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ExxonMobil Knew in 1984 MTBE Would Contaminate Ground

ExxonMobil Corp. (XOM) knew that incidents of groundwater contamination would triple if it added a chemical to gasoline that makes the fuel burn more cleanly, a lawyer for New Hampshire said at the opening of an $816 million trial.

ExxonMobil and Citgo Petroleum Corp. are the last holdouts in the suit by New Hampshire alleging oil companies knew the chemical would contaminate groundwater. The state court trial, which began yesterday in Concord, pits the New Hampshire’s environmental claims against assertions by companies that they were simply complying with federal pollution standards.

It’s one of scores of cases involving the additive methyl tertiary butyl ether, or MTBE, that have been filed since 2000 against oil refiners, fuel distributors and chemical makers.

“Exxon decided to disregard the recommendation of its own employees and put MTBE in gasoline,” Jessica Grant, a lawyer for the state, said in her opening statement yesterday. “In 1984 Exxon anticipated that if it added MTBE to its gasoline the number of contamination incidents would triple. These incidents would take longer to clean up and cost five times as much.” Each cleanup at that time would have cost as much as $7 million, she said.

The companies said the federal Clean Air Act overrides the state claims, and that by adding MTBE to gasoline, they were complying with a U.S. mandate to supply fuel that would burn more cleanly.

Pre-Emption

Keith Hylton, who teaches law and economics at Boston University School of Law, said the oil companies are counting on pre-emption, which turns on whether federal regulators “looked at all the issues that the state would examine in a lawsuit. The oil companies will say: Federal law made us do that and that pre-empts any state lawsuit,” Hylton said.

“This case is about decisions made by the government with regard to public safety and public health,” James Quinn, a lawyer for ExxonMobil, said in his opening statement yesterday to the jurors. “There were great benefits to using MTBE but there were downsides. All of these downsides were known to all the folks involved.”

Oil refiners began adding MTBE to gasoline in the late 1970s to replace lead. From 1995 to 2006, they increased the use of MTBE, which boosts the oxygen level of the fuel and makes it burn more cleanly.

MTBE is produced by combining methanol, which is derived from natural gas, and isobutylene, a byproduct of gasoline refining. It can leak into the ground from gas stations, storage tanks and automobile junkyards. It dissolves in water and doesn’t biodegrade, so it can be carried with the water great distances from the site of a leak or spill, according to court papers. The chemical is difficult and expensive to find, treat and remove, according to court filings.

‘Foul, Putrid’

According to filings in the New Hampshire case, MTBE can render drinking water “foul, putrid and unfit for human consumption.” The state said it petitioned the U.S. Environmental Protection Agency in 2001 to get out of its reformulated gasoline program because of awareness of MTBE’s harmful effects. The additive has been banned in the state since January 2007.

“Despite knowing that MTBE posed a greater threat to drinking water they never posted a single warning,” Grant said.

2003 Complaint

In 2003, New Hampshire sued ExxonMobil and Citgo along with Shell Oil Co., Sunoco Inc., ConocoPhillips (COP), Irving Oil Ltd., Vitol SA and Hess Corp. All have settled except Irving, Texas- based ExxonMobil and Citgo, the Houston-based unit of Venezuela’s state-owned oil company, Petroleos de Venezuela SA. Shell and Sunoco agreed to pay New Hampshire $35 million in a settlement announced in November.

The state said it has identified 228 sites that will require cleanup from contamination by MTBE, which, according to court filings, can cause cancer in animals. It said tests in 2005 and 2006 showed MTBE in 9.1 percent of private wells throughout the state.

New Hampshire is seeking $816 million to cover cleanup and monitoring costs, Grant said, and it will ask for damages from ExxonMobil and Citgo based on their market shares of gasoline sold in the state during the time the suit covers. ExxonMobil’s market share was about 30 percent, she said. That means the state will seek $245 million in damages from the company. Citgo’s market share ranged from 3 percent to 8.7 percent.

‘Second-Guessing’

The state is “second-guessing decisions made by Congress, the EPA and by the state’s own officials to rely on gasoline with MTBE as the solution to air pollution,” Claire Hassett, a spokeswoman for ExxonMobil, said in an e-mail. “Gasoline with MTBE was a product that worked as it was intended -- it provided significant health benefits by helping gasoline burn cleaner, thereby reducing smog.”

Citgo said in a statement that its “use of MTBE was the result of the government’s mandates with the intended purpose of improving air quality.”

The state said the oil companies could have used safer additives, such as ethanol, and chose not to because MTBE is inexpensive to produce.

“If they had an alternative product to use and the alternative is just as good and avoids serious risk to consumers, there’s a strong argument the defendants have failed the risk-utility standard and can be held liable,” Hylton said.

Short Supply

The oil companies said ethanol wasn’t in large enough supply at the time that an additive was being sought, and that it presents its own environmental hazards.

“This case is not about health risks or personal injuries,” Hassett said. “There is not a single recorded case of anyone getting sick from drinking water with MTBE. The majority of the state’s damage claims are based on computer models and projections not on actual testing or data.”

She said the fault lies with whoever spilled the chemically treated fuel.

“MTBE contamination has been found in New Hampshire because someone spilled gasoline in New Hampshire, not because it was added to gasoline in a refinery in another state,” she said. “The state should be suing parties responsible for spilling gasoline.”

The oil companies also said in court filings that a statute of limitations should prevent the litigation from proceeding. The state waited three years from the time it detected MTBE in sites until it sued, they said.

New Hampshire Superior Court Judge Peter Fauver in August rejected a series of motions by the oil companies seeking judgment without a trial based on the arguments they raised. Those issues can be brought up again for the jury’s consideration.

Water Sources

In January 2011, the New Hampshire Supreme Court denied a motion by the companies to decide the case in their favor and sent it back to the Superior Court. The state’s highest court said New Hampshire could seek damages for contamination of nonpublic sources of water, such as wells, and also of public sources.

The New Hampshire case had been moved to federal court in New York, where other lawsuits have been consolidated for pretrial evidence-gathering and motions before U.S. District Judge Shira Scheindlin in Manhattan. In 2007, the U.S. Court of Appeals in New York sent New Hampshire’s case back to the state court there.

Scheindlin presided over the trial of New York City’s case against ExxonMobil. In 2009, the jury in that case ordered ExxonMobil to pay $104.7 million after finding it liable for polluting wells in the city. ExxonMobil has appealed.

Consolidated Cases

The cases consolidated in New York may be tried separately in courts around the U.S. if settlements aren’t reached. In the New York litigation, the New Jersey Department of Environmental Protection filed its fourth amended complaint in June. No date has been set for a trial, which would probably take place in federal court in New Jersey.

In New Hampshire, after the jury was dismissed yesterday, Nathan Eimer, a lawyer for Citgo, asked the judge to declare a mistrial, claiming that the state’s lawyer had misrepresented a document as one of Citgo’s in her remarks to the jury.

“There’s a long road ahead of us,” Fauver told the lawyers. “This will all be clarified. I don’t think it warrants a mistrial.”

Citgo will make its opening statement today after ExxonMobil completes its argument.

Lawyers said the trial may take more than four months.

The case is State of New Hampshire v. Hess Corp. (HES), 03- C-0550, State of New Hampshire Superior Court (Merrimack County). The federal cases are consolidated as In re MTBE Products Liability Litigation, 00-11898, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Don Jeffrey in U.S. District Court for the District of New Hampshire in Concord at djeffrey1@bloomberg.net and; Sarah Earle in U.S. District Court for the District of New Hampshire in Concord at sarah_earle@comcast.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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