Court Revives Oil Firms’ Claim Over WWII Toxic Cleanup in California

A divided U.S. appeals court on Monday revived efforts by oil companies to force the federal government to reimburse them for the cost to clean up a southern California site where they had dumped toxic sludge during World War Two.

By a 2-1 vote, the U.S. Court of Appeals for the Federal Circuit reversed the dismissal of claims by BP Plc, Chevron Corp. and Royal Dutch Shell Plc in a now 23-year-old case that their wartime contracts to produce gas to fuel military aircraft entitled them to reimbursement.

The appeals court returned the case to Judge Thomas Wheeler of the U.S. Court of Federal Claims for a damages trial, saying the amount of environmental harm from the contracts remains in dispute. The oil companies are seeking roughly $100 million.

“We’re very pleased with the court’s decision, recognizing the United States’ contractual obligation to reimburse the oil companies for costs arising from their fulfillment of these World War Two contracts,” said Michael Kirk, a partner at Cooper & Kirk representing the oil companies.

Allison Price, a U.S. Department of Justice spokeswoman, said the agency declined to comment.

The “acid sludge” was dumped at a site set up by former Shell engineer Eli McColl in Fullerton, California, about 30 miles (50 km) southeast of Los Angeles, and was a byproduct of efforts to produce high-octane aviation gas.

That site was later put on the U.S. Environmental Protection Agency’s Superfund list in 1983, and now houses a golf course.

In 2002, a federal appeals court in California rejected the oil companies’ bid to make the government pay for cleanup costs at the site under the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).

The companies’ breach of contract counterclaim was later sent to the Court of Federal Claims, and dismissed by Wheeler in February 2013.

Writing for the Federal Circuit majority, Circuit Judge Evan Wallach said it was wrong to conclude that cleanup costs were not among the “taxes, fees, or charges” that the government had promised to reimburse.

The United States “needed the oil companies’ cooperation to construct new production facilities to meet the extraordinary demand for avgas,” Wallach wrote. “The oil companies agreed to the avgas contracts’ low profits in return for the government’s assumption of certain risks outside of the oil companies’ control. The CERCLA charges in this case are one such risk.”

Circuit Judge Jimmie Reyna dissented, saying the majority turned the disputed clause into a “catch-all indemnification provision” that the “sophisticated” oil companies did not negotiate, and would have known not to negotiate.

The named plaintiffs include Shell; Atlantic Richfield Co, which is now part of BP; and Texaco Inc and Union Oil Co of California, which are now part of Chevron.

Exxon Mobil Corp, which said it had won favorable court rulings in similar cases over sites in Baytown, Texas, and Baton Rouge, Louisiana, filed a brief supporting the oil companies’ appeal.

The case is Shell Oil co et al v. U.S., U.S. Federal Circuit Court of Appeals, No. 2013-5051.

(Reporting by Jonathan Stempel in New York; Editing by Bernadette Baum and Lisa Shumaker)