Exxon Mobil Corporation v. United States of America
Filing
203
MEMORANDUM AND ORDER entered FINDINGS OF FACT AND CONCLUSIONS OF LAW: No later than August 28, 2020, Exxon is to submit a proposed final judgment, consistent with the findings and conclusions, after consulting with the government.(Signed by Chief Judge Lee H Rosenthal) Parties notified.(leddins, 4)
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United States District Court
Southern District of Texas
ENTERED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
EXXON MOBIL CORPORATION,
Plaintiff,
v.
UNITED STATES OF AMERICA,
Defendant.
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August 19, 2020
David J. Bradley, Clerk
CIVIL ACTION NO. H-10-2386
CIVIL ACTION NO. H-11-1814
MEMORANDUM AND ORDER ENTERING FINDINGS OF FACT AND
CONCLUSIONS OF LAW
This is the third, and should be the last, opinion in these environmental pollution cases
arising from World War II and the Korean War. In 2010 and 2011, Exxon sued the United States
government under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, 42 U.S.C. § 9601 et seq. (“CERCLA”), seeking reimbursement for some of
the costs it paid, and will continue to pay, to remediate environmental damage from producing war
materials at its Baytown and Baton Rouge refineries and nearby chemical plants. Deciding the
factual issues required the parties and court to examine the years just before World War II up to
the present. Deciding the legal issues required the parties and the court to apply relatively recent
statutes and legal standards to decades-old events and activities. Instead of live percipient
witnesses, the court heard from experts in forensic environmental history and engineering. Instead
of electronic documents, the court examined an archive of contemporaneous prewar, wartime, and
postwar correspondence, photographs, and other documents.
The detailed findings and conclusions are set out below. In summary, based on the
pleadings, briefs, exhibits, testimony, arguments of counsel, equitable factors, and the applicable
law, the court finds and concludes as follows:
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During the war years, the full slate of products Exxon produced in connection with making
avgas were essential war products. The government exerted substantial control over the refineries’
actions, including decisions on how to use raw materials and labor. This control makes the
government responsible for a share of the remediation costs, including costs related to the
refineries’ delays in implementing certain waste-management improvements. Because of these
and other findings made by the court, the following allocation applies:
At Baytown, the government is liable under CERCLA for an allocated share of 24.67
percent for past response costs incurred at the refinery and 36.54 percent for past response
costs incurred at the Baytown Ordnance Works / Tankfarm 3000 Area.
At Baton Rouge, the government is liable under CERCLA for an allocated share of 14.4
percent for past response costs incurred at the refinery.
Based on the evidence in the record and the parties’ stipulations as to costs, the total
damage award in favor of Exxon is $20,328,670. For the reasons set forth in greater detail below,
these amounts are not subject to an offset for insurance recovery by Exxon because there has been
no double recovery.
No later than August 28, 2020, Exxon is to submit a proposed final judgment, consistent
with the findings and conclusions, after consulting with the government.
The detailed findings of fact and conclusions of law follow.
I.
Introduction and Background
A.
The Issues
ExxonMobil is a multinational oil and gas corporation that owns numerous chemical plants
and refineries, including one in Baytown, Texas and another in Baton Rouge, Louisiana. These
refineries date back to the early 20th century, when they were constructed and operated by
predecessors to ExxonMobil. In the 1940s, the Baytown and Baton Rouge refineries converted
2
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with astonishing speed into aviation gas and synthetic rubber production sites. The conversion
was important to the military victory over Japan and Germany. Both refineries operated under
wartime contracts with the United States. In both, military needs were given priority over
environmental consequences. Those consequences are the basis of these lawsuits.
In 2010 and 2011, Exxon sued the United States government under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9601
et seq. (“CERCLA”), seeking reimbursement for a percentage of the costs it paid, and will continue
to pay, to remediate environmental damage at the Baytown and Baton Rouge refineries and nearby
chemical plants under the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.
(“RCRA”).1 The statutes impose environmental standards and allow past owners and operators of
facilities where hazardous substances are located to be liable for the costs needed to clean them up
and prevent further harm. See 42 U.S.C. § 9607.
Two sets of general issues are presented: what amount of the environmental wastes needing
remediation are attributable to World War II (and, to a lesser extent, the Korean War); and what
percentages of that amount should Exxon and the government pay as remediation or response
costs? Both sets of questions must be answered for each refinery, for the war years and beyond.
Exxon alleges that, through December 2014, it has incurred approximately $77 million in
past response costs attributable to the wartime-related contamination, and that it will incur
significant additional future costs. (See Docket Entry No. 261 at 6–10). Exxon’s claims to recover
part of the costs at the Baytown facility are governed by § 113(f), 42 U.S.C. § 9613(f). Its claims
1
Exxon first brought claims relating to the Baytown refinery in Exxon Mobil Corp. v. United
States, No. 4:10-cv-2386 (S.D. Tex. July 6, 2010). Exxon then brought claims relating to the Baton Rouge
refinery in Exxon Mobil Corp. v. United States, No. 4:11-cv-1814 (S.D. Tex. May 12, 2011). The cases
were consolidated in August 2011. (Docket Entry No. 63). All citations are to the record in the lead case,
Exxon Mobil Corp. v. United States, No. 4:10-cv-2386 (S.D. Tex. July 6, 2010).
3
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to recover part of the costs at the Baton Rouge facility are governed by § 107(a), 42 U.S.C.
§ 9607(a).
In 2009, Exxon filed two contract actions against the government in the United States Court
of Federal Claims, seeking recovery for avgas-related environmental cleanup costs based on a
reimbursement clause in the World War II avgas supply contracts between Exxon and the
government. The clauses required the government to reimburse Exxon for charges incurred “by
reason of” the avgas production. See Exxon Mobil Corp. v. United States, 101 Fed. Cl. 576 (2011).
The contract case in the Court of Federal Claims is stayed, pending resolution of the issues here.
This case was litigated in three phases. The first addressed whether only Exxon or the
government, or both, were responsible for the contamination and should pay the cleanup costs.
Each party pointed the liability finger at the other. Neither wholly succeeded or failed. In 2015,
the court ruled on the parties’ cross-motions for partial summary judgment, holding that:
the three-year statute of limitations under § 113(g)(2), 42 U.S.C. § 9613(g)(2), applies to
Exxon’s claims at Baytown;
§ 113(f)(3)(B)’s contribution provision is Exxon’s exclusive remedy to seek cleanup costs
incurred in response to administrative settlements with the State of Texas;
Exxon’s agreed orders with the State of Texas are “administrative settlements” under
§ 113(f);
the refinery and chemical plant at each site are a single “facility” under CERCLA;
Exxon and the government were CERCLA owners and operators of the chemical plants at
both facilities;
the government was not a CERCLA owner and operator of either refinery; and
Exxon was entitled to a declaratory judgment that “the United States is liable for its
equitable share of past and future cleanup costs incurred at the Baytown and Baton Rouge
sites.”
See Exxon Mobil Corp. v. United States, 108 F. Supp. 3d 486 (S.D. Tex. 2015) (“Exxon I”). These
determinations meant that both Exxon and the government bear a share of the liability for the
cleanup costs at the Baytown and Baton Rouge facilities.
4
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In Phase 2, the court determined how to allocate to each party its share of the remediation
costs at each site. In 2018, the court ruled on the parties’ cross-motions for partial summary
judgment, holding that:
Exxon’s cleanup costs at the two Baytown Facility Operations Areas were “necessary costs
of response” eligible for CERCLA recovery;
Exxon’s response actions at the five Baytown units and at the three Baton Rouge units were
appropriately characterized as a single “removal” action at each facility, which would not
be barred by the statute of limitations in 42 U.S.C. § 9613(g);
Exxon “substantially complied” with the National Contingency Plan for three of the
Baytown units and two of the Baton Rouge units;
a deduction of the insurance-settlement proceeds Exxon received in a different case is
appropriate if needed to prevent double recovery;
the “production-based” analysis is the appropriate equitable allocation methodology to use
in this case; and
Exxon is entitled to a declaratory judgment that it is entitled to recover future cleanup costs
associated with the units at which Exxon has already incurred costs.
Exxon Mobil Corp. v. United States, 335 F. Supp. 3d 889 (S.D. Tex. 2018) (“Exxon II”).
As part of the holding on the allocation methodology, the court outlined the general steps
to determine at the bench trial what amounts each party had to pay. Those steps are:
assigning shares of waste to the various years of plant operation;
determining what part of the costs were to clean hazardous wastes caused during the
periods of the government’s involvement and are attributable to the production of war
products, for which the government is responsible, as opposed to wastes caused by Exxon’s
production of nonwar products for commercial sale;
determining what part of the costs were to clean hazardous wastes caused by the delay in
constructing environmental protections at the refineries and plants, and what part of the
delay is attributable to Exxon or to the government; and
assigning the wartime-related costs subject to allocation based on the parties’ respective
degrees of involvement with the wartime activities and other equitable factors.
See id. at 941.
The court also outlined the factors it would consider in the equitable allocation of the
wartime-related costs. In brief, those factors are:
the “Gore” factors, which include:
o (i) the ability of the parties to demonstrate that their contribution to a discharge,
release or disposal of a hazardous waste can be distinguished;
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o (ii) the amount of the hazardous waste involved;
o (iii) the degree of toxicity of the hazardous waste involved;
o (iv) the degree of involvement by the parties in the generation, transportation,
treatment, storage, or disposal of the hazardous waste;
o (v) the degree of care exercised by the parties with respect to the hazardous waste
concerned, considering the characteristics of such hazardous waste; and
o (vi) the degree of cooperation by the parties with the federal, state or local
officials to prevent any harm to the public health or the environment;
the “Torres” factors, which include:
o the extent to which cleanup costs are attributable to wastes for which a party is
responsible;
o the party’s level of culpability;
o the degree to which the party benefitted from disposal of the waste; and
o the party’s ability to pay its share of the cost; and
other factors, including:
o the knowledge and acquiescence of the parties in the contamination-causing
activities;
o the value of the activities to the national defense efforts;
o the parties’ roles at the refineries and chemical plants;
o the parties’ intent to allocate liability; and
o post-war waste handling improvements.
See id. at 944–48.
The court’s Phase 2 opinion also outlined the remaining issues for trial, as follows:
the allocation of responsibility for cleanup costs at the units on which the parties did not
move for summary judgment;
the allocation of responsibility for the costs at the Facilities Operations Areas;
the amount by which to offset Exxon’s equitable share of liability based on the North
American Coverage Case settlement proceeds;
the challenges to Exxon’s claimed costs that are not supported by both an invoice and
proof of payment;
whether Exxon may recover prejudgment interest, “run rate” costs, and consultant costs;
the percentages of wartime production related to “commercial” products;
the adjustments for Exxon’s post-wartime waste-management improvements;
the application of the equitable-allocation methodology to determine what amount each
party must pay; and
remaining issues that the pretrial work identified.
Id. at 897.
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Phase 3 required a bench trial to resolve the factual disputes and conflicting inferences, and
to fix the relative shares of responsibility and the amounts of past costs and the share of future
costs that each party must pay.
The bench trial was set to begin in February 2019, but the court granted an extension of
time for the parties to pursue a mediated settlement of these and other contaminated sites. In late
2019, the parties told the court that they had not resolved the case and needed to proceed with the
bench trial. The parties helpfully stipulated to the remaining cost-accounting issues. (See Docket
Entry No. 261 at 15–16). The parties also stipulated that the “run-rate” costs Exxon estimated for
each site for 2015 to 2019 should be treated as future costs and not included in the court’s
quantification of past response costs. (Id. at 16). Finally, the parties reached a partial stipulation
as to the size of the offset if the court found an insurance offset appropriate. (Id. at 16-17).
The remaining Phase 3 issues are:
the allocation of responsibility for cleanup costs at the various units, including a
determination of:
o the percentages of wartime production related to “war products” as opposed to
“commercial” products;
o the adjustments for Exxon’s post-wartime waste-management improvements; and
o the application of the equitable-allocation methodology set out in the court’s Phase
2 opinion to determine what amount each party must pay;
whether an amount offseting Exxon’s equitable share of liability based on the North
American Coverage Case settlement proceeds is needed; and
whether Exxon may recover prejudgment interest, “run rate” costs, and consultant costs.
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A 14-day bench trial was held to resolve the remaining issues.2 The parties presented
witnesses, cross-examined them, submitted many exhibits, and presented argument. Both sides
were thorough and professional in their presentations. Without that, this case would have been
even more difficult and complex.
B.
The Witnesses and Evidence
Exxon presented the following witnesses:
Leonard M. Racioppi, the United States manager of ExxonMobil’s Superfund portfolio;
Alfred J. Gravel, a forensic historian and senior managing director at FTI Consulting, Inc.;
David B. Lerman, a chemical engineer and managing director at FTI Consulting, Inc.;
Leon D. Paredes, a project-development advisor for ExxonMobil’s Environmental
Services Company;
John M. Beath, a chemical engineer, senior technical consultant at John Beath
Environmental, LLC, and a former employee of Environmental Resources Management;
Randall Grip, vice-president of Aero-Data Corporation;3
Michael E. Pisani, an environmental consultant and engineer for Environmental Resources
Management;
Gregory G. Kipp, a geological engineer and consultant at Verax, Inc.;
Peter J. Gagnon, a civil and environmental engineer and senior partner at Environmental
Resources Management; and
2
The bench trial proceeded in two parts because of the COVID-19 pandemic and stay-at-home
orders that interrupted the trial and required its completion using technology that permitted counsel,
witnesses, and court personnel to participate from separate locations. Exxon presented its case over eight
days in early March 2020. All of its witnesses testified and were cross-examined by the government in the
courtroom in Houston, Texas. The government began its case on March 18, 2020, presenting one witness
for direct and cross-examination, in the same courtroom. The pandemic interrupted and delayed the trial
from March 20, 2020, until April 27, 2020, when the government completed its case by presenting three
witnesses, who Exxon cross-examined. Exxon then presented a rebuttal witness, followed by closing
arguments from both parties.
During the period between the live and remote parts of the trial, the parties worked hard to prepare
for an efficient, fair, and thorough presentation of the witnesses, exhibits, and arguments. The court
commends the lawyers and their IT staffs for the seamless transition to the remote bench trial. The court
finds that the benefits of proceeding far outweighed the harms that would result from a further,
indeterminate, and perhaps extended, delay. These consolidated cases have been on file for years. Past
delays caused the loss of several witnesses, and required the parties to spend large sums to prepare and then
re-prepare, repeatedly. The court finds that the technology allowed a clear, efficient, and thorough
presentation of the witnesses and the relevant evidence, and that the remote presentation of part of the
proceedings did not infringe on any rights of either party or cause any prejudice.
3
Wayne Grip was originally retained as an expert of the analysis of historical aerial photographs
of the Baton Rouge Site. Wayne Grip issued a rebuttal report in 2012 and was deposed in 2013. Because
of health reasons, Randall Grip was retained as an expert on the same topics, including his father’s report,
which he also worked on.
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Richard L. White, an environmental consultant and senior vice president of Nathan
Associates.
The government presented the following witnesses:
Dr. Jay Brigham, a historian and partner at Morgan, Angel & Associates, LLC;
Mary Sitton, imagery analyst and president of Environmental Research, Inc.;
Dr. Soni Oyekan, a chemical engineer and owner of Prafis Energy Solutions;4
Matthew Low, an engineer, attorney, and consultant at Matt Low & Associates, LLC.
To say that the exhibits were voluminous is an understatement. The experts—the historians
who testified as to where the waste came from, the chemical and environmental engineers who
testified about what processes caused the waste, and others—used thick stacks of PowerPoints to
lay out their accounts of what caused how much waste, at which location, and when, at each
facility.
The parties supported their experts’ accounts with primary sources, including
contemporaneous documents and aerial photographs showing the facilities at different times.
II.
Findings of Fact5
A.
Background
1.
The Refining Process and Wartime Product Production
At its simplest, petroleum refining converts crude oil into more valuable products. Crude
oil is a mixture of hydrocarbon molecules, which can be “cracked,” or separated, at different
boiling points, creating what refiners call “fractions,” “cuts,” or “runs,” that in turn are combined
into different products. A barrel of crude oil can be cracked into a number of products depending
on the temperature and distillation process it is exposed to. These products range from butane at
the lower boiling point range to asphalt at the higher boiling point range.
4
Dr. Soni Oyekan was retained as an expert to replace the government’s previous engineering
consultant, Dr. James Kittrell, who for health reasons could not appear.
5
Any findings of fact that are also, or only, conclusions of law are so deemed. Any conclusions
of law that are also, or only, findings of fact are so deemed.
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A central feature of refining is that a refiner will necessarily produce a slate, or range, of
refined petroleum products in the process of producing a single refined product—such as avgas—
from crude oil. A single barrel of oil cannot make a single barrel of avgas or any other single
product. Both Exxon and the government’s refining experts agreed on this point. (See P-757 at 8;
Docket Entry No. 340-1 at ¶¶ 212–13). This feature is important to the findings and conclusions
that during the war years, the full slate of products Exxon produced in connection with making
avgas were also essential war products.
The first step in the refining process is to send the crude oil through a distillation column
called a pipe still. The pipe still heats the oil and allows the refiner to separate it into fractions
based on boiling points. The resulting cuts can then be fractionated further. During World War
II, the Baytown and Baton Rouge refineries had installed fluid catalytic cracking units, a secondary
conversion tool that results in higher octane cuts, which further distilled the cuts into aviation
gasoline-range materials.
The refining process involves complicated chemical reactions requiring both high heat and
pressure. Because shutting down and restarting all or part of a refinery requires time and
manpower, maximum efficiency requires refineries to operate 24 hours a day, 7 days a week, year
round. Dr. David Lerman, one of Exxon’s engineering experts, testified that in his experience as
an operations engineer at a major refinery, unit shutdowns to address maintenance issues are
planned for every three or four years, spaced so far apart because it can take several weeks to take
a unit off line, conduct repairs, and then restart it. (Docket Entry No. 273 at 154). This feature of
refineries is important to the findings and conclusions that the government’s emphasis on
maximum efficiency in producing avgas and other wartime products required Exxon to defer or
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forego maintenance and repairs that would require shutting down all or part of the refinery and
related facilities.
Another relevant aspect of the refining process is the choice whether to use crude oil to
make intermediate or blending stocks that are in turn used to make a range of refined products, or
whether to import already made intermediate stocks from off-site.
This aspect figures in
determining whether the Exxon refineries were able to minimize pollution by importing preprepared intermediates to make avgas or whether Exxon had to prepare the avgas components
onsite, which would result in more waste production.
Dr. Lerman described four central functions in refining planning and scheduling. The first
is the selection of crude oils, both type and quantity. Next, the refinery must determine what
products it will produce from this crude oil, and in what quantity. Third, the refinery must plan
the logistics of inputs and outputs. Finally, the refinery must implement steps to provide
assurances that the plan is feasible and optimal. (Docket Entry No. 273 at 157–58).
Within the third function, the refinery must plan for waste production and handling. Oil
refining is messy. It produces oil, water, and other substances that combine to make toxic sludges
and contaminate water flows. These wastes often include chemicals from the refining process,
such as acids, lead, and hydrocarbons. Some of these wastes can be characterized as intentional
byproducts of the refining process. For example, a fluid catalytic cracking unit produces emulsions
of oil and water that must be removed from the equipment during routine maintenance. Other
hazardous wastes are better viewed as the product of the more rudimentary refining processes used
in the early and mid-twentieth century. For example, refineries would leave oil in open-top tanks
that were exposed to the elements. Experts for both sides described sludges that accumulated on
the bottoms of the open-air oil tanks from the combination of rainwater, gums, and sediments.
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These sludges would be removed periodically and would be sent through the refinery’s sewer lines
for discharge elsewhere.
Other hazardous wastes are also important to the issues in this phase of the case. One
example discussed at length in the bench trial results from the use of “once-through cooling water.”
To regulate equipment temperatures, refineries pumped water from nearby waterbodies, such as
the Houston Ship Channel near Baytown and the Mississippi River near Baton Rouge, to cool the
equipment. The water was then sent through the refinery and pumped back into the waterway.
This “cooling water” brought silt and other particles into the refinery and picked up oil and
chemicals on its way out. Wastes from leaks in corroded or cracked pipes and other unintentional
disruptions in the refining process contributed to the production of hazardous wastes. (See Docket
Entry No. 274 at 15).
The parties differed as to the amounts and types of wastes produced as a result of these and
other features of the wartime production at the facilities. These differences divided the parties’
positions on the degree of responsibility for the costs of remediating these wastes between Exxon
and the government.
2.
The Historical Background
This case involves wastes generated during and after World War II. The absence of live
eyewitnesses and of detailed records of production going back so far in time required both sides
to engage forensic historians. This relatively new discipline is primarily used for litigating disputes
like this one. The historians helped assemble and explain records bearing on such questions as
what wastes were produced, when, and by whom, and who should bear the costs of remediating
what remains.
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At the bench trial, both parties called forensic historians to testify. Their testimony
addressed the development of the petroleum industry in the 20th century and its role in the defense
effort in both World War II and the Korean War. The historians testified about the government’s
use of its executive and other powers to pressure refinery owners and operators to convert to
producing wartime products, and the response of companies like Exxon’s predecessors to the
mixture of patriotism and pressure. They testified about the government’s control over the
materials and manpower essential to refinery operations, and the government’s involvement in the
refineries’ operations during the war years.
They testified about the inability of Exxon’s
predecessors at Baytown and Baton Rouge to install pollution controls during the war years, given
the government’s restrictions on materials and manpower. They also testified about the inability
of the refinery operators to make timely repairs or perform routine maintenance because of the
government’s insistence on having the plants operate 24 hours a day, 7 days a week, year round,
and the resulting increase in hazardous wastes.
Exxon called Alfred Gravel, a forensic historian and the senior managing director in FTI
Consulting Inc.’s Forensic Litigation and Consulting practice. Mr. Gravel has approximately 25
years’ experience as a consultant. He has served as an expert witness in over 20 cases. Mr. Gravel
performs forensic history work in both litigation and non-litigation contexts. The court finds that
he is a highly credible witness who approaches his litigation work the same way he does for work
not performed for litigation.
The government moved to exclude Mr. Gravel’s testimony, arguing that he did not qualify
as a historical or technical expert under Federal Rule of Evidence 702. (Docket Entry No. 257).
The court denied the motion at the joint pretrial conference, and the government renewed its
objections during the bench trial. The court again overruled the objection, finding that the concerns
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the government expressed bore on the weight, but not the admissibility, of Mr. Gravel’s testimony,
and that his testimony met the threshold admissibility requirements under Rules 701 and 702 of
the Federal Rules of Evidence. The trial made Mr. Gravel’s qualifications and expertise even more
clear. The government’s own environmental historian, Dr. Jay Brigham, praised Mr. Gravel’s
knowledge and expertise. (See Docket Entry No. 296 at 95–96). The court finds that Mr. Gravel
was highly credible and reliable.
The government’s forensic historian, Dr. Brigham, is the managing partner of Morgan,
Angel & Associates, LLC. Dr. Brigham received a bachelor’s degree in American history from
Linfield College, a master’s in American history from the University of Maryland, and a doctorate
in American history from the University of California at Riverside. Dr. Brigham has worked for
Morgan, Angel & Associates for over 20 years, usually as a testifying or consulting expert on
behalf of the government in environmental remediation disputes. Dr. Brigham estimated that over
95 percent of his and his firm’s work is on behalf of the government.
Both historians had access to the same historical sources. They agreed on significant
points. To the extent they disagreed, the court finds Mr. Gravel’s testimony more credible, and
entitled to greater weight, than the testimony of Dr. Brigham. The court finds that Mr. Gravel had
a superior mastery of the original source documents and that he reached more reliable opinions
based on those source documents, as well as other information of the sort customarily relied on by
forensic environmental historians. Dr. Brigham relied more heavily than Mr. Gravel on secondary
sources. Dr. Brigham’s opinions based on the primary sources dating shortly before and after
World War II are less detailed than Mr. Gravel’s conclusions about the unprecedented scope of
federal involvement in, and control of, refining during the war.
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Exxon asks the court to organize and consider the evidence in the following periods: the
early years of the refineries’ work (1910 through mid-1941); the World War II years (mid-1941
through late 1945, also referred to as the “years of government involvement”); the post-World War
II and pre-Korean War years (late 1945 through mid-1950); the years of the Korean War (mid1950 through mid-1953); and the years after the Korean War (mid-1953 through mid-1955). The
periods after the Korean War are focused on the government-owned plancors at both sites. The
government did not object to this chronological organization.
a)
Petroleum Refining and Production, 1910 to 1941
In the early 20th century, petroleum refineries primarily focused on the development of
gasoline for the automotive industry. The ability to produce 100-octane gasoline emerged in
response to the development of bigger, more powerful vehicle engines and the growing
requirements of aviation. Petroleum companies, including Standard Oil of New Jersey, the parent
company of Standard Oil of Louisiana and a 50 percent owner of the Humble Oil and Refining
Company, devoted time and resources in the late 1920s and early 1930s to researching production
methods for 100-octane gas. To make the higher octane products, the oil companies had to produce
and install new processing plants and machinery at their refineries, including at Baytown and
Baton Rouge. (See D-1470 at 31–64, 74–101; see also P-740 at 83–91). The production capacity
was limited by a relatively small market and demand. Consumer car and commercial vehicle
demand and needs far outstripped the demand for high octane gasoline products during this period,
and the refineries had limited production capability as a result.
In 1935, Standard Oil of Louisiana signed a contract with the Army Air Corps to produce
333,000 gallons of 100-octane gasoline.6
In 1938, Humble Oil started operating the first
6
These contracts were separate from the contracts between the refineries and the Defense Supplies
Corporation for avgas production during the war.
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commercial alkylation unit at the Baytown refinery. (D-3026 at 11; P-740 at 46). The continued
limited demand for avgas kept the production capacity low. By 1940, national refineries were
producing roughly 40,000 barrels of 100-octane gasoline a day, far short of what would be needed
the day after Pearl Harbor. (D-1470 at 26; P-740 at 82).
b)
Petroleum Refining and World War II
War changed almost everything, including how refineries operated and what they
produced. The immediate, urgent, and large need for aviation gasoline for the national defense
effort drastically changed the amount of production across the nation. The government encouraged
and, in many ways, effectively required, the refineries’ private owners and operators to convert as
fast as possible to making as much high-octane avgas as possible. By appealing to patriotism, and
by making it clear that access to materials and resources needed for refining in general depended
on supporting the war effort, the government obtained what it needed—a huge and fast increase in
the amount of avgas and other essential wartime products for military use.
Both Mr. Gravel and Dr. Brigham testified to the federal government’s expansive carrotand-stick role in the production of war materials for World War II. The historians largely agreed
on the many executive and legislative branch actions to induce and require American industries to
participate robustly in the war effort.
In 1941, President Roosevelt created the Office of Petroleum Coordinator and designated
Interior Secretary Harold Ickes as the Petroleum Coordinator for National Defense. (P-740 at 20).
President Roosevelt explained that:
[r]ecent significant developments indicate the need of coordinating existing
Federal authority over oil and gas and insuring that the supply of petroleum and
its products will be accommodated to the needs of the Nation and the national
defense program . . . One of the essential requirements . . . which must be made
the basis of our petroleum defense policy . . . is the development and utilization
with maximum efficiency of our petroleum resources and our facilities, present
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and future, for making petroleum and petroleum products available, adequately
and continuously, in the proper forms, at the proper places, and at reasonable prices
to meet military and civilian needs.
(P-16 at 214–15).7
The Office of Petroleum Coordinator recruited its staff primarily from the oil industry and
promptly began issuing a number of “recommendations” and “directives” to that industry. (P-740
at 21–22). The recommendations and directives required refineries to prioritize the production of
aviation gasoline. For example, Recommendation 8 “restrict[ed] the use of blending agents to the
manufacture and production of aviation gasoline.” (Id. at 22). Recommendation 23 required
refineries to boost the production of alkylate to increase 100-octane aviation gasoline production.
(Id.). Recommendation 16, issued shortly after the attack on Pearl Harbor, required the petroleum
industry to immediately maximize avgas production.
(Id.).
It also authorized the federal
government to control the
allocation, exchange, license, pooling, loan, sale, or lease of crude oil, base stocks,
blending agents, processes and patents, and production, transportation and refining
facilities . . . whenever and to whatever extent may be necessary to facilitate the
maximum production of all grades of aviation gasoline or to reduce the time
required to produce such gasoline.
(P-23 at A000272).
President Roosevelt established the War Production Board by executive order in 1942. (D1470 at 13; P-740 at 14–15). The War Production Board was created within the Office for
Emergency Management to:
determine the policies, plans, procedures, and methods of several Federal
departments, establishments, and agencies in respect to war procurement and
production, including purchasing, contracting, specifications, and construction; and
including conversion requisitioning, plant expansion, and the financing thereof; and
issue such directives in respect thereto as . . . necessary and appropriate.
7
Both historians relied extensively on John W. Frey and H. Chandler Ide’s A History of the
Petroleum Administration for War, 1941-1945, produced by the federal government shortly after the war.
(See P-16).
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Exec. Order No. 9024, 7 FR § 329-02 (1942).
Dr. Brigham testified that the “allocation of steel, aluminum, and copper was of primary
importance” to the War Production Board. These metals were essential to refinery processes and
operations; companies like Humble or Standard Oil needed access to these materials to operate at
all. The War Production Board developed the Controlled Materials Plan to allocate these materials
to the military and other agencies for redistribution to their contractors. (D-1470 at 13). The War
Production Board issued priority orders, preference ratings, and quotas governing access to these
essential materials. (P-740 at 19).
In 1942, President Roosevelt created the Petroleum Administration for War, with Ickes as
the Petroleum Administrator. (P-740 at 23). The office of Petroleum Coordinator was abolished.
(Id.). By the end of 1942, the War Production Board had delegated responsibility for petroleum
products to the Petroleum Administration for War. A December 11, 1942, telegram from Donald
Nelson, Chairman of the War Production Board, to Petroleum Administrator Ickes described this
delegation of responsibility and included a schedule of 47 petroleum products over which the
Board had jurisdiction. (P-16 at MIS-00022775–77).
The Petroleum Administration for War was authorized to issue “petroleum directives” or
“petroleum administrative orders” to the industry. These directives and orders governed the
“production, refining, treating, storage, shipment, receipt and distribution within the industry of
petroleum, petroleum products, or associated hydrocarbons.” (P-740 at 23). The Administration
directed the refineries to: produce “specific products required by the armed forces and other war
procurement agencies”; “perform all supply functions with respect to aviation fuels and lubricants,
taking necessary steps to assure that available supplies are procured for and supplied to authorized
recipients”; and meet the “petroleum raw material requirements of the synthetic rubber program
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. . . to best advantage in relation to optimum yields of all petroleum war products, through the
provision of necessary capacity and the direction of its operation.” (P-740 at 24).
The Chairman of the War Production Board delegated to the Office of Petroleum
Coordinator, which became the Petroleum Administration for War, the contracting authority to
determine the price and technical details of avgas production and procurement, and delegated to
the Defense Supplies Corporation all other contracting authority. (P-16 at MIS–00022775–77).
In the 1942 “Four Party Purchase Agreement,” the Defense Supplies Corporation, the U.S. Army,
U.S. Navy, and the Petroleum Administration for War agreed that the Defense Supplies
Corporation would act as the sole purchaser of avgas from the nation’s petroleum industry and
would resell it to the United States armed forces as needed. (P-16 at MIS–00022752).
By controlling the nation’s crude oil supply, the federal government controlled the nation’s
petroleum industry. The Defense Supplies Corporation was the federal agency that contracted
with the refinery owners to purchase the avgas produced during World War II, as well as the slate
of other products put to wartime use. The Defense Supplies Corporation entered into avgas supply
contracts with Humble and Standard Oil of New Jersey, agreeing to purchase the refineries’ entire
production of avgas for a stated number of years. (P-740 at 37).
Exxon argued in the bench trial that its predecessors were effectively “compelled” to enter
into these avgas supply contracts and had limited, if any, authority to negotiate terms. The
government responded that private industry voluntarily cooperated with the federal government in
order to simultaneously profit from, and support, the defense effort. While patriotism played a
role, and while the refineries profited, the court finds that Exxon has shown from the historical
record that the government effectively left the companies no choice in contracting to make and
supply avgas, and little room to maneuver on contract terms.
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The record evidence shows that to continue operating during the 1940s, owners of
refineries capable of making avgas had to contract with the federal government to supply avgas
and other war materials. Source documents demonstrate that the federal government clearly and
frankly took this position. George Parkhurst, the Petroleum Administration for War Director of
Refining, wrote in November 1943 to George Hill, the Defense Supplies Corporation Executive
Vice President and General Counsel: “P.A.W. insists that each company utilizes all of its facilities
to make 100 octane aviation gasoline to the extent of its ability to so do, and there is not in fact
any freedom to make a choice between contracting and not contracting.” (P-331 at MISC00063853).
J. Howard Marshall, the former Chief Counsel for the Petroleum Administration for War,
testified that companies that “weren’t making essential war materials” were simply not able to run
their refineries. According to Marshall, the Petroleum Administration for War “quit allocating
crude oil to those that didn’t devote themselves to what we called the war effort.” (P-785 at 9).
Similarly, Louis R. Goldsmith, Chief of the Technological Section, of the Administration’s
Refining Division, testified that if refineries refused to comply with a Petroleum Administration
for War directive, “they would be probably denied an allocation of crude oil. And they’d be pretty
much cut off at the pockets, they wouldn’t have a business to operate.” (P-647 at MISC00063819).
Both Humble and Standard Oil fell in line, serving their country and bowing to reality at
the same time. They signed contracts with the Defense Supplies Corporation to prioritize avgas
production at both the Baytown and Baton Rouge refineries, two of the nation’s largest. (See P52; P-53; P-54).
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Directives from the Petroleum Administration for War also specified how refineries must
allocate their product mixes. The Administration implemented a Planned Blending Program,
issuing a blending schedule each month to refiners with “specific instructions as to the composition
of his blends, the sources from which he was to obtain components, and to whom he was to ship
other components – all to the end that the utmost possible 100-octane could be forced each month
from the available facilities.” (P-740 at 26).
A government report entitled “The Role of Defense Supplies Corporation in the Wartime
Aviation Gasoline Program” helpfully described the broad extent and nature of the Petroleum
Administration for War powers and actions during World War II.
The Administration
“coordinated and supervised” the activities of private companies’ refineries as “units of one
enterprise and directed their operations so as to produce the maximum quantities of aviation
gasoline at the earliest possible time.” (P-29 at MIS-00022860).
Throughout the war, the Petroleum Administration for War issued directives to all
refineries to run their production operations on a continuous basis and to minimize downtime for
maintenance and repair. Bruce Brown, Assistant Deputy Petroleum Administrator, issued a June
21, 1944, order requiring that:
(1) Those facilities contributing in any way to 100 octane gasoline production
should be kept on stream maximum possible time.
(2) Postpone shutdowns for routine inspection and maintenance as long as possible
and minimize down time by every means at your disposal[.]
(P-646 at MIS-0003236). To ensure maximum production, the Petroleum Administration for War
had to approve refineries’ proposed deviations from these schedules. Mr. Gravel described a
request by Humble Oil to the Administration in September 1943, to allow Humble to decrease its
production of an avgas blending agent in order to meet the Administration’s request for increased
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motor gasoline for military use. An internal Administration memorandum not only rejected the
request to decrease production, it directed Humble to increase production of the avgas components
by 50 barrels per day. (P-652). Mr. Gravel testified that the Administration staff calculated the
“net effect” of this directive on Humble’s slate of products, recognizing that it would put the
refinery out of balance, but that balance was secondary to the goal of maximizing avgas
production. (Docket Entry No. 272 at 191–93).
The Petroleum Administration for War established a formal approval process for new
construction at refineries. The War Production Board regulated the use of “controlled materials,”
including steel and copper, vastly limiting the ability of refineries to engage in construction or
repairs without government approval. (Docket Entry No. 261-5 at ¶ 269). Even federally owned
structures were subject to these directives and constraints. A memorandum dated June 2, 1942,
from W. Drager at the Defense Plant Corporation, explained that all construction related to the
government-owned plancors adjacent to the refineries “shall be of the cheapest, temporary
character with structural stability only sufficient to meet the needs of the service which the
structure is intended to fulfill during the period of its contemplated war use.” (P-358 at MISC00064643).
The Petroleum Administration for War denied requests from national refineries, including
Baytown and Baton Rouge, for improved waste-handling systems, on the ground that the
improvements would distract from, or interfere with, operations “vital to the war program.” As
explained by a Baytown official, “[d]uring the war it was not possible to devote much technical
manpower to the problem of effluent improvement since it was obvious that saving surface waters
was secondary to saving men.” (P-103 at A000824). For example, the federal government denied
a request from Baytown to use concrete to pave portions of its site. The result was that more
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sediments would leave the land and enter the combined sewers, comingling with oil and increasing
the waste streams produced. (Docket Entry No. 281 at 258–61).
Dr. Brigham also testified about a number of other strategies the federal government used
to encourage private production of the maximum amount of materials necessary for the war effort.
(See D-1470 at 15). These strategies included: Emergency Plant Facilities contracts for the
financing of plant or equipment construction, (id. at 18); necessity certificates, which allowed a
company to accelerate depreciation on its facilities, (id. at 16); Defense Plant Corporation contracts
for purchasing and leasing equipment, (id. at 18); and the Aviation Gasoline Reimbursement
program, in which the federal government “allowed oil companies that entered into long-term
avgas supply contracts to recoup costs they could not have anticipated at the time of the execution
of the contract,” see United States v. Shell Oil Co., 294 F.3d 1045, 1050 (9th Cir. 2002).
The impact of these programs was substantial.
By the mid-1940s, refineries were
producing approximately half a million barrels of 100-octane gasoline a day. (D-1470 at 26; P740 at 26). The nation’s avgas production was viewed as essential to military victory over the
Japanese and Axis forces. Geoffrey Lloyd, the British Minister of Fuel and Power, stated that
“without 100-octane we should not have won the Battle of Britain. But we had 100-octane.” (P18 at A000253).
Ralph Davies, the Deputy Petroleum Administrator for the Petroleum
Administration for War, stated in a hearing before a U.S. Senate Special Committee after World
War II that “100-octane is to motor gasoline what the Lincoln is to the Ford. If birds ran on gasoline
it would give a hawk the performance of an eagle. . . . On all counts, 100-octane was the lifeblood
of the United Nations in the air.” (P-17 at A000235).
The refineries were also critical to the production of other chemicals and feedstocks
necessary to the war effort and often produced in connection with avgas. For example, Baytown
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and Baton Rouge collectively produced straight-run naphtha, butylenes, and styrene. (P-793 at 7).
These components were used in the production of important war products beyond avgas, including
toluene and synthetic rubber.
Toluene, an aromatic hydrocarbon used as a high-octane component of avgas and as a
component of trinitrotoluene, or TNT, was produced at both Baytown and Baton Rouge during the
war. The government’s Ordnance Department first approached Standard Oil about producing
nitration-grade toluene for TNT in 1939. Events leading up to America’s entry into World War II
made it clear that nitration-grade toluene demand would far exceed the quantity that could be made
available from the 1938 production methods. (P-149 at A001138). To meet this growing need,
the Ordnance Department designed and constructed the Baytown Ordnance Works on land
adjacent to the Baytown refinery in 1941. (P-139 at A001016; P-140). Proximity to the refinery
was critical because toluene production required crude-sourced naphtha. (P-115 at BAYHIS00028178–79). During the war, the Baytown Ordnance Works produced over 40 percent of the
nation’s nitration-grade toluene. (See id.; P-150; P-149).
Synthetic rubber was also critical to the defense effort. After Pearl Harbor, the United
States lost access to Southeast Asia’s natural rubber sources. President Roosevelt designated
synthetic rubber as a strategic and critical war material on June 28, 1940. (P-740 at 34). The
federal government created the Rubber Reserve Company as a subsidiary of the Defense Supplies
Corporation to provide synthetic rubber for military and civilian requirements. The Rubber
Reserve Company had the authority to oversee the operation of synthetic-rubber plants owned by
the Defense Supplies Corporation to produce synthetic rubber for national defense purposes. (P315 at A002975–A002977). Unlike the Baytown and Baton Rouge refineries, which were owned
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by Humble and Standard Oil respectively, these chemical plants, or “plancors,” were owned by
the federal government. See Exxon I, 108 F. Supp. 3d at 496.
The Petroleum Administration for War oversaw and controlled access to the petroleum
supplies needed for the synthetic rubber program. (D-1470 at 26). Standard Oil of New Jersey
had been researching methods of synthetic rubber production since the early 1930s. (Id.). Federal
plancors for synthetic rubber production were located at both the Baytown and Baton Rouge
refineries, with three at Baytown and two at Baton Rouge. (Docket Entry No. 272 at 234–35). As
with the toluene plancor at Baytown, these plancors were located so that they could use materials
from the refineries, such as butylenes, as well as the refineries’ waste-disposal systems. (Id. at
233–36).
To summarize, a federal network of agencies was created or adapted to coordinate the
manufacture of war materials and their distribution to meet America’s military needs around the
world. These agencies exerted significant control over the operations of refinery owners or
operators that contracted to manufacture avgas, synthetic rubber, and other war materials. The
government controlled access to the raw materials needed to run a petroleum refinery. The
government used its authority to control access to the raw materials to help ensure that companies
like Humble and Standard Oil entered into contracts to produce avgas, rubber, and other products.
The government also used that authority to control many aspects of the refining process and
operations. The government required refineries like Baytown and Baton Rouge to prioritize these
war materials by producing as much and as fast as possible, deferring or neglecting maintenance
and repairs that would require shutdown and startup delays, and deferring environmental
protection structures and improved waste-handling processes. (See, e.g., Docket Entry No. 281 at
258–61). The government’s control over, and the refineries’ restricted access to, materials and
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skilled labor contributed to the reduction in maintenance and repair work. The result was an
increase in hazardous substances produced in the refining process. And, as explained further
below, because the war effort caused much of the delay in the steps taken to reduce and control
the hazardous substances generated during the war, and because the production levels and
commensurate need for pollution control was much lower before the war, the government should
contribute more to the added remediation costs that the delay has caused.
The fact that the refineries continued during the war years to produce a range or slate of
products with commercial value does not reduce the amount allocated to the government. As
explained in greater detail below, the evidence showed that during the war years, the range or slate
of products were also war materials, and most, if not all, were sold to the government for military
needs. Besides avgas and rubber, the military needed products that could also be used for
commercial purposes, such as gasoline to run the armed forces’ trucks and cars.
In short, the government clearly bears the greater share of responsibility for the remediation
costs attributed to the hazardous substances generated during the war years at issue in this suit.
c)
The Petroleum Industry Post-World War II and During the
Korean War
Dr. Brigham testified that during the early years of World War II, the petroleum industry
worried that the expansion to meet wartime needs would result in excess capacity after the war
ended. (Docket Entry No. 295 at 92–93). Those worries proved unnecessary. After World War
II, the petroleum industry saw continued demand for its products, reflecting a robust United States
economy and a booming consumer demand for, and ability to spend the money on, new products,
especially automobiles. For example, Standard Oil of New Jersey reported a net increase in
consolidated total revenue between 1950 and 1956. (D-3026 at 60). While the national production
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of 100-octane gasoline dramatically dropped immediately after World War II, production of avgas
increased from that point on. (P-785 at 6).
The period of extensive federal government control over the petroleum industry ended on
VJ Day, but government involvement continued.
The government-owned plancors at both
Baytown and Baton Rouge continued operating for several years after World War II ended, until
the government sold or dismantled them. (See P-740 at 171-72; D-1470 at 52).8 The federal
government maintained an interest in ensuring the ready availability of petroleum products needed
in the event of another war. The Military Petroleum Advisory Committee was created in 1947 to
consider problems relating to the nation’s petroleum supply if a military need arose. (P-740 at 28).
It did, in June 1950, when North Korea invaded South Korea.
The Korean War saw a heightened need for war materials from 1950 until the armistice
was signed in July 1953. The federal response mirrored the government’s efforts in World War
II. Congress passed the Defense Production Act of 1950, granting the president authority to force
industry to prioritize producing materials needed for national security. In 1950, the president
created the Petroleum Administration for Defense, the successor to the Petroleum Administration
for War. (P-740 at 28–29). The federal government’s response included economic incentives to
spur the production of war materials, including aviation gasoline and synthetic rubber. (See P-740
at 28; D-1470 at 27).
Dr. Brigham testified that the Defense Product Act was a response to material shortages
resulting from “a lack of production aviation gasoline to meet commercial demand and military
needs, both domestically and abroad.” (D-1470 at 28). The Petroleum Administration for Defense
ordered refineries to increase their production of wartime materials, including six directives and
8
Section II.A.4 discusses the details of the federal government’s sale of the plancors.
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orders related to the production and use of petroleum products, and four directed to aviation
gasoline. (Id. at 28). Mr. Brigham identified two of the orders as issued in response to labor unrest
and concerns about production stoppages during the Korean War. (Id. at 29). While avgas
production did not reach World War II levels, the industry experienced continued growth through
the Korean War. (P-785 at 6). ExxonMobil did not contest this testimony. The record evidence
as to the war-material production levels and the hazardous-substances emission levels at Baytown
and Baton Rouge during the Korean War years was less detailed and specific than the evidence as
to these issues during World War II.
3.
Government Regulation of Hazardous Waste Emissions in Refineries
Both historians agreed that before World War II, there was little government regulation of
refinery waste. The absence of those requirements, combined with much less production before
than during the war, reduced the need and incentive to install structures or processes to control
waste production before World War II.
During the war, as noted, waste management was delayed in order to prioritize warmaterial production. Both the Baytown and Baton Rouge refineries and some of the plancors were
designed to pump waste directly into surrounding waterways. In 1944, the U.S. Army Corps of
Engineers issued a memorandum describing the “serious problem” created by the Baton Rouge
refinery’s disposal of “vast wastes” into the Mississippi River. (P-109 at A000842). The Corps
continued to investigate the Baton Rouge refinery’s practices, with a visit again in 1946 to follow
up on the progress toward reducing the river pollution. (See D-764).
After World War II, as production pressures eased and material and labor availability
increased, refineries were able to, and did, invest in maintenance and waste-handling
improvements. These improvements began in the 1950s and 1960s. Major regulatory changes
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limiting refinery wastes enacted in the 1970s increased the need for environmental controls and
remediation. Most important for the Baytown and Baton Rouge refineries was the passage of the
Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901 et seq.
Under this Act,
beginning in the late 1970s, the Environmental Protection Agency promulgated a series of
technical regulations on managing, storing, treating, and disposing solid and hazardous wastes.
The regulations required refineries, including Baytown and Baton Rouge, to minimize the release
of hazardous wastes to soil or to groundwater or to surface waters. The Act authorized states to
enact similar resource conservation legislation, and both Texas and Louisiana did so.
The Texas Solid Waste Disposal Act is a state statutory and regulatory analog to the
Resource Conservation and Recovery Act, imposing the same or more stringent technical
regulations on Texas industrial facilities, including the Baytown refinery. See TEX. HEALTH &
SAFETY CODE §§ 361.001 et seq. Louisiana enacted the Louisiana Solid Waste Management and
Resource Recovery Law, which applied to the Baton Rouge refinery. See LA REV STAT § 30:2151
et seq.
To comply with the new regulatory demands, both refineries worked with environmental
consultants and their own staff to design and implement facility-wide hazardous wastemanagement initiatives. Both refineries also worked with state regulators, including the State of
Texas Commission on Environmental Quality and the Louisiana Department of Environmental
Quality, to design and implement ongoing response actions, including investigating and
remediating contamination at the Baytown and Baton Rouge refineries. These investigations
revealed the presence of significant amounts of contaminated wastes attributable to the World War
II era. (See, e.g., Docket Entry No. 274 (testimony of Leon Paredes); Docket Entry Nos. 280, 281
(testimony of Michael Pisani); Docket Entry Nos. 287, 305 (testimony of Peter Gagnon)).
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Congress enacted the Comprehensive Environmental Response, Compensation, and
Liability Act in 1980 “in response to the serious environmental and health risks posed by industrial
pollution.” Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 602 (2009); see also
United States v. Bestfoods, 524 U.S. 51, 55 (1998). “The Act was designed to promote the timely
cleanup of hazardous waste sites and to ensure that the costs of such cleanup efforts were borne
by those responsible for the contamination.” CTS Corp. v. Waldburger, 573 U.S. 1, 4 (2014)
(quoting Burlington N., 556 U.S. at 602). As amended by the Superfund Amendments and
Reauthorization Act of 1986 (“SARA”), Pub. L. No. 99-499, 100 Stat. 1613, CERCLA provides
several alternative means for cleaning up contaminated property.
Exxon’s remediation and response actions have already required it to spend millions in
investigation and remediation work. Exxon will incur similar future costs for the ongoing
remediation at several sites at both the Baytown and Baton Rouge refineries. In Phase 1 of these
consolidated lawsuits, the parties and the court addressed the CERCLA criteria governing Exxon’s
claim that the government should pay all or part of these costs because of the control it exerted
over the refineries during World War II and the Korean War. The court determined in Phase 1
that both Exxon and the government share responsibility for the costs, and determined in Phase 2
the method to allocate and calculate those costs. This final opinion determines, based on the
extensive record resulting from the motions and the bench trial, which party pays what amounts,
and explains why.
4.
The Facilities
a)
Baytown
The Baytown refinery is located 25 miles east of Houston, Texas. It is adjacent to the
Houston Ship Channel, Black Duck Bay, Mitchell Bay, and Scott’s Bay, which flows into the Gulf
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of Mexico. Humble Oil & Refinery Company, incorporated in 1917 and a successor to the Humble
Oil Company, built the Baytown refinery from 1919 to 1920. (P-740 at 44). In 1919, Humble
sold 50 percent of its stock to Standard Oil of New Jersey. (Id.). From 1919 to 1921, Humble
constructed a lubricating oil plant at Baytown. (Id.). In the early 1920s, the refinery’s processing
capacity was 10,000 barrels a day. It grew to over 30,000 barrels a day by 1925. (P- 740 at 44;
D-1470 at 31). Continued growth in Baytown’s capacity for crude runs made it the largest refinery
in the United States by the 1940s. (Id.).
Through the 1930s, Humble expanded the Baytown refinery by adding new refining plants.
In 1938, a hot-acid catalytic polymerization, or “codimer,” plant and the world’s first commercial
alkylation plant were added. (P-740 at 45–46). The alkylation plant would be particularly useful
in making components for 100-octane aviation gasoline. By 1939, Baytown was the world’s
largest manufacturer of avgas. (Id.).
In 1939, the Ordnance Department approached Standard Oil about producing nitrationgrade toluene for TNT. The war in Europe and the Pacific and the possibility of American
involvement led to the realization that “the nitration grade toluene requirement would far exceed
the quantity that could be made available from coke production” as of 1938. (P-149 at A001138).
That in turn led to the design and construction of the government-owned Baytown Ordnance
Works to produce nitration-grade toluene. (Id.).
In February 1941, the War Department acquired a parcel of land from Humble that was
adjacent to the Baytown refinery, to build and operate the Baytown Ordnance Works. (P-139 at
A001016; P-140). Humble constructed the Works at the government’s direction and according to
its specifications. (See P-139 at A001017; P-149 at A001144). The Works contained toluene-
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producing process facilities, above-ground tanks, military barracks, a mess hall, air-raid shelters,
perimeter fencing, and four guard watchtowers. (See P-141; P-142).
From 1941 to January 1946, the War Department owned the Baytown Ordnance Works.
(P-139 at A001016; P-144; P-145; P-147). From September 1941 to August 1945, the U.S. Army
leased the Works to Humble. (P-139 at A001016; P-148). The wastes generated by the operations
of the Baytown Ordnance Works included spent-acid sludge, spent-alumina catalyst, and oily
acidic wastewater effluent. (P-149 at A001150; P-151 at A001155; P-139 at A001024). The
wastewaters generated by the Works were conveyed by a 36-inch concrete sewer line to the
refinery sewer system. The sewer emptied into an earthen ditch known as the West Drainage
Ditch, which transported the wastewaters to the refinery’s separators system for treatment. (P-227
at A002030). The Baytown Ordnance Works is one of the plancors at issue in this suit.
Between 1942 and 1943, other plancors were built alongside the Baytown refinery,
including Butadiene Plancor 485; Butyl Rubber Plancor 1082; Copolymer (Styrene) Plancor 877;
and Hydrocodimer Plancor 1909. (P-740 at 48–49). As with the Baytown Ordnance Works, these
plancors were located to take advantage of the Baytown refinery’s raw materials and infrastructure.
In 1955, Humble purchased most of the Baytown Ordnance Works, as well as Plancor 485,
1082, and 1909, from the government. (See id.). The government sold Plancor 877 to the United
Carbon Company in 1955. (Id. at 49).
b)
Baton Rouge
The Baton Rouge refinery, located on the east bank of the Mississippi River and south of
the Monte Sano Bayou, was built in 1909 by Standard Oil of Louisiana. (Id. at 138). Standard Oil
of Louisiana was an affiliate of Standard Oil of New Jersey, and, in 1945, was consolidated with
Standard Oil Company of New Jersey. (Id.). The Baton Rouge refinery began operations
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processing kerosene, gasoline and fuel oil, but moved to primarily gasoline production before
World War II. (Id. at 141). Expansions in the 1930s increased the refinery’s capacity to produce
avgas, avgas blending agents, and 100-octane avgas. (Id. at 142).
As with Baytown, a number of federal plancors were built at Baton Rouge during World
War II. Beginning in 1941, the federal government purchased land to build and operate Butadiene
Plancor 152; Butyl Rubber Plancor 572; Catalyst Plancor 1526; Butadiene Conversion Plancor
1355; Avgas Blending Components Plancor 1065; and Hydrogenation Plancor 1868. (Id. at 144–
45). In 1955, Standard Oil purchased Plancor 572, Plancor 1355, and Plancor 1868. (Id.). In
1950, Plancor 1526 and Plancor 1065 were dismantled. (Id.). In 1955, the government sold
Plancor 152 to the Copolymer Rubber & Chemical Corporation. (Id.).
B.
The Allocation Model
1.
Background
In 2017, in the second phase of this three-phase case, the parties cross-moved for summary
judgment on what allocation method the court would apply. See Exxon II, 335 F. Supp. 3d at 941.
In Phase 2, Exxon argued for a “production-based” approach that would use the crude-processing
rate of the refineries as a way to measuring the amount of hazardous waste generated. Id. at 93738. The government proposed a “time-on-the-risk” approach, which operates on the assumption
that each facility—the refinery and associated plancors at Baytown and Baton Rouge—generated
the same amount of waste each year. Id. at 942.
The court’s 2018 summary judgment opinion outlined three general steps it would follow
in allocating remediation costs between Exxon and the government. They are:
(1) assigning shares of waste to the various years of plant operation;
(2) determining the portion of costs that are associated with the periods of the
government’s involvement and are attributable to war products for which the
United States is responsible; and
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(3) equitably dividing the portion of wartime-related costs that it determines to be
subject to allocation, based on the parties’ respective degree of involvement with
the wartime activities and several other equitable factors.
Exxon II, 335 F. Supp. 3d at 941. The court adopted the “production-based” allocation method for
the first step, finding that it better reflected the amount of waste generated each year and was
supported by CERCLA case law. Id. at 942. The government continued to assert its reasons for
preferring the “time-on-the-risk” allocation method, but it applied the production-based method in
this third stage of the litigation.
The court will follow the allocation methodology described in the 2018 summary judgment
opinion for this trial. The allocation model was designed by Richard White, Exxon’s allocation
expert. The government’s allocation expert, Matthew Low, adopted Mr. White’s model, though
he criticized some aspects and made some changes. Mr. Low’s criticisms and proposed changes
are addressed below. The court finds and concludes that while some adjustments based on those
criticisms are appropriate, the reasons for adopting the production-based allocation method and
rejecting the government’s preferred time-on-the-risk method remain. Both methods are ways to
approximate, in hindsight, what happened years ago, often using scanty records and no percipient
witnesses. Both methods are necessarily imprecise as a result, but the production-based method
is more accurate, and more precise, than the government’s.
The court again rejects the
government’s proposal to use the time-on-the-risk model.
2.
Step One: Assigning Shares of Waste to the Various Years of Plant
Operation
a)
Cost Allocation
The first step of the production-based allocation method is to assign Exxon’s past response
costs to specific years of operation at the facilities. The production-based method looks at the
capacity for crude-oil processing at each facility. Facility-specific process-improvement steps are
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also examined to determine the amounts of wastes that result. The parties agree that because
refineries normally operate close to their capacity, crude capacity is a reasonable surrogate for
actual crude runs. (Docket Entry No. 339 at 420, 713; Docket Entry No. 340-1 at 161).
Mr. White determined the refineries’ production capacity by crude throughputs. The
parties agree that in the absence of data on actual waste output, the total amount of waste generated
by oil refineries such as Baytown and Baton Rouge is roughly proportional to the size of the crude
run at each refinery. (Docket Entry No. 339 at ¶ 420; Docket Entry No. 340-1 at ¶ 163). At its
simplest, the larger the amount of crude processed in a year, the higher the waste production and
the higher the response costs for that year.
Based on the available data, Exxon determined the response costs for each year between
1925 and 1985 for Baytown and 1910 and 1985 for Baton Rouge. (Docket Entry No. 293 at 26;
P-763 at BAYTOWN-008–10). Figure 1 demonstrates the crude-oil capacity at Baytown, showing
that with a few exceptions, capacity was continuously growing.
FIGURE 1
(P-761 at 14).
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b)
Waste-Improvement Factors
During World War II, the Baytown and Baton Rouge refineries were required to, and did,
run at their maximum production capacity to meet the government’s need for essential war
materials. The refineries processed significantly more crude oil, which created significantly more
waste.9 Gregory Kipp, one of Exxon’s engineering experts, testified that wartime production
increased to meet the government’s demands. Mr. Kipp testified that the refineries ran their
equipment at higher temperatures and higher pressures in order to make more avgas and avgas
components. Certain byproducts that result from lower temperatures were not produced, while
more heavy hydrocarbon wastes were produced as sludges that would leak out of the equipment
and into wastewater.
The contaminants included emulsions, a combination of water and
hydrocarbon solids that were both difficult to separate and more toxic than previous waste streams.
(See, e.g., Docket Entry No. 281 at 167–68).
Mr. Kipp explained that the fluids used in reactors running at hotter temperatures and
higher pressures had a harsh impact on the secondary equipment in the production line, leading to
more leaks and deterioration. (Docket Entry No. 283 at 74). The refineries also used “repurposed”
older equipment for avgas production, and then delayed or neglected maintenance to meet the
9
The government disagrees with this finding, but its criticism is not well founded. Dr. Oyekan,
the government’s witness, explained that many of the refinery conditions Exxon’s witnesses described
would not have resulted in increased waste production during the war years. For example, Dr. Oyekan
testified that scouring, also referred to as erosion, of equipment would not have created issues because the
refineries were relatively new facilities during World War II. (Docket Entry No. 319 at 65–66). But Dr.
Oyekan admitted that scouring could occur at Baton Rouge. (Docket Entry No. 315 at 217–19) (Q: . . .
[D]on’t you agree with me, sir, that, in fact, you would expect scouring and corrosion as a result of the
presence of all that sediment running every day through the Baton Rouge refinery? A: Yes, maybe in some
equipment where you are running water around, yes. You might have some over time. Yes, you could.”).
Dr. Oyekan also conceded that the historical record described the refinery equipment at Baytown as old.
(Id. at 182; see also P-115 at A00028174 (a 1943 report by Baytown for the War Agencies’ Joint Inspection
Trip explained that “[m]uch of the refinery equipment is old. The high rates of producing the many products
from such equipment requires much more initiative, ingenuity, patience, and skill than would be required
for the production from new and modern equipment”)). The court does not find Dr. Oyekan’s testimony
credible on the refineries’ conditions during World War II.
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government’s production demands. As a result, corrosion, leaks, and equipment breaks were more
frequent and widespread, increasing the release of contaminants. (Id.). Mr. Kipp described these
circumstances as creating “ideal conditions that would not only create leaks during wartime itself,
but leave a legacy of leaky, fouled, corroded, abraded and otherwise compromised equipment that
produced leaks after the war.” (P-755 at 37). The court found Mr. Kipp’s testimony to be highly
credible and reliable. He applied his extensive knowledge of the chemical processes and refinery
conditions responsible for waste production, to evidence in the historical record, including the
primary and contemporaneous sources.
Mr. Kipp explained that before the war, the common disposal strategies were burning,
landfilling or landfarming, and water disposal.10 These options were often not feasible during the
war. For example, the sludges and emulsions were not suitable for burning because of their highwater content. This was especially true at Baton Rouge, where the river water had a high silt
content that would damage equipment if burned. (Docket Entry No. 281 at 237–38). This left
land disposal as the primary disposal option during the World War II years.
After the war, the greater availability of materials and skilled labor to install and improve
waste-handling systems, the growth of regulations requiring these systems, and other incentives,
all combined to lead the refineries to install improved waste-processing systems. Multiple Exxon
experts testified to the improved waste-processing systems that were implemented after World
War II at both the Baytown and Baton Rouge facilities.
The record clearly shows that the facilities improved their efficiency and waste-handling
procedures over time, justifying Mr. White’s use of waste-allocation modifiers to reduce the
10
Landfarming is a technique used in refining operations for the disposal of waste. Contaminated
materials are taken to a site where they are spread out and allowed to become incorporated with the top
layers of soil. (See Docket Entry No. 270 at 28–29).
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amount of waste generated per barrel of crude in different years. Crude runs increased greatly
during the war years, but also continued to grow after the wars ended. Simply applying the
allocation method would assign an increasing amount of costs year after year, which would not
account for the reduction in hazardous-substance emissions over time. While crude capacity
continued to grow at each facility, operations became cleaner over the years, generating less waste
per barrel of crude. Examples demonstrating the impact of these developments and illustrating
how they are measured in Mr. White’s formula are discussed below for each of the two facilities.
The record evidence shows that both refineries designed and implemented a number of
waste-processing improvements after World War II, a conclusion that multiple witnesses
supported. Mr. White’s model assumes that the available data is not only accurate, but represents
consistent progress—that is, the refineries did not meaningfully deviate or backslide from the
improvements they made. Mr. Kipp testified that Mr. White’s numbers were “conservative” and
likely overestimated the amount of waste generated at the refineries after the period of federal
involvement ended. (Docket Entry No. 283 at 58–59).
While criticizing the weight and value Mr. White’s model assigned to the relevant factors,
the government does not offer a specific credible explanation or basis for the alternatives it
proposes. Mr. Low, the government’s witness, testified that he found no “significant data” reliable
enough to use in an allocation model. (Docket Entry No. 326 at 239). He nonetheless offered a
50 percent adjustment multiplier to account for waste-handling improvements at the refineries.
(Id. at 165). The court finds this approach and explanation less credible than Mr. White’s, who
cited specific data in the historical record supporting his numbers and whose conclusions are
confirmed by other experts.
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Based on the available evidence used to reconstruct past conditions and events, and the
testimony of Mr. Gravel, Mr. Kipp, and Mr. White, the court finds the waste-multiplier factors that
Mr. White adopted and used to be credible, reliable, and appropriate. They serve as a proxy for,
and measure of, the results of programs that the refineries implemented after World War II to
improve waste-handling processes and products.11
(1)
Baytown
The record evidence shows a number of post-war waste-handling system improvements at
Baytown. These improvements included: adding cathodic protection to tanks and piping to
eliminate tank and piping corrosion; installing a system to improve wastewater treatment by
segregating the refinery’s sanitary wastewaters from the industrial wastewaters; constructing a
spent-caustics waste-collection system to prevent disposal of the spent caustics in the refinery
waste system; improving separator technology through skimming devices and preseparators;
installing an effluent filtration unit; installing permanent cooling water towers to eliminate the
need for once-through cooling water; expanding sewer lines; and installing a sour-water stripper.
(See Docket Entry No. 339 at ¶¶ 442–456).
These improvements reduced Baytown’s waste production. In 1948, Humble created the
“Refinery Loss Committee,” charged with identifying, evaluating, and implementing specific
process-control and waste-handling improvements to reduce oil losses and improve wastewater
effluent quality. (P-261 at A002416–17). Humble’s view was that waste and contamination
should be “attack[ed] at the source,” and that “[w]here feasible, modifications or additions have
11
The allocation model proposed by Mr. White implements the role of waste-improvements at
Step One. In its Phase 2 opinion, the court identified postwar waste-handling improvements as an equitable
factor to be considered as part of the equitable allocation. Exxon II, 335 F. Supp. 3d at 947–48. The court
also addresses this factor at Step Three.
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been made to equipment and processes to eliminate the production or release of contaminants.”
(Id.).
In the latter half of the 1940s, Humble launched a leak detection and repair program at the
Baytown facility that significantly reduced facility-wide leaks and greatly improved leak response
and cleanup. The Refinery Loss Committee implemented the leak detection and repair program
facility-wide, reflecting Humble’s acknowledgement that “[m]inor leaks and losses, occurring
daily in thousands of places at every refinery, constitute a serious and constant problem.” (P-263
at 10875).
Under the program, Humble devoted time and labor to monitor, identify, and resolve leaks
throughout the facility. Humble also installed new equipment and retrofitted existing tanks,
piping, valves, and other equipment with improvements to reduce oil losses. For example, Humble
installed mechanical seals on oil valves facility-wide. According to an article entitled “Stop That
Leak!” in the refinery publication, The Humble Way, this “simple procedure of installing
mechanical seals” saved roughly 60,000 barrels of light oil a year. (Id. at 10876).
The authors of “Stop That Leak!” made clear that the reasons for these investments in waste
reduction included making the facility a safer and cleaner place to work, and saving Humble
thousands of dollars. The authors explained that a reduction in lost oil “from an estimated 1869
barrels a day in the third quarter of 1948 to an estimated 781 barrels a day for the same period of
1951” led to “a saving of about $3,326 a day.” (Id.).
Mr. White relied on three distinct improvements to create the waste-processing
improvement factors that he applied in determining the remediation amounts to allocate to Exxon
and to the government. First, he applied a 70 percent waste-improvement factor to reflect
reductions in separator sludge measured at the Baytown facility in the post-World War II years.
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(P-791 at 68-76; Docket Entry No. 293 at 30–36). This figure comes from a 1958 technical article
in The Oil & Gas Journal, which was peer reviewed and confirmed in a 1990 API Journal technical
report. (P-269 at A002483–A002485; P-270 at A002491). According to a Humble study, from
1947 to 1957, the Baytown refinery generated approximately 0.067 pounds of separator sludge per
barrel of crude oil run. By 1957, the refinery generated only 0.017 pounds per barrel of crude oil
run. This 70 percent reduction in the amount of separator sludge generated was consistent with
Humble data. This data, reported in 1958, showed that in 1947, the Baytown refinery generated
10,000 pounds per day of separator sludge, but by 1957 generated only 4,000 pounds per day of
separator sludge. This equated to a 70 percent reduction when also considering the increase in
crude oil processing levels in 1957 as compared to 1947. (P-269 at A002476, A002483–
A002485). According to Mr. Kipp, this 70 percent reduction in the amount of separator sludge
generated between 1947 and 1957 “is an important indicator of the overall reductions in pollutant
releases at the site because it coincides with simultaneous improvements in the wastewater system
that collected sludge and slop more efficiently.” (P-755 at 9).
Second, Mr. White applied a 90 percent waste-improvement factor to reflect reductions in
oil in the Baytown facility’s wastewater. (P-791 at 77 to 82; Docket Entry No. 293 at 37–40). In
1947, Humble conducted a comprehensive study of the refinery’s waste system at the outset of its
ten-year “effluent improvement program.”
This study determined that the existing waste-
processing systems for managing wastewater effluents were badly overloaded, due to both the
significant amounts of wastewater generated by refinery operations—approximately 30 million
gallons per day—and the undesirable effects of specific types of wastes. (See P-260 at A002403;
P-256 at A002350). One finding was that the separators’ efficacy in removing oil and sediment
from wastewater effluent was reduced because “serious difficulties are encountered when
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emulsions and large quantities of finely divided solids enter the separator with the waste water,”
resulting in the discharge of effluent that was of “unsatisfactory quality.” (P-256 at A002353).
Through the effluent-improvement program, Humble implemented a series of process-control and
waste-processing improvements, with the stated goals of (a) eliminating or reducing the waste
sources, (b) reducing oil losses, (c) reducing wastewater volume, (d) reducing and improving
management of separator sludge and slop oils, and (e) reducing wastewater contaminants and
improving treatment efficiency. (P-755 at 4).
According to an article in The Oil & Gas Journal, Humble reduced the amount of
wastewater effluent generated by the Baytown facility from approximately 44 million gallons per
day in 1948 to 17 million gallons per day by 1958, more than a 60 percent reduction. (P-261 at
A002415). The process-control improvements included ending the use of the once-through
cooling-water process, which was known to damage equipment and carry dirt into and waste out
of the refinery. (Id.).
Between 1948 and 1952, the oil concentration levels in the Baytown refinery’s wastewater
effluent were reduced by at least 90 percent. This was the midpoint of the effluent improvement
program. (P-256 at A002362; P-785 at 128; Docket Entry No. 270 at 67–68). By 1958, the oil
concentration levels in the Baytown refinery’s wastewater effluent had been reduced by at least 95
percent. (P-261 at A002415; P- 785 at 131; Docket Entry No. 270 at 73–74).
Third, Mr. White applied a 15 percent waste-improvement factor to represent
improvements in refinery operations made to comply with regulatory changes, primarily the
Resource Conservation and Recovery Act, starting in 1980. (See Docket Entry No. 293 at 40).
Applying these three waste-improvement factors leads to a roughly 90 percent reduction
in allocated response costs for the years beginning in 1959. Figure 2 demonstrates the impact of
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these waste-improvement factors on the measurement of the crude oil capacity at Baytown over
time.
FIGURE 2
(P-761 at 26).
The government criticizes Mr. White’s reliance on these waste-improvement factors. In
response to the first factor, the reduction in separator sludge, the government argues that Exxon
neither provided nor pointed to evidence that this reduction in separator sludge actually occurred
or that the refinery maintained the improved levels as it increased production in the 1960s and
later. The government focuses on a disclaimer in the 1990 API Journal article discussing the 1958
data, stating that the data may “not be representative of” the total amount of sludge produced. (See
P-269 at A002484-2485). As part of his testimony for the government, Mr. Low presented a series
of data points showing that separator sediment and sludge might have been greater than the 1958
data suggests. (See D-3031 at 56).
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Similarly, the government argues that the second factor, the reduction of oil in the
wastewater, is inflated because the oil recovered from the wastewater represents oil that would
otherwise have evaporated before it made its way into landfills or waterways, and it would not
have contributed to the contamination requiring remediation. (See, e.g., Docket Entry No. 340-1
at 25–26). Mr. Low criticizes Mr. White’s reliance on a 1964 permit application that estimated a
90 percent oil recovery, noting that the permit application acknowledged that the recovered oil
came from “the oil lost by evaporations on the master separator,” rather than from oil lost to the
ground or waterways. (D-183 at 7).
Mr. Low found little credible data on waste improvements at Baytown supporting Exxon’s
use of the waste-improvement factors in determining the remediation cost amounts each party
should pay. (See Docket Entry No. 326 at 239). Mr. Low argued that a better measure of the
benefits from Exxon’s waste-improvement processes would be the factor he applied in his “timeon-the-risk” model. This factor would result in a roughly 50 percent reduction in waste applied
over several years to credit Exxon’s efforts in waste improvements, rather than the 90 percent
reduction Mr. White calculated. (D- 22 at 28-30; Docket Entry No. 326 at 165). Adopting the
government’s skepticism of Mr. White’s waste-reduction factors would result in a 10.84 percent
reduction in the government’s allocation for the Baytown refinery remediation costs. (See D-3031
at 103).
The government also objects to the fact that Mr. White calculated the combined effect of
the different waste-processing improvement factors, arguing that this created a “disproportionate
composite waste reduction factor that serves to isolate periods when Exxon is responsible for
production from almost all responsibility for wastes associated with that production.” (Docket
Entry No. 340-1 at 200). Mr. White testified that calculating the combined effect was appropriate
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because each factor had an independent impact on waste production. Mr. White showed that his
calculations “match up with the measurements that the facility undertook.” (Docket Entry No. 306
at 245).
The court finds that Mr. White’s approach, with the support in the record from the
refinery’s own contemporaneous measurements and studies, is more reliable and his testimony
more credible and entitled to greater weight, than Mr. Low’s testimony on these issues. The court
largely adopts Exxon’s approach for measuring the impact of waste-reduction improvements after
World War II at the Baytown facility.
(2)
Baton Rouge
The record evidence demonstrates that Standard Oil implemented numerous post-war
waste-handling improvements at the Baton Rouge refinery as well. Shortly after World War II
ended, Standard Oil embarked on a nearly decade-long effluent-improvement program coordinated
by its new Oil Conservation Department. This program included comprehensively studying
existing waste-processing systems and installing process-control and waste-handling
improvements. (P- 282 at A002610). According to Mr. Gravel, the Baton Rouge Oil Conservation
Department was “tasked with . . . reducing pollution in the post-war years and conserving oil.”
(Docket Entry No. 270 at 76).
The improvements at the Baton Rouge refinery included: installing cathodic protection on
tanks and piping to reduce corrosion-related oil leaks; installing a spent-caustics waste-collection
system to prevent the disposal of these wastes in the separators and waste system; installation of a
slop-oil collection system; rebuilding and expanding the separator system; and constructing and
operating an emulsion-treating unit. Based on the record evidence of the improvements and the
evidence of their impact over time, Mr. White first applied a 61 percent waste-improvement factor
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to reflect reductions in separator slop measured at the Baton Rouge refinery after World War II.
(P-791 at 152–56).
By 1949, Standard Oil had determined that, after the initial several years of its effluentimprovement program, it had already achieved a nearly 60 percent reduction in oil losses at the
facility. (See P-274 at A002537; P-785 at 135; Docket Entry No. 270 at 77–78). The company
determined that overall oil losses at the Baton Rouge facility had been reduced by 58 percent,
based on data that the overall refinery crude storage and manufacturing loss had been reduced from
2.12 percent in 1947 to 1.24 percent in 1949. (P-274 at A002537).
By 1949, Standard Oil also determined that between 1946 and 1949, the process-control
and waste-handling improvements had reduced separator-slop generation by 34 percent on a perbarrel basis. Standard Oil projected that separator-slop generation would be reduced by 61 percent
on a per-barrel basis between 1946 and 1951. (Id. at A002534).
Based on the historical data on separator-slop reduction amounts, Mr. White applied a
waste-improvement factor of 34 percent beginning in 1949, increasing this factor to 61 percent in
1951. According to Mr. Kipp, the separator-slop factor “is a very good indication of how [the]
leak detection and repair program was performing system-wide because these wastewater
treatment systems enervate the entire facility.” (Docket Entry No. 281 at 280–81).
Second, Mr. White applied a 98.1 percent waste-improvement factor to reflect reductions
in oil content in effluent at the Baton Rouge refinery after World War II. (P-791 at 157–64).
Between approximately 1959 and 1969, Standard Oil had reduced the oil-concentration levels in
the wastewater effluent by 75 percent, and had reduced the amount of phenol in the wastewater
effluent by 85 percent. (P-284 at A002675–76). Standard Oil determined that between 1969 and
1971, there was an additional 70 percent reduction in the oil-concentration levels and phenol-
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concentration levels in the wastewater effluent, beyond the reductions achieved between 1959 and
1969. (Id.). Mr. Kipp testified that “[o]verall during the period of 1959 to 1971 period, Baton
Rouge reduced oil concentrations in the wastewater effluent by approximately 94 percent, or to
put it another way, in 1971 oil concentrations in the wastewater effluent were 6 percent of the oil
concentrations in the wastewater effluent in 1959.” (P-755 at 26). According to Mr. Kipp, these
post-war reductions in the oil contaminants in the wastewater effluent at the Baton Rouge refinery
are a valid indicator of how effectively the refinery addressed its environmental performance. (P755 at 20).
Third, as at Baytown, Mr. White applied a 15 percent waste-improvement factor,
representing improvements in refinery operations to comply with increased regulatory
requirements. Mr. White assigned a factor of 15 percent starting in 1980 to reflect these changes.
The government takes issue with Mr. White’s factors, arguing that the data he used to arrive
at the amounts and apply them is unreliable. The government argues that the roughly 60 percent
reduction in slop oil would not result in 60 percent less waste, because after recovery, slop oils are
reprocessed and continue to contribute to the wastes that must be processed. Similarly, the
government argues that the 98 percent reduction in oil content in wastewaters would not result in
a cleaner refinery, because cleaner effluent simply results in more solid waste that must be removed
from the separator system and either disposed of in a landfill or burned. (See Docket Entry No.
305 at 133). Mr. Low instead proposed an 8.83 percent reduction in the amount of remediation
costs that Mr. White allocated to the government for the Baton Rouge remediation work. (See D3031 at 102).
The court finds that Mr. White’s approach, with the support in the record from the
refinery’s own contemporaneous measurements and studies, is more reliable and his testimony
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more credible and entitled to greater weight, than Mr. Low’s testimony on these issues. The court
largely adopts Exxon’s approach for measuring the impact of waste-reduction improvements after
World War II at the Baton Rouge facility.
c)
The Impact of Wartime Delays on Waste-Improvement Factors
Mr. White proposes a final adjustment to the cost allocation to account for the refineries’
delays in building waste-improvement systems before and during World War II. The parties
dispute how much of the delay is attributable to the federal government and how much to Exxon.
The government criticizes Exxon’s predecessors for not acting sooner to do more to limit and
process wastes from the two refineries. Exxon persuasively responds that it had no acute need or
incentive to do so before the war, and no practical ability to divert the resources or to access the
materials and labor necessary to do so during the war.
Mr. Lerman, Mr. Kipp, and Mr. White testified that these delays increased the amount of
waste and contamination as the rate and amount of refined products increased. (See Docket Entry
No. 273 at 194–95; Docket Entry No. 283 at 67–69; Docket Entry No. 293 at 6–8). It is, of course,
an exercise in hindsight reconstruction to determine how much less the waste and contamination
would have been had the processing improvements been in place earlier. It is also an exercise in
reconstruction to determine how much less waste and contamination would have persisted and
required remediation had those improvements been in place earlier. This second exercise is
complicated by the difficulty in separating the contamination resulting from the periods of federal
involvement—World War II and, to a lesser extent, the Korean War—from the contamination
from other periods. Despite these limits, the allocation-of-remediation-costs decision depends on
the underlying determinations.
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The government explained that some of the improvements that could not be built during
the war period because of the government’s refusals to make the necessary materials available or
to issue the necessary approvals, such as the master separator at Baton Rouge, were considered by
the refineries before the war but not adopted. But while the refineries could have implemented
waste-processing improvements before World War II began, there was little incentive to do so
because of the smaller scope and quantity of production before the war. As Mr. Lerman explained,
“the need wasn’t as urgent.” (See Docket Entry No. 273 at 195–96).
The record evidence is clear that the government, not Exxon, bears the larger share of
responsibility for the delays in waste-processing improvements during the war. The Petroleum
Administration for War denied the refineries’ requests to improve waste-handling systems during
the war, emphasizing that the expenditure of labor and materials for pollution control was not
directly related to the need to maximize and prioritize the manufacture of war materials, including
high-octane avgas. As detailed below, this approach extended the period of the refineries’ higher
waste production and, correspondingly, the higher response costs to clean up the waste. In Exxon’s
view, because the government was responsible for the delays in implementation, the government
should be allocated a portion of the costs for wastes produced after the period of federal
involvement ended.
The record evidence shows that the Petroleum Administration for War denied at least two
requests from Humble for specific pollution control improvements at the Baytown refinery. In
1944, Humble submitted two Form 30s, seeking Administration approval to build additional
facilities to process the increase in acid sludge waste generated by the increased production of
avgas and the related slate of products.
Humble was concerned that its existing acid-
reconcentration facilities were inadequate to manage the increased acid sludge waste resulting
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from the accelerated rate and increased amounts of avgas and related materials. Humble asked the
Administration for permission to build and operate new acid reconcentration facilities and new
temporary acid burning facilities. Humble emphasized that the existing acid reconcentration
facilities, which Humble planned to overhaul when circumstances permitted, would be inadequate
to treat the acid wastes until the new acid reconcentration facilities were constructed. (Docket
Entry No. 339 at ¶ 337).
The record is unclear as to whether the Petroleum Administration for War approved
construction of the new acid reconcentration facilities.
But the record is clear that the
Administration denied Humble’s request to construct and operate the temporary acid burning
facilities.
The Administration stated that if Humble delayed upgrading its existing acid
reconcentration facilities, the refinery should not need the temporary acid burning facilities. (P86; P-785 at 117). The result was a delay, imposed by the government, in installing these
processing improvements.
The record evidence also shows that the Petroleum Administration for War denied two
separate requests by Standard Oil for pollution control improvements at the Baton Rouge facility.
In the early part of World War II, Standard Oil sought approval to install a large concrete master
separator in part of Callaghan’s Bayou. The master separator would separate and remove oil and
oily silt from the process wastewaters before their discharge into Callaghan’s Bayou, and
ultimately, into the Mississippi River. (P-104 at A000829). Shortages of the raw materials and
labor needed to make war products led the government to defer the separator until priorities, needs,
and resources changed—after the war. Because federal wartime policy was fixed on prioritizing
maximum avgas production in the two refineries, and in devoting available materials and labor to
serve that overriding goal, federal approval for the master separator was refused. (Id.).
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In mid-1944, Standard sought federal approval for the installation of a master separator at
the Baton Rouge refinery, as well as for the installation of a silt-treating system. (P-105 at
A000835; P-106 at A000836; P-107 at A000837). The request reflected the fact, as found by the
U.S. Engineer Office, that “[t]he disposal of the vast wastes from the refinery is into the Mississippi
River and presents a serious problem. The enormous operations and rapid expansion of the plant
have overloaded the waste disposal system to the extent that pollution of the Mississippi is a daily
occurrence.” (P-109 at A000842). The U.S. Engineer Office continued: “[w]ar activity has caused
rapid expansion in plant facilities for production with no increase in waste disposal facilities. This
has caused, as stated before, daily pollution of the Mississippi River.” (Id.). The U.S. Engineer
Office recommended the construction of a master separator at Baton Rouge, as the “key unit”
necessary to prevent further pollution of the Mississippi River. (Id.). The U.S. Engineer Office
emphasized that:
[t]he project, including the separator, appears adequate to end pollution of the
Mississippi River. It is believed that the urgency of construction is sufficiently
necessary for the war effort that endorsement for approval by the P.A.W. and
W.P.B. for the use of materials and labor for construction of the separator be given
as requested.
(Id.).
Despite this endorsement, on August 22, 1944, the Petroleum Administration for War
notified Standard Oil that it was denying the request to construct the master separator. The
Administration stated that “this project is not of sufficient essentiality to the war program to
warrant its installation at the present time and should be considered as a post-war project.” (P-110
at A000844; Docket Entry No. 270 at 55–56). The Administration did approve Standard Oil’s
request to construct the silt-treating unit, because that unit would recover oil needed for the war
effort. (P-110). In granting the approval, the Administration recognized that this unit was no
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substitute for the master separator in pollution-reduction impact or effectiveness. (P-110; P-111).
The Administration explained that the master separator would still need to be constructed, but not
until after the war, stating that:
. . . it would be impracticable not only from the standpoint of economics but also
from the standpoint of the construction of materials and manpower to install silt
treating equipment only for the existing water separators when it is apparent that
the applicant will have to expand its oil water separators after the war.
(P-111 at A000846).
The record evidence shows that the refineries acted quickly after the war to design and
implement waste-processing improvements that were not built during the war years because of the
government controls and restrictions. That did not avoid several years of post-war delay for some
of the most involved and massive waste-processing structures.
Mr. White identified the years in which the decisions to delay constructing and installing
specific waste-processing improvements were made. He constructed an alternative allocation
scenario in which the same improvement, with the same amount of research and planning, had
been implemented in the year it was requested. The result was a proportional reduction in the
amount of waste to be allocated had the improvements been in place earlier. Mr. White calculated
the impact of the delay by measuring the difference between the amounts that would have resulted
and what did result, in each year. He determined that the reduction costs for the incremental
differences should be allocated to the government, because it caused the delay in beginning the
process.
The government objects to Mr. White’s use of the delay factor, arguing that it punishes the
government for something that was not entirely within its control. To remove the delay factor,
Mr. Low proposed a 9.09 percent reduction of the government’s allocation at Baytown and a 7.19
percent reduction of the government’s allocation at Baton Rouge. (See D-3031 at 102, 103). The
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government focuses on the master separator at Baton Rouge, presenting evidence that Standard
Oil had considered installing a master separator as early as 1937, but did not take steps to do so
until the war, when the government refused to approve it. (D-63 at 1).
The government’s approach, as presented by Mr. Low, asks the court to engage in hindsight
bias. In the 1930s, there was no acute need, no meaningful market incentive, and no significant
regulatory requirement for waste-processing improvements, such as the master separator. In the
1930s, although avgas demand was beginning to emerge, it was scant compared to the
overwhelming demand for avgas that would consume the world starting in 1941.
The government also points out that when Standard Oil sought the Petroleum
Administration for War’s approval to construct the Baton Rouge master separator in 1944, it did
not propose an alternative design that it had considered earlier. This alternative design did not
require concrete or steel to build. The government argues that the Administration would more
likely have approved this design than the one presented. The government notes that the separator
ultimately constructed after the war did not require either material. (See D-3031 at 70). But the
overwhelming evidence shows that materials shortages during the war were not the only reason
for denying or delaying waste-improvement projects. The Petroleum Administration for War also
routinely denied projects that might reduce avgas production in any way. Diverting resources, and
industry labor, to the separator construction when the refinery was required to operate around the
clock to maximize avgas production was a separate and sufficient factor. There is insufficient, and
insufficiently clear evidence, to allow the court to penalize Exxon based on hindsight speculation
as to why Standard Oil did not seek approval for a particular separator design.
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The court finds Mr. White’s delay-factor analysis to be reliable and supported by the record
evidence and expert testimony. The court adopts Exxon’s proposed delay factors in the allocation
methodology.
d)
Applying the Step One Analysis to Specific Periods
Based on the historical evidence and the methodology outlined above, Mr. White divides
the costs into different periods.12 For Baytown, these periods are:
Pre-War or Early Period (1910 until Mid-1941)
World War II Period (Mid-1941 until late 1945)
Post-World War II – Pre-Korea Period (late 1945 until Mid-1950)
Korea Period (Mid-1950 until Mid-1953)
Post-Korea Plancor Period (Mid-1953 until Mid-1955)
The Delay-Only Period (Mid-1955 through 1958)
Late Period (Mid-1955 through 1985)
The Period of Federal Involvement (Mid-1941 through Mid-1955)
(Docket Entry No. 339 at ¶ 747). For Baton Rouge, these periods are:
Pre-War or Early Period (1910 until Mid-1941)
World War II Period (Mid-1941 until late 1945)
Post-World War II – Pre-Korea Period (late 1945 until Mid-1950)
Korea Period (Mid-1950 until Mid-1953)
Post-Korea Plancor Period (Mid-1953 until Mid-1955)
Late Period (Mid-1955 through 1985)
The Period of Federal Involvement (Mid-1941 through Mid-1955)
(Docket Entry No. 339 at ¶ 787).
12
In its Phase 2 opinion, the court explained that it would divide the response costs into four time
periods:
(1) 1928 to 1941, the pre-World War II period during which only Exxon was involved at the
facilities;
(2) 1942 to 1945, the World War II period, which included wartime production of avgas and other
war products;
(3) 1946 to 1955, during which Exxon and the United States were involved at both facilities; and
(4) 1956 to the present, during which only Exxon was involved at the facilities.
Exxon II, 335 F. Supp. 3d at 942. The court finds that Mr. White has adopted these time periods and
adjusted them as necessary to make clear which periods relate to the parties’ involvement.
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e)
The Interim Results
Based on the methodology discussed above, the Step One allocation of costs to years are
as follows.
Baytown (Refinery and Baytown Ordnance Works):
Periods
Assigned Cost
Share
Early Period
$ 18,832,615
36.89%
WW2 Period
$ 9,460,393
18.53%
$ 11, 876, 250
23.26%
Korea Period
$ 4,312,227
8.45%
Post-Korea Plancor Period
$ 1,520,104
2.98%
Delay Only Period
$ 1,608,324
3.15%
Late Period
$ 3,438,830
6.74%
$ 51,048,743
100.00%
Post WW2 – Pre-Korea Period
TOTAL
Baton Rouge:
Periods
Assigned Cost
Share
Early Period
$ 10,631,616
40.82%
WW2 Period
$ 2,684,061
10.31%
Post WW2 – Pre-Korea Period
$ 3,945,484
15.15%
Korea Period
$ 1,758,812
6.75%
Late Period
$ 7,026,157
26.98%
$ 26,046,130
100.00%
TOTAL
(See Docket Entry No. 339 at ¶¶ 749, 789).
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3.
Step Two: Determining the Portion of Costs that are Associated with
the Periods of the Government’s Involvement and are Attributable to
War Products for which the Government is Responsible
The second step of the allocation model quantifies each party’s relative involvement and
responsibility, to assign the response costs. One dispute at this stage is how to allocate the costs
associated with the production of other petroleum products that were made as part of the avgas
production process during both World War II and the Korean War. A second dispute is whether
Exxon has sufficiently proven a “nexus” between wastes in certain sites needing remediation and
the period of federal involvement, as opposed to other causes from other periods. The government
argues that because Exxon has not shown the necessary nexus between government action and the
remediation costs, those costs should not be allocated to the government, but to Exxon.
Mr. Low resolves these disputes by proposing a 14.07 percent reduction in the
government’s allocation for the Baytown remediation costs and a 10.43 percent reduction in the
government’s allocation for the Baton Rouge remediation costs. Mr. Low offers several changes
in his underlying calculations to reach his proposed reductions. For Baytown, Mr. Low proposes
to reduce the allocation of avgas from 100 percent of crude throughputs to only 14 percent, with a
government share of 100 percent; set other war products at 86 percent, with a government share
of 40 percent; reduce the Korean War period avgas production from 100 percent to 1 percent, with
a government share of 40 percent; and reduce the government’s degree of involvement for the
plancors during World War II from 100 percent to 60 percent. For Baton Rouge, Mr. Low proposes
to reduce the allocation of avgas from 100 percent of crude throughputs to only 19 percent, with a
government share of 100 percent; set other war products at 81 percent, with a government share
of 40 percent; reduce the Korean Period avgas production from 100 percent to 1 percent, with a
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government share of 40 percent; and reduce the government’s degree of involvement for the
plancors during World War II from 100 percent to 60 percent. (See D-3031 at 102–03).
The government did not present credible or reliable evidence supporting many of Mr.
Low’s proposed modifications to Mr. White’s model. Some adjustments are appropriate, and they
are reflected in the court’s findings and conclusions and explained below.
a)
War Products v. Commercial Products
The parties dispute how to characterize the refineries’ output during the period of federal
involvement. The parties agree that high-octane aviation gasoline was produced solely for military
use and should be considered a “war product.” But the parties dispute whether other products
made during the period of federal involvement should also be considered “war products,” or
whether they are more accurately considered “commercial products.”
Exxon’s argument that all of its wartime production should be characterized as war
materials has two parts. First, Exxon argues that due to the fundamentals of petroleum refining,
the refineries could not make avgas without producing the slate of related products. Following
Exxon’s reasoning, these other products are necessarily war products because they were produced
in order to fulfill the government’s orders for avgas. Second, Exxon argues that while these other
products had commercial uses as well, Exxon sold them to the military for such essential wartime
uses as fuel for military cars and trucks and for weapons.
The government responds that because it did not operate the refineries, as the court held in
the Phase 1 opinion, it should not be allocated remediation costs associated with hazardous wastes
generated by producing products that were only incidental to producing avgas but not specifically
ordered as a wartime priority. The government argues that Exxon could have sold, and did sell,
these products, and presumably profited from them, on the commercial market, including during
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the war years. The government admits that “war products” includes more than avgas. The
government properly accepts responsibility for the remediation costs sufficiently linked to wartime
production of toluene, butadiene, Navy fuels, xylenes, and military lubricants, as additional war
products. (Docket Entry No. 340-1 at ¶ 214). But the government argues that these war products
made up only between 25 percent to 40 percent of the refineries’ crude runs. (See id. at ¶ 218).
Accordingly, the government argues, it should be responsible only for remediation costs associated
with hazardous wastes remaining from 25 percent to 40 percent of the refineries’ crude runs during
the periods of federal involvement.
The record evidence undermines the government’s argument that its responsibility is
limited to wastes generated by 25 percent to 40 percent of the Baytown and Baton Rouge crude
runs during World War II. Instead, the record evidence supports Exxon’s claim that all of the
crude runs at Baytown and Baton Rouge during World War II were for war products.
Contemporaneous documents describe both Baytown and Baton Rouge as achieving a 100
percent conversion of crude into war products. A 1943 document entitled “Production of War
products at Humble Oil & Refining Company’s Baytown Refinery” describes the Baytown
refinery’s operations for the production of war products. (P-40). The document explains the
breakdown between “war products” and other products:
On the basis of the current refinery input of 143,780 barrels daily of crude and 6,860
barrels daily of other raw materials, the output of war products is 31.1%. At first
glance it might appear that this represents less than one-third conversion to the
manufacture of war products but this is hardly true, since, in order that these war
products be made, it is unavoidable that other products, such as motor gasoline,
kerosene, heating oil, and residual fuel oil, be made as byproducts. . . . The current
production of war products represents essentially 100% conversion since all of the
crudes and other raw materials taken into the refinery are run specifically for the
production of one or more war products.
(Id. at A000395).
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A 1943 document from Baton Rouge prepared for a war agencies’ joint-inspection trip
shows a similar result at that refinery. (P-116). A flow chart describes all of the refinery’s 120,000
barrels of crude per day flowing into either “critical” or “non-critical” war products, but all flowing
into war products. (Id. at A000906).
Exxon’s expert witnesses agreed that the refineries could not produce only avgas from their
crude runs. (See Docket Entry No. 319 at 115). Other products, also critical to meet military needs
during the war, were necessarily produced as a slate of products in the process that produced highoctane avgas. (See P-40 at A000395). The evidence also showed that Exxon sold the government
not only the avgas produced at Baytown and Baton Rouge during the war years, but also other
products, including the slate of products incidental to avgas production. While some of these
products had commercial markets and uses, such as automobile gasoline and heating oil, Exxon
sold them to the government for military uses. (Id.).
The record shows that the byproducts of the slate produced with avgas could have been
characterized as waste. Mr. White testified that had Exxon disposed of the petroleum byproducts
necessarily created in avgas production, those byproducts would be characterized as avgas waste.
As Mr. White explained, “You scope based on what it takes to get there in the first place. You
either could have turned the avgas waste into waste and thrown it away—and by the way, in that
case, we wouldn’t be having all this debate because everything would be related to avgas. Or you
can take that avgas waste and turn it into war products.” (Docket Entry No. 293 at 56). In his
view, the fact that Exxon continued converting the “avgas waste” into useful byproducts did not
change the analysis. (Docket Entry No. 305 at 231–33).
Mr. White referred to United States v. Shell Oil Co., 13 F. Supp. 2d 1018 (C.D. Cal. 1998),
aff’d, 294 F.3d 1045 (9th Cir. 2002), in which the district court found the federal government
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responsible for the cleanup costs for a hazardous substance produced by the acid used in the avgas
manufacturing program, despite the fact that the oil companies were able to find a secondary use
for the acid in nonavgas products. “Without persuasive evidence that the secondary use of the
spent alkylation acid substantially aggravated the waste cleanup problems . . . beyond what they
would have been in the absence of that secondary use, the Court cannot say that the secondary use
of the spent alkylation acid by the Oil Companies materially aggravated the waste treatment
problems.” Id. at 1026.
The record supports a similar finding and conclusion here.
The record evidence
overwhelmingly shows that the federal government directed the owners and operators of the
nation’s crude oil refineries to convert their operations to produce as much of the avgas the military
desperately needed as fast as possible, and, to a lesser extent, to make products like motor gasoline
that also met military needs. (See P-70; P-71; P-72; P-73; P-74; P-75; P-76; P-77; P-55). The
evidence shows that when the Baytown and Baton Rouge refineries followed the government
directives, they sold the avgas the refineries produced and the slate of related products to the
government for military use. (See P-385). The evidence that the refineries were able to produce
other products with avgas, and the potential commercial application of those other products, does
not diminish the government’s responsibility for the cleanup of avgas-related waste. The record
evidence does not show that the production of these other materials in the slate aggravated the
cleanup problems from the avgas production, and, if it did, these other materials were also sold to
the government for wartime military needs.
The record supports Exxon’s argument that all these products were used for the war effort.
A 1943 Baytown document explained that although all the products it made were not labeled war
products, “they are nevertheless playing an important part in the nation’s war economy.” (P-40 at
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A000395). Mr. Gravel testified that many “ordinary” products were crucial to the national defense,
such as asphalt that was used to construct runways for airplanes; fuel and diesel oil used in the
Navy’s ships; and lubricating oils used for various military machines. (See, e.g., Docket Entry No.
272 at 153–54).
Perhaps the second-most important war product to be made at the refineries was motor
gasoline. While much of the trial testimony focused on the Petroleum Administration for War’s
control over avgas production, the record shows that the Administration also regulated the nation’s
supply of motor gasoline, sending specific directives to the refineries to increase or decrease
production. (See P-70; P-71; P-72; P-73; P-74; P-75; P-76; P-77; P-55). The History of the
Petroleum Administration for War described 80-octane, all-purpose gasoline, a type of premium
motor gasoline manufactured to Army specifications, as a war product, stating that “[i]f 100-octane
aviation gasoline was the war’s No. 1 glamor product, there is no question that 80-octane allpurpose gasoline was the No. 1 ‘jack of all trades.’” (P-16 at A000206).
A 1943 telegram from the Petroleum Administration for War’s Director of Refining to the
Director of District III explained its position on 80-octane production:
The military procurement services cannot obtain commitments to supply more than
a small portion of their requirements for 80-octane all-purpose gasoline under
specification 2-103B. Accordingly, it is necessary that you check immediately with
each refiner who indicated ability to manufacture this product and find out why he
is not offering gasoline meeting 2-103B to the Army, Navy, or Treasury
procurement in sufficient quantities. . . . Steps will be taken by you or by this office
to remove obstructions interfering with the manufacture of substantially the above
total. If the handling of premium grade gasoline as a separate product is causing
any trouble, premium can be eliminated from the market. If lack of crudes of
required type and quantity is interfering, arrangements can be made to assign crude
preferentially subject to the needs of higher priority products to those companies
who will produce 80 all purpose gasoline of the new specification. No compromise
can be made with the requirements of the ground forces, since in the last analysis,
it is just as important that the ground forces have motor fuel as it is for the air
services to have aviation gasoline.
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(P-73 at 613–615).
The federal government secured contracts for the sale of many of these additional products.
A Civilian Production Administration document contains an “alphabetical listing of Major War
Supply Contracts” from June 1940 through September 1945, and describes dozens of military
contracts with Baytown for other petroleum products, such as lubricating oil, gasoline fuel oil, and
kerosene. (See P-385 at 3745–55).
The government argues that it is implausible that none of the refineries’ products,
excluding avgas, were sold for commercial, civilian use. The government points to Exxon’s
expert, Mr. Gravel, who testified that it would be “ridiculous” to say that “there was no . . . gasoline
sold into the civilian market.” (Docket Entry No. 270 at 109). The government also notes that
during World War II, Humble Oil continued to sell motor gasoline to civilians through Humbleowned service stations. (Docket Entry No. 350-1 at ¶ 215).
The evidence the government cites allows the inference that Humble-owned service
stations were operational during the war and sold motor gasoline produced by some refinery. (See
D-1573 at 14). But the government did not produce or point to evidence of commercial sales from
Baytown and Baton Rouge specifically. To the contrary, the 1943 Baytown description explains
that much of the Baytown refinery’s production was instead sold to the federal government:
Only approximately 15% of the output of war products is sold directly to the Army
and Navy but under the terms of a Product Sales Contract between Humble and
Standard Oil Company of New Jersey [the parent company of both Baytown and
Baton Rouge] all products not sold directly by Humble in the territory in which it
markets are sold to Standard Oil Company of New Jersey. It is understood that
practically all of the war products sold to Standard Oil Company of New Jersey
under the Product Sales Contract eventually are delivered to the Army, Navy,
aircraft engine builders or contractors on jobs directly for the Army or Navy.
(P-40 at 000395).
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The government also argues that the production of avgas was “cleaner” than Exxon claims
because the refineries used imported feed stocks to create avgas. In the government’s view, the
imported feed stocks produced “modest amounts of waste” compared to on-site crude processing,
meaning that avgas production was cleaner than Exxon argues. (See D-21 at 20, 26; D-20 at 31;
D-19 at 3, 13–15, 22–23, 24; D-18 at 6–9, 11–14, 16, 28, 43). In contrast, Exxon argues that over
90 percent of the avgas was produced from crude oil and other on-site feedstocks that required
processing on-site. (Docket Entry No. 275 at 200–02). The court finds that Exxon’s evidence and
arguments, based on the expert testimony, were more reliable than the government’s, which relied
heavily on Dr. Kittrell’s and Dr. Oyekan’s testimony.
The parties describe this dispute as a debate over Dr. Kittrell’s “hierarchical rule.” Under
this “rule,” refineries preferentially use imported feedstocks first and refine or process them onsite only as a secondary step. Exxon presented the testimony of John Beath, a chemical engineer
and technical expert, who conducted a volume-balance analysis of the two refineries for the World
War II period. He concluded that over 90 percent of the avgas produced at the two refineries came
from on-site materials. (Docket Entry No. 339 at ¶ 261). This conclusion was supported by the
testimony of other experts, including Mr. Lerman, who credibly testified as to several reasons why
the refineries would use their crude-sourced feedstocks before imported feedstocks. (See Docket
Entry No. 273 at 163–65).
The hierarchical rule Dr. Kittrell espoused is not supported by the historical record. The
government relied on the testimony of Dr. Oyekan, who testified in place of Dr. Kittrell, that Dr.
Kittrell’s theory was supported by the record. Neither Dr. Kittrell nor Dr. Oyekan gave examples
or pointed to specific contemporaneous records. (Docket Entry No. 319 at 36–37). When asked
to explain Dr. Kittrell’s basis and his own basis for relying on the hierarchical rule, Dr. Oykan did
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not rely on primary sources or the historical record. (Id. at 34) (Q: And Dr. Kittrell says he stands
by that assumption [that imported stocks would have been used in preference to local material in
making aviation gasoline], essentially, based on the notion that we’re going to a lot of trouble to
move these components around during the war, they’re in short supply; and that’s how the planned
blending program worked; is that correct?” A: “That’s correct.”). Dr. Oyekan conceded that Dr.
Kittrell did not cite to any directives or other correspondence from the federal government during
World War II telling refineries to prioritize the use of imported materials over material generated
on-site in the production of avgas at Baytown or Baton Rouge. Nor did Dr. Oyekan know of any
support in the historical record. (Docket Entry No. 315 at 175). Dr. Oyekan also agreed that he
did not see any evidence that either refinery had any segregated tankage so that they could
preferentially use imported feedstocks before others. (Id. at 174).
In general, the court found Dr. Oyekan’s testimony to be primarily based on contemporary
refining practices and not reliable on the subject of World War II-era refining and waste
production.
His testimony relied much less than Exxon’s experts’ testimony on the
contemporaneous historical record. When asked whether he believed that waste generated by a
refinery in the wartime period was similar to waste generated by a refinery in 2020, he said “yes,”
but he acknowledged that he did not have data to make that conclusion. (Id. at 183–84).
In short, the record does not support a reduction in the government’s allocation of
remediation costs based on an assumption that Exxon used off-site feedstocks in the avgas
production at Baytown and Baton Rouge. The court finds that the two refineries’ entire production
during the wartime periods is properly characterized as war products. As a result, the court need
not determine whether the imported feedstocks used to produce avgas and the slate of related
products during World War II was entirely or only partly to make war materials.
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The weight of the credible evidence supports the conclusions that the Baytown and Baton
Rouge’s production during the period of federal involvement was of “war materials” and that the
government has significant responsibility for the costs to remediate the waste generated by that
production. The amount of the allocation to each party is addressed in the equitable allocation in
Step Three.
b)
The Federal Nexus and Relatedness of Response Costs
(1)
Baytown
At the bench trial, Exxon presented evidence of response costs at 23 Baytown units.13 The
government informed the court that it contested the federal nexus for only four of the units: Solid
Waste Management Unit 60 (Mitchell Point Landfill); Solid Waste Management Unit 64 (Old
Facility “S” / Landfarm); Solid Waste Management Unit 72 (Sludge/Slush Pit); and Solid Waste
Management Unit 73 (Sludge/Slush Pit). (Docket Entry No. 270 at 5–8).
Solid Waste Management Unit 60 is a former waste-disposal area located in the
southwestern part of the Baytown facility in an area known as Mitchell Point, adjacent to part of
Mitchell Bay. (P-714 at A010464; see also P-771). The Mitchell Point Landfarm was used for
the disposal of oily sludge and dredge spoils from the dock areas of Mitchell Bay, and butyl rubber
waste, from approximately 1930 to 1972. (P-714 at A010464; P-501 at A005637–38; Docket
Entry No. 274 at 87–90; Docket Entry No. 287 at 107). The government presented a witness who
13
The full list of units is: Solid Waste Management Unit 3 (South Landfarm); Solid Waste
Management Unit 8 (Separator 10); Solid Waste Management Unit 10 (Upper Outfall Canal); Solid Waste
Management Unit 11 (Lower Outfall Canal); Solid Waste Management Unit 22 (Velasco Street Ditch);
Solid Waste Management Unit 47 (Waste Clay Pile); Solid Waste Management Unit 59 (Old Sludge Pit);
Solid Waste Management Unit 60 (Mitchell Point Landfill); Solid Waste Management Unit 62 (Main Office
Building); Solid Waste Management Unit 64 (Old Facility “S” / Landfarm); Solid Waste Management Unit
69 (Old Separator 2); Solid Waste Management Unit 70 (Separator 3M); Solid Waste Management Unit 71
(Old Separator 12); Solid Waste Management Unit 72 (Sludge/Slush Pit); Solid Waste Management Unit
73 (Sludge/Slush Pit); Solid Waste Management Unit 74 (Old Separator 1); Waste Management Area 1;
Plume Areas 1–4; Baytown Ordnance Works; and Facilities Operation Area.
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testified that aerial photos from 1942 and 1944 showed evidence of waste disposal occurring in
the Mitchell Point area. (Docket Entry No. 327 at 207).
The evidence supports two main connections between the government’s involvement in
this period and the wastes requiring remediation at the Mitchell Point Landfarm. First, the 2000
Perimeter Solid Waste Management Units Investigation Report determined that Solid Waste
Management Unit 60 was used for the disposal of butyl rubber waste during the war years. (P-501
at A005637–38). The government-owned Butyl Rubber Plancor 1082, north of Solid Waste
Management Unit 60, operated from 1942 to 1955 and generated considerable amounts of
hazardous types of butyl rubber-related wastes. (See Docket Entry No. 339 at ¶¶ 26–32). This
evidence, and the location of the plancor, support finding a federal nexus at this site.
Second, Peter Gagnon, the Environmental Resources Management project manager and
engineer who worked on the cleanup at Baytown, demonstrated how the dredge spoils from the
Mitchell Bay dock areas adjacent to Solid Waste Management Unit 59 (sludge pit) and Solid Waste
Management Unit 69 (Separator 2) were placed in Solid Waste Management Unit 60 during World
War II. (P-790 at 17; Docket Entry No. 287 at 105–08).14 This connects another area of federal
14
Mr. Gagnon, an environmental engineer and employee of Environmental Resources
Management, was responsible in the early 2000s for directing investigations into whether there had been
releases from waste-management or disposal activities at Baytown. The investigations were required to
comply with the Resource Conservation and Recovery Act. (Docket Entry No. 287 at 22–23). After the
investigation, Mr. Gagnon would work with scientists and toxicologists to assess the information and
prepare reports for submittal to the state regulatory agency. He would also help develop the remediation
action plans if required, and oversee the operation and maintenance of ongoing groundwater managing
plans. Id. Part of his work involved reviewing the historical records, including the aerial photographs, to
determine potential sources for the contamination, as well as the Resource Conservation and Recovery Act
permit for the facility and the Environmental Resources Management investigation of the 22 Solid Waste
Management Units. (Id. at 49, 64).
The court found Mr. Gagnon to be a highly credible witness, knowledgeable both about the
historical record and the evidence as to the Baytown contamination and its links to the period of federal
involvement.
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involvement to the landfill, further supporting finding a federal nexus to the landfill hazardous
substances requiring remediation.
The government points to evidence that Solid Waste Management Unit 60 was used as a
landfarm from 1957 to 1973 to dispute its connection to all of the contamination at the site. Based
on aerial photography, the government estimates that 8,000 cubic yards of oily sludges were
disposed of in that unit over the 16-years it was used as a landfarm. (D-109 at 137; D-199 at 18–
19). But later landfarming does not eliminate the federal government’s nexus to the hazardous
substances contaminating that location as a result of avgas and related product production during
World War II. The evidence of later landfarm use supports allocating some of the costs to each
party.
The government argues that Exxon’s response costs at this site included steps taken to
remediate wastes generated outside the period of federal involvement, for which there is no federal
nexus and no basis under CERCLA to allocate costs to the government. According to the
government, the remediation implemented at Mitchell Point was limited to removing two small
soil “hot spots” and capping most of the former landfarming area, covering much of the eastern
half of Solid Waste Management Unit 60. (Docket Entry No. 341 at 153; D-3027 at 42 (showing
a composite of D-305 at 15 and D-279 at 56); D-305 at 3–4). But Mr. Gagnon testified that the
entire cleanup action was necessary to comply with the federal and state risk-based cleanup
standards and requirements, given the elevated levels of particularly toxic constituents in the
contaminated areas. Because of that toxicity, Mr. Gagnon explained, it was necessary to do risk
assessments of the soil and groundwater contamination to determine if the concentration levels
exceeded the risk-based screening levels—“the allowable concentration in soil and groundwater”
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—and “whether or not there’s a need to do remediation or if the concentrations present do not pose
an unacceptable level of risk.” (Docket Entry No. 287 at 69–71).
Mr. Gagnon also testified about the soil cap that was installed. He explained and
demonstrated with slides, including 1942 and 1944 aerial photographs, that the cap was installed
over the area where dredge spoils were disposed of in the southeast part of Solid Waste
Management Unit 60 during the wartime period. He noted that “the soil cover was on top of where
those historic waste management activities occurred.” (P-790 at 10; Docket Entry No. 287 at 78–
79).
The government makes much of the fact that a Resource Conservation and Recovery Act
cap is driven by contamination in the top two feet of soil, which Mr. Gagnon explained was the
case at this unit. (See Docket Entry No. 305 at 143–44 (“The presence of contamination in the
upper 2 feet was the driver. We needed to protect direct contact for workers at the site.”)). The
government argues that there is no basis to allocate it remediation costs for that contamination,
which likely occurred after the period of federal involvement ended. But Exxon presented
evidence of response costs incurred to address the contamination of the site as a whole. (See
Docket Entry No. 339 at ¶ 628). While the record shows that the cap directly affects only the
uppermost level of contamination, the cap also serves to contain contamination at lower depths.
(See Docket Entry No. 274 at 94 (“The capping that’s done . . . as part of the cleanup process, what
it, essentially, does is it’s a low-perforability cap that’s placed on top of it. And the reason why
that’s done is because it lowers the rain infiltration into areas beneath which have contaminants of
concerns that, essentially lowers the rate of which those contaminants dissolve in groundwater.”).
The record evidence supports finding both a federal nexus and federal involvement in the response
costs for Solid Waste Management Unit 60.
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Solid Waste Management Unit 64, known as the Old Facility “S” / Landfarm, is a former
landfarm in the northeast part of the Baytown facility, near the Velasco Street Ditch. (P-714 at
A010479; see also P-771). Mr. Gravel testified that Solid Waste Management Unit 64 was used
for the disposal of crude oil tank bottoms from approximately 1930 to 1971. (P-740 at 132; see
also P-714 at A010479–80; P-747 at 89). This connection supports a federal nexus at this location.
The government disputed the nexus, but presented no evidence to contradict Mr. Gravel’s
conclusion. The record evidence supports finding a federal nexus at Solid Waste Management
Unit 64.
Solid Waste Management Units 72 and 73 were earthen sludge pits in the central part of
the Baytown Facility. (P-714 at A0105105–10; see also P-771). These units were used to store
and dispose of oily sludge and spent caustics generated by refinery operations from approximately
1927 to 1956. (P-714 at A010506; P-740 at 132; P-747 at 89). Government experts Ms. Sitton
and Mr. Low agreed with this characterization in their reports. (D-279 at 11; Docket Entry No.
341 at 170–71) (Ms. Sitton reiterating this finding in her report); D-3021 at 64). While the
government stated in the bench trial that it disputed finding a federal nexus at these units, it
presented no evidence to contradict Exxon’s evidence. The record evidence supports finding a
federal nexus at Solid Waste Management Units 72 and 73. Exxon admits that these units have
not been the subject of a cleanup action, but submitted evidence that Exxon incurred investigation
costs for these sites. Those investigation costs are the only costs at this site.
Because the government did not contest the nexus for the remaining units, the court accepts
Exxon’s evidence and the testimony of its experts and finds a federal nexus at those units.
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The government also contests the relevance of Exxon’s response costs at the following
units: Solid Waste Management Unit 3 (South Landfarm); Plume Areas 1 through 4; and Tankfarm
3000.
The parties agree that Solid Waste Management Unit 3, also known as the South Landfarm,
was an unlined landfill and landfarm located in the southern part of the Baytown facility, and that
it received wastes from Separators 10 and 3M. Those Separators operated from the late 1920s
until the mid-1980s, which includes the period of federal involvement. (D-74 at 40, 67; D-78 at
1). Mr. Gagnon presented credible and reliable testimony that the response costs addressed wastes
that likely dated back to the period of federal involvement. The evidence shows a federal nexus
between the plume areas that require remediation and the costs of that remediation at Solid Waste
Management Unit 3.
The government argues that because both Separators were in continuous use at Baytown
until the mid-1980s, it should be allocated only a small share of the response costs for the South
Landfarm. In its posttrial briefing, the government argues that it should be allocated only 18
percent of the response costs associated with the South Landfarm. (Docket Entry No. 340-1 at ¶
302). Exxon responds that based on the size of the area and the concentration of the contaminants,
at least 41 percent of the total waste inventory in the South Landfarm at the time of the cleanup
had a federal nexus. (Docket Entry No. 339 at ¶ 553).
The government’s approach asks the court to speculate about the precise timing of the
wastes found in both the South Landfarm and the two Separators. The record does not sufficiently
support this division. The government’s argument is adequately and better addressed in applying
the equitable factors to arrive at the cost allocation.
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The four disputed plumes are specific areas of petroleum-related groundwater
contamination at the Baytown facility. They include: (a) Plume Area 1, located under a tankfarm
east of Docks 2 and 4 in the southwest part of the Baytown Facility; (b) Plume Area 2, located
under an area just north and east of Dock 1 in the southwest part of the Baytown Facility; (c) Plume
Area 3, located in the southern part of the refinery between Dock 1 and the Wastewater Oxidation
Unit in the south part of the Baytown Facility; and (d) Plume Area 4, located under a tankfarm
north of Bayway Drive and south of San Jacinto Avenue in the south central part of the Baytown
Facility. Each of these plume areas has one to four separate sub-plumes. (P-518 at A006147; P740 at 43 (Figure 5), 124; see also P-771 (Figure 1, Baytown Map)).
Exxon demonstrated a federal nexus at the areas of these plumes, which the government
did not contest, given their proximity to the government-owned plancors. But the government
disputes the relatedness of Exxon’s response costs, based on evidence of additional sources of
contamination after the period of federal involvement. (D-3031 at 32–37). While this evidence is
credible, it does not undermine the findings that the contamination and remediation costs in these
plume areas had a federal nexus and that the response costs are related to that nexus.
The Baytown Ordnance Works Plume is an area of groundwater contamination at the
Baytown Ordnance Works/Tankfarm 3000 site. Exxon presented and pointed to credible and
reliable evidence showing sources of contamination dating back to 1942. Government expert Ms.
Sitton found evidence of a “potential contamination source” at the Baytown Ordnance Works in a
1942 aerial photograph. In her report, Ms. Sitton stated that, “[a] dark-toned stained area was
noted in the northwestern end of this area in 1942.” (D-279 at 8; see also id. at 36 (Sep. 27, 1942
Baytown Aerial Photograph); see also Docket Entry No. 341 at 166). Ms. Sitton found evidence
of waste-type materials disposed of in close proximity to the eastern half of the free-product
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contaminant plume during the operation of the Baytown Ordnance Works. As she stated in her
report, “[a] disposal area was noted within this area in 1942 and 1944. In 1944, multi-toned
mounded material was present in the northeastern portion of this area.” (D-279 at 11; see also id.
at 36 (Sept. 27, 1942 Baytown Aerial Photograph), 39 (Apr. 11, 1944 Baytown Aerial
Photograph)).
The government argues that the court should limit its allocation for the Baytown Ordnance
Works Plume Area because additional sources of potential contamination postdated the period of
federal involvement. But Mr. Gagnon testified that his investigation of the Tankfarm 3000 Plume
Area revealed that while there were minor leaks in the recent past, none were significant
contributors to the hydrocarbons in the Plume Area. (Docket Entry No. 287 at 85). Mr. Gagnon’s
investigation also revealed that at least five chemicals found in the oil collected in the Tankfarm
3000 Plume Area were materials used at, or present in, the Baytown Ordnance Works while it was
owned by the government. (Docket Entry No. 287 at 86–87). The evidence shows a federal nexus
to sources of the hazardous substances contaminating the Plume Area and to the response costs
Exxon has incurred in that area. As with other areas, this evidence supports finding that both the
government and Exxon are responsible for the cleanup.
The court finds these Plume Areas appropriately included in the allocation to the
government, based on evidence of a federal nexus to the contamination at the units and to the
response costs.
(2)
Baton Rouge
At the bench trial, Exxon presented evidence of response costs at seven Baton Rouge
units.15 The government informed the court that it contested the federal nexus for three of these
15
The full list of units is: Shallow Fill Zone; Solid Waste Management Unit 1 (Rice Paddy
Landfarm); Solid Waste Management Unit 2 (Old Silt Pond); Solid Waste Management Unit 19 (APO/Oil
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units: Solid Waste Management Unit 1 (the Rice Paddy Landfarm); Solid Waste Management Unit
2 (the Old Silt Pond); and Solid Waste Management Unit 28 (the Propane Storage Area Landfill).
(Docket Entry No. 274 at 6–7). The government also challenged its nexus to, and responsibility
for, Exxon’s response costs for three of the units: the Shallow Fill Zone; Solid Waste Management
Unit 1 (the Rice Paddy Landfarm); and Solid Waste Management Unit 2 (the Old Silt Pond). The
substantial overlap between the two groups allows the court to address them together.
The Shallow Fill Zone is an expansive area of contaminated fill material in the Baton
Rouge facility. The Zone is adjacent to and east of the Mississippi River and west of the Illinois
Central Gulf Railroad lines and the process and tankage areas. The Shallow Fill Zone was the
location of a number of waste-processing facilities and waste units, including, for example, a
number of oil-water separators, the Old Silt Pond, the Rice Paddy Landfarm, and the Butyl Rubber
Waste Landfill. (P-747 at 93–94; P-740 at 211–13; P-404 at A003892–94; P-405 at A003899–
902). The Louisiana Department of Environmental Quality considered the Shallow Fill Zone, the
Old Silt Pond, and the Rice Paddy Landfarm to be interrelated because the wastes from the Old
Silt Pond were a source of hazardous-substance releases to the underlying Shallow Fill Zone and
groundwater and to the Rice Paddy Landfarm. (P-596; P-589 at A008310). The court looks at
each unit and its connection to the Shallow Fill Zone.
Solid Waste Management Area 2, also known as the Old Silt Pond, was an approximately
20-acre earthen waste-disposal basin, located in the Shallow Fill Zone area on the western part of
the Baton Rouge facility adjacent to the Mississippi River and just south of Callaghan’s Bayou.
(See P-772 (Figure 2, Baton Rouge Map)). The Old Silt Pond, built in the Shallow Fill Zone,
Water Separators)’ Solid Waste Management Unit 28 (Propane Storage Area Landfill); Solid Waste
Management Unit 29 (Butyl Rubber Landfill); and Solid Waste Management Unit 33 (North Batture
Landfill and Burning Pit).
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began operating in October 1945, and continued operating until it reached capacity in the late
1950s. (Docket Entry No. 339 at ¶ 590).
In the mid-1970s, Exxon solidified the silt previously deposited in the Old Silt Pond and
deposited the resulting material in the Rice Paddy Landfarm. (Docket Entry No. 318 at 113–15
(explaining that material from the eastern Old Silt Pond had been excavated and was likely taken
to the Rice Paddy Landfarm); D-218 at 139). Exxon then built a “new” Old Silt Pond—a fiveacre impoundment on the western side of the Old Silt Pond. (D-89 at 107; D-83 at 37; Docket
Entry No. 318 at 114 (“The western third contained an impoundment of liquid and material” in
1974); D-3027 at 21). The eastern portion of what had been the original 20-acre Old Silt Pond
was closed and the silt solidified to provide the additional space needed to support the installation
of the “Water Clarification Unit of Louisiana.” (D-280 at 7; see also D-24 at 36; D-238 at 104
(referring to the construction of the Wastewater Treatment Plant)). Aerial photographs from 1974
show excavation of the easternmost 16 acres of the 20-acre Old Silt Pond as part of this
construction. A north/south berm bisects the unit, consistent with the report on the preparations
for the Water Clarification Unit of Louisiana. (D-279 at 14 (noting the presence of berm and
dredging in the eastern portion of the unit); Docket Entry No. 318 at 114; D-3027 at 21).
By 1976, the treatment plant had been built in the eastern two-thirds of the Old Silt Pond.
The western third, where the new impoundment was located, had been drained of most its liquid.
(Docket Entry No. 318 at 115; see also D-3023). The impoundment was used for the refinery’s
waste through the 1980s.
Solid Waste Management Unit 1, also known as the Rice Paddy Landfarm, was an earthen
waste-disposal area located in the Shallow Fill Zone area on the western part of the Baton Rouge
facility next to the Mississippi River. See P-772 (Figure 2, Baton Rouge Map). The Rice Paddy
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Landfarm operated from approximately 1976 through 1988. (P-412 at A003999). The area had
been used as a landfill and disposal site for hazardous wastes since the early years of the refinery.
A 1987 Environmental Protection Agency report determined that the wastes deposited in the Rice
Paddy Landfarm area included “sludges and miscellaneous wastes.” (Id.). The Rice Paddy
Landfarm area was also used to dispose of other wastes or wastewaters from the Old Silt Pond
beginning at least as early as the early 1940s.
The government disputes the federal nexus for the contamination and response costs in the
Shallow Fill Zone, the Old Silt Pond, and the Rice Paddy Landfarm. The Louisiana Department
of Environmental Quality considered the Shallow Fill Zone, the Old Silt Pond, and the Rice Paddy
Landfarm to be “interrelated” because the Old Silt Pond was a source of hazardous-substance
releases to the underlying Shallow Fill Zone and groundwater, and the Rice Paddy Landfarm was
constructed over this area. (P-596; P-589 at A008310).
Exxon presented reliable and credible expert testimony showing the presence of historical
contamination in this area. Mr. Gravel explained that the Shallow Fill Zone was gradually filled
from the late 1930s to the 1950s with contaminated, oily silt from nearby Callaghan’s Bayou. This
Bayou was a waterway that received waste streams from both the refinery and the plancors. A
diversion chamber directed overflows from the refinery and plancor sewers to the Old Silt Pond
area. (Docket Entry No. 270 at 13–14, 31). Mr. Gravel’s testimony was consistent with, and
supported by, Mr. Grip’s analysis of the contemporaneous aerial photographs, which showed
overflows of Callaghan’s Bayou—including its pollutants—-as well as planned dredging to
expand waterfront access to the refinery. The dredging of Callaghan’s Bayou began in 1941 and
continued through the 1940s, and Mr. Grip testified that light-toned materials, likely attributable
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to dredge spoils, were observed in the photographs of Old Silt Pond area throughout the wartime
period. (Docket Entry No. 280 at 44; P-745 at 5).
Michael Pisani, the Environmental Resources Management consultant who worked at
Baton Rouge during the clean-up, also testified that the remediation investigations determined that
contaminated fill materials were placed in the Old Silt Pond area of the Shallow Fill Zone before
the mid-1950s. (Docket Entry No. 281 at 188). Mr. Pisani has both a civil and environmental
engineering background and worked for Environmental Resources Management at Baton Rouge
on compliance and remediation issues. The court finds Mr. Pisani to be a highly credible and
reliable witness, who understood and explained the conditions at the Baton Rouge refinery in light
of the applicable regulatory and historical context.
Mr. Gravel also identified the federal nexus to the contaminated wastewaters at the Rice
Paddy Landfarm, emphasizing that contaminated fill was moved in the 1970s from the Old Silt
Pond to the Rice Paddy Landfarm. (Docket Entry No. 270 at 30). Mr. Gravel also identified a
direct source of contamination, a sewer line that ran from the Polymerization Unit and the Light
Ends Catalytic Cracking Unit in the Baton Rouge refinery area serving the rubber plancors, to the
Rice Paddy Landfarm area. (Id. at 36–37). Exxon’s witnesses credibly determined aerial
photographs taken during the late 1930s to the 1950s as showing the discharge of liquid materials
from the Baton Rouge refinery’s impoundment basin to the discharge pipe south of the Rice Paddy
Landfarm. The witnesses also described the photographic evidence that the liquids overflowed
and inundated the low-lying southern half of the Rice Paddy Landfarm area and the Shallow Fill
Zone. (P-745 at 10).
A 1931 sewer map shows that a 48-inch concrete discharge pipe and sewer line connected
to the impoundment basin conveyed the wastewaters from the basin underground and ultimately
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discharged the wastewaters to an outfall area that is part of the Shallow Fill Zone, adjacent to the
south side of the Rice Paddy Landfarm. (P-277 at 2030; P-745 at 10). The government’s aerial
photograph expert, Ms. Sitton, did not undermine these conclusions. She acknowledged that she
did not have enough information to opine on certain features of the photographs and admitted that
she did not consider the historical evidence, such as the sewer map. (Docket Entry No. 341 at
178). The record evidence supports finding a federal nexus to the contamination in the Old Silt
Pond and the Rice Paddy Landfarm and therefore the Shallow Fill Zone.
The government also disputes the relatedness of the response costs for these areas. The
government focuses on Exxon’s argument that a federal nexus to its costs to clean up the Shallow
Fill Zone exists because that from the early days of the refinery until 1955, three million cubic
yards of waste from the refinery were used to fill the Shallow Fill Zone. (Docket Entry No. 3401 at ¶ 364; see Docket Entry No. 280 at 108). The government argues that aerial photographs from
1937 show that the Shallow Fill Zone had already been filled in before the period of federal
involvement began. (Docket Entry No. 318 at 105–06 (observing that the Shallow Fill Zone is
vegetated and includes a rail line through the area that became the Rice Paddy Landfarm); see also
D-3027 at 4). According to the government, waste associated with its involvement is not driving
the remediation at the Shallow Fill Zone because wastes with a federal nexus had already been
removed. (See Docket Entry No. 340-1 at ¶ 365). But Mr. Pisani testified that his 1986
investigation led him to conclude that the hydrocarbon contamination in the Shallow Fill Zone was
“from a historical deposition of materials’ throughout the area. (Docket Entry No. 280 at 120).
Mr. Pisani found it significant that the concentration of oil and grease increased in the areas further
away from the potential contemporary sources of contamination. (Id.). His testimony was credible
and reliable.
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The government argues that the response costs for the Old Silt Pond are associated with
the closure of the “new” Old Silt Pond, the five-acre unit that remained in operation after the
installation of the Water Clarification facility on the eastern part of the original, 20-acre Old Silt
Pond. (D-13 at 213 n.912 (“For the purposes of this report, since the OSP (the 5-acre unit closed
by ExxonMobil for which response costs are sought in this litigation) was originally a part of the
20-acre silt pond . . .”)). Because of the excavations, solidification, and draining that occurred in
this area before the new impoundment was constructed, the government argues that Exxon’s
response costs do not address the historical wastes that create the federal nexus. (D-89 at 298
(discussing the post-closure permit for the five-acre surface impoundment)).
Exxon’s remediation documents undermine the government’s argument. The documents
state that the closure plan was written for the “five-acre impoundment,” or the “new” Old Silt
Pond. (P-595 at A008380). On cross-examination, Mr. Pisani admitted that when he was
researching the project, he learned that the area was emptied in the 1980s. (Docket Entry No. 281
at 194). But Mr. Pisani also testified that the depth of the contamination driving the cleanup was
significantly deeper than he would expect it to be if it was caused only or primarily by more recent
or contemporary sources. (Id. at 154–55). He also testified, with support in the record, that the
potential source of the contamination was silt from the refinery’s once-through cooling water, a
practice that was used during the period of federal involvement until the 1970s. (Docket Entry
No. 281 at 158; see also P-785 at 138; Docket Entry No. 270 at 82).
The government did not present evidence that the earlier excavations had removed all or
most of the previously deposited waste and contamination in those five acres of the Old Silt Pond.
Even Mr. Low admitted that “it is possible that there is some waste at the bottom of the current . . .
new Old Silt Pond that stems from the period of time from 1945 through 1960 of silt deposit,”
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though he argued that the waste “is not terribly meaningful.” (Docket Entry No. 324 at 25). There
is credible and sufficient evidence of the federal nexus to the remediation efforts and costs Exxon
has incurred.
The government similarly questioned the relatedness of the response costs associated with
the Rice Paddy Landfarm. Mr. Pisani testified that Exxon attempted to address the contamination
found in the Rice Paddy Landfarm with natural degradation, which remediates only the top few
feet of contamination. But because Exxon found contamination in the underlying fill materials
deposited in earlier periods, Exxon had to stop the natural degradation efforts and install a
Resource Conservation and Recovery Act cap over the site to contain the underlying waste and
contaminated fill materials. (Docket Entry No. 281 at 161; P-622 at A008542).
Mr. Low argued that these efforts were largely driven by wastes deposited in the area in
the 1970s and 1980s, and that the government’s allocation at Baton Rouge should be reduced by
12.8 percent to reflect the exclusion of the Shallow Fill Zone response costs. (Docket Entry No.
324 at 31). Given the Louisiana Department of Environmental Quality’s conclusion that the
Shallow Fill Zone, the Old Silt Pond, and the Rice Paddy Landfarm are interrelated, the three sites
are properly considered together. The court finds the testimony of Exxon’s experts to be credible
and reliable as to the connection between these three sites and the federal involvement at the
refineries. As at Mitchell Point, the Resource Conservation and Recovery Act cap is connected
to, and in part driven by, the contamination at the lower depths at the site, as well as by
contamination closer to the surface. This conclusion is supported by both aerial photography
experts, including Ms. Sitton.
Solid Waste Management Unit 28, known as the Propane Storage Area Landfill, is a former
unlined landfill that was located on the south-central part of the Baton Rouge Facility. (See P-772
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(Figure 2, Baton Rouge Map)). After the landfill stopped receiving wastes, it was covered in
concrete and part of a propane storage unit was constructed at that location. (P-430 at A004078).
The Propane Storage Area Landfill was used to dispose of acid sludge and other wastes,
and operated from approximately 1910 to the early 1950s, including the wartime period of 1941
to 1955. (P-412 at A004014; P-431 at A004085; P-740 at 221). Ms. Sitton concurred that Solid
Waste Management Unit 28 was used for waste disposal during the wartime period. Her expert
report included the statement that “[i]n 1931 and 1941[,] this area contained a large vertical tank
surrounded by a berm. By 1945, the vertical tank had been removed and multi-toned material was
visible within the bermed area.” (D-279 at 17).
As with several of the units at the Baytown refinery, the government informed the court
that it was disputing the federal nexus to the contamination and remediation costs at this unit. But
the government neither presented nor pointed to evidence undermining Mr. Gravel’s conclusion
of a federal nexus. The credible and reliable record evidence supports finding a federal nexus at
Baton Rouge Solid Waste Management Unit 28.
The court recognizes the difficulty of determining what happened 50 to 100 years ago and
its impact on the degree of contamination up to the present. The court does not expect either side
to determine with precision the composition or source of the contamination across the years.
Credible record evidence shows that the contamination in these areas of the Baton Rouge facility
dates back at least to the 1940s, including the period of federal involvement. The court will address
the evidence supporting the nature and extent of additional, more recent sources of contamination,
and the amount of remediation costs allocated to each party, in the equitable allocation analysis.
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4.
Step Three: The Equitable Allocation
The third step of the production-based allocation requires the court to equitably divide the
wartime-related related costs that it determines to be subject to allocation. Both parties started
with the court’s Phase 1 holding that the government was not an owner or operator of the refineries
for CERCLA purposes, but that the government and Exxon jointly operated the plancors at the
refineries. See Exxon I, 108 F. Supp. 3d at 532. The court also held that the refineries and plancors
were part of a single facility at each site, which “subject[s] the government to liability for the
refineries regardless of whether the government actually operated them.” Id. at 517–21.
The parties proposed their own equitable divisions, based on the factors the court explained
in its 2018 summary judgment opinion it would consider at this phase: the “Gore” factors; the
“Torres” factors; and five factors of the court’s choosing.
The Gore factors include: (i) the ability of the parties to demonstrate that their contribution
to a discharge, release or disposal of a hazardous waste can be distinguished; (ii) the amount of the
hazardous waste involved; (iii) the degree of toxicity of the hazardous waste involved; (iv) the
degree of involvement by the parties in the generation, transportation, treatment, storage, or
disposal of the hazardous waste; (v) the degree of care exercised by the parties with respect to the
hazardous waste concerned, taking into account the characteristics of such hazardous waste; and
(vi) the degree of cooperation by the parties with the federal, state or local officials to prevent any
harm to the public health or the environment. See Valbruna Slater Steel Corp. v. Joslyn Mfg. Co.,
934 F.3d 553, 566 (7th Cir. 2019) (“Courts usually look to the ‘Gore factors’—named after thenCongressman Al Gore—to decide allocation.”); see also TDY Holdings, LLC v. United States, 885
F.3d 1142, 1146 n.1 (9th Cir. 2018) (listing factors).
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The Torres factors include: “(1) the extent to which the clean-up costs are attributable to
wastes for which a party is responsible; (2) the party’s level of culpability; (3) the degree to which
the party benefitted from disposal of the waste; and (4) the party’s ability to pay its share of the
costs. El Paso Nat. Gas Co., LLC v. United States, 390 F. Supp. 3d 1025, 1053 (D. Ariz. 2019)
The five added factors are: the knowledge and acquiescence of the parties in the
contamination-causing activities; the value of the activities to the national defense efforts; the
parties’ roles at the refineries and chemical plants; the parties’ intent to allocate liability; and postwar waste-handling improvements. See Exxon II, 335 F. Supp. 3d at 944–48.
The parties’ proposed allocations, and the court’s application of the equitable factors, are
analyzed below.
a)
Exxon’s Proposal
Exxon proposes that the government be allocated a 40 percent share of the response costs
for both avgas and other war productions assigned to the periods of federal involvement at both
Baytown and Baton Rouge. (Docket Entry No. 339 at ¶¶ 718, 719, 763, 764). Mr. White proposed
40 percent based on his “benchmarking” exercise, in which he compared the facts here to the facts
in other CERCLA decisions.16 The 40 percent figure represents a downward departure from
Exxon’s initial 60 percent proposal to reflect the court’s 2015 holding that limited the
government’s liability under CERCLA. (P-761 at 45).
16
Mr. White described his benchmarking process as “trying to screen a bunch of different decisions
to figure out what is a good analogue to this case so that you don’t end up randomly making some subjective
decision, but instead create a data set or a set of decisions where the fact patterns are similar and it allows
you to see what other people have grappled with to come up with those answers and what they are and it
informs you on how to set that level in the instant case.” (Docket Entry No. 305 at 245). Mr. White’s
description of the cases he used for benchmarking purposes can be found at Docket Entry No. 305 at 248–
255.
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The CERCLA allocation model Mr. White developed for the Baytown facility uses an
additional 20 percent level of government involvement for the plancors, bringing the allocation to
60 percent. This reflects the government’s ownership of the plancors in addition to operational
responsibility. (Docket Entry No. 293 at 62; see also P-763 at BAYTOWN-018). The model
assigns the government a 60 percent share of responsibility for the refinery’s naphtha flows
developed for, and sent to, the Baytown Ordnance Works to manufacture TNT during World War
II. (Docket Entry No. 293 at 62–63; see also P-763 at BAYTOWN-018; P-761 at 66–67). The
model assigns the government a 25 percent share of the refinery capacity in a typical year for the
Baytown Ordnance Works operations, reflecting the fact that the Baytown refinery produced
50,000 barrels per day of naphtha that it distributed to the Baytown Ordnance Works to
manufacture TNT during World War II. (Docket Entry No. 293 at 62–63; P-791 at 106–09). The
model also accounts for the 91 percent of product from the Baytown Ordnance Works that was
returned to the refinery for further processing to manufacture avgas and other war products during
World War II. (P-791 at 106–09).
At Baton Rouge, the CERCLA allocation model Mr. White used does not attribute an
additional level of involvement to the government for the plancors the government owned and
operated. (Docket Entry No. 293 at 103–05). Mr. White explained that because he did not have
the same level of detailed data for Baton Rouge that he had for the Baytown plancors, he decided
not to allocate any added costs to the government for the Baton Rouge plancors. (Id. at 104–05).17
For purposes of assigning costs to the government for its role in the refineries’ delay in
implementing waste-improvement processes, Mr. White assigned the government a weighted
17
Mr. White went on to clarify that there was detailed data available for the Baton Rouge plancors’
contribution to waste in the Monte Sano Bayou, but as waterways were excluded from consideration at the
bench trial, the costs were not included in his calculations. (Docket Entry No. 293 at 105).
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share of involvement in the CERCLA allocation for the Baytown facility from 1942 to 1945. The
weighted share for the delay was 45.93 percent. (Docket Entry No. 293 at 81; see also P-791 at
132). Mr. White assigned the government a 40 percent level of involvement in the CERCLA
allocation for the Baton Rouge facility during the 1942-1945 period to account for the delay. The
CERCLA level of involvement to the government for the delay period was 40 percent. (P-791 at
171).
Mr. White used an allocation method under both CERCLA and the contracts for avgas
production at the Baytown facility. (Docket Entry No. 293 at 17–19; see also P-791 at 45). The
avgas contract allocation for the Baytown facility assigned 100 percent of avgas-related costs to
the government during World War II. (Docket Entry No. 293 at 6, 17–20; see also P-791 at 45).
The avgas contract allocation that Mr. White developed for the Baytown facility takes into account
that producing avgas required producing a broad slate of other products also used for the war. The
remediation costs for the hazardous substances generated by that production are properly covered
by the avgas contract allocation. (Docket Entry No. 293 at 6).
Mr. White’s avgas contract allocation for the Baytown refinery results in an incremental
contract allocation of 5.84 percent to the government during the covered period. (P-763 at
BAYTOWN-024). Mr. White’s avgas contract allocation for the Baytown refinery extends
coverage for the elements measured in Mr. White’s delay calculation, because those calculations
are based on decisions made during the period covered by the avgas contracts. (Docket Entry No.
293 at 13; P-763 at BAYTOWN-024).
Mr. White’s avgas contract allocation for the Baton Rouge refinery results in a 7.41 percent
allocation to the government during the delay-covered period. (P-763 at BATON ROUGE-022).
The avgas contract allocation for the Baton Rouge refinery results in an incremental contract
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allocation of 4.44 percent to the government during the delay-covered period. (P-763 at BATON
ROUGE-022).
The results of Mr. White’s allocation are as follows:
At Baytown, the government would be liable under CERCLA for an allocated share of
29.67 percent for past response costs incurred at the refinery and 36.54 percent for past response
costs incurred at the Baytown Ordnance Works and Tankfarm 3000 Area. The following chart
shows Mr. White’s Baytown allocation:
(Docket Entry No. 339 at ¶ 749).
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At Baton Rouge, the government would be liable under CERCLA for an allocated share of
19.4 percent for past response costs incurred at the refinery. The following chart shows Mr.
White’s Baton Rouge allocation:
(Docket Entry No. 339 at ¶ 789).
b)
The Government’s Proposal
For the bench trial, the government used Mr. White’s production-based approach that the
court had earlier found to be the more reliable and credible allocation method. See Exxon II, 335
F. Supp. 3d at 941. The government asks the court to make changes to that method to adjust for
what the government sees as the more reliable and credible record evidence supporting the amounts
each party must pay. The government’s approach deviates most from Exxon’s at Step One and
Step Two of the allocation method. At Step Three, the government’s proposal is relatively close
to Exxon’s proposal.
The government proposes that it receive a 100 percent allocation of remediation costs for
avgas; 40 percent for other war products; and 67 percent for the Baytown Ordnance Works. (See
Docket Entry No. 340-1 at ¶¶ 288–90). The government states that Exxon “agrees” with this 100
percent allocation for avgas contamination during the years of federal involvement.
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government is correct in the sense that the contract allocation leads to the same result, but the
parties use different methods to get there.
Both parties agree to allocate 40 percent of the remediation costs for war products during
the war years to the government, but the government adopts a more limited view of war products,
resulting in a much smaller allocation of costs to that category. At the Baytown refinery during
World War II, Mr. Low allocates 14 percent of costs to avgas, at a 100 percent government share,
30 percent to other war products, at a 40 percent government share, and 56 percent to civilian
products, at a 0 percent government share. (Docket Entry No. 326 at 167; see also D-3031 at 106,
109). At the Baton Rouge refinery, during World War II, Mr. Low allocated 19 percent to avgas,
at a 100 percent government share, 30 percent to other war products, at a 40 percent government
share, and 51 percent to civilian products, at a 0 percent government share. (Docket Entry No.
326 at 167; see also D-3031 at 105). Mr. Low reduces the percentage of costs allocated to avgas
to reflect the government’s theory that the refineries used avgas imports that generated less waste.
(D-3031 at 109). The government also proposes a unit-by-unit equitable allocation to reflect its
criticisms of the federal nexus and the lack of causal relationship between federal involvement and
the response costs for certain units. Because the court addressed the unit-specific information at
Step Two, that need not be discussed again. See supra II.B.3.b).
Accounting for the changes the government proposed in the earlier allocation steps in its
proposal for the impact of the equitable factors, the government proposes the following allocation
of its liability for the remediation costs at issue: for the Baytown refinery, 2.36 percent; for the
Baytown Ordnance Works, 1.86 percent; and for the Baton Rouge refinery, 0.46 percent.
A chart of the competing allocation percentages is set out below for side-by-side
comparison:
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Baytown
Exxon’s Proposal for
Government Allocation
29.67%
Government’s Proposal for
Government Allocation
2.36%
Baytown Ordnance Works
36.54%
1.86%
Baton Rouge
19.4%
0.46%
c)
Analysis: The Court’s Equitable Allocation, Including the
Equitable Factors
The analysis of putting the various data points together with the equitable factors is set
out below, factor by factor, and then together.
(1)
Knowledge and Acquiescence of the Parties in the
Contamination-Causing Activities
The court substantially addressed this factor in its 2018 summary judgment opinion,
stating as follows:
The record evidence shows that the United States, through its orders and directives
that Exxon maximize avgas production, knew that the production would generate
substantial amounts of hazardous wastes. Gregory Kipp testified that “the [United
States] recognized the consequences its directives had on waste generation and
disposal. Indeed the [Petroleum Administration for War] recruited ‘its executive
and technical personnel . . . mainly from oil companies,’ and so staffed the agency
with personnel well-qualified to understand the current disposal capacity of the
industry—and who also knew that increased production would necessarily create
increased waste, and that new wartime production demands would create new and
increasingly toxic forms of waste.” . . . Although the United States did not own or
operate either refinery, it was aware of and acquiesced to the contamination-causing
activities at the refineries.
Exxon II, 335 F. Supp. 3d at 944.
The court finds that the full record, including the evidence presented at the bench trial,
amply supports the court’s earlier finding that the government was aware of, and acquiesced in,
the contamination-causing activities at the Baytown and Baton Rouge facilities during the period
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of federal involvement. As the historian witnesses made clear, the Petroleum Administration for
War was fully aware of the nature of full-bore, full-capacity avgas production and the wastes it
would generate, either as byproducts or pollution.
According to the government-written and published document, The History of the
Petroleum Administration for War, the Administration knew that the production of avgas and other
petroleum products, such as motor gasoline, were not mutually exclusive. Some of the products
were produced as part of the slate that avgas production entails. As the History states, “there were
many in authority who failed to understand the nature of the production problem involved and who
clung to the view that ‘gasoline is gasoline,’ apparently believing that the refineries had only to
cease shipments to civilians in order to turn out an ocean of 100-octane.” (P-16 at A000182). The
authors went on to explain that the 100-octane program was different from other programs because
of the byproducts inherently produced:
A fifth difference in the 100-octane program, as compared with others, is the fact
that 100-octane cannot be produced alone. Its production is essentially a procedure
for extracting by-products of petroleum refining operations. The by-products are of
great value, but they are still byproducts of petroleum in various forms, caught as
the crude oil goes through the refinery in process of being broken down into its
parts, purified and concentrated. And Exxon’s predecessors sold the products,
including those that could have been sold for civilian commercial as well as for
military use, to the armed forces for military purposes.
(Id. at A000195). The History was written shortly after the end of World War II. It draws on
wartime records and information; it is essentially a contemporaneous account. It is a highly
credible source of evidence for the government’s knowledge during this period.
The record also clearly establishes that the Petroleum Administration for War and other
government agencies purposefully and consistently allocated essential raw materials to ensure
maximum war product production, not to ensure proper waste handling. A 1942 War Production
Board, War and Navy Departments memo issued to division engineers stated that all construction
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“shall be of the cheapest, temporary character with structural stability only sufficient to meet the
needs of the service which the structure is intended to fulfill during the period of its contemplated
war use.” (P-708 at A010403). A 1944 Petroleum Administration for War memo sent to “all
petroleum refiners,” stated that:
[u]p to the present time the Refining Industry has been essentially restricted to new
construction work which represented the barest minimum which would achieve the
end of supplying the most critical war products. This policy has been necessitated
by the extreme demands for construction materials and construction labor which
the war had placed upon the entire country’s economy.
(P-85). As a result, the government restricted or cut off the refineries’ access to the materials and
skilled labor necessary to improve hazardous-substance processing and disposal.
At the same time, the government instructed the refineries to maximize the production of
avgas and other war materials, operating all day, every day, minimizing delays, and avoiding
partial, much less plant-wide, shutdowns for maintenance and repairs. The government did so
knowing that the increase in the volume and rate of production, while definitely much needed,
would generate more hazardous wastes. The government did so knowing that there was scant
preparation for managing and disposing of those increased wastes without environmental
contamination.
The government also knew the limits of the handling capacity of the federally owned
plancors. A May 16, 1946, letter from the Deputy Director of the Office of Rubber Reserve
described the situation at the plancors’ industrial waste-treatment and disposal facilities: “Many of
the facilities were designed to meet only the minimum requirements because the more
comprehensive program in many instances could not be justified in the war emergency and the
scarcity of critical materials.” (P-235).
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The court does not suggest that the government focused on, or knew, or that it could or did
predict, the full impact the expanded wartime production and limited waste-handling procedures
would have on the environment.
But even during the period of federal involvement, the
government knew that the increased wartime material production meant increased hazardouswaste generation and deposits in ground areas near sensitive bodies of water, and in the ponds,
bayous, or bays that fed major bodies of water. The government knew that the war material
production it required, directed, or participated in during the years of federal involvement had a
lasting and extreme environmental impact. The U.S. Army Corps of Engineers’ concern about the
Baton Rouge Facility’s pollution of the Mississippi illustrates this knowledge and acquiescence.
(See P-109).
The government made the decision that winning the war was a benefit that outweighed the
environmental risks and costs. We won the war, leaving hazardous waste contamination at the
refineries that helped the war victory. The taxpayers benefitted when the war was won; they should
now pay their share of the costs to clean up the contamination. The government’s knowledge and
acquiescence supports a substantial allocation of the response costs to the government.
(2)
The Value of the Activities to the National Defense
Efforts
The parties do not dispute that petroleum engineering played a significant role in the
American victory in World War II. As Ralph Davies, the Deputy Administrator in the Petroleum
Administration for War, told the United States Senate Special Committee after the war’s end, “[o]n
all counts, 100-octane was the lifeblood of the United Nations in the air.” (P-17 at A000235).
Dr. Brigham presented evidence that the refineries, nationally as well as at Baytown and
Baton Rouge, profited during the war periods, in part because of heavy federal investment in the
industry. Dr. Brigham characterized the relationship between the federal government and the
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refineries as a cooperative one, in which the oil industry and the government stood to benefit from
mutual involvement. That does not diminish the value of petroleum industry’s contribution to the
nation’s military success. The problem is how to quantify that value.
Shell Oil, 13 F. Supp. 2d at 1020, is instructive. In that CERCLA case, the court also had
to “take a long delayed hindsight view and make an appraisal of what was done to win a war.” Id.
The court found that allocating to the government 100 percent of the costs to clean up the
hazardous-waste contamination resulting from the avgas and war material production during the
war “simply places a cost of the war on the United States and thus on society as a whole.” Id. at
1027. That applies here as well. Baytown and Baton Rouge, two of the nation’s largest refineries
during World War II, were responsible for a significant share of federal wartime supplies.
Baytown was the largest manufacturer of avgas by 1939 and produced 40 percent of the nation’s
nitration-grade toluene. (P-150; see also P-149 at A00133).
The value of these activities to the American military effort supports a significant allocation
to the government.
(3)
The Parties’ Roles at the Refineries and Chemical Plants
Applying this factor requires the court to consider the parties’ respective roles as operators
at the two refineries and associated chemical plants. Although the refinery and chemical plants at
each of the two locations are treated as a single CERCLA facility, the court held in Phase 1 that
the government was not a CERCLA “operator” at the refineries because it did not exercise direct
control over the production of avgas components or waste disposal at the refineries. Exxon I, 108
F. Supp. 3d at 525–30. By contrast, the court held that the government was an operator of the
Baytown and Baton Rouge plancors because “[t]he government’s direction of certain aspects of
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the synthetic-rubber plant operations and the waste disposal activities make it liable as a prior
operator.” Id. at 531.
Exxon’s historian witness, Mr. Gravel, presented significant and persuasive evidence of
the government’s involvement in the production of avgas, synthetic rubber, and other war materials
during World War II and the Korean War. Dr. Brigham, the government’s historian, confirmed
much of Mr. Gravel’s testimony. They painted a vivid, and largely consistent, picture of how
broad and deep the government’s involvement was. That involvement ranged from providing
economic pressure and incentives for the refinery owners to enter into contracts with the
government to produce avgas and other war materials, to requiring the refineries to maximize their
production efforts and outcomes, to limiting the refineries’ access to raw materials and skilled
labor. But the government’s involvement in the refineries falls short of that necessary for liability
as an operator. The record evidence does not cause the court to change its 2015 holding that the
government was not an operator of the refineries and accordingly not liable for the hazardous
wastes at the refineries as separate sites.
This holding does not undermine the validity of the allocation to the government. The
allocation method the court applies accounts for the government’s extraordinary involvement in
the two refineries during the period of federal involvement. The method treats all crude runs as
directed toward war products; treats most of the sites in which there were waste streams during the
period of federal involvement as having a federal nexus and the response costs as related to that
nexus; penalizes the government for the decisions to deny waste-improvement projects during
World War II; recognizes Exxon’s role in pre-war failures to improve waste-handling processing
and structures; and credits Exxon for its comprehensive and expedient steps to design, build, and
implement waste-handling programs after the war was over. The court finds this model accurate
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and reliable, and the testimony and evidence supporting it credible, despite the difficulties in
looking back almost a century to reconstruct the impact of, and responsibility for, what both parties
did or failed to do.
At the same time, the court recognizes that the purpose of CERCLA is to impose the costs
to clean up hazardous substances on “owners and operators of facilities at which hazardous
substances are located.” See 42 U.S.C. § 9607(a)(1)–(2). Both the Baytown and Baton Rouge
refineries and chemical plants are properly treated as single facilities. The evidence amply
established that the combination of the high temperature and pressures, and the nature of elements
needed, for the refining process, combined with swiftly expanded production of avgas and other
products, an aging infrastructure, and deferred or delayed maintenance and repair, produced large
amounts of waste from the turn of the 20th century through the period of federal involvement and
after.
The refineries continued to operate through the 1980s, when the investigations leading to
this case began, and continue to operate today. They continue to produce waste and contribute to
the response costs Exxon incurred and will incur. Exxon’s post-war activities, even considering
its waste-processing improvement program, support allocating Exxon a higher equitable share to
reflect its responsibility as owner and operator at both facilities.
This factor supports a lower equitable share for the government.
(4)
The Parties’ Intent to Allocate Liability
Applying this factor requires the court to consider whether there is an indemnification
agreement demonstrating “the parties’ intent to allocate liability among themselves.” Halliburton
Energy Servs., Inc. v. NL Indus., 648 F. Supp. 2d 840, 863 (S.D. Tex. 2009). The evidence
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included copies of three contracts for producing avgas between the Baytown and Baton Rouge
refineries and the Defense Supplies Corporation during World War II. 18
The first avgas supply contract was between the Defense Supplies Corporation and
Standard Oil of New Jersey, and extended from January 13, 1942, to February 28, 1946. (P-52 at
A000484). The parties refer to this avgas supply contract as the Master Suppliers Contract. This
contract provided that both Humble and Standard Oil of Louisiana were two of Standard Oil of
New Jersey’s “Suppliers” and that the avgas manufactured at both the Baytown and Baton Rouge
refineries under the contract with Standard Oil of New Jersey would be supplied by Standard Oil
of New Jersey to the Defense Supplies Corporation. (Id. at A000472).
The second avgas contract, effective from February 4, 1942, to February 28, 1946, between
the Defense Supplies Corporation and Humble, called for Humble to produce avgas at the Baytown
refinery for sale to the Corporation. (P-53 at A000509). This contract provided that Humble was
one of Standard Oil of New Jersey’s “Suppliers” of avgas for ultimate sale to the Defense Supplies
Corporation, and that Humble would also sell avgas from the Baytown refinery directly to the
Corporation. (Id. at A000501–02).
The third contract was between Standard Oil of Louisiana and the Defense Supplies
Corporation and was effective from February 16, 1943. (P-54). This third contract incorporated
by reference the terms and provisions in the 1942 Master Suppliers Contract for the production of
avgas at the Baton Rouge refinery for sale to the Corporation. (Id.).
The Master Suppliers Contract contained the following cost-reimbursement provision:
Buyer shall pay in addition to the prices as established in Sections IV and V hereof,
any new or additional taxes, fees, or charges, other than income, excess profits, or
corporate franchise taxes, which Seller or its Suppliers may be required by a
18
Exxon presented credible evidence that there were additional supply contracts between the
federal government and Humble Oil for other petroleum products, but Exxon did not submit the contracts
or contract language addressing indemnification.
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municipal, state or federal law in the United States or any foreign country to collect
or pay by reason of the production, manufacture, sale or delivery of the
commodities delivered hereunder.
(P-52 at A000491). The two other wartime avgas contracts, one for the Baytown facility and the
other for the Baton Rouge facility, contained the same cost-reimbursement provisions. (P-53 at
A000513, P-54 at A000519–20).
As the court explained in the Phase 2 opinion, “[b]ased on the reasoning in [Shell Oil Co.
v. United States, 130 Fed. Cl. 8 (2017) (“Shell IV”)], allocating 100 percent of the response costs
to the United States and the reasoning in [Shell Oil Co. v. United States, 896 F.3d 1299 (Fed. Cir.
2018) (“Shell V”)], affirming that allocation, the parties’ allocation of liability in the avgasproduction contracts weighs in favor of imposing a larger equitable share of the cleanup costs on
the United States.” Exxon II, 335 F. Supp. at 946. In the Shell cases, the Federal Circuit held that
identical language required “the government to indemnify the Oil Companies for CERCLA costs
incurred ‘by reason of’ the avgas contracts.” Shell Oil Co. v. United States, 751 F.3d 1282, 1293
(Fed. Cir. 2014). The Federal Circuit interpreted “charges” to include “costs” and found that the
plain language of the contract provision meant that “CERCLA costs are ‘charges’ within the
meaning of the relevant contract provision[:] . . . . The avgas contracts promise reimbursement of
‘any new or additional . . . charges’ the government imposes on the Oil Companies ‘by reason of
the production, manufacture, sale or delivery of [avgas].’” Id. This court follows the reasoning of
the Federal Circuit and its holding that the avgas contracts require the government to reimburse
Exxon for CERCLA charges incurred “by reason of the production, manufacture, sale or delivery
of [avgas].” See id. at 1292.
The Baytown Ordnance Works “operating contract” contained a cost-reimbursement
provision as well. That provision stated:
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The Government shall bear all cost and expense of every character and description
incurred by the Contractor, when approved or ratified by the Contracting Officer,
in connection with the design, construction, equipping and operating of said Plant,
or any part thereof (including equipment, alterations, maintenance and closing
down), which costs and expenses shall include but shall not be limited to the
following items, to wit: . . . .
(P-139 at A001027). This provision shows that the government intended to reimburse Exxon’s
predecessors for all “cost and expense” related to the “operating” of the Baytown Ordnance Works,
which includes the CERCLA costs Exxon has incurred and will incur to remediate the site.
The court finds that Mr. White’s avgas contract calculations for the Baytown and Baton
Rouge facilities are consistent with the approach applied in Shell. These cases recognize that avgas
and the slate of products related to, or necessitated by, the production of avgas, are covered under
the avgas contracts. (Docket Entry No. 293 at 117–18; Docket Entry No. 327 at 222–28). Mr.
White’s CERCLA and contract allocations for the Baytown and Baton Rouge facilities follow the
“one facility” approach described in Exxon I and are part of this court’s findings and conclusions.
(5)
The Post-War Waste-Handling Improvements
The refineries’ post-war waste-handling improvements were discussed in detail in Section
II. See supra Section II.B.2.b). The court’s 2018 opinion found and concluded that, “based on the
present record, it is clear that the United States has undervalued the benefits and allocation impact
of Exxon’s post-wartime waste-reduction measures.” Exxon II, 335 F. Supp. 3d at 948. The full
record, including the evidence presented since 2018, is consistent with that finding and conclusion,
particularly in light of the allocation method the government proposed in the bench trial. While
the data may not be perfect, there is ample, credible evidence showing the numerous wasteimprovement programs implemented in the Baytown and Baton Rouge refineries after the period
of federal involvement, which the government did not credit in its allocation model. This factor
supports increasing the share of the remediation costs allocated to the government.
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5.
Findings and Conclusions Applying the Equitable Factors
The court finds and concludes that the government’s allocation is as follows: at Baytown,
the government is liable under CERCLA for an allocated share of 24.67 percent for past response
costs incurred at the refinery and 36.54 percent for past response costs incurred at the Baytown
Ordnance Works / Tankfarm 3000 Area. At Baton Rouge, the government is liable under
CERCLA for an allocated share of 14.4 percent for past response costs incurred at the refinery.
The court adopts Mr. White’s production-based allocation, but, based on the equitable
factors discussed above, the court reduces the government’s allocation for the remediation costs at
each facility by five percent. The court finds and concludes that this reduction is appropriate based
on the government’s role at the refineries compared to Exxon’s role, and based on the limitations
of measuring the effect of the waste-processing improvements achieved from the 1950s through
the 1980s. The court does not reduce the allocation for the Baytown Ordnance Works because of
the government’s ownership of the site.
C.
Prejudgment Interest, Run Rates, and Consultant Costs
The court’s Phase 2 opinion issued in 2018 held that an award of prejudgment interest was
premature because the court had not equitably allocated the costs among the parties; an award of
run rate costs was premature because Exxon’s claimed costs for the run rate are estimates of its
costs between 2015 and 2019; and an award of consultant investigation costs was premature
because Exxon had not produced invoices, proof of payment, or other documents for these costs.
Exxon II, 335 F. Supp. 3d at 930. Because the court has now equitably allocated the costs between
the parties, and they have stipulated to the proof of payment for these costs, these three issues can
now be addressed.
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First, the government must pay interest on the allocated amounts at the rate specified in
section 107(a) of CERCLA, 42 U.S.C. § 9607(a), beginning on July 15, 2004 or the date of the
expenditure concerned, whichever is later, and running to and including the date of payment.
(Docket Entry No. 339 at ¶ 687; Docket Entry No. 340-3 at ¶ 5).
Second, the parties stipulated that the “run-rate” costs Exxon has estimated at the Baytown
and Baton Rouge facilities from 2015 to 2019 are properly treated as future costs, rather than as
past response costs. These costs are not included in the court’s quantification of recoverable past
response costs incurred through December 2014 and the associated prejudgment interest. The
parties agree that, in the event the court enters a declaratory judgment of liability for future costs,
that judgment will specify that reimbursements of future costs incurred in 2015 to 2019 will
include prejudgment interest. (Docket Entry No. 261 at 16).
Third, Exxon did not raise the issue of consultant costs at trial or in its posttrial briefs. In
its proposed findings of fact and conclusions of law, Exxon stated that it had incurred $250,000 in
potentially responsible parties investigations at Baytown and Baton Rouge. (Docket Entry No.
261-4 at ¶¶ 635, 637). The government disputed this figure, arguing that “Exxon has never done
more than state this figure.” (Id.). Neither party addressed this issue at the bench trial or in posttrial
briefing. The court will not consider this issue.
D.
Declaratory Judgment
In the 2018 Phase 2 opinion, the court held that it would enter a declaratory judgment
assigning the government its share of the future cleanup costs at the units where Exxon has already
incurred past remediation costs, based on the government’s share of the past costs the court
determined at this Phase 3 bench trial. Exxon II, 335 F. Supp. 3d at 949. The court declined to
enter a declaratory judgment setting the ultimate amount the government would have to pay, or to
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enter a declaratory judgment that Exxon is entitled to recover some portion of the future costs
related to remediation activities at the adjacent waterbodies and the underlying sediments in those
bodies, where Exxon has not yet incurred any past remediation costs. Id. at 950.
In a cost-recovery action under section 107 of CERCLA, “the court shall enter a declaratory
judgment on liability for response costs or damages that will be binding on any subsequent action
or actions to recover further response costs or damages.” 42 U.S.C. § 9613(g)(2). A court will
award a declaratory judgment setting a percentage liability for future response costs in contribution
actions as well. See, e.g., Boeing Co. v. Cascade Corp., 207 F.3d 1177, 1191–92 (9th Cir. 2000)
(affirming the district court’s decision to allocate a cleanup site’s future costs and past costs in the
same way because the record disclosed enough facts to determine each company’s responsibility
for the contamination, even if the amounts of the future costs were unknown); Tosco Corp. v. Koch
Indus., Inc., 216 F.3d 886, 897 (10th Cir. 2000) (“[F]uture response costs are likely to be incurred,
but the exact amount remains unknown, a judgment on proportional liability is an appropriate
remedy.”).
Now that the court has determined the equitable allocation, the record is sufficient to allow
the court to enter a declaratory judgment assigning the government the same share of the future
remediation costs at the units where Exxon has already incurred past remediation costs, as
determined in this opinion. Under the parties’ stipulation, the declaratory judgment applies also to
Exxon’s run-rate costs. (See Docket Entry No. 261 at 16).
The court will not enter a declaratory judgment for the remediation costs for the adjacent
waterbodies or in units where Exxon has not already incurred past response costs, as described in
this bench trial. As the court explained in the Phase 2 opinion, the facts necessary to reliably and
equitably allocate responsibility for the costs to remediate the contamination in the adjacent
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waterbodies are not sufficiently developed. Exxon II, 335 F. Supp. 3d at 950. The court would
have to speculate beyond what the case law and statute permit. A declaratory judgment allocating
future costs to clean up the contamination in the adjacent waterbodies and the sediments they
contain, and other areas of contamination for which Exxon has not yet determined the amount and
source of the contamination, taken response actions, or incurred past cleanup costs, is premature.
Nor will the court enter a declaratory judgment allocating future costs at the units where
Exxon has not provided evidence of past response costs. At Baytown, these units are the: Solid
Waste Management Unit 64 (the landfill near the Velasco Street Ditch); Solid Waste Management
Unit 71 (Old Separator 12); Solid Waste Management Unit 72 (Sludge Pit); Solid Waste
Management Unit 73 (Sludge Pit); and Solid Waste Management Unit 74 (Separator 1). At Baton
Rouge, these units are the: Solid Waste Management Unit 19 (API Oil /Water Separators); Solid
Waste Management Unit 28 (Propane Storage Area Landfill); Solid Waste Management Unit 29
(Butyl Rubber Landfill); Solid Waste Management Unit 33 (North Batture Landfill & Burn Pit).
The court has found, or the parties agree, that a federal nexus exists at all of these sites, but the
facts are insufficient to assess what portion of the cleanup costs is attributable to the federal nexus.
When those facts are available — when and if those costs are incurred — the government should
have the chance to review and challenge the response costs. Even though the court does not
specifically allocate these costs, the framework established in the court’s rulings should serve as a
guide for the parties to do so.
E.
The Insurance Offset
In the 1990s, Exxon sued its insurers to recover its environmental cleanup costs at hundreds
of thousands of sites across the United States. In the North American Coverage Case, Exxon
argued that its insurance policies covered environmental cleanup costs at numerous refineries,
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including at the Baytown and Baton Rouge facilities. Exxon eventually settled that case for
approximately $269 million. (Docket Entry No. 338 at 2). Exxon and the government dispute the
effect of this settlement payment on Exxon’s CERCLA contribution claim against the government.
The government’s position in this litigation is that Exxon should offset the Coverage Case
settlement money it received for the two refineries on a dollar-for-dollar basis.
Exxon argued that the government’s insurance offset claim should be dismissed on two
grounds: (1) Exxon will not get a “double recovery” by retaining both the Coverage Case
settlement payment and receiving the amounts allocated to the government in these CERCLA
cases; and (2) the collateral source rule separately bars the government’s insurance offset claim.
(Docket Entry No. 338). The government’s argument at this stage is that the court has already
determined that a settlement offset is appropriate, and the only remaining issue is whether
attorneys’ fees should be deducted from that offset. To that question, the government says “no”;
Exxon says “yes.” (Docket Entry No. 340-2 at 4).
In Phase 2, the government moved for summary judgment on the propriety of a settlement
offset. (Docket Entry No. 202). The court explained that CERCLA’s “general policy against
double recovery,” including from settlements, is an equitable factor entitled to significant weight.
Litgo N.J. Inc. v. Comm’r N.J. Dep’t of Envtl. Prot., 725 F.3d 369, 391 (3d Cir. 2013). Allowing
a CERCLA claimant “to recoup more than the response costs he paid out of pocket flies in the face
of CERCLA’s mandate to apportion those costs equitably among liable parties.” Friedland v. TICThe Indus. Co., 566 F.3d 1203, 1207 (10th Cir. 2009). Courts have discretion as to how to treat
insurance-settlement offsets. See NCR Corp. v. George A. Whiting Paper Co., 768 F.3d 682, 708
(7th Cir. 2014) (“Friedland affirms that any level of double recovery is inequitable in CERCLA
contribution actions, and that ignoring insurance settlements when it would lead to double recovery
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is inconsistent with the statute’s purpose. It does not otherwise establish a bright-line rule for how
a court should treat insurance settlements.”). The court granted the government’s motion in part,
ruling that a settlement offset was proper, but that it was premature to decide the amount without
the evidence the bench trial could provide. Exxon II, 335 F. Supp. 3d at 923.
The court now has that evidence. Both parties have cited case law holding that the
collateral source rule does not apply in CERCLA cases. See NCR Corp., 768 F.3d at 707;
Friedland, 566 F.3d at 1209. Courts have consistently held that the goals of CERCLA are not
achieved by a party receiving a “double recovery.”19
The government relies on Friedland v. TIC-The Industrial Company, 566 F.3d 1203, 1204
(10th Cir. 2009), in which the plaintiff, a former director and president of a mining company,
settled CERCLA claims with the federal and state governments for $20,723.181, but spent
approximately $28 million on legal fees in the process. The plaintiff sued and received payment
from his insurers of a confidential amount. Id. at 1204–05. The plaintiff then brought a CERCLA
contribution action against the defendants, two companies found to have contributed to the
contamination, arguing that the amount he sought should not be offset by the amounts he had
received in the settlement with the federal government and state government because that amount
could be allocated to covering his $28 million defense costs. Id. at 1205. The Tenth Circuit
disagreed. Id. at 1209–10. The court explained that the settlement agreements did “not expressly
or impliedly allocate the settlement money toward amounts [the plaintiff] paid in settling the
19
Exxon revives its collateral source rule claim, arguing that it is available in contract actions.
(Docket Entry No. 338 at 4). Exxon argues that because the avgas contracts allocated liability for CERCLA
costs to the government, it would “be inconsistent with the Parties’ contractual intent” to apply an offset
for the Coverage Case settlement proceeds. (Id.). Because the court finds that no insurance offset is
necessary when, as here, there is no double recovery, the court need not reach the issue of whether the
collateral source rule may be applied in CERCLA cases in which there is also a contractual right to
indemnification.
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underlying litigation on the one hand and for legal defense costs on the other.” Id. at 1210. The
court noted that because “attorneys’ fees are not recoverable in CERCLA contribution actions,”
the “settling parties should therefore make any variance from the statute absolutely clear.” Id. at
1211.
Exxon relies on NCR Corp. v. George A. Whiting Paper Co., 768 F.3d 682, 708 (7th Cir.
2014), which distinguished Friedland and held that the plaintiff-contributor’s insurance proceeds
should not be offset against the payments from a CERCLA contribution claim in part because of
the defense costs incurred in bringing that claim. The Seventh Circuit affirmed a district court
ruling that “rejected as inequitable a reading of Friedland that would require all proceeds from an
undifferentiated insurance settlement to cover common liability costs.” Id. The district court
explained that “at least some” of the settlement “was for defense costs, which are not subject to
recovery in contribution,” especially because the insurance policy included coverage for both
direct liability and defense costs. Id. The district court considered the maximum amount of the
settlement that could be allocated to liability and determined that “the combined amount of liability
insurance and contribution would not cover [the plaintiff’s] full liability, so there was no danger
that [the plaintiff] would recover more than 100% of its share.” Id. The Seventh Circuit affirmed,
finding that Friedland did not “establish a bright-line rule for how a court should treat insurance
settlements,” and that “[t]he governing rule is equity.” Id.
Exxon admitted during Phase 2 that no portion of its insurance settlement was allocated to
the reimbursement of litigation fees. (See Docket Entry No. 209 at 28). But Exxon argues that it
will not obtain a “double recovery” from the offset “unless the Court allocates to the United States
more than 94 percent (that is, more than $48.1 million) of Exxon’s claimed past costs of
approximately $51.0 million at Baytown, or more than 87 percent (more than $22.7 million) of
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Exxon’s claimed past costs of $26.0 million at Baton Rouge.” (Docket Entry No. 261 at 12 n.1).
The court has allocated far less than those amounts to the government, removing the possibility of
a double recovery with no offset for the Coverage Case insurance proceeds. The court finds that
an insurance offset is unnecessary and inappropriate.20 This outcome is consistent with both
Friedland and NCR because it does not allow Exxon a double recovery.
III.
Conclusions of Law21
Congress enacted CERCLA in 1980 “in response to the serious environmental and health
risks posed by industrial pollution.” Burlington N., 556 U.S. at 602; Bestfoods, 524 U.S. at 558.
“The Act was designed to promote the timely cleanup of hazardous waste sites and to ensure that
the costs of such cleanup efforts were borne by those responsible for the contamination.” see also
Waldburger, 573 U.S. at 4 (2014) (quoting Burlington N., 556 U.S. at 602). As amended by the
Superfund Amendments and Reauthorization Act of 1986 (“SARA”), Pub. L. No. 99-499, 100
Stat. 1613, CERCLA provides several alternative means for cleaning up contaminated property.
Section 107(a)(4) states that “covered persons”—“potentially responsible parties”—may be liable
for costs the federal or state government incur in responding to the contamination and for response
costs incurred by “any other person.” 42 U.S.C. § 9607(a)(4)(A)–(B). Section 107(a)(4) is part
of the original statute enacted in 1980. Two contribution provisions, §§ 113(f)(1) and 113(f)(3)(B),
were added in 1986 as part of the Amendments and Reauthorization Act.
20
The government argues that Exxon’s position on the insurance offset “asks the Court to reverse
its nearly two-year old decision on this legal question.” (Docket Entry No. 340-2 at 1). The court is not
revisiting its 2018 opinion, but merely finding that after a full presentation of the facts, an insurance offset
is unnecessary. As the court explained in its 2018 opinion, “there [were] genuine factual disputes material
to determining the proper offset amount for the Coverage Case settlement.” Exxon II, 335 F. Supp. 3d at
923. Those factual disputes have been resolved, and no double recovery is present. The resolution of those
factual disputes allows the court to determine that the proper offset amount is zero.
21
Any findings of fact that are also, or only, conclusions of law are so deemed. Any conclusions
of law that are also, or only, findings of fact are so deemed.
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Section 107(a) identifies four categories of potentially responsible parties who may be
liable for the costs to clean up hazardous substances. 42 U.S.C. § 9607(a). The categories are: (1)
owners and operators of facilities at which hazardous substances are located; (2) past owners and
operators of these facilities when the disposal of hazardous substances occurred; (3) persons who
arranged to dispose of or treat hazardous substances; and (4) transporters of certain hazardous
substances. 42 U.S.C. § 9607(a)(1)-(4). Unless a statutory defense or exclusion applies, covered
persons are liable for “all costs of removal or remedial action incurred by the United States
government or a State . . . not inconsistent with the national contingency plan,” and “any other
necessary costs of response incurred by any other person consistent with the national contingency
plan,” 42 U.S.C. § 9607(a). The statute defines “person,” “facility,” “disposal,” “release,” and
“environment.” CERCLA also provides a narrow set of defenses to liability that may arise under
§ 107(a), none of which apply in these cases.
The court incorporates its conclusions of law from the prior summary judgment opinions.
In 2015, the court ruled on the parties’ cross-motions for partial summary judgment, holding that:
the three-year statute of limitations under § 113(g)(2), 42 U.S.C. § 9613(g)(2), is applicable
to Exxon’s claims;
§ 113(f)(3)(B)’s contribution provision is Exxon’s exclusive remedy to seek cleanup costs
incurred in response to administrative settlements with the State of Texas;
Exxon’s agreed orders with the State of Texas are “administrative settlements” under
§ 113(f);
the refinery and chemical plant at each site are a single “facility” under CERCLA;
Exxon and the government were CERCLA owners and operators of the chemical plants at
both facilities;
the government was not a CERCLA owner and operator of either refinery; and
Exxon was entitled to a declaratory judgment that “the United States is liable for its
equitable share of past and future cleanup costs incurred at the Baytown and Baton Rouge
sites.”
Exxon I, 108 F. Supp. 3d at 486. These conclusions meant that both Exxon and the government
bear some share of the liability for the cleanup costs at the Baytown and Baton Rouge facilities.
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In 2018, the court ruled on the parties’ cross-motions for partial summary judgment,
holding that:
Exxon’s cleanup costs at the two Baytown Facility Operations Areas were “necessary costs
of response” eligible for CERCLA recovery;
Exxon’s response actions at the five Baytown units and at the three Baton Rouge units were
appropriately characterized as a single “removal” action at each facility, which would not
be barred by the statute of limitations in 42 U.S.C. § 9613(g);
Exxon “substantially complied” with the National Contingency Plan for three of the
Baytown units and two of the Baton Rouge units;
a deduction of the insurance-settlement proceeds Exxon received in a different case is
appropriate if needed to prevent double recovery;
the “production-based” analysis is the appropriate equitable allocation methodology to use
in this case; and
Exxon was entitled to a declaratory judgment that Exxon is entitled to recover future
cleanup costs associated with the units at which Exxon has already incurred costs.
Exxon II, 335 F. Supp. 3d at 908–50. These conclusions set out the basis to determine each party’s
share.
The issue in Phase 3 is the amounts allocated. Allocation under CERCLA is a matter of
equity left to the district court’s discretion. Section 113, added in 1986 as part of SARA, contains
a subsection entitled “Contribution.” This subsection states:
Any person may seek contribution from any other person who is liable or potentially liable
under [§ 107(a)], during or following any civil action under [§§ 106 or 107(a)]. . . . In
resolving contribution claims, the court may allocate response costs among liable parties
using such equitable factors as the court determines are appropriate. . . .
42 U.S.C. § 9613(f)(1).
As one court has explained:
[T]he language of section 9613(f) clearly indicates Congress’s intent to allow courts to
determine what factors should be considered in their own discretion without requiring a
court to consider any particular list of factors. . . . [I]n any given case, a court may consider
several factors, a few factors, or only one determining factor . . . , depending on the totality
of the circumstances presented to the court.
Envtl. Transp. Sys., Inc. v. ENSCO, Inc., 969 F.2d 503, 509 (7th Cir. 1992); see also Beazer East,
Inc. v. The Mead Corp., 412 F.3d 429, 446 (3d Cir. 2005) (“Congress intended to grant the district
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courts significant flexibility in determining equitable allocations of response costs, without
requiring the courts to prioritize, much less consider, any specific factor.”); Shell Oil Co., 13 F.
Supp. 2d at 1020 (“Courts have consistently recognized the broad discretion afforded by this
statute to the District Court both in the selection of equitable factors to be applied and in the
application of those factors.”); United States v. R.W. Meyer, Inc., 932 F.2d 568, 572–73 (6th Cir.
1991) (“No exhaustive list of criteria need or should be formulated. However, in addition to the
[Gore Factors], the court may consider the state of mind of the parties, their economic status, any
contracts between them bearing on the subject, any traditional equitable defenses as mitigating
factors[,] and any other factors deemed appropriate to balance the equities in the totality of the
circumstances.”) (footnote omitted).
The court also looked at the knowledge and acquiescence of the parties in the
contamination-causing activities; the value of the activities to the national defense efforts; the
parties’ role at the refineries and chemical plants; the parties’ intent to allocate liability; and postwar waste-handling improvements. Exxon II, 335 F. Supp. 3d at 942–48.
Using the full record established by the evidence presented in the prior motions and in the
bench trial, the court applies the Gore and Torres factors to consider the equities of the allocations
sought. The court finds and concludes that: the government’s knowledge and acquiescence in the
contamination-causing activities supports a substantial allocation of the response costs to the
government; the value of the avgas and other war product production to the national defense efforts
supports a significant allocation of the response costs to the government; the government’s role at
the refineries, as opposed to the plancors, supports a lower equitable share for the government; the
cost-reimbursement provision in the avgas contracts demonstrated that the government intended
to reimburse the refineries’ clean-up costs related to avgas, supporting a substantial allocation of
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the response costs to the government; and the refineries’ substantial post-war waste-handling
improvements supports an increased share of the remediation costs allocated to the government.
The court finds and concludes that, after considering all the equitable factors, the proper
allocation in this case is as follows: at Baytown, the government is liable under CERCLA for an
allocated share of 24.67 percent for past response costs incurred at the refinery and 36.54 percent
for past response costs incurred at the Baytown Ordnance Works / Tankfarm 3000 Area. At Baton
Rouge, the government is liable under CERCLA for an allocated share of 14.4 percent for past
response costs incurred at the refinery.
Exxon is entitled to recover prejudgment interest on the amount of its past response costs
at the Baytown and Baton Rouge Sites that are deemed recoverable from the United States at the
interest rate established under Section 107(a)(4)(D) of CERCLA, 42 U.S.C. § 9607(a)(4)(D). This
interest is computed in regard to the Baytown Site beginning on the date of July 15, 2004, and in
regard to the Baton Rouge Site beginning on the date of January 6, 2010.
In a cost-recovery action under section 107 of CERCLA, “the court shall enter a declaratory
judgment on liability for response costs or damages that will be binding on any subsequent action
or actions to recover further response costs or damages.” 42 U.S.C. § 9613(g)(2). Courts will
award a declaratory judgment setting a percentage liability for future response costs in contribution
actions as well. See, e.g., Boeing Co., 207 F.3d at 1191-92 (9th Cir. 2000) (affirming the district
court’s decision to allocate a cleanup site’s future costs and past costs in the same way because the
record disclosed enough facts to determine each company’s responsibility for the contamination,
even if the amounts of the future costs were unknown); Tosco Corp., 216 F.3d at 897 (10th Cir.
2000) (“[F]uture response costs are likely to be incurred, but the exact amount remains unknown,
a judgment on proportional liability is an appropriate remedy.”).
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determined the equitable allocation, the record is sufficient to allow the court to enter a declaratory
judgment assigning the government the same share of the future remediation costs at the units
where Exxon has already incurred past remediation costs, as determined in this opinion. As
stipulated by the parties, the declaratory judgment will apply to Exxon’s run-rate costs. (Docket
Entry No. 261 at 16). The declaratory judgment will not extend to the adjacent waterbodies or
units where Exxon has not already incurred past response costs.
CERCLA prohibits double recovery; a CERCLA defendant would be entitled to offset any
judgment by an appropriate amount if a CERCLA plaintiff has received insurance proceeds for the
same expenses asserted in a CERCLA action. Here, however, Exxon’s insurance proceeds relating
to the two facilities at issue, when combined with the award against the government, do not
approach a double recovery, as Exxon still bears the vast majority of expenses associated with the
cleanups at these two sites. No insurance offset is necessary or appropriate. The government’s
insurance offset claim for both sites is dismissed as a matter of law.
IV.
Order
Consistent with the court’s findings of fact and conclusions of law, the court will issue
judgment, in accordance with Federal Rule of Civil Procedure 58. That judgment will require
the government to pay ExxonMobil as follows:
Baytown:
Allocation of Past Response Costs Through 2014 and Accrued Prejudgment Interest:
Refinery-Related Unit Past Costs: The government allocated share is 24.67 percent
for the past response costs of $45,567,403.00 and interest accrued of
$9,950,216.00. The government is responsible for:
The government’s allocated share of past costs:
$ 11,241,478
The government’s allocated share of interest:
$ 2,454,718
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Total
$ 13,696,197
Former Baytown Ordnance Works/Tankfarm 3000 Area Past Costs: The
government’s allocated share is 36.54 percent for the past response costs of
$5,481,340.00 and interest accrued of $1,355,835.00. The government is
responsible for:
The government’s allocated share of past costs:
The government’s allocated share of interest:
$ 495,376
Total
$ 2,002,694
$ 2,498,07022
Total Government Allocation for the Combined Baytown and Baytown Ordnance
Works Past Costs through 2014 and Prejudgment Accrued Interest:
The government’s allocated share of past costs:
$ 13,244,172
The government’s allocated share of interest:
$
Total
$ 16,194,267
2,950,094
Baton Rouge:
Allocation of Past Response Costs Through 2014 and Accrued Prejudgment Interest:
Refinery-Related Unit Past Costs: The government’s allocated share is 14.4
percent for the past response costs of $26,046,130.00 and interest accrued of
$2,665,007.00. The government is responsible for:
The government’s allocated share of past costs:
$ 3,750,643
The government’s allocated share of interest:
$ 383,761
Total
$ 4,134,404
The total damage award in favor of Exxon is $20,328,670. For the reasons set forth in the
court’s findings and conclusions, these amounts are not subject to an offset for insurance recovery
by Exxon because there is no double recovery.
22
The court relies on the numbers provided by Exxon in its proposed final judgment. (Docket
Entry No. 339-1).
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Case 4:11-cv-01814 Document 203 Filed on 08/19/20 in TXSD Page 112 of 113
In addition, the court will issue a declaratory judgment in favor of Exxon against the United
States as a percentage allocation for costs incurred for units at which Exxon has already incurred
past response costs as described in this bench trial for the period after filing suit through 2019 as
follows:
Baytown:
Costs for 2015–2019: The government’s allocated share is 24.67 percent for the
refinery-related costs, and 36.54 percent for these Baytown Ordnance Works costs.
Baton Rouge:
Costs for 2015–2019: The government’s allocated share is 14.4 percent for the
refinery-related costs.
The court will issue a declaratory judgment in favor of Exxon against the government as a
percentage allocation for units at which Exxon has already incurred past response costs, that the
government is liable for future costs incurred from 2020 and beyond, as follows:
Baytown:
Future Post-2019 Costs: The U.S. allocated share is 24.67 percent for the refineryrelated costs, and 36.54 percent for these Baytown Ordnance Works costs.
Baton Rouge:
Future Post-2019 Costs: The U.S. allocated share is 14.4 percent for the refineryrelated costs.
The judgment does not foreclose future claims by Exxon for land-based units, areas of
contamination, or waterbodies at or adjacent to the Baytown or Baton Rouge facilities for which
costs have not yet been incurred by Exxon, but will be incurred in the future.
The end of the years of trial court litigation is in sight. World War II is long over. The
pollution at issue has been, and will be, addressed. The parties and lawyers have worked hard and
well to address these issues. The court hopes that this litigation can also, at least, end.
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Case 4:11-cv-01814 Document 203 Filed on 08/19/20 in TXSD Page 113 of 113
No later than August 28, 2020, Exxon is to submit a proposed final judgment, consistent
with the findings and conclusions, after consulting with the government.
SIGNED on August 19, 2020, at Houston, Texas.
_______________________________________
Lee H. Rosenthal
Chief United States District Judge
113
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