Shell Oil Co. v. United States
| Decision Date | 14 January 2013 |
| Docket Number | No. 06-1411C,No. 06-141C,06-141C,06-1411C |
| Parties | SHELL OIL COMPANY, ATLANTIC RICHFIELD COMPANY, TEXACO, INC., and UNION OIL COMPANY OF CALIFORNIA, Plaintiffs, v. THE UNITED STATES, Defendant. |
| Court | Court of Federal Claims |
Michael W. Kirk, with whom were Vincent J. Colatriano, Peter A. Patterson, and Michael Weitzner, Cooper & Kirk, PLLC, Washington, D.C., for Plaintiffs.
Stephen C. Tosini, with whom were Stuart F. Delery, Principal Deputy Assistant Attorney General, Jeanne E. Davidson, Director, and Franklin E. White, Jr., Assistant Director, U.S. Department of Justice, Civil Division, Commercial Litigation Branch, Washington, D.C.; Michael J. Zevenbergen and Joshua M. Levin, U.S. Department of Justice, Environmental and Natural Resources Division; and Heather Cameron, General Services Administration, Of Counsel, for Defendant.
Plaintiffs in this contract case are well-known oil companies, Shell Oil Company, Atlantic Richfield Company, Texaco, Inc., and Union Oil Company of California. During the 1940s, at the urging of the U.S. Government, Plaintiffs entered into contracts to manufacture vast quantities of aviation fuel (called "avgas") to help assure that the United States would prevail in World War II. The production of avgas was critical to the fueling of the nation's fleet of military aircraft and unquestionably aided the war effort ofthe United States. However, the avgas manufacturing process yielded significant acid waste material that Plaintiffs by separate agreement deposited on real property in Fullerton, California known as the "McColl Site." Plaintiffs' avgas contracts were terminated at the end of World War II.
Many years later, under a statute known as the Comprehensive Environmental Response, Compensation, and Liability Act of 1978, 42 U.S.C. § 9601, et seq. ("CERCLA"), the U.S. Government and the State of California undertook a substantial effort to clean up the McColl Site. These clean-up efforts precipitated extensive litigation in California to determine which parties were responsible for the clean-up costs, and to what extent. See United States v. Shell Oil Co., 841 F. Supp. 962 (C.D. Cal. 1993); Shell Oil Co. v. United States, 13 F. Supp. 2d 1018 (C.D. Cal. 1998); United States v. Shell Oil Co., 294 F.3d 1045 (9th Cir. 2002). When the California CERCLA litigation failed to produce a satisfactory outcome to Plaintiffs, they pursued a contract counterclaim arguing that, in the "Taxes" clause of each contract, the Government accepted full responsibility for all "charges" resulting from the production of avgas. The "Taxes" clause stated in part as follows:
Buyer shall pay in addition to the prices as established [in the price provisions of the contract], any new or additional taxes, fees, or charges, other than income, excess profits, or corporate franchise taxes, which Seller may be required by any municipal, state, or federal law in the United States, or any foreign country to pay by reason of the production, manufacture, sale or delivery of the commodities delivered hereunder.
Joint Appendix ("JA") 16-17, 41-42, 61-62, 84-85, 112, 132-33, 159, 183-84, 208-09, 231-32 ("Taxes" clause from the Government avgas contracts with each plaintiff company).
Following completion of the California CERCLA litigation, Plaintiffs commenced their action in this Court on February 24, 2006, and the case was assigned to Senior Judge Loren A. Smith. Based upon extensive discovery and stipulations of fact developed in the California litigation, the parties agreed, and the Court concurred, that the case could be decided without trial. After considering cross-motions for summary judgment on liability and damages, Judge Smith ruled in Plaintiffs' favor. Shell Oil Co. v. United States, 80 Fed. Cl. 411 (2008) (liability decision); Shell Oil Co. v. United States, 86 Fed. Cl. 470 (2009) (damages decision). On appeal, however, the Federal Circuit ruled that Judge Smith should have recused himself from this case under 28 U.S.C. § 455(b)(4) due to a stock ownership issue, and it vacated and remanded the case for reassignment to a different judge. Shell Oil Co. v. United States, 672 F.3d 1283 (Fed. Cir. 2012). On remand, Judge Wheeler received the case through reassignment.
In the remand proceedings, the parties again elected to file cross-motions for summary judgment, relying upon the discovery and stipulations of fact developed during the California litigation. Plaintiffs filed their motion for summary judgment on June 29, 2012, and Defendant filed its cross-motion for summary judgment on September 7, 2012. Additional response and reply briefs were filed on October 19, 2012 and November 16, 2012, and the parties submitted a Joint Appendix of relevant documents on November 20, 2012. The Court heard oral argument on December 18, 2012.
The amount at issue is $92,546,566.94, plus any additional interest and damages accruing since Plaintiffs filed their new motion for summary judgment in this Court. Of this amount, Plaintiffs' claims are allocated as follows: (a) Shell Oil Company - $54,213,778.91 (58.58 percent); (b) Union Oil Company of California - $17,528,319.78 (18.94 percent); (c) Atlantic Richfield Company - $17,528,319.78 (18.94 percent); and (d) Texaco, Inc. - $3,276,148.47 (3.54 percent).
The resolution of this dispute turns on the meaning and effect of the "Taxes" clause that existed in each of Plaintiffs' contracts. For reasons that will be explained, the Court finds that the "Taxes" clause deals only with taxes, and is not a broad indemnification clause promising that Plaintiffs will never have to pay for later-imposed liabilities such as CERCLA environmental clean-up costs. Even by inclusion of the word "charges," the "Taxes" clause cannot reasonably be interpreted as Plaintiffs would like. Moreover, the parties have stipulated that the avgas contracts in question were terminated in 1945, and that all issues relating to these contracts were settled in the late 1940s. JA 545, ¶ 609. There is nothing in the contracts to suggest that the United States would remain liable for any of the claimed costs after the contracts were terminated.
Major oil companies and the U.S. Government surely would know how to draft broad hold harmless indemnification clauses extending in perpetuity if that were their intent. The "Taxes" clause here does not accomplish that end. Words like "indemnify," "hold harmless," or any of their synonyms do not appear in the "Taxes" clause. Plaintiffs' best opportunity to obtain reimbursement of their clean-up costs was in the California CERCLA litigation, where the courts dealt directly with the proper allocation of such costs under the CERCLA statute. The "Taxes" clause in Plaintiffs' contracts does not trump the California courts' CERCLA result. Accordingly, the Court finds for the Government. Plaintiffs' motion for summary judgment is denied, and Defendant's cross-motion for summary judgment is granted.
During World War II, the U.S. Government procured large quantities of high-octane aviation gasoline ("avgas") to fuel its fleet of military aircraft. Because avgas was an essential war supply, the Government possessed the authority to compel its production from private oil companies, and even to seize refineries, had it deemed such steps necessary. See United States v. Shell Oil Co., 294 F.3d 1045, 1049-50 (9th Cir. 2002). However, the Government did not need to resort to these measures to acquire avgas. As a matter of practice the Government, acting through the Defense Supplies Corporation ("DSC"), obtained avgas almost exclusively through consensual contract agreements with private sector oil companies. Among these companies were the Plaintiffs (or their predecessors-in-interest) (collectively, the "Oil Companies").
The avgas contracts were "base price" supply contracts, providing that the Government would pay the Oil Companies a fixed price per gallon of avgas, but with certain cost adjustment mechanisms built in to account for such things as fluctuations in crude oil prices. One such cost adjustment clause, entitled "Taxes," lies at the center of the present controversy. The Oil Companies believe that the terms of the "Taxes" clause require the Government to indemnify them for environmental clean-up costs incurred decades after the contracts were terminated. The Government disagrees, contending that the "Taxes" clause was meant only to create a price adjustment mechanism in the event the Oil Companies incurred unforeseen tax liabilities by reason of their production of avgas.
Avgas consists of a blend of components, including alkylate. JA 383 (Stips. 8-9). During World War II, the standard method for producing alkylate consisted of mixing certain base components together in the presence of a catalyst, 98% sulfuric acid. Known as alkylation, this process yielded both alkylate and 89% spent alkylation acid. JA 383-84, 510-11 (Stips. 9, 14, 493-94). The alkylate became a component of the avgas blend. The spent alkylation acid proceeded into one of three general "streams" for reuse or disposal: (1) reuse in the acid treatment of additional avgas components; (2) reuse in the acid treatment of non-avgas products also manufactured by the Oil Companies, such as motor gasoline and kerosene; or (3) disposal. JA 511(Stip. 496), 636-37 (Gov't Liability Admis. ¶ 22). Whenever the spent alkylation acid was reused, the reuse process further diluted its acetic concentration, yielding a product of between 35% and 65% strength known as "acid sludge" that carried no further industrial utility. JA 511 (Stip. 496); JA 643 (Gov't Damages Admis. ¶ 7). At that...
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