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Friday, January 30, 2009

From: Guy J. Gilbert Esq.
To: Clients & Friends of the Law Office of Carroll Gilbert & Bachor LLP

Cleanup Fund Payments Frozen

It was reported in Oil Express that state officials in Sacramento say they will not pay out on any existing tank cleanup claims for perhaps as long as 30 months, citing "a downturn in the economy" and other factors.

Ronald M. Duff, manager of the California fund already said in November that processing of some 600 marketer cleanup claims would be suspended. The new announcement will be a blow to the 1,230 or so claims currently pending.

Suspension of the reimbursements does not relieve the marketers from their obligation to continue the cleanup of their properties. They must continue working on their sites, and cannot change their approved plan without local agency approval. "You are still responsible for complying with any regulatory directives/time schedule orders by the UST local oversight program," Duff said in a Jan. 28 letter to marketers. A spokesman for the California Independent Oil Marketers Assn. was quoted as saying "Some marketers are looking at a bankruptcy filing as one option if they have to pay hundreds of thousands of dollars in ongoing cleanup costs."

The State Water Resources Control Board says the fund is facing "a significant decline in revenue." Latest numbers indicate revenue this year will be down $20 million from its peak two years ago. There have been claims that the Board accepted too many claims in the past, using short-term loans from the state to pay for remediation work until it could collect enough in fee revenue to cover the cost. There are also questions as to how effective the Board has been in collecting the 1.4¢/gal tank fee, imposing penalties, bringing enforcement actions and whether everyone is paying the fee.

California’s state tank fund was set up in 1989 as a result of Federal requirements that the owner of every UST have proof of $1M financial responsibility in case of a leak. Private insurance was not available so California, like many other states, set up a state "insurance" fund to meet the federal requirements and avoid massive closure of service stations. The Fund began paying claims in 1992. Through June 2008, it has paid approximately 60,000 reimbursement requests totaling $2.4 billion at more than 9,000 sites. The state may consider increasing the 1.4¢ per gallon fee, or shifting responsibility off onto private insurers.

Marketers who are considering the purchase of their properties from the major oil companies must consider this latest development since the purchase agreements from the majors only obligate the oil companies to cleanup “baseline” or known contamination. Later discovered contamination would have to be cleaned up by the marketer. Without the fund, marketer/owners would be hit with a huge cleanup bill and a California “IOU.”

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