In re Methyl Tertiary Butyl Ether ("MTBE") Prods. Liab. Litig.

IN RE: METHYL TERTIARY BUTYL ETHER ("MTBE") PRODUCTS LIABILITY LITIGATION

Docket No. 10-4135-cv (L)

Docket No.10-4329-cv (XAP)

United States Court of Appeals FOR THE SECOND CIRCUIT

August Term, 2011

Argued: May 23, 2012

Decided: July 26, 2013

Before:

PARKER, HALL, and CARNEY, Circuit Judges.

After an eleven-week bellwether trial and years of related litigation, the District Court entered a $104.69 million judgment for the City of New York, the New York City Water Board, and the New York City Municipal Water Finance Authority (collectively, the "City") and against Exxon Mobil Corporation, Exxon Mobil Oil Corporation, and Mobil Corporation (collectively, "Exxon"). The jury found Exxon liable under New York tort law for contaminating City-owned wells in Queens by its release of the chemical methyl tertiary butyl ether ("MTBE"), which Exxon used as a gasoline additive from the mid-1980s through the mid-2000s, and whose use New York State banned as of 2004. On appeal, Exxon challenges the verdict, arguing primarily that the City's common law claims are preempted by the federal Clean Air Act, which, from the mid-1990s through 2004, required use of gasoline oxygenates, such as MTBE, in New York City. Exxon also argues that because (among other reasons) the jury projected MTBE levels equal to the State's maximum contaminant level, the City's injury was not legally cognizable; that the City's action was not ripe for adjudication (or alternatively, that it was barred by the statute of limitations); that the City failed sufficiently to prove the elements of negligence, trespass, public nuisance, and failure-to-warn; and that the District Court erred in its handling of alleged jury misconduct. On cross-appeal, the City faults the District Court for instructing the jury to offset its damages award by thecost of remediating pre-existing contamination, and for its ruling that, as a matter of law, the City was not entitled to an award of punitive damages. For the reasons set forth below, we AFFIRM the decision of the District Court in its entirety.

PAUL D. CLEMENT, Bancroft PLLC, Washington, DC

(Traci L. Lovitt, Nicholas W. Haddad, Jones Day,

New York, NY; Peter John Sacripanti, James A.

Pardo, Lauren E. Handel, McDermott Will &

Emery LLP, New York, NY, on the brief), for

Defendants-Appellants-Cross-Appellees Exxon

Mobil Oil Corporation, Exxon Mobil Corporation,

and Mobil Corporation.

PAUL M. SMITH, Jenner & Block LLP, Washington,

DC (Susan E. Amron, Assistant Corporation

Counsel, New York City Law Department, New

York, NY; Victor M. Sher, Sher Leff LLP, San

Francisco, CA, on the brief), for Plaintiffs-

Appellees-Cross-Appellants the City of New York,

the New York City Water Board, and the New York

City Municipal Water Finance Authority.

Donald W. Fowler, Eric G. Lasker, Hollingsworth

LLP, Washington, DC; Donald D. Evans, American

Chemistry Council, Washington, DC; Thomas J.

Graves, American Coatings Association, Inc.,

Washington, DC; Quentin Riegel, National

Association of Manufacturers, Washington, DC;

Elizabeth Milito, NFIB Small Business Legal

Center, Washington, DC; Robin S. Conrad,

National Chamber Litigation Center, Inc.,

Washington, DC, for amici curiae American

Chemistry Council, American Coatings Association,

the National Association of Manufacturers, the

NFIB Small Business Legal Center, and the

Chamber of Commerce of the United States of

America, in support of Defendants-Appellants-

Cross-Appellees.

Joseph R. Guerra, James R. Wedeking, Sidley

Austin LLP, Washington, DC, for amici curiae

National Petrochemical and Refiners Association

and American Petroleum Institute, in support of

Defendants-Appellants-Cross-Appellees.

Michael B. Mukasey, Anne E. Cohen, Debevoise &

Plimpton LLP, New York, NY; Hugh F. Young, Jr.,

Product Liability Advisory Council, Inc., Reston,

VA, for amicus curiae The Product Liability

Advisory Council, Inc., in support of Defendants-

Appellants-Cross-Appellees.

Michael E. Wall, Natural Resources Defense

Council, San Francisco, CA, Johanna Dyer, Natural

Resources Defense Council, New York, NY, for

amicus curiae Natural Resources Defense Council,

in support of Plaintiffs-Appellees-Cross-Appellants.

Paula T. Dow, Attorney General of New Jersey,

George N. Cohen, Richard F. Engel, Deputy

Attorneys General, Trenton, NJ; Michael Axline,

Miller, Axline & Sawyer, Sacramento, CA, for

amicus curiae New Jersey Department of

Environmental Protection, in support of Plaintiffs-

Appellees-Cross-Appellants.

Table of Contents

I. BACKGROUND. . . . . . . . 8

A. MTBE and Its Effects. . . . . . . 9

B. The Clean Air Act and the Reformulated Gasoline Program. . . . . 11

C. The City's Water-Supply System. . . . . . . . 12

D. The City's Claims. . . . . . 14

E. The Trial. . . . . . 16

1. Phase I: Future Use of the Station Six Wells. . . . . . 16

2. Phase II: Peak MTBE Concentration in the Station Six Wells. . . . 19

3. Phase III: Liability and Statute of Limitations. . . . . . 23

a. Injury. . . . . . 24

b. Causation. . . . . 26

c. Damages. . . . . 29d. Statute of Limitations. . . . . . 32

e. Phase III Jury Verdict. . . . . . 33

F. Punitive Damages. . . . . . 34

G. Juror Misconduct. . . . . . 39

H. Post-Trial Motions. . . . . . 42

II. DISCUSSION. . . . . . 43

A. Preemption. . . . . . 43

1. Federal Preemption of State Law. . . . . . 44

2. Conflict Preemption: the Impossibility Branch. . . . . . 47

a. The Import of the Jury's Finding on the City's Design-Defect Claim. . . . . . 49

b. Considering Ethanol as a Possible Alternative to MTBE. . . . . . 52

3. Conflict Preemption: the Obstacle Branch. . . . . . 54

4. Tortious Conduct Beyond Mere Use of MTBE. . . . . . 60

B. Legal Cognizability of Injury. . . . . . 61

1. Standing. . . . . . 64

2. Injury As a Matter of New York Law. . . . . . 68

C. Ripeness and Statute of Limitations. . . . . . 72

D. Sufficiency of the Evidence as to Injury and Causation. . . . . . 79

1. The Jury's 10 ppb MTBE Peak Concentration Finding. . . . . . 80

2. The Jury's Consideration of Market Share Evidence. . . . . . 84

E. New York Law Claims. . . . . . 89

1. Negligence. . . . . . 89

2. Trespass. . . . . . 92

3. Public Nuisance. . . . . . 96

4. Failure to Warn. . . . . . 101

F. Juror Misconduct. . . . . . 104

G. The City's Cross-Appeals for Further Damages. . . . . . 106

1. Compensatory Damages Offset. . . . . . 107

2. Punitive Damages. . . . . . 109

III. CONCLUSION. . . 116

SUSAN L. CARNEY, Circuit Judge:

Exxon Mobil Corporation, Exxon Mobil Oil Corporation, and Mobil Corporation (collectively, "Exxon") appeal from an amended judgment entered infavor of the City of New York, the New York City Water Board, and the New York City Municipal Water Finance Authority (collectively, "the City") on September 17, 2010, in the United States District Court for the Southern District of New York (Shira A. Scheindlin, Judge), following an eleven-week jury trial and post-trial proceedings. The case was selected to serve as a bellwether trial in certain long-running multidistrict litigation, consolidated in the District Court, that concerns contamination of groundwater by the organic chemical compound methyl tertiary butyl ether ("MTBE").¹

As described in greater detail below, this extended litigation arose from the intensive use of MTBE as a gasoline additive by Exxon and other gasoline companies in the New York area from the 1980s through the first half of the 2000s, when a state ban on MTBE brought the era to an end. Treatment with MTBE increased the oxygen content of gasoline and mitigated harm to air quality caused by automobile emissions, thereby furthering the goals of the Clean Air Act, 42 U.S.C. §§ 7401-7671q, as amended from time to time. Because of spillage andleakage from gasoline stored in underground tanks, however, MTBE-treated gasoline was released into the ground, contaminating groundwater supplies. MTBE causes water to assume a foul smell and taste, and has been identified as an animal carcinogen and a possible human carcinogen. In 1990, Congress identified MTBE as one of several additives that gasoline suppliers might use to satisfy new federal oxygenate requirements set forth in amendments to the Clean Air Act, calling for the creation of a "reformulated gasoline" program. In 2005, however, Congress ended that program.

In this suit, the City sought to recover from Exxon for harm caused by the company's introduction of gasoline containing MTBE into a system of water wells in Queens known as the Station Six Wells. Although not currently operative, the City alleged that the Station Six Wells are a significant component of its overall plan to deliver potable water to its residents without interruption over many years to come. Without significant treatment of the water drawn by those wells, the City would be unable to rely on their eventual use, and it alleged that this inability constituted a serious and compensable harm under various State tort law and other legal theories.

Because of the matter's complexity, the trial proceeded in several phases. Phase I of the trial addressed whether the City established that it intends in good faith to use the Station Six Wells as a source of drinking water in the future. The jury answered that question in the affirmative. In Phase II, the jury was askedwhether MTBE will be in the Station Six Wells when those wells begin operating, and at what peak level MTBE will be found. Again answering in the affirmative, the jury concluded that the concentration of MTBE will peak at 10 parts per billion ("ppb") in 2033.

Phase III addressed questions of liability and damages. In Phase III, the jury found Exxon liable to the City under New York law for negligence, trespass, public nuisance, and failure-to-warn; the jury found that Exxon was not liable, however, on the City's design-defect and private nuisance claims. The jury then calculated a gross compensatory award reflecting its assessment of the damage to the wells caused by MTBE contamination generally. It offset this award by amounts it attributed to the damage...