Reversing a landmark agreement in the nation's largest case of offshore chemical contamination, a federal appeals court on Tuesday overturned a $45.7-million settlement by Los Angeles County and 150 municipalities to compensate for environmental damage done by DDT and other chemicals discharged through sewers into the ocean off Southern California.
A U.S. 9th Circuit Court of Appeals panel ruled that the federal district judge who approved the 1992 settlement between the local governments and the U.S. Department of Justice had insufficient evidence to determine whether the amount is "reasonable, fair and consistent" with environmental law.
The Los Angeles County Sanitation Districts and cities in Orange, Los Angeles, and Ventura counties agreed to pay the $45.7 million to partially settle a lawsuit by the federal government seeking reimbursement to repair damage to natural resources. Legal action is pending against the several chemical companies.
Federal authorities say about 5 million pounds of DDT--a pesticide known for its toxicity to wildlife and persistence in the environment--polluted the Santa Monica Bay area, mostly via Los Angeles County's sewage pipeline off the Palos Verdes Peninsula. Banned in the United States in 1972, DDT is linked to the near-extinction of bald eagles, brown pelicans and peregrine falcons and to contamination of fish, sea lions, dolphins and other marine animals.
Tuesday's decision was at least a short-term victory for the manufacturer of DDT, and has the potential of being a major setback for the federal government and the county sanitation agency in their attempt to settle the 5-year-old case.
Judge A. Andrew Hauk was ordered to rehear arguments over the fairness of the settlement and decide whether to reinstate it.
"It could be as simple as the judge seeing the figure and deciding that he was right all along and this was fair and reasonable. Or people could make arguments and open the whole thing up again," said Bob Horvath, an official at the Los Angeles County Sanitation Districts.
Horvath said the county had sought the settlement "because litigation is unproductive and we, as much as anyone, want to see the contamination on the Palos Verdes shelf cleaned up." Of the $45.7 million, the county sanitation agency had agreed to pay the bulk--more than $32 million.
Orange County agencies and cities were expected to pay a total of about $450,000. Of that, $375,000 was to have been paid by the Orange County Sanitation Districts.
Montrose Chemical Corp., the now-defunct company that had manufactured the widely used DDT in Torrance, had appealed the settlement along with six other corporations that were sued by the Justice Department. Unlike the local governments, the companies have not settled, arguing that there is insufficient proof linking them to any damage to natural resources and that the amount sought by the federal government is excessive.
Karl S. Lytz, a San Francisco attorney representing Montrose, said Tuesday that the settlement "let some parties off too cheaply and didn't properly allocate to those parties what liability they really had."
If the the county and local governments bear too little of the blame, Lytz said, the companies are at risk of being held responsible for too much.
In documents filed last fall, the federal government estimated that the amount needed to restore the damaged environment is around $1 billion, although the amount sought from the companies in a settlement is likely to be much lower.
"Our view was the government was making too good of a deal," Lytz said. "The court may be surprised to hear the extent of damages alleged in this case. I don't think the court is necessarily going to agree again that this settlement is in the best interests."
Justice Department officials, however, said Tuesday that they believe the settlement was fair and reasonable and that the appeals court decision is a temporary setback. They said the reversal is based on a procedural issue and that once the judge is given the missing information, the settlement will be quickly reaffirmed.
In their decision, the three appellate judges ruled that Hauk erred by failing to have access to the federal government's estimate of the total damages to the natural resources and the cleanup costs. Consequently, Hauk could not have had enough information to determine if the settlement was reasonable, they ruled.
The Justice Department had provided the damage estimate, but only a special master--a retired judge appointed by Hauk--had reviewed it without revealing it to Hauk or the parties involved.
"The district court could not possibly have adequately determined that the settlement was substantively fair without having a benchmark with which to compare it," the appeals court wrote. "Reliance on a special master's recommendation cannot be so complete that it takes the place of the court's obligation to independently scrutinize the terms of a settlement."
The appellate judges said they usually defer to district judges to approve settlements and that generally it is preferable to settle such cases early.
"We recognize that . . . we tread relatively uncharted territory," the court wrote. "Deference, however, does not mean turning a blind eye to an empty record on a critical aspect of settlement evaluation. Where clear error occurs, we will reverse."
Montrose Chemical Corp. discharged waste into the county's sewers from 1947 through 1970, when the sanitation agency disconnected the company from the system because of increasing evidence that the pesticide was harming birds and other wildlife around the world.
The other companies sued by the Justice Department are Chris-Craft Industries Inc., Stauffer Management Co., ICI American Holdings Inc., Atkemix Inc., Rhone-Poulenc Basic Chemicals Co. and Westinghouse Electric Corp.