Judge David S. Cunningham, Case BC544786 2022-09-22 Tentative Ruling

The Court will hold an Evidence Code section 402 hearing as to Cicchetti’s first opinion that the three reservoirs at the Kast Property were filled to capacity for a full year.

The Court excludes Cicchetti’s second opinion regarding the $12.75 million valuation (unreliable).

The Court will hold a section 402 hearing as to (1) Cicchetti’s third opinion that storage at the Kast Property stabilized oil prices (by limiting market supply), and (2) his attempt to quantify the economic value of the purported price relief to Shell.

The Court will hold a section 402 hearing as to Cicchetti’s fourth opinion regarding the current value of economic and financial benefits to Shell, which is partly based on his assumption that Shell retained and reinvested an amount equal to 100% of the estimated economic and financial benefits over a period of nearly 100 years.

Shell argues that, “in attempting to ascertain the value of the oil Shell stored at the Kast Property [citation], Dr. Cicchetti assumes the three reservoirs were filled to capacity for a full year[.]” (Motion, p. 3.) Shell contends the assumption is incorrect.

The Court will hold an Evidence Code section 402 hearing. Shell asserts that Cicchetti’s contention is false because it conflicts with the testimony of Jeffrey Dagdigian, another Barclay expert, who testified that it is “wrong to assume maximum capacity storage for each of those reservoirs 365 days a year[.]” (Id. at p. 4.) Is Cicchetti wrong or is Dagdigian wrong? A section 402 hearing is the best way to flesh out the answer.

Dr. Cicchetti opines on the value of the rights Shell retained after its sale to Barclay to potentially develop crude oil reserves beneath the Kast Property. He calculates this supposed value as $12.75 million by multiplying a 1959 estimate of the number of barrels of recoverable oil at the site (170,000) and the price of crude in 2021 (“about $75 per barrel”). Ex. 33 (Cicchetti Report at 23). That calculation does not square with the actual facts. Indeed, more than 30 years ago, in 1991, Shell sold the right to develop any such oil reserves for $920,000. Dr. Cicchetti claims he learned this fact only after submitting his expert report, yet he has no plans to revise his opinion. Ex. 32 (6/13/22 Cicchetti Tr. at 167:16–20, 169:1–6).

Barclay fails to respond to the specifics of this dispute. Rather, Barclay asserts that the motion should be denied because Cicchetti has a Ph.D., has significant job experience, and relied on historical documents. (See Opposition, pp. 16-18.)

The Court is excluding Cicchetti’s second opinion. It appears undisputed that his valuation – $12.75 million – is based on the oil price in 2021 whereas Shell sold its rights 30 years ago for $920,000. Unless Barclay provides a reasonable explanation for this discrepancy at the hearing, this part of the motion should be granted because his opinion appears unreliable.

Dr. Cicchetti opines without any reliable basis that storage at the Kast Property stabilized oil prices (by limiting market supply), and he attempts to quantify the economic value of this “price relief” to Shell. Ex. 33 (Cicchetti Report at 18–22). He likewise opines about the value to Shell in its sale of the Kast Property to Barclay, using the purchase price and an estimate of cost of remediation Barclay promised to, but did not, perform. Id. at 22. But Dr. Cicchetti admits he did not factor in or apply any offsets for the costs to Shell of purchasing, maintaining, and operating, the Kast site. Ex. 32 (6/13/22 Cicchetti Tr. at 59:22–24, 62:17–18). Nor did Dr. Cicchetti factor in or apply any offsets for the estimated $285 million in costs Shell has incurred and continues to incur to remediate the site under the CAO while Barclay remains recalcitrant. Id. at 164:20–25.

Yet again, Barclay fails to respond and, instead, trumpets Cicchetti’s education and work experience. (See Opposition, pp. 16-18.)

At the 9/7/22 hearing, the Court ordered Cicchetti to appear for a section 402 hearing. The Court will apply that ruling to this opinion. Cicchetti needs to explain during the section 402 hearing whether and how his purported failure to account for offsets impacts his analysis and conclusions.

Dr. Cicchetti purports to calculate the current value of the various elements of economic and financial benefit to Shell that he identifies, and not just by adjusting those values for inflation. Dr. Cicchetti also assumes that Shell retained and reinvested in the company an amount equal to 100% of the economic and financial benefits he estimated, at various rates of return over a period of nearly 100 years (from 1924 to 2021). Ex. 33 (Cicchetti Report at 18, 22); Ex. 32 (6/13/22 Cicchetti Tr. at 127:23–128:6). Dr. Cicchetti could not identify any evidence to support the assumption that Shell retained and reinvested these sums in that manner. See Ex. 32 (6/13/22 Cicchetti Tr. at 125:7 [“Q. … What evidence did you see to support your assumption that Shell reinvested as you described? A. I don’t — That’s the assumption. That’s an assumption.”]). In addition to the assumption of 100% retention and reinvestment being wholly unsupported, Dr. Cicchetti conceded that assumption is unfounded and unlikely. Id. at 129:22–25 (“Q. You assumed a hundred percent was retained and reinvested but something less than a hundred percent was actually retained and reinvested; right? A. Yes.”); id. at 131: 16–18 (“I did assume a hundred percent retention when it’s probably closer to 60.”).

The Court will allow Cicchetti to discuss this issue during the section 402 hearing (Cicchetti needs to address whether and how the false assumption impacts his analysis and conclusions).

The Court is denying this portion of the motion. This issue is better resolved via specific objections to specific evidence and statements at trial. It is not basis, at this time, for excluding Cicchetti’s whole testimony on the history of Shell and the oil industry.

The Court disagrees with Shell. The Water Board’s order, the Court of Appeal’s opinion, and this Court’s ruling on collateral estoppel establish the fact of liability but do not resolve the issues of comparative fault. Following a determination of joint and several liability, it is typical for one tortfeasor to sue another tortfeasor for equitable indemnity to decide allocation based on comparative fault. (See, e.g., Expressions at Rancho Niguel Assn. v. Ahmanson Developments, Inc. (2001) 86 Cal.App.4^th 1135, 1139-1140 [noting that (1) “[e]quitable indemnity principles govern the allocation of loss or damages among multiple tortfeasors whose liability for the underlying injury is joint and several[,]” and (2) “[s]uch principles are designed . . . to do equity among defendants who are legally responsible for an indivisible injury by providing a basis on which liability for damage will be borne by each joint tortfeasor ‘in direct proportion to [its] respective fault’”].) If Cicchetti is found reliable at the section 402 hearing, it follows, generally speaking, that Barclay should be allowed to use his opinions and testimony to show that its percentage of comparative fault is small.[1]

[1] Consider Otay Land Co., LLC v. U.E. Limited, L.P. (2017) 15 Cal.App.5^th 806 (“Otay”). The current owners of a shooting range sued the former owners and operators, seeking remediation costs under a California “hazardous substances” statute. The trial judge held a bench trial and awarded the current owners zero. The Court of Appeal reversed in part, finding that the trial judge’s allocation was an abuse of discretion. Importantly, the decision identifies several equitable factors that may be used to determine allocation in environmental remediation cases – e.g., “1. The extent to which cleanup costs are attributable to wastes for which a party is responsible. 2. The party's level of culpability. 3. The degree to which the party benefited from disposal of the waste. 4. The party's ability to pay its share of the cost.” (Otay, supra, 15 Cal.App.5^th at 863, emphasis added.)

So far, this Court has not been asked to decide which, if any, of these factors should be utilized here. If the Court ends up finding the italicized factors applicable, it probably will be appropriate to permit some culpability evidence at trial notwithstanding the prior rulings of the Water Board, Judge Hogue, and the Court of Appeal.