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* Environmental engineer, lawyer unravel a mystery
* Detective work helps cash-strapped U.S. states
By Mica Rosenberg
BIRMINGHAM, Alabama, Feb 10 A pioneer in
cleaning up toxic messes, Thomas Schruben long suspected major
oil companies of being paid twice for dealing with leaks from
underground fuel storage tanks - once from government funds and
again, secretly, from insurance companies.
Schruben, a detail-oriented Maryland environmental engineer
who helped draft government pollution rules going back 30 years,
looked for a lawyer to help ferret out what he believed could in
some cases be fraud. He found a partner in Dennis Pantazis, a
buoyant, mustachioed son of Greek immigrants in Alabama known
for bringing environmental and civil rights cases.
"Together we started unraveling the mystery," Schruben said.
The U.S. Environmental Protection Agency, Schruben's former
employer, has called the rusted, leaky steel tanks the single
largest threat to groundwater in the United States. Often built
for gas stations during the 1950s and '60s highway construction
boom, the tanks corroded over time, spilling gas and diesel with
potentially cancer-causing chemicals under properties and into
The two men assembled a team of lawyers, investigators and
experts to search public records and case files for evidence and
brought their findings to state governments, hoping to be hired
as advisers or legal counsel. New Mexico paid more than $1
million in attorney fees after one $5.2 million settlement from
Chevron last September.
They now are involved in around 20 cases across the country
and officials in several states said they could never have
brought the cases without Schruben, Pantazis and their team.
Court documents show many of the cases and settlement
agreements follow a similar pattern, accusing the oil companies
of "double-dipping" by collecting both special state funds and
insurance money for the same tank cleanups. Some states say any
insurance payouts should have gone to them since they covered
the cost of the work.
"It appears this was a really common practice and it's very
disconcerting," Colorado Attorney General John Suthers said in a
phone interview. "Basically the companies were defrauding the
state." Colorado has so far signed settlement agreements with
three companies for $35 million, according to documents seen by
While the underground tank expert and the lawyer are
reluctant to discuss details of ongoing litigation, Reuters
found nine states have won settlements worth more than $105
million with four companies in the past three years - Chevron
, Exxon, ConocoPhillips and its
downstream arm Phillips 66, and Sunoco.
In none of the settlements or comments to Reuters did
companies admit wrongdoing.
Lawsuits are pending in at least seven other states.
Pantazis declined to say whether he was involved in all the
cases Reuters found.
Some oil companies said they were cooperating with
officials. Exxon, in particular, said it informed the states
about cases in which it found it was paid twice. In the
settlement documents, companies say they followed the law when
receiving reimbursement from the funds.
The settlements represent a tiny amount of money for oil
firms but can make a big difference for cash-strapped states.
Schruben left the EPA in the 1990s to work at insurance
companies and as an independent consultant. After years working
on the tank cleanups in and out of government, he started
developing suspicions. But it took a deeper look at documents
from state tank funds and insurance litigation, some going back
as far as the 1940s, to start uncovering answers.
He laid out the kind of information the group found in a
PowerPoint presentation given in 2009 to Arizona's Department of
Environmental Quality, which oversees that state's underground
tank fund. It was obtained by Reuters through a Freedom of
The first slide declares: "The state cleanup fund paid for
the clean up: Major oil collected the same dollars from their
It shows how the team - with documents uncovered by their
legal research - matched specific gas stations covered by
multimillion-dollar insurance payouts with the same stations
that had received state funds.
Insurance companies are not named as parties in any cases
and the policies cited go back many years and cover a wide range
of liabilities, not just underground tanks.
Approximately 40 states and the District of Columbia have
special funds to cover the costs of removing and replacing the
old tanks, excavating tainted dirt and pumping out dirty
Since 1988, there have been more than half a million leaky
tanks reported across the country. Nearly 80,000 spills still
are waiting to be cleaned up.
In the New Mexico settlement last September, court documents
show the origin of the case against Chevron was a sealed lawsuit
filed by Schruben and Pantazis' team in 2009 under a state law
designed to protect taxpayers from fraud.
One document from 2006, for example, shows Chevron received
a check for $19,000 from the state to clean up and monitor a
leak at a gas station in the small, southern New Mexico town of
Artesia. On the application to receive money from the tank fund,
the company checked "No" next to the question: "Do you have
The lawsuit accused Chevron of receiving insurance payouts
to deal with many kinds of environmental contamination,
including policies that would have covered leaks at the gas
station in Artesia - a fact it kept hidden from the state.
"When I first saw these cases, I thought this is kind of
incredible," said New Mexico assistant attorney general Seth
Cohen, who handled the lawsuit for the state. "The oil companies
have, in effect, profited off polluting."
Cohen said prosecutors would not have known about the
problem if the duo and their team had not filed the lawsuit.
Chevron spokeswoman Sheila McNulty said the company had
negotiated with the states in good faith to reach agreements in
which the company does not admit any fault.
Chevron "takes seriously any allegation that it made
misrepresentations or otherwise acted improperly (and) is
conducting on-going dialogue with various state officials," she
wrote in an email.
A separate case against Exxon is pending in New Mexico.
Exxon spokesman Todd Spitler said that in 2004, the company
told 24 states it had discovered insurance payouts it received
on top of state claims and, in some cases, voluntarily offered
"ExxonMobil has always sought to act transparently and
honestly with all of the state funds - both in the
communications of our actions and in the filing of reimbursement
claims," Spitler wrote in an email.
Some companies challenged the accusations in court. For
example Phillips 66, the arm of ConocoPhillips, denies in court
documents that its insurance policies covered underground
storage tank leaks. A ConocoPhillips spokesman declined to
comment beyond the court filings.
Other companies involved in lawsuits, including Shell
and Sunoco, said they do not comment on ongoing
litigation. A BP spokesman said, "The claims in the
complaints are without merit, and BP plans to defend itself
against the allegations."
The lawsuits against the oil companies allege fraud or other
civil, not criminal, claims, which have a lower burden of proof
and do not lead to jail time.
Pantazis said the companies were largely cooperating to
forge settlement deals and were interested in partnering with
the states to clean up the legacy of petroleum leaks.
"In some instances you might say these were intentional
actions. In some instances it may have been a case of the right
hand not knowing what the left hand was doing," Pantazis said.
More settlements are expected. In Arizona, Chevron and Exxon
settled claims out of court, with Chevron paying $14 million
last April and Exxon paying $11.5 million in 2011. In November,
Utah settled a case for $2 million with ConocoPhillips/Phillips
66, according to documents from the office of the attorney
New Mexico has around $13 million per year to spend on
cleaning up leaky tanks and returned about $4 million to the
fund, said Cohen, the state's assistant attorney general.
"They certainly can put this money to very good use."
(Editing by Howard Goller, Peter Henderson and Grant McCool)