Shell Oil Co. v. United States, Consl. Ct. No. 06-141 C

• Decision Date: 30 October 2015
• Docket Number: Consl. Ct. No. 06-141 C
• Parties: SHELL OIL COMPANY, ATLANTIC RICHFIELD COMPANY, TEXACO INC., and UNION OIL COMPANY OF CALIFORNIA, Plaintiffs, v. THE UNITED STATES, Defendant.
• Court: U.S. Claims Court

SHELL OIL COMPANY, ATLANTIC RICHFIELD COMPANY, TEXACO INC.,and UNION OIL COMPANY OF CALIFORNIA, Plaintiffs, v. THE UNITED STATES, Defendant.

Consl. Ct. No. 06-141 C

United States Court of Federal Claims

October 30, 2015

28 U.S.C. § 1491(b)(1) (Tucker Act jurisdiction over claims against the United States for breach of contract);

28 U.S.C. § 2501 (Tucker Act statute of limitations);

28 U.S.C. § 2508 (Jurisdiction over set off, counterclaims, claims for damages, or demand against plaintiff);

28 U.S.C. § 2514 (Special Plea In Fraud);

41 U.S.C. § 113(a), Contract Settlement Act of 1944, (repealed and replaced by Pub. L. 111-350, 124 Stat. 3677 (2011));

42 U. S. C. § 9601 et seq., (Comprehensive Environmental Response, Compensation, and Liability Act);

Rules of the United States Court of Federal Claims ("RCFC"), RCFC 8(c) (Affirmative defenses), RCFC 15(a)(2) (Amended pleadings).

Michael William Kirk, Cooper & Kirk, PLLC, Washington, D. C., Counsel for Plaintiffs.

Stephen Carl Tosini, United States Department of Justice, Civil Division, Washington, D.C., Counsel for the Government.

MEMORANDUM OPINION AND ORDER REGARDING PLAINTIFFS' MOTIONS FOR PARTIAL SUMMARY JUDGMENT OR A PROTECTIVE ORDER, THE GOVERNMENT'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT, AND MOTION TO AMEND ANSWER TO ASSERT COUNTERCLAIMS

BRADEN, Judge.

On April 28, 2014, the United States Court of Appeals for the Federal Circuit held in this case that defendant (the "Government") was liable for breach of a production contract entered into during World War II and remanded the case for a determination of damages. See Shell Oil Co. v. United States, 751 F.3d 1282, 1303 (Fed. Cir. 2014). During post-remand discovery allowing the Government to finalize preparation for a February 2016 evidentiary hearing on damages, a dispute arose about the discovery of Plaintiffs' insurance policies and settlements reached in environmental liability coverage litigation in other judicial forums many years ago.

Before the court resolves the four pending motions concerning this discovery dispute, a review of this case, initially filed 24 years ago in the United States District Court for the Central District of California ("California District Court"), is required.

I. RELEVANT FACTUAL BACKGROUND AND PROCEDURAL HISTORY.¹

A. Relevant Factual Background.

In 1942 and 1943, during World War II, the Government entered into contracts with Shell Oil Company ("Shell"), Atlantic Richfield Company ("ARCO"), Texaco, Inc. ("Texaco"), and Union Oil Company of California ("Union Oil") (collectively, "the Oil Companies") to produce high octane aviation gasoline to fuel military aircraft (the "Avgas Contracts"). See Shell IX, 751 F.3d at 1284-85. The production of this type of gasoline, resulted in waste products such as spent alkylation acid and acid sludge. Id. The Oil Companies disposed of this toxic waste through a separate arrangement with Mr. Eli McColl, a former Shell engineer, who dumped the waste at a site in Fullerton, California (known as "the McColl site"). Id.

B. Proceedings Before The United States District Court For The Central District Of California.

On February 1, 1991, the Government and the State of California brought an action against the Oil Companies in the California District Court, pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9607(a) ("CERCLA"), to recover cleanupcosts at the McColl site. See Shell I, 841 F. Supp. at 975. In that case, the Oil Companies filed counterclaims against the Government, including a claim for breach of contract. Id. at 974-75.

On September 28, 1993, the California District Court determined that the Oil Companies were liable under CERCLA as "arrangers," under 42 U.S.C. § 9607(a)(3). Id. at 968-70 (holding "any person [as liable] who [by contract, agreement, or otherwise] arranged for disposal or treatment . . . of hazardous substances owned or possessed by such person, by any other party or entity, at any facility or incineration vessel owned or operated by another party or entity and containing such hazardous substances" (quoting 42 U.S.C. § 9607)) (emphasis added). The California District Court then bifurcated a determination of the costs of recovery and ruling on the Oil Companies' counterclaims. Id. at 975-76.

On December 12, 1994, the California District Court entered a Partial Consent Decree as to the recovery amount due. JA 345-77. The Oil Companies agreed to pay $13,248,000 to the United States Environmental Protection Agency and $4,752,000 to the California Department of Toxic Substances Control for "past response costs." The parties acknowledged that "the amounts paid under this Decree are less than [the Government's] current claim." JA 353. The Oil Companies reserved their rights to appeal any final judgment and independently pursue counterclaims. JA 360 ("[A]ll actions and orders of the Court are appealable as would otherwise be provided by law[.]"); see also JA 361 ("Settling Defendants reserve their rights to pursue the claims set forth in their current counterclaims[.]").

On August 11, 1998, the California District Court issued a Final Opinion regarding cost recovery. See Shell II, 13 F. Supp. 2d at 1019-30. The Government did not contest that it was liable for 100% of the benzol waste, i.e., roughly 5.5% of the total waste at the McColl site. Id. at 1023. As to non-benzol waste, it was determined that both spent alkylation acid and acid sludge were "attributable to the avgas program." Id. at 1024. The parties stipulated that 100% of the spent alkylation acid at the McColl site, or 12% of the total waste, was "attributable to the avgas program." Id. at 1024-25. Because 100% of the non-benzol waste was "attributable to the avgas program" and the California District Court found that "[th]e Government should bear 100 percent responsibility for waste attributable to the avgas program," the Government was found to be liable for 100% of the non-benzol waste. Id. at 1024-27.

The following Table shows the final determination of the California District Court as to the apportionment of liability for all wastes at the McColl site:

Type of waste

% of total waste at

McColl site

% of waste

attributable to

Government

% of waste

attributable to Oil

Companies

Benzol waste

5.5

100

0

Acid sludge

5.5

100

0

Non-benzol waste

94.5

100

0

Spent alkylation acid

12

100

0

Acid sludge from

treatment of avgas

products

82.5

100

0

Acid sludge from

treatment of non-

avgas products

0

0

0

See Shell II, 13 F. Supp. 2d at 1024-30.

On October 12, 1999, the California District Court entered a Final Judgment that ordered the Government to pay the Oil Companies $64,219,514.46, pending appeal. See Final J. Order App. at 1-2, United States v. Shell Oil Co., No. 91-0589 (C.D. Cal. Oct. 12, 1999); see also JA 610-11 (same).

C. Proceedings Before The United States Court Of Appeals For The Ninth Circuit.

On February 11, 2002, the United States Court of Appeals for the Ninth Circuit overruled the California District Court's determination that the Government was an "arranger." See Shell III, 281 F.3d at 815 ("We reverse the holding of the district court that the [Government] is liable for the 'non-benzol' waste cleanup costs as an 'arranger' under § 9607(a)(3). Because the [Government] is not liable as an 'arranger,' the question of allocation of liability between the [Government] and the Oil Companies under § 9613(f)(1) is moot.").

On March 28, 2002, both the Oil Companies and the Government filed petitions for rehearing. See Shell IV, 294 F.3d at 1048-49. On June 28, 2002, the United States Court of Appeals for the Ninth Circuit denied both parties' petitions and withdrew the February 11, 2002 Opinion:

We reverse the holding of the district court that the [Government] is liable for the non-benzol waste cleanup costs as an arranger under § 9607(a)(3). Because the [the Government] is not liable as an arranger, the question of allocation of liability for the non-benzol waste between the [Government] and the Oil Companies under § 9613(f)(1) is moot. . . . We affirm the holding of the district court that 100% of the cleanup costs for the benzol waste should be allocated to the [Government].

Id. at 1048-49.²

D. Remand Proceedings In The United States District Court For The Central District Of California.

In August 2003, the Government and the Oil Companies stipulated that:

[T]he Oil Companies are legally responsible under CERCLA for 93.75% of the response costs incurred by the [Government] and the State in relation to the McColl site. With respect to the costs previously resolved pursuant to the 1994 Consent Decree, the [Government] is responsible under CERCLA for reimbursing the Oil Companies for the [Government's] 6.25% share of the costs paid by the Oil Companies to the State pursuant to the 1994 Consent Decree.

* * *

The remaining claims in this case consist of (1) the [Government's] claim under CERCLA for environmental response costs incurred generally between July 1, 1990 and June 30, 2012, plus related prejudgment interest, in an amount that the [Government] alleges totals approximately $43 million and (2) the State's claim under CERCLA for environmental response costs incurred generally between October 1990 and . . . June 30, 2013, plus related prejudgment interest, in an amount that the State alleges totals approximately $5.7 to $6 million. As noted above, the State has settled with the [Government] for 6.25 percent of the State's claim for costs incurred between October 1990 through June 2011.

Joint Status Report at 4-5, 7-8, United States v. Shell Oil Co., No. 91-0589 (C.D. Cal. Dec. 6, 2013).

On July 16, 2004, the Government filed a Motion To Dismiss the Oil Companies' breach of contract counterclaims for lack of subject-matter jurisdiction. See Gov't Mot. Dismiss, United States v. Shell Oil Co., No. 91-0589 (C.D. Cal. July 16, 2004). On December 14, 2004, the California District Court granted the Government's July...