby bodies of water, including the Houston Ship Channel and the Mississippi River. Both feed into the Gulf of Mexico. Exxon has spent, and will continue to spend, millions in cleanup costs. Exxon sued under the Comprehensive Environmental Response, Compensation, and Liability Act, as amended, 42 U.S.C. § 9601, et seq. ("CERCLA"), seeking reimbursement for the percentage of those costs attributable to the United States's wartime activities.

There are three phases to these cases, which are in turn related to ongoing litigation in the Court of Federal Claims. In 2015, this court ruled on the liability issues, finding that both Exxon and the United States were responsible for the cleanup costs. Exxon Mobil Corp. v. United States , 108 F.Supp.3d 486 (S.D. Tex. 2015) (" Exxon I "). The next question is how much each is responsible for. This opinion addresses the cross-motions for partial summary judgment on the Phase II equitable-allocation issues-the method to determine what percentage of the cleanup costs each party must bear. Part III is a bench trial to resolve the factual disputes and conflicting inferences necessary to fix the relative shares and the amount of past costs and the share of future costs that each party must pay.

The United States and Exxon each filed lengthy briefs, a large record, and supplemental briefing on additional issues. The court heard oral extensive argument on the cross-motions. Based on the pleadings; the motions, responses, replies, and supplemental briefing; the record; the arguments of counsel; and the applicable law, the cross-motions for partial summary judgment, (Docket Entries No. 200, 202), are granted in part and denied in part.

The issues on which summary judgment is denied will be addressed at the bench trial set to begin on February 19, 2019 . Those issues are:

• the allocation of responsibility for cleanup costs at the units on which the parties did not move for summary judgment;

• the allocation of responsibility for the costs at the Facilities Operations Areas;

• the amount by which to offset Exxon's equitable share of liability based on the North American Coverage Case settlement proceeds;

• the challenges to Exxon's claimed costs that are not supported by both an invoice and proof of payment;

• whether Exxon may recover prejudgment interest, "run rate" costs, and consultant costs;

• the percentages of wartime production related to "commercial" products;

• the adjustments for Exxon's post-wartime waste-management improvements;

• the application of the equitable-allocation methodology set out in this opinion to determine what amount each party must pay; and

• the remaining issues that the pretrial work may identify. The reasons for these rulings are explained below.

I. Background

The court's June 4, 2015 Memorandum and Opinion set out the relevant background in detail. Only a summary is provided here.

A. Procedural Background

Exxon seeks reimbursement for the costs it paid and will pay for environmental cleanup work required under the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq. ("RCRA") at an oil refinery and chemical plants, one in Baytown, Texas and one Baton Rouge, Louisiana. The United States did not operate either refinery; Exxon and the United States operated the chemical plants. The refinery and chemical plants at each site are a single CERCLA "facility." Exxon I , 108 F.Supp.3d at 519.

Part of the environmental contamination at the facilities was caused by production of high-octane aviation gas and other war products needed during World War II and the Korean Conflict. Between 1941 and 1955, the United States was extensively involved at both facilities. During this period, the refineries and the plants that supplied them raw materials operated at maximum production capacity to help the war efforts. The swift and large increase in production capabilities also increased hazardous wastes. The remediation work undertaken years later is regulated by CERCLA, which was, of course, passed decades after World War II and the Korean Conflict ended.

Exxon alleges that through December 2014, it has incurred approximately $77 million in past response costs attributable to the wartime-related contamination, and that it will incur significant additional future response costs. Exxon's claims for the cleanup costs at the Baytown facility are governed by § 113(f), 42 U.S.C. § 9613(f), and the claims for the costs at the Baton Rouge facility are governed by § 107(a), 42 U.S.C. § 9707(a).

In 2009, Exxon filed two contract actions against the United States in the United States Court of Federal Claims, seeking recovery for avgas-related environmental cleanup costs based on a reimbursement clause in the World War II avgas supply contracts between Exxon and the United States.² The clauses required the United States to reimburse Exxon for costs incurred "by reason of" the avgas production. Exxon Mobil Corp. v. United States , 124 Fed.Cl. 478 (2015). The contract case in the Court of Federal Claims is stayed, pending resolution of the issues here.

In these consolidated cases, the parties conducted extensive discovery on the liability and allocation issues. In 2015, the court ruled on the parties' cross-motions for partial summary judgment on whether both, or only one, party was liable for the costs. See Exxon I , 108 F.Supp.3d 486. The court held:

• the statute of limitations applicable to Exxon's claims is § 113(g)(2), 42 U.S.C. § 9613(g)(2), id. at 507-08 ;

• section 113(f)(3)(B)'s contribution provision is Exxon's exclusive remedy to seek cleanup costs incurred in response to administrative settlements with the State of Texas, id. ;

• Exxon's agreed orders with the State of Texas are "administrative settlements" under § 113(f), id. at 510-11 ;

• the refinery and chemical plant at each site are a single "facility" under CERCLA, id. at 519;

• Exxon and the United States were CERCLA owners and operators of the chemical plants at both facilities, id. at 532 ;

• the United States was not a CERCLA owner and operator of either refinery, id. ; and

• Exxon was entitled to a declaratory judgment that "the United States is liable for its equitable share of past and future cleanup costs incurred at the Baytown and Baton Rouge sites," id. at 537.

These determinations meant that both Exxon and the United States bear some share of the liability for the cleanup costs at the Baytown and Baton Rouge facilities. This stage of the litigation, Phase II, addresses the equitable allocation of those costs-the method and factors used to determine how much each party's share should be.

Exxon moved for partial summary judgment on four issues and the United States moved for partial summary judgment on five issues.³ The issues, which overlap, are:

• whether Exxon's cleanup costs at two of the Baytown units were "necessary costs of response" eligible for CERCLA recovery;

• whether Exxon's response actions at five Baytown units and three Baton Rouge units were "remedial" actions, which would be barred by the statute of limitations in 42 U.S.C. § 9613(g), or "removal" actions, which would not be barred;

• whether Exxon "substantially complied" with the National Contingency Plan for three of the Baytown units and two of the Baton Rouge units;

• whether to deduct the insurance-settlement proceeds Exxon received in a different case;

• whether Exxon accurately accounted for its costs with sufficient documentation;

• whether the United States should receive a zero or de minimis share at three Baytown units and two Baton Rouge units;

• what equitable-allocation methodology the court should use-the "time-on-the-risk" analysis the United States proposes, or the "production-based" analysis that Exxon proposes; and

• whether to enter a declaratory judgment establishing an equitable-allocation formula for Exxon's future costs to investigate and remediate water bodies and sediments near the Baytown and Baton Rouge facilities.

Each issue is addressed in detail below, against the facts shown in the summary judgment record and the legal standards that apply.

B. Factual Background

1. The Baytown Facility...