Developers Must Show Mandatory Duty to Sue US for Shipyard Cleanup Fraud

A dilapidated sign announcing the redevelopment of the Hunters Point shipyard in San Francisco. (Courthouse News photo / Nicholas Iovino)

SAN FRANCISCO (CN) — To sue the government for billions of dollars, developers must show the U.S. Navy had a mandatory duty to prevent a contractor from falsifying soil samples as part of the $1 billion cleanup of a former shipyard turned mixed-use development, a federal judge said Thursday.

“We need to know what is discretionary and what is mandatory,” U.S. District Judge James Donato said during a virtual hearing Thursday.

Lennar Corporation, its subsidiary Five Point Holdings and affiliated companies sued the United States in February seeking over $1 billion in damages for its allegedly negligent handling of the cleanup of the Hunters Point Navy Shipyard in San Francisco.

The dispute stems from accusations that Navy contractor Tetra Tech EC, a wholly owned subsidiary of Tetra Tech, ordered workers to destroy post-clean-up soil samples that “had some of the highest radioactive readings” and replace them with samples from other areas of the site while avoiding “radioactive hot spots.”

The former Navy shipyard in the city’s Bayview neighborhood was home to top-secret nuclear tests from 1946 to 1969 and a place where ships returning from hydrogen bomb tests were decontaminated, both potential sources of radioactive waste.

In its motion to dismiss two lawsuits brought by the developers, the United States argued it is immune from liability for claims stemming from a misrepresentation, interference with contracts or “discretionary functions or duties” under the Federal Tort Claims Act.

On Thursday, Judge Donato indicated that the government will likely prevail on its motion to dismiss claims of negligent hiring because “there’s nothing more discretionary than choosing who you’re going to let do work for you.”

However, the judge concluded that more fact finding is needed to determine if the U.S. can be sued for negligent supervision. He ordered the government to let the developers interview U.S. Navy officials involved in the cleanup and to turn over documents that might reveal if the government had any “mandatory duties” related to the project.

“You’re going to be able to do some targeted discovery and figure out what you think is discretionary and what you think is mandatory,” Donato said.

Turning to another basis for government immunity, Justice Department lawyer Adam Bain argued that the court should dismiss the developers’ claims of interference with prospective economic advantage, based on the theory that the developers would have sold more homes if not for the Navy’s allegedly botched handling of the cleanup.

Bain insisted that the government’s immunity from “interference with contract” claims includes potential future contracts.

“It says contract rights, which is broad enough to include both existing contracts and future prospective contracts,” Bain said.

Judge Donato disagreed.

“They desperately wanted to have contract rights, but they couldn’t get them,” Donato said. “They wanted to have someone sign a purchase agreement, but they couldn’t. That’s why they sued under prospective economic advantage.”

Donato gave the developers until April 5 to file an amended complaint with new details about the U.S. Navy’s “mandatory duties.”

In August, the developers agreed to pay $6.3 million to settle a class action brought by current and former owners of 347 new homes in an area known as Parcel A in the former Hunters Point shipyard. Navy contractor Tetra Tech remains a defendant in that class action and has not agreed to settle.

The developers also have a separate lawsuit pending against Tetra Tech, which the contractor has asked the court to dismiss.

On Tuesday, Tetra Tech filed a federal lawsuit against the United States, arguing it lacked sufficient evidence to deem all the remediation and testing work it did at Hunters Point as unreliable.

Seven whistleblowers have accused Tetra Tech of falsifying soil tests that were supposed to verify the decontamination of part of a 400-acre site where more than 10,000 homes are slated to be built in one of the largest redevelopment projects in San Francisco history.

In 2018, the U.S. government opted to prosecute three whistleblower complaints against Tetra Tech. Last month, Donato said in court that he would reject Tetra Tech’s bid to dismiss those lawsuits on statute of limitations grounds.

After whistleblowers came forward with accusations that Tetra Tech falsified reports during a six-year cleanup project, the Environmental Protection Agency released an audit in December 2017 finding that 90% to 97% of soil samples in two areas of the site were potentially compromised or purposefully falsified.

Tetra Tech was paid more than $250 million in contracts for its work on the Hunters Point project from 2006 to 2012, according to the U.S. Navy.

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