Ad Agency Fights Edison Over Cleanup of Venice Land

One of the West Coast’s largest advertising agencies is enmeshed in a legal battle with one of the state’s most powerful utilities over the cleanup of a piece of land in Venice that once reeked from toxic soil.

The land in question is a lot at 340 Main St., designated site of the new world headquarters for the Chiat/Day ad agency.

But nearly three years after plans were drawn for what was supposed to be a showcase building, the 35,000-square-foot lot is nothing more than a pit covered by a black tarpaulin.

Excavation began and was quickly halted in May, 1986, when workers discovered a foul-smelling, black muck in the dirt. The lot, it turned out, had been the site early in this century of a plant that manufactured gas from coal, a process that leaves a tar-like byproduct. It had been operated by a predecessor to Southern California Edison from 1905 to 1916 and then by Southern California Gas.

County and state health inspectors determined that the soil was toxic and ordered an expensive cleanup. More than 5,000 tons of contaminated dirt were excavated and removed.

Cleanup Bill

Now, Chiat/Day, in a lawsuit filed in Superior Court, is fighting with Edison over how much of the cleaning bill the utility should foot and whether Edison should have warned Chiat/Day about the site earlier--even though the electric utility sold the site more than 70 years ago.

Edison, without admitting liability, put up $1.5 million for removal of the contaminated dirt when it was first discovered. But Chiat/Day attorneys argue that it is not enough. Southern California Gas has also contributed $1.75 million for the cleanup.

It is the first time Edison has been taken to court over one of its old gas plants, according to Edison officials. But because the utility once operated at least 16 of these facilities, the outcome of the suit could have implications for toxic cleanup elsewhere.

In a 47-page complaint, Chiat/Day and its partner, Venice Operating Corp., which is handling the development project, allege that Edison reneged on promises to pay for the cleanup and to help Chiat/Day obtain financing for its building.

The plaintiffs demand that Edison reimburse them for loss of value of the property and the costs of: toxic soil removal; construction delays; rental and move to temporary office space, and attorney and consultant fees.

The suit alleges that Edison hid the fact that the property was contaminated and failed to disclose what the land had once been used for.

Chiat/Day and Venice Operating Corp. are demanding more than $5 million in costs and $10 million in punitive damages.

The lawsuit came after two years of negotiations, which broke down last August, between the advertising firm and the power company.

The suit was filed Dec. 20, and Edison must respond by Jan. 30.

Edison Rejects Claims

Tom Gilfoy, assistant general counsel for Edison, said the damages claimed by Chiat/Day are “grossly exaggerated.” He said Edison should not be held responsible for “consequential damages” that the ad agency claims it suffered because of the delay in constructing its headquarters.

“In addition, we believe that whatever responsibility we may have has been more than covered by the $1.5 million already spent and that we may even be entitled to some of that back,” Gilfoy said.

“That’s the impasse.”

Gilfoy also rejected the claim that it had been Edison’s duty to warn Chiat/Day or any other potential buyer of the property of the dangers that the land might pose. He pointed out that more than 70 years have passed since Edison owned the land and operated the gas plant, and he said that Chiat/Day’s own research would have sufficiently alerted the agency as to what the property had been used for.

“It is hard to say we had a duty to warn them about something they already knew about,” Gilfoy said. “That’s a long time to go back and still hold someone responsible.”

But attorneys for Chiat/Day and the Venice Operating Corp. contend that a public utility that has contaminated land has the obligation to report it.

They also contend that federal statutes, such as the Comprehensive Environmental Response Compensation and Liability Act of 1980, require companies or individuals to pay for cleaning up pollution they have caused.

Motives Questioned

And plaintiffs’ attorneys suggest that Edison cooperated at first with token cleanup to appease members of the Venice community who were alarmed at the prospect of an open pit of toxic muck left sitting on a prominent corner of the town.

“Edison made these promises (to pay for the excavation) with the intent to induce plaintiffs to commence and cooperate with Edison in a media campaign aimed at (defusing) public outcry over Edison’s polluting behavior . . . ,” the suit alleges.

Several people on Chiat/Day’s side suggested Edison may be taking a hard line in this case because, if held completely accountable for decades-old toxics, Edison could face numerous cases involving other sites.

“We came across a problem they knew about and knew about for years and didn’t tell anybody about,” Chiat/Day senior chief financial officer Peter de Vaux said late last year as the case was being prepared for court.

“They have a hundred of these sites all over the place, and they’re afraid of it blowing up on them,” he said.

Edison says it only had 16 sites and has reported their locations to the state Department of Health Services, which is responsible for determining whether there is a health risk.

Chiat/Day also accused Edison of backing out of an implicit agreement to help the agency obtain a loan of about $16 million for construction of its headquarters. The toxic problems had made financing more difficult, and representatives of Chiat/Day thought one way that Edison could compensate them would be by guaranteeing the loan.

Gilfoy said, however, that no promises were made regarding the loan. The idea was explored but found not to be feasible, he said.

Chiat/Day has estimated that additional cleanup will cost about $2 million, according to attorney J. David Oswalt. The Department of Health Services, which is monitoring the project, determined that the remaining dirt is non-hazardous, although it could contain some contaminants. Excavation must be done according to guidelines.

Ground Breaking Planned

Meanwhile, the 3-year-old dormancy of the Main Street property will soon end.

Chiat/Day and Venice Operating Corp., rather than await the outcome of the legal dispute, have finally decided to go ahead with construction of the building. Ground should be broken in March, with some preliminary work, such as soil sampling and shoring up the sides of the pit, scheduled to begin this month.

“Everybody is very excited to see the building get going,” Don Crandall, Chiat/Day’s director of corporate finance, said this week.

“We are running out of space here (in the temporary offices) and we definitely need the space the new building will provide. (The delays in the construction) have been driving people crazy.”

The approximately 300 local employees of Chiat/Day have been working in temporary headquarters inside a remodeled warehouse on Hampton Drive, across from the Main Street site, for the past year.

The new headquarters will be a 75,000-square-foot building designed by local architect Frank Gehry. Its planners promise it will be a spectacular marriage of art and architecture. The entry way, for example, will be a Claus Oldenberg sculpture in the form of a huge pair of binoculars.

The first stage of construction will involve digging down about 30 feet to make room for three stories of underground parking.

Residents Notified

Notices from state health authorities were mailed to many Venice residents last weekend outlining steps that are planned to safeguard against any pollution problems from the excavation.

Air will be monitored upwind and downwind from the site to detect any organic vapors. A nontoxic foam that stamps out vapors will be sprayed on excavated dirt. Tests will be run routinely on samples of soil as it is dug up.

Construction costs are estimated at $6 million to $10 million more than when plans were first made three years ago.

Chiat/Day, whose clients include Nissan and Reebok, does annual billings of about $700 million. It is negotiating to acquire Mojo MDA, Australia’s largest advertising firm. If the deal is completed, Chiat/Day would become the West Coast’s first $1-billion ad agency and one of the top 20 agencies in the nation.