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IN RE METHYL TERTIARY BUTYL ETHER

September 3, 2004.

IN RE: METHYL TERTIARY BUTYL ETHER ("MTBE") PRODUCTS LIABILITY LITIGATION. This document relates to: City of Park City
v.
Alon USA Energy Inc., et al., 04 Civ. 2059 (SAS). City of Dodge City v. Alon USA Energy Inc., et al., 04 Civ. 2060 (SAS). Chisholm Creek Utility Authority v. Alon USA Energy Inc., et al., 04 Civ. 2061 (SAS). City of Bel Aire v. Alon USA Energy Inc., et al., 04 Civ. 2062 (SAS). City of Sioux City, City of Ida Grove, City of Galva, Iowa v. Amerada Hess Corp., et al., 04 Civ. 1723 (SAS). Town of Mishawaka v. Amerada Hess Corp., et al., 04 Civ. 2055 (SAS). City of South Bend, Indiana v. Amerada Hess Corp., et al., 04 Civ. 2056 (SAS). North Newton School Corp. v. Amerada Hess Corp., et al., 04 Civ. 2057 (SAS). City of Rockport v. Amerada Hess Corp., et al., S.D. Ind., 04 Civ. 1724 (SAS). Escambia County Utilities Authority v. Adcock Petroleum, Inc., et al., 04 Civ. 1722 (SAS). Patrick County School Board v. Amerada Hess Corp., et al., 04 Civ. 2070 (SAS). Town of Hartland v. Amerada Hess Corp., et al., 04 Civ. 2072 (SAS). Quincy Community Services District v. Atlantic Richfield Co., et al., 04 Civ. 4970 (SAS). Town of Marksville v. Alon USA Energy Inc., et al., 04 Civ. 3412 (SAS). Town of Rayville v. Alon USA Energy, Inc., et al., 04 Civ. 3413 (SAS). Buchanan County School Board v. Amerada Hess Corp., et al., 04 Civ. 3418 (SAS). Craftsbury Fire District #2 v. Amerada Hess Corp., et al., 04 Civ. 3419 (SAS). Town of Matoaka v. Amerada Hess Corp., et al., 04 Civ. 3420 (SAS). Town of Campbellsburg, Indiana v. Amerada Hess Corp., et al., 04 Civ. 4990 (SAS).



The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge

OPINION AND ORDER

This multi-district litigation comprises dozens of cases, in which numerous plaintiffs are seeking relief from contamination or threatened contamination of groundwater from various defendants' use of the gasoline additive methyl tertiary butyl ether ("MTBE"). Defendants removed many of the actions from state court, asserting four grounds of federal subject matter jurisdiction: (1) federal agent jurisdiction; (2) substantial federal question; (3) complete preemption; and (4) bankruptcy jurisdiction.*fn1 The plaintiffs in nine New York cases moved to remand*fn2 On March 16, 2004, I denied the motions, holding that this Court has federal agent jurisdiction pursuant to section 1442(a)(1) of Title 28 of the United States Code, over all MTBE cases pending before it.*fn3 I found, among other things, that defendants had sufficiently alleged that they added MTBE to gasoline at the direction of the EPA, a federal agency, to comply with the requirements of the Reformulated Gasoline ("RFG") Program and the Oxygenated Fuels ("OF") Program.*fn4

At a subsequent status conference, plaintiffs sought clarification of my March 16, 2004 Opinion and Order ("MTBE III Opinion") because several of the plaintiffs are located in areas not covered by the RFG or OF programs. Therefore, plaintiffs argued, there could be no federal agent jurisdiction over cases filed in the non-RFG and non-OF areas as a matter of law.*fn5 Plaintiffs had not distinguished between RFG and non-RFG areas in their prior memorandum of law because they thought they were briefing only the New York cases, and New York is an RFG state.*fn6 I therefore permitted plaintiffs to move for clarification of the Court's MTBE III Opinion.*fn7 The moving plaintiffs reside in parts of California, Florida, Indiana, Iowa, Kansas, Louisiana, Vermont, Virginia, and West Virginia, that are located outside RFG and OF areas.*fn8 I now consider whether federal agent jurisdiction exists over cases filed by plaintiffs in non-RFG and non-OF areas.*fn9 I. BACKGROUND

  Familiarity with the Court's previous decisions in this multi-district litigation is assumed.*fn10 I shall describe only those facts relevant to the determination of these motions.

  A. MTBE

  MTBE is a chemical compound that is a byproduct of the gasoline refining process.*fn11 It has enhanced solubility in water and is chemically attracted to water molecules. Defendants used and continue to use MTBE as a gasoline additive. Sometime after 1979, in order to boost the octane level in higher grades of gasoline, defendants began manufacturing, distributing and/or selling gasoline with MTBE in concentrations averaging approximately two to four percent. Since 1990, defendants have added MTBE to gasoline in concentrations of up to fifteen percent. The publicly articulated justification for adding MTBE to gasoline is that it helps fuel burn more efficiently, thereby reducing air pollution.*fn12

  Because of its high solubility, MTBE races through underground water reservoirs, quickly reaching the water table and wells whenever gasoline leaks, spills, or is released into the environment. In addition, MTBE resists physical, chemical, and microbial degradation, which allows it to persist in underground aquifers for many decades, far longer than other components of gasoline. It is known to be carcinogenic in animals and is potentially cancer-causing in humans, as well. Even small quantities of MTBE impart a turpentine-like taste and odor to water, rendering it unfit for human consumption.*fn13

  Plaintiffs allege that at all relevant times to this litigation defendants have known that adding MTBE to gasoline would result in massive groundwater contamination. As early as 1980, defendants were aware of MTBE's risk to groundwater because of well contamination in Rockaway, New Jersey and Jacksonville, Maryland Throughout the 1980s and 1990s, subsequent contamination of other wells and aquifers, as well as scientific studies and reports, confirmed the risks posed by MTBE. Although defendants publicly denied the risks, their own documents confirm that they were aware of the harm posed by their use of MTBE.*fn14

  Despite their knowledge of its risks, defendants conspired to mislead the EPA and the public about the hazards of adding MTBE to gasoline. Defendants failed to provide the EPA with information it sought regarding MTBE's safety, and persuaded the EPA not to undertake additional testing.*fn15 These actions constitute "Defendants' pattern of exaggerating the environmental benefits of MTBE while understating or concealing the real environmental hazards, all of which Defendants knew or should have known at the time."*fn16 Defendants continued to use MTBE even though there were safer alternatives available. Plaintiffs claim that defendants had a duty to disclose the risk of MTBE but failed to do so.*fn17

  Based on these allegations, plaintiffs assert causes of action for: (1) strict liability for design defect and/or sale of a dangerously defective product; (2) strict liability for failure to warn; (3) negligence; (4) public nuisance; (5) private nuisance; (6) trespass; (7) civil conspiracy; and (8) breach of warranty.*fn18

  B. Reformulated Gasoline Program and Oxygenated Fuels Program

  During the 1950's and 1960's, Congress enacted a series of statutes in order to encourage and assist the states in curtailing air pollution.*fn19 However, that approach was ineffective, and in 1970, Congress amended the Clean Air Act ("CAA") to increase "federal authority and responsibility in the continuing effort to combat air pollution."*fn20 The amendments required the EPA to set National Ambient Air Quality Standards ("NAAQS") and required states to meet these standards under the EPA's supervision.*fn21 In addition, the amendments established some federal control over fuels, such as requiring the registration of fuels and fuel additives.*fn22 In 1990, Congress again amended the CAA to address air quality issues in areas of the country that were not in compliance with the NAAQS. These federal requirements mandated the production and sale, by specified dates, of cleaner burning RFG and/or OF in certain parts of the country.*fn23

  Beginning in 1992, the OF Program required the use of OF gasoline in certain geographical areas for up to four winter months each year. OF must contain at least 2.7 percent oxygen by weight. Beginning in 1995, the RFG Program required RFG to be used year round in nine of the most heavily polluted metropolitan areas. RFG must contain at least two percent oxygen by weight.*fn24 Where OF and RFG areas overlap, OF sold during the four winter months is required to contain 2.7 percent oxygen instead of two percent oxygen while meeting all of the other RFG requirements. The EPA approved the use of seven compounds to achieve the requirements set forth in the RFG and OF Programs: (1) MTBE; (2) ethanol; (3) methanol; (4) tertiary amyl methyl ether ("TAME"); (5) ethyl tertiary butyl ether ("ETBE"); (6) tertiary butyl alcohol ("TBA"); and (7) diisopropyl ether ("DIPE"). As part of the 1990 Amendments, Congress also enacted Anti-Dumping provisions to address concerns of conventional gasoline becoming "dirtier" as a result of the RFG Program. Gasoline refining creates certain byproducts that are "cleaner" and other byproducts that are "dirtier." Therefore, a refiner could theoretically comply with the RFG Program by directing the clean byproducts to RFG, while leaving the dirty ones in conventional gasoline. Congress knew this and therefore directed the EPA to promulgate rules to "ensur[e] that gasoline sold or introduced into commerce . . . does not result in average per gallon emissions [of pollutants] in excess of such emissions of such pollutants . . . in calendar year 1990. . . ."*fn25 In essence, all refiners were required to ensure that conventional gasoline sold after 1990 was at least as clean, from an emissions standpoint, as gasoline sold in 1990.*fn26

  C. Pipeline Distribution System

  Gasoline sold in the United States is distributed through a highly complex system of pipelines, marine tankers, barges, and tank trucks. The distribution system moves over nine million barrels (or 378 million gallons)*fn27 of gasoline from refineries to consumers daily. While there are several ways to transport refined products, pipelines are the most efficient and important means and transport almost seventy percent of petroleum products. Marine tankers account for approximately twenty-five percent, with the balance consisting of tank truck and rail deliveries.*fn28

  Over 70,000 miles of pipelines are used to ship and distribute fuel products to areas of the country lacking sufficient refining capacity, such as the Northeast and the Midwest. Although some refiners use their own pipelines, many ship their products through common carrier pipelines, which permit any qualifying shipper to move product between locations by paying a published tariff.*fn29 Large common carrier pipelines typically ship petroleum product in batches of 25,000 barrels or more. A "batch" is a distinct volumetric parcel of product that is pumped through the pipeline from an origin point to a predetermined destination point.*fn30

  Because the product being transported is fluid, adjacent batches end up mixing with each other at the boundaries.*fn31 "Transmix" refers to the boundary material between two distinctly different products, such as gasoline and diesel fuel. "Interface" refers to the boundary mix between two different grades of the same product, such as conventional gasoline and RFG. Although interface can be blended directly into the lower quality product and used, transmix cannot be utilized without reprocessing to separate the different products.*fn32 Federal Regulation provides that the interface between RFG and conventional gasoline may be blended down and sold as conventional gasoline.*fn33

  The boundaries of the RFG and OF areas do not correspond to the gasoline distribution system because they were defined by the EPA with reference to the NAAQS — not the idiosyncracies of the distribution system. Accordingly, some RFG and OF ends up being sold outside the program areas, in a phenomenon known as "spillover." Spillover occurs for a number of reasons, such as the difficulty of delivering the right product volume at the right time, changes in actual versus predicted demand during transit time, and regional price dislocations. Spillover is especially likely to occur in some of the high demand RFG regions — primarily the larger metropolitan areas.*fn34

  II. LEGAL STANDARD

  Section 1447(c) of Title 28 provides that a case removed from state court shall be remanded "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction." When a party files a motion to remand challenging the removal of the action from state court, "the burden falls squarely upon the removing party to establish its right to a federal forum by `competent proof.'"*fn35 "Out of respect for the independence of state courts, and in order to control the federal docket, `federal courts construe the removal statute narrowly, resolving any doubts against removability.'"*fn36 If the removing party cannot demonstrate federal jurisdiction by `competent proof,' the removal was improper, and the district court must remand the case to the court in which it was filed.*fn37

  "As a general rule, absent diversity jurisdiction, a case will not be removable if the complaint does not affirmatively allege a federal claim."*fn38 Federal jurisdiction exists where a case falls within the original "federal question" jurisdiction of the United States district courts: "The district courts shall have jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States."*fn39 A case "arises under" federal law when federal law creates the cause of action,*fn40 or "where the vindication of a right under state law necessarily turn[s] on some construction of federal law."*fn41

  "To determine whether the claim arises under federal law, we examine the `well-pleaded' allegations of the complaint and ignore potential defenses."*fn42 Thus, the presence of a federal defense does not furnish a sufficient basis for jurisdiction, "even if the defense is anticipated in the plaintiff's complaint, and even if both parties concede that the federal defense is the only question truly at issue."*fn43 "[A] complaint which appears to be grounded solely in state law actually may be federal in nature, and thus removable, if its true nature has been disguised by the plaintiff's artful pleading."*fn44

  Removal is permitted in two instances where the "well-pleaded complaint" rule is not satisfied. First, a case may be removed when a federal statute wholly displaces the state law cause of action though complete preemption.

 
When the federal statute completely pre-empts the state-law cause of action, a claim which comes within the scope of that cause of action, even if pleaded in terms of state law, is in reality based on federal law. This claim is then removable under 28 U.S.C. § 1441(b), which authorizes any claim that `arises under' federal law to be removed to federal court.*fn45
Second, a state law action may be removed to federal court where Congress expressly so provides.*fn46 Therefore, where a statute specifically gives federal courts jurisdiction over a particular subject matter, removal is proper even where the "well-pleaded complaint" rule is not satisfied.*fn47

  III. FEDERAL AGENT JURISDICTION

  A. Applicable Law

  The federal officer removal statute is an exception to the "well-pleaded complaint" rule because Congress expressly provided that actions against persons acting under color of a federal officer or agency may be removed to federal court, despite the absence of any federal claims.*fn48 Section 1442(a) permits a private party to remove a state court action if (1) the party acted under the direction of a federal officer or agency; (2) the party has a colorable federal defense; and (3) there is a causal connection between the federal direction and the conduct in question.*fn49

  B. Discussion The twenty-one water provider plaintiffs who are movants here all reside in areas not encompassed by the OF or RFG programs. Thus, plaintiffs argue that the Court lacks federal agent jurisdiction with respect to their cases because the EPA never directed that gasoline contain oxygenates of any kind — let alone MTBE — in these plaintiffs' jurisdictions. The OF and RFG programs require only that gasoline sold within certain designated areas must contain an oxygenate. Because the programs' requirements never applied to gasoline sold outside the designated areas, defendants ...


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