Lockheed Martin Corp. and Burbank residents who claimed they got cancer and other diseases from toxic pollution at one of the firm’s aircraft plants reached a $60 million settlement after the mediator warned them the case could go either way, according to documents obtained by the Daily News.

The mediator, retired appellate Justice John K. Trotter said that “it would behoove the parties to settle in order to avoid the unpredictable risks that the causation issue would present at the time of trial,” wrote David B. Casselman, a lawyer for the residents, in a Nov. 13, 1995, letter to them. “(He) made it clear to both sides that the issue was a close one.”

In the end, Lockheed reached an out-of-court settlement to pay 1,357 Burbank residents who claimed that decades-long air and groundwater contamination from the company’s now-defunct aircraft plant, known as “B-1,” damaged their health and property values.

Neither Casselman nor Trotter returned phone calls seeking comment.

Lockheed declined comment on the documents, said spokeswoman Maureen Curow.

The Casselman letter is one of 15 memos by his firm to residents, along with other key documents, recently obtained by the Daily News. Together, they sketch the best portrait so far into how the controversial and confidential accord evolved – and nearly unraveled – before being completed in July.

Since the Daily News disclosed the terms of the settlement Aug. 4, residents left out of the deal have protested and a class-action federal lawsuit has been filed on behalf of some of them claiming property damage and seeking a medical monitoring program.

In one of Casselman’s letters in May, residents involved in the settlement were told that Lockheed had agreed to extend a medical monitoring program to adults who lived within 1-1/4 miles of the Lockheed property for five years before 1990; or “anywhere within the Burbank city limits for at least five years before the end of calendar year 1975.”

Those interested in the settlement were allowed to sign up through April 14, 1995, according to a copy of a version of the settlement agreement.

The documents obtained by the Daily News do not include the final settlement agreement and, because of that, some of the elements negotiated in the early stages and discussed in Casselman’s letters may have changed in the final version.

Because of the confidentiality agreement, parties to the settlement would not discuss the details.

But the obtained documents spell out, for the first time, how the individual cash payments that ranged from $2,500 to $300,000 were arrived at.

They also tell a story of negotiating tactics and trade-offs; probing questions about the residents’ lives; industrial pollution’s possible connection to cancer; declining land values; and the environmental legacy of one of America’s largest defense contractors. And it was all done with constant reminders about the need to keep the details under wraps.

The settlement was completed nearly two years after negotiations began Oct. 7, 1994. After the deal was disclosed, Lockheed declared a “breach” of the agreement’s confidentiality provisions and decided to pay residents just half their settlement pending an investigation of the source.

However, the company also has threatened to scuttle the entire accord and, in addition to Trotter, will try to “isolate” the source of the leaks, an Aug. 16 Casselman memo states.

“Confidentiality was an essential component of Lockheed’s desire to buy peace at substantial expense,” Casselman wrote to his clients in an Aug. 16 letter. “The public impact of the disclosures . . . could cause many new claims against Lockheed. It contends it has not received the benefit of the bargain.”

Lockheed never has admitted liability, and repeatedly has said its operations never posed a health risk to the community.

At one point during the negotiations, Lockheed argued that Burbank Airport and its proposed expansion were responsible for falling real estate values – not the groundwater and soil toxics that federal and state regulators say the company is largely responsible for and must clean up under U.S. Superfund and state laws.

Burbank-Glendale-Pasadena Airport Authority officials declined to comment.

After operating the plant just east of the airport for more than 60 years, Lockheed closed the manufacturing plant in 1990 as the company relocated operations to Georgia, Palmdale and elsewhere. The 103-acre Burbank site included dozens of buildings where commercial aircraft and military planes, some of them highly classified “Skunk Works” projects, were developed and manufactured.

The negotiations began Nov. 4, 1994, when Casselman’s Tarzana-based law firm, Wasserman, Comden & Casselman, distributed its questionnaires asking residents about any personal-injury and property damages they may have suffered from B-1 plant contamination.

On Nov. 8, 1994, Casselman informed residents that his firm had begun trying to get their property taxes lowered because of the pollution. Homeowners were told to list the value of their property as “zero” if they couldn’t sell their houses “due to the effects of toxic pollution” from the plant.

On Dec, 5, 1994, Casselman reported that his firm had made “significant strides” reducing property taxes and persuading Lockheed to rethink its plan to vacuum toxics from the soil with its proposed Vapor Extraction System.

He also said his firm had “opened a dialogue” with Lockheed about avoiding a courtroom clash and settling the case using alternate dispute resolution. To coax the company toward that approach, Casselman said his firm would not file any lawsuits and urged residents to stop criticizing the company’s soil cleanup plan, which some area homeowners had feared would pump hazardous chemicals into their neighborhoods.

“We should hold off any public statements, articles or efforts which might be construed as adverse or inflammatory,” Casselman wrote.

He ended by saying the 327 people the firm had signed prompted Lockheed to acknowledge they were a “force to be reckoned with.”

On Dec. 29, 1994, Casselman told his clients to be honest and inclusive on the law firm’s questionnaire, partly since illnesses from toxic contamination can take years to materialize. Most of the toxins involved were industrial fluids that Lockheed used in cleaning, painting and metal-plating work.

“It is extremely important for you to understand that monies will be paid to people who have not suffered obvious damages in the way of physical injuries,” including such minor ailments as colds and headaches, Casselman said.

In addition, he instructed residents to disclose information about relatives, including unborn children, who lived near the B-1 plant and died.

“Miscarriages are also extremely important to this case,” Casselman said.

Likewise, he said the residents’ property didn’t need to have sustained physical damage to have lost value. Just being located near a plant that is part of a Superfund groundwater cleanup job was enough, he said.

“The negative stigma alone has caused your property values to decline,” Casselman added.

On Jan. 20, 1995, Casselman’s said that after lengthy negotiations, both sides had agreed the case would be settled out-of-court, thereby skirting lengthy litigation.

Under this approach, Casselman said Lockheed agreed “not to contest any issues of liability for damages” that residents may have suffered because of the plant’s operations.

But he warned his clients not to talk to anyone outside his office before a planned Feb. 5 status meeting at Burbank High School’s auditorium.

“Part of the incentive to Lockheed to settle your cases this way involves their desire to avoid adverse publicity,” Casselman wrote.

On Feb, 7, 1995, his clients, which now numbered nearly 450, were sent the resolution agreement, a copy of which was obtained by the Daily News. They also were told Lockheed had agreed to scale back emissions from its proposed extraction system by 75 percent.

The company, for its part, retained the right to argue the basis and amounts of each claim in the settlement process. And by participating in the agreement, residents over 18 were precluded from suing Lockheed unless they could convince the mediator that the offer wasn’t made in good faith or wasn’t fair, the agreement said.

That mediator, the accord states, was to oversee the process but would not have the power to set damage award.

On Feb. 15, 1995, Casselman’s colleague, Clifford Pearson, said there was a change in the clauses affecting children: minors wouldn’t be bound by the agreement if their parent or guardian thought the offer wasn’t fair or wanted to wait until the child turned 18 before deciding what action to take.

On March 31, 1995, Casselman’s firm sent residents the thick questionnaire developed by Lockheed.

Accompanying the questionnaire was a lengthy guide developed by the firm to help the residents cope with the most complex and controversial parts of the 208-plus questions.

“If you have developed a persistent cough since you moved into the neighborhood of the Lockheed plant, you may not know if or how Lockheed caused you to have that cough,” Casselman’s firm advised. “However, our experts might be able to prove that link.”

Based on that guide, the questionnaire asked people, among other topics, about: their exposure to plant dust; whether ailments potentially linked to Lockheed affected their marital or sexual relations sexual relations; a range of illnesses from cancers and stomach problems to skin rashes; as well as their fears about developing future maladies.

It also queried women who lost babies through miscarriages, stillbirths or later illnesses, including Sudden Infant Death Syndrome or who had children with birth defects birth defects.

The residents’ lawyers said Lockheed’s environmental practices, not the airport, might have already impacted them.

“Quite frankly, any of you trying to sell your homes may have found that it is impossible to sell if you make a full disclosure about the Lockheed plant and its pollution.”

In some cases, the lawyers also counseled their residents not to reveal information. For example, the attorneys said inquiries about the total number of pregnancies and induced abortions “unduly invasive of your right of privacy” and should go unanswered. The same advise was offered for inquiries about :recreational drugs” ingested during pregnancy.

On Nov. 13, 1995, Casselman updated the residents on issues discussed by Trotter at an Oct. 24 meeting – issues dealing with whether Lockheed’s actions endangered residents.

Casselman said toxicologists hired by the law firm testified about the link between cancer and the industrial chemicals Lockheed used at B-1.

The experts said the company released “substantial amounts” of hexavalent chromium, a known carcinogen, which they said could cause a range of cancers by changing DNA structure. Lockheed, however, denied that the emissions were significant and disputed that the chemical had been linked to any cancer outside the respiratory tract respiratory tract.

“Lockheed has insisted that even people exposed to its hazardous waste are not likely to have been injured. Lockheed has suggested that chromium and solvents (tetrachloroethylene) and (perchloroethylene) do not cause the particular kinds of diseases experienced by our clients,” Casselman said.

He added that both sides had spent hundreds of hours preparing briefs on the issue of causation because, according to Trotter, it was “the single most important issue in the mediation.”

“At the end of the presentation, Justice Trotter indicated that he would not offer a ‘ruling’ about which side `won’ the presentation on any given disease,” Casselman said. “However, he made it clear to both sides that the issue was a close one.”

At a post-settlement news conference, Trotter said Lockheed accepted the deal because it feared a negative jury verdict after it heard evidence about hexavalent chromium emissions. Residents, he explained, were given a good deal because there was “no causative relationship” established linking cancers with the toxic pollution.

On March 15, 1996, Casselman told residents that the deal was being delayed by Lockheed’s insurance carriers, which had re-emerged in the process once the alternate dispute route was adopted. He said company officials were traveling to London in March to meet with Lloyd’s of London.

On Trotter’s advise, Casselman said they would extend the deadline for the agreement to April 1. Should that not happen, he said, “we will need to file a suit.”

On April 3, 1996, Casselman announced there were further delays while Lockheed negotiated with underwriters for Lloyd’s of London. Trotter, Casselman said, also was unhappy with the delay but didn’t want to give people right-to-sue letters yet.

On May 9, 1996, Casselman announced that Lockheed had made a “substantial and acceptable” settlement offer that included a $60 million cash payment and a health monitoring program.

A May 16 hearing at the Pickwick Center in Burbank was set with Trotter to discuss the settlement with residents.

Casselman detailed the agreement in the letter:

Homeowners’ cash payment would be based on the distance from their house to Lockheed’s nearest border.

The medical program would provide testing for certain cancers and excess medical and life insurance for people within certain distances.

People who already had contracted cancers and other serious illnesses related to the contamination were excluded from the monitoring program because they were set to receive cash payments, Casselman said. Other adults, plus seriously ill minors, also were eligible to get payments for their personal injuries.

Casselman said cash amounts would be based on factors such as: age; illness, length of time exposed to air and/or water pollution; proximity to Lockheed’s property; the link between the illness and medical literature; and the company emitted. Mitigation factors, such as whether the person smoked, also would be taken into account.

On Aug. 16, 1996, Casselman told his clients that Lockheed had “declared a breach of the confidentiality provisions” of the settlement after numerous news articles. An “urgent” meeting on the subject was called by Trotter.

Casselman said his firm argued that Lockheed’s threat to rescind the entire settlement agreement was “unwarranted and would punish our clients who earnestly maintained confidentiality, as promised.”

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