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In re Methyl Tertiary Butyl Ether Products Liability Litigation

December 6, 2011

IN RE: METHYL TERTIARY BUTYL ETHER ("MTBE") PRODUCTS LIABILITY LITIGATION
THIS DOCUMENT RELATES TO:
YOSEMITE SPRINGS PARK UTILITY COMPANY V. CHEVRON, U.S.A. INC., ET AL., CASE NO. 09-CV-1419



The opinion of the court was delivered by: Shira A. Scheindlin, U.S.D.J.

OPINION AND ORDER

MDL 1358 (SAS)

M21-88

I. INTRODUCTION

In this consolidated multi-district litigationn ("MDL"), plaintiffs seek relief from contamination, or threatened contamination, of groundwater from various defendants' use of the gasoline additive methyl tertiary butyl ether ("MTBE") and/or tertiary butyl alcohol, a product formed by the natural degradation of MTBE in water. In this case, Yosemite Springs Park Utility Company ("YSPUC") alleges that Chevron U.S.A., Inc. ("Chevron") promoted and sold gasoline containing MTBE although it knew - or should have known - that MTBE would eventually pollute groundwater.

Currently before the Court is a motion in limine filed by YSPUC, seeking an order directing that Chevron "shall not make any reference to, offer any evidence, or make any argument suggesting that Chevron's liability should be reduced because Plaintiff has received compensation in the form of funding or financial support for a water treatment plant from any collateral source."*fn1 For the reasons explained below, the motion is granted in part and denied in part.

II. BACKGROUND

The Underground Storage Tank Cleanup Fund ("USTCF") is a California program that "amounts to a government-run insurance pool [that] reimburses owners of underground storage tanks ("UST") who clean up leaks."*fn2

Similar to an insurance premium, UST owners pay a certain amount into the USTCF on a regular basis; similar to a deductible, UST owners are also required to bear a certain level of financial responsibility "for taking corrective action and compensating third parties for bodily injury and property damage" on their own.*fn3

Once the cost associated with taking corrective action and compensating third parties exceeds the level of financial responsibility that the UST owner must bear, the owner may file a claim with the USTCF for reimbursement.*fn4 Consistent with normal insurance plans, reimbursement is made on a "per occurrence" basis.*fn5 Unlike a typical insurance plan, however, the USTCF does not disburse funds directly to affected third parties or represent UST owners in court. Instead, UST owners cover the costs on their own and seek reimbursement from the USTCF. As an owner of USTs in California, Chevron has made the required payments into the USTCF.*fn6

From June 1999 to December 2009, the USTCF was required by law to transfer five million dollars per year to the Drinking Water Treatment and Research Fund ("DWTRF").*fn7 Unlike the USTCF, which was essentially a government-created insurance pool financed by and run for the benefit of UST owners, the DWTRF -- which was administered by the California Department of Health Services ("CDHS")*fn8 -- paid public water systems directly to investigate and remedy oxygenate contamination.*fn9 Public water systems that receive more than one million dollars from the DWTRF are obliged to "aggressively pursue cost recovery from responsible persons."*fn10 YSPUC has received almost three million dollars in DWTRF funds from the CDHS to clean up the MTBE contamination of its wells.*fn11

III. LEGAL STANDARDS

A. The Collateral Source Rule

The collateral source rule is a substantive rule of law that states that a tortfeasor's liability is not reduced even though the tort victim has received benefits for the same injury from collateral or independent sources. California law, which governs here,*fn12 recognizes the collateral source rule, both as a substantive rule of law and as an evidentiary principle barring the introduction of evidence of payments from independent or collateral sources unless there is a "persuasive showing that the evidence sought to be introduced is of substantial probative value."*fn13 The primary rationale for the collateral source rule is a concern that juries will be unfairly influenced in their determination of a defendant's liability if they hear evidence that the plaintiff received payments for the same injury from another source,*fn14 such as the plaintiff's personal insurance,*fn15 or a gratuitous service rendered by an unrelated third party.*fn16

Federal courts disagree about the evidentiary impact of the collateral source rule. The First Circuit has held that even though the substantive portion of the collateral source rule is governed by state law, the admissibility of collateral source evidence is governed by Federal Rule of Evidence 403.*fn17 Similar to California, however, the Fourth and Fifth Circuits hold that the substantive prong of the collateral source rule "carries with it an evidentiary rule requiring the exclusion of evidence of any collateral benefits."*fn18 The Tenth Circuit holds that "substantive" rules of evidence, such as the collateral source rule, are governed by state law under Erie.*fn19 The Ninth Circuit, where this case will be tried, has not issued a definitive decision on this issue.*fn20

Even if the evidentiary prong of the collateral source rule is not a substantive rule of law under Erie, there is no dispute that Federal Rule of Evidence 402 requires that any proffered evidence must be relevant. Accordingly, where the substantive prong of the collateral source rule applies, the fact that the plaintiff has received collateral source benefits will typically be irrelevant to the substantive issue of damages. Therefore, while evidence of collateral source benefits may be relevant to issues beyond damages, a court must take great ...


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