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USA can’t dodge lawsuits over shipyard cleanup fraud

Real estate developers claim careless supervision in the $1 billion cleanup of a former Navy shipyard has led to costly delays in one of the largest redevelopment projects in San Francisco history.

SAN FRANCISCO (CN) — U.S. Justice Department lawyers “utterly misconstrued the law” in their failed attempt to vanquish two lawsuits seeking billions in damages over the allegedly botched cleanup of a former Navy shipyard, a federal judge concluded Wednesday.

Real estate developers Lennar, Five Point Holdings and their subsidiaries sued the federal government in 2020 claiming it shirked its duty to properly supervise a Navy contractor accused of falsifying soil tests in the $1 billion cleanup of the Hunters Point Shipyard in San Francisco.

The dispute stems from accusations that Navy contractor Tetra Tech EC, a wholly owned subsidiary of Tetra Tech Inc., ordered workers to destroy post-clean-up soil samples with “some of the highest radioactive readings,” replace them with samples from cleaner areas and adjust scanners to limit the detection of radiation in soil leaving the site.

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.

The developers’ lawsuits claim the Navy’s careless supervision of the cleanup “allowed the fraud perpetrated by Tetra Tech to persist for years unchecked, despite numerous red flags,” and has led to major delays in one of the largest redevelopment projects in San Francisco history. The city approved moving forward with plans to build 10,000 homes on the 400-acre site in 2018, but land transfers have been delayed until at least 2024, according to the complaints.

At a previous court hearing, U.S. District Judge James Donato told developers that to advance their lawsuits they would need to show the Navy had a “mandatory duty” to prevent alleged misconduct. That’s based on a federal law that makes government officials immune from liability for decisions flowing from a discretionary rather than mandatory duty. Congress passed the law to prevent the courts from “second-guessing” executive and legislative policy decisions, according to the Supreme Court’s 1984 opinion in United States v. S.A. Empresa de Viacao Aerea Rio Grandense.

In a 7-page ruling issued Wednesday, Donato faulted Uncle Sam’s lawyers for offering a flawed interpretation of that law in their motions to dismiss the developers’ complaints.

The attorneys, Donato wrote, failed to understand or acknowledge that the government bears the onus of proving claims against it are based on “discretionary functions” and not mandatory ones.

“Although it could not be clearer that the United States has the burden of establishing that the exception applies, its arguments for immunity are premised on the erroneous belief that plaintiffs had the burden of establishing that the government did not have discretion,” Donato wrote.

Donato stated that as new facts develop, the government may establish down the road that is shielded from the developers’ claims, but, he wrote, “at the present time, the government has failed to show that dismissal is warranted.”

The developers’ lawsuits against the United States are just two cases in a tangled web of litigation filed over alleged misconduct in the $1 billion shipyard cleanup. Homeowners have sued the developers. Developers have sued Tetra Tech and Tetra Tech has sued the U.S. Navy.

Two former Tetra Tech supervisors who oversaw post-cleanup soil testing at Hunters Point pleaded guilty in 2018 to fabricating records and ordering workers to falsify soil samples. Each was sentenced to eight months in prison in 2018.

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

In 2018, the U.S. government opted to prosecute three whistleblower complaints against Tetra Tech. In 2020, Donato rejected Tetra Tech’s bid to dismiss whistleblowers' claims in those actions as time-barred.

After whistleblowers came forward with accusations of misconduct 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.

Five Point attorney Matt Wickersham and the U.S. Department of Justice declined to comment on the ruling Wednesday.

The U.S. Navy, Lennar and its attorney Daniel Petrocelli did not immediately return emails and phone calls requesting comment Wednesday.

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