[00:00:00] Speaker 00:
argument this morning is 171695 Shell Oil Company versus United States.

[00:00:10] Speaker 00:
Mr. White.

[00:00:20] Speaker 03:
Thank you, Your Honor, and may it please the Court.

[00:00:23] Speaker 03:
The Court of Federal Claims decision in this case on remand should be reversed for three main reasons.

[00:00:30] Speaker 03:
First, the court failed to allocate the waste at the McCall site between the waste that was produced as a result of avgas production from the waste that was produced.

[00:00:42] Speaker 04:
Are you challenging the use of the three-part test from Indiana-Michigan Power?

[00:00:49] Speaker 04:
That's the court federal claims use.

[00:00:52] Speaker 03:
We're challenging their interpretation of the taxes clause itself.

[00:00:59] Speaker 04:
This is a different... But you're not challenging the use of the test.

[00:01:02] Speaker 03:
No.

[00:01:03] Speaker 03:
We're not challenging the use of a test for how you determine damages in the event of a breach.

[00:01:10] Speaker 03:
What we're arguing here is that the taxes clause itself cannot be interpreted in a way that results in the governments being responsible for not only the waste generated as a result of avgas production, but also the waste that was generated through production of all the commercial products.

[00:01:29] Speaker 04:
There are two types of non-Avgas contract-related dumpings that could be at issue.

[00:01:36] Speaker 04:
Dumping related to waste created while making Avgas for non-government contracts, and dumping related to waste created while making petroleum products or other non-Avgas products from the spent acylation acid, which was used initially to make

[00:01:59] Speaker 04:
the avgas for the government contracts.

[00:02:02] Speaker 04:
Would you agree that that second type, the products made from the residual from government contracts, would still fall under the government's responsibility for cleanup?

[00:02:17] Speaker 03:
No.

[00:02:18] Speaker 03:
And that's our primary contention in this case, Your Honor, is that the language of the taxes clause, which says the

[00:02:27] Speaker 03:
charges that the oil companies are required to pay by reason of the manufacturer production sale of the commodities delivered under the contracts is very specific and it doesn't permit this attenuation of the spent alkylation acid in its use in producing other refinery products to

[00:02:55] Speaker 03:
bring those other waste under the umbrella of the Avgas contract.

[00:03:01] Speaker 04:
You say in the reply brief on page 6 that the Court of Federal Claims found that the government agreed to absorb all charges for everything the claim sold, even though Avgas represented a small fraction of the total refining process.

[00:03:18] Speaker 04:
Where did the Court of Federal Claims say Avgas was a small fraction of the process?

[00:03:32] Speaker 04:
Here's my core concern about the whole government's whole approach to this.

[00:03:41] Speaker 04:
A lot of what you're saying is, well, the war started December 8, 1941, fact-dated to December 7 when Congress declared war.

[00:03:53] Speaker 04:
And prior to that, there wasn't a war.

[00:03:57] Speaker 04:
So there wasn't

[00:04:02] Speaker 04:
when production of avgas and the use of the acid didn't fall within the ambit of what we're talking about.

[00:04:12] Speaker 04:
I think that's a fair summary of what you're saying, right?

[00:04:16] Speaker 03:
Correct, Your Honor.

[00:04:17] Speaker 04:
But there's a lack of historical context there.

[00:04:24] Speaker 04:
You've heard the phrase great arsenal of democracy.

[00:04:28] Speaker 04:
The whole

[00:04:31] Speaker 04:
Roosevelt's approach from 1940 on, Len Lee's production of avgas was in large part about two things.

[00:04:43] Speaker 04:
One, the British were trying to defend their aisles and it gave them an advantage in their fighter defense.

[00:04:50] Speaker 04:
And two, we are getting ready to go to war.

[00:04:54] Speaker 04:
And the United States has imposed a peacetime draft, is massively ramping up production of fighter planes.

[00:05:01] Speaker 04:
That's a historical fact.

[00:05:04] Speaker 04:
It's all going on.

[00:05:04] Speaker 03:
Yes, Your Honor, but this is contract law.

[00:05:07] Speaker 03:
These were sophisticated parties that made contracts with the government for the sale of that gas.

[00:05:14] Speaker 03:
There was recognition in these contracts that other products were going to be made and sold at a profit by these oil companies.

[00:05:24] Speaker 03:
And the very fact that the contract referred to those other products

[00:05:29] Speaker 03:
but yet in the taxes clause has no language that would sweep into the charges that the government's responsible for.

[00:05:37] Speaker 03:
The waste that is created through the production of those other products means that it's an unfair and unreasonable interpretation of this contract to hold that the government had

[00:05:52] Speaker 03:
agreed to do that despite the historical context.

[00:05:56] Speaker 04:
Tell me if you know.

[00:05:57] Speaker 04:
It's not on the record and I couldn't scrutinize.

[00:06:03] Speaker 04:
One of the things Shelf says is there were specialized train cars for transportation of the spent acid for reprocessing and they wanted to do that and the government refused

[00:06:22] Speaker 04:
to provide those specialized cars.

[00:06:26] Speaker 04:
Were those being taken for a war purpose, like the Manhattan Project?

[00:06:32] Speaker 03:
That I don't know the answer to, Your Honor.

[00:06:33] Speaker 03:
I do know that in the circular litigation in district court and also in the Court of Federal Claims decision, there was a recognition of that as being a reason why some of the spent occultation acid was dumped.

[00:06:51] Speaker 03:
But what we're concerned about in this case is not the dumping of the spent alkylation acid.

[00:06:56] Speaker 03:
It's the dumping of the acid sludge that was produced when the spent alkylation acid was used to acid treat the other refinery products, such as motor oil and kerosene and all the other products that were being made and sold by Israel.

[00:07:12] Speaker 04:
But that was in the government's interest for two reasons.

[00:07:16] Speaker 04:
One, because it was

[00:07:20] Speaker 04:
by process, I'm not going to say by product, but by process of the production of avgas, and everybody knew it.

[00:07:29] Speaker 04:
And two, the government had an interest in all those other products being provided to the public.

[00:07:36] Speaker 03:
The government did have an interest in that only in the sense that there were shortages of some of these other products during the war years.

[00:07:46] Speaker 03:
And also because in the contracts themselves,

[00:07:50] Speaker 03:
there were price escalation clauses which would have permitted the oil companies to seek additional cost to the basic price of avgas in circumstances where unexpected changes to their normal refinery operations would have increased their cost.

[00:08:09] Speaker 03:
So the government did have an interest in that, but it's not an interest that was reflected in what the government would pay for through the taxes clause, which was very, very specific.

[00:08:18] Speaker 01:
As I understand the government's argument,

[00:08:20] Speaker 01:
It's about how if there had not been any avgas contracts, all these oil companies would have made all these non-avgas petroleum products anyway.

[00:08:32] Speaker 01:
And those non-avgas petroleum products result in acid sludge.

[00:08:38] Speaker 01:
And so therefore, why should the government have to pay

[00:08:41] Speaker 01:
for the cost of cleaning up that asset sludge.

[00:08:43] Speaker 01:
Is that the gist of it?

[00:08:45] Speaker 03:
Yeah, in a nutshell, even the facts found by the Court of Federal Claims in this case demonstrated that these oil companies had historically dumped waste.

[00:08:57] Speaker 01:
OK, but let me go a little farther.

[00:08:59] Speaker 01:
I understand claims court's reasoning to be, well, with these AVGAS contracts, the oil companies were put under tremendous stress

[00:09:11] Speaker 01:
produce maximum avgas, maximum amounts of avgas.

[00:09:16] Speaker 01:
And to do that, they had to dramatically increase their crude food put in their refineries, which necessarily resulted in a lot more volume of the non-avgas petroleum products also being produced along with the avgas products that were being produced.

[00:09:36] Speaker 01:
And it was that scale, that extra

[00:09:40] Speaker 01:
dimension of magnitude of acid sludge that was being produced by all these different products that needed to be refined to do maximum production of avgas that was just too much for the oil companies at the time to handle through reprocessing, through transporting in a way so that they had ultimately no choice due to the scale of the requirements put on it by the government

[00:10:08] Speaker 01:
to then do nothing but to accept the dumping at the McColl site.

[00:10:14] Speaker 01:
So if all of that is true, and it's also true that one year after the war was over in 1946, that none of the oil companies were actually doing any more dumping because they were no longer under the government imposition of maximum production of avgas, why isn't that a fair thing for the claims court to conclude that but for the

[00:10:38] Speaker 01:
Avgas contracts, we wouldn't have had this kind of dumping, or we wouldn't have had dumping at all at the McColt site.

[00:10:45] Speaker 03:
Well, the facts that were also addressed demonstrated that there was dumping historically by these oil companies going back to the 1930s or earlier.

[00:10:56] Speaker 03:
That was their normal operation.

[00:10:58] Speaker 03:
It wasn't any different in terms of finding a pit in the ground and dumping.

[00:11:03] Speaker 03:
Also, the facts were found by the trial court

[00:11:06] Speaker 03:
that there had been dumping at this particular site, the McCall site, prior to any deliveries of avgas to the government under this contract, and that there had been dumping relating to the production of avgas that wasn't sold to the government through these contracts.

[00:11:23] Speaker 03:
So even looking at that, avgas production is partially resulting in increases in other products that increased other waste.

[00:11:33] Speaker 03:
there was no allocation made, no sense of trying to determine what those proportions were.

[00:11:38] Speaker 03:
We did propose in our post-trial brief in this case a method of potentially allocating these waste, meaning... Did you do it in the lead-up to the trial or the actual trial itself?

[00:11:51] Speaker 03:
Yes.

[00:11:52] Speaker 03:
The argument was made that waste could be allocated

[00:11:57] Speaker 00:
But didn't you just say in response to Judge Chen that in your post-trial brief you presented a method for allocation?

[00:12:05] Speaker 03:
Yes, this was in the post-trial brief.

[00:12:07] Speaker 00:
Well, was that same thing introduced at trial or offered at trial or pre-trial?

[00:12:12] Speaker 03:
It's a theory that is based on the testimony of the government expert witness in the case.

[00:12:19] Speaker 01:
I mean, did the government try to chop it up in the sense that at trial where they tried to explain

[00:12:25] Speaker 01:
Even if you don't agree with the government that the government shouldn't have to clean up any of the sludge from the non-Avgas products, there's still a way to do some more smaller, refined form of apportionment.

[00:12:45] Speaker 01:
It was due to the inevitability of some amount of sludge that would have been dumped

[00:12:53] Speaker 01:
regardless of whether these ABGAS contracts had forced the oil companies to produce a dramatically more amount of products in general?

[00:13:04] Speaker 03:
The argument was that you could allocate this by looking at what increased amount of acid sludge was created by the fact that the oil companies were beginning their production of the other refinery products with a lower quality spent alkylation acid

[00:13:23] Speaker 03:
instead of fresher acid.

[00:13:24] Speaker 03:
So the result of using the acid to treat the avgast involved certain substances in that spinoculation acid, one of them called red oil, which when used again at a lower purity to treat the other products would increase slightly the amount of sludge that was produced.

[00:13:49] Speaker 01:
So are you saying then that what the

[00:13:52] Speaker 01:
oil companies should have done with the spent alkylation acid is just to have dumped it, rather than to have used it, rather than to have repurposed it in the production of the non-avgas products?

[00:14:04] Speaker 01:
And then if they had done that, then the government would have had to pick up the tab for that cleanup?

[00:14:09] Speaker 03:
If they had, excuse me, Your Honor, I think I may be misstating your question, but I think you're saying that if the government is saying that

[00:14:20] Speaker 03:
the alkylation acid used in the production of the other products is not the government's responsibility, are we saying that they should have dumped the spent alkylation acid?

[00:14:31] Speaker 01:
Right.

[00:14:31] Speaker 01:
And then the government, you would say, would be responsible for that?

[00:14:36] Speaker 01:
Because it was directly due to the production of Avgas.

[00:14:40] Speaker 03:
Yes.

[00:14:41] Speaker 03:
The government has never taken the position that if spent alkylation acid was directly dumped at McCall,

[00:14:48] Speaker 03:
that the government would be responsible for that in light of the interpretation of the taxes clause from this court.

[00:14:56] Speaker 03:
The government argued at trial that there was no dumping of spent alkylation.

[00:14:58] Speaker 01:
The oil companies were wrong to have attempted to repurpose the spent alkylation acid for producing the non-afgas products.

[00:15:09] Speaker 03:
They weren't wrong to do it.

[00:15:12] Speaker 03:
Our position is that

[00:15:14] Speaker 03:
whether they were right or wrong, the taxes clause does not make that waste stream one which is by reason of Avgas delivered under the contracts and that the interpretation of the contract has to stop with that.

[00:15:30] Speaker 03:
So if the spent opulation asset is created and dumped, the government is on the hook.

[00:15:36] Speaker 03:
If the spent alkylation acid is reused while in the production of other products which these oil companies are selling to consumers, then it's not.

[00:15:48] Speaker 04:
Let me ask you this.

[00:15:50] Speaker 04:
Well, two things.

[00:15:51] Speaker 04:
One, following up on what you just said, what if the government is selling those other products, or Shell is selling those other products to the government?

[00:16:02] Speaker 03:
It wouldn't matter if it was under the products that were delivered

[00:16:06] Speaker 03:
under that contract, as defined in the taxes clause, are the avgas that was purchased through those contracts.

[00:16:14] Speaker 04:
So if the rest of that byproduct was used for military purposes, it would be irrelevant?

[00:16:20] Speaker 03:
Right.

[00:16:20] Speaker 03:
In the same way that we recognize that there was other avgas that was being sold, at least in 1943, likely being sold to the government, just probably directly to the military services instead of to the DSC,

[00:16:37] Speaker 03:
That was not avgas that was sold under these contracts, and the waste that was created and dumped from that avgas.

[00:16:43] Speaker 04:
Our time's short, so I want to follow up.

[00:16:45] Speaker 04:
I want to go back to your carefully worded statement that the theory regarding apportionment was presented at trial.

[00:16:58] Speaker 04:
Was the argument itself made?

[00:17:00] Speaker 04:
I think you're talking, when you say theory, you're talking about an expert witness.

[00:17:04] Speaker 03:
Right.

[00:17:05] Speaker 03:
In my mind, I'm thinking about the government's post-trial brief.

[00:17:09] Speaker 03:
This may have been the argument in the pre-trial briefs, as well.

[00:17:14] Speaker 03:
But it certainly was presented to the court prior to the decision as a method of potentially allocating this in a manner different from what the court did, which was to simply say, read it.

[00:17:29] Speaker 04:
But I'm interested in timing.

[00:17:31] Speaker 04:
And I want to know if it was presented, of course, in a pre-trial brief,

[00:17:36] Speaker 04:
That would be of interest to me.

[00:17:38] Speaker 04:
But if it was not presented until post-trial brief, it leaves shell up in the air.

[00:17:45] Speaker 04:
I assume they cross-briefed.

[00:17:50] Speaker 03:
Well, there were reply briefs in response to the party's post-trial briefs.

[00:17:57] Speaker 03:
And so my recollection is that there is a response to the government's argument

[00:18:04] Speaker 03:
from Shell prior to the court's ruling on the case.

[00:18:08] Speaker 03:
But I'll have to.

[00:18:09] Speaker 04:
Oh, but that response says this was never raised.

[00:18:11] Speaker 04:
I'm guessing.

[00:18:14] Speaker 03:
See, I'm well into my red, Your Honor.

[00:18:16] Speaker 03:
Can I save my time for rebuttal?

[00:18:18] Speaker 03:
Thank you.

[00:18:38] Speaker 02:
Thank you, Chief Judge Prost, and may it please the Court.

[00:18:41] Speaker 02:
When this case was last here, the Court remanded with instructions that the trial court answer a single factual question.

[00:18:48] Speaker 02:
How much of the acid waste at the McCall site was there by reason of the production of avgas under the contracts at issue?

[00:18:56] Speaker 02:
That question obviously tracked directly from the relevant contractual language.

[00:19:01] Speaker 02:
And the first point I'd like to make, Your Honors, is that my friend Mr. White, with all due respect, is

[00:19:08] Speaker 02:
adding words to the contractual language.

[00:19:12] Speaker 02:
We're entitled to all charges that were incurred by reason of the production of Avgas.

[00:19:17] Speaker 02:
He's asking you to add the words to the end of that sentence and not having any connection whatsoever with any non-Avgas products.

[00:19:28] Speaker 02:
Well, that's not what the clause says.

[00:19:33] Speaker 04:
Under the circumstances of the times, it's a logical non-entity.

[00:19:38] Speaker 04:
because of what I said.

[00:19:41] Speaker 04:
That is that in the words of the people at the time, don't you know there's a war on?

[00:19:48] Speaker 04:
And once the declaration of war was issued, and even before, but once the declaration of war was issued, the president had well-known dictatorial powers.

[00:20:01] Speaker 04:
And it wasn't just that one board.

[00:20:05] Speaker 04:
There was the War Production Board.

[00:20:06] Speaker 04:
There were all kinds of entities that had power to direct the production and use of war-related materials, and petroleum and all its byproducts were considered war munitions under the law.

[00:20:27] Speaker 02:
The record before the trial court was such that

[00:20:34] Speaker 02:
The government hasn't come close to showing that the court's finding that all of the waste at the McCall site was there by reason of the production of avgast.

[00:20:43] Speaker 02:
They haven't come close to showing that that's clearly erroneous.

[00:20:46] Speaker 02:
And there's really a couple of different ways I would suggest the court could look at this question.

[00:20:50] Speaker 01:
Are you saying that there was zero dumping at the McCall site before the contracts were entered into?

[00:20:56] Speaker 02:
That is correct, Your Honor.

[00:20:59] Speaker 02:
The contracts were entered in the

[00:21:02] Speaker 02:
first half of 1942.

[00:21:04] Speaker 02:
The site was opened, I believe, in the last week of June of 1942, and the first dumping was thereafter.

[00:21:13] Speaker 02:
Now, the government has made an argument, which I think Judge Wallach referenced in one of his questions to my friend, that there was a small amount of waste that was dumped at the site after it was opened and after the contracts that were entered that the government says was not generated

[00:21:32] Speaker 02:
as part of the manufacture of Avgas under these contracts.

[00:21:37] Speaker 02:
It was Avgas that was manufactured to fill out some remaining contracts that they'd had with different parts of the government, I think the armed forces, prior to entering this exclusive contract with DSC.

[00:21:50] Speaker 02:
And our submission on that, Judge Chen, is that the small portion of waste that was dumped before production began under these contracts, and then by the way, it was only Shell.

[00:22:01] Speaker 02:
of the four oil companies that had dumped that.

[00:22:03] Speaker 02:
The other three did not begin dumping until much later when production under these contracts was at issue.

[00:22:09] Speaker 02:
But we would say that that small amount of waste that was dumped that was the result of non-contractual avgas production is irrelevant for two different reasons.

[00:22:21] Speaker 02:
First, the court below found, and the government has a challenge to us, I don't believe, that the oil companies opened the McCall site

[00:22:29] Speaker 02:
in anticipation of the enormous volume of acid waste that would be generated by out-gas production under these contracts.

[00:22:37] Speaker 02:
The court's finding on that is a Joint Appendix 32.

[00:22:40] Speaker 04:
Do you know why the specialized railcars were not available?

[00:22:48] Speaker 02:
Your Honor, I don't.

[00:22:51] Speaker 02:
When Your Honor asked the question to my friend, we did quickly scour the stipulations, and as Your Honor noted, it's been agreed for

[00:22:59] Speaker 02:
25 years in this case that the government controlled them, which is a known historical fact, and the government did not permit them to use the ones in existence during the early years.

[00:23:11] Speaker 02:
By the later years of the war, they'd ordered more manufactured, but I don't know what they were using them for since.

[00:23:16] Speaker 02:
It may very well have been, especially in the early years, to ship Avgas itself to the East Coast or Gulf ports for shipment to Europe, but the short answer is it's not in the record.

[00:23:30] Speaker 02:
But just to continue my answer to you, Judge Chen, because the oil companies opened the site in anticipation of all of the waste that would be generated by production under these contracts, it follows that the site would not have existed, and the small amount of pre-contractual waste would not have been dumped at the site, but for the production of gas under the contracts.

[00:23:55] Speaker 02:
How small is small?

[00:23:56] Speaker 01:
What was the actual amount?

[00:23:58] Speaker 01:
200 barrels?

[00:24:00] Speaker 01:
No, it was more than that, Your Honor.

[00:24:02] Speaker 02:
I don't remember the exact amount.

[00:24:04] Speaker 02:
200,000 barrels?

[00:24:05] Speaker 02:
I don't believe it was 200,000 barrels, but it was a relatively small percentage of the total.

[00:24:13] Speaker 02:
What percentage?

[00:24:15] Speaker 02:
0.5%?

[00:24:17] Speaker 02:
It's more than that.

[00:24:18] Speaker 02:
2.5%?

[00:24:20] Speaker 02:
It's more than that.

[00:24:21] Speaker 02:
It's probably the 15 to 20... It's as big as a great desk.

[00:24:26] Speaker 02:
But if Your Honor would like to quantify that in a way that goes to the bottom line, I would direct Your Honor to Joint Appendix page 47, where the trial court did do an analysis that attempted to quantify the amount of damages attributable to this pre-contractual, non-contractual, avgas.

[00:24:50] Speaker 02:
And the number that the court came up with was $723,578.26.

[00:24:56] Speaker 02:
So it's a very precise figure.

[00:24:58] Speaker 02:
Basically, the court calculated this by determining the amount of non-contractual acid waste dumped at the site in cubic yards and then multiplying that by the cost of remediating each cubic yard of waste.

[00:25:12] Speaker 02:
And Judge Chen, if you're not convinced by my arguments for why this ought to be irrelevant, and I have a second one that I hadn't gotten to yet, and I'll come back to that.

[00:25:21] Speaker 02:
But if you're not convinced by both of my arguments and you feel that this must be taken into account,

[00:25:25] Speaker 02:
I would strongly urge the court, rather than remanding this case for yet another round of damaged proceedings, inevitably followed by yet another, and I believe it would be the fourth appeal to this court, I would strongly urge you to, instead of remanding, simply modify the judgment in light of the court's finding, quantifying that number, and affirming the judgment as modified so that we can finally bring this case to an end.

[00:25:51] Speaker 02:
Now, I said it was irrelevant for two reasons.

[00:25:53] Speaker 02:
First being, they wouldn't have opened the site but for the massive amount of production under the contracts.

[00:25:58] Speaker 02:
There's a second reason.

[00:25:59] Speaker 02:
The Court of Federal Claims found that the relatively small portion, and I admittedly didn't have the number at the tip of my tongue, Judge Chen, did not affect the remediation costs incurred by the oil companies and was therefore irrelevant.

[00:26:16] Speaker 02:
Essentially, what the court found was that the remedy

[00:26:19] Speaker 02:
was what the environmental scientists call a containment remedy, where they built this structure that went down the sides and over the top.

[00:26:29] Speaker 02:
And because the waste was dumped evenly across the 12 sumps at the site, they would have had to build the same remedy regardless of whether this small additional amount of waste was there or not.

[00:26:43] Speaker 02:
And so that, to my mind, is the second reason why you can disregard this pre-contactual

[00:26:49] Speaker 02:
I did want to return briefly to my friend's argument that the waste that was generated by the reuse of the spent alkylation acid in the manufacture of non-avgas products somehow should be disregarded here.

[00:27:12] Speaker 02:
I would suggest there are two ways to look at this.

[00:27:14] Speaker 02:
One is the way, Judge Chen, I think you referenced in questioning my friend.

[00:27:18] Speaker 02:
In 1946, the court found that there was no waste whatsoever sent to McCall after they had stopped avgas production.

[00:27:27] Speaker 02:
And the evidence showed that the reason for that was that avgas production in multiple different ways, I think there were a total of five of them, and those are set out with references to the testimony on pages 28 and 29 of the red brief.

[00:27:44] Speaker 02:
But in all these different ways,

[00:27:46] Speaker 02:
The fact that you're producing avgas necessarily ramps up tremendously the amount of acid sludge that's produced.

[00:27:54] Speaker 02:
In fact, if you compare the throughput in 1946 when there's no avgas production with the throughput in 1944, for every 10,000 barrels of crude going through the refinery, in 1944 when they're making avgas, they're generating 68 barrels of acid sludge.

[00:28:16] Speaker 02:
In 1946, on a per-barrel basis, every 10,000 barrels of throughput is only generating 20 barrels.

[00:28:24] Speaker 02:
So by stopping avgas production, you reduce sludge production by 60%.

[00:28:31] Speaker 04:
And you have the rail cars available.

[00:28:34] Speaker 02:
And you have the rail cars.

[00:28:34] Speaker 02:
And that's an additional benefit.

[00:28:37] Speaker 02:
That's absolutely right, Judge Wallach.

[00:28:39] Speaker 02:
And here's the other critical point about this.

[00:28:42] Speaker 02:
It's not as though during the war that all of the acid waste that was being generated was being dumped.

[00:28:49] Speaker 02:
To the contrary, by using, recycling, and reprocessing to the extent plants were available, to the extent tank cars were available, the oil companies successfully reused, reprocessed, or recycled 72% of the waste they were generating.

[00:29:05] Speaker 02:
What's more, the court found that dumping was the last resort.

[00:29:09] Speaker 02:
They only dumped if they couldn't

[00:29:11] Speaker 02:
make any of these other solutions to the problem work.

[00:29:15] Speaker 02:
So if you think about it, all they had to do to end dumping is reduce the generation of acid waste by 28%.

[00:29:22] Speaker 01:
If all of this is true, then why was there any dumping at all going on in the late 30s and very early 1940s?

[00:29:29] Speaker 01:
According to all your very interesting statistics, there would have been no dumping at that time either.

[00:29:34] Speaker 02:
The answer to that question is threefold, Your Honor.

[00:29:38] Speaker 02:
Three different factors.

[00:29:39] Speaker 02:
Factor number one.

[00:29:41] Speaker 02:
In the early 1940s, 41, 42, 43, technology for addressing, for minimizing the generation of waste took a leap forward.

[00:29:53] Speaker 02:
There were two key points in this.

[00:29:55] Speaker 02:
One was the development of catalytic crackers, and the second was the development of a process called hydrogeneration.

[00:30:03] Speaker 02:
I'm not saying it right, but it's in the record.

[00:30:06] Speaker 02:
Those two things together

[00:30:11] Speaker 02:
very much reduced the amount of waste being produced on a per-barrel basis.

[00:30:16] Speaker 02:
Second factor.

[00:30:18] Speaker 02:
Before the war, there were very few reprocessing plants for reprocessing spin alkylation acid or recycling acid sludge.

[00:30:30] Speaker 02:
As the war progressed, while it took longer than it should have because of the necessary delays, because the government had other wartime priorities,

[00:30:39] Speaker 02:
those resources came online and began to reduce the problem by increasing reprocessing and recycling capacity.

[00:30:48] Speaker 02:
And the third point is the one Judge Wallace referenced.

[00:30:51] Speaker 02:
As the time went on, more and more tank cars became available.

[00:30:55] Speaker 02:
So the upshot is the Court of Federal Claims made a direct finding, and this is on, I believe, JA 47, that

[00:31:05] Speaker 02:
1946 is the proper but for a year.

[00:31:08] Speaker 02:
The court specifically rejected the government's argument that now you ought to look at 1941 or the 1930s.

[00:31:14] Speaker 02:
And those three reasons, those changes in technology in the early 1940s, more than support that finding and defeat any argument that it was clearly erroneous to look to after the war as opposed to before the war for your comparison.

[00:31:29] Speaker 04:
And government, you have to keep the historical context in mind.

[00:31:33] Speaker 04:
Government priorities changed.

[00:31:36] Speaker 04:
In the 1930s, you're talking about industrial policy related to economic recovery and what was cheap to do.

[00:31:46] Speaker 02:
That's exactly right.

[00:31:47] Speaker 04:
In the 1940s, recycling was the thing.

[00:31:51] Speaker 04:
Little kids gathered tin foil and so on.

[00:31:54] Speaker 04:
People kept their baking breeze.

[00:31:58] Speaker 02:
All of that is absolutely correct.

[00:32:00] Speaker 02:
Second way to look at the problem, besides the bud for analysis, you could look at the process by which it was generated.

[00:32:07] Speaker 02:
And I think, Judge Chen, again, you had some questions about this that really went to this point.

[00:32:12] Speaker 02:
It's important to recognize that the government has admitted that every bit of waste at the site, all of it, had its origins in sulfuric acid that was used to make alkylate, which was a component of avgas.

[00:32:29] Speaker 02:
And it was only that some of it was reused that we've had this argument on the non-Abb gas products.

[00:32:35] Speaker 02:
But it's important to understand that when the parties entered these contracts, they fully understood that refineries are integrated entities and that the manufacturer of ABGAS necessarily carried with it the manufacturer of these non-Abb gas products.

[00:32:51] Speaker 02:
I would refer the court to the contract itself that specifically says, and this is joint appendix at 1475,

[00:32:58] Speaker 02:
that normal operation of the refinery will result in substantial quantities of motor fuel and other products that must necessarily be produced and sold in connection with the production of 100 octane gas.

[00:33:12] Speaker 04:
Isn't it in effect something like a columnar still?

[00:33:16] Speaker 02:
Yes.

[00:33:17] Speaker 02:
That's exactly right, Your Honor.

[00:33:18] Speaker 02:
What Judge Wallach is talking about is when the crude first enters, they have this still that breaks the crude into fractions.

[00:33:26] Speaker 02:
Fully 79% of the fractions are not usable when you make avgas.

[00:33:31] Speaker 02:
Only the best 21% of fractions can be used for avgas.

[00:33:36] Speaker 02:
But you've still got all these other fractions that you have to do something with, and the only thing you can do with it is to manufacture these other points.

[00:33:45] Speaker 04:
And the key word is have.

[00:33:47] Speaker 04:
You have to.

[00:33:47] Speaker 02:
You must.

[00:33:48] Speaker 02:
You have to.

[00:33:48] Speaker 02:
And during the war, you have to.

[00:33:50] Speaker 02:
That's exactly right.

[00:33:51] Speaker 02:
And with the coarse indulgence, if I could make one last point.

[00:33:54] Speaker 02:
Any doubt on this is shown by the party's course of performance.

[00:33:58] Speaker 02:
That acid that was first used in the making of alkylate and then reused in the non-Avgas products, 100% of that acid cost on the front end was charged to Avgas, even though the government knew full well that that acid would be reused in non-Avgas products.

[00:34:19] Speaker 02:
Everyone understood that the acid was something that was driven by the

[00:34:23] Speaker 04:
And there was testimony in the record, as I recall, from an administrator who said, if you hadn't done that, I would have just taken the plant away.

[00:34:32] Speaker 04:
Your Honor, that's exactly right.

[00:34:35] Speaker 04:
Thank you.

[00:34:35] Speaker 02:
Thank you, Your Honor.

[00:34:45] Speaker 03:
Two points, Your Honors.

[00:34:50] Speaker 03:
The idea that

[00:34:52] Speaker 03:
the government is responsible under the taxes clause for waste that had nothing to do with the waste stream from the production of avgas because McCall was opened in anticipation of the avgas contracts.

[00:35:08] Speaker 03:
Again, this is contract law.

[00:35:11] Speaker 03:
The taxes clause cannot be interpreted in a manner that expands this.

[00:35:17] Speaker 03:
to include not only these products that are not Avgas and the waste from those products, but also the waste that was created and dumped at a time when, it's true, it was after the contracts were signed, or at least after the first contracts were signed, but before any of the Avgas was actually delivered to the government under these contracts when they were dumping other products.

[00:35:43] Speaker 04:
But all of those

[00:35:45] Speaker 04:
You'd agree that all of those contracts are subject to force majeure.

[00:35:50] Speaker 03:
The force majeure clause is in these contracts.

[00:35:55] Speaker 04:
And in wartime, the government's powers were quintessentially force majeure.

[00:36:03] Speaker 03:
But still, there is a very precise requirement in this clause.

[00:36:10] Speaker 04:
But you recall, I'm sure, the testimony

[00:36:14] Speaker 04:
I think it was a written interview of an administrator who said, if they hadn't done what I said, I would have just taken the plant away.

[00:36:25] Speaker 03:
But that doesn't create a basis, Your Honor, for basically saddling the taxpayers with all of the waste that was created during the wartime that related in a small percentage to the

[00:36:44] Speaker 03:
production of avgas and in a large percentage to the acid sludge that was created through the other products.

[00:36:50] Speaker 03:
The result of the Court of Federal Claims decision is that the government was in for a little, so it owes everything.

[00:37:00] Speaker 03:
And that's what we contend is inconsistent with the plain language of the clause.

[00:37:04] Speaker 03:
A lot of these facts are really not that relevant.

[00:37:07] Speaker 03:
What was relevant here was the interpretation.

[00:37:10] Speaker 03:
Again, when we were here the last time,

[00:37:13] Speaker 03:
in 2013, the interpretation was, well, can the taxes clause itself extend beyond taxes to circular remediation costs?

[00:37:24] Speaker 03:
And this court said it could.

[00:37:25] Speaker 03:
Now the question is, and this is fundamental in this case, is can the taxes clause reach the waste of circular remediation costs that wasn't created as a direct result

[00:37:42] Speaker 03:
of the production of that avgas.

[00:37:44] Speaker 03:
There is a historical context.

[00:37:46] Speaker 03:
We agree.

[00:37:47] Speaker 03:
There is also the fact that there was a waste stream, which by its very nature was going to result, to a certain extent, in the waste product of avgas production being used to produce other products.

[00:38:01] Speaker 03:
But none of that changes what we believe is the proper interpretation of the contract.

[00:38:08] Speaker 01:
I'm just curious.

[00:38:08] Speaker 01:
How much money is on the line for the cleanup

[00:38:12] Speaker 01:
Acid sludge from the non-Avgas products in the McCool site?

[00:38:16] Speaker 03:
From the non-Avgas products?

[00:38:19] Speaker 03:
Yeah.

[00:38:19] Speaker 03:
Well, it would have been a very high percentage because the amount of spent alkylation acid was roughly a very small percentage.

[00:38:29] Speaker 03:
It would have been under 15%.

[00:38:31] Speaker 03:
In fact, the government was arguing at one point that there was no spent alkylation acid dumped

[00:38:39] Speaker 03:
But the court made a finding that a certain amount of spent alkylation acid and acid sludge was present at McCall.

[00:38:48] Speaker 03:
And we're not going to argue with those facts, but the percentage was very small.

[00:38:52] Speaker 03:
Even in this court's prior decision, it recognizes that 82% of the waste that was dumped related to the acid sludge from the non-Avgas products.

[00:39:07] Speaker 03:
largely the government's being asked to take on 80% more or 80% in addition to the amount which would have been reasonably allocated to the government's Avgas contracts.

[00:39:24] Speaker 00:
Final point, time's up.

[00:39:26] Speaker 03:
Well, one last point, Your Honor.

[00:39:31] Speaker 03:
The argument that 1946, if the court was going to look at a buck for a year, and the Court of Federal Claims mentioned that and used it, but then ignored it in favor of saying that it was a single remediation solution by EPA, so it didn't matter.

[00:39:46] Speaker 03:
The government was responsible for everything.

[00:39:48] Speaker 03:
But if the court was looking at this with an eye towards allocation, we disagree with the idea that 1946, after the war, is the appropriate buck for a year for a lot of reasons, including the fact that these

[00:40:00] Speaker 03:
oil companies were really in a totally different world with new facilities and everything was different by 1946 and we should be more concerned with what they would have done in the war years in the absence of their upgraded facilities that the government paid for through the war.

[00:40:18] Speaker 03:
Thank you.