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Cleanup Doesn’t Factor Into $90M Shell Deal

LOS ANGELES (CN) - The cleanup cost for a neighborhood built on land contaminated by petroleum waste is not part of a $90 million settlement between residents and Shell Oil, a California appeals court ruled.

Residents of the Carousel neighborhood of Carson City sued Shell Oil, Equilon Enterprises dba Shell Oil Products, and residential developer Barclay Hollander in 2009. Barclay Hollander is owned by multinational Dole Food Co.

Shell operated three crude oil storage tanks on the property, known then as the Kast Tank Farm, from the 1920s through the 1960s. Though it knew that at least one of the tanks was leaking toxic substances into the soil, Shell sold the property to Barclay in 1965, which intended to clean up the land and build a housing tract, according to the Second Appellate District's Dec. 1 ruling.

After the oil tanks were decommissioned, torn down and buried, the land was rezoned to commercial use and about 285 homes were built on the 50-acre site. Today, around 1,500 people call the neighborhood home.

In 2009, Shell discovered that carcinogenic chemicals, including benzene and methane, had leaked into the soil under the neighborhood. Exposure to these chemicals can cause lymphoma and melanoma.

Upon learning of the contamination, the California Water Quality Control Board ordered Shell to clean up the site and submit a remediation plan. The company complied in June 2014 with a plan that, among other things, requires it to excavate the land 5 to 10 feet beneath the houses to install a "vapor extraction and venting mechanism" and "institute comprehensive long-term monitoring." Shell estimates that the cleanup will cost $146 million.

The homeowners' complaint alleged 12 causes of action, including strict liability for ultra-hazardous activity, permanent trespass, continuing trespass, fraudulent concealment, permanent public nuisance and negligent misrepresentation. They sought remediation and money damages for property damage, medical expenses and emotional distress.

Shell settled with the residents in October 2014, in an agreement that requires the company to pay $90 million to the plaintiffs' law firm, Girardi Keese, in exchange for signed waivers from 90 percent of Carousel residents absolving Shell of liability. Former California Supreme Court Justice Edward Panelli was appointed special master to oversee allocation of the settlement fund based on each plaintiff's alleged injuries.

Barclay opposed Shell's motion for a good-faith settlement, arguing that the oil companies' $146 million cleanup costs should be included in the settlement, lest the developers be left with the bulk of the burden while letting Shell "walk away ... without paying a dime."

The trial court granted Shell's motion for a good-faith settlement in January this year, finding the $90 million settlement and assurances to abate the chemical leaks at the heart of the problem more than adequate.

The developers challenged the decision, claiming the good-faith settlement does not assign a dollar value to the cleanup plan to calculate the amount of offset due the non-settling parties for Shell's cost of remediation, or specify how it will allocate funds among the nearly 1,500 residents.

After the Second Appellate District denied that petition, the developers submitted a petition for review to the California Supreme Court, which granted it and sent the case back to the appellate court with an order to vacate its denial of mandate and issue an order to show cause.

On Tuesday, a three-judge panel of the Second Appellate District upheld the settlement agreement, finding that Shell's remediation plan was properly excluded from the $90 million settlement because the plan was already mandated by the water control board before the settlement was reached.

Because the plan was ordered "pursuant to the police powers of the state of California to protect the public health," costs related to Shell's preexisting obligation to clean up the site are separate from the amount paid in settlement, the appeals court ruled.

"Further ... there is no merit to developer defendants' contention that the settling parties' exclusion of the cost of the RAP [remediation plan] from the settlements was collusive and intended to minimize the amount that would be set off against the nonsettling parties' liability," Presiding Judge Lee Smalley Edmon wrote for the panel.

Though the trial court erred in including Shell's remediation with the $90 million settlement, to conclude that the payment was "within the ballpark" of Shell's liability, the error is harmless because the $90 million alone is well within that ballpark, the ruling states.

If the money were doled out evenly, each plaintiff would get around $60,000 to settle what amounts to a personal injury action against Shell in which causation would be hard to prove given the lack of disease clusters among the randomly selected test plaintiffs, Edmon wrote.

But case law does not require such individualized allocations to be made at the time of the good-faith determination. Precedent does, however, allow for allocation to be determined later. In this case, the amount of damages deemed noneconomic by a jury would be unavailable as offset to Barclay, the ruling states.

Following Barclay's logic would require 1,491 "mini-trials" to determine individual allocations, which would not only be "untenable," it would "severely impede good faith settlements in multi-plaintiff cases of this complexity," Edmon wrote.

He denied the developers' petition for writ of mandate and lifted the stay of proceedings previously ordered by the court.

Judge Ann Jones of Los Angeles Superior Court, sitting pro-tem by designation, and Judge Luis Lavin concurred.

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