A New York federal judge has rejected a $23 million settlement to cover Citgo Petroleum Corp.’s liability in a proposed class settlement over methyl tertiary-butyl ether (MTBE) groundwater contamination at service stations and refineries in New Jersey. U.S. District Judge Shira A. Scheindlin said the agency proposing the settlement arrived at its calculation arbitrarily. Judge Scheindlin denied the New Jersey Department of Environmental Protection’s (DEP) motion for approval of a judicial consent order that listed the terms of the agency’s settlement with Citgo. The figure calculated by the Plaintiffs was found not to account for Citgo’s portion of liability. Judge Scheindlin found further that the DEP’s calculation wasn’t properly supported by evidence.
Judge Scheindlin found the inconsistencies with the Plaintiffs’ list of sites used as the basis for their damages estimate to be most troubling. Though there are 498 sites on the list, seven of the 10 sites at which discovery was conducted aren’t on the list, according to the judge. There was at least one site where the Plaintiffs conducted no discovery at all on the list, Judge Scheindlin wrote. He wrote in his ruling:
Plaintiffs offer no explanation for these inconsistencies, which raise doubts about the reliability of the entire list. With such an incomplete record, it is impossible for me to determine whether the settlement is reasonable and fair.
The suit is part of a larger multidistrict litigation (MDL) over the groundwater contamination. MTBE was used in U.S. gasoline at low levels starting in the late 1970s to replace lead as an octane enhancer, helping prevent engine knocking. Known to be carcinogenic to animals and possibly to humans, the chemical was used at higher concentrations in some gasoline to fulfill the oxygenate requirements set by Congress in the 1990 Clean Air Act Amendments, but was partially phased out following the new renewable fuel standards of the 2005 Energy Policy Act.
The chemical makes water taste unpleasant even at low levels of contamination, rendering large quantities of groundwater nonpotable once the MTBE leaks. The New Jersey DEP proposed that Citgo pay $23.25 million. Judge Scheindlin found that estimate to be somewhat arbitrary, according to his ruling. Citgo had admitted that if its share of liability were 4 percent of total damages, it would be liable for $88 million, the judge wrote. That certainly made the proposed censored order suspect.
Judge Scheindlin wrote that the Plaintiffs estimated their total damages for the 5,045 sites in question at between $1.99 billion and $3.32 billion. He said the total damages estimate did not have to be precise. But Judge Scheindlin wrote that the Plaintiffs’ estimate spans $1.3 billion. Even though Citgo was identified at more Plaintiff-selected evidence sites than any other defendant, Citgo’s payment would amount to only 0.7 percent of a maximum $3.32 billion judgment, Judge Scheindlin noted. It’s most encouraging to see a judge deal with a proposed settlement that may not be in the best interest of a government agency and the people of New Jersey and require more proof that the settlement is a good one.
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