Settlements signal end
of litigation in cleanup cases
of litigation in cleanup cases
After years of contentious and costly
legal wrangling, the city of Lodi, CA, and a number of its
businesses, including drycleaners, are reaching settlements
that could allow the cleanup of soil and groundwater
contamination to proceed.
The first settlement came last year when
Busy Bee Cleaners agreed to pay $475,000 toward cleanup. Then
in December, Guild Cleaners reached a settlement in which its
insurers will pay $4.2 million toward cleaning up the main, or
“Central” plume in Lodi.
Other settlements have followed,
including the Lodi News-Sentinel, which will pay $2 million from its own
assets to settle a claims that it had contributed to the
Central plume.
One of the settlements involved a
drycleaning business that has been gone for more than 30 years.
In that case, the Odd Fellows Association will pay $1 million
toward the cleanup, having rented space to the drycleaner who
left the building in 1972. The drycleaner is suspected of
having contributed to the Central plume.
Adding to the cleanup fund will be the
city’s insurers, who have agreed to pay $9 million in a
settlement reached in December. Out of that, at least $2.2
million has been set aside for cleanup of the Central plume.
Estimates of the cost for cleaning up the
Central plume range from $16 million to $24 million. Three
other plumes are smaller, but the cost of cleaning them up will
total in the millions, too. The settlements to date will be
enough to get the Central plume cleanup started and to operate
for a few years, but Lodi’s taxpayers could end up
footing some of the bill, depending on how long the clean up
takes and how much it ultimately costs.
Problems began back in the 1980s when
contamination was discovered in Lodi’s drinking water.
Investigations in the early 1990s found areas where
trichloroethylene was disposed or where perchloroethylene from
drycleaning operations was sent to the sewer system or directly
to the ground. California Regional Water Quality Board
officials, in a report filed in January, 2004, said they
believe perc leaked from the sewer to the soil and groundwater.
Two municipal water supply wells have
been abandoned because of the contamination. Officials are
monitoring another well, but so far contamination is well
within EPA’s limits.
Until now, clean-up efforts, except by
Guild Cleaners, were stalled while litigation was underway. In
2001, The California Regional Water Quality Control Board, at
the request of Guild Cleaners, undertook oversight of a
remedial investigation and feasibility study for Guild’s
share of the contamination. A combination of soil vapor
extraction and air-sparging has been implemented under that
program.
But the contamination problems have
generated far more litigation than remediation. In 1997, the
city paid the state Department of Toxic Substances Control $1
million to take charge of enforcing the cleanup. In assuming a
lead role, the city agreed to pursue legal action against
potentially responsible parties (PRPs) to enforce cleanup and
to recover the city’s legal costs. The strategy was to
get the other PRPs to pay for 100 percent of the cleanup, as
well as pay for the city’s litigation costs and
attorney’s fees.
That strategy was part of a plan by
attorney Michael Donovan and the Envision Law Group that also
included a $16 million loan from Lehman Bros. to pursue the
case. The loan was to be paid back from proceeds of settlements
the city thought it would get from the responsible parties and
their insurers.
But the plan backfired when companies
fought back, arguing that the city’s leaky sewers had
helped spread the contamination. The precedent for that
argument was set by IFI nearly 10 years ago when it was
embroiled in a contamination case at its former headquarters in
Silver Spring, MD.
By the end of 2003, the city’s
strategy was unraveling. U.S. District Judge Frank C. Damrell,
Jr., warned the city that its prospects in the case looked bad
and the defendants had a good chance of prevailing.
Judge Damrell also raised questions about
the role of Lehman Bros., noting that, with accrued interest,
the city then owed Lehman more than $20 million on the loan.
With a court date imminent and the
judge’s comments in mind, the city fired both its city
attorney and the legal team that had presented it with a
multi-million dollar bill. Instead of pursuing litigation, the
city told Judge Damrell that it wanted to seek a settlement.
Last summer, Judge Damrell gave the city
two months to revise its lawsuit, which it did, just before the
deadline, with 153 defendants named. Busy Bee Cleaners was one
of nine cleaning companies named in the expanded lawsuit.
Nearly all downtown Lodi companies that used certain types of
chemicals over the past 70 years were named in that suit.
The Busy Bee settlement came months after
the city hired a new outside law firm and a new city attorney,
Stephen Schwabauer.
Now that settlements are coming along,
city officials are looking ahead to actually getting the
contamination cleaned up. And Judge Damrell, at a federal court
appearance in January, said he was pleased with the progress.
That’s not to say that litigation
is over, however. Other contaminated areas are being
investigated and a trial date for January 2006 has been set.
However, attorneys are pushing for settlements in those cases,
too.
Also the city has sued attorney Michael
Donovan, who brought forth the plan to sue local businesses and
their insurers in the mid-1990s, using the $16 million loan
from Lehman Bros. The lawsuit alleges that Donovan structured
the Lehman Bros. loan for his benefit, not the city’s,
and the he committed fraud by improperly billing the city for
expenses.
The city and Lehman Bros. are also
battling over paying back that loan.
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