Exxon Found Liable for Fouling New York City Water With MTBE

By Thom Weidlich

Oct. 20 (Bloomberg) -- Exxon Mobil Corp. was ordered to pay $104.7 million in damages after a jury found the company liable for poisoning New York City water wells with a gasoline additive meant to improve air quality.

A federal jury in New York ruled in the city’s favor yesterday. New York accused Exxon Mobil, the biggest U.S. oil company, of contaminating five wells in and near the Jamaica area of the borough of Queens with methyl tertiary butyl ether, or MTBE.

“We’re delighted with the verdict,” said Victor Sher, a lawyer for the city at San Francisco-based Sher Leff LLP. “This is an important outcome for public water suppliers dealing with MTBE throughout the country.”

The Exxon Mobil case is part of larger litigation over the additive. More than 70 lawsuits filed by water providers and state and local governments were consolidated before U.S. District Judge Shira Scheindlin in Manhattan for pretrial information- gathering, according to an industry Web site. The Exxon Mobil case was the first of those to go to trial.

BP Plc, Chevron Corp.,ConocoPhillips, Hess Corp. and Royal Dutch Shell Plc were among 33 companies that settled with New York. Exxon Mobil, based in Irving, Texas, was the lone holdout.

“Obviously we’re disappointed in the result,” said Peter Sacripanti, an Exxon Mobil lawyer at McDermott, Will & Emery LLP in New York. “We wouldn’t have tried the case if we didn’t think we were absolutely right. And we look forward to vindication” in the appeals court.

Sought $250.5 Million

The city sought $250.5 million to build and operate a facility to purge the water of MTBE for 40 years. The jury ruled that was the amount needed to compensate the city for the damages it suffered. It then subtracted $70 million it said Exxon Mobil showed was due to pre-existing contamination and another 40 percent it ruled was caused by other oil companies that settled with the city.

On Oct. 14, Scheindlin ruled out the possibility of punitive damages.

The jury found against Exxon Mobil in two earlier phases of the trial. It ruled that the city intends to build a water- treatment plant for the wells and that MTBE will contaminate the wells’ output at a peak level of 10 parts per billion in 2033. The trial started Aug. 4.

Exxon had blamed most of the contamination in the area, called Station 6, on perchloroethylene, or PCE, a chemical used in dry-cleaning clothes.

Service Stations

“Our service stations were not the source of the MTBE contamination at the Station 6 wells and the city’s own principal expert identified three non-Exxon Mobil sources,” Kevin Allexon, a company spokesman, said in an e-mailed statement. “We do not believe we should be required to compensate the City of New York for someone else’s contamination.”

The city said it wants to build a water-treatment plant that will clean 10 million gallons of water per day. Exxon Mobil lawyers argued that the wells were turned off and unusable because of contaminants other than MTBE, including PCE.

Exxon and Mobil, which merged in 1999, began using MTBE in the 1980s to boost octane. Additives such as MTBE are chemical compounds that raise the oxygen content of gasoline to make it burn more cleanly and efficiently. The U.S. Congress amended the Clean Air Act in 1990 to require companies to add an oxygenate to gasoline to reduce air pollution.

MTBE, Ethanol

The city argued that the company could have used ethanol as an oxygenate in New York and instead opted to use MTBE to save 3 cents a gallon.

The jury ruled yesterday that the city didn’t prove there was a safer alternative gas design when gas with MTBE was being marketed. It found Exxon liable for product liability for failing to warn about the possible dangers of gas with MTBE. It also found the company liable for trespass, public nuisance and negligence.

“This is a tremendous victory for New Yorkers and a clear message to polluters,” Michael Cardozo, New York City’s chief lawyer, said in an e-mailed statement.

New York State banned the use of MTBE starting in 2004. More than two dozen other states have also banned it.

“This comes down to a simple question,” Robert Chapman, another lawyer for the city at Greenberg Glusker Fields Claman & Machtinger LLP in Los Angeles, told jurors in his Oct. 2 closing argument. “Can Exxon pollute the city’s groundwater and get away with it? Can Exxon put MTBE into the city’s groundwater and have a license to pollute?”

Dizziness, Nausea

MTBE renders water undrinkable by making it smell and taste like turpentine, according to the city. The compound can cause dizziness, nausea and nervous-system disorders, New York said. The city said it also may cause cancer, which Exxon Mobil denies.

The Exxon Mobil verdict is the 13th largest in the U.S. for 2009, according to data compiled by Bloomberg.

Exxon Mobil rose 5 cents to $73.62 in New York Stock Exchange composite trading yesterday. The stock fell 7.8 percent so far this year.

New York City Mayor Michael R. Bloomberg owns Bloomberg LP, parent company of Bloomberg News.

The case is City of New York v. Exxon Mobil Corp., 04-cv- 3417, grouped with others in the master-file case, In Re: Methyl Tertiary Butyl Ether (“MTBE”) Products Liability Litigation, 00-cv-1898, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Thom Weidlich in New York at tweidlich@bloomberg.net.