Court: District Court, S.D. New York; April 28, 2015; Federal District Court
The case involves a multi-district litigation concerning groundwater contamination in Puerto Rico allegedly caused by the gasoline additive methyl tertiary butyl ether (MTBE) and its breakdown product, tertiary butyl alcohol. The Commonwealth of Puerto Rico claims that several defendants, referred to as the Shell Defendants (including Shell Chemical Yabucoa, Shell Oil Company, and others), are responsible for this contamination. The Shell Defendants have filed a motion for summary judgment, arguing that the Commonwealth cannot demonstrate their responsibility for any contaminated sites, specifically asserting that they did not manufacture or distribute gasoline with MTBE concentrations exceeding the de minimis threshold of 0.50% by volume.
The court examines the central issue of whether the Commonwealth has produced sufficient evidence to link the Shell Defendants to the manufacture, supply, or distribution of gasoline containing MTBE. It is established that the Shell Defendants did not exceed the de minimis threshold in their operations. Under Puerto Rico law, specifically Title 10, Section 4172, there is a prohibition against importing or selling gasoline with MTBE; however, Section 4175 delegates enforcement to the Department of Consumer Affairs (DACO), which has set regulations permitting MTBE levels below 0.50% by volume. The Shell Defendants argue that such levels are permissible and often result from unavoidable traces during refining or distribution. They seek summary judgment on claims associated with MTBE levels at or below this threshold. In contrast, the Commonwealth contends that the Shell Defendants misinterpret the law and its regulatory framework. The court grants partial summary judgment on the Commonwealth’s Phase I claims, signaling that not all claims will be dismissed.
DACO's regulation and order did not alter the prohibitions of Section 4172 regarding MTBE in gasoline, nor did it allow for acceptable levels of MTBE. The Commonwealth asserts that, according to expert Luis Pagan Rodriguez, there is no permissible level of MTBE under Puerto Rican law, which strictly bans it. Pagan acknowledged that DACO's regulation was intended to address potential residual MTBE from product commingling, but emphasized that gasoline with any MTBE concentration still violates Section 4172. The Shell Defendants challenge Pagan’s declaration, citing contradictions with his earlier deposition where he claimed ignorance about the rationale for DACO's 0.50% MTBE tolerance level.
Sol Puerto Rico Limited, formerly Shell Company (P.R. Limited), acquired all assets and obligations of Shell PR in June 2006, including 72 Shell-branded service stations and a bulk storage facility in Cataño. The gasoline distributed from Cataño contained varying levels of MTBE, some exceeding the de minimis threshold. There is contention over liability for Shell PR's operations, with the Shell Defendants arguing that Sol is responsible based on a contractual agreement, while the Commonwealth asserts that this agreement does not absolve the Shell Defendants from liability for their own torts related to MTBE contamination. The Commonwealth has filed six claims against specific Shell Defendants.
The document outlines a series of legal claims against multiple parties, including SOC, SCYI, SIPC, and Shell West, encompassing strict products liability for defective design and failure to warn (Count I), negligence (Count IV), violations of the Environmental Public Policy Act (Count V), a public nuisance claim (Count II), and a trespass claim (Count III). Additionally, SOC faces allegations of violations under the Toxic Substance Control Act (Count VII).
SCYI, a Puerto Rican corporation established in 2001, operates the Yabucoa petrochemical facility and imported gasoline to Cataño. Although SCYI did not manufacture or store MTBE gasoline, records indicate that it imported gasoline containing MTBE at concentrations between 0.02% and 0.21% from 2002 to 2010.
SOC, based in the U.S., does not own facilities in Puerto Rico but is alleged by the Commonwealth to have owned two refineries that produced and shipped MTBE gasoline there. SOC’s ownership of the Norco Refinery is disputed, with claims ranging from 1992 to 1998. Evidence shows Norco produced both MTBE and non-MTBE gasoline during that period, but there is no direct evidence of MTBE in shipments to Shell PR. SOC also partnered with Deer Park Refining, which supplied gasoline to SCYI, adhering to a contract that restricted MTBE levels.
The Commonwealth claims SOC's division, Shell Atlantic Services, handled supply contracts with Amerada Hess for gasoline shipments from St. Croix to Cataño, with MTBE levels reported between 0.17% and 8.9%. However, there is no evidence that Shell Atlantic took title to these shipments.
Ivan Cintron, a former Shell PR employee, testified about Shell Atlantic's role in negotiating supply contracts with Hess for gasoline purchases. He noted that Hess initiated discussions by inquiring if Shell PR was interested in buying gasoline, prompting him to contact Shell Atlantic's Houston headquarters for approval, as they were responsible for inspecting the tankers for suitability. Cintron indicated regular communication with Shell Atlantic regarding supply issues, which the Commonwealth asserts demonstrates Shell Atlantic's necessary involvement in the supply chain for MTBE gasoline to Puerto Rico. The Commonwealth cites correspondence indicating that Shell Atlantic negotiated substantial supplies of MTBE from Hess. Conversely, the Shell Defendants argue that Shell Atlantic's involvement was limited to tanker inspections, claiming they acted merely as a broker and did not take title to the shipments, thus not being part of the distribution chain.
Regarding the TSCA claim, the Commonwealth alleges that SOC has violated the Toxic Substances Control Act for decades by failing to disclose information about MTBE's risks to health and the environment to the EPA, specifically its potential to cause taste and odor issues in drinking water, which SOC was aware of since the Rockaway spill in 1981. While SOC disclosed some information to the American Petroleum Institute, it did not inform the EPA that MTBE could be detected at levels of 7 to 15 ppb, necessitating removal to ensure water safety. The Commonwealth also accuses SOC of misleading the EPA regarding MTBE's safety through its participation in the MTBE Committee. In response, the Shell Defendants argue that the EPA had access to relevant information about the Rockaway incident and that SOC's understanding of MTBE's taste and odor thresholds was significantly confused, asserting they adequately informed the EPA under section 8(e).
Finally, SIPC, a UK company without refining or manufacturing facilities in Puerto Rico, is implicated through its subsidiary, Shell International Trading Company (SITC), which allegedly supplied significant amounts of MTBE gasoline to Shell PR.
The Commonwealth asserts that SIPC, via its subsidiaries Shell Retail International and Shell Caribbean and Central America (SCCA), significantly influenced Shell PR’s activities regarding underground storage tanks (USTs), environmental compliance, and budgeting for environmental projects, thereby contributing to MTBE contamination in the Commonwealth.
From February 1988 to at least 1995, SITC supplied Shell PR with gasoline from PDVSA’s Curagao refinery, which contained MTBE above the de minimis level. However, there is no direct evidence linking SITC to the provision of this gasoline. The evergreen contract allowed but did not mandate MTBE presence. Post-1994, the Commonwealth claims SIPC supplied MTBE gasoline from St. Croix, yet HOVIC Supply Data does not confirm SIPC's involvement or ownership of the gasoline shipments, leading Shell Defendants to argue that the Commonwealth lacks evidence of agreements between HOVIC and SIPC.
Beginning in 1999, the Commonwealth alleges SIPC’s direct involvement in Shell PR’s daily operations indicates a unified business control, leading to SIPC being liable for Shell PR’s actions from 1999 to 2006. This assertion is supported by a Franchise Agreement in January 1999, obligating Shell PR to adhere to Shell Retail’s operational standards and requiring Shell Retail to provide operational support. SCCA also played a role in ensuring compliance with SIPC’s policies, including environmental regulations, with claims that capital projects by Shell PR required SCCA's approval.
The Shell Defendants counter these claims, arguing the Commonwealth should be estopped from asserting SIPC’s vicarious liability due to a lack of prior disclosure of this theory. Additionally, they contend that even if the Commonwealth's claims about SIPC's control over Shell PR were accurate, SIPC did not legally exercise such control.
Shell West, a Barbados company, has never owned or operated gasoline storage facilities in Puerto Rico but supplied 516 shipments of gasoline to Shell PR and 140 to SCYI from St. Croix between September 1997 and December 2010. At least ten of these shipments to Shell PR contained MTBE concentrations exceeding the de minimis threshold of 0.50%. Shell West purchased these shipments from Hess, acquiring temporary title before transferring it to Shell PR outside Puerto Rico, typically at St. Croix's loading dock. The Commonwealth argues that a reasonable conclusion could be drawn that Shell West intentionally added MTBE above the de minimis level, as permitted by its supply contracts and business practices. In contrast, the Shell Defendants claim they only facilitated the availability of MTBE gasoline outside Puerto Rico and should be regarded merely as brokers, disputing any direct supply to Puerto Rico. They also assert a lack of causation, arguing there is no evidence linking the ten shipments with high MTBE concentrations to any Trial Site or demonstrating that any discharge from these shipments caused damages to the Commonwealth.
Regarding legal standards for summary judgment, it is appropriate when, after considering all evidence favorably to the non-moving party, there are no genuine issues of material fact warranting a trial. The moving party must demonstrate the absence of such issues, while the non-moving party must provide more than speculative or conclusory allegations to challenge the motion. The court's role in this context is not to resolve factual disputes but to identify whether any factual issues necessitate a trial, leaving credibility assessments and evidence weighing for the jury.
For tort claims under Puerto Rico law, the Commonwealth must prove that the Shell Defendants supplied or discharged MTBE or gasoline containing MTBE in Puerto Rico. Plaintiffs must provide evidence showing that the defendants' actions were a substantial factor in causing harm, with courts emphasizing that such conduct must be more than negligible or theoretical. This burden can be satisfied with circumstantial evidence, but mere speculation is insufficient. Proof of supplying or discharging gasoline can also be established by demonstrating the defendant's involvement in the distribution chain.
A defendant is considered part of the chain of distribution for MTBE gasoline if they manufacture, sell, or distribute it, or own and operate a service station dispensing it. The status of brokers in this chain is more ambiguous; a broker, which facilitates transactions without holding title to the product, cannot be held strictly liable in tort according to Oscar Mayer Corp. v. Mincing Trading Corp. This case established that brokers lack the ability to ensure product safety and are not deemed in the chain of distribution unless they take title to the product. If a defendant has not taken title, the Commonwealth must demonstrate intentional actions that place them in the distribution chain.
Under the Southern District of New York’s Rules of Civil Procedure, contention interrogatories are used to clarify disputed issues before trial or summary judgment. Responding parties must answer truthfully and completely, as these responses serve as judicial admissions that can prevent later assertions not included in the answers. Failure to amend such responses can bar liability theories, particularly if it prejudices the opposing party, although prejudice is not necessary for preclusion under Rule 37(c)(1).
Regarding the TSCA claim, any individual or entity, including the Commonwealth, may sue for violations. Key obligations under the TSCA require manufacturers and distributors to promptly inform the EPA if they obtain information indicating a substantial health or environmental risk from a chemical substance. To support its claim, the Commonwealth must show that defendants had reasonable information about such risks, and then the defendants must prove they knew the EPA was adequately informed. The TSCA allows the EPA to seek damages up to $25,000 per violation, while individual citizens can only pursue injunctive relief against ongoing violations through its citizen suit provision.
Claims based on gasoline containing de minimis levels of MTBE cannot withstand summary judgment. The Shell Defendants contest liability for distributing gasoline with minimal MTBE under Puerto Rico law, presenting differing interpretations of the relevant regulatory framework. A key piece of evidence is Pagan’s deposition, which contradicts his later declaration, suggesting that distributing gasoline with minor MTBE levels is permissible under local law. The regulatory scheme aims to allow for the inevitable commingling of MTBE in gasoline and establishes a de minimis threshold of 0.50% to differentiate between intentional blending and accidental contamination.
While compliance with regulations is not conclusive for liability, it may influence courts' liability assessments. Puerto Rico law prohibits any discharge of MTBE, but claims must demonstrate that the conduct significantly contributed to the injury. The evidence indicates that the Commonwealth's stance supports the allowance of gasoline with trace MTBE levels, leading to the conclusion that claims based solely on such shipments do not hold legal merit.
Regarding SOC, the Commonwealth alleges nuisance and trespass based on its supply of gasoline. However, evidence shows that MTBE was detected in only two shipments from SOC's Deer Park refinery, both below the de minimis threshold. The Commonwealth lacks direct evidence linking SOC to supplying MTBE from its Norco refinery, as most batches reported either contained negligible MTBE or none at all. As a result, SOC is entitled to summary judgment on all claims related to Phase I.
Thirty-two batches of gasoline exceeded the de minimis MTBE threshold; however, there is no evidence that any reached Puerto Rico. The Commonwealth relies solely on the testimony of Patrick Bloomer from Shell, who could not identify which batches were shipped due to insufficient information in the Norco Batch Reports. His testimony does not support the Commonwealth’s claim that gasoline containing significant MTBE levels was shipped. Additionally, the Commonwealth asserts that Shell Atlantic, a subsidiary of SOC, supplied Shell PR with MTBE gasoline from HOVIC at St. Croix, claiming Shell Atlantic acted in the distribution chain. However, Shell Atlantic only brokered the transaction without holding title to the gasoline or determining its MTBE content, rendering the Commonwealth's claims speculative and insufficient to oppose a summary judgment motion.
The Commonwealth also cites a TSCA claim against SOC for failing to disclose risks associated with MTBE detectability in water, information SOC possessed since 1981. Yet, the EPA had access to this information since 1987, and the TSCA permits citizen suits only for ongoing violations, which the Commonwealth failed to demonstrate.
Regarding SIPC, the Commonwealth alleges nuisance, trespass, and EPPA claims based on SITC supplying substantial amounts of MTBE gasoline from St. Croix and Curacao. However, there is no evidence of the MTBE content in these shipments or that SIPC was a party to these transactions. The existence of a contract allowing for gasoline with 10% MTBE does not prove that the actual shipments contained MTBE above the de minimis threshold, as it is equally probable that they contained none. Thus, SIPC is entitled to summary judgment on all Phase I claims.
The Commonwealth alleges that between 1999 and 2006, SIPC had ultimate decision-making authority over Shell PR, effectively controlling seventy-two Shell-branded service stations in Puerto Rico, including their underground storage tanks (USTs). However, the Commonwealth did not raise a vicarious liability theory in its responses to the Contention Interrogatories and failed to justify this omission, preventing it from pursuing that theory.
Regarding Shell West, the Commonwealth claims it is liable for nuisance, trespass, and violation of the EPPA due to supplying Shell PR with gasoline containing MTBE above the de minimis threshold. The Shell Defendants argue that the Commonwealth has not met the chain of distribution or causation requirements, asserting that Shell West acted merely as a broker in transactions involving gasoline between Hess and Shell PR. This argument is deemed unconvincing because Shell West directly purchased gasoline from St. Croix before selling it to Shell PR, placing it firmly within the distribution chain.
Despite the Shell Defendants’ claims, a reasonable jury could conclude that the ten shipments of gasoline, which could collectively contain substantial amounts of MTBE, were a significant factor in causing injury to the Commonwealth, given the volume involved.
The Shell Defendants' motion for summary judgment is granted in part and denied in part, and their motion to strike the Pagan Declaration is granted. The Clerk of Court is instructed to close the related motions. The ruling is based on undisputed facts drawn from pleadings and various submissions, with disputed facts viewed favorably for the nonmoving party.
Gasoline containing MTBE at concentrations exceeding 0.50% violates Puerto Rico law, as established by DACO regulations. A "shipment" refers to cargoes of gasoline delivered by vessel, with no fixed quantity; for instance, Shell PR once purchased over 130,000 barrels of gasoline in a single shipment. DACO is required to promulgate necessary regulations within 30 days of the Act's effective date, as per 10 L.P.R.A. 4172 and 4175. The Shell Defendants argue that any trace MTBE present in gasoline is unintentional. Shell PR received multiple shipments with MTBE concentrations above permissible levels, but no gasoline or pure MTBE was produced or stored at Cataño. Shell entities, including SIPC and Shell West, supplied this gasoline. Sol has assumed liability for Shell PR, including claims for nuisance and trespass related to the Shell Site. The Shell Defendants are seeking to dismiss several parties from the lawsuit, but the focus of this opinion is on claims relevant to Phase I of the litigation.
The Commonwealth has agreed to dismiss all claims against Equilon, TMR, and STUS due to their lack of involvement in Puerto Rico's gasoline market. Consequently, these entities are dismissed from the case. Additionally, claims against Motiva regarding Phase I are also dismissed. Various legal claims are referenced, including negligence under 31 L.P.R.A. 5141, EPPA claims under 24 L.P.R.A. 591, public nuisance under 32 L.P.R.A. 2761, and trespass also under 31 L.P.R.A. 5141. A TSCA claim is mentioned under 15 U.S.C. 2607(e). Testimony from Shell's Patrick Bloomer indicates that while some MTBE gasoline may have been shipped to Puerto Rico, definitive shipping records are lacking. Shell defendants argue that the Commonwealth mischaracterizes Bloomer's statements. Additionally, MTBE was detected in shipments, but there is no evidence that Shell Atlantic had title or control over the gasoline.
O'Reilly's declaration, as part of the Commonwealth's opposition to a motion for summary judgment, references various documents and statements concerning MTBE and its implications for drinking water safety. The MTBE Committee's comments from February 27, 1987, assert that MTBE does not pose a hazard to drinking water, supported by additional references to literature on groundwater treatment. There is a noted dispute regarding the operational relationship between SCCA and Shell PR, although for the motion's purposes, the distinction between SCCA and SIPC is deemed irrelevant, with SCCA characterized as an informal network of managers from Shell. Historical ownership and operational changes of the Curagao refinery are outlined, including its sale to the Netherlands Antilles and subsequent lease to PDVSA. A Product Supply Contract Memorandum allows for MTBE concentrations up to 10% by volume, and data from HOVIC documents prior gasoline distributions to Shell PR. The Shell Retail International Franchise Agreement and related depositions indicate that Shell PR operated under SIPC guidelines and had access to environmental standards. Additionally, contention interrogatories are discussed, with assertions that failure to disclose information can lead to judicial admissions that preclude later claims. Authority over subsidiary plans does not equate to control over operations.
Gasoline shipments from Shell West to Shell PR and SCYI were conducted under "trading and supply services" agreements from September 1997 to December 2010. Out of 656 total shipments, 24% contained MTBE concentrations below the de minimis threshold. Shell West's contracts allowed for the use of MTBE. Title for ten shipments with MTBE concentrations exceeding the de minimis threshold transferred to Shell PR at St. Croix. Shell Defendants assert that Shell West held title to the gasoline only temporarily. The document references various legal precedents regarding liability, emphasizing that merely selling a product does not equate to responsibility for its later misuse or environmental harm, particularly if the seller was unaware of any improper disposal. The EPPA requires a clear causal link between the defendants' actions and the alleged environmental injury, necessitating that the Commonwealth demonstrate this connection to hold the defendants accountable.
Strict liability claimants can utilize various forms of circumstantial evidence, as highlighted in cases like Zambrana v. Hospital Santo Asilo de Damas and Oscar Mayer Corp. v. Mincing Trading Corp. Under Puerto Rico law, a product is not considered defective if there is no feasible method to completely eliminate a harmful substance. A design defect is legally recognized only if it directly caused the plaintiff's injuries, as established in cases such as Fremaint v. Ford Motor Co.
In proceedings regarding evidence, if a party fails to amend its contentions after the close of discovery, they may waive the claim, particularly if this leads to substantial prejudice against the opposing party. Federal Rule of Civil Procedure 26(e) and 37(c)(1) emphasize that proof of unfair prejudice is not necessary for preclusion, and estoppel principles presume prejudice will occur if a party alters its position after responding to interrogatories.
Additionally, under the Toxic Substances Control Act (TSCA), plaintiffs have standing to bring claims, and the citizen suit provision allows for prospective relief only for ongoing violations. It is also noted that a party cannot create a genuine issue of fact through an affidavit that contradicts their prior deposition testimony, as affirmed in case law.
The motion to strike Pagan’s declaration by the Shell Defendants is granted. Under relevant regulations, specifically the California Code and Florida Administrative Code, SCYI is found not liable for the Commonwealth's Phase I claims regarding MTBE (methyl tert-butyl ether) contamination. There is no evidence, either direct or circumstantial, indicating that SCYI imported gasoline with MTBE concentrations exceeding 0.50%. The maximum recorded concentration in SCYI’s shipments was 0.21% by volume, with only ten shipments containing any MTBE. Additionally, there is no evidence that Shell Atlantic held title or control over the gasoline in question. Evidence of MTBE gasoline shipped by another company from the same refinery does not meet the Commonwealth's evidentiary requirements. Claims previously dismissed by the Commonwealth are also noted.
