In Re: Methyl Tertiary Butyl Ether ("MTBE") Products Liability Litigation

Filing 4322

TRANSCRIPT of Proceedings re: Conference held on 3/11/2011 before Judge Shira A. Scheindlin. Court Reporter/Transcriber: Ann Hairston, [phone]. Transcript may be viewed at the court public terminal or purchased through the Court Reporter/Transcriber before the deadline for Release of Transcript Restriction. After that date it may be obtained through PACER. Redaction Request due 1/1/2016. Redacted Transcript Deadline set for 1/11/2016. Release of Transcript Restriction set for 3/10/2016.(Siwik, Christine)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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ORANGE COUNTRY WATER DISTRICT,

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Plaintiff,

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v.
UNOCAL, et al.,

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04 CV 4968(SAS)

Defendants.
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New York, N.Y.
March 11, 2011
3:30 p.m.

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Before:
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HON. SHIRA A. SCHEINDLIN
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District Judge
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APPEARANCES (Via Telephone)
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MILLER, AXLINE & SAWYER
Attorneys for Plaintiff
BY: DUANE C. MILLER

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STRASBURGER & PRICE, LLP
Attorneys for Defendant 7-Eleven
BY: MICHAEL WALSH
COURTNEY KIEFFER

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EIMER STAHL KLEVORN & SOLBERG LLP
Attorneys for Defendant CITGO
BY: NATHAN P. EIMER
PAMELA R. HANEBUTT

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SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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(Case called)

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THE COURT:

I have a court reporter, so if you speak,

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would you state your name first before you speak because we

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won't know who is speaking otherwise.

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I have this motion before me about the good faith

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settlement of the 7-Eleven defendant in the Orange County Water

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District case and it is opposed by CITGO.

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find a little more about CITGO's opposition.

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entirely clear to me.

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And I am trying to
That is not

The problem that CITGO seems to raise is that the

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settlement seems to be based solely on 7-Eleven's role, so to

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speak, as a retailer, owning, running retail stores.

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even says that the $1.7 million settlement is broken down as

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follows.

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There are two 7-Eleven stores against whom the county
is currently asserting a claim, and that is worth $725,000.

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And it

There are six stores with releases that have obtained
regulatory closure, and that is worth 575,000.

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And there are seven stores with no reported releases,

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although MTBE was on the market at the time, and that is

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335,000.

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There are four stores that didn't sell any gasoline --

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I'm sorry -- that discontinued selling gasoline prior to 1986,

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so that is 20,000.

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And there is one store where 7-Eleven never sold
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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gasoline, but is remediating the presence of MTBE anyway.

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That

is $10,000.

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It seems accurate what CITGO is saying that the entire

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settlement figure is based on 7-Eleven's roles, so to speak, as

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an owner or manager of retail stores.

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be saying is that 7-Eleven also was a refiner or distributor.

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According to CITGO, 7-Eleven owned all or part of CITGO during

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most of the relevant time period, even made the decision to

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require the blending of MTBE into gasoline and to build an MTBE

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But what CITGO seems to

unit, etc.
So I wasn't sure that I was done with my summary so
just one more second.

So let me think about this last thought.

Ms. Hanebutt ends her reply brief by saying that

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plaintiff's argument now is that CITGO's liability is greater

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than 7-Eleven's because of CITGO's role as a distributor and

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failure to warn.

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settlement is solely in one capacity, that of retailer, and

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doesn't seem to take account of 7-Eleven's role as a

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refiner-distributor.

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would like to hear from the parties.

And all of that can't be ripe because this

So I am a little confused about this and

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MR. EIMER:

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I just thought the first place to start is to maybe

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This is Nate Eimer, on behalf of CITGO.

clarify CITGO's position so that we are all on the same page.
I think there are probably three components to our
concern at this point.

The first is, I would think that in

SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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evaluating the fairness of settlement, the Court would need to

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effectively have a fraction and the enumerator would be the

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amount that 7-Eleven is paying.

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THE COURT:

Which I do know.

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MR. EIMER:

Which you do know.

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And the denominator would be the some rough estimate

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of the potential exposure for all the defendants, which we

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don't know.

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THE COURT:

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MR. AXLINE:

Is that right, Mr. Axline, you don't know?
No.

That is not correct, your Honor.

We

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have an admittedly wide range of potential damages, but the

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declaration that we submitted with our response, the costs that

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are associated with remediating MTBE that has traveled up-site

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at 7-Eleven stations, and those costs range from the relatively

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minimal cost of putting in a single CPT unit to determine

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whether in fact the MTBE has traveled off-site to putting in

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actual off-site remediation systems themselves which may cost

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as much as $1 million.

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THE COURT:

I didn't understand that to be Mr. Eimer's

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idea of the denominator.

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denominator would be the rough estimate of the total exposure

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in the case.

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MR. EIMER:

I thought he said that the

To which CITGO and 7-Eleven and anyone

else is.
The way I view it, your Honor, is that the Orange
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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County Water District was maybe claiming damages broader than

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just whatever mediation or monitoring is necessary, damage to

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their perfunctory interest in the aquifer.

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idea what that is.

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If so, we have no

If all that is being claimed against all of the

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7-Eleven related parties -- and I would say that would be

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CITGO, perhaps, and the people who supply gasoline to CITGO

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because CITGO is only the intermediary here, and that would be

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Tower and whoever Tower bought it from.

If all of those

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parties collectively are all responsible, I think, the range is

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10,000 to a couple of million dollars.

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maximum of the denominator for all of these parties, then

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that's fine and then I understand that issue.

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think that's what the Orange County Water District is going to

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be saying.

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THE COURT:

And if that is the

But I do not

First of all, Mr. Eimer, you didn't say

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your name, so the court reporter lost a bit in the beginning

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because she didn't know who was speaking.

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So I remind everybody to please say their name.

I

knew it, but she didn't so it was hard to correct it.
Listening to what you say, Mr. Axline, it is still not

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clear to me what this denominator should be.

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rough estimate of all of the exposure in this entire vast

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Orange County Water case or is it just the total of the portion

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of the case in which CITGO might conceivably have any
SOUTHERN DISTRICT REPORTERS, P.C.

Is it the total

[phone]

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liability?

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MR. AXLINE:

It is the latter, your Honor.

It is the

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7-Eleven sites.

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treated independently under your statute of limitations ruling.

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You analyze each site independently.

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7-Eleven.

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in the case.

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As your Honor may recall, the sites are

We are settling with

Those are the only sites where CITGO is implicated

THE COURT:

OK.

That is helpful.

If those are the

only sites that CITGO is implicated in what is, again, the

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figure, the rough estimate of the total exposure with respect

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to those sites only?

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MR. AXLINE:

It is the estimate that I gave you.

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THE COURT:

Mr. Axline, just say the number again.

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What is it?

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MR. AXLINE:

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THE COURT:

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MR. AXLINE:

It is a range, your Honor.
What is -It ranges from a low of a single CPT

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which would be 17,000 at a site up to as much as 5 million at a

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site where a lot of MTBE --

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THE COURT:

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that.

That's ridiculous.

I cannot deal with

5 million a site times how many sites?
MR. AXLINE:

There are only two sites where there is a

major release and that -THE COURT:

Mr. Axline, you are not making this easy.

I don't care about major or minor.
SOUTHERN DISTRICT REPORTERS, P.C.

I am trying to get the
[phone]

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denominator.

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How many sites could CITGO be possibly liable for

in this case?

How many sites?

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MR. AXLINE:

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THE COURT:

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Two.
What is the maximum CITGO could be liable

for?

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MR. AXLINE:

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THE COURT:

22.
Very good.

With those 22, should I

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multiply 22 times 5 million as the denominator?

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outside maximum exposure?

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MR. AXLINE:

No.

Is that their

You should multiply two sites by 5

million.

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THE COURT:

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MR. AXLINE:

That is two sites by 5 million?
Then you should multiply 6 sites by

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17,000, with the understanding that this is just a rough

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approximation.

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THE COURT:

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That is 120,000.

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I understand it, but I have to do it too.
Go ahead.

And that is at 8 sites

out of 22?

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MR. AXLINE:

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And then -- let's see -- actually, your Honor, that

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THE COURT:

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MR. AXLINE:

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I am trying to find it.

should be 7 sites that are multiplied by 17,000.

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Yes.

That's OK.
And then there are 7 sites that should be

multiplied by 200,000.
THE COURT:

1.4 million.

SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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Go ahead.

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MR. AXLINE:

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I still have six sites to go.
And those six sites should be multiplied

by 500,000.

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THE COURT:

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So, roughly, the denominator is 14 and a half to 15

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And that is 3 million.

million.

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MR. AXLINE:

And that's within potential range.

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THE COURT:

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Now, Mr. Eimer, we have got that far.

I understand.

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numerator is 1.7 million.

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range of up to 15 million.

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We now know the

The denominator is, let's say, a

Mr. Eimer?

Where does that leave us,

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MR. EIMER:

Nate Eimer.

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It leaves me a little bit confused, I guess, because,

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first of all, I don't know where all of these sites come from

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in terms of exposure for CITGO in this case, as your Honor

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asked the question.

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THE COURT:

Because they are all 7-Eleven sites.

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That's all.

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Orange County Water District case, that is the maximum number

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of sites in which they seek to hold CITGO responsible.

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not hard, and you asked for an numerator and denominator, you

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now have one.

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He is saying, for the 22 7-Eleven sites in the

That is

It is 1.7 over 15.

MR. EIMER:

It is only confusing in the sense that

there are no 7-Eleven focus sites in the Orange County Water
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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District case, and only two sites have been reported at all as

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being potential sites in the case.

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THE COURT:

I'm sorry.

I don't understand.

This is a

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settlement.

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potential exposure in the Orange County Water District case.

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Obviously, they took in all of the 7-Eleven sites, whether they

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are focus sites or not.

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to buy peace in a litigation where it is a named defendant.

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has a right to do that.

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So they are settling with 7-Eleven for all its

What does it matter?

7-Eleven wants
It

My only role is to assess whether it is a good faith

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settlement.

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without being able to pursue 7-Eleven for contribution or

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indemnity.

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You have challenged that because you fear that,

This is an unfair position and I am trying to

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understand why.

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somewhere, but you are raising things I think are irrelevant.

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How many focus sites, not focus sites -- doesn't matter --

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7-Eleven is settling the whole case against them.

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I thought that we were trying to get

MR. EIMER:

Right.

But 20 of the 22 sites are not in

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the case, according to what Orange County Water District

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reported to the Court.

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report the sites that are in the case, whether they are focus

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sites or not.

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THE COURT:

The Court ordered the plaintiffs to

So I can only turn back to Mr. Axline and

say, why are you using 22 sites instead of 2?
SOUTHERN DISTRICT REPORTERS, P.C.

Are the other 20
[phone]

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sites in this case?

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MR. AXLINE:

They are sites that 7-Eleven is concerned

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about liability for and asked to settle.

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the Orange County Water District's service area and, yes, I

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would say they are within the case.

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THE COURT:

So they are within

7-Eleven may be concerned about them, but

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are you suing CITGO and seeking recovery from them with respect

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to these 20 sites?

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or not.

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release.

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in this case with respect to 2 sites or 22 sites?

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answer to that.

Either these other 20 sites are in the case

I understand that 7-Eleven wanted to buy a broad
That's fine.

But are you seeking damages from CITGO
You know the

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MR. WALSH:

Your Honor, this is Mike Walsh.

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I do ask to address this issue after Mr. Axline.

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THE COURT:

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Right now I am talking to Mr. Axline.

All right.
Are you

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pursuing CITGO for 22 sites in this case or for 2 sites in this

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case?

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MR. AXLINE:

Mr. Eimer is correct that you asked us to

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identify the sites that were in the case in the sense that they

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were ripe, your Honor, and that is an important distinction.

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THE COURT:

So at this time you have causes of action,

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so to speak, against CITGO for two sites.

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million exposure sites?

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MR. AXLINE:

Are those the two $5

Yes.

SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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THE COURT:
million.

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So then the denominator would change to 10

It would be 1.7 over 10 million.
Now, assuming that's the case, Mr. Eimer, that that is

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all that he is pursuing you for now, meaning, if you want to

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sit down and negotiate a settlement like 7-Eleven did, you also

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may want a release as to 22, and that is up to you, but in the

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lawsuit on the table are two sites with a maximum exposure of

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10 million, so it is 1.7 over 10 million.

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Now what, Mr. Eimer?

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MR. EIMER:

Now I understand that, and that's very

clear now.

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The second point is that they have given no basis, I

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believe, for the allocation of their $1.7 million among the 22

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sites.

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THE COURT:

What do you mean?

I read it out to you at

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the beginning of this.

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the retail sites for this or for that?

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but do you remember I said it at the beginning of this

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conversation?

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MR. EIMER:

Remember I said, how many dollars for
I can do it all over,

If I can use my rough math, and maybe

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there is no objection now that we understand it better,

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Two-thirds of the liability is found in the two sites in the

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case, 10 million out of 15 and yet less than half of the money

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is being allocated to those sites.

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THE COURT:

You mean when I said two 7-Eleven stores

SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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against whom OCWD is currently asserting claims they are

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valuing that at 725?

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MR. EIMER:

Correct.

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THE COURT:

So your point, that is less than 50

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percent of the 1.7 million settlement?

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MR. EIMER:

Yes.

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THE COURT:

But your point?

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MR. EIMER:

Your Honor, two-thirds of the liability is

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directed at those two sites.

What's your point?

Yet only -- I don't know what the

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number is -- 40 percent of the settlement is directed towards

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those two sites, right?

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THE COURT:

million, but of the settlement you said 40 percent --

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MR. EIMER:

I didn't multiply out, but it is 725 out

of a million.

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Two-thirds of the 15 million is 10

THE COURT:

About a million 7.

So what percentage is

that, roughly?

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MR. EIMER:

It is less than half.

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THE COURT:

Yes.

You said roughly 40 percent.

But

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roughly 40 percent of the settlement is allocated to those two

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sites.

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MR. EIMER:

Right.

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THE COURT:

So you are saying that at the end of the

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day is not fair to CITGO?
MR. EIMER:

Right.

SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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THE COURT:

Because you are overexposed percentage

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MR. EIMER:

Correct.

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THE COURT:

But I understand that 7-Eleven has offered

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wise?

to reallocate.

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MR. EIMER:

If they do that, that helps.

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THE COURT:

So if there is a 1.7 million settlement

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and they say OK, I don't really care, you can allocate

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two-thirds to reflect the 10 million compared to the 15 million

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max for the 22 sites, so you can allocate two-thirds of 1.7

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million -- and I don't know what it is, but 1.1 million or 1.2

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million -- to those two sites, then do you still object to the

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fairness of this settlement?

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MR. EIMER:

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Then I don't know whether they anticipate

that the rest of the liability --

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THE COURT:

Mr. Eimer, again, what?

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MR. EIMER:

Then I am only concerned about the rest of

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the liability, in other words, there is 9 million roughly left

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unaccounted for which I assume they are pursuing somebody for,

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so they believe that is CITGO's liability or they believe it is

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liability for CITGO and somebody else?

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THE COURT:

I don't know the answer, but Mr. Axline

does.
Mr. Axline, for the remainder, 8.8 million, which is
10 million minus 1.2 million, for the remaining 8.8, are you
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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looking only to CITGO for that or are there other defendants at

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those two sites?

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MR. AXLINE:

There are other defendants, your Honor,

who supplied the gas to CITGO --

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THE COURT:

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Do you know how many those are?

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MR. AXLINE:

We do not yet know, only CITGO does.

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THE COURT:

But that's the other defendants, CITGO

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That's the answer.

suppliers?

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MR. AXLINE:

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THE COURT:

If they are not known, are they sued?

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MR. EIMER:

To my --

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THE COURT:

Who is speaking?

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MR. EIMER:

Nate Eimer.

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To my knowledge, our gasoline all came from a company

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Correct.

called Tower, and Tower has not been sued.

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THE COURT:

So you have the answer, Mr. Eimer.

They

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would be happy to have other defendants potentially liable

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along with you for that 8.8 million, but they have not yet sued

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those people because, I guess you say you have not identified

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them or they haven't found them, I don't know which.

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other defendants they would sue along with you for that 8.8

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potential exposure include Tower.

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what?

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MR. EIMER:

That's all I know.

But the

Now

Now, the only one -- the last issue is the

SOUTHERN DISTRICT REPORTERS, P.C.

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issue that your Honor identified which is the relative

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culpability of the parties.

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THE COURT:

Let me pause before we turn to that issue

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to see if Mr. Walsh objects to this reallocation because I

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understood they didn't really care.

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can be allocated whatever way seems appropriate, and it is not

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a problem.

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It was 1.7 million.

It

Is that true, Mr. Walsh?

MR. WALSH:

Yes.

We have no problem with that.

But

the issue of what is and what is not in the case is something I
needed to address.

I mentioned that earlier.

In my conversations with Wayne Miller about settling

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this case, the issue of what was in the case included the 22

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stores, but I understand Mr. Axline said no and maybe that is

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what is in the documents but the district filed with the court,

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but from the district's perspective, it was represented to me

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that testing would be done at any store, 7-Eleven store and we

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would be absolutely responsible for that, and that's why it was

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considered in the case and settled.

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THE COURT:

I am afraid that might just be semantics.

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Mr. Axline or Mr. Miller have correctly said, those

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stores are in our district.

We can test them at any time and

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we may well find MTBE or we know it is remediated.

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that from the settlement papers.

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terms of what is ripe for adjudication now is only the two.

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But he is saying, you have exposure for the whole 22 because

I can tell

But the current lawsuit in

SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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they could get added in at any time that they become ripe.

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I think it is a semantic issue.

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minute, but they are very potentially in this case.

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So

best I can do.

They are not in the case this
That's the

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Let me go back to Mr Eimer then.

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So, Mr. Eimer, we got as far as reallocating.

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going to allocate 1.2 to the two active cases, so to speak, the

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two ripe cases, now what?

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occurred -- no, that percentage of liability?

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MR. EIMER:

Yes.

We are

You want to know how that allocation

The relative culpability of CITGO

and 7-Eleven.
THE COURT:

So, in other words, you think that for me

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to approve the good faith settlement, I have to have a

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justification presented to me for the determination in the

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settlement effort by plaintiff's counsel as to the relative

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culpability as between 7-Eleven and CITGO and/or its suppliers?

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MR. EIMER:

Correct.

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MR. AXLINE:

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That is absolutely not correct.

Your Honor, this is Mike Axline.
These settlements can

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become mini trials on liability, but I will point out, as we

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did in our papers, that the non-settling party here, one party

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who has objected to the settlement, CITGO has a right of

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contribution against its suppliers.

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THE COURT:

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MR. AXLINE:

That I know.

It does.

So asking you to determine the relative

SOUTHERN DISTRICT REPORTERS, P.C.

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percentages of culpability, which is what a jury would do at

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this early settlement stage, is not something that is required.

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I don't think it is appropriate.

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THE COURT:

I guess the point is, if a case is settled

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for value that is just too small, given the exposure and given

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the relative culpability of the remaining parties, then it is

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not a good faith settlement.

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hypothetical here -- had you decided to settle for half a

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million dollars or less, let's say, and make it even more

For example -- it is obviously a

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dramatic, $50,000 for 7-Eleven, CITGO says that has got to be

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ridiculous because 7-Eleven owned us and 7-Eleven made all the

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decisions and 7-Eleven added the MTBE, etc., etc., and that

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doesn't seem fair.

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It would be grossly disproportionate.

MR. AXLINE:

I understand what that argument is, but

even more importantly there is -THE COURT:

Wait a minute, Mr. Axline.

But there is

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this term "grossly disproportionate" in the case law.

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have to at least be sure it is not grossly disproportionate.

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MR. AXLINE:

I agree.

I would

I think that is the enumerator

and denominator.
THE COURT:

And that comes to less than 20 percent,

right, 1.7 over 10 -- that is easy, I guess it is 17 percent.
MR. AXLINE:

That leads me to my next point, which is

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that if the other settlements have occurred in this case, the

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entire liability has been assigned to the manufacturers and
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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distributors such as CITGO, and CITGO has not objected to that,

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the liability of retailers --

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THE COURT:

Wait.

But that is the whole problem.

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are labeling 7-Eleven a retailer.

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is that they are not just a retailer.

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You

Mr. Eimer's entire argument

fact that they in fact owned CITGO and they were a --

You are ignoring the

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MR. WALSH:

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But that statement, that is not in evidence and there

9

Judge, this is Mike Walsh.

is no evidence of that, Judge.

It was raised in their letter.

10

They threw it in there.

11

for 10 years.

12

documents, and there is no evidence of that, Judge, and we

13

can't go down that road.

14

this road because they have not met the burden even to make

15

that accusation.

16

evidence.

17

didn't call any evidence on this point is because it doesn't

18

exist.

19
20
21

This litigation has been going around

There have been countless witnesses, countless

We ought not permit them to go down

If they wanted to make it, there is plenty of

They could have called it.

THE COURT:

The reason that they

Mr. Walsh, let me go back over that.

Let's just go sentence by sentence.
In Ms. Hanebutt's papers which she signed as an

22

attorney, she says:

"7-Eleven owned all or part of CITGO

23

during much of the relevant time period."

24

Do you dispute that, Mr. Walsh?

25

MR. WALSH:

I just want to make sure that I am looking

SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

19
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at the right document.

2
3

THE COURT:
2011.

4

Page 3 of the surreply dated March 7,

I just want to go sentence by sentence.
So the first sentence I am asking you to affirm or

5

deny:

"7-Eleven owned all or part of CITGO during much of the

6

relevant time period."

7

MR. WALSH:

I deny that and --

8

THE COURT:

Wait.

9

conference.

Slow.

This is a telephone

I can have you all fly in; it doesn't matter to

10

me, but I have to do it slowly if we are on the phone.

11

or you do not deny that?

12

MR. WALSH:

13

We deny that.

14

THE COURT:

You do

This is Mike Walsh.

You deny that.

Just stop there.

You deny

15

completely you didn't own any part of CITGO during the relevant

16

time period?

17

MR. WALSH:

If I could be a little more specific,

18

Judge, I am happy to.

19

we have this in my response.

20

the relative ownership.

21

'83 to '86, CITGO was a wholly-owned subsidiary.

22
23

THE COURT:

7-Eleven owned CITGO from '83 -- I think
I think I put it in a footnote of

It is footnote 4 of my letter.

From

So why did you tell me you denied it when

I said --

24

MR. WALSH:

Well, Judge --

25

THE COURT:

Mr. Walsh.

SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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MR. WALSH:

But, Judge --

2

THE COURT:

Mr. Walsh.

3

on the phone.

4

Stop.

I can't do it this way

truly won't.

5

It won't do you any good to talk over me.

It

I asked you before to admit or deny the statement:

6

"7-Eleven owned all or part of CITGO during much of the

7

relevant time period."

8

You said, I deny that.

9

Now you say that it wholly owned CITGO from '83 to

10

'86.

Is that not part of the relevant time period?

11

MR. WALSH:

Judge, this is Mike Walsh.

12

I was addressing -- my point was, during much of the

13

relevant time period, the relevant time period of 1986 up until

14

the time that MTBE was off the market -- that was the point I

15

was attempting to make.

16
17

THE COURT:

You think that the relevant time period is

'86 until what?

18

MR. WALSH:

2003.

19

THE COURT:

Mr. Axline, do you agree that the relevant

20

time period is '86 to '03?

21

MR. AXLINE:

22

THE COURT:

23

Yes, I do, your Honor.
Well, Ms. Hanebutt, why did you write

that?

24

MS. HANEBUTT:

25

THE COURT:

Why did I write what?

Oh, my gosh.

SOUTHERN DISTRICT REPORTERS, P.C.

We are just not getting
[phone]

21
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1

anywhere.

2
3

"7-Eleven owned all or part of CITGO during much of
the relevant time period."

4
5

I have read this for the third time.

Now they say they owned it from '83 to '86 which is
virtually outside the time period.

6

MS. HANEBUTT:

7

THE COURT:

8

to '03.

9
10

THE COURT:
This is painful.

Between '86 and 1990, they owned 50

Stop.

Let's see if Mr. Walsh admits that.

I am conducting a deposition.

Mr. Walsh, from '86 to '90, did 7-Eleven own 50
percent of CITGO?

15
16

What is the true statement?

percent of CITGO.

13
14

Excuse me, the relevant time period is '86

MS. HANEBUTT:

11
12

Between --

MR. WALSH:

During that time period, 7-Eleven was a 50

percent shareholder of CITGO, yes.

17

THE COURT:

Then her statement was right in the first

19

MR. WALSH:

From '86 to 1990.

20

THE COURT:

But she wrote:

18

21
22
23

place.

"7-Eleven owned all or

part of CITGO during much of the relevant time period."
Four years, 50 percent owner, that is part.

That is

four years.

24

Now what happened after '90?

25

MR. WALSH:

It was just a customer.

SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

22
13BUORAC
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Mike Walsh again, Judge.

2

7-Eleven was a customer of CITGO.

3

THE COURT:

No more ownership?

4

MR. WALSH:

Correct.

5

THE COURT:

So the ownership ends in '90.

So now we

6

learn that for four years, 7-Eleven was a 50 percent owner of

7

CITGO, and that's during the relevant time period.

8
9

So what were you so excited about the record being
polluted by something that was not true?

What is not true?

10

Look at page 3 of the surreply there dated March 7th and what

11

is not true?

12
13

MR. WALSH:

Your Honor, if what we are talking about

is 7-Eleven's ownership of CITGO --

14

THE COURT:

We are.

15

MR. WALSH:

Then those statements that we are focusing

16

on right now, that is right.

17

absolutely.

18
19
20

THE COURT:

I stand by my statements,

What do you mean you are standing by your

statements?
MR. WALSH:

I think it is true.

My footnote in my

21

letter, I think pretty much states precisely what we are

22

talking about here.

23

this road, but it addresses that question.

And I apologize that we had to go down

24

What we are taking exception to, Judge, is the

25

inference that CITGO is attempting to make an inference without
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

23
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any evidence -- we don't think it needs to assert it for this

2

type of motion, just to come in and suggest that 7-Eleven has

3

liability for the decision to use MTBE.

4

they are doing.

5

THE COURT:

No.

I believe that's what

They are simply saying, 7-Eleven was

6

more than a retailer for four years during the relevant time

7

frame.

8

distributor because it was the 50 percent owner of CITGO.

9

That's all it is saying.

10

It was not just a retailer.

MR. WALSH:

It was also a refiner and

Judge, if 7-Eleven was a convenience store

11

operator.

It had a wholly-owned subsidiary that was a

12

refinery.

7-Eleven was not a refiner.

13

THE COURT:

14

interest of a refiner, right?

15

MR. WALSH:

It had an ownership interest in a refiner.

16

THE COURT:

Yes, that's all.

17

MR. WALSH:

That was a separate free-standing -- has

18
19
20

No.

It had a 50 percent ownership

always been a separate operating entity.
THE COURT:

Maybe I am missing the point.

It is still

a 50 percent owner of a refiner.

21

MR. WALSH:

What I am responding to is the statement

22

that 7-Eleven was a refiner.

23

THE COURT:

Again, I think it is semantics.

It is the

24

owner of a refiner, a 50 percent owner of a refiner.

I don't

25

see the difference.

It is a

Owner liability is nothing new.

SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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2

50 percent owner of a refiner.
Mr. Eimer, back to you.

Where is all this getting us?

3

It turns out that the statement is true, that for four years

4

7-Eleven is a 50 percent owner.

5

allocation somehow grossly disproportionate?

6
7

MR. EIMER:

Does that make this 17 percent

I think that the answer is yes, because

what comes out of their ownership of us is --

8

THE COURT:

Their 50 percent ownership of you?

9

MR. EIMER:

For a time period, which was the time in

10

1986 is when we built the MTBE plant, and it was their approval

11

of the MTBE plant that was happening around this very time.

12

was approved in 1986.

13

directors or half of it, all the way up to 1990.

14

that, they had the entire board of directors.

15

because of the relationship between CITGO and 7-Eleven, the

16

employees went back and forth between the two companies.

17

1987 they hired a lady from CITGO who was the supply manager

18

who was supplying them, who became an employee of 7-Eleven --

19

THE COURT:

It

They had three seats on our board of
Prior to

Your Honor,

In

This is a granular level that I don't need

20

to be at.

The point is, is this settlement grossly

21

disproportionate to their potential liability?

22

of the maximum exposure, now that we have reallocated, grossly

23

disproportionate?

24

it is grossly disproportionate, even if they were a 50 percent

25

owner of a refiner for the first four years.

Is 17 percent

I don't have enough of a basis to know why

SOUTHERN DISTRICT REPORTERS, P.C.

I still don't
[phone]

25
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know.

2

MR. EIMER:

I believe that the only claim that they

3

have against CITGO is the failure to warn claim.

Since we had

4

no choice but to buy the gasoline that they directed us to --

5

THE COURT:

Who is "they"?

6

MR. EIMER:

7-Eleven.

7

So we had a supply contract with them that gave them

Sorry.

8

the right to specify the gasoline to be supplied to them.

9

ordered the gasoline.

They

We ordered it, the appropriate gasoline

10

that they specified from suppliers and gave it to them.

11

The

only claim they could have against us --

12

THE COURT:

Who is "they"?

13

MR. EIMER:

7-Eleven or Orange County Water District.

14

THE COURT:

That is what I wondered.

So the only

15

claim that Orange County Water District has against you is

16

failure to warn.

17

MR. EIMER:

Failure to warn.

18

THE COURT:

All right.

19

MR. EIMER:

And the only person that we could fail to

So?

20

warn, your Honor, I believe, is 7-Eleven, and 7-Eleven had the

21

same knowledge we did.

22
23
24
25

THE COURT:

Isn't that for another day?

Isn't that a

MR. EIMER:

It may be another motion, but it is also

motion?

relative to fault.
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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2

THE COURT:

But Mr. Axline correctly says, I don't

have a trial on relative fault.

3

MR. EIMER:

I agree with that.

4

THE COURT:

So all I have is the standard of grossly

5
6
7
8
9
10

disproportionate.
MR. EIMER:

Right, and 80 percent of the liability

here is being now allocated to CITGO -THE COURT:
exposure.

Not exactly, but that is the maximum

But second of all, you have contribution rights

against your supplier who was Tower.

11

MR. EIMER:

That's correct.

12

THE COURT:

So it is not like 80 percent is being

13

allocated to you.

14

MR. EIMER:

But my contribution rights against

15

7-Eleven are being cut off.

16

THE COURT:

For sure.

17

MR. EIMER:

My point is that, to me, most of the

18

liability here is 7-Eleven because they are the ones that

19

specified the product and spilled it.

20

MR. WALSH:

Judge, this is Mike Walsh.

21

Mr. Eimer is making some of this up.

I think if we

22

are going to be getting into these types of factual assertions,

23

if the Court is going to take it into account on good faith

24

settlement, I don't see how we can do this without some

25

evidence.

And if we are going to reopen this so that we can

SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

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start introducing new evidence, if that's what the Court wants

2

to do --

3

THE COURT:

What I don't want to do, Mr. Walsh, is be

4

intimidated into becoming a rubber stamp.

That, I am not going

5

to do.

6

settlements seriously.

7

sense, much easier.

8

You say fine, nobody is opposing it.

9

opposing it, it is not the first time, then you look harder to

I take the obligation to assess the good faith
Most of them are unopposed and, in a

You look at it, you get a rough sense.
But when somebody is

10

make sure that you think you are satisfied that it is not

11

grossly disproportionate, but it is not called being a rubber

12

stamp and it is not called being afraid to have an evidentiary

13

hearing if needed.

14

fair to everybody, that's all.

15

MR. AXLINE:

16

If I could address --

17

THE COURT:

I have to be sure that the settlement is

Your Honor, this is Mike Axline.

You don't really care what the allocation

18

is.

You could allocate 1.65 million to these two stations,

19

theoretically, which changes the -- we did 1.2 -- we did 1.7.

20

Never mind.

21

Go ahead.

22

So, essentially, we allocated the whole thing to this

23

because we are saying it is 1.7 over 10 million.

24

did the maximum allocation.

25

So we already

Mr. Axline, did you start to speak?
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

28
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MR. AXLINE:

Yes.

Just on the liability issue.

I

2

have a couple of points that are little amendments to what

3

Mr. Eimer said.

4

On liability, I want to stress the point that I made

5

earlier which is that, in figuring rough proportionality, I

6

think it is fair for the Court to acknowledge or to take into

7

account the fact that a prior settlement, the manufacturers and

8

refiners have taken all of their responsibility and retailer

9

qua retailers' percentage has been zero.

10

THE COURT:

I do understand that the point is the

11

characterization of 7-Eleven's role.

12

four years, admittedly, in the relevant time period is a 50

13

percent owner of a refiner.

14

7-Eleven, at least for

Mr. Eimer wants it to sound even bigger than this

15

because he is saying, on the cusp year of 1986 when these

16

decisions were made and what not and the board was composed --

17

it was all 7-Eleven.

18

is certainly conceded they were a 50 percent owner.

19

he is saying is, they should have a share of the refiner

20

liability.

21

took the 100 percent share.

22

MR. WALSH:

23

The other point is that in California, duty to warn

But put that aside.

From '86 to '90, it
All that

You are saying, in the other cases, the refiners

That is one point.

24

runs not just to retailers but to bystanders and third parties

25

who are injured by the product.

And Mr. Eimer said that the

SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

29
13BUORAC
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only duty to warn here was to 7-Eleven, and that is not

2

correct.

3
4

THE COURT:

What about Tower, Mr. Axline, why aren't

they a defendant?

5

MR. AXLINE:

Citgo has not disclosed to us, despite

6

repeated discovery requests, who their suppliers were and where

7

their suppliers got their gasoline.

8

Honor, that Tower got its gasoline from some of the other

9

refiner defendants in this case, and that if CITGO wanted to go

10

I strongly suspect, your

after them, it can do so.

11

MR. EIMER:

Your Honor, Nate Eimer.

12

I don't have all of our discovery responses here, but

13

I would be very surprised if they asked us who our supplier

14

was.

15

THE COURT:

Sorry?

16

MR. EIMER:

We would have every reason to disclose

THE COURT:

You would have every reason to disclose

MR. EIMER:

Sure.

17

that.

18
19
20
21

You what?

that?
Why wouldn't we?

I don't have our

responses here, but my impression is that --

22

THE COURT:

Again, we didn't hear that so keep --

23

MR. EIMER:

I can't warrant to the Court that we told

24

them that.

We certainly disclosed it to Mr. Miller in South

25

Tahoe because it was the same throughout California.
SOUTHERN DISTRICT REPORTERS, P.C.

We have

[phone]

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13BUORAC
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no refineries in California.

Our only customer in California

2

is 7-Eleven or was 7-Eleven.

So Mr. Miller's office in the

3

South Tahoe case, supplied by Tower.

4

asked us in this case, we wouldn't tell them the same thing.

5

They may have asked, I don't know.

6

Court we told them that, but I would be shocked if they asked

7

and we didn't tell them.

8
9

MR. WALSH:

I can't believe if they

I can't warrant to the

Your Honor, it is a little tight because

the right of CITGO to go after its suppliers is not dependent

10

upon those suppliers being named as defendants in this

11

lawsuit --

12

THE COURT:

Right.

I understand.

If CITGO is found

13

liable, it can pursue Tower.

14

MR. WALSH:

Correct.

15

THE COURT:

So then, the only question left is whether

16

there's enough of a record before the Court to say that, in

17

terms of gross disproportionality, 17 percent -- and that's a

18

full allocation, that's the 1.7 to two sites which we can't do,

19

so call it 17, 16 percent, but 16 percent attributed to

20

7-Eleven is not grossly disproportionate.

21

And I guess that the answer to that is to invite

22

supplemental submissions where you would make the record, I

23

suppose, Mr. Axline, as to other settlements and the shares

24

assigned to retailers versus refiners.

25

seen as a refiner -- and I know that Mr. Walsh says, we
SOUTHERN DISTRICT REPORTERS, P.C.

So even if 7-Eleven was

[phone]

31
13BUORAC
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weren't, we were 50 percent owner of a refiner, but even if

2

they were a refiner for a four-year period, that there still

3

may be a proportionate -- certainly not a grossly

4

disproportionate share -- for a company that was a refiner for

5

a four-year period because, in other cases, the retailers were

6

at zero.

7

grossly disproportionate.

8
9

So whatever role they had or both, it is still not

Maybe you should make a supplemental submission,
Mr. Axline, and give me an evidentiary basis to find that.

10

MR. AXLINE:

11

THE COURT:

Understood, your Honor.
Maybe that's the way to go.

So I think I

12

will invite a further submission, but I realize that will

13

invite a response to it.

14

these MTBE cases, but I would like to get this off my desk.

15

And I also know everybody is busy in

So by when can you make such a supplemental

16

submission, Mr. Axline?

17

would like an evidentiary basis, particularly based on today's

18

record which you can get, of course.

19
20
21
22
23

MR. AXLINE:

I think it is pretty limited, but I

We should be able to do that by the end

of next week, your Honor.
THE COURT:

That would be helpful.

And that is the

18th of March.
Mr. Walsh, will you make a submission by the same date

24

or work with Mr. Miller?

You have reached a settlement, so

25

there is nothing improper about working together, I would
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

32
13BUORAC
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2

think.
MR. WALSH:

No, there isn't.

I was not going to be

3

working next week, but if that's the deadline, that is the

4

deadline.

5
6
7
8
9
10
11

THE COURT:

It would be helpful.

Maybe Ms. Kieffer

can pick up with Mr. Axline and work together on that.
And if you do get a submission on the 18th, Mr. Eimer,
is it likely that you will want to respond?
MR. EIMER:

We may.

I am not sure we will.

A lot was

clarified here today on the total exposure.
THE COURT:

I agree.

I think a lot was clarified.

12

was a worthwhile call -- frustrating and difficult, but

13

It

worthwhile.

14
15
16
17
18
19
20
21

So if you wish to make a submission, why don't we say
March 25th.
MR. EIMER:

Can I ask for a couple of more days

because all of us are out for spring break?
THE COURT:

But that's what Mr. Walsh just said, and

he wasn't so happy with the 18th.
Why don't we just move the 18th to the 23rd and you
respond by the 30th.

22

MR. EIMER:

That would be fine.

I appreciate that.

23

THE COURT:

It may be that as you continue to talk to

24

each other, Mr. Eimer, you may withdraw your objection or, who

25

knows, you may negotiate your own settlement.
SOUTHERN DISTRICT REPORTERS, P.C.

But anyway, if
[phone]

33
13BUORAC
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the picture changes either by withdrawing the objection or

2

further negotiation, please let the Court know at the earliest

3

possible time.

4

MR. EIMER:

5

And thank you for holding the call.

6

We will.
It clarified a

lot.

7

THE COURT:

8

Anything else from anybody?

9

MR. WALSH:

10

I hope it did.

This is Mike Walsh.

Does the Court anticipate addressing this 7-Eleven

11

ownership issue because it has really come up here for the

12

first time?

13

THE COURT:

I am only going to address your

14

concession, which is from '86 to '90, you were a 50 percent

15

owner of CITGO, that's all.

16

less.

17

and whether the employees were coming or going and all of that

18

and who made the decision to blend MTBE -- I don't need to go

19

that far, but I do know that for a four-year period, you were a

20

50 percent owner because you said so.

21

I am not going to say more or

I am not going to get into the composition of the board

MR. WALSH:

Right, your Honor.

But the question is,

22

that characterizes 7-Eleven as a refiner and that's not right.

23

And I would like to address that we were a shareholder, but we

24

were not a refiner.

25

THE COURT:

I think when we look at the record -I think you will see every time in the

SOUTHERN DISTRICT REPORTERS, P.C.

[phone]

34
13BUORAC
1

record, you will see me saying a 50 percent owner of a refiner.

2

That's what I said over and over again.

3

If you want to address as a matter of law what is the

4

potential exposure in terms of liability for a 50 percent owner

5

of a refiner, add to the submission Mr. Axline is submitting

6

with a couple of pages on the potential liability of a 50

7

percent owner of a refiner.

8
9

That's all.

Maybe you will find law that an owner is

never responsible.

10

MR. EIMER:

We will address that in the briefing.

11

THE COURT:

Very good.

12

It is the 23rd and the 30th.

13
14
15
16

So we have those new dates.

And I expect that you will order the record, please,
because we will need it.
Thank you.
o

0

o

17
18
19
20
21
22
23
24
25
SOUTHERN DISTRICT REPORTERS, P.C.

[phone]