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Judge likely to approve settlement over shipyard cleanup fraud

Navy contractor Tetra Tech says homebuilders should cover a larger share of liability for environmental fraud at a former shipyard turned mixed-use development because the developers had a duty to inform homebuyers of problems.

SAN FRANCISCO (CN) — A federal judge signaled Thursday he will likely reject a U.S. Navy contractor’s bid to scuttle a multimillion-dollar settlement between developers and buyers of more than 340 homes on the site of radioactivity cleanup fraud at a former shipyard.

U.S. Navy contractor Tetra Tech opposes the homebuilders’ request to find that a $6.3 million settlement fully resolves claims that developers failed to warn home buyers about revelations surrounding the $1 billion cleanup of the Hunters Point shipyard, the site of one of the largest redevelopment projects in San Francisco history.

The dispute stems from accusations that Navy contractor Tetra Tech EC, a wholly owned subsidiary of Tetra Tech Inc., ordered workers to destroy post-cleanup 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 radiation experiments from 1946 to 1969 and a place where ships returning from hydrogen bomb tests were decontaminated, both potential sources of radioactive waste.

Lennar Corporation, Five Point Holdings and their affiliated companies agreed in August 2020 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. Tetra Tech remains a defendant in that class action and has not agreed to settle.

During a hearing on a motion for final settlement approval Thursday, a Tetra Tech lawyer argued the settlement is patently unfair because it leaves his client on the hook for a larger share of the total liability, which could reach up to $48 million.

Tetra Tech argues the homebuilders are the primary wrongdoers in the case because they had a duty to inform homebuyers about allegations of cleanup misconduct that could affect the value of their investments.

The homes lost up to hundreds of thousands of dollars in value, according to the homebuyers’ lawsuit, after two former Tetra Tech supervisors' plea agreements were unsealed in May 2018. The Tetra Tech workers admitted to fudging soil samples to hide potential radioactivity on part of a 400-acre site where more than 10,000 homes are slated to be built.

Tetra Tech claims the developers should be responsible for a larger share of liability because they knew about problems with the site before the plea agreements were made public in 2018.

“There is evidence that the homebuilders knew,” Tetra Tech lawyer Chris Rheinheimer said in court Thursday.

A 2014 report that was provided to the developers should have put them on notice about how the cleanup was handled because in that report Tetra Tech recommended redoing samples and soil testing in response to allegations of misconduct, Rheinheimer said.

Representing Lennar and the homebuilder defendants, attorney Geoffrey Yost argued that report suggested the site was still safe because Tetra Tech vowed to take corrective actions to ensure the area was free of radioactive contamination.

U.S. District Judge James Donato suggested the 2014 document was not sufficient to put the homebuilders on notice about serious problems with the cleanup project.

“It was not confessing danger or error,” Donato said. “Quite the opposite. It was trying to assure the world.”

The unsealing of guilty pleas provided more concrete evidence of impropriety in the cleanup process, Donato said. After those documents were made public, the homebuilders disclosed the information to homebuyers.

“To me there’s no doubt the homebuilders did the right thing at that point,” Donato said.

Anne Marie Murphy, an attorney representing homebuyers, said her clients support the deal. No homebuyers asked to opt out of the settlement, she told the judge.

“This settlement is getting money into the hands of homeowners,” Murphy said. “We can see that this could take several more years so this is a settlement that is supported by the homeowners. The lack of opts-outs and objections is an indication that it’s fair.”

Donato indicated he will likely endorse the $6.3 million deal, but he vowed to give it some more thought.

“I’m leaning toward approval, but I’ll think a little more and get this out when I can,” Donato said.

Seven whistleblowers have accused Tetra Tech of falsifying soil tests that were supposed to verify the decontamination of part of the 400-acre site where the more than 10,000 homes are slated to be built.

In 2018, the U.S. government opted to prosecute three whistleblower complaints against Tetra Tech. Last year, Donato said in court that he would reject Tetra Tech’s bid to dismiss the whistleblowers' claims in those actions as time-barred.

After whistleblowers came forward with accusations of falsified reports during the six-year cleanup project, the EPA 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.

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

Lennar and its affiliates have separate lawsuits pending against Tetra Tech and the U.S. Navy, claiming fraud and negligence in the $1 billion cleanup project. Those are just a few of the dozens of lawsuits pending in a complicated web of litigation over what some have called the biggest case of environmental fraud in U.S. history.

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