Legal Watch: Volume 11

Prepared by William H. Bode
Bode & Grenier, LLP
1150 Connecticut Ave., NW
Washington, D.C. 20036
Telephone: 202-862-4300 | Email: wbode@bode.com

STATE OF ILLINOIS DOES NOT HAVE TO PAY TERMINAL OPERATOR $1.5 MILLION FOR OIL LEFT IN TANKS WHEN LEASE EXPIRED

Case Summary: The Illinois Metropolitan Water District of Greater Chicago (“IMWD”) owned a water terminal site (called the “Torco Terminal”) with six petroleum storage tanks that it leased, in part, to Apex Oil Company for the storage of residual fuel oil. IMWD notified Apex that it intended to close the Torco Terminal, and offered Apex the opportunity to take over operations of the facility. After Apex declined an invitation to operate the facility, IMWD commenced a legal proceeding to close the facility, and Apex agreed to vacate the terminal by September 14, 2003. As that date neared, IMWD issued a “general permit” pursuant to which Apex agreed to remove the remaining residual fuel oil from the Torco Terminal at its cost, but that further required that Apex “clean four above ground storage tanks, which contained its oil, to bare metal, wipe sample the tanks for PCB’s … and triple wash the tanks.” Apex refused to accept the terms of the General Permit maintaining that the removal of any potential tank bottoms does not require cleaning tanks to the bare metal, and demanded permission to remove its oil. When IMWD refused its request to remove the oil, Apex sued for conversation in January 2004. While the suit was pending, the pumps, controls, boilers, and other equipment necessary to remove the oil from the tanks was vandalized and rendered inoperable. IMWD claimed as its defense the “Illinois Tort Immunity Act” and the U.S. Federal District Court granted it summary judgment. Specifically, the Court ruled that that IMWD, as an agency of the State of Illinois, was shielded from liability under the “licensing immunity doctrine” (because of the issuance of the Permit), and under the “discretionary immunity doctrine” (because the decision on the tank clean-up was a discretionary government decision). The Court noted that immunity obtains regardless of whether the permit was issued in “willful and wanton” disregard of Apex’s rights, thus causing severe damage, or even for corrupt purposes.

LESSON: Terminal operators must be extra vigilant when dealing with a state entity. The immunity enjoyed by governments from lawsuits can result in nasty surprises. When terminaling contracts are at issue, all contingencies – such as who is responsible for tank cleaning at the termination of the agreement – must be carefully spelled-out in advance. (Apex Oil Company, Inc. v. Metropolitan Water Reclamation District of Greater Chicago)

GRAIN ELEVATOR ENTITLED TO RECOVER DEMURRAGE CHARGES UNDER THE OIL POLLUTION ACT

Case Summary: FDGI, LLC is the lessee-operator of the Alabama State Docks Grain Elevator located on the Mobile River. On December 7, 2002, The Lorelay, due to a cracked fuel tank, leaked oil while berthed at the Mobile Port. The Coast Guard ordered that no vessel could load at the FDGI facility. As a result, the vessels M/V Tampico Alto, M/V Angelic Peace, and M/V Princess Vanya were unable to berth until December 14, 2002, when the ban was lifted. FDGI sued to recover various charges it incurred as a result of the delay under the Oil Pollution Act (“OPA”) which provides: “Each responsible party for a vessel or a facility from which oil is discharged … in or upon the navigable waters … is liable for the removal costs and damages … that result from such incident.” The Court heard evidence regarding the extent of delay, the order of likely lifting in the absence of a spill, costs of overtime, and related evidence, some of which was disputed, and made a series of rulings. In total, the Court awarded FDGI $167,173 in damages for demurrage, interest, elevator overtime, “[r]ailcar company charges for holding trains due to spills,’ and State Docks rail delay charges. A noteworthy holding by the Court is its insistence that the claimants document fully the extent of their losses. In this regard, the Court appeared to back-away from earlier precedent, which held that, “… imperfections of proof should not inure to the benefit of the tortfeasor. Once a plaintiff shows the fact of damage, the precise amount of damages need not be shown with mathematical certainty.”

LESSON: Terminals operator should seek to include “OPA damages” in any insurance policies covering oil spills from a facility. When such a spill does occur, terminal operator should keep meticulous records during the clean-up to be able to claim (or dispute), as the case may be, economic damages under OPA. (FGDI, L.L.C. v. M/V Lorelay, et al.)

Please address any comments or questions to Mr. Bode at 202-862-4300 or wbode@bode.com.

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