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Transcript of Monday's hearing

The following is the transcript of Monday's hearing in the city of Lodi's pollution litigation:

Sacramento, California

Monday, January 12, 2004; 1:35 p.m.

THE CLERK: Calling civil case 2441, City of Lodi versus M&P Investments. It's on for various motions and ex-parte applications, Your Honor.

THE COURT: Appearances of counsel.

MR. DONOVAN: Good afternoon, Your Honor. On behalf of the People and the City of Lodi, Michael Donovan, Senior Assistant Attorney, Randall Hays, City Attorney for the City of Lodi, Peter Lyons, Assistant City Attorney, and Mr. Thomas Smith, Assistant City Attorney.

MS. GUALCO: Good afternoon. Lori Gualco, representing Guild Cleaners Inc., and Jack Alquist.

MR. MEYERS: Stephen Myer representing the same parties plus the estate of Alquist.

MR. THOMAS: Michael Thomas representing Jack Alquist, Guild Cleaners and the Estate of Dwight Alquist, deceased.

MR. FRIEDMAN: Glenn Friedman representing David Mustin and M&P Investments.

MR. FLORENCE: Taylor Florence representing the Estate of Frank Paul, and with me today from my office is Darren Menzes.

MR. SALAZAR: Joe Salazar, Junior, on behalf of the M&P Investments and David Mustin.

MR. DRABANT: Robert Drabant on behalf of the estate of Allmendinger.

MR. BOWERS: Aaron Bowers on behalf of Oddfellows, Lodi Dodge, Weil Family Trust and Estate and the Wright Motor defendants.

MR. MALM: Scott Malm on behalf of Lodi News.

MR. MILLS: Michael Mills from Downey, Brand on behalf of Jack Alquist, Guild Cleaners and the Estate of Alquist.

THE COURT: Is that all the appearances? Good afternoon, counsel, and welcome to the Sistine Chapel of binders. What I have in mind today is not to hear argument. I'm going to make some rulings and some observations. At the conclusion of my rulings, I will set this matter for another time shortly. We're not talking about next week, but I think you understand as I proceed why I am limiting argument today.

No substantive arguments. You may have a question or two from a procedural aspect, but this is my opportunity to make some observations, as I said, regarding this case which I think need to be said by the Court.

As you are well aware, we're into our fourth year of litigation. I believe so. In any event, it seems longer than that to some of you, but many years we've been at this, it seems like.

As you all are aware, we are about to commence a trial which is the result of a series of scheduling orders that ordered phasing of this case, and, as a result of discovery which has concluded some months ago, rules on dispositive motions, two motions filed by the City which were denied, two joint statements, two joint pretrial statements filed by the parties, and there were two final pretrial conferences, which is somewhat unusual.

I expressed some concern about the level of federal trial experience as a result of these conferences and these joint statements. My concerns really haven't been allayed as a result of what I've read which has been filed in the last week.

Since the final pretrial conference and since the final pretrial order, which usually ends further argument, the Court has reviewed a number of documents filed by the City and by the defendants, a matter that relates to my concern here. In addition to the trial briefs which were ordered to be filed, I got a response to defendant's trial brief filed by the City.

You don't file a response to a trial brief, number one, because it's not ordered. You're only allowed to file what is ordered by the Court when it comes to trial briefs. It seems that there's a need to argue this case unnecessarily. I don't read responses to trial briefs. It was a waste of time to file it, a waste of money to prepare it, and an experienced trial lawyer would know not to do so.

Now, what I intend to do is review the first document that was filed by the City which relates to the objections and requests for clarification and then I will deal with the motion to vacate.

The first part of the defendants' objection relates essentially to the same issues brought up in the motion to vacate, and so I'm going to pass over number A on page two MS. GUALCO: Your Honor, excuse me. But after reviewing the transcript last time, you just said "defendants," and it was actually filed by the plaintiff, the City of Lodi, in this case, the request for clarification.

THE COURT: Excuse me.

MS. GUALCO: Thank you, Your Honor.

THE COURT: This is a document filed by the plaintiffs, the City of Lodi, and that's what I'm going to review. If I misspoke, I apologize. So I'm referring now to the City of Lodi's request for clarifications and objections to my Final Pretrial Order.

Moving to the clarification, "B" as in "boy." "Lodi objects to the Court's finding that Lodi alone alleges that a public nuisance exists at the site within the City of Lodi." Lodi takes the position that this may be a minor point that other folks allege there's a public nuisance and indeed others do allege there's a problem. The state has, I've made findings that would certainly give rise to that. But I just ask counsel to simply read the pretrial order when the Court said "Lodi alone." In my Statement of the Case in the Final Pretrial Order, the Court wrote the following: "This case is a complex environmental lawsuit filed by the 'People of the State of California' and the City of Lodi." The "People of the State of California" being a plaintiff that the City of Lodi claimed to be a co-plaintiff with the City.

"After a series of motions and appeals, this case has devolved into an environmental clean up action in which Lodi, alone alleges a public nuisance." Obviously, I would assume any fifth grader would know I was talking only about the fact that the "People of the State of the California" is no longer a plaintiff, but now Lodi, alone, is alleging a public nuisance.

That this would become part of a document filed with the Federal Court is very puzzling, and I frankly don't understand why anyone could possibly miss the meaning of the Court's use of the phrase "Lodi, alone" in that context.

The next objection, request for clarification, relates to "non-admitted releases," which the defendants must prove and various other references to the "necessary costs of response" which are consistent with the National Contingency Plan. The City of Lodi requested clarification about those issues.

Again, I'm going to remind the City of Lodi and its attorneys that you look to the Final Pretrial Order, not to your ruminations of what you think the issues are. There are no mentions in the order of any "non-admitted releases" or

"admitted releases." The order says as follows: "The Court ordered that Phase I(a) trial" -- that's the trial we're talking about today -- "would address Lodi Section 107(b) defense wherein Lodi shall have the burden of proving by a preponderance of evidence that it's entitled to a Section 107(b) defense as a potentially responsible party within the meaning of CERCLA Section 107(a). Lodi shall present evidence as to those releases or threatened releases of hazardous substances from facilities which Lodi reasonable believes are subject to the Section 107(b) defense." There's nothing in that statement about whether Lodi admits these releases, denies these releases. These are issues for the trial. It says nothing about what the defendants must prove because the defendants do not need to present one bit of evidence or one witness in this case. It is not their burden.

I've been trying to say this as clearly and as succinctly as possible, and I repeat myself again for the forth or fifth time.

This case is about Lodi's defense. Lodi has the burden of proof, not the defendants. I might add, if it's not in the Final Pretrial Order, it's not an issue in this case that's pretty fundamental federal trial practice. Lodi also requests that the pretrial order may be amended to reflect the order of the burden of proof. The order of proof was set forth in the scheduling order. I'm not going to repeat it today.

Lodi has the burden. And normally and typically in any Final Pretrial Order, you find the party with the burden. In this case, it is the plaintiff who is asserting an affirmative defense. The City has the burden, and it alone must prove the case. That should be sufficient.

With respect to the releases that are the subject of that burden, again, I refer to the Final Pretrial Order on page four. I think this is fairly clear. "The parties have agreed" -- that means the City of Lodi and the defendants in this case -- "have agreed to certain undisputed facts. And the parties have submitted certain disputed facts regarding alleged releases by Lodi." Those are the releases that are the subject of this trial. Those are the releases that are the subject of Lodi's burden of proof, and they include Lodi's Municipal Sanitary Sewer System, Lodi's Municipal Supply Wells Three and Four, Lodi's Municipal softball complex at 401 Stockton Street at the City Yard at 125 North Stockton Street. I don't think I need to repeat that again.

I think that it reads clearly and is rather clear there is a burden of proof on the City of Lodi and an order of proof is entirely unnecessary to be included in this order. And there is one, as I already indicated, in the previous scheduling order.

Now, Lodi also requests clarification that the defendant's burden is to establish all the elements of 107(a), to establish all of the elements of 107(a) for each of those

"non-admitted releases" and so forth. I think what I said covers this particular need for clarification. Clearly, the releases that are the subject of this trial are the releases set forth in the Final Pretrial Order. The burden is on the City of Lodi, not upon the defendants.

Lodi also requests a clarification with respect to not a clarification, it's an objection -- excuse me. On page seven, Lodi objects to the Court's characterization of Lodi's so-called admission, PRP admission. That means "Potentially Responsible Party" admission.

Well, I understand, Mr. Donovan, you don't agree with me. I understand your lawyers do not agree with me. You don't tell a judge ten months after his order that you don't agree.

I understand that you don't agree. That's why you appealed my order. The 9th Circuit affirmed it. You don't agree with the Ninth Circuit either. I understand that. But to hear this ten months later and what I would assume to be a document that's going to assist the Court in understanding its own pretrial order, I find it astonishing that you have to tell this Court that you disagreed with the Court's ruling made ten months ago.

It reminds me, for example, of "Joe," who gets a speeding ticket, and he's told he's going 50 miles an hour in a 25-mile-an-hour zone. Joe tells the officer: I wasn't going 50 miles an hour. The officer tells the driver, "Tell that to the Judge." Joe goes to court. Joe tells the Judge the same story. The Court says, "No, you're wrong, Joe. You were speeding." Joe says, "I want a motion for clarification, a motion for reconsideration." He says, "No, you were speeding." Ten months later Joe sends a letter to the police officer, "Officer, I wasn't going 50 miles an hour in that traffic zone." That makes about as much sense as telling me somehow the City disagrees with my finding.

The City has disagreed with my use of the term "PRP" because of the interpretation that Mr. Donovan felt that PRP should be given in the Fireman's Fund case. Well, again, it's just the idea of having to say that that strikes me, Mr. Donovan, as being utterly unnecessary and, frankly, unprofessional.

Now, with respect to the concern which I think is a legitimate one, and that has to do with impeachment witnesses, there is, however, one thing I want to point out and it wasn't mentioned. Obviously, counsel knows the order supercedes the rule. Do you all agree with that? I'm not getting any nods.

Do you understand that, counsel? The order supercedes the rule. The rule may be different than the order, but it doesn't mean the order is invalid.

The order with respect to disclosure of witnesses I think should be modified to this extent. Normally I would at final pretrial conference explain to trial counsel that while if you have not disclosed a witness, that person cannot testify. If you have a witness that is under Rule 607, an impeachment witnesses, that witness does not need to be disclosed. And so during the course of this trial, if any party has an impeachment witness under 607, that witness can testify, provided, of course, the witness is to testify and impeach testimony of a witness. That witness need not be disclosed.

So, I would grant the observation that it was not clear in this order; however, I must add this is the order that is standard in this Court and in most courts. But, normally, at final pretrial conference that matter is discussed so lawyers can understand they need not disclose an impeachment witness.

You do not need to disclose an impeachment witness and that witness may testify if the sole purpose of that witness' testimony is impeachment.

Let's get down to the motion to vacate. Do any of you remember a character in Saturday Night Live named "Rosanne Rosannadana"? Gilda Radner? She used to go on these long diatribes and she would look at the camera and say, "Nevermind." This is kind of a "Rosanne Rosannadana" motion. Here we are surrounded by 856 binders containing roughly 25,000 pages of exhibits. I came in this weekend and decided maybe my clerk and I ought to count this to see how many binders there were and how many pages there were. Here we are at the eve of trial and as a result of the Court's order of December 22nd, which is the Fireman's Fund order in a related case, the City decides: Well, why go through this case? I mean, we're going to be potentially liable party whether we're successful or not. That's true. That's true.

But I want the parties to understand and particularly the City to understand, that when the Court found that the ordinance, City Ordinance, MERLO, was preempted -- in other words, the ordinance that would allow a potentially responsible party to impose joint and several liability; an ordinance that would insulate the City of Lodi from contribution and allow recovery of attorney fees and many other expenses, I found that to be in violation of federal law and in violation of the Supremacy Clause.

The fact that I found the ordinance was preempted is unrelated to the defense of this case; in other words, the affirmative defense which is the subject of this case. It's unrelated. You need to uncouple that.

Preemption has nothing to do with whether or not the City of Lodi is successful or unsuccessful in proving its defense. That analysis while having a -- the decision while having practical consequences which are adverse to the City, are nevertheless -- that analysis is unrelated to the analysis which the Court would undertake in this trial.

Fireman's Fund found there were two bases for a finding of potentially responsible party status. The Court found that Lodi was a potentially responsible party because of its admission in this courtroom -- and the subsequent finding by this Court that the City of Lodi was a potentially responsible party.

The Court found another basis to find that the City is a potentially responsible party that is unrelated to this trial and that is the settlement of Lodi's -- settlement with the State of California between Lodi and the State of California for any liability claims which in this case the DTSC, the state agency might have.

That settlement, under federal case law -- the Court found, subjected Lodi to potentially responsible party status.

So there's two reasons why the Court found the City a potentially responsible party. If Lodi successfully proves in this trial by a preponderance of the evidence that it has a valid 107(b) defense regarding releases or threatened release at the site, Lodi will nevertheless remain a potentially responsible party unable to impose joint and several liability. The Court understands that.

Now, why not simply then take Lodi's suggestion and grant its motion, and let's move on. Let's vacate this trial.

It serves no real purpose because at the end of the day the City of Lodi remains the potential responsible party unable to pursue its litigation strategy.

Well, the Court believes that the issue of Lodi's defense must be resolved before this litigation proceeds to any other phases. I will not allow Lodi's 107 defense to be lurking around while we proceed to other phases.

Now, I know, Mr. Donovan, among other things you have a very fertile imagination. I don't know how you would use this defense, but I'm not going to have this defense out there which could cause mischief in terms of the orderly progression of this litigation. Now, when I say that, I mean I have no idea at this point and I'm not going to suggest how you would use this defense if it wasn't resolved at this trial or by a court order.

In other words, I don't know if it's another ordinance or in the event you appeal my Fireman's Fund ruling and the 9th Circuit reverses and then you bring up this defense and we're back here all over again. I don't want that to happen. I want to resolve this matter now. Not later, but now.

In that light, when you move to vacate the trial, I'm going to suggest that you consider vacating your litigation strategy. This litigation, since its inception, is all about Lodi avoiding liability and imposing joint and several liability on potentially responsible parties with a view to obtain proceeds from the insurance companies that have coverage in these various properties.

Now, there's nothing wrong with that strategy but for the fact that Lodi itself is a potentially responsible party.

That's the rub. Under federal law, a potentially responsible party cannot impose joint and several liability.

This trial, as I'm sure we can all understand, is going to be very expensive. Unless we bring closure to this issue by way of stipulation and a proper order of this Court, we're going to spend a lot of time and money to determine whether or not Lodi is a -- to determine whether Lodi has a valid defense to its 107(a) status.

Now, why should Lodi even consider abandoning its litigation strategy? Well, aside from the fact that we are now three-plus years down the road and have advanced very little toward cleaning up the environment -- which seems to be the number one reason Lodi might wish to reconsider its strategy there is the additional problem of the burden that Lodi faces in this case. Congress has made it difficult for the assertion and the proof of 107(b) defense.

The defense provides that "a person otherwise liable who can establish by a preponderance of the evidence that the release or threat of release of a hazardous substance and the damages resulting therefrom were caused solely by the act or omission of a third party" -- that's Lodi's claim here, asserting its defense -- if the City establishes by preponderance of the evidence, however, that the City exercised due care with respect to the hazardous substance taking into the consideration the characteristics of such hazardous substance in light of all relevant facts and circumstances, and the City took precautions against foreseeable acts or omissions of any such third party and the consequences that could forseeably result from such acts or omissions. That's the burden. That's not an easy burden for anyone.

And I don't know what the case is going to be about I know what the case is going to be about -- I don't know what the evidence is going to be. I do know this -- courts have said this time and again, Congress has purposefully made this a very difficult burden for a potentially responsible party.

Why? Because they don't want cases like this. They don't want parties to spend millions of dollars in the courtroom. They'd rather spend millions of dollars at the site and clean it up. That's why they make it difficult on the potentially responsible party to assert such a defense. They want settlement, clean up, prompt resolution, not years of litigation.

So there is that aspect, in addition to the length of time we have taken to get here, there is the aspect of the burden that Lodi carries on a 107(b) defense.

Now, in addition, as I pointed out earlier, we're dealing with a situation that involves the sewer system. Lodi claims it should only be required to present evidence regarding the release between two manhole covers. I believe it's 181and 1809.

You've heard my Final Pretrial Order. That's obviously not what it says. It says nothing about just those -- just that release. It says a number of releases, including the sewer system. That's the same sewer system which is the subject of the settlement with the State of California which the City of Lodi paid over a million dollar because of potential claims, because of releases from that same sewer system. That's the basis I found Lodi was a potentially responsible party in addition to its admission.

You have that as a backdrop which of course means whatever happens in this trial, Lodi remains a potentially responsible party because it paid over a million dollars to settle claims on the sewer system which is the subject of this case.

Now, I would agree it is pointless to spend -- I don't know what kind of money. I'm sure in excess of a million dollars or a couple million dollars and maybe two months of trial to undertake that burden in this case, namely, that Lodi has a valid defense when, in fact, at the conclusion it's going to be a potentially responsible party at the end of the trial in any event.

But I think it's also pointless and of no value to allow the City of Lodi to walk away from its responsibility to use this defense another day. Closure of this case is important, and it's going to go step by step, phase by phase.

Now, can this trial be vacated? Yes.

Can we avoid expense and further delay and expenditure of money that will not be recovered? We're not playing with the house's money any more. The City is playing with the City's money or somebody's money, but it's not going to come back to whomever is spending it. I've ruled no recovery of legal fees. This is serious money. You're playing with your own chips and your own money.

Now, how can it be resolved? Well, if the City stipulates that it will not offer evidence of this 107(b) defense, obviously, the Court can enter an appropriate order and the trial will be vacated. If that were to happen, I foresee a prompt resolution of this entire litigation. There's no reason why the state cannot proceed as lead agency. I know its engaged in that role to a certain extent right now and I don't know the extent it would change if Lodi were no longer seeking to impose joint and several liability, but I assume the State would take complete control over this matter which I think it should.

There would be motion for summary judgment regarding the defendants' liability. That probably may resolve those issues. There could be cross motions for summary judgment regarding the legal impact of the cooperative agreement, and, essentially move into contribution and third party claims and hopefully settlement rather promptly under Mr. Levy. No reason he can't take control of that part of the case as most of these cases result in someone like Mr. Levy dealing with settlement and contribution matters. Lester Levy, for the record, is the settlement master in this case.

But more importantly the lawyers can pack up their briefcases and go home. It's not about lawyers. It's really about engineers and people that are responsible for cleaning up the environment. That's where I think we would head rather promptly and efficiently if Lodi would agree. Instead of years of litigation which we're going to be facing if we persist with this current strategy, we're going to see millions of dollars expended. We've already seen millions of dollars expended, not to be recovered. What I'm saying, Mr. Donovan, I think you need a risk assessment, a risk assessment of your strategy.

I recognize this is something that I've never told a lawyer except probably in a couple rare instances and I think that, given the stakes here, the incredible cost of this litigation, that you should do so. I think that you need to ask yourself and the City of Lodi needs to ask itself: Has this litigation strategy advanced the cleanup of the environment? Has the cost of this litigation been justified in terms of cleaning up the environment? Will this litigation strategy advance the cleanup of the environment. Will it advance the cleanup of the environment in the future? Will the risk of future expenditures advance the environmental cleanup? Will additional, perhaps years, of delay help or hurt the environment? This is not about litigation strategy. It's about the water and air and environment of Lodi. It's about the health and safety of the people of Lodi. Mr. Donovan talks about "the people." He refers to "the People of the State of California."

"The People of the State of California" are no longer a party in this case. What about the people of Lodi? What about the people of Lodi? I don't know how many millions have been spent by the City, but suppose those millions instead of going to consultants and lawyers went into the ground to cleanup the environment. I think the future of the people of Lodi would be much brighter today if that had been done years ago.

Remember, Mr. Donovan, you and your lawyers and the insurance companies, they're not going to drink Lodi's water in ten years. You're not going to raise your grandchildren and your great grandchildren in Lodi. You're all going to go back to your offices and carry on with your work. But the people of Lodi are going to be stuck with whatever happens here.

With that in mind, I'm asking you, Mr. Donovan, and, Mr. Hays, to sit down with members of the City Council, the people that were elected to represent the people that are going to be affected, and have a heart to heart and a hard assessment of what has happened and what you intend to do. In that light, make an assessment of your strategy.

Again, I don't know what evidence is going to show in this case. You may well be successful. I've been through that scenario, but then again, if you are, where does that leave you and where does that leave the City of Lodi? I know, undoubtedly, you disagree with what I've said and maybe many people here disagree with what I've said. But my job is to seek out what is fair and just and I can't sit up here like the proverbial potted plant and watch things happen when things get out of control as they have in this case. I think the purpose of this litigation has been headed down the wrong direction for a long time and it's time to change that direction and return it to its proper goal of cleaning up the environment.

Now, I'm going to deny the plaintiffs' motion to vacate without prejudice.

I'm going to deny the defendants' Rule 52 motion without prejudice because I think it's premature.

I want you, Mr. Donovan, Mr. Hays, to sit down with the members of the City Council and tell them what I just told you.

You convey to them my concerns, my suggestions and my assessment.

I will continue this hearing for a report from you, Mr. Donovan and Mr. Hays, as to whether or not the City is willing to stipulate to the order I suggested. That will be at 1:30 p.m. on Wednesday, approximately two days. That you and the City Council can discuss this, and if it reaches any point of agreement, obviously, I want you to discuss this with the defendants' counsel and with the Attorney General Mr. Robinson -- and any other parties you feel are appropriate to be notified with any type of resolution of this issue.

Now, if you return on Wednesday at 1:30 and advise me there is no stipulation to an order by this Court, then I will announce my rulings on the motions in limine. There will be no argument as to those motions. You will then call your first witness.

Any procedural questions? If not THE CLERK: Court is now adjourned.

(Whereupon, proceedings concluded a 2:12 p.m.)

I, MICHELLE L. BABBITT, Official Court Reporter, certify that the foregoing pages, 1 through 21, is a correct transcript from the record of proceedings in the above-entitled matter heard on January 12, 2004.

MICHELLE L. BABBITT, CSR 6357

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA BEFORE THE HONORABLE FRANK C. DAMRELL, JR., JUDGE

PEOPLE OF THE STATE OF CALIFORNIA, and the CITY OF LODI, CALIFORNIA, Plaintiffs, vs. No. CIV. S-00-2441 FCD M&P INVESTIMENTS, et al., Defendants.

AND RELATED CROSS ACTIONS.

REPORTER'S TRANSCRIPT

Reported by: MICHELLE L. BABBITT, CSR #63522

APPEARANCES

For the Plaintiffs:
MICHAEL DONOVAN, Senior Assistant Attorney
RANDALL A. HAYS, City Attorney, City of Lodi
PETER C. LYON, City Attorney, City of Lodi
THOMAS SMITH, City Attorney, City of Lodi

For the Defendants Guild Cleaners, Jack Alquist, Estate of Alquist:
LORI J. GUALCO, Attorney at Law
STEPHEN MEYER, Attorney at Law
MICHAEL THOMAS, Attorney at Law
MICHAEL MILLS, Attorney at Law

For the Defendants M&P Investments, David Mustin:
JOSEPH A. SALAZAR, JR., Attorney at Law
GLENN A. FRIEDMAN, Attorney at Law

For the Defendants, Estate of Frank Paul:
M. TAYLOR FLORENCE, Attorney at Law

For the Defendants, Estate of Allmendinger:
ROBERT J. DRABANT, Attorney at Law

For Lodi News:
SCOTT MALIM, Attorney at Law