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The oil industry could be hit with billions of dollars in damages as a result of a jury’s recent decision that the controversial gasoline additive MTBE is a defective product. The milestone verdict holds five companies responsible for selling MTBE-enhanced gasoline, a product the California Superior Court jury deemed unreasonably dangerous and defective. The suit was brought by the South Tahoe Public Utility, which claimed that MTBE leaching from underground gasoline storage tanks contaminated drinking water. The resort town estimates it will need $54 million for cleanup and removal of MTBE from its water supply. Twelve of its 34 wells have been closed due to contamination. DOZENS MORE PENDING The products liability case was the first involving MTBE (methyl tert-butyl ether) to go to trial, and dozens more are pending around the country. The plaintiffs allege that the companies knew the water-soluble chemical compound is a potential health hazard that seeps easily into water supplies, producing a bitter, turpentine-like scent and taste. The defendants claim federal and state laws gave them the go-ahead to use MTBE to meet federal clean air standards. Reformulated gasoline is about 11 percent MTBE, which makes it burn cleaner. The oil companies have contended that products liability claims are pre-empted by the Clean Air Act’s 1990 amendments — a defense recognized in at least two courts. The San Francisco jury found that Shell Oil Co., Texaco Inc., Lyondell Chemical Co. (formerly ARCO Chemical Co.), Tosco Corp. (part of Phillips Petroleum) and Equilon Enterprises sold a defective product because they failed to warn about its dangers. The jury also held that Shell and Lyondell acted maliciously by withholding information about MTBE’s dangers. Punitive damages can be awarded in California only if a jury finds malice. The panel returned to court last week for the trial’s causation and damages segment. That phase is expected to last months, said the water district’s attorney, Duane C. Miller of Miller, Sher & Sawyer in Sacramento, Calif. Lawyers involved in the case have been prohibited from speaking to the press because of the continuing litigation. Jurors heard five months of evidence in the products liability phase and deliberated seven weeks before reaching their April 15 verdict. Citing concerns about the impact of publicity on a case of “considerable public interest,” Judge Carlos Bea imposed a gag order on the parties. South Tahoe Public Utility District v. Atlantic Richfield Co., No. 999128, (San Francisco Co., Calif., Super. Ct.). Lawyers following the litigation say the verdict doesn’t necessarily bode ill for refineries because California juries tend to have a more pro-environmental bent. But that doesn’t mean the verdict was a fluke either. “I don’t think you should write off California, because if you do that, you haven’t learned anything from it,” said Steve Leifer, who represents defendants in an MTBE case headed to trial this year in Texas. Leifer, of Baker Botts in Washington, D.C., said he’ll study the presentation of the California case, which has many similar parties and claims. He expects the California defendants to be able to mitigate damages by showing they’ve taken steps to clean up contaminated soil. Malissa Hathaway McKeith, a Los Angeles attorney who represents water agencies, said the verdict reflects fears about contaminated water. Though there’s no proof that MTBE is a carcinogen, anything that affects water quality makes people uneasy, said McKeith, a partner in Loeb & Loeb. The verdict is likely to prompt oil companies to settle MTBE-related claims and will probably prompt potential plaintiffs to sue, she said.

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