The City of Santa Monica has reached a $55 million settlement over a fee dispute with the contingency attorneys that helped the city in its lawsuit against various oil companies for contaminating the city’s water with the gasoline additive Methyl Tertiary-Butyl Ether (MTBE) in the Charnock Well Field.
The settlement with over a dozen attorneys — reached March 11th — resolves all outstanding and potential disputes, city officials said.
“The city considers this a fair resolution that brings a highly contentious lawsuit to an end,” Mayor Herb Katz said. “The city can now pay full attention to our primary goal of restoring the city’s drinking water.”
The agreement represents 22 percent of the $250 million total recovery the city received from Shell, ChevronTexaco, ExxonMobil and other companies it sued in 2000 for contaminating the city’s water with the gasoline additive MTBE.
Because of the contamination, the city lost the use of considerable amounts of its drinking water and since 1996 has been importing water from the Metropolitan Water District, city officials said.
The contingency attorneys had previously claimed 25 percent of the city’s $250 million recovery — plus other fees.
The attorneys’ lawyer had told the City Council that his clients were entitled to between $90 million and $100 million, but the city says “it refused to pay such an amount but has always been willing to pay a reasonable fee.”
City attorney Marsha Moutrie pointed out to the City Council before the vote to approve the settlement that “this is much less than is normally paid to contingency attorneys, who typically are paid up to 40 percent” of settlements.
In 1996, the city discovered that five of its 11 water wells at the Charnock Well Field were polluted with MTBE from leaking underground gasoline storage tanks and pipelines owned by various oil companies.
The five water wells were immediately shut down.
Since then, the city has purchased imported water to supply approximately 80 percent of the 13 million gallons of water used by Santa Monica residents, businesses and visitors daily.
This costs the city approximately $3 million each year, which is paid from proceeds of the final 2006 settlement with the oil companies, city officials said.
For several years after the contamination was discovered, the city worked with the Environmental Protection Agency (EPA) to try to achieve a voluntary solution with the oil companies.
But when settlement arrangements failed in 2000, the city hired contingency attorneys to file suit against the oil companies. The retainer agreement stated that the lawyers would receive a contingency fee up to 25 percent after 18 months, city officials said.
In 2003, the city received a settlement of approximately $120 million from the oil companies — and also their commitment to work with the city to design and build a water treatment facility for water produced from the Charnock Well Field.
In 2006, the city negotiated an additional $131 million settlement with the oil companies, city officials said.
The fee dispute between the city and the contingency attorneys arose partly because of a disagreement about how to compute the contingency fee, particularly as to the value of the oil company’s promise to help build the water treatment facility, city officials said.
In 2004, the city and contingency attorneys filed lawsuits against each other regarding the fees.
The city says it attempted to mediate the dispute before filing suit. When efforts failed, the city litigated the case and also pursued settlement opportunities at various times.
Early settlement offers were hindered by the dispute over the value of the oil companies’ commitment to design and build the water treatment facility, city officials said.
But once that issue was resolved, there was greater opportunity to settle.
“This settlement finally allows the city to focus on building the treatment facility and reinstating our water independence,” said city manager Lamont Ewell. “After paying the contingency attorneys, the city will have enough funds to build the treatment facility, purchase replacement water, maintain and monitor test wells and perform other related tasks associated with cleaning up the Charnock wells.”
The city has begun the process of designing the treatment system and predicts the water will once again be produced from the treatment facility in 2010.