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American International Specialty Lines Insurance Company v. United States of America

January 9, 2013

AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, PLAINTIFF,
v.
UNITED STATES OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: A. Howard Matz United States District Judge, Senior

FINDINGS OF FACT AND CONCLUSIONS OF LAW (ALLOCATION PHASE; POST-TRIAL)

I. PRELIMINARY OBSERVATIONS

The presentation of evidence in Phase II was disappointing. The Court recognizes that both sides have faced difficult challenges, first in trying to ascertain a full and accurate history of the site and then in "cherry picking" the information to support their respective positions.*fn1 Understandably, both sides relied heavily on expert testimony. Much of that testimony was unconvincing. Sometimes the experts appeared to be shameless advocates. For example, Mr. Zoch could not find a single instance where Whittaker functioned below the standard of care. According to Mr. Zoch, moreover, Mr. Jisa's testimony was to be discounted and disregarded in its entirety. In addition, he opined that the United States should be deemed liable for allocation of response costs as an operator, despite the Court's previous ruling that it could not be held legally liable as an operator.*fn2 For his part, Mr. Linkletter ascribed 100% of the perchlorate contamination in 9 out of the 10 largest areas to the activity of the government. Similarly, the government's witness, Mr. Low, gave zero credit to Whittaker for its remediation efforts since 1994 because of its supposedly bad conduct.

Furthermore, some of the experts, as well as some lawyers in their questioning and arguments, too often displayed excessive nit-picking. Almost every immaterial and minor point raised by one side was countered with an equally immaterial or minor point by the other side.

Next, it appears to the Court that the function of performing "Project Oversight" has almost become a cottage industry, at least in this case. For example, Ms. Diebenow reviewed Mr. Pirnie's reviews of the Arman Grinding invoices and charged for her review of Pirnie's review. Moreover, Ms. Diebenow acknowledged that AISLIC paid a sister company (AIG Consultants) for reviewing costs associated with the policy, yet it seeks to recover those payments. And Ms. Fish admitted that part of the $2,883,225 project management costs that AISLIC seeks was for review of escrow costs, but she couldn't say how much. (See Exh. 6528.) Later she said "it was around 50%, but it could be two-thirds." Similarly, Mr. Dovell did not review Exhibit 6528 to determine if there was duplication. (He didn't review the attorneys' work product either.)

A major reason why AISLIC signed the CLWA Settlement Agreement as administrator was undoubtedly to keep the costs down. Indeed, keeping those payments low was actually AISLIC's principal objective, as established by Ms. Fish's admission that her primary goal was to assure that AISLIC paid not a single penny more than it was required to pay under the policy. That AISLIC should be reimbursed for a high portion of its administrative costs incurred in keeping its coverage payments below the policy limits is questionable, even if those efforts also would reduce the payments that might later be required from the government as its share of the response costs.*fn3

The Court, which unsuccessfully urged the parties to settle, acknowledges that it is unaware of just what the barriers to settlement were. But eight or nine lawyers handled various facets of the trial presentation, (at least four on each side, with a fifth lawyer also making an appearance for the government.) There is nothing inherently inappropriate about that. Indeed, sometimes efficiency can be promoted by allocating specific responsibilities to given individuals. Nevertheless, the Court would not be surprised if in retrospect the parties conclude that they wasted some of their money by proceeding in the fashion that they did.

In any event, the Court hereby incorporates by reference its June 30, 2010 Findings of Fact and Conclusions of Law (Liability Phase; Post Trial) (Dkt. 179), as well as its prior summary adjudication rulings, its October 31, 2012 Order re the insurance premiums (Dkt. 318) and any other rulings referred to infra. The Court further incorporates by reference Phase Two Trial Exhibits A (Joint Chronology), B (Cast of Characters) and C (Glossary), (Dkt. Nos. 112-3, 112-4 and 112-5, respectively.) And the Court further incorporates by reference the parties' "Stipulation for Claims for Past Costs" (Dkt. 256), as well as their "Stipulation Regarding Testimony of Kathleen Anderson and Payments Toward the ACOE Study" (Dkt. 298). In the following entries, all references to "Whittaker" also include Bermite and the Bermite site.

The Court is not required to make pinpoint rulings on all of the parties' numerous respective proposed findings, which cover virtually every aspect of the history of the site, including the "Burn Area," the hogging out procedures, the 317 impoundment and other impoundments, etc. (A pithy enumeration of the areas most badly affected by perchlorate contamination is in Exhibit 6620.) Whittaker's practices indisputably caused contamination, but the government shoulders some of the responsibility for the cost of repairing the damage.

II. FINDINGS OF FACT

1. AISLIC claims to have incurred $18,843,398 in total Past Response Costs as of January 31, 2010. The United States does not dispute that $11,018,055 of these costs may be considered for equitable allocation, but it does contend that the $8 million insurance premium payment AISLIC received from Whittaker should be deducted from that sum. The Court has previously ruled that "only" $4 million of that premium payment may be deducted from the otherwise undisputed portion of the total Past Response Costs. (Dkt. 318). Thus, for the category of what is otherwise undisputed, $7,018,055 may be considered for equitable allocation.

2. The United States contends that the remaining $7,825,343 that AISLIC claims to have incurred may not be considered at all. That sum represents AISLIC's payments to water purveyors as well as AISLIC's claimed project management costs. Of that disputed amount, the Court finds that only $7,266,751 reflects costs that are necessary and consistent with the National Contingency Plan ("NCP").

3. The amount of Past Response Costs owed to AISLIC by the United States is determined in the following manner. All of the eligible past response costs incurred by both parties through January 31, 2010 are added to determine total past response costs through January 2010. Total past response costs through January 2010 and is then multiplied by the United States' allocation percentage to determine total Past Response Costs through January 2010 allocated to the United States. Past Response Costs already paid by the United States through January 2010 are subtracted from total Past Response Costs through January 2010 allocated to the United States to arrive at total Past Response Costs through January 2010 due to AISLIC from the United States. See #36.

A. Past Cost Claims: Payment to Water Purveyors ("Offsite Costs")

4. In the "CLWA Litigation" that Steadfast commenced in 2001, the Court held that Whittaker is a responsible party under CERCLA and is liable for the perchlorate contamination in the Water Purveyors' wells. AISLIC is entitled to bring a CERCLA Section 113 contribution claim for response costs it paid to those Water Purveyors. These are referred to as "Offsite Costs."

5. The evaluations contained in the Interim Remedial Action Plan ("IRAP") are consistent with the requirements of the NCP. The IRAP properly addresses the need for the Water Purveyors to replace the lost pumping capacity of the wells contaminated by perchlorate, not the average actual production of those wells. The total planned replacement pumping capacity is 8,700 gpm (see Ex. 6504) but that level does not exceed the pumping capacity lost from closing the contaminated wells. This remediation is necessary to protect human health and the environment.

6. The DTSC oversaw the development and implementation of the IRAP and concluded that it satisfactorily addressed all applicable state and federal statutes and regulations, thus prompting it to approve the IRAP.

7. AISLIC seeks to recover $4,096,050 of the money it paid to the Water Purveyors for "Past Environmental Claims." This is approximately 94% of the $4,357,500 it paid to the Water Purveyors for such Past Environmental Claims. This amount is based on a formula. (See Ex. 6622.) The government does not dispute the accuracy of these calculations, but has not stipulated to the accuracy of the underlying numbers themselves. The Court concludes that the justification for the underlying numbers is sufficient.

8. The Court rejects the United States' contentions as to why $825,600 of the cost of constructing water supply wells and related pipelines should be disallowed.

9. The Court also rejects the government's opposition to the $20,468 AISLIC seeks for well treatment design.

10. The determination of the amount (in rounded-off dollars) subject to allocation for Offsite Costs to Water Purveyors thus is: $4,096,050 (#7) $20,468 (#9) $825,600 (#8) = $4,942,118

11. The United States paid $4,442,831.08 for the ACOE study, and the parties agree that the court should consider some portion of this amount in determining the equitable allocation. The Court finds that 90% of it ($3,998,547.97) should be included in the allocation.

B. Past Response Costs: Project Management Costs

12. AISLIC seeks to recoup $2,883,224.75 in Project Management Costs (See Exh. 6528). Although AISLIC calculated the fees it paid to attorneys as $836,849.49, its expert, Mr. Zoch, determined that certain deductions from that initial amount claimed by AISLIC were warranted (Exh. 6628). This results in AISLIC seeking $590,265.26 in attorneys' fees, almost 80% of which are attributable to payments to one of the three firms it retained. (See Exh. 6528.) But Mr. Zoch did not go far enough. Portions of the work performed by the lawyers at the Sonnenschein firm were neither necessary nor consistent with the NCP, and some of it overlapped with the two other firms. The Court reduces the amount of attorneys' fees by $100,000, leaving $490,265.26 as the appropriate amount of attorneys' fees for AISLIC to have included in the allocation.

13. The Court in the introduction to this ruling discussed the remaining Project Management Costs for which AISLIC seeks recovery. They arise out of payments to four other firms and an additional (fifth) payment to a sister firm, AIG Consultants. (See Exh. 6528). The total of those payments is $2,292,959.49. That some of those payments were not necessary or consistent with the NCP is apparent. Mr. Zoch testified that the technical documentation that AMEC generates is sufficient in its own right for NCP purposes. (R.T. 126-27). He also admitted that AISLIC sent its own representatives to join Whittaker's representatives in meetings with DTSC and that AISLIC was billing the government for both sets of consultants sitting in the same conference room at the same time. (R.T. 135-137). See also Exhs. 7001 and 7002 and the testimony surrounding those exhibits. The Court awards only 80% of these remaining Project Management Costs, or $1,834,367.59.

14. Thus, the Past Response Management Costs for which AISLIC may seek equitable recovery are $490,265.26 (attorneys) plus $1,834,367.59 (other Project Management Costs). This totals $2,324,632.85.

15. The sum of rounded-off paragraphs 10 ($4,942,118) and 14 ($2,324,633) is $7,266,751.

C. Equitable Factors

16. The single most important factor in assessing the parties' respective responsibilities for the contamination at the site is which of them was the operator. Even Mr. Zoch testified that the operator is responsible for making waste disposal decisions at the site. (R.T. 144-145). The most ...


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