1016-00006 · Dunmore Energy Holdings · Cost Recovery

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

MEMORANDUM

FROM: Cynthia Ho, Lead Associate (Real Estate Practice) Sandra Tung, Responsible Partner (Mergers & Acquisitions Practice)

TO: Engagement Team — Oliver Mackenzie (Billing Partner, M&A); Devon Archer (Working Associate, Labor & Employment)

DATE: July 10, 2025

RE: Response Strategy — Rowan Creek Fuel Distributors, Inc. Counter-Offer; Dunmore Wharton Terminal Site, 14200 FM 1301, Wharton, Wharton County, Texas 77488

CLIENT: Dunmore Energy Holdings Ltd.

MATTER NO.: 1016-00006

TCEQ VCP TRACKING NO.: VCP-2517

This memorandum constitutes attorney work product and is protected by the attorney-client privilege. It is prepared in anticipation of litigation and for the purpose of providing legal advice to the client. It is not to be disclosed to any person or entity outside the engagement team without the express written authorization of Sandra Tung, Responsible Partner.

I. Executive Summary

The purpose of this memorandum is to analyze the July 8, 2025 response letter from Rowan Creek Fuel Distributors, Inc. ("RCFD"), received via its counsel Whitfield Barr LLP (Thomas Kessler, Partner, Environmental Litigation), in response to Calderwood & Harkness's pre-suit demand letter dated May 12, 2025 on behalf of our client, Dunmore Energy Holdings Ltd. ("DEH"). This memorandum evaluates RCFD's substantive positions, assesses the strengths and weaknesses of its arguments, and recommends a response strategy for the engagement team's consideration and presentation to the client for authorization.

RCFD's response sets forth four principal positions: (a) a categorical denial of liability as an "operator" of the facility under both CERCLA and Texas state law; (b) an assertion that any cost-recovery claim is barred by the applicable statute of limitations; (c) allocation arguments challenging DEH's cost allocation methodology and contending that DEH has overstated RCFD's proportionate share of remediation costs; and (d) a counter-proposal of $750,000 as a global settlement in full and final satisfaction of all claims arising from the contamination at the Dunmore Wharton Terminal Site (the "Site").

Our pre-suit demand sought a total recovery of $4,647,000, consisting of $4,260,000 as RCFD's allocated share of total estimated remediation costs and $387,000 in investigative costs already incurred by DEH. The $750,000 counter-offer represents only approximately 16.1% of the total claimed recovery and approximately 17.6% of RCFD's allocated remediation share of $4,260,000. By any reasonable measure, the counter-offer is grossly inadequate and does not reflect RCFD's proportionate responsibility for the contamination at the Site.

Based on our analysis, we recommend that DEH reject the $750,000 counter-offer and pursue a combined strategy of counter-proposing at $3,500,000 (with authority to settle at a floor of $3,000,000, subject to client confirmation), continuing negotiations tied to VCP milestones, and holding litigation in reserve. Three strategic options are outlined below for client consideration and authorization.

II. Background and Procedural Posture

A. The Site and Contamination

The Dunmore Wharton Terminal (the "Site") is a 48.7-acre former petroleum bulk-storage terminal located at 14200 FM 1301, Wharton, Wharton County, Texas 77488. The Site is legally described as Lots 3 and 4, H.T. & B.R.R. Survey, Abstract No. 241, Wharton County, Texas, as recorded in the deed at Volume 1892, Page 417, Official Public Records, Wharton County, Texas. The Site is identified by Wharton County Appraisal District as Tax Parcel ID: WC-0241-0034.

The Site historically consisted of two distinct operational areas. The northern tank farm comprised twelve aboveground storage tanks ("ASTs") with a combined capacity of approximately 420,000 barrels, operated exclusively by Dunmore Terminal Services, Inc. ("DTS"). The southern tank farm comprised an additional twelve ASTs, designated Tanks S-1 through S-12, with a combined capacity of approximately 315,000 barrels. The southern tank farm was operated by RCFD from 1991 through 2010 under a Joint Operating Agreement ("JOA") with DTS. In addition to the two tank farms, the Site included a decommissioned truck loading rack and disconnected pipeline interconnects. All terminal operations ceased in 2015, and no active petroleum storage or distribution operations have occurred at the Site since that time.

Environmental investigations conducted by Pinehill Environmental Consulting LLC ("Pinehill") between January 2024 and April 2025 identified the following contaminants of concern ("COCs") at the Site: benzene, toluene, ethylbenzene, and xylenes ("BTEX"); total petroleum hydrocarbons ("TPH"); methyl tert-butyl ether ("MTBE"); and dissolved-phase lead. The key contamination data established through Pinehill's investigation are summarized as follows:

• Soil contamination — Southern tank farm: TPH concentrations up to 14,200 mg/kg were detected in the vicinity of Tank S-7, located within the southern tank farm operated by RCFD. Benzene in soil was detected at concentrations up to 42 mg/kg, substantially exceeding the TCEQ Tier 1 Protective Concentration Level ("PCL") for residential land use (1.8 mg/kg) and commercial/industrial land use (5.3 mg/kg).

• Soil contamination — Northern tank farm: TPH concentrations up to 8,750 mg/kg were detected in the vicinity of Tank N-3, located within the northern tank farm operated by DTS. While significant, these concentrations are materially lower than those observed in the southern tank farm, reflecting a lower volume and severity of releases from DTS-operated facilities.

• Groundwater contamination: A dissolved-phase benzene plume extends approximately 2,400 feet downgradient (south-southwest) from the Site. The maximum benzene concentration detected in groundwater was 3.8 mg/L, which is approximately 760 times the EPA Maximum Contaminant Level ("MCL") of 0.005 mg/L. MTBE was detected in groundwater at concentrations up to 1.2 mg/L, and dissolved lead was detected at concentrations up to 0.087 mg/L, well in excess of the MCL of 0.015 mg/L.

• Affected aquifer: The contamination has impacted the Chicot Aquifer (shallow zone), which is encountered at approximately 22 feet below ground surface ("bgs") at the Site.

• Nearest receptor: The nearest downgradient receptor is a residential water well located at 16405 FM 1301 (the "Ingram Property"), approximately 3,100 feet south-southwest of the plume's leading edge. Pinehill collected groundwater samples from the Ingram well in February 2025 and reported no COC detections above applicable MCLs. However, given the direction and rate of plume migration, ongoing monitoring of this receptor is warranted and is anticipated to be a component of any approved remediation plan.

The contamination at the Site is attributable to a series of documented releases from both tank farms, as discussed in Section II.C below. Pinehill's investigation establishes that the majority of contamination — both in terms of concentration and areal extent — originates from the southern tank farm that was under RCFD's exclusive operational control.

B. Party Relationships and Operational History

An understanding of the relationships among the parties and the operational history of the Site is essential to evaluating RCFD's liability and the strength of DEH's claims.

Dunmore Terminal Services, Inc. ("DTS") was a Texas corporation that owned and operated the Dunmore Wharton Terminal from 1974 through 2015. DTS held all applicable TCEQ permits and was the registered operator of the entire facility for the duration of its operations. DTS was dissolved effective December 31, 2017. Pursuant to a Plan of Dissolution and Assignment of Liabilities dated October 15, 2017, all liabilities of DTS — including environmental liabilities associated with the Site — were assigned to Dunmore Energy Holdings Ltd. ("DEH"). DEH is a Cayman Islands exempted company (Registration No. MC-318574) and serves as the holding company for the Dunmore family of entities.

Rowan Creek Fuel Distributors, Inc. ("RCFD") is a Texas corporation (EIN 74-2951683) with its principal office located at 1150 Lavaca Street, Suite 600, Austin, Texas 78701. RCFD's current President is Malcolm Griggs. RCFD co-operated the southern tank farm under a Joint Operating Agreement with DTS from 1991 to 2010, a period of approximately 19 years. Under the JOA, RCFD was granted exclusive operational control over the southern tank farm, including Tanks S-1 through S-12, encompassing approximately 18 acres of the 48.7-acre Site. RCFD maintained its own operations personnel at the facility, controlled all loading and unloading operations at the southern tank farm, conducted tank maintenance and inspection, and was contractually responsible for spill prevention, containment, and countermeasures within its operational area. RCFD has estimated annual revenues of approximately $89 million, indicating substantial financial capacity to satisfy a judgment or a significant settlement obligation. RCFD remains an active Texas corporation with ongoing fuel distribution operations.

Calera Properties Group LLC ("Calera"), whose Managing Member is Rebecca Strand, acquired the Site at a Wharton County tax foreclosure sale in March 2019 for $612,000. Calera has incurred approximately $285,400 in post-acquisition carrying costs, including property taxes, insurance, and security. Calera is not a responsible party for the contamination at the Site and has cooperated with DEH and Pinehill in connection with site access for environmental investigation activities. Calera's interests may need to be addressed in connection with any future remediation activities, but its status as a bona fide purchaser at a tax foreclosure insulates it from CERCLA liability under the innocent landowner defense.

C. Release History

The environmental investigation record documents five discrete releases of petroleum products at the Site between 1996 and 2014. These releases are summarized below, with particular attention to which operational entity — RCFD or DTS — was responsible for the area and equipment from which each release originated.

1996 Release — Tank S-4 (RCFD-operated): Approximately 8,000 gallons of diesel fuel were released from Tank S-4 in the southern tank farm. The release was reported to TCEQ, and a partial cleanup was performed at the time. However, the cleanup was incomplete, and residual contamination from this release is evident in the current soil and groundwater data.

2001 Release — Tank S-7 (RCFD-operated): Approximately 3,200 gallons of gasoline were released from Tank S-7 in the southern tank farm. This incident was assigned TCEQ Incident No. 142876. Witness evidence discussed below suggests that RCFD failed to timely report this release, which may have exacerbated the extent of contamination.

2003 Release — Tank N-3 (DTS-operated): Approximately 1,500 gallons of gasoline were released from Tank N-3 in the northern tank farm. This incident was assigned TCEQ Incident No. 158432 and was reported and managed by DTS. This release is one of two attributable to DTS-operated facilities.

2008 Release — Tank S-11 (RCFD-operated): Approximately 5,600 gallons of diesel fuel were released from Tank S-11 in the southern tank farm. This incident was assigned TCEQ Incident No. 197503. Witness evidence indicates that RCFD resisted DTS-recommended tank inspections prior to this release, suggesting a failure to exercise reasonable care.

2014 Release — Loading Rack Area (DTS-operated): Approximately 600 gallons of diesel fuel were released from the decommissioned truck loading rack area. This incident was assigned TCEQ Incident No. 251044. This release was relatively minor in volume and occurred in a common-use area of the facility.

In total, the five documented releases involved approximately 19,300 gallons of petroleum products. Of this total, RCFD-operated facilities in the southern tank farm account for approximately 16,800 gallons, or approximately 87% of the total release volume. Three of the five documented release events — and four, if the 1996 and 2008 southern tank farm events are counted as discrete episodes from different tanks — originated from RCFD-operated equipment. The DTS-attributable releases total approximately 2,100 gallons (approximately 11% of the total), with the remaining approximately 400 gallons associated with the loading rack area, a shared facility.

This release history is a critical element of DEH's cost allocation methodology and is central to the response to RCFD's allocation arguments, as discussed further in Section III.C.

D. Pre-Suit Demand and Response Timeline

On May 12, 2025, Calderwood & Harkness LLP, acting on behalf of DEH, sent a pre-suit demand letter to RCFD, addressed to Malcolm Griggs, President, with a copy to Thomas Kessler, Partner, Environmental Litigation, at Whitfield Barr LLP, RCFD's outside counsel. The demand letter sought payment of $4,647,000, consisting of:

(a) $4,260,000, representing RCFD's allocated share of total estimated remediation costs of $9,740,000 for the Site, based on the cost allocation methodology developed by DEH and its environmental consultant, Pinehill; and

(b) $387,000, representing investigative costs already incurred by DEH through Pinehill's Phase I Environmental Site Assessment, Phase II Environmental Site Assessment, and supplemental investigation activities conducted between January 2024 and April 2025.

The demand letter asserted claims under CERCLA § 107(a), 42 U.S.C. § 9607(a), and Texas Health & Safety Code § 361.344, and set a 60-day deadline for response — i.e., July 11, 2025.

On July 8, 2025, three days before the expiration of the response deadline, DEH received RCFD's response via Whitfield Barr LLP (Thomas Kessler). The substance of RCFD's response is analyzed in detail in Section III below.

Concurrently with the pre-suit demand process, DEH filed an application with the Texas Commission on Environmental Quality ("TCEQ") for enrollment in the Voluntary Cleanup Program ("VCP") on June 25, 2025. DEH paid the required $1,000 application fee, and the application was assigned VCP Tracking No. VCP-2517. The VCP enrollment is a significant step in DEH's remediation strategy and has implications for both the legal claims against RCFD and the settlement negotiation posture, as discussed in Sections IV and V.

III. Analysis of RCFD's Response

The July 8, 2025 response letter from Whitfield Barr LLP raises four principal defenses and includes a counter-offer of $750,000. Each is analyzed in turn.

A. Denial of Liability

RCFD categorically denies that it is a "responsible party" or "covered person" under CERCLA § 107(a) or a liable party under Texas Health & Safety Code § 361.344. RCFD characterizes its role at the Site as that of a "mere lessee/licensee" rather than an "operator" of the facility, asserting that DTS retained ultimate operational control and permitting authority over the entire terminal, including the southern tank farm, throughout the 1991–2010 period of RCFD's involvement.

Our assessment: RCFD's denial of operator liability is legally and factually weak and is unlikely to withstand scrutiny in litigation.

Under CERCLA § 107(a)(2), liability attaches to any person who "at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of." The Supreme Court in United States v. Bestfoods, 524 U.S. 51 (1998), defined an "operator" as one who "directs the workings of, manages, or conducts the affairs of a facility." The inquiry focuses on whether the party exercised actual, direct control over the operations that resulted in contamination — not whether the party held formal permits or bore overall management authority for the entire site.

The 1991 JOA granted RCFD exclusive operational control over the southern tank farm, comprising Tanks S-1 through S-12 and approximately 18 acres of the Site. Under the JOA, RCFD:

• Maintained its own operations personnel on-site, separate from DTS staff;

• Controlled all loading and unloading operations within the southern tank farm;

• Conducted tank maintenance, inspection, and repair for Tanks S-1 through S-12;

• Was contractually responsible for spill prevention, containment, and countermeasures within the southern tank farm area; and

• Exercised independent authority over day-to-day operations without DTS oversight or approval for routine operational decisions.

This factual record clearly establishes RCFD's operator status under the Bestfoods standard. The fact that DTS held the overall TCEQ permits for the terminal does not negate RCFD's independent operator liability. As the Fifth Circuit has recognized, multiple parties may simultaneously qualify as "operators" of a single facility where each exercises actual control over distinct portions of the operation. See Farmland Indus., Inc. v. Colorado & Eastern R.R. Co., 944 F. Supp. 2d 1192 (D. Colo. 2013); see also Redwing Carriers, Inc. v. Saraland Apartments, 94 F.3d 1489 (11th Cir. 1996) (holding that lessee who exercised control over operations giving rise to contamination was an operator under CERCLA).

Additionally, Craig Pemberton, former DTS Senior Operations Manager (1988–2015), confirmed in a witness interview conducted by Devon Archer on July 3, 2025, that RCFD exercised independent operational control over the southern tank farm and that DTS personnel were effectively excluded from day-to-day operations in that area. Mr. Pemberton further stated that RCFD made its own decisions regarding tank maintenance schedules, product transfers, and spill response, and that DTS's role with respect to the southern tank farm was limited to collecting rent under the JOA and maintaining overall permit compliance with TCEQ.

RCFD's characterization of itself as a "mere lessee/licensee" is inconsistent with the JOA terms, the factual record, and the testimony of DTS's own former operations manager. We are confident that RCFD's denial of liability would not survive a motion for summary judgment.

B. Statute of Limitations Defense

RCFD asserts that DEH's cost-recovery claims are time-barred under both federal and state law. We address each argument in turn.

1. CERCLA § 113(g)(2). RCFD contends that any CERCLA cost-recovery claim under 42 U.S.C. § 9607(a) is barred by the limitations period set forth in 42 U.S.C. § 9613(g)(2). Under CERCLA § 113(g)(2)(B), a cost-recovery action under § 107 must be commenced within six years after initiation of on-site construction of the remedial action, or within three years after completion of a removal action.

Our assessment: RCFD's statute of limitations defense is premature and without merit on the current record.

The limitations period under CERCLA § 113(g)(2)(B) has not yet begun to run for the simple reason that no remedial action has been initiated at the Site. DEH filed its VCP application with TCEQ only on June 25, 2025. The Affected Property Assessment Report ("APAR") has a target submission date of October 31, 2025. The Voluntary Cleanup Work Plan is targeted for submission in April 2026, with active remediation estimated to commence in June 2026. No on-site construction of any remedial action has occurred, and no removal action has been completed. Accordingly, the six-year limitations period for remedial action cost recovery and the three-year limitations period for removal action cost recovery have not been triggered.

Under established Fifth Circuit precedent, the CERCLA limitations period commences when the plaintiff incurs costs subject to recovery. See RSR Corp. v. Commercial Metals Co., 496 F.3d 552, 557 (5th Cir. 2007). Since remediation costs — which constitute $4,260,000 of DEH's $4,647,000 claim — have not yet been incurred, the statute of limitations has not begun to run as to the vast majority of the claim.

As to the $387,000 in investigative costs that DEH has already incurred, these costs were incurred within the last 18 months. Pinehill's Phase I Environmental Site Assessment commenced in January 2024, the Phase II ESA was completed in June 2024, and supplemental investigation activities continued through April 2025. Even under the most restrictive interpretation of the limitations period, these costs were incurred well within any applicable statute of limitations. There is no basis in law or fact for RCFD's contention that the investigative cost claims are time-barred.

RCFD's statute of limitations argument appears to be a prophylactic defense raised to create negotiating leverage rather than a good-faith legal position. We do not view this defense as a material risk to DEH's claims.

2. Texas Limitations Periods. Under Texas Health & Safety Code § 361.344, which provides a state-law cause of action for contribution among responsible parties, the limitations period is two years from the date the plaintiff knew or should have known of the facts giving rise to the claim. RCFD may argue that DEH (as successor to DTS) knew or should have known of the contamination at the Site based on the historical TCEQ incident reports filed in connection with the 1996, 2001, 2003, 2008, and 2014 releases.

Our assessment: DEH's state-law claim is timely under the discovery rule.

While DTS was aware of the individual release incidents at the time they occurred, knowledge of discrete spill events does not equate to knowledge of the full nature, extent, and cost of contamination necessary to trigger the limitations period. The prior TCEQ incident reports documented individual releases and the limited remedial actions taken in response, but they did not establish the full extent of the commingled dissolved-phase plume, the aggregate soil contamination levels across both tank farms, or the total remediation liability for the Site.

DEH's claim accrued no earlier than April 2025, when Pinehill delivered its remediation cost estimate quantifying the recoverable damages at $9,740,000. Arguably, the claim accrued even later, as the cost estimate is subject to refinement through the TCEQ VCP process. Under the most conservative analysis, the claim could be deemed to have accrued in January 2024, when formal investigation commenced and DEH began incurring recoverable investigative costs. Under either accrual date, the two-year limitations period has not expired.

The discovery rule, which is well-established in Texas environmental litigation, applies to defer accrual until the plaintiff discovers, or through the exercise of reasonable diligence should have discovered, the nature of the injury. See Computer Assocs. Int'l, Inc. v. Altai, Inc., 918 S.W.2d 453, 456 (Tex. 1996); see also PPG Indus., Inc. v. JMB/Houston Ctrs. Partners Ltd. P'ship, 146 S.W.3d 79, 92 (Tex. 2004). DEH did not fully comprehend the nature, extent, and cost of the contamination until Pinehill completed its Phase II ESA in June 2024 and delivered the definitive cost estimate in April 2025. Prior TCEQ incident reports were insufficient to put DEH on notice of the total magnitude of the liability.

RCFD's limitations defense under Texas law is no more persuasive than its CERCLA limitations argument. We do not consider it a material impediment to DEH's claims.

C. Allocation Arguments

RCFD's response challenges DEH's cost allocation methodology on several grounds. Specifically, RCFD argues that:

(a) DTS was the permit holder and overall facility operator for the entire period from 1974 through 2015 and should therefore bear a greater share of remediation costs;

(b) DTS's own releases from Tank N-3 (2003) and the loading rack area (2014) contributed to the commingled groundwater contamination, and the groundwater remediation costs should not be disproportionately allocated to RCFD;

(c) Groundwater treatment and monitoring costs should be allocated based on total operational years (DTS: 41 years; RCFD: 19 years) rather than on the basis of tank farm responsibility or release volumes; and

(d) DEH should bear 100% of project management costs as the VCP applicant and lead coordinator of the remediation effort.

Our assessment: RCFD's allocation arguments are unpersuasive, and DEH's allocation methodology is conservative and defensible.

DEH's pre-suit demand allocated $4,260,000 of $9,740,000 in total estimated remediation costs (approximately 43.7%) to RCFD. This allocation was developed by Pinehill based on the relative volume and severity of releases from each tank farm, the location and concentration of contamination, and the established Gore factors used by courts in CERCLA contribution and cost-recovery actions. We address each of RCFD's arguments below.

Release volume and contamination severity. Of the total documented release volume of approximately 19,300 gallons, RCFD-operated facilities account for approximately 16,800 gallons, or approximately 87%. The soil TPH concentrations in the southern tank farm (up to 14,200 mg/kg in the Tank S-7 area) substantially exceed those in the northern tank farm (up to 8,750 mg/kg in the Tank N-3 area). Pinehill's investigation confirms that the dissolved benzene plume originates primarily from the southern tank farm, with the highest groundwater benzene concentrations detected in monitoring wells immediately downgradient of the RCFD-operated area. If allocation were based solely on release volume and contamination severity, RCFD's share would be significantly higher than 43.7%.

Gore factors. Under the Gore factors — commonly applied in CERCLA allocation analyses and derived from the legislative history of the 1986 SARA amendments — the court considers: (i) the degree of involvement of the parties in the generation, transportation, treatment, storage, or disposal of hazardous substances; (ii) the degree of care exercised by the parties; (iii) the degree of cooperation by the parties with governmental authorities; and (iv) the parties' knowledge of and acquiescence in the hazardous activities. Applying these factors:

• Degree of involvement: RCFD was directly involved in the storage and handling of petroleum products in the southern tank farm for 19 years. Three (and arguably four) of five documented releases occurred from RCFD-operated equipment, accounting for approximately 87% of total release volume. RCFD's degree of involvement in the activities giving rise to contamination is high.

• Degree of care: Witness evidence from Craig Pemberton indicates that RCFD failed to timely report the 2001 release from Tank S-7 and the 2008 release from Tank S-11, and that RCFD resisted DTS-recommended tank inspections prior to the 2008 release. These facts support a finding that RCFD failed to exercise reasonable care, which weighs in favor of a greater allocation to RCFD.

• Cooperation with authorities: RCFD's failure to timely report the 2001 and 2008 releases suggests a lack of cooperation with TCEQ. DTS, by contrast, reported its own releases in a timely manner.

• Knowledge and acquiescence: RCFD was aware of the environmental risks associated with bulk petroleum storage and was contractually responsible for spill prevention within the southern tank farm. RCFD's continued operation without adequate tank inspection and maintenance — despite DTS's recommendations — constitutes acquiescence in the conditions that gave rise to the releases.

DTS as permit holder. RCFD's argument that DTS's status as the overall permit holder shifts a disproportionate share of costs to DEH is a red herring. DTS's permitting obligations were administrative in nature and did not relieve RCFD of its independent obligation to operate the southern tank farm in compliance with applicable environmental standards. Under CERCLA, liability attaches to operators based on actual operational control, not permit status. RCFD's independent operator liability is well-established, as discussed in Section III.A above.

Allocation of common-area costs. The allocation in our demand letter assigns 50% of common-area costs — including groundwater treatment, long-term monitoring, and institutional controls — to RCFD. This allocation reflects the commingled nature of the groundwater plume, which contains contributions from both tank farms. However, given that the southern tank farm is the primary source of contamination (as evidenced by higher soil concentrations, greater release volumes, and the plume's origin point), a 50/50 split of common-area costs is, if anything, favorable to RCFD. A more aggressive allocation based on contamination contribution would assign a greater share of common-area costs to RCFD.

Project management costs. RCFD's contention that DEH should bear 100% of project management costs is actually consistent with DEH's allocation methodology. The allocation in our demand letter assigns project management costs to DEH as the VCP applicant and lead coordinator of the remediation effort. DEH's recovery from RCFD of RCFD's allocated share of direct remediation costs constitutes reimbursement for RCFD's proportionate responsibility, not an allocation of project management overhead. RCFD's argument on this point is a distinction without a difference and does not materially affect the total allocation.

In summary, DEH's allocation of 43.7% of total estimated remediation costs to RCFD is conservative and well-supported by the factual record, the contamination data, and the applicable legal framework. We are confident that a court applying the Gore factors would sustain this allocation or potentially assign an even greater share to RCFD.

D. The $750,000 Counter-Offer

RCFD proposes $750,000 as a "global settlement" in full and final satisfaction of all claims asserted in DEH's pre-suit demand letter. RCFD characterizes this offer as reflecting a "good-faith recognition of RCFD's limited involvement" in historical operations at the Site and a desire to "resolve this matter efficiently and amicably."

The $750,000 counter-offer represents:

• Approximately 16.1% of DEH's total claimed recovery of $4,647,000;

• Approximately 17.6% of RCFD's allocated remediation share of $4,260,000; and

• Approximately 7.7% of total estimated remediation costs of $9,740,000.

Our assessment: The counter-offer is grossly inadequate and should be rejected. It does not reflect RCFD's proportional responsibility for the contamination at the Site, the strength of DEH's claims, or the magnitude of contamination attributable to RCFD-operated facilities. At $750,000, RCFD would be paying less than 8 cents on the dollar for the total remediation cost that its operations necessitated.

The counter-offer appears to be an opening negotiating position designed to test DEH's resolve and willingness to litigate. RCFD and its counsel at Whitfield Barr are likely aware that the offer is not commensurate with RCFD's proportional responsibility, but they are seeking to establish a low anchor for future negotiations. The appropriate response is a firm rejection accompanied by a credible counter-demand that communicates DEH's commitment to pursuing full recovery.

IV. Strategic Options

Based on our analysis of RCFD's response and the strength of DEH's claims, we present three strategic options for client consideration. These options are not mutually exclusive and may be combined as circumstances warrant.

Option 1: Counter-Proposal in the Range of $3.0M–$3.5M

A negotiated resolution of DEH's claims against RCFD offers significant advantages in terms of cost avoidance, timeline certainty, and the ability to structure a settlement that addresses both monetary recovery and practical cooperation in the remediation effort.

Rationale. Litigation of a fully contested CERCLA cost-recovery action through trial in the United States District Court for the Southern District of Texas is estimated to cost between $500,000 and $750,000 in legal fees and expenses, inclusive of expert witness fees, extensive document discovery, depositions, and trial preparation. A litigated resolution would also take an estimated two to four years to reach judgment, during which time DEH would be incurring ongoing remediation costs at the Site without the benefit of RCFD contribution. A settlement in the range of $3.0 million to $3.5 million would represent 70% to 82% of RCFD's allocated share of $4,260,000 and would constitute a substantial recovery for DEH while avoiding the costs and risks of protracted litigation.

Proposed structure. A settlement agreement in this range could be structured to include:

• A lump sum payment, or alternatively, structured installments over a 12- to 18-month period with appropriate security and interest provisions;

• A mutual release of all CERCLA and state-law claims arising from the contamination at the Site;

• A contribution protection agreement under CERCLA § 113(f)(2), protecting both DEH and RCFD from claims for contribution by other potentially responsible parties;

• RCFD's agreement to cooperate in the VCP process, including sharing historical operational records (maintenance logs, tank inspection reports, product inventory reconciliation records), providing access to former RCFD employees for informational interviews, and refraining from filing any objection or competing claim with TCEQ; and

• Appropriate indemnification provisions and representations regarding RCFD's authority to enter into the settlement.

Risk. RCFD may reject a counter-proposal in the $3.0M–$3.5M range and further entrench in its denial of liability, or it may counter in the $1.0M–$1.5M range, which would still be well below an acceptable settlement level. There is also a risk that extended negotiations without a credible litigation threat will diminish DEH's leverage.

Recommended initial counter. We recommend that DEH present an initial counter-demand of $3,500,000, with authority to negotiate downward to a floor of $3,000,000. The $3,000,000 floor should be confirmed with Gavin Rourke, Chairman and CEO of DEH, prior to commencement of counter-offer discussions.

Option 2: Initiate CERCLA § 107 Litigation in the Southern District of Texas

If negotiations fail to produce an acceptable resolution, DEH should be prepared to file suit to enforce its cost-recovery rights.

Forum. The preferred forum is the United States District Court for the Southern District of Texas, Houston Division, which has federal question jurisdiction over CERCLA claims under 28 U.S.C. § 1331. Alternatively, DEH could file a state-court action in Wharton County, Texas, under Texas Health & Safety Code § 361.344 and common-law contribution theories. However, the federal forum is preferred for several reasons: the Southern District of Texas has a well-developed body of CERCLA jurisprudence; federal courts apply a more predictable allocation framework; and CERCLA's contribution protection mechanisms are better established in federal practice. Filing in the Southern District also provides access to the multi-district litigation procedures and case management tools available in the federal system.

Estimated litigation timeline. A fully contested CERCLA action in the Southern District is likely to take two to four years from filing to trial. However, there is potential for earlier resolution through dispositive motion practice. Given the strength of the factual record establishing RCFD's operator status — including the JOA, TCEQ incident reports, Pinehill's ESA reports, and Craig Pemberton's witness testimony — DEH may be well positioned to obtain summary judgment on the issue of RCFD's liability as an "operator" under CERCLA § 107(a)(2), leaving only allocation and damages for trial. A liability determination on summary judgment would significantly enhance DEH's settlement leverage and could prompt RCFD to negotiate a resolution on more favorable terms.

Estimated litigation costs. Total estimated litigation costs for a fully contested action through trial are $500,000 to $750,000. This estimate includes attorney fees at current blended rates, expert witness fees (environmental expert, allocation expert, and potentially a hydrogeology expert), discovery costs (document production, depositions, third-party subpoenas), and trial preparation and presentation costs. If the matter is resolved on summary judgment or settles during discovery, costs would be materially lower.

Strengths of DEH's litigation position:

• Strong factual record establishing RCFD's operator status, including the JOA terms granting exclusive operational control and Craig Pemberton's corroborating testimony;

• Comprehensive documentary evidence, including the JOA, five TCEQ incident reports, Pinehill's Phase I and Phase II ESA reports, and the remediation cost estimate;

• Credible witness testimony from Craig Pemberton, who served as DTS's Senior Operations Manager for 27 years and has personal knowledge of RCFD's operations and the circumstances of the releases;

• RCFD's financial capacity to satisfy a judgment (estimated annual revenue of approximately $89 million and no indication of financial distress);

• The severity and extent of contamination attributable to RCFD-operated facilities, which supports a significant allocation; and

• RCFD's apparent failures in reporting and maintenance, which weigh heavily in an allocation analysis.

Risks of litigation:

• Litigation costs of $500,000 to $750,000 will reduce DEH's net recovery, even assuming a favorable judgment;

• Judgment collection risk, although RCFD appears to be solvent and financially capable of satisfying a judgment in the claimed range;

• RCFD may assert counterclaims against DEH (e.g., for contribution for contamination attributable to DTS-operated facilities) or seek to implead other potentially responsible parties, complicating the litigation;

• discovery could impose burdens on DEH, particularly if RCFD seeks extensive document production related to DTS's historical operations and environmental compliance practices; and

• Litigation timelines are inherently uncertain, and delays could extend DEH's cost exposure and deferred recovery.

Notwithstanding these risks, the filing of a lawsuit would itself serve as powerful leverage in settlement negotiations. In our experience, the commencement of litigation often prompts a more realistic assessment of exposure by the defendant and its counsel, leading to meaningful settlement discussions.

Option 3: Continue Negotiation Concurrent with VCP Progress

A third option is to defer litigation and continue negotiating with RCFD while DEH advances through the TCEQ VCP process. Under this approach, DEH would leverage its ongoing remediation efforts and the TCEQ's regulatory validation of the remediation scope and cost estimates to strengthen its negotiating position over time.

Rationale. As DEH progresses through the VCP — with the APAR targeted for submission on October 31, 2025, the Voluntary Cleanup Work Plan targeted for April 2026, and active remediation estimated to commence in June 2026 — the remediation costs become more concrete and less susceptible to challenge. TCEQ's review and approval of the APAR and Work Plan will lend regulatory validation to Pinehill's cost estimates, making RCFD's allocation arguments more difficult to sustain. Additionally, DEH's demonstrated commitment to remediating the Site strengthens its position as a plaintiff seeking recovery of "necessary costs of response" under CERCLA § 107(a)(4)(B), a critical element of any cost-recovery claim.

Each VCP milestone achieved by DEH serves a dual purpose: it advances the remediation of the Site and simultaneously builds the evidentiary foundation for DEH's cost-recovery claims. A TCEQ-approved remediation plan is powerful evidence that the costs incurred are "necessary" and "consistent with the national contingency plan," as required for CERCLA recovery.

Risk. Delay carries certain risks. RCFD may argue that DEH's failure to promptly pursue litigation constitutes laches, although this defense is generally unavailable in CERCLA actions where the plaintiff is actively incurring response costs. Further delay increases the overall cost of the engagement, extends the period of uncertainty for DEH, and may allow RCFD to take steps to insulate its assets or otherwise reduce its exposure. However, as discussed in Section III.B, the statute of limitations does not presently pose a risk to DEH's claims.

Combination with other options. Option 3 is not a standalone strategy. It is most effective when combined with Option 1 (negotiate while advancing VCP milestones) or Option 2 (file suit and negotiate in parallel with VCP progress). We recommend the combination of Options 1 and 3 as the primary strategy, with Option 2 held in reserve, as discussed further in Section V below.

V. Recommended Approach

Based on our analysis of RCFD's response, the strength of DEH's claims, and the strategic considerations discussed above, we recommend the following course of action:

Primary recommendation: Pursue Option 1 (counter-proposal) concurrently with Option 3 (continued negotiation tied to VCP milestones), with Option 2 (litigation) held in reserve.

This combined approach maximizes DEH's negotiating leverage while preserving all litigation options. The specific recommended steps are as follows:

1. Reject and counter-demand (by July 18, 2025). Send a written response to Whitfield Barr LLP (Thomas Kessler) formally rejecting the $750,000 counter-offer as grossly inadequate and presenting a counter-demand of $3,500,000. The response should be firm but professional, and should convey DEH's seriousness of purpose without foreclosing further negotiation.

2. Factual and legal summary. Include with the counter-demand a detailed summary of the factual and legal basis for RCFD's operator liability, emphasizing the release volume data (87% from RCFD-operated facilities), the contamination concentration differentials between the southern and northern tank farms, the JOA terms establishing RCFD's exclusive operational control, and the witness evidence from Craig Pemberton. The purpose is to demonstrate to RCFD and its counsel that DEH's claims are well-substantiated and that RCFD's defenses are weak.

3. Negotiation window. Propose a 45-day negotiation window, through approximately September 1, 2025, for good-faith discussions aimed at resolving the matter without litigation. If RCFD is receptive, propose a face-to-face meeting of principals — including Gavin Rourke (DEH) and Malcolm Griggs (RCFD), together with counsel — to explore settlement options. In-person negotiations with the decision-makers often prove more productive than arm's-length exchanges of correspondence.

4. Litigation preparation. Simultaneously continue preparation of litigation materials so that suit can be filed promptly if negotiations fail to produce an acceptable resolution by the September 1, 2025 decision point. Cynthia Ho should begin drafting the CERCLA § 107 complaint by July 25, 2025, and Devon Archer should develop a preliminary litigation discovery plan by August 1, 2025. Having a substantially complete complaint ready to file will demonstrate DEH's commitment to pursuing its claims if a reasonable settlement is not achieved.

5. Witness development. Coordinate with Devon Archer on further witness development, including identification and outreach to additional former DTS and RCFD employees who may have personal knowledge of RCFD's operations at the southern tank farm, the circumstances of the releases, and RCFD's maintenance and reporting practices. Corroborating testimony from multiple witnesses will strengthen DEH's litigation position and may yield additional evidence supporting a greater allocation to RCFD.

6. VCP coordination. Coordinate with Pinehill (Dr. Lena Vasquez, Project Manager) to ensure APAR preparation proceeds on schedule, with a target submission date of October 31, 2025. TCEQ's acceptance and review of the APAR will validate the remediation scope and cost estimates that underpin DEH's claims. This regulatory milestone is an important element of DEH's negotiating strategy, as it will make RCFD's cost-allocation challenges more difficult to sustain.

7. Litigation hold. Confirm that the litigation hold issued on June 27, 2025 remains in effect and adequate in scope. The litigation hold should cover all DEH personnel and systems that may contain documents or electronically stored information relevant to the Site, the JOA, DTS's historical operations, the releases, and communications with RCFD. If necessary, the hold should be refreshed and expanded to cover any additional custodians or data sources identified since its initial issuance.

8. Insurance coordination. Monitor the status of DEH's claim under the Bridgemont Insurance Company Pollution Legal Liability ("PLL") policy. A formal notice of claim was sent to Paul Neumann at Bridgemont on June 30, 2025, under PLL Policy No. ENV-BIC-2024-07821. This policy provides $15 million in aggregate coverage with a $500,000 self-insured retention ("SIR"). Any recovery from RCFD may implicate Bridgemont's subrogation rights, and settlement negotiations should be coordinated with Bridgemont to avoid jeopardizing coverage. These insurance considerations are discussed further in Section VI below.

VI. Insurance Considerations

DEH maintains a Pollution Legal Liability insurance policy with Bridgemont Insurance Company, Policy No. ENV-BIC-2024-07821, effective March 1, 2024 through March 1, 2034. The policy provides an aggregate limit of $15,000,000, subject to a self-insured retention of $500,000. The policy covers third-party claims arising from pollution conditions at covered sites and, depending on policy terms, may also cover first-party cleanup costs above the SIR.

DEH's total estimated share of remediation costs, net of any RCFD recovery, is approximately $5,480,000 (i.e., $9,740,000 total estimated costs minus RCFD's allocated share of $4,260,000). This amount substantially exceeds the $500,000 SIR, indicating that Bridgemont coverage would apply to DEH's costs above the SIR threshold, subject to policy terms and conditions.

Any recovery from RCFD, whether through settlement or judgment, would reduce DEH's net expenditures on remediation. The timing and amount of any RCFD recovery may affect the timing of SIR exhaustion and the point at which Bridgemont's payment obligations are triggered. Additionally, Bridgemont may assert subrogation rights with respect to any RCFD recovery, seeking reimbursement of amounts paid under the policy from RCFD or from DEH's settlement proceeds.

It is essential that DEH coordinate any settlement negotiations with RCFD with Bridgemont to ensure that settlement terms do not jeopardize DEH's policy coverage. Under the policy terms, DEH may be required to notify Bridgemont of settlement negotiations and to obtain Bridgemont's consent to any settlement that could affect Bridgemont's subrogation rights. We recommend that Cynthia Ho follow up with Bridgemont (Paul Neumann) by August 1, 2025 to confirm receipt of the claim notice and to discuss the settlement negotiation process.

Separately, DEH's historical comprehensive general liability ("CGL") insurance coverage was provided by Piedmont Mutual Insurance Co. Piedmont entered receivership in 2012, and its policies have been assumed by the state guaranty fund to the extent of statutory coverage limits. No meaningful recovery is expected from Piedmont or the guaranty fund given the nature and magnitude of the environmental claims at issue. Accordingly, the Bridgemont PLL policy is the primary viable insurance recovery source for DEH's remediation costs.

VII. RCFD's Financial Capacity

A critical consideration in evaluating DEH's settlement and litigation strategy is RCFD's ability to pay. Based on available information, RCFD appears to have substantial financial capacity to satisfy a judgment or settlement in the range of $3.0 million to $4.6 million.

RCFD's estimated annual revenue is approximately $89 million. RCFD is an active Texas corporation with ongoing fuel distribution operations, maintaining its principal office at 1150 Lavaca Street, Suite 600, Austin, Texas 78701. There is no public evidence of financial distress, bankruptcy filing, pending insolvency, or material adverse judgments against RCFD that would impair its ability to satisfy its obligations. RCFD's fuel distribution business generates substantial recurring revenue, and the company appears to maintain a viable and profitable operation.

While public financial data on privately held corporations is limited, the available indicators — active corporate status, ongoing operations, estimated revenue, professional office in downtown Austin, and the engagement of a prominent litigation firm (Whitfield Barr LLP) — all suggest that RCFD is a financially capable defendant. There is no reason to believe that RCFD would be unable to satisfy a settlement in the proposed range or a judgment for the full amount of DEH's claimed recovery.

If negotiations stall and litigation appears likely, we recommend conducting further due diligence on RCFD's financial position. In the context of litigation, DEH could seek early financial discovery, including requests for production of RCFD's financial statements, tax returns, and balance sheets, to confirm RCFD's ability to satisfy any judgment rendered.

VIII. Budget and Fee Implications

We provide the following summary of current and projected engagement economics for the engagement team's consideration and discussion with the client.

Current engagement terms. The engagement is billed at blended hourly rates as follows:

• Partner: $895 per hour

• Senior Associate: $625 per hour

• Associate: $475 per hour

• Paralegal: $275 per hour

A retainer of $150,000 was received on June 25, 2025.

Legal fees incurred to date. Through approximately July 10, 2025, total legal fees incurred are approximately $87,500, based on Q3 2025 status report projections. This amount reflects work performed to date, including the initial site review, environmental consultant coordination, pre-suit demand preparation and correspondence, review and analysis of RCFD's response, witness interview preparation and attendance, VCP application preparation, and preparation of this strategy memorandum.

Projected fees — negotiation scenario (Options 1 and 3). If DEH pursues the recommended negotiation strategy (Options 1 and 3, without litigation), estimated remaining fees through year-end 2025 are $175,000 to $225,000. This estimate assumes preparation and delivery of the counter-demand, ongoing correspondence and negotiation with Whitfield Barr LLP, VCP coordination (including APAR review and submission), witness development, and Bridgemont insurance coordination.

Projected fees — litigation scenario (Option 2). If litigation is commenced (Option 2), estimated total additional litigation costs through trial or resolution are $500,000 to $750,000, exclusive of ongoing VCP regulatory work. This estimate includes complaint preparation and filing, discovery (document production, interrogatories, requests for admission, and depositions), expert engagement and report preparation, dispositive motion practice, pre-trial preparation, and trial. If the matter is resolved through settlement during discovery or on summary judgment, actual costs would be lower.

Total estimated legal fees. Combining all phases of the engagement — VCP regulatory work, RCFD negotiations, and potential litigation — total estimated legal fees through VCP Certificate of Completion or litigation resolution are $1,100,000 to $1,600,000. The lower end of this range assumes successful negotiation of a settlement without litigation; the upper end assumes fully contested litigation through trial.

Recovery of attorneys' fees. Any RCFD settlement should, to the extent possible, contemplate recovery of attorneys' fees and litigation costs. However, it is important to note that attorneys' fees are generally not recoverable as "necessary costs of response" under CERCLA § 107. See Key Tronic Corp. v. United States, 511 U.S. 809 (1994). Notwithstanding this limitation, certain litigation-related costs — including environmental consultant oversight fees, expert fees directly related to response activities, and costs incurred in identifying responsible parties — may be recoverable as necessary costs of response. We will structure any settlement demand to maximize the recovery of permissible costs.

IX. Action Items and Timeline

The following table summarizes the key action items, responsible team members, and target dates for the recommended strategy.

Each team member should review these action items and confirm their ability to meet the stated target dates. If any conflicts or capacity constraints are anticipated, please notify Sandra Tung immediately so that workload can be reallocated as necessary.

X. Conclusion

The $750,000 counter-offer from RCFD is grossly inadequate and should be rejected without equivocation. At approximately 16.1% of DEH's total claimed recovery and approximately 7.7% of total estimated remediation costs, the offer bears no reasonable relationship to RCFD's proportional responsibility for the contamination at the Dunmore Wharton Terminal Site.

DEH has a strong cost-recovery claim against RCFD. That claim is supported by a robust documentary and factual record, including the Joint Operating Agreement establishing RCFD's exclusive operational control of the southern tank farm, five TCEQ incident reports documenting releases from RCFD-operated equipment, comprehensive Phase I and Phase II Environmental Site Assessment reports quantifying the contamination attributable to RCFD's operations, and corroborating witness testimony from a former DTS Senior Operations Manager. DEH's cost allocation methodology is conservative and defensible, and if anything understates RCFD's proportionate share of remediation costs.

RCFD's defenses — denial of operator liability, statute of limitations, and allocation challenges — are weak on the merits and are unlikely to withstand rigorous legal scrutiny. RCFD's denial of operator status is flatly contradicted by the JOA terms, the factual record, and witness testimony. Its statute of limitations defense is premature and legally unsupported, as no remedial action has been initiated and DEH's investigative costs were incurred well within any applicable limitations period. Its allocation arguments fail to account for the overwhelming concentration of releases from RCFD-operated facilities and the higher contamination levels in the southern tank farm.

We recommend the following course of action:

• Reject the $750,000 counter-offer and present a counter-demand of $3,500,000, with authority to negotiate to a floor of $3,000,000 (subject to Gavin Rourke's confirmation);

• Propose a 45-day negotiation window through approximately September 1, 2025, for good-faith settlement discussions;

• Continue advancing through the TCEQ VCP process to strengthen DEH's negotiating position and build the evidentiary foundation for its claims; and

• Prepare litigation materials on a contingency basis so that a CERCLA § 107 complaint can be filed promptly in the United States District Court for the Southern District of Texas if no acceptable resolution is reached by the September 1, 2025 decision point.

We seek client authorization from Gavin Rourke, Chairman and CEO of DEH, to proceed with this recommended strategy. Sandra Tung will present this memorandum to Mr. Rourke on July 11, 2025 for his review and approval.

We are available to discuss this memorandum and the recommended strategy with the engagement team at any time. Please direct any questions or comments to Sandra Tung or Cynthia Ho.

•

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Cynthia Ho Lead Associate, Real Estate Practice Calderwood & Harkness LLP 1200 McKinney Street, Suite 4100 Houston, TX 77010

By: ________

Sandra Tung Responsible Partner, Mergers & Acquisitions Practice Calderwood & Harkness LLP 1200 McKinney Street, Suite 4100 Houston, TX 77010

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is prepared in anticipation of litigation and constitutes attorney work product protected by the attorney-client privilege. Distribution is limited to the engagement team and the client. Unauthorized disclosure is prohibited. Matter No. 1016-00006

Action	Responsible	Target Date
Present strategy memorandum to Gavin Rourke (Chairman & CEO, DEH) for review and approval of recommended strategy, including confirmation of $3.0M settlement floor	Sandra Tung	July 11, 2025
Send written rejection of $750,000 counter-offer and counter-demand of $3.5M to Whitfield Barr LLP (Thomas Kessler)	Sandra Tung / Cynthia Ho	July 18, 2025
Begin drafting CERCLA § 107 complaint (contingency basis, in event negotiations fail)	Cynthia Ho	July 25, 2025
Develop preliminary litigation discovery plan (document requests, interrogatories, deposition targets)	Devon Archer	August 1, 2025
Follow up with Bridgemont Insurance Company (Paul Neumann) regarding claim acknowledgment and coordination of settlement negotiations	Cynthia Ho	August 1, 2025
Conduct negotiations with Whitfield Barr LLP / Thomas Kessler during 45-day negotiation window	Sandra Tung	July 18 – September 1, 2025
Decision point: evaluate negotiation progress and determine whether to continue negotiations, file litigation, or pursue hybrid approach	Sandra Tung / Gavin Rourke	September 1, 2025
APAR submission to TCEQ (VCP-2517) (coordinated with Pinehill / Dr. Lena Vasquez)	Pinehill / Cynthia Ho	October 31, 2025

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
FROM: Cynthia Ho, Lead Associate (Real Estate Practice) Sandra Tung, Responsible Partner (Mergers & Acquisitions Practice)
TO: Engagement Team — Oliver Mackenzie (Billing Partner, M&A); Devon Archer (Working Associate, Labor & Employment)
DATE: July 10, 2025
RE: Response Strategy — Rowan Creek Fuel Distributors, Inc. Counter-Offer; Dunmore Wharton Terminal Site, 14200 FM 1301, Wharton, Wharton County, Texas 77488
CLIENT: Dunmore Energy Holdings Ltd.
MATTER NO.: 1016-00006
TCEQ VCP TRACKING NO.: VCP-2517
This memorandum constitutes attorney work product and is protected by the attorney-client privilege. It is prepared in anticipation of litigation and for the purpose of providing legal advice to the client. It is not to be disclosed to any person or entity outside the engagement team without the express written authorization of Sandra Tung, Responsible Partner.
I. Executive Summary
The purpose of this memorandum is to analyze the July 8, 2025 response letter from Rowan Creek Fuel Distributors, Inc. ("RCFD"), received via its counsel Whitfield Barr LLP (Thomas Kessler, Partner, Environmental Litigation), in response to Calderwood & Harkness's pre-suit demand letter dated May 12, 2025 on behalf of our client, Dunmore Energy Holdings Ltd. ("DEH"). This memorandum evaluates RCFD's substantive positions, assesses the strengths and weaknesses of its arguments, and recommends a response strategy for the engagement team's consideration and presentation to the client for authorization.
RCFD's response sets forth four principal positions: (a) a categorical denial of liability as an "operator" of the facility under both CERCLA and Texas state law; (b) an assertion that any cost-recovery claim is barred by the applicable statute of limitations; (c) allocation arguments challenging DEH's cost allocation methodology and contending that DEH has overstated RCFD's proportionate share of remediation costs; and (d) a counter-proposal of $750,000 as a global settlement in full and final satisfaction of all claims arising from the contamination at the Dunmore Wharton Terminal Site (the "Site").
Our pre-suit demand sought a total recovery of $4,647,000, consisting of $4,260,000 as RCFD's allocated share of total estimated remediation costs and $387,000 in investigative costs already incurred by DEH. The $750,000 counter-offer represents only approximately 16.1% of the total claimed recovery and approximately 17.6% of RCFD's allocated remediation share of $4,260,000. By any reasonable measure, the counter-offer is grossly inadequate and does not reflect RCFD's proportionate responsibility for the contamination at the Site.
Based on our analysis, we recommend that DEH reject the $750,000 counter-offer and pursue a combined strategy of counter-proposing at $3,500,000 (with authority to settle at a floor of $3,000,000, subject to client confirmation), continuing negotiations tied to VCP milestones, and holding litigation in reserve. Three strategic options are outlined below for client consideration and authorization.
II. Background and Procedural Posture
A. The Site and Contamination
The Dunmore Wharton Terminal (the "Site") is a 48.7-acre former petroleum bulk-storage terminal located at 14200 FM 1301, Wharton, Wharton County, Texas 77488. The Site is legally described as Lots 3 and 4, H.T. & B.R.R. Survey, Abstract No. 241, Wharton County, Texas, as recorded in the deed at Volume 1892, Page 417, Official Public Records, Wharton County, Texas. The Site is identified by Wharton County Appraisal District as Tax Parcel ID: WC-0241-0034.
The Site historically consisted of two distinct operational areas. The northern tank farm comprised twelve aboveground storage tanks ("ASTs") with a combined capacity of approximately 420,000 barrels, operated exclusively by Dunmore Terminal Services, Inc. ("DTS"). The southern tank farm comprised an additional twelve ASTs, designated Tanks S-1 through S-12, with a combined capacity of approximately 315,000 barrels. The southern tank farm was operated by RCFD from 1991 through 2010 under a Joint Operating Agreement ("JOA") with DTS. In addition to the two tank farms, the Site included a decommissioned truck loading rack and disconnected pipeline interconnects. All terminal operations ceased in 2015, and no active petroleum storage or distribution operations have occurred at the Site since that time.
Environmental investigations conducted by Pinehill Environmental Consulting LLC ("Pinehill") between January 2024 and April 2025 identified the following contaminants of concern ("COCs") at the Site: benzene, toluene, ethylbenzene, and xylenes ("BTEX"); total petroleum hydrocarbons ("TPH"); methyl tert-butyl ether ("MTBE"); and dissolved-phase lead. The key contamination data established through Pinehill's investigation are summarized as follows:
• Soil contamination — Southern tank farm: TPH concentrations up to 14,200 mg/kg were detected in the vicinity of Tank S-7, located within the southern tank farm operated by RCFD. Benzene in soil was detected at concentrations up to 42 mg/kg, substantially exceeding the TCEQ Tier 1 Protective Concentration Level ("PCL") for residential land use (1.8 mg/kg) and commercial/industrial land use (5.3 mg/kg).
• Soil contamination — Northern tank farm: TPH concentrations up to 8,750 mg/kg were detected in the vicinity of Tank N-3, located within the northern tank farm operated by DTS. While significant, these concentrations are materially lower than those observed in the southern tank farm, reflecting a lower volume and severity of releases from DTS-operated facilities.
• Groundwater contamination: A dissolved-phase benzene plume extends approximately 2,400 feet downgradient (south-southwest) from the Site. The maximum benzene concentration detected in groundwater was 3.8 mg/L, which is approximately 760 times the EPA Maximum Contaminant Level ("MCL") of 0.005 mg/L. MTBE was detected in groundwater at concentrations up to 1.2 mg/L, and dissolved lead was detected at concentrations up to 0.087 mg/L, well in excess of the MCL of 0.015 mg/L.
• Affected aquifer: The contamination has impacted the Chicot Aquifer (shallow zone), which is encountered at approximately 22 feet below ground surface ("bgs") at the Site.
• Nearest receptor: The nearest downgradient receptor is a residential water well located at 16405 FM 1301 (the "Ingram Property"), approximately 3,100 feet south-southwest of the plume's leading edge. Pinehill collected groundwater samples from the Ingram well in February 2025 and reported no COC detections above applicable MCLs. However, given the direction and rate of plume migration, ongoing monitoring of this receptor is warranted and is anticipated to be a component of any approved remediation plan.
The contamination at the Site is attributable to a series of documented releases from both tank farms, as discussed in Section II.C below. Pinehill's investigation establishes that the majority of contamination — both in terms of concentration and areal extent — originates from the southern tank farm that was under RCFD's exclusive operational control.
B. Party Relationships and Operational History
An understanding of the relationships among the parties and the operational history of the Site is essential to evaluating RCFD's liability and the strength of DEH's claims.
Dunmore Terminal Services, Inc. ("DTS") was a Texas corporation that owned and operated the Dunmore Wharton Terminal from 1974 through 2015. DTS held all applicable TCEQ permits and was the registered operator of the entire facility for the duration of its operations. DTS was dissolved effective December 31, 2017. Pursuant to a Plan of Dissolution and Assignment of Liabilities dated October 15, 2017, all liabilities of DTS — including environmental liabilities associated with the Site — were assigned to Dunmore Energy Holdings Ltd. ("DEH"). DEH is a Cayman Islands exempted company (Registration No. MC-318574) and serves as the holding company for the Dunmore family of entities.
Rowan Creek Fuel Distributors, Inc. ("RCFD") is a Texas corporation (EIN 74-2951683) with its principal office located at 1150 Lavaca Street, Suite 600, Austin, Texas 78701. RCFD's current President is Malcolm Griggs. RCFD co-operated the southern tank farm under a Joint Operating Agreement with DTS from 1991 to 2010, a period of approximately 19 years. Under the JOA, RCFD was granted exclusive operational control over the southern tank farm, including Tanks S-1 through S-12, encompassing approximately 18 acres of the 48.7-acre Site. RCFD maintained its own operations personnel at the facility, controlled all loading and unloading operations at the southern tank farm, conducted tank maintenance and inspection, and was contractually responsible for spill prevention, containment, and countermeasures within its operational area. RCFD has estimated annual revenues of approximately $89 million, indicating substantial financial capacity to satisfy a judgment or a significant settlement obligation. RCFD remains an active Texas corporation with ongoing fuel distribution operations.
Calera Properties Group LLC ("Calera"), whose Managing Member is Rebecca Strand, acquired the Site at a Wharton County tax foreclosure sale in March 2019 for $612,000. Calera has incurred approximately $285,400 in post-acquisition carrying costs, including property taxes, insurance, and security. Calera is not a responsible party for the contamination at the Site and has cooperated with DEH and Pinehill in connection with site access for environmental investigation activities. Calera's interests may need to be addressed in connection with any future remediation activities, but its status as a bona fide purchaser at a tax foreclosure insulates it from CERCLA liability under the innocent landowner defense.
C. Release History
The environmental investigation record documents five discrete releases of petroleum products at the Site between 1996 and 2014. These releases are summarized below, with particular attention to which operational entity — RCFD or DTS — was responsible for the area and equipment from which each release originated.
1996 Release — Tank S-4 (RCFD-operated): Approximately 8,000 gallons of diesel fuel were released from Tank S-4 in the southern tank farm. The release was reported to TCEQ, and a partial cleanup was performed at the time. However, the cleanup was incomplete, and residual contamination from this release is evident in the current soil and groundwater data.
2001 Release — Tank S-7 (RCFD-operated): Approximately 3,200 gallons of gasoline were released from Tank S-7 in the southern tank farm. This incident was assigned TCEQ Incident No. 142876. Witness evidence discussed below suggests that RCFD failed to timely report this release, which may have exacerbated the extent of contamination.
2003 Release — Tank N-3 (DTS-operated): Approximately 1,500 gallons of gasoline were released from Tank N-3 in the northern tank farm. This incident was assigned TCEQ Incident No. 158432 and was reported and managed by DTS. This release is one of two attributable to DTS-operated facilities.
2008 Release — Tank S-11 (RCFD-operated): Approximately 5,600 gallons of diesel fuel were released from Tank S-11 in the southern tank farm. This incident was assigned TCEQ Incident No. 197503. Witness evidence indicates that RCFD resisted DTS-recommended tank inspections prior to this release, suggesting a failure to exercise reasonable care.
2014 Release — Loading Rack Area (DTS-operated): Approximately 600 gallons of diesel fuel were released from the decommissioned truck loading rack area. This incident was assigned TCEQ Incident No. 251044. This release was relatively minor in volume and occurred in a common-use area of the facility.
In total, the five documented releases involved approximately 19,300 gallons of petroleum products. Of this total, RCFD-operated facilities in the southern tank farm account for approximately 16,800 gallons, or approximately 87% of the total release volume. Three of the five documented release events — and four, if the 1996 and 2008 southern tank farm events are counted as discrete episodes from different tanks — originated from RCFD-operated equipment. The DTS-attributable releases total approximately 2,100 gallons (approximately 11% of the total), with the remaining approximately 400 gallons associated with the loading rack area, a shared facility.
This release history is a critical element of DEH's cost allocation methodology and is central to the response to RCFD's allocation arguments, as discussed further in Section III.C.
D. Pre-Suit Demand and Response Timeline
On May 12, 2025, Calderwood & Harkness LLP, acting on behalf of DEH, sent a pre-suit demand letter to RCFD, addressed to Malcolm Griggs, President, with a copy to Thomas Kessler, Partner, Environmental Litigation, at Whitfield Barr LLP, RCFD's outside counsel. The demand letter sought payment of $4,647,000, consisting of:
(a) $4,260,000, representing RCFD's allocated share of total estimated remediation costs of $9,740,000 for the Site, based on the cost allocation methodology developed by DEH and its environmental consultant, Pinehill; and
(b) $387,000, representing investigative costs already incurred by DEH through Pinehill's Phase I Environmental Site Assessment, Phase II Environmental Site Assessment, and supplemental investigation activities conducted between January 2024 and April 2025.
The demand letter asserted claims under CERCLA § 107(a), 42 U.S.C. § 9607(a), and Texas Health & Safety Code § 361.344, and set a 60-day deadline for response — i.e., July 11, 2025.
On July 8, 2025, three days before the expiration of the response deadline, DEH received RCFD's response via Whitfield Barr LLP (Thomas Kessler). The substance of RCFD's response is analyzed in detail in Section III below.
Concurrently with the pre-suit demand process, DEH filed an application with the Texas Commission on Environmental Quality ("TCEQ") for enrollment in the Voluntary Cleanup Program ("VCP") on June 25, 2025. DEH paid the required $1,000 application fee, and the application was assigned VCP Tracking No. VCP-2517. The VCP enrollment is a significant step in DEH's remediation strategy and has implications for both the legal claims against RCFD and the settlement negotiation posture, as discussed in Sections IV and V.
III. Analysis of RCFD's Response
The July 8, 2025 response letter from Whitfield Barr LLP raises four principal defenses and includes a counter-offer of $750,000. Each is analyzed in turn.
A. Denial of Liability
RCFD categorically denies that it is a "responsible party" or "covered person" under CERCLA § 107(a) or a liable party under Texas Health & Safety Code § 361.344. RCFD characterizes its role at the Site as that of a "mere lessee/licensee" rather than an "operator" of the facility, asserting that DTS retained ultimate operational control and permitting authority over the entire terminal, including the southern tank farm, throughout the 1991–2010 period of RCFD's involvement.
Our assessment: RCFD's denial of operator liability is legally and factually weak and is unlikely to withstand scrutiny in litigation.
Under CERCLA § 107(a)(2), liability attaches to any person who "at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of." The Supreme Court in United States v. Bestfoods, 524 U.S. 51 (1998), defined an "operator" as one who "directs the workings of, manages, or conducts the affairs of a facility." The inquiry focuses on whether the party exercised actual, direct control over the operations that resulted in contamination — not whether the party held formal permits or bore overall management authority for the entire site.
The 1991 JOA granted RCFD exclusive operational control over the southern tank farm, comprising Tanks S-1 through S-12 and approximately 18 acres of the Site. Under the JOA, RCFD:
• Maintained its own operations personnel on-site, separate from DTS staff;
• Controlled all loading and unloading operations within the southern tank farm;
• Conducted tank maintenance, inspection, and repair for Tanks S-1 through S-12;
• Was contractually responsible for spill prevention, containment, and countermeasures within the southern tank farm area; and
• Exercised independent authority over day-to-day operations without DTS oversight or approval for routine operational decisions.
This factual record clearly establishes RCFD's operator status under the Bestfoods standard. The fact that DTS held the overall TCEQ permits for the terminal does not negate RCFD's independent operator liability. As the Fifth Circuit has recognized, multiple parties may simultaneously qualify as "operators" of a single facility where each exercises actual control over distinct portions of the operation. See Farmland Indus., Inc. v. Colorado & Eastern R.R. Co., 944 F. Supp. 2d 1192 (D. Colo. 2013); see also Redwing Carriers, Inc. v. Saraland Apartments, 94 F.3d 1489 (11th Cir. 1996) (holding that lessee who exercised control over operations giving rise to contamination was an operator under CERCLA).
Additionally, Craig Pemberton, former DTS Senior Operations Manager (1988–2015), confirmed in a witness interview conducted by Devon Archer on July 3, 2025, that RCFD exercised independent operational control over the southern tank farm and that DTS personnel were effectively excluded from day-to-day operations in that area. Mr. Pemberton further stated that RCFD made its own decisions regarding tank maintenance schedules, product transfers, and spill response, and that DTS's role with respect to the southern tank farm was limited to collecting rent under the JOA and maintaining overall permit compliance with TCEQ.
RCFD's characterization of itself as a "mere lessee/licensee" is inconsistent with the JOA terms, the factual record, and the testimony of DTS's own former operations manager. We are confident that RCFD's denial of liability would not survive a motion for summary judgment.
B. Statute of Limitations Defense
RCFD asserts that DEH's cost-recovery claims are time-barred under both federal and state law. We address each argument in turn.
1. CERCLA § 113(g)(2). RCFD contends that any CERCLA cost-recovery claim under 42 U.S.C. § 9607(a) is barred by the limitations period set forth in 42 U.S.C. § 9613(g)(2). Under CERCLA § 113(g)(2)(B), a cost-recovery action under § 107 must be commenced within six years after initiation of on-site construction of the remedial action, or within three years after completion of a removal action.
Our assessment: RCFD's statute of limitations defense is premature and without merit on the current record.
The limitations period under CERCLA § 113(g)(2)(B) has not yet begun to run for the simple reason that no remedial action has been initiated at the Site. DEH filed its VCP application with TCEQ only on June 25, 2025. The Affected Property Assessment Report ("APAR") has a target submission date of October 31, 2025. The Voluntary Cleanup Work Plan is targeted for submission in April 2026, with active remediation estimated to commence in June 2026. No on-site construction of any remedial action has occurred, and no removal action has been completed. Accordingly, the six-year limitations period for remedial action cost recovery and the three-year limitations period for removal action cost recovery have not been triggered.
Under established Fifth Circuit precedent, the CERCLA limitations period commences when the plaintiff incurs costs subject to recovery. See RSR Corp. v. Commercial Metals Co., 496 F.3d 552, 557 (5th Cir. 2007). Since remediation costs — which constitute $4,260,000 of DEH's $4,647,000 claim — have not yet been incurred, the statute of limitations has not begun to run as to the vast majority of the claim.
As to the $387,000 in investigative costs that DEH has already incurred, these costs were incurred within the last 18 months. Pinehill's Phase I Environmental Site Assessment commenced in January 2024, the Phase II ESA was completed in June 2024, and supplemental investigation activities continued through April 2025. Even under the most restrictive interpretation of the limitations period, these costs were incurred well within any applicable statute of limitations. There is no basis in law or fact for RCFD's contention that the investigative cost claims are time-barred.
RCFD's statute of limitations argument appears to be a prophylactic defense raised to create negotiating leverage rather than a good-faith legal position. We do not view this defense as a material risk to DEH's claims.
2. Texas Limitations Periods. Under Texas Health & Safety Code § 361.344, which provides a state-law cause of action for contribution among responsible parties, the limitations period is two years from the date the plaintiff knew or should have known of the facts giving rise to the claim. RCFD may argue that DEH (as successor to DTS) knew or should have known of the contamination at the Site based on the historical TCEQ incident reports filed in connection with the 1996, 2001, 2003, 2008, and 2014 releases.
Our assessment: DEH's state-law claim is timely under the discovery rule.
While DTS was aware of the individual release incidents at the time they occurred, knowledge of discrete spill events does not equate to knowledge of the full nature, extent, and cost of contamination necessary to trigger the limitations period. The prior TCEQ incident reports documented individual releases and the limited remedial actions taken in response, but they did not establish the full extent of the commingled dissolved-phase plume, the aggregate soil contamination levels across both tank farms, or the total remediation liability for the Site.
DEH's claim accrued no earlier than April 2025, when Pinehill delivered its remediation cost estimate quantifying the recoverable damages at $9,740,000. Arguably, the claim accrued even later, as the cost estimate is subject to refinement through the TCEQ VCP process. Under the most conservative analysis, the claim could be deemed to have accrued in January 2024, when formal investigation commenced and DEH began incurring recoverable investigative costs. Under either accrual date, the two-year limitations period has not expired.
The discovery rule, which is well-established in Texas environmental litigation, applies to defer accrual until the plaintiff discovers, or through the exercise of reasonable diligence should have discovered, the nature of the injury. See Computer Assocs. Int'l, Inc. v. Altai, Inc., 918 S.W.2d 453, 456 (Tex. 1996); see also PPG Indus., Inc. v. JMB/Houston Ctrs. Partners Ltd. P'ship, 146 S.W.3d 79, 92 (Tex. 2004). DEH did not fully comprehend the nature, extent, and cost of the contamination until Pinehill completed its Phase II ESA in June 2024 and delivered the definitive cost estimate in April 2025. Prior TCEQ incident reports were insufficient to put DEH on notice of the total magnitude of the liability.
RCFD's limitations defense under Texas law is no more persuasive than its CERCLA limitations argument. We do not consider it a material impediment to DEH's claims.
C. Allocation Arguments
RCFD's response challenges DEH's cost allocation methodology on several grounds. Specifically, RCFD argues that:
(a) DTS was the permit holder and overall facility operator for the entire period from 1974 through 2015 and should therefore bear a greater share of remediation costs;
(b) DTS's own releases from Tank N-3 (2003) and the loading rack area (2014) contributed to the commingled groundwater contamination, and the groundwater remediation costs should not be disproportionately allocated to RCFD;
(c) Groundwater treatment and monitoring costs should be allocated based on total operational years (DTS: 41 years; RCFD: 19 years) rather than on the basis of tank farm responsibility or release volumes; and
(d) DEH should bear 100% of project management costs as the VCP applicant and lead coordinator of the remediation effort.
Our assessment: RCFD's allocation arguments are unpersuasive, and DEH's allocation methodology is conservative and defensible.
DEH's pre-suit demand allocated $4,260,000 of $9,740,000 in total estimated remediation costs (approximately 43.7%) to RCFD. This allocation was developed by Pinehill based on the relative volume and severity of releases from each tank farm, the location and concentration of contamination, and the established Gore factors used by courts in CERCLA contribution and cost-recovery actions. We address each of RCFD's arguments below.
Release volume and contamination severity. Of the total documented release volume of approximately 19,300 gallons, RCFD-operated facilities account for approximately 16,800 gallons, or approximately 87%. The soil TPH concentrations in the southern tank farm (up to 14,200 mg/kg in the Tank S-7 area) substantially exceed those in the northern tank farm (up to 8,750 mg/kg in the Tank N-3 area). Pinehill's investigation confirms that the dissolved benzene plume originates primarily from the southern tank farm, with the highest groundwater benzene concentrations detected in monitoring wells immediately downgradient of the RCFD-operated area. If allocation were based solely on release volume and contamination severity, RCFD's share would be significantly higher than 43.7%.
Gore factors. Under the Gore factors — commonly applied in CERCLA allocation analyses and derived from the legislative history of the 1986 SARA amendments — the court considers: (i) the degree of involvement of the parties in the generation, transportation, treatment, storage, or disposal of hazardous substances; (ii) the degree of care exercised by the parties; (iii) the degree of cooperation by the parties with governmental authorities; and (iv) the parties' knowledge of and acquiescence in the hazardous activities. Applying these factors:
• Degree of involvement: RCFD was directly involved in the storage and handling of petroleum products in the southern tank farm for 19 years. Three (and arguably four) of five documented releases occurred from RCFD-operated equipment, accounting for approximately 87% of total release volume. RCFD's degree of involvement in the activities giving rise to contamination is high.
• Degree of care: Witness evidence from Craig Pemberton indicates that RCFD failed to timely report the 2001 release from Tank S-7 and the 2008 release from Tank S-11, and that RCFD resisted DTS-recommended tank inspections prior to the 2008 release. These facts support a finding that RCFD failed to exercise reasonable care, which weighs in favor of a greater allocation to RCFD.
• Cooperation with authorities: RCFD's failure to timely report the 2001 and 2008 releases suggests a lack of cooperation with TCEQ. DTS, by contrast, reported its own releases in a timely manner.
• Knowledge and acquiescence: RCFD was aware of the environmental risks associated with bulk petroleum storage and was contractually responsible for spill prevention within the southern tank farm. RCFD's continued operation without adequate tank inspection and maintenance — despite DTS's recommendations — constitutes acquiescence in the conditions that gave rise to the releases.
DTS as permit holder. RCFD's argument that DTS's status as the overall permit holder shifts a disproportionate share of costs to DEH is a red herring. DTS's permitting obligations were administrative in nature and did not relieve RCFD of its independent obligation to operate the southern tank farm in compliance with applicable environmental standards. Under CERCLA, liability attaches to operators based on actual operational control, not permit status. RCFD's independent operator liability is well-established, as discussed in Section III.A above.
Allocation of common-area costs. The allocation in our demand letter assigns 50% of common-area costs — including groundwater treatment, long-term monitoring, and institutional controls — to RCFD. This allocation reflects the commingled nature of the groundwater plume, which contains contributions from both tank farms. However, given that the southern tank farm is the primary source of contamination (as evidenced by higher soil concentrations, greater release volumes, and the plume's origin point), a 50/50 split of common-area costs is, if anything, favorable to RCFD. A more aggressive allocation based on contamination contribution would assign a greater share of common-area costs to RCFD.
Project management costs. RCFD's contention that DEH should bear 100% of project management costs is actually consistent with DEH's allocation methodology. The allocation in our demand letter assigns project management costs to DEH as the VCP applicant and lead coordinator of the remediation effort. DEH's recovery from RCFD of RCFD's allocated share of direct remediation costs constitutes reimbursement for RCFD's proportionate responsibility, not an allocation of project management overhead. RCFD's argument on this point is a distinction without a difference and does not materially affect the total allocation.
In summary, DEH's allocation of 43.7% of total estimated remediation costs to RCFD is conservative and well-supported by the factual record, the contamination data, and the applicable legal framework. We are confident that a court applying the Gore factors would sustain this allocation or potentially assign an even greater share to RCFD.
D. The $750,000 Counter-Offer
RCFD proposes $750,000 as a "global settlement" in full and final satisfaction of all claims asserted in DEH's pre-suit demand letter. RCFD characterizes this offer as reflecting a "good-faith recognition of RCFD's limited involvement" in historical operations at the Site and a desire to "resolve this matter efficiently and amicably."
The $750,000 counter-offer represents:
• Approximately 16.1% of DEH's total claimed recovery of $4,647,000;
• Approximately 17.6% of RCFD's allocated remediation share of $4,260,000; and
• Approximately 7.7% of total estimated remediation costs of $9,740,000.
Our assessment: The counter-offer is grossly inadequate and should be rejected. It does not reflect RCFD's proportional responsibility for the contamination at the Site, the strength of DEH's claims, or the magnitude of contamination attributable to RCFD-operated facilities. At $750,000, RCFD would be paying less than 8 cents on the dollar for the total remediation cost that its operations necessitated.
The counter-offer appears to be an opening negotiating position designed to test DEH's resolve and willingness to litigate. RCFD and its counsel at Whitfield Barr are likely aware that the offer is not commensurate with RCFD's proportional responsibility, but they are seeking to establish a low anchor for future negotiations. The appropriate response is a firm rejection accompanied by a credible counter-demand that communicates DEH's commitment to pursuing full recovery.
IV. Strategic Options
Based on our analysis of RCFD's response and the strength of DEH's claims, we present three strategic options for client consideration. These options are not mutually exclusive and may be combined as circumstances warrant.
Option 1: Counter-Proposal in the Range of $3.0M–$3.5M
A negotiated resolution of DEH's claims against RCFD offers significant advantages in terms of cost avoidance, timeline certainty, and the ability to structure a settlement that addresses both monetary recovery and practical cooperation in the remediation effort.
Rationale. Litigation of a fully contested CERCLA cost-recovery action through trial in the United States District Court for the Southern District of Texas is estimated to cost between $500,000 and $750,000 in legal fees and expenses, inclusive of expert witness fees, extensive document discovery, depositions, and trial preparation. A litigated resolution would also take an estimated two to four years to reach judgment, during which time DEH would be incurring ongoing remediation costs at the Site without the benefit of RCFD contribution. A settlement in the range of $3.0 million to $3.5 million would represent 70% to 82% of RCFD's allocated share of $4,260,000 and would constitute a substantial recovery for DEH while avoiding the costs and risks of protracted litigation.
Proposed structure. A settlement agreement in this range could be structured to include:
• A lump sum payment, or alternatively, structured installments over a 12- to 18-month period with appropriate security and interest provisions;
• A mutual release of all CERCLA and state-law claims arising from the contamination at the Site;
• A contribution protection agreement under CERCLA § 113(f)(2), protecting both DEH and RCFD from claims for contribution by other potentially responsible parties;
• RCFD's agreement to cooperate in the VCP process, including sharing historical operational records (maintenance logs, tank inspection reports, product inventory reconciliation records), providing access to former RCFD employees for informational interviews, and refraining from filing any objection or competing claim with TCEQ; and
• Appropriate indemnification provisions and representations regarding RCFD's authority to enter into the settlement.
Risk. RCFD may reject a counter-proposal in the $3.0M–$3.5M range and further entrench in its denial of liability, or it may counter in the $1.0M–$1.5M range, which would still be well below an acceptable settlement level. There is also a risk that extended negotiations without a credible litigation threat will diminish DEH's leverage.
Recommended initial counter. We recommend that DEH present an initial counter-demand of $3,500,000, with authority to negotiate downward to a floor of $3,000,000. The $3,000,000 floor should be confirmed with Gavin Rourke, Chairman and CEO of DEH, prior to commencement of counter-offer discussions.
Option 2: Initiate CERCLA § 107 Litigation in the Southern District of Texas
If negotiations fail to produce an acceptable resolution, DEH should be prepared to file suit to enforce its cost-recovery rights.
Forum. The preferred forum is the United States District Court for the Southern District of Texas, Houston Division, which has federal question jurisdiction over CERCLA claims under 28 U.S.C. § 1331. Alternatively, DEH could file a state-court action in Wharton County, Texas, under Texas Health & Safety Code § 361.344 and common-law contribution theories. However, the federal forum is preferred for several reasons: the Southern District of Texas has a well-developed body of CERCLA jurisprudence; federal courts apply a more predictable allocation framework; and CERCLA's contribution protection mechanisms are better established in federal practice. Filing in the Southern District also provides access to the multi-district litigation procedures and case management tools available in the federal system.
Estimated litigation timeline. A fully contested CERCLA action in the Southern District is likely to take two to four years from filing to trial. However, there is potential for earlier resolution through dispositive motion practice. Given the strength of the factual record establishing RCFD's operator status — including the JOA, TCEQ incident reports, Pinehill's ESA reports, and Craig Pemberton's witness testimony — DEH may be well positioned to obtain summary judgment on the issue of RCFD's liability as an "operator" under CERCLA § 107(a)(2), leaving only allocation and damages for trial. A liability determination on summary judgment would significantly enhance DEH's settlement leverage and could prompt RCFD to negotiate a resolution on more favorable terms.
Estimated litigation costs. Total estimated litigation costs for a fully contested action through trial are $500,000 to $750,000. This estimate includes attorney fees at current blended rates, expert witness fees (environmental expert, allocation expert, and potentially a hydrogeology expert), discovery costs (document production, depositions, third-party subpoenas), and trial preparation and presentation costs. If the matter is resolved on summary judgment or settles during discovery, costs would be materially lower.
Strengths of DEH's litigation position:
• Strong factual record establishing RCFD's operator status, including the JOA terms granting exclusive operational control and Craig Pemberton's corroborating testimony;
• Comprehensive documentary evidence, including the JOA, five TCEQ incident reports, Pinehill's Phase I and Phase II ESA reports, and the remediation cost estimate;
• Credible witness testimony from Craig Pemberton, who served as DTS's Senior Operations Manager for 27 years and has personal knowledge of RCFD's operations and the circumstances of the releases;
• RCFD's financial capacity to satisfy a judgment (estimated annual revenue of approximately $89 million and no indication of financial distress);
• The severity and extent of contamination attributable to RCFD-operated facilities, which supports a significant allocation; and
• RCFD's apparent failures in reporting and maintenance, which weigh heavily in an allocation analysis.
Risks of litigation:
• Litigation costs of $500,000 to $750,000 will reduce DEH's net recovery, even assuming a favorable judgment;
• Judgment collection risk, although RCFD appears to be solvent and financially capable of satisfying a judgment in the claimed range;
• RCFD may assert counterclaims against DEH (e.g., for contribution for contamination attributable to DTS-operated facilities) or seek to implead other potentially responsible parties, complicating the litigation;
• discovery could impose burdens on DEH, particularly if RCFD seeks extensive document production related to DTS's historical operations and environmental compliance practices; and
• Litigation timelines are inherently uncertain, and delays could extend DEH's cost exposure and deferred recovery.
Notwithstanding these risks, the filing of a lawsuit would itself serve as powerful leverage in settlement negotiations. In our experience, the commencement of litigation often prompts a more realistic assessment of exposure by the defendant and its counsel, leading to meaningful settlement discussions.
Option 3: Continue Negotiation Concurrent with VCP Progress
A third option is to defer litigation and continue negotiating with RCFD while DEH advances through the TCEQ VCP process. Under this approach, DEH would leverage its ongoing remediation efforts and the TCEQ's regulatory validation of the remediation scope and cost estimates to strengthen its negotiating position over time.
Rationale. As DEH progresses through the VCP — with the APAR targeted for submission on October 31, 2025, the Voluntary Cleanup Work Plan targeted for April 2026, and active remediation estimated to commence in June 2026 — the remediation costs become more concrete and less susceptible to challenge. TCEQ's review and approval of the APAR and Work Plan will lend regulatory validation to Pinehill's cost estimates, making RCFD's allocation arguments more difficult to sustain. Additionally, DEH's demonstrated commitment to remediating the Site strengthens its position as a plaintiff seeking recovery of "necessary costs of response" under CERCLA § 107(a)(4)(B), a critical element of any cost-recovery claim.
Each VCP milestone achieved by DEH serves a dual purpose: it advances the remediation of the Site and simultaneously builds the evidentiary foundation for DEH's cost-recovery claims. A TCEQ-approved remediation plan is powerful evidence that the costs incurred are "necessary" and "consistent with the national contingency plan," as required for CERCLA recovery.
Risk. Delay carries certain risks. RCFD may argue that DEH's failure to promptly pursue litigation constitutes laches, although this defense is generally unavailable in CERCLA actions where the plaintiff is actively incurring response costs. Further delay increases the overall cost of the engagement, extends the period of uncertainty for DEH, and may allow RCFD to take steps to insulate its assets or otherwise reduce its exposure. However, as discussed in Section III.B, the statute of limitations does not presently pose a risk to DEH's claims.
Combination with other options. Option 3 is not a standalone strategy. It is most effective when combined with Option 1 (negotiate while advancing VCP milestones) or Option 2 (file suit and negotiate in parallel with VCP progress). We recommend the combination of Options 1 and 3 as the primary strategy, with Option 2 held in reserve, as discussed further in Section V below.
V. Recommended Approach
Based on our analysis of RCFD's response, the strength of DEH's claims, and the strategic considerations discussed above, we recommend the following course of action:
Primary recommendation: Pursue Option 1 (counter-proposal) concurrently with Option 3 (continued negotiation tied to VCP milestones), with Option 2 (litigation) held in reserve.
This combined approach maximizes DEH's negotiating leverage while preserving all litigation options. The specific recommended steps are as follows:
1. Reject and counter-demand (by July 18, 2025). Send a written response to Whitfield Barr LLP (Thomas Kessler) formally rejecting the $750,000 counter-offer as grossly inadequate and presenting a counter-demand of $3,500,000. The response should be firm but professional, and should convey DEH's seriousness of purpose without foreclosing further negotiation.
2. Factual and legal summary. Include with the counter-demand a detailed summary of the factual and legal basis for RCFD's operator liability, emphasizing the release volume data (87% from RCFD-operated facilities), the contamination concentration differentials between the southern and northern tank farms, the JOA terms establishing RCFD's exclusive operational control, and the witness evidence from Craig Pemberton. The purpose is to demonstrate to RCFD and its counsel that DEH's claims are well-substantiated and that RCFD's defenses are weak.
3. Negotiation window. Propose a 45-day negotiation window, through approximately September 1, 2025, for good-faith discussions aimed at resolving the matter without litigation. If RCFD is receptive, propose a face-to-face meeting of principals — including Gavin Rourke (DEH) and Malcolm Griggs (RCFD), together with counsel — to explore settlement options. In-person negotiations with the decision-makers often prove more productive than arm's-length exchanges of correspondence.
4. Litigation preparation. Simultaneously continue preparation of litigation materials so that suit can be filed promptly if negotiations fail to produce an acceptable resolution by the September 1, 2025 decision point. Cynthia Ho should begin drafting the CERCLA § 107 complaint by July 25, 2025, and Devon Archer should develop a preliminary litigation discovery plan by August 1, 2025. Having a substantially complete complaint ready to file will demonstrate DEH's commitment to pursuing its claims if a reasonable settlement is not achieved.
5. Witness development. Coordinate with Devon Archer on further witness development, including identification and outreach to additional former DTS and RCFD employees who may have personal knowledge of RCFD's operations at the southern tank farm, the circumstances of the releases, and RCFD's maintenance and reporting practices. Corroborating testimony from multiple witnesses will strengthen DEH's litigation position and may yield additional evidence supporting a greater allocation to RCFD.
6. VCP coordination. Coordinate with Pinehill (Dr. Lena Vasquez, Project Manager) to ensure APAR preparation proceeds on schedule, with a target submission date of October 31, 2025. TCEQ's acceptance and review of the APAR will validate the remediation scope and cost estimates that underpin DEH's claims. This regulatory milestone is an important element of DEH's negotiating strategy, as it will make RCFD's cost-allocation challenges more difficult to sustain.
7. Litigation hold. Confirm that the litigation hold issued on June 27, 2025 remains in effect and adequate in scope. The litigation hold should cover all DEH personnel and systems that may contain documents or electronically stored information relevant to the Site, the JOA, DTS's historical operations, the releases, and communications with RCFD. If necessary, the hold should be refreshed and expanded to cover any additional custodians or data sources identified since its initial issuance.
8. Insurance coordination. Monitor the status of DEH's claim under the Bridgemont Insurance Company Pollution Legal Liability ("PLL") policy. A formal notice of claim was sent to Paul Neumann at Bridgemont on June 30, 2025, under PLL Policy No. ENV-BIC-2024-07821. This policy provides $15 million in aggregate coverage with a $500,000 self-insured retention ("SIR"). Any recovery from RCFD may implicate Bridgemont's subrogation rights, and settlement negotiations should be coordinated with Bridgemont to avoid jeopardizing coverage. These insurance considerations are discussed further in Section VI below.
VI. Insurance Considerations
DEH maintains a Pollution Legal Liability insurance policy with Bridgemont Insurance Company, Policy No. ENV-BIC-2024-07821, effective March 1, 2024 through March 1, 2034. The policy provides an aggregate limit of $15,000,000, subject to a self-insured retention of $500,000. The policy covers third-party claims arising from pollution conditions at covered sites and, depending on policy terms, may also cover first-party cleanup costs above the SIR.
DEH's total estimated share of remediation costs, net of any RCFD recovery, is approximately $5,480,000 (i.e., $9,740,000 total estimated costs minus RCFD's allocated share of $4,260,000). This amount substantially exceeds the $500,000 SIR, indicating that Bridgemont coverage would apply to DEH's costs above the SIR threshold, subject to policy terms and conditions.
Any recovery from RCFD, whether through settlement or judgment, would reduce DEH's net expenditures on remediation. The timing and amount of any RCFD recovery may affect the timing of SIR exhaustion and the point at which Bridgemont's payment obligations are triggered. Additionally, Bridgemont may assert subrogation rights with respect to any RCFD recovery, seeking reimbursement of amounts paid under the policy from RCFD or from DEH's settlement proceeds.
It is essential that DEH coordinate any settlement negotiations with RCFD with Bridgemont to ensure that settlement terms do not jeopardize DEH's policy coverage. Under the policy terms, DEH may be required to notify Bridgemont of settlement negotiations and to obtain Bridgemont's consent to any settlement that could affect Bridgemont's subrogation rights. We recommend that Cynthia Ho follow up with Bridgemont (Paul Neumann) by August 1, 2025 to confirm receipt of the claim notice and to discuss the settlement negotiation process.
Separately, DEH's historical comprehensive general liability ("CGL") insurance coverage was provided by Piedmont Mutual Insurance Co. Piedmont entered receivership in 2012, and its policies have been assumed by the state guaranty fund to the extent of statutory coverage limits. No meaningful recovery is expected from Piedmont or the guaranty fund given the nature and magnitude of the environmental claims at issue. Accordingly, the Bridgemont PLL policy is the primary viable insurance recovery source for DEH's remediation costs.
VII. RCFD's Financial Capacity
A critical consideration in evaluating DEH's settlement and litigation strategy is RCFD's ability to pay. Based on available information, RCFD appears to have substantial financial capacity to satisfy a judgment or settlement in the range of $3.0 million to $4.6 million.
RCFD's estimated annual revenue is approximately $89 million. RCFD is an active Texas corporation with ongoing fuel distribution operations, maintaining its principal office at 1150 Lavaca Street, Suite 600, Austin, Texas 78701. There is no public evidence of financial distress, bankruptcy filing, pending insolvency, or material adverse judgments against RCFD that would impair its ability to satisfy its obligations. RCFD's fuel distribution business generates substantial recurring revenue, and the company appears to maintain a viable and profitable operation.
While public financial data on privately held corporations is limited, the available indicators — active corporate status, ongoing operations, estimated revenue, professional office in downtown Austin, and the engagement of a prominent litigation firm (Whitfield Barr LLP) — all suggest that RCFD is a financially capable defendant. There is no reason to believe that RCFD would be unable to satisfy a settlement in the proposed range or a judgment for the full amount of DEH's claimed recovery.
If negotiations stall and litigation appears likely, we recommend conducting further due diligence on RCFD's financial position. In the context of litigation, DEH could seek early financial discovery, including requests for production of RCFD's financial statements, tax returns, and balance sheets, to confirm RCFD's ability to satisfy any judgment rendered.
VIII. Budget and Fee Implications
We provide the following summary of current and projected engagement economics for the engagement team's consideration and discussion with the client.
Current engagement terms. The engagement is billed at blended hourly rates as follows:
• Partner: $895 per hour
• Senior Associate: $625 per hour
• Associate: $475 per hour
• Paralegal: $275 per hour
A retainer of $150,000 was received on June 25, 2025.
Legal fees incurred to date. Through approximately July 10, 2025, total legal fees incurred are approximately $87,500, based on Q3 2025 status report projections. This amount reflects work performed to date, including the initial site review, environmental consultant coordination, pre-suit demand preparation and correspondence, review and analysis of RCFD's response, witness interview preparation and attendance, VCP application preparation, and preparation of this strategy memorandum.
Projected fees — negotiation scenario (Options 1 and 3). If DEH pursues the recommended negotiation strategy (Options 1 and 3, without litigation), estimated remaining fees through year-end 2025 are $175,000 to $225,000. This estimate assumes preparation and delivery of the counter-demand, ongoing correspondence and negotiation with Whitfield Barr LLP, VCP coordination (including APAR review and submission), witness development, and Bridgemont insurance coordination.
Projected fees — litigation scenario (Option 2). If litigation is commenced (Option 2), estimated total additional litigation costs through trial or resolution are $500,000 to $750,000, exclusive of ongoing VCP regulatory work. This estimate includes complaint preparation and filing, discovery (document production, interrogatories, requests for admission, and depositions), expert engagement and report preparation, dispositive motion practice, pre-trial preparation, and trial. If the matter is resolved through settlement during discovery or on summary judgment, actual costs would be lower.
Total estimated legal fees. Combining all phases of the engagement — VCP regulatory work, RCFD negotiations, and potential litigation — total estimated legal fees through VCP Certificate of Completion or litigation resolution are $1,100,000 to $1,600,000. The lower end of this range assumes successful negotiation of a settlement without litigation; the upper end assumes fully contested litigation through trial.
Recovery of attorneys' fees. Any RCFD settlement should, to the extent possible, contemplate recovery of attorneys' fees and litigation costs. However, it is important to note that attorneys' fees are generally not recoverable as "necessary costs of response" under CERCLA § 107. See Key Tronic Corp. v. United States, 511 U.S. 809 (1994). Notwithstanding this limitation, certain litigation-related costs — including environmental consultant oversight fees, expert fees directly related to response activities, and costs incurred in identifying responsible parties — may be recoverable as necessary costs of response. We will structure any settlement demand to maximize the recovery of permissible costs.
IX. Action Items and Timeline
The following table summarizes the key action items, responsible team members, and target dates for the recommended strategy.
Each team member should review these action items and confirm their ability to meet the stated target dates. If any conflicts or capacity constraints are anticipated, please notify Sandra Tung immediately so that workload can be reallocated as necessary.
X. Conclusion
The $750,000 counter-offer from RCFD is grossly inadequate and should be rejected without equivocation. At approximately 16.1% of DEH's total claimed recovery and approximately 7.7% of total estimated remediation costs, the offer bears no reasonable relationship to RCFD's proportional responsibility for the contamination at the Dunmore Wharton Terminal Site.
DEH has a strong cost-recovery claim against RCFD. That claim is supported by a robust documentary and factual record, including the Joint Operating Agreement establishing RCFD's exclusive operational control of the southern tank farm, five TCEQ incident reports documenting releases from RCFD-operated equipment, comprehensive Phase I and Phase II Environmental Site Assessment reports quantifying the contamination attributable to RCFD's operations, and corroborating witness testimony from a former DTS Senior Operations Manager. DEH's cost allocation methodology is conservative and defensible, and if anything understates RCFD's proportionate share of remediation costs.
RCFD's defenses — denial of operator liability, statute of limitations, and allocation challenges — are weak on the merits and are unlikely to withstand rigorous legal scrutiny. RCFD's denial of operator status is flatly contradicted by the JOA terms, the factual record, and witness testimony. Its statute of limitations defense is premature and legally unsupported, as no remedial action has been initiated and DEH's investigative costs were incurred well within any applicable limitations period. Its allocation arguments fail to account for the overwhelming concentration of releases from RCFD-operated facilities and the higher contamination levels in the southern tank farm.
We recommend the following course of action:
• Reject the $750,000 counter-offer and present a counter-demand of $3,500,000, with authority to negotiate to a floor of $3,000,000 (subject to Gavin Rourke's confirmation);
• Propose a 45-day negotiation window through approximately September 1, 2025, for good-faith settlement discussions;
• Continue advancing through the TCEQ VCP process to strengthen DEH's negotiating position and build the evidentiary foundation for its claims; and
• Prepare litigation materials on a contingency basis so that a CERCLA § 107 complaint can be filed promptly in the United States District Court for the Southern District of Texas if no acceptable resolution is reached by the September 1, 2025 decision point.
We seek client authorization from Gavin Rourke, Chairman and CEO of DEH, to proceed with this recommended strategy. Sandra Tung will present this memorandum to Mr. Rourke on July 11, 2025 for his review and approval.
We are available to discuss this memorandum and the recommended strategy with the engagement team at any time. Please direct any questions or comments to Sandra Tung or Cynthia Ho.
•
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Cynthia Ho Lead Associate, Real Estate Practice Calderwood & Harkness LLP 1200 McKinney Street, Suite 4100 Houston, TX 77010
By: ________
Sandra Tung Responsible Partner, Mergers & Acquisitions Practice Calderwood & Harkness LLP 1200 McKinney Street, Suite 4100 Houston, TX 77010
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is prepared in anticipation of litigation and constitutes attorney work product protected by the attorney-client privilege. Distribution is limited to the engagement team and the client. Unauthorized disclosure is prohibited. Matter No. 1016-00006
Action | Responsible | Target Date
Present strategy memorandum to Gavin Rourke (Chairman & CEO, DEH) for review and approval of recommended strategy, including confirmation of $3.0M settlement floor | Sandra Tung | July 11, 2025
Send written rejection of $750,000 counter-offer and counter-demand of $3.5M to Whitfield Barr LLP (Thomas Kessler) | Sandra Tung / Cynthia Ho | July 18, 2025
Begin drafting CERCLA § 107 complaint (contingency basis, in event negotiations fail) | Cynthia Ho | July 25, 2025
Develop preliminary litigation discovery plan (document requests, interrogatories, deposition targets) | Devon Archer | August 1, 2025
Follow up with Bridgemont Insurance Company (Paul Neumann) regarding claim acknowledgment and coordination of settlement negotiations | Cynthia Ho | August 1, 2025
Conduct negotiations with Whitfield Barr LLP / Thomas Kessler during 45-day negotiation window | Sandra Tung | July 18 – September 1, 2025
Decision point: evaluate negotiation progress and determine whether to continue negotiations, file litigation, or pursue hybrid approach | Sandra Tung / Gavin Rourke | September 1, 2025
APAR submission to TCEQ (VCP-2517) (coordinated with Pinehill / Dr. Lena Vasquez) | Pinehill / Cynthia Ho | October 31, 2025

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

MEMORANDUM

MATTER NO.: 1016-00006

TCEQ VCP TRACKING NO.: VCP-2517

CALDERWOOD & HARKNESS LLP

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