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MtBE Settlement Agreement Reached with Attorneys:

The City of Santa Monica on Tuesday, March 11, approved an agreement to settle its fee dispute with the contingency attorneys who assisted the City in its MtBE water contamination lawsuit.

The settlement agreement with Baron & Budd, P.C., Miller, Sher & Sawyer, Miller & Sawyer, Miller, Axline & Sawyer, Sher Leff LLP, Cooper & Scully, P.C., Frederick M. Baron, Scott Summy, Victor M. Sher, Duane C. Miller, and A. Curtis Sawyer, Jr. resolves all outstanding and potential claims and disputes. The City agrees to pay the lawyers $55 million.

“The City considers this a fair resolution that brings a highly contentious lawsuit to an end,” said Mayor Herb Katz. “The City can now pay full attention to our primary goal of restoring the City’s drinking water.”

The settlement represents 22 percent of the $250 million total recovery the City received from Shell, ChevronTexaco, ExxonMobil, and other companies which the City sued in 2000 for contaminating the city’s water with the gasoline additive Methyl Tertiary-Butyl Ether (MtBE).

Because of contamination, the City lost the use of much of its drinking water and since 1996 has been importing water from the Metropolitan Water District.

The contingency attorneys had previously claimed 25 percent of the recovery plus other fees, and their lawyer had told the City Council in public that they were entitled to between $90 and $100 million. The City refused to pay such an amount but has always been willing to pay a reasonable fee.

“This is much less than is normally paid to contingency attorneys who typically are paid up to 40 percent” of settlements, City Attorney Marsha Moutrie told the City Council before they voted to approve the settlement at the Council meeting Tuesday night.

In 2003, the City received a settlement of approximately $120 million from the oil companies and their commitment to work with the City to design and build a water treatment facility. In December 2006, the City negotiated an additional $131 million settlement with the oil companies which cashed out their promise to construct the water treatment facility for water produced from the Charnock Well Field.

The fee dispute 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 treatment facility. In 2004, the City and contingency lawyers filed lawsuits regarding the fees. The City attempted to mediate the dispute before filing suit. When efforts failed, the City litigated the case and also pursued settlement opportunities at various points in time.

Early settlement efforts were hindered by the dispute over the value of the oil companies’ commitment to design and build the treatment facility. 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 P. 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 anticipates that water will once again be produced from this source in 2010.

In 1996, the City discovered that its wells in the Charnock Well Field were polluted with the gasoline additive MtBE. Five of the City’s 11 wells were affected. Since the discovery of MtBE in the wells, the City has been purchasing imported water to supply about 80 percent of the 13 million gallons of water used by Santa Monica residents and businesses every day, at a cost of approximately $3 million every year, which is paid for from proceeds of the final 2006 settlement with the oil companies.

For years after the contamination was discovered, the City worked with the EPA to try to achieve a voluntary solution with the oil companies. 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.

The City filed the case when mediation efforts failed and at the same time, offered to pay the contingency attorneys any fee amounts not in dispute without prejudice to their claims for more. That offer was declined. The case involved numerous appellate proceedings in which the City challenged adverse trial court rulings.

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