Appeals Court Deals Blow To Industry MTBE Litigation Strategy

May 24: In the case of consolidated cases, In Re: Methyl Tertiary Butyl Ether (MTBE) Products Liability Litigation, U.S. Court of Appeals, Second Circuit, Case Nos. 04-5974 & 04-6056. The case includes the consolidated cases of: State of California v. Atlantic Richfield Company, et al. and State of New Hampshire v. Amerada Hess Corporation, et al. The two cases are among scores of related actions removed from state court and transferred to the Southern District of New York by the Judicial Panel on Multidistrict Litigation pursuant to MDL No. 1358, In re Methyl Tertiary Butyl Ether (MTBE) Products Liability Litigation.

The case involves an appeal from an order of the United States District Court for the Southern District of New York denying Plaintiffs-Appellants’ motions to remand. The Appeals Court ruled that, "Because the district court erroneously held that it had removal jurisdiction over these actions under the federal officer removal statute, 28 U.S.C. § 1442, and/or the bankruptcy removal statute, 28 U.S.C. § 1452, and no alternative ground for jurisdiction is satisfied, we vacate the order of the district court and remand with directions to return these cases to the forums from which they were removed." While the various states have been arguing that the cases should be tried in state courts; oil companies and refineries have argued that they were operating as "federal officers" in carrying out a mandate to add MTBE to their reformulated gasoline, and therefore, the cases should be heard in Federal courts.

According to the Appeals Court, two issues are presented: "(1) whether principles of sovereign immunity are violated when a state plaintiff voluntarily prosecutes a claim in state court and the action is removed from state to federal court pursuant to a statute that expressly authorizes removal; and (2) if not, whether the district court had subject matter jurisdiction over this matter under the federal officer removal statute, 28 U.S.C. § 1442, the bankruptcy removal statute, 28 U.S.C. § 1452, or some other ground."

On the issue of "sovereign immunity," the Appeals Court ruled, "...California and New Hampshire have each made and acted upon the decision to commence a lawsuit. This voluntary act subjects them to the consequences that Congress may legitimately attach to such an action. Thus, we conclude that sovereign immunity does not bar the removal of these state-commenced actions to federal court."

On the second issue, the Appeals Court said in part, "The California and New Hampshire actions relate primarily to matters of public health and welfare, and the money damages sought will not inure, strictly speaking, to the economic benefit of the states. Instead, the clear goal of these proceedings is to remedy and prevent environmental damage with potentially serious consequences for public health, a significant area of state policy. Thus, even under the tests advocated by the defendant companies, these proceedings represent efforts by California and New Hampshire to enforce their 'police or regulatory power' and are not subject to removal..."

The Appeals Court also indicates that the district judge concluded, “defendants have sufficiently alleged that they added MTBE to gasoline at the direction of the EPA, a federal agency.” The Appeals Court said, "We cannot agree. The conclusion of the district judge is not based on an explicit directive in either the Clean Air Act or its implementing regulations. Significantly, after oral argument in this appeal, the district judge held that 'federal law did not require the use of MTBE...' the district judge and the defendants acknowledged that the EPA identified six other additives, besides MTBE, that could be blended into reformulated gasoline to meet the requirements imposed by the CAA and the regulations... That it may have been more convenient or less expensive for the defendants to use MTBE does not mean it would have been impossible for them to use other, less polluting additives..."

New Hampshire Attorney General Kelly Ayotte issued a release saying that New Hampshire’s lawsuit against oil companies for MTBE contamination of state waters will be returned to state court, as a result the decision by the unanimous decision of the Second Circuit appeals court. She said the Appeals Court ruled that there was no Federal jurisdiction to hear New Hampshire’s state case and that it must be returned to state court, where it was originally filed.

In 2003, the State had sued oil companies that added the chemical methyl tertiary butyl ether (MTBE) to gasoline sold in New Hampshire. The State sought full recovery for Statewide contamination of drinking water supplies. The oil companies immediately removed the case to Federal district court, which denied the State’s request to return to State court. The State appealed on grounds that there was no Federal jurisdiction over the State’s case. The appeals court agreed and remanded the state’s case to the Merrimack County Superior Court.

Ayotte said, “We are very pleased that the Federal appeals court agreed with us that the proper place to hear this important case about New Hampshire’s drinking water is in our State’s courts. We look forward to trying the case as soon as possible before a jury of New Hampshire citizens.”

Access the complete opinion (click here). Access a release from the New Hampshire AG (click here). [*Remed, *Water, *Drink]