SHELL OIL COMPANY, ATLANTIC RICHFIELD COMPANY, TEXACO, INC., UNION OIL COMPANY OF CALIFORNIA, Plaintiffs-Appellees
UNITED STATES, Defendant-Appellant
from the United States Court of Federal Claims in Nos.
1:06-cv-00141-SGB, 1:06-cv-01411-SGB, Senior Judge Susan G.
Michael W. Kirk, Cooper & Kirk, PLLC, Washington, DC,
argued for plaintiffs-appellees. Also represented by Jose
Joel Alicea, Vincent J. Colatriano, William C. Marra.
Franklin E. White, Jr, Commercial Litigation Branch, Civil
Division, United States Department of Justice, Washington,
DC, argued for defendant-appellant. Also represented by Chad
A. Readler, Robert E. Kirschman, Jr., Stephen Carl Tosini.
Christopher Marraro, Baker & Hostetler LLP, Washington,
DC, for amicus curiae American Fuel & Petrochemical
Manufacturers. Also represented by Richard Bryan Raile.
Max Steinway, Baker Botts, LLP, Washington, DC, for amicus
curiae Exxon Mobile Corporation. Also represented by Michael
Prost, Chief Judge, Wallach and Chen, Circuit Judges.
Wallach, Circuit Judge.
case returns to us for a third time. Following two remands on
liability determinations, see Shell Oil Co. v. United
States (Shell II), 751 F.3d 1282, 1285-90 (Fed.
Cir. 2014); Shell Oil Co. v. United States
(Shell I), 672 F.3d 1283, 1285 (Fed. Cir. 2012), the
U.S. Court of Federal Claims issued two orders, which are the
subject of the present appeal. In its 2015 Order, the Court
of Federal Claims (1) granted appellees Shell Oil Company,
Atlantic Richfield Company, Texaco, Inc., and Union Oil
Company of California's (collectively, "the Oil
Companies") motion for partial summary judgment to
prevent discovery into any insurance coverage settlements and
policies, and (2) denied appellant the United States'
("Government") motion for leave to amend its answer
to assert counterclaims in fraud. See Shell Oil Co. v.
United States (Shell III), 123 Fed.Cl. 707,
714-15, 727 (2015). In its 2017 Order, the Court of Federal
Claims awarded damages in the amount of $99, 509, 847.32 to
the Oil Companies for breach of certain contracts entered
into during World War II to produce 100-octane aviation
gasoline ("avgas") (the "Avgas
Contracts") for the war effort. See Shell Oil Co. v.
United States (Shell IV), 130 Fed.Cl. 8, 11-13
Government appeals. We have jurisdiction pursuant to 28
U.S.C. § 1295(a)(3) (2012). We affirm.
and 1943, the Government contracted with the Oil Companies to
purchase avgas, "the most critically needed refinery
product during World War II." Shell II, 751
F.3d at 1285 (internal quotation marks
omitted).Under the Avgas Contracts, the Government
would purchase large quantities of avgas, and would
"enable the Oil Companies to build the new refining
facilities needed to produce the high levels of avgas vital
to the war effort." Id.; see, e.g.,
J.A. 1467-90 (April 10, 1942 contract), 1560-88 (May 1, 1943
contract). The Avgas Contracts permitted a profit margin for
the Oil Companies of "between 6% and 7%." Shell
II, 751 F.3d at 1287. "Given the low
profit margin," the Avgas Contracts "contained
various concessions to the Oil Companies." Id.;
see id. (describing contract clauses wherein the
"agreed-upon base price of avgas was subject to
adjustment depending on the Oil Companies' costs"
and contracts were signed for "three-year[s]" to
"provid[e] some measure of certainty that the
newly-constructed avgas production facilities would pay off
over time"). Under the Avgas Contracts, "avgas
production increased over twelve-fold" from 1941 to
1945, and "was crucial to Allied success in the
war." Id. (footnote omitted).
Oil Companies' Production of Avgas and Disposal of
Associated Waste Products
manufacture of avgas from crude oil uses a 98% purity
sulfuric acid to serve as a catalyst in a process known as
alkylation. Id. at 1288. The alkylation process
dilutes the sulfuric acid such that it turns it into a waste
product called "spent alkylation acid."
Id. Spent alkylation acid may be used to (1)
catalyze the alkylation process again following purification;
(2) produce non-avgas petroleum by-products; or (3) be
disposed of as waste. Id.
spent alkylation acid is used to produce other non-avgas
petroleum by-products, it becomes a secondary waste product
with a lesser percentage of acid content called "acid
sludge." Id. Acid sludge can be (1) used to
manufacture fertilizer; (2) burned; or (3) disposed. See
Shell IV, 130 Fed.Cl. at 22 (stating "both of the
parties' petroleum engineering experts essentially agreed
on how crude oil was processed").
Avgas Contracts placed no restrictions on how the Oil
Companies could use the spent alkylation acid that resulted
from catalyzing crude oil to produce avgas. See,
e.g., J.A. 1467-90, 1560-88. The Oil Companies used some
of the spent alkylation acid to acid treat other products and
produce non-avgas petroleum by-products. Shell IV,
130 Fed.Cl. at 23, 29. Unable to reprocess the increased
amount of spent alkylation acid given the Government's
prioritization of production over reprocessing,
Oil Companies dumped additional spent alkylation acid, along
with acid sludge, on property in California owned by Eli
McColl ("the McColl site"). Shell II, 751
F.3d at 1285, 1288; see Shell IV, 130 Fed.Cl. at
Twelve percent of the waste dumped at the McColl site was
spent alkylation acid, and 82.5% was acid sludge resulting
from the treatment of non-benzol products. Shell II,
751 F.3d at 1288. The McColl site closed on September 6,
1946. Shell IV, 130 Fed.Cl. at 14.
The Relevant Procedural History
1991, the Government and California sued the Oil Companies
under the Comprehensive Environmental Response, Compensation,
and Liability Act ("CERCLA"), 42 U.S.C.
§§ 9601 et seq., for costs of cleaning up the
McColl site. Shell II, 751 F.3d at 1285. The Oil
Companies countersued, alleging the Government was jointly
and severally liable for clean-up costs under CERCLA.
Id. at 1289; see 42 U.S.C. §
9607(a)(3) (extending CERCLA liability to "any person
who by contract, agreement, or otherwise arranged for
disposal or treatment, or arranged with a transporter for
transport for disposal or treatment, of hazardous
substances"). After twelve years of litigation, the
Ninth Circuit held that the Oil Companies were liable for all
clean-up costs (including cleanup of benzol and non-benzol
acid waste) at the McColl site and the Government was liable
under CERCLA only for cleanup costs with respect to the
disposal of benzol acid waste, United States v. Shell Oil
Co., 294 F.3d 1045, 1056, 1060-62 (9th Cir. 2002), which
comprised 5.5% of the waste remediated at the McColl site,
see Shell II, 751 F.3d at 1288.
Companies filed a new complaint in the Court of Federal
Claims, seeking reimbursement for CERCLA costs of the
non-benzol acid waste clean-up under a breach of contract
theory. Id. at 1289. They argued that a clause in
the Avgas Contracts in which the Government agreed to
reimburse the Oil Companies for "any new or additional .
. . charges . . . which [the Oil Companies] may be required .
. . to collect or pay by reason of the production,
manufacture, sale[, ] or delivery of [avgas]," J.A. 1482
(emphasis added), entitled them to remediation costs at the
McColl site, see Shell II, 751 F.3d at 1290-91.
"Because there was extensive discovery and the parties
entered into comprehensive stipulations of fact in the
underlying CERCLA action [in the Ninth Circuit], the parties
agreed that no further factual development was necessary . .
. ." Shell I, 672 F.3d at 1285. Therefore,
"the case was litigated on successive summary judgment
motions―one as to liability and the other relating to
damages." Id. However, following our initial
remand and vacatur of the Court of Federal Claims'
liability and damages determinations in Shell I,
see id. at 1294, the Court of Federal Claims stated
that, with respect to damages, "the issue of what
portion of the non-benzol waste was created 'by reason
of' the avgas program raise[d] factual questions that
[were] simply not adequately answered by the evidence or
stipulations currently before the [c]ourt," Shell
Oil Co. v. United States, 108 Fed.Cl. 422, 446, 448
(2013). The Court of Federal Claims made these statements
"[n]otwithstanding [its] holding that the Oil
Companies' indemnification claims fail as a matter of
law," id. at 445; in other words, it did not
decide the issue of damages on remand because it found the
Government did not breach the Avgas Contracts, see Shell
II, 751 F.3d at 1289.
Shell II, we reversed, holding that "[t]he
Avgas Contracts require reimbursement of the Oil
Companies' CERCLA costs [for clean-up of
non-benzol-related waste]," id. at 1290
(capitalization modified), and remanded because the parties
did "not contest the trial court's finding of a
genuine dispute regarding how much of the acid waste at the
McColl site resulted from the [A]vgas [C]ontracts,"
id. at 1303. The Court of Federal Claims then reopened
the record for further discovery on damages. See Shell
III, 123 Fed.Cl. at 714.
discovery, the Government requested, for the first time in
the litigation before the Court of Federal Claims,
information related to the Oil Companies' insurance
policies and any insurance coverage settlements that included
clean-up costs at the McColl site. Id.; see
J.A. 142-45 (stating, in a press release, that Shell Oil
Company received insurance settlements for its environmental
coverage claims based on filings against insurers in the
early 1990s). The Government also filed a Motion for Leave to
Amend, seeking to amend its answer to assert counterclaims
related to the insurance settlements based on various
theories of fraud. See Shell III, 123 Fed.Cl. at
715. The Oil Companies opposed the Motion to Amend, and both
parties filed motions for partial summary judgment on the
issue. Id. at 714-15.
Court of Federal Claims held the following in Shell
III: (1) the Government could not engage in discovery
related to the Oil Companies' insurance policies or
settlements because it waived any arguments related to an
insurance offset by not raising them in its Answer in 2008 to
the Oil Companies' initial breach of contract claim
before the Court of Federal Claims, id. at 719; (2)
alternatively, it would exceed the scope of our mandate in
Shell II to allow the Government to raise arguments
based on any insurance offset, id. at 721; and (3)
the Government could not amend its pleadings at such a late
stage in the litigation, id. at 727.
the close of discovery and oral arguments, the Court of
Federal Claims issued its order on damages in Shell
IV. It considered "new evidence not previously
considered by the . . . Federal Circuit," 130 Fed.Cl. at
36 (emphasis omitted), and held that the Government was
liable for all of the Oil Companies' clean-up costs for
non-benzol waste at the McColl site, id. at 38. The
Court of Federal Claims allocated a total award of $99, 509,
847.32, including accrued interest, accordingly: $58, 292,
868.56 to Shell Oil Company, $18, 847, 165.08 each to Union
Oil Company of California and Atlantic Richfield Company, and
$3, 522, 648.60 to Texaco, Inc. Id. at 42.
Government makes three primary arguments challenging the
Court of Federal Claims' Orders. The Government argues
the Court of Federal Claims (1) "failed to allocate
between recoverable and non-recoverable costs,"
Appellant's Br. 23 (capitalization omitted); see
id. at 23-33; (2) "wrongfully admitted
stipulations" into evidence to calculate damages,
id. at 41 (capitalization omitted); see id.
at 41-51; and (3) "wrongly refused to allow the
Government to prove double recovery," by showing payment
of the same ...