Judge Scheindlin Rejects Proposed Settlement of Water Contamination Suit Against Citgo on Fairness Grounds

In an opinion issued yesterday, Judge Scheindlin rejected a proposed settlement between the New Jersey Department of Enviornmental Protection and oil company Citgo over claims related to the potential contamination of water supplies with a kind of gasoline additive known as MTBE.  The non-settling defendants objected to the proposed $23 million settlement on the grounds that it did not fully account for Citgo's proportionate share of liability. Judge Scheindlin sustained the objection:

On the record before me, I cannot determine whether the $23.25 million settlement amount represents Citgo’s fair share of liability. Plaintiffs reached this amount based on a 128 site list that is replete with problems. First, the list omits three of the four Plaintiff-selected sites where Plaintiffs claim Citgo is liable.  Because Citgo's liability at these three sites alone could exceed $23.25 million, Plaintiffs have severely underestimated Citgo's liability. Second, the list was generated from databases incapable of identifying historic suppliers of MTBE at the time of the releases. Plaintiffs attempt to compensate for their lack of site-specific knowledge by relying on Citgo' s reported market share of four percent.  But as Citgo admits, if its share of liability was four percent of the total damages, it would be liable for $88 million.  Plaintiffs insist that they gave Citgo a discount because "other defendants in addition to Citgo" were identified at some of the 128 sites.  But they faill to identify which sites Citgo supplied at the time of the MTBE releases, which other Defendants supplied those sites at those times, or how to allocate liability among Defendants. Plaintiffs also claim that they considered the number of sites associated with Citgo, Citgo's market share, Citgo's willingness to settle early, the liability of remaining defendants, litigation risks, the certainty provided in settlement, the time value of money, the public interest in settlement, and Citgo's arguments regarding its potential defenses.  While these are all reasonable factors to consider, the Court cannot approve the settlement without first evaluating "the measure of comparative fault on which the settlement terms are based."  Without a reasonable measures of both total damages and Citgo's share, I cannot determine whether the settlement is fair and reasonable.

Judge Scheindlin denied the motion to approve the consent order but gave the plaintiffs leave to resubmit once they had developed a more complete record to support the settlement.