San Diego Unified Port District v. General Dynamics Corporation et al

Filing 57

ORDER Regarding Plaintiff's Liability for One-Third of Investigation Costs at the Tow Basin Site (Doc. 51 ). Signed by Magistrate Judge William V. Gallo on 10/10/2013. (srm)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

SOUTHERN DISTRICT OF CALIFORNIA

10
11

SAN DIEGO UNIFIED PORT
DISTRICT,

12

Plaintiff,
13
14

v.

15

GENERAL DYNAMICS
CORPORATION, LOCKHEED
MARTIN CORPORATION,

16

Defendants.

17
18

)
)
)
)
)
)
)
)
)
)
)
)
)
)
)

Civil No.07-1955-GPC(WVG)
ORDER REGARDING
PLAINTIFF’S LIABILITY
FOR ONE-THIRD OF
INVESTIGATION COSTS
AT THE TOW BASIN SITE
(DOC. NO. 51)

19
20

On July 12, 2013, the Court ordered Plaintiff San

21

Diego Unified Port District (“Plaintiff” or “Port”) and

22

Defendants

23

Martin Corporation (“Defendants”) to file briefs regarding

24

Plaintiff’s liability for one-third of the investigation

25

costs at the Tow Basin Site (“Site”). On August 9, 2013,

26

Defendants filed their Opening Brief. On August 16, 2013,

27

Plaintiff filed its Opposition to Defendants’ Opening

28

Brief. On August 23, 2013, Defendants filed a Reply to

General

Dynamics

1

Corporation

and

Lockheed

07cv1955

1

Plaintiff’s Opposition. On September 9, 2013, the Court

2

held a hearing regarding this matter.

3

The Court, having reviewed the Moving, Opposition,

4

and Reply papers, and having heard oral argument, and GOOD

5

CAUSE APPEARING, HEREBY FINDS AND ORDERS as follows:

6

A. 1998 Cost Allocation Agreement

7

On January 9, 1998, the California Department of

8

Toxic Substances Control (“DTSC”) issued an Imminent Or

9

Substantial Endangerment Determination & Remedial Order

10

(“Order”) (Defendant’s Opening Brief, Exh. A). The Order

11

required the parties to investigate “the nature and full

12

extent of hazardous substance contamination of air, soil,

13

surface, water, and groundwater at the Site, including

14

offsite areas affected by the Site, as well as to perform

15

any remedial action necessary to address such contamina-

16

tion. (Defendant’s Opening Brief, Exh. A, §§ 5.1.1, 5.1.2,

17

5.2).

18

After

the

Order

was

issued,

in

July

1998,

the

19

parties entered into an Interim Settlement & Participation

20

Agreement (“1998 Agreement”) (Defendant’s Opening Brief,

21

Exh. B). In this Agreement, the parties agreed to cooper-

22

ate in the investigation and cleanup of the hazardous

23

substances at the Site and to split costs associated with

24

the Site investigation in equal one-third shares. (Defen-

25

dant’s Opening Brief, Exh. B, para. 2, 3, 6).

26

The parties agreed that if the Port’s portion of

27

costs exceeded $150,000, then prior approval of the Port

28

2

07cv1955

1

Commissioners

must

be

obtained.

2

(Defendant’s

Opening

Brief, Exh. B, paras. 2, 3)
The allocations set forth for cleanup were final and

3
4

are

not

5

further action by any party. The parties waived their

6

rights to a jury trial as to any dispute arising from the

7

allocation. (Defendant’s Opening Brief, Exh. B, para. 5).
The

8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23

subject

1998

to

appeal,

Agreement

arbitration

also

contains

or

the

any

other

following

clauses:
To facilitate payment of the investigative, removal and remediation costs identified
in this Agreement, the Parties agree that the
Contractor responsible for conducting the work
shall be required to send copies of its invoices to each party at least 45 days prior to
payment being due. Each party shall be responsible for the timely payment of its share
directly to the Contractor.
Each Party’s timely payment to the Contractor is an independent obligation. If any
Party(ies) fails/fail to pay its/their full
share or any portion thereof in a timely
manner, the other Party(ies) [the ‘Paying
Party(ies)’] shall make such payment in equal
share so that the Contractor is paid in full
within ninety days of the date of the original
invoice.
Any party that fails to pay its full share
in a timely manner will be in breach of this
agreement. The Paying Party(ies) shall have
the right to seek recovery of such payment,
interest, cost and attorney fees in a civil
action for reimbursement from the non-Paying
Party(ies) notwithstanding the provisions set
out in Paragraph 2 of Article 1 herein.1/
(Defendants’ Opening Brief, Exh. B, para. 21)(emphasis
added).

24
25
26
27
1/

28

Paragraph 2 of Article 1 refers to Defendants’ Opening Brief, Exh. B,
para. 2, in which the parties agreed to split the costs associated with the Site
investigation in equal one-third shares.

3

07cv1955

1

B. 2006 Interim Cost Sharing Agreement

2

After the Port filed suit against Defendants, and

3

after mediation, the parties entered into the 2006 Interim

4

Cost Sharing Agreement (Defendant’s Opening Brief, Exh. C)

5

wherein the parties agreed to each pay one-third of the

6

groundwater and sediment investigation costs, subject to

7

the Port’s seeking an agreement from its insurers that the

8

insurers will pay the Port’s one-third share of the costs.

9

If the insurers did not agree to pay the Port’s one-third

10

share, any party would have been able to withdraw from

11

making any further payments and the issue would be medi-

12

ated with a named mediator. The Port does not present any

13

evidence or argument that the insurers refused to pay its

14

one-third share.2/

15

On November 13, 2009, counsel for Defendant General

16

Dynamics sent a letter to the DTSC, the Regional Water

17

Quality Control Board (“Regional Board”), counsel for

18

Lockheed Martin, and counsel for the Port in anticipation

19

of the transfer of oversight of the Site from the DTSC to

20

the Regional Board. (Defendants’ Opening Brief, Exh. E).

21

The purpose of the letter was to ensure that all parties

22

understood that the transfer was “not intended to impact

23

(the July 1998) Agreement in any manner.” (Defendants’

24

Opening Brief, Exh. E). Counsel for General Dynamics

25

invited the parties to correct him if his understanding

26

was incorrect. There is no evidence in the record before

27
28

2/

The 1998 Cost Allocation Agreement and the 2006 Interim Cost Sharing
Agreement will be referred to as the “Agreements.”

4

07cv1955

1

the Court that any party, particularly the Port, disagreed

2

with this expectation.

4

C. Port’s Refusal to Fund Stressor Identification
Analysis (“SIA”)
In January 2010, the Regional Board took over as the

5

lead agency overseeing the Site. The transfer of the

6

investigation and remediation of the Site was agreed to by

7

all parties. The Regional Board requested the parties to

8

undertake additional sediment sampling at the Site in

9

accordance with the Water Quality Control Plan, adopted in

10

2009. Although the Port paid its share of costs of con-

11

ducting additional sampling in accordance with the Water

12

Quality

13

contribute any further funding for the SIA required by the

14

Water Quality Control Plan and Order.

3

Control

Plan,

the

Port

has

since

refused

to

D. Arguments

15

1. Port’s Alleged Conflict of Interest

16

a. Port’s Arguments

17
18

The Port argues that it has a conflict of interest

19

regarding funding the SIA because the SIA relates to an

20

allocation of liability - the cause of the harm. The Port

21

likens the SIA to a Court allocating cleanup responsibili-

22

ties

23

Compensation & Liability ACT (“CERCLA”).

under

the

Comprehensive

Environmental

Response,

24

The Port argues that the Regional Board points to

25

two stressors that are not related to toxic pollutants:

26

(1) physical alteration of the Site (i.e. impacts of

27

dredging) and (2) other pollutant-related stressors. As to

28

the first stressor, “physical alteration,” the Port, not
5

07cv1955

1

Defendants, may be arguably responsible for the Site’s

2

physical configuration. If the sole cause of the impair-

3

ment of the Site is the physical configuration of the Site

4

(which, the Port argues, is what Defendants seek to prove

5

by the SIA), then Defendants may avoid all liability.

6

However, the burden is on Defendants to show that they do

7

not have liability. The Port asserts that it should not

8

have to partially fund Defendants’ defense. As a result,

9

the Port contends that a conflict of interest exists that

10

prevents

11

consultant in the SIA. Therefore, the Port should not be

12

required to partially fund the SIA that might implicate

13

its liability, while supporting Defendants’ efforts to

14

avoid liability. (Port’s Opposition at 2-4).

15

The

it

from

Port

contributing

contends

to,

with

and

regard

using

to

the

a

joint

second

16

stressor, “other pollutant-related stressors,” also shows

17

that the SIA pertains to allocation of liability. The

18

Regional Board will focus on a “single discharger,” where

19

appropriate,

20

pollutant loading into the sediment.” If the Port’s storm

21

drain system is a source of “other pollutant-related

22

stressors, the Board could address the drainage system, at

23

great expense to the Port. Thus, the SIA could lead

24

directly to liability/allocation.

25

requiring

the

discharger

to

“reduce

the

b. Defendants’ Arguments

26

Defendants argue that the Port’s alleged conflict of

27

interest is speculative and was understood at the time the

28

Agreements were executed. The Port claims that it cannot
6

07cv1955

1

fund the SIA because a conflict exists to the extent that

2

the results may indicate that the Port is responsible for

3

the alleged impairment of the Site if the second phase of

4

the

5

contribute to the impairment more than other contaminants.

6

However, until the SIA is complete, and if the parties are

7

required to expend remedial costs, there is no conflict of

8

interest.

SIA

(if

needed)

shows

that

certain

contaminants

9

Further, Defendants argue that the type of conflict

10

to which the Port refers exists within all aspects of the

11

investigation, including those already funded by the Port.

12

Defendants assert that the investigation is to obtain data

13

to use to determine whether remediation is required, and

14

if so, by whom, to what extent, and at what allocated

15

costs. The SIA is no different from the investigation

16

already conducted in which the Port has contributed its

17

allocated share without any objection regarding a conflict

18

of interest.

19

Defendants also argue that the Port is contractually

20

liable for one-third of the investigation costs at the

21

Site. Defendants argue that there can be no dispute as to

22

the contractual language in the Agreements because the

23

language

24

interpretation.

is

clear

and

not

susceptible

to

the

Port’s

25

Defendants also contend that none of the parties is

26

voluntarily undertaking the SIA. They are doing so pursu-

27

ant to the Order. The Port previously supported the SIA as

28

7

07cv1955

1

documented in a Joint Case Management Conference Statement

2

signed by all parties. (Defendants’ Reply, Exh. B at 2).

3

Defendants also argue that the SIA is an investiga-

4

tion cost covered by the Agreements. The Agreements can

5

have no other interpretation but that the SIA required by

6

the Regional Board is investigative, not remedial. The SIA

7

is an analysis consisting of (1) confirmation of chemical

8

linkage and (2) identification of cause. The SIA is aimed

9

at

addressing

the

Site’s

conditions

for

purposes

of

10

creating an appropriate remedy. This statement is con-

11

firmed by the Regional Board’s statements which make clear

12

that the SIA is intended to distinguish between chemical

13

and physical causes, not allocate liability among the

14

parties. (Defendant’s Opening Brief, Exh. F).

15

Finally, Defendants argue that at the time the

16

Agreements were executed, the parties did not know the

17

exact amount, type, duration, or cost of the investiga-

18

tions the regulatory agency would require, but all parties

19

agreed to the equal one-third allocation.

20
21
22

2. Port’s Allegations That Regulatory Circumstances Have Changed, Making The Agreements
Inapplicable To This Dispute
a. Port’s Arguments

23

The Port argues that at the time the Agreements were

24

executed, the DTSC never identified the Port as a polluter

25

and it cited only four hazardous substances, all stemming

26

from Defendants’ operations. The Order did not mention

27

linking harm at the Site to “physical alteration,” or

28

8

07cv1955

1

“other

pollutant-related

stressors,”

other

2

than

toxic

contaminants. (Port’s Opposition at 5-6).

3

The Port argues that the Agreements were limited to

4

the DTSC’s Order, and to the Site only. At the time the

5

Agreements were executed, the DTSC was the lead agency

6

whose Order was the only Order expressly addressed in the

7

Agreements. (Port’s Opposition at 5-6).

8

In 2010, the Regional Board took over administration

9

of the Site and issued three new directives. The direc-

10

tives resulted in incongruent results, requiring further

11

analysis. (Port’s Opposition at 6). Despite the Port’s

12

objections, Defendants hired a consultant and submitted a

13

plan for further analysis to the Regional Board. Thus, the

14

Port and Defendants are not sure what path the Regional

15

Board will take in the future, given the new directives

16

and their results.

17

The Port contends that since the Agreements were

18

executed, the regulatory landscape has changed. At the

19

time of the Agreements, there was one agency (DTSC) and

20

one order (of the DTSC). Now, there is another regulatory

21

agency (Regional Board) and its orders. The Port does not

22

believe that the Agreements can be construed to apply to

23

the Regional Board’s new directives. (Port’s Opposition at

24

6-7).

25

b. Defendants’ Arguments

26

Defendants argue that the Port’s position that the

27

Agreements are limited to landside investigation overseen

28

by the DTSC and are not applicable to the sediment inves9

07cv1955

1

tigation overseen by the Regional Board is untenable.

2

There is no support for the Port’s assertion. The Agree-

3

ments pertain to investigations related to sediment; they

4

are not limited to landside investigations.

5

Defendants argue that the transfer of authority from

6

the DTSC to the Regional Board was agreed upon by the

7

parties. The parties agreed that the work to be performed

8

at the direction of the Regional Board would be deemed

9

consistent with, and in satisfaction of, the terms of the

10

Order. (Defendants’ Opening Brief, Exh. D, para. 2, Exh.

11

E). No party, including the Port, objected or expressed a

12

different understanding of the implications of the trans-

13

fer at the time it occurred. The Port should not be able

14

to do so now.

15
16

3.

Port’s Interpretation
Regard To Costs
a. Port’s Argument

of

Agreement

With

17

The Port argues that the 1998 Agreement states that

18

if the Port’s share of costs exceed $150,000, the prior

19

approval of the Port Commissioners must be first obtained.

20

The Agreement does not mandate the Port Commissioners’

21

approval. Since 2006, the Port’s investigative costs total

22

at least $186,243. This does not include investigative

23

costs for landside and groundwater investigations (which

24

were not part of the 1998 Agreement) from 1998 to 2006.

25

Assuming that the SIA is an investigative cost, the Port

26

Commissioners have never approved any additional joint

27

investigative expenditures. (Port’s Opposition at 4-5).

28

10

07cv1955

b. Defendants’ Argument

1
2

Defendants argue that the Port’s invocation of the

3

language in the 1998 Agreement regarding the Port Commis-

4

sioners’ approval for investigative costs over $150,000 is

5

disingenuous because the Port was silent on this matter,

6

which led Defendants to believe that costs over $150,000

7

were approved under the 1998 Agreement. At no time did the

8

Port

9

$150,000 and needed further approval of the Port Commis-

10

sioners to pay more than $150,000. Pursuant to the Agree-

11

ment, the time to have informed Defendants that the Port’s

12

costs were approaching $150,000 was when the costs were

13

approaching

14

$150,000.

ever

inform

Defendants

$150,000,

not

that

after

its

the

costs

costs

exceeded

exceeded

4. Port’s Arguments Regarding Specific Performance of the Agreements
a. Port’s Argument

15
16

The

17

Port

argues

that

Defendants

actually

seek

18

specific performance of the Agreements. But Defendants

19

cannot

20

breached the Agreements in a material way. In particular,

21

a

22

Parties. That person was required to convey only “agreed

23

to communications” to the lead agency, provide all parties

24

with

25

position to the lead agency. (Defendants’ Opening Brief,

26

Exh. B, para. H). The Port expressed its disagreement with

27

Defendants moving forward with the SIA and with Defen-

28

dants’ position regarding “toxicity” readings at the Site.

obtain

“Project

this

remedy

Coordinator”

comment

because

was

opportunities

11

to

and

be

they

have

designated

advocate

the

already

by

the

parties’

07cv1955

1

If Defendants disagreed with the Port’s position, Defen-

2

dants’ express remedy was to mediate the matter or to seek

3

the Court’s involvement if they deemed the Port to be in

4

material

5

para. 10). Instead, Defendants breached the Agreement by

6

hiring their own consultant to conduct the SIA, communi-

7

cating with the Regional Board without the Port’s input,

8

and without informing the Port of the outcome. (Port’s

9

Opposition at 8-9 and Exh. 7).

breach.

(Defendants’

Opening

Brief,

Exh.

B,

10

The Port proposes that Defendants pay for the SIA

11

now, and if the Court finds, after trial or Motion for

12

Summary Judgment, that Defendants are correct, they may

13

obtain

14

(Port’s Opposition at 9) (Defendants’ Opening Brief, Exh.

15

B, at 14, first full para.)

reimbursement,

noted

in

the

1998

Agreement

b. Defendants’ Argument

16
17

as

Defendants argue that they gave the Port every

18

opportunity

to

address

its

19

investigative costs and participate in the SIA, as re-

20

quired by the Agreements. Defendants invited the Port to

21

provide input in the SIA work proposal and the choice of

22

consultants for the work. Further, the Port has provided

23

input to the Regional Board concerning the process, and in

24

Case Management Conferences with the Court, at which the

25

parties discussed the SIA. The Port has been involved in

26

the SIA process throughout this case, except for paying

27

for it. The Port has worked with the Regional Board in

28

reviewing the SIA work plans and has advocated for a
12

refusal

to

contribute

to

07cv1955

1

costly analysis. (Defendants’ Opening Brief, Exh. F at 2).

2

When the Port continued to refuse to meet its cost-sharing

3

obligations, Defendants raised the issue with the Court.

4

No “material breach” of the Agreements limits the Court’s

5

authority to decide this issue.

6

E. Discussion

7

Defendants have presented the issue of the Port’s

8

liability for one-third of the costs of the SIA at the

9

Site as a discovery dispute. However, the Court does not

10

view this dispute as a discovery dispute. No discovery has

11

even begun in this action at the specific requests of all

12

parties. Instead, the 1998 Agreement specifically states

13

as follows:

14

1. Each party shall be responsible for the timely

15

payment of its one-third share directly to a contractor

16

that performs work at the Site;

17
18

2. Each party’s timely payment to a contractor that
performs work at the site is an independent obligation;

19

3. If any party fails to pay its full share or any

20

portion thereof of the costs to the contractor in a timely

21

manner, the other parties shall make payments to the

22

contractor in equal shares;

23
24

4. Any party that fails to pay its full share in a
timely manner is in breach of the agreement; and

25

5. The other parties to the Agreement have the right

26

to seek recovery of one-third of the payments made on

27

behalf of the non-paying party, including interest, costs,

28

and attorneys fees, in a civil action for reimbursement.
13

07cv1955

1

The Court views the 1998 Agreement as providing a

2

remedy for Defendants to compel the Port to pay its share

3

of the costs of the SIA. That remedy is a civil action in

4

which Defendants may seek recovery of payments, interest,

5

costs, and attorneys fees from the Port for its non-

6

payment of its share of the costs paid to a contractor

7

that performed work at the Site.

8

Such an action may seek specific performance of

9

certain terms of the 1998 Agreement, or may simply seek

10

reimbursement from the Port for its share of the costs

11

Defendants paid to the SIA contractor for work performed

12

at the Site. Further, the Port’s arguments that it has a

13

conflict of interest in paying its share of the costs of

14

the SIA, that changed regulatory circumstances make the

15

1998

16

Commissioners’ approval before paying its share of the

17

costs of the SIA, and that Defendants are not entitled to

18

specific performance of the Agreements because they have

19

breached other terms of the Agreements, can be presented

20

in a civil action that may be brought by Defendants

21

against the Port. At this time, such a civil action has

22

not been brought by Defendants against the Port. The Court

Agreement

inapplicable,

that

it

must

seek

Port

23
24
25
26
27
28

14

07cv1955

1

leaves the parties to seek the remedy to which they

2

specifically agreed.

3

IT IS SO ORDERED.

4
5

DATED:

October 10, 2013

6
7

Hon. William V. Gallo
U.S. Magistrate Judge

8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

15

07cv1955