Second Circuit Affirms Exxon Judgment, Rejects Clean Air Act Preemption Argument

Exxon Mobil Corp. must pay up, so said a three judge panel of the Second Circuit late last month. Opening the door to a flood of litigation concerning the gasoline additive MTBE, the Second Circuit affirmed a jury verdict award of $105 million against Exxon Mobil, and in favor of New York City, following an 11-week “bellwether” trial in the Southern District of New York.

In the early 1980s through 2000, Exxon Mobil used MTBE as an additive in its gasoline in an effort to prevent engine knocking and reduce harmful tailpipe emissions. Spills and leaks from Exxon’s underground storage tanks, however, released MTBE into a system of water wells in Queens, and ultimately contaminated New York City’s groundwater supplies.

New York City brought suit against Exxon Mobil for a series of state-law claims, including trespass, negligence, public nuisance and failure to warn. Following trial, a jury found Exxon liable to the City in the amount of $104.69 million, plus pre and post-judgment interest.

On appeal, Exxon raised several novel arguments, including that the City’s state law tort claims were preempted by the federal Clean Air Act. According to Exxon, because the Reformulated Gasoline Program (“RFG Program”), a regulatory program implemented under the Clean Air Act in the early 1990s, mandated the use of reformulated gasoline – or gas enhanced with certain additives like MTBE – the City’s tort claims related to Exxon’s use of MTBE were in conflict with, and therefore preempted by, the RFG Program and the Clean Air Act.

In rejecting this argument, the Second Circuit held that the RFG Program did not require, either expressly or implicitly, that Exxon use MTBE in its gasoline, nor was MTBE the only available, or even safest feasible, additive under the RFG Program. Indeed, the opinion summarizes expert testimony on whether Exxon could have instead utilized Ethanol under the RFG Program at that time.

Additionally, even if MTBE were the only and safest additive available at the time, the Second Circuit still would have rejected Exxon’s argument because, it found, the jury’s verdict was not based on Exxon’s use of MTBE alone, but on its determination that Exxon failed to exercise ordinary care in connection with the MTBE, and engaged in additional tortious conduct.

The Second Circuit’s opinion may limit a regulated industry’s ability to rely on its participation in a federal regulatory program as protection against state law claims, even when that industry may have, as a practical matter, no choice but to comply with the federal program and utilize certain components under the program. According to the Second Circuit, absent an express preemptive directive stating Congress’ intent to override state tort law, express federal preemption of state law may be unavailable. And under the facts of the case, the Second Circuit held that the connection between Exxon’s use of MTBE under the RFG program and the tortious conduct complained of by the City (i.e., its lack of care in utilizing MTBE) were too attenuated to warrant application of the lesser conflict preemption and branch preemption standards.

A representative for Exxon Mobil stated that the company intends to appeal the Second Circuit’s decision to the Supreme Court: http://www.reuters.com/article/2013/07/26/us-usa-courts-exxonmobil-idUSBRE96P0V220130726