Ninth Circuit Holds District Courts Must Engage In An Independent Substantive Evaluation Of CERCLA Consent Decrees And May Not Afford A State Agency The Same Level Of Deference As EPA

Posted by in CERCLA on August 8, 2014

Nancy Wilms, Esq. and Michael Einhorn, Esq.

In State of Arizona v. Raytheon Co.. et al., Case No. 12-15691, 2014 U.S. App. LEXIS 14993 (9th Cir. Aug. 1, 2014), the Ninth Circuit reaffirmed the requirement that district courts engage in meaningful substantive review of consent decrees under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) to determine if there is a rational relationship, based on sufficient evidence, between the proportion of liability attributable to each settling party and the proportion of total costs to be paid by such party under the agreement. Although the required review to be undertaken by the district court is based on its previous opinion in United States v. Montrose Chem. Corp. of Cal., 50 F.3d 741, 747 (9th Cir. 1995), in Arizona v. Raytheon, the Ninth Circuit addresses an issue not present in Montrose: the level of deference to be accorded a state agency where it, not EPA, is the proponent of a proposed consent decree under CERCLA. In these situations, the Ninth Circuit held the required Montrose review will necessarily involve additional scrutiny by the district court to reflect the reduced deference afforded the judgment of the particular state agency involved.

At issue in Arizona v. Raytheon are costs to clean up contamination from a landfill investigated by the Arizona Department of Environmental Quality (“ADEQ”) under CERCLA and its Arizona state law counterpart, the Arizona Water Quality Assurance Revolving Funds (“WQARF”). A group of PRPs (the “Settling Parties”) approached ADEQ regarding early settlements pursuant to CERCLA § 113(f)(2), which would provide the Settling Parties with releases of liability for contribution claims.   In response, ADEQ sent early settlement offers to the Settling Parties requiring them to pay damages in exchange for ADEQ’s releasing them from liability to the state and third parties, including non-settling PRPs at the site.

To obtain judicial approval of the consent decrees, as required by CERCLA § 113(f)(2), the State of Arizona (the “State”) brought an action under CERCLA and WQARF against the Settling Parties and filed a motion seeking approval of the consent decrees. Thereafter, ADEQ sent public notice of the proposed consent decrees with the Settling Parties, to which certain non-settling PRPs (“Non-Settling Parties”) provided comments objecting to the settlement. The State then filed a motion seeking approval of the consent decrees, asserting that the liability of each Settling Party was de minimis, amounting to less than 0.2% of the $75 million estimated clean up costs.

Since non-settling PRPs may bear the costs if early settlements are disproportionately low, the Ninth Circuit has previously held that non-settling PRPs have standing to intervene to oppose entry of consent decrees in CERCLA actions because the public notice and comment procedure is insufficient on its own to protect the interests of non-settling PRPs. United States v. Aerojet Gen. Corp., 606 F.3d 1142, 1152-1153 (9th Cir. 2010). Accordingly, the district court in this case permitted the Non-Settling Parties to intervene, over the objections of the State.

After intervention, the Non-Settling Parties opposed the State’s motion for entry of the consent decrees, relying on Montrose’s holding that a district court must independently determine whether consent decrees are substantively “fair, reasonable, and consistent with CERCLA’s objectives,” and arguing that the State had not proffered sufficient evidence for the district court in this case to make such a determination. The district court disagreed; it approved the consent decrees, and the Non-Settling Parties brought an appeal to the Ninth Circuit.

The Ninth Circuit vacated and remanded the district court’s approval of the consent decrees, concluding that the district court “failed to independently scrutinize the terms of the agreements” and “afforded undue deference to the ADEQ.” Arizona v. Raytheon, 2014 U.S. App. LEXIS 14993 at *11-12. The Ninth Circuit stated that it previously provided the proper legal standard for reviewing CERCLA agreements in Montrose, which “requires that the district court ‘gauge the adequacy of settlement amounts to be paid by settling [parties]’ by engaging in a comparative analysis” of each party’s estimated liability with its settlement amount relative to the estimated remedial costs. Arizona v. Raytheon, 2014 U.S. App. LEXIS 14993 at *18, quoting Montrose, at 747. The Ninth Circuit Court cited with approval a First Circuit opinion holding courts must determine that CERCLA agreements apportion liability based on rational estimates of comparative fault, taking into consideration how much harm each PRP has done. Arizona v. Raytheon, 2014 U.S. App. LEXIS 14993 at *15-16, citing United States v. Charter Int’l Oil Co., 83 F.3d 510, 521 (1st Cir. 1996).

Relying on these authorities, the Ninth Circuit stated that it is not enough for there to be sufficient information in the record for the district court to evaluate the adequacy of CERCLA settlements. Instead, the Ninth Circuit expressly held that the “district court must actually engage with that information and explain in a reasoned disposition why the evidence indicates that the consent decrees are procedurally and substantively ‘fair, reasonable, and consistent with CERCLA’s objectives.’” Arizona v. Raytheon, 2014 U.S. App. LEXIS 14993 at *17, citing Montrose, at 748. Without this, the Court explained, an appellate court cannot determine whether a district court abused its discretion in approving a CERCLA settlement.

Here, the Ninth Circuit found the district court did not engage in the analysis required by Montrose but simply deferred to the ADEQ’s representation that the settlements were fair and reasonable. Indeed, the district court provided only a footnote regarding the State’s estimate of remedial costs and each Settling Party’s share of liability, at the same time admitting that the State did not provide any evidence supporting its judgment or information for the court to independently confirm the Settling Parties’ entitlement to de minimis contributor status. Accordingly, the Ninth Circuit held that the district court failed to substantively assess the adequacy of the agreements and to provide a reasoned explanation for its decision. Arizona v. Raytheon, 2014 U.S. App. LEXIS 14993 at *18-19.

In support of its cursory substantive review, the district court stated in its order that it would not second guess ADEQ, holding it was required to defer to a state agency’s judgment unless it was arbitrary and capricious. The Ninth Circuit disagreed, stating that district courts should not give the same deference to a state agency, such as ADEQ, as that afforded federal agencies regarding the interpretation of federal laws such as CERCLA. Accordingly, the Ninth Circuit held that the district court in this case erred by deferring to the state’s judgment to the same decree as it would have a federal agency. The majority’s opinion expressly holds that while courts may give “some deference” to a state agency’s environmental expertise regarding issues within the scope of that expertise, the state agency is not entitled to deference concerning its interpretation of federal law, including CERCLA’s mandate. Arizona v. Raytheon, 2014 U.S. App. LEXIS 14993 at *24. The precise level of deference to be afforded a state was left undefined by the Ninth Circuit, but is to be assessed by the district court on a case by case basis and may vary from state to state. In the end, however, the Ninth’s Circuit’s decision did not turn on the deference issue, as the Court made it clear that even if the EPA had been a party to the proposed consent decrees at issue, its ruling would have been the same as the district court failed to adhere to the Montrose requirement to “independently scrutinize” the agreements at issue regardless of whether entered by a federal or a state agency.

The Arizona v. Raytheon decision is notable for its unequivocal affirmation of its nearly two decades old opinion in Montrose, but even more so for its enunciation that the required “independent scrutiny” of a settlement must now take into consideration the appropriate level of deference to be afforded the agency proponent of the consent decree at issue. Non-settling PRPs who oppose entry of a consent decree may rely on this opinion to challenge whether a district court engaged in the required Montrose analysis, including an independent substantive evaluation of the respective liabilities of the settling parties in light of their contribution to remedial costs, demanding even more stringent standards for evaluation in cases of state-sponsored settlements commensurate with a particular state agency’s entitlement to deference. As a result, the Arizona v Raytheon decision provides additional support to non-settling parties seeking to challenge entry of CERCLA settlement agreements sponsored by state agencies and, on the flip side, requires significantly more effort to be expended by settling parties to present evidence sufficient to convince the court, after independent evaluation, that their agreements should be judicially approved.

District Court Holds that Prior CERCLA § 107(a) Cost Recovery Action Against a Party Limits the Party to § 113(f)(1) Contribution Claim in Subsequent Action

Posted by in CERCLA, Cost Recovery, Environmental Litigation on March 12, 2014

The District Court for the Central District of California recently held in an unpublished opinion that a party cannot bring a CERCLA § 107(a) cost recovery action for response costs which relate to a common liability shared with an earlier § 107(a) action against that party.  Instead, the party can only pursue a § 113(f) contribution claim regardless of whether the specific costs for which it seeks recovery are the same as those sought from the party in the earlier cost recovery action.

In Whittaker Corp. v. United States, Case No. CV 13-1741 FMO, 2014 U.S. Dist. LEXIS 23918 (C.D. Cal. Feb. 10, 2014), plaintiff Whittaker Corporation (“Whittaker”) brought two § 107(a) cost recovery claims alleging owner and arranger liability against the defendant United States of America (the “Federal Government”) for response costs incurred to clean up contamination in the soil and groundwater at a former military munitions manufacturing site (the “Site”).  According to Whittaker’s first amended complaint (“FAC”), Whittaker voluntarily performed and incurred costs for interim remedial efforts at the Site under the oversight of the California Department of Toxic Substances Control (“DTSC”).  Whittaker alleged that it entered into a voluntary consent order (the “Consent Order”) with DTSC in 1994 related to such efforts.  In 2002, DTSC issued an Imminent and Substantial Endangerment Determination and Order and Remedial Action Order (“Endangerment Order”) for Whittaker to remediate the site, which provided, in part, that Whittaker remain subject to the Consent Order.  Whittaker alleged that neither Order was entered into subject to CERCLA or a court order.

In 2000, Whittaker itself was subject to § 107(a) cost recovery claims brought by a group of water agencies and companies in the area of the Site (collectively, the “Water Purveyors”) for reimbursement of costs expended by the Water Purveyors to respond to groundwater contamination in certain off-Site production wells (the “Water Purveyor Action”).  This action was eventually settled in 2007 (the “Water Purveyor Settlement”).  Whittaker alleged that its subsequent FAC against the Federal Government sought response costs outside the scope of the Water Purveyor Action.

The Supreme Court has interpreted CERCLA as providing complementary, but distinct, remedies under §§ 107(a) and 113(f) to parties in different procedural circumstances:

Section 113(f)(1) authorizes a contribution action to PRPs [potentially responsible parties] with common liability stemming from an action instituted under § 106 or § 107(a). And § 107(a) permits cost recovery (as distinct from contribution) by a private party that has itself incurred cleanup costs. Hence, a PRP that pays money to satisfy a settlement agreement or a court judgment may pursue § 113(f) contribution. But by reimbursing response costs paid by other parties, the PRP has not incurred its own costs of response and therefore cannot recover under § 107(a).

United States v. Atlantic Research Corp., 551 U.S. 128, 139 (U.S. 2007).

The Federal Government brought a motion to dismiss Whittaker’s FAC, arguing that Whittaker was limited to contribution actions as a PRP with common liability stemming from the § 107(a) claims in the Water Purveyor Action.  Whittaker countered that it still possessed § 107(a) claims because no § 113(f) claim was available for response costs outside the scope of the Water Purveyor Action.  According to Whittaker, the Water Purveyors’ complaint related only to the reimbursement of costs the Water Purveyors incurred addressing their contaminated off-Site wells, not on-Site remediation.  Whittaker argued that § 113(f)(1) permits a suit “only where the PRP is suing another party in contribution to force that party to share in the exact costs that were the subject of a §§ 106 or 107 settlement or judgment.”  Whittaker, at *14.  It further argued that some response costs incurred at the Site pre-date the Water Purveyors’ claims, and therefore such costs sought by Whittaker from the Federal Government could not possibly have resulted from the Water Purveyor Settlement.

The District Court disagreed with Whittaker, and held that nothing in the text of § 113(f)(1) limits recovery under a contribution action to the scope of the previous cost recovery action against the plaintiff.  Indeed, the Court held “[a] party’s procedural circumstances, not the nature of its alleged costs, will determine whether a party may pursue a contribution action under § 113(f)(1).”  Whittaker, at *21-22.  The District Court found that the allegations by the Water Purveyors in their complaint “implicated the entire cleanup of the Site,” as the Water Purveyors had alleged that Whittaker’s activities at the Site caused releases of hazardous substances on and off the Site, so that the Water Purveyors incurred response costs for which Whittaker was liable under § 107(a).  Relying on the Supreme Court’s decision in Atlantic Research that “§ 113(f)(1) permits suit before or after the establishment of common liability,” the District Court found that a § 113(f)(1) contribution action was available to Whittaker for all response costs to remediate the Site at the time that the Water Purveyor Action was filed, since the Federal Government and Whittaker shared a common liability for the claims in the Water Purveyor Action.  “Here, [Whittaker] meets the procedural circumstances of § 113(f)(1), and its remedy for the costs it seeks ‘during or following’ the [Water Purveyor Action] is a contribution claim under § 113(f)(1).”  Whittaker, at *22.  Accordingly, the District Court held that Whittaker’s § 107(a) cost recovery claims could not survive a Motion to Dismiss and dismissed its FAC, which did not seek relief under § 113(f)(1), with prejudice.

New EPA Policy Re: Bona Fide Prospective Purchaser Benefits for Tenants

Posted by in CERCLA, Due Diligence, Environmental Legislation and Regulation on May 14, 2013

In December 2012, the Environmental Protection Agency (“EPA”) adopted a new policy setting forth the conditions on which the agency will consider providing CERCLA bona fide prospective purchaser (BFPP) protection to tenants who lease formerly or currently contaminated property.  Previously, such protections were only available to purchasers of such property.  Although the EPA will continue to use its enforcement discretion on a site-specific basis to the extent appropriate based on the facts regarding each property, this new policy provides tenants with guidance on how to qualify for these potential new protections.

Section 107(r)(1) of CERCLA provides statutory liability protection for certain owners or operators of property, called bona fide prospective purchasers or “BFPPs.” CERCLA § 107(r)(1) states: “Notwithstanding subsection (a)(1) of this section, a bona fide prospective purchaser whose potential liability for a release or threatened release is based solely on the purchaser’s being considered to be an owner or operator of a facility shall not be liable as long as the bona fide prospective purchaser does not impede the performance of a response action or natural resource restoration.”  CERCLA § 101(40) defines a BFPP as “a person (or a tenant of a person) that acquires ownership of a facility after [January 11, 2002]” and that establishes each of the following by a preponderance of the evidence: (A) “all disposal of hazardous substances at the facility occurred prior to acquisition; (B) the person made all appropriate inquiries (‘AAI’) into the previous ownership and uses of the facility; (C) the person provides all legally required notices with respect to the discovery or release of any hazardous substances at the facility; (D) the person takes reasonable steps with respect to hazardous substances found at the facility by taking reasonable steps to stop any continuing release, prevent any future threatened release; and prevent or limit human, environmental or natural resource exposure to any previously released hazardous substances;  (E) the person provides cooperation, assistance, and access to persons authorized to conduct response actions or natural resource restoration;  (F) the person complies with land use restrictions and institutional controls; (G) the person complies with information requests and administrative subpoenas; and (H) the person is not potentially liable, or affiliated with any other person that is potentially liable, for response costs at the facility through any direct or indirect familial relationship or any contractual, corporate or financial relationship or the result of a reorganization of a business entity that was potentially liable.

The new EPA policy document indicates that since CERCLA § 101(40) applies to a person, or a tenant of a person, that acquires ownership of a parcel after January 11, 2002, that a tenant may derive BFPP status from an owner who satisfies the BFPP criteria.  The tenant would therefore remain a BFPP as long as the owner maintained its BFPP status.  However, when a tenant derives BFPP status through an owner and the owner fails to maintain its BFPP status, the tenant would also lose its BFPP status.  If this occurs, EPA now indicates that it may exercise its enforcement discretion to continue to treat the tenant as a BFPP under CERCLA § 107(r)(1).  This would likely happen if the tenant continues to meet the BFPP requirements set forth in CERCLA § 101(40) and § 107(r)(1), despite the owner failing to do so.

Additionally, the new EPA policy provides that to qualify for BFPP status, a tenant is not required to conduct an AAI if an appropriate AAI already was conducted by the owner.  The tenant also would not be considered to be “affiliated” with the owner by EPA, despite the lease between them.

Where a tenant leases property from an owner who was never a BFPP, the EPA will again exercise its enforcement discretion on a site-specific basis to treat the tenant as a BFPP if the tenant can independently meet CERCLA’s BFPP requirements.   Since CERCLA § 101(40) indicates that a person must have acquired ownership of a facility after January 11, 2002 to qualify for BFPP liability protection, tenants whose lease agreements are executed after January 11, 2002 will be eligible for BFPP under the EPA’s discretion.

EPA explains that it may not exercise its enforcement discretion under certain circumstances such as where “the lease is designed to allow the landlord or tenant to avoid its CERCLA liability or the tenant is potentially liable for reasons other than its status as a tenant and if the owner is not in compliance with state or federal regulatory requirements or administrative or judicial cleanup order or decrees relating to the leased property.“  Lastly, EPA will usually not engage in a determination of a tenant’s BFPP status until an enforcement situation exists, so it appears that EPA will not issue “comfort letters” to prospective tenants or tenants who would like confirmation that they are entitled to BFPP status.

Fourth Circuit Holds Zero-Share Apportionment Unavailable to Current Owner or Operator PRPs but Affirms Zero-Share Allocation; Rejects Bona Fide Prospective Purchaser Defense Due to a Failure to Exercise Appropriate Care

Posted by in CERCLA, Environmental Litigation on May 6, 2013

By Michael Einhorn and Tiffany Hedgpeth

In PCS Nitrogen Inc. v. Ashley II of Charleston, the Fourth Circuit (“Court”) affirmed the U.S. District Court for the District of South Carolina’s rulings addressing CERCLA liability at a former fertilizer manufacturing site.  In doing so, the court outlined legal standards for multiple CERCLA issues.  Significantly, the Court held that CERCLA’s structure and purpose prohibits a zero share apportionment to a current owner or operator. Yet, it affirmed a zero share allocation to a current owner and operator.  Additionally, the Court held that CERCLA’s Bona Fide Prospective Purchaser defense (“BFPP”) was unavailable where the defendant delayed in filling sumps.

Background Facts

The current owner of the site at issue in this case, Ashley II of Charleston, Inc. (“Ashley”) brought a CERCLA § 107(a) cost recovery suit against PCS Nitrogen, Inc. (“PCS”), a potential successor to a former operator of the site.  PCS counterclaimed under CERCLA § 113(f), and brought third-party contribution actions against other PRPs who, in turn, filed CERCLA §113(f) contribution claims against one another.  The district court bifurcated the case, and found in the first bench trial that, through an acquisition agreement, PCS assumed CERCLA liabilities for the site and was therefore a PRP.  In the second bench trial, the district court found that some of the other parties, including Ashley, were liable as PRPs, and allocated shares of the response costs among them.  Certain parties appealed to dispute whether and to what amount each is liable for response costs at the site.

Zero Share Apportionment and Allocation

Robin Hood Container Express (“RHCE”), one of the third-party defendants subject to a CERCLA 113(f) contribution action, argued that the Supreme Court case of Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 129 S. Ct. 1870 (2009) supported the award of a zero-share of liability to it.  In Burlington, the Supreme Court held that “[w]hen two or more persons acting independently cause[e] a distinct or single harm for which there is a reasonable basis for division according to the contribution of each, each is subject to liability only for the portion of the total harm that he has himself caused.”  Id., at 614.  RHCE was a former owner that had conducted excavation and was the current operator at the site.  RHCE argued that no disposal of hazardous substances occurred during its operation, and therefore a reasonable basis existed to apportion it a zero-share of the harm.

The Court assumed that apportionment arguments are available to a party sued for contribution under CERCLA § 113, without deciding the issue (the Court noted that some courts have limited apportionment arguments to parties subject to joint and several actions brought under CERCLA § 107).  The Court then held that as a current owner or operator, RCHE could not use individual share apportionment to apportion itself a zero-share harm.  The Court explained that such a rule would eliminate the express defenses and exemptions Congress created for innocent landowners, which all require more than a mere showing that no disposal occurred during a current owner or operator’s tenure at the site.  See, e.g., id. § 9601(20)(D), 35(A) (involuntary acquisition exemption); id. §§ 9601(35), 9607(b)(3) (defense for innocent landowners); id. §§ 9601(40), 9607(r) (bona fide prospective purchaser exemption); id. § 9607(q) (contiguous property owner exemption).

The Court then evaluated the district court’s allocation of liability to the various parties.  The Court noted that CERCLA § 113(f), which governs contribution actions among PRPs, provides that a court “may allocate response costs among liable parties using such equitable factors as the court determines are appropriate.”  42 U.S.C. 9613(f)(1).  The Court upheld the district court’s allocation, finding that the allocation “was among the reasonable conclusions supported by the evidence.” (Citations omitted).  Notably, the court confirmed a zero-share allocation to the City of Charleston, a current owner and operator of the site.  The Court did not discuss why its award of a zero-share allocation under CERCLA § 113(f) to a PRP that failed to qualify for CERCLA’s express defenses and exemptions did not run afoul of the structure and purpose of CERCLA.

Bona Fide Prospective Purchaser

The Court also upheld the district court’s holding that Ashley was a PRP due to its status as a current site owner.  Ashley argued that CERCLA’s bona fide prospective purchaser (“BFPP”) exemption (CERCLA §§ 101(40) and 107(r)) applied and protected Ashley from liability.  To qualify for the BFPP exemption, a party has the burden of demonstrating by a preponderance of the evidence that it has not impeded performance of a response action, and that it meets eight other criteria in CERCLA § 101(40)(A)-(H).

One of the eight BFPP criteria is that a party must demonstrate that it exercised “appropriate care with regard to hazardous substances” at the site. 42 U.S.C 9601(40)(D).  The court held that “appropriate care” under CERCLA’s BFPP provision is at least as stringent as “due care” under CERCLA’s innocent landowner defense (CERCLA § 107(b)(3)).  The Court borrowed from the  due care jurisprudence to inform it of what reasonable steps were necessary to demonstrate “appropriate care” and stated the inquiry is whether a party “took all precautions with respect to the particular waste that a similarly situated reasonable and prudent person would have taken in light of all relevant facts and circumstances.”  (Citations omitted).  The Court held that under the above inquiry, Ashley’s delay in filling in sumps when related aboveground structures were demolished showed that it failed to exercise appropriate care.  Thus, Ashley did not qualify for the BFFP exemption.

State Law Claims by Private PRP Are Not Preempted by CERCLA § 107 Claim, at Least Initially

Posted by in CERCLA, Cost Recovery, Environmental Litigation on April 2, 2013

On March 18, a New York federal district court held that a company seeking to recoup the response costs it incurred cleaning up contamination at a former chemical plant initially may maintain state law claims as well as a cost recovery claim under CERCLA § 107 MPM Silicones LLC v. Union Carbide Corp., N.D.N.Y., No. 1:11-cv-1542 (March 18, 2013).  However, the court also held that it may consider a renewed motion on this issue at a later, more factually developed point in the litigation.

However, the court also held that the plaintiff may not pursue contribution or indemnification claims under federal or state law, including CERCLA Section 113(f), because it voluntarily cleaned up the contamination.

Union Carbide Corp. operated a chemical manufacturing facility on a 50 acre site near Sistersville, W.V., from 1953 through the 1970s. Union Carbide used hundreds of thousands of pounds of polychlorinated biphenyls (“PCBs”) in the manufacture of various chemical products, mainly silanes and silicones. It disposed of the PCBs and other hazardous wastes at several locations on the Sistersville site, including in unlined lagoons. No other entity deposited hazardous waste at the site.

Union Carbide discovered PCB contamination at the site in the late 1970s and early 1980s, but failed to disclose it to federal regulators.   It sold the Sistersville site in 1993, and MPM Silicones LLC (“MPM”) acquired it in 2006. MPM incurred various response costs associated with Union Carbide’s release of PCBs at the site, but Union Carbide refused to reimburse MPM, which then sued Union Carbide, under both CERCLA and state law, to recover the costs it incurred and expects to incur cleaning up the site.

Union Carbide filed a 12(b)(6) motion to dismiss, arguing that MPM’s state law claims were preempted by CERCLA.

After reviewing cases from the U.S. Court of Appeals for the Second Circuit and other federal courts in New York that have addressed the preemptive effect of CERCLA on state law causes of action, the court determined that CERCLA § 107(a) does not preempt the plaintiff’s state law claims.

CERCLA § 114(b) precludes anyone who receives compensation for removal costs or damages under CERCLA from recovering compensation for the same removal costs or damages under any state or other federal law. This “double recovery bar” led the Second Circuit to hold that Section 113(f) contribution preempts state law recovery, in Bedford Affiliates v. Sills, 156 F.3d 416 (2d. Cir. 1998), and Niagara Mohawk Power Corp. v. Chevron USA Inc., 596 F.3d 112 (2d Cir. 2010).

District courts considering whether state law claims were preempted by Section 107(a) claims, on the other hand, have decided they were not. Double recovery is less of a concern when the PRP has incurred response costs voluntarily and has not incurred liability to a third party, the U.S. District Court for the Eastern District of New York held in New York v. Hickey’s Carting, 380 F. Supp. 2d 108 (E.D.N.Y. 2005) and New York v. West Side, 790 F. Supp. 2d 13 (E.D.N.Y. 2011).  Union Carbide argued that Hickey’s Carting and West Side were distinguishable because MPM was a private plaintiff, not a state.

To determine whether concurrent state law claims are preempted where a private plaintiff brings an action against another party under Section 107(a), the court first considered whether allowing the state law claims to proceed would conflict with CERCLA’s settlement scheme.

“A PRP has just as much incentive to settle its CERCLA liability with the government when faced with simultaneous Section 107(a) and state-law claims as when faced with a Section 107(a) claim alone,” the court said.  The court then considered whether the double recovery bar in Section 114(b) preempts a plaintiff’s state law claims.  The court said it would be “acting prematurely if it were to dismiss Plaintiff’s state-law claims merely because it is possible for Plaintiff to recover the same costs, and only the same costs, under those claims as it could under CERCLA. Because the circumstances under which double recovery would not result are numerous, dismissing the state-law claims at this stage would be imprudent.”

Ultimately, the court found the distinction between state and private plaintiffs irrelevant, and concluded that even when the plaintiff is a private party, CERCLA § 107(a) does not preempt state law claims.   The court left the door open for the defendant to make a “renewed attack at a later, more informed and factually developed point in the litigation” when it might be appropriate for the court to dismiss the plaintiff’s state law claims.

The court also dismissed the plaintiff’s claim for contribution under Section 113(f) because MPM has never been the subject of a Section 106 or 107(a) suit, and has not settled its CERCLA liability with the government. Although the plaintiff might be subject to such a suit in the future, the claim is too speculative now, the court said.   Likewise, MPM may not seek contribution or indemnification under state law for claims it was not obligated to pay in the first place, the court said.

Ninth Circuit Affirms Dismissal of Subrogated Claims Brought Under CERCLA Sections 107(a) and 112(c), as well as State Law Theories

Posted by in CERCLA, Cost Recovery, Emerging Issues, Environmental Litigation, Insurance & Liability on March 28, 2013

By Tiffany Hedgpeth and Michael Einhorn

On March 15, 2013, the Ninth Circuit held in Chubb Custom Ins. Co. v. Space Systems/Loral, Inc., Case No. 11-16272, 2013 U.S. App. LEXIS 5198 (9th Cir., March 15, 2013), that the insurer Chubb Custom Insurance Company (“Chubb”) could not maintain its Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and state law subrogation claims against various potentially responsible parties (“PRPs”) because (1) the insured was not a “claimant” under CERCLA § 112(c) since it had not made a written demand to the Superfund or another PRP; (2) Chubb did not itself incur “response costs” by reimbursing the insured and therefore lacked standing to bring a CERCLA § 107(a) cost recovery action; and (3) the subrogated state law claims were time barred because the period of limitations commenced running when the insured knew or should have known of contamination on its property, not on the date Chubb made its payment to the insured.

Background Facts

Chubb issued Taube-Koret Campus for Jewish Life (“Taube-Koret”) a policy for Environmental Site Liability Insurance (“Policy”) for two parcels of property.  After Taube-Koret acquired the properties, the California Regional Water Quality Control Board (“Water Board”) issued orders requiring Taube-Koret to investigate and remediate volatile organic compounds (“VOCs”) found on the properties.  Taube-Koret complied with the orders and performed the required work.  Pursuant to the Policy, Chubb paid Taube-Koret $2.4 million to make it whole for its remediation costs. The Policy contained a statement that said “If the insured has rights to recover all or part of any payment we have made under this insurance, those rights are transferred to us.”  Chubb filed suit against various defendants who formerly owned or operated the properties or adjacent properties at the time alleged releases of hazardous substances occurred.  Chubb’s action asserted claims under CERCLA Sections 107(a) and 112(c) and state law.  The district court dismissed Chubb’s initial complaint and two amended complaints, each with leave to amend.  The district court dismissed Chubb’s third amended complaint with prejudice, holding Chubb failed to allege Taube-Koret was a claimant under CERCLA § 112(c), that Chubb lacked standing under CERCLA § 107(a), and that the state law claims were time barred. Chubb appealed.

Chubb’s CERCLA § 112(c) Claim

The Ninth Circuit reasoned that Section 112(c) permits an insurer to file a subrogation action for reimbursement of costs from PRPs, so long as the insurer complies with the statutory requirements.  One such requirement is that the insured party must be a “claimant” as defined in the statute.  Section 112(c) provides that “[a]ny person, including the Fund, who pays compensation pursuant to this chapter to any claimant for damages or costs resulting from a release of hazardous substance shall be subrogated . . .”  42 USC § 9612(c)(2).  Therefore, Section 112(c) limits subrogation claims to compensation paid to any “claimant.”  A “claimant” is defined as any person who presents a claim for compensation, and a “claim” is defined as a demand in writing for a sum certain.  42 USC § 9601(4)-(5).  While CERCLA does not define or explain to whom this “claim” should be made, the Ninth Circuit stated that it has consistently held that the statute refers to a demand for reimbursement from either (i) the Superfund or (ii) a PRP.  See, e.g., Idaho v. Howmet Turbine, 814 F.2d 1376, 1380 (9th Cir. 1987).

Because Chubb did not allege that its insured, Taube-Koret, had made a demand to defendants, the Superfund, or any PRP, it could not maintain its CERCLA § 112(c) cause of action.  The Ninth Circuit rejected the argument that a claim to an insurer qualifies the insured as a claimant, stating “[t]here is no indication that section 112(c)(2) contemplates this meaning of claimant,” as Congress did not use the broader term “person” but instead used the term “claimant.”  Chubb v. Space Systems/Loral, at *22-23.

Chubb’s CERCLA § 107(a) Claim

The Ninth Circuit noted that the issue of whether CERCLA § 107(a) authorizes a subrogated cost recovery action was a matter of first impression, noting a lack of controlling or persuasive authority on the issue.  The Court engaged in a lengthy discussion that included an analysis of the text of Section 107(a), the statute as a whole, legislative history, and public policy.  The Ninth Circuit concludes that “an insurer that is only obligated to reimburse the insured for cleanup costs does not itself incur response costs,” and therefore it cannot bring a Section 107(a) cost recovery action.  In reaching this conclusion, the Court stated that Chubb could not bring a Section 107(a) action because it had no statutory liability: “Chubb lacks standing to sue under section 107(a) because it has not itself become statutorily liable for response costs under CERCLA.”  Chubb v. Space Systems/Loral, at *30.  The Ninth Circuit also held that permitting insurers to bring Section 107(a) actions would render Section 112(c) a nullity, which would violate rules of statutory interpretation, and that public policy favored disallowing subrogation claims to be brought pursuant to CERCLA § 107(a).

State Law Claims

The Ninth Circuit also affirmed the district court’s dismissal of Chubb’s subrogated state law claims (Cal. Health & Safety Code, negligence per se, and strict liability) as time-barred under California Code of Civil Procedure (“CCP”) § 338(b).  Under California law, the three-year period of limitation under CCP § 338 commences to run when a plaintiff knows, or reasonably should have known, of the wrongful conduct at issue.

Chubb challenged the district court’s dismissal by arguing that the statute of limitations did not commence until Chubb’s payment of the claim.  But the Ninth Circuit found that the cases cited by Chubb apply only to third-party subrogation actions, where an insurer asserts an equitable indemnity claim arising from a payment by an insurer to a third party on behalf of the insured.  Chubb’s claims were based on first-party losses by the insured – – Chubb reimbursed Taube-Koret directly for its costs of cleaning up contamination, and did not make a settlement payment to a third party.

Since Chubb asserted the claims of Taube-Koret in subrogation, the Ninth Circuit agreed with the district court and held that the statute of limitations period began to run when Taube-Koret knew, or should have known, of the release of hazardous substances on its properties.


The Ninth Circuit has made clear that CERCLA permits subrogation under Section 112(c) only when insurance payments are made to a “claimant” (i.e., parties who have submitted demands to the Superfund or other PRPs).  The court also made clear that Chubb lacked standing to bring a CERCLA § 107(a) claim because it was not itself a PRP.  Finally, the Court has made clear that in property contamination cases, insurers seeking subrogation under state law will be held to the same statute of limitations commencement trigger as is applicable to the insured.

Supreme Court denies petition by Solutia, Inc. to address whether a party to a consent decree may file a cost recovery action under CERCLA Section 107(a).

Posted by in CERCLA, Environmental Litigation on October 10, 2012

On October 9, 2012, the U.S. Supreme Court denied the petition of Solutia, Inc. and Pharmacia Corporation to review a March 6, 2012 ruling by the Eleventh Circuit which affirmed a grant of summary judgment and held that parties subject to a consent decree are limited to filing claims for contribution under CERCLA § 113(f), and may not file claims for cost recovery under CERCLA § 107(a).  Solutia Inc. v. McWane, Inc., 672 F.3d 1230 (11th Cir. Ala. 2012).

Plaintiffs Solutia and Pharmacia were parties to a partial consent decree (PCD) entered into with the U.S. Environmental Protection Agency (EPA) related to contamination caused by production of polychlorinated bipheyls (PCBs) at a plant near downtown Anniston, Alabama.  Plaintiffs sued several defendants as potentially responsible parties (PRPs) for the contamination, seeking to recover cleanup costs incurred by plaintiffs and contribution under CERCLA §§ 107(a) and 113(f), respectively.

These two provisions of CERCLA – §107(a) and § 113(f) – have been the focus of several Supreme Court decisions attempting to define which remedies are available under CERCLA in different situations.  In United States v. Atlantic Research Corp., 551 U.S. 128 (U.S. 2007) and Cooper Indus. v. Aviall Servs., 543 U.S. 157 (U.S. 2004), the Supreme Court held that cost recovery actions under CERCLA § 107(a) are complementary to, yet distinct from, contribution actions under CERCLA § 113(f).  Cleanup costs incurred voluntarily and directly by a party are recoverable under CERCLA § 107(a), which imposes joint and several liability on the defendants.  Atlantic Research Corp., 551 U.S. at 138-139.  By contrast, CERCLA § 113(f) permits contribution actions after a party is forced to reimburse a third party, such as where it has been sued under CERCLA §§ 106 or 107, or entered into a settlement with a Federal or State agency or private parties to resolve its liability.  Id., at 138; Aviall, 543 U.S. at 166.  Under § 113(f) contribution actions, a defendant potentially responsible party (“PRP”) is liable only for its equitable share of response costs.

But the Supreme Court in Atlantic Research expressly left open the question of whether a party that incurs direct cleanup costs pursuant to a consent decree following a CERCLA lawsuit under § 106 or § 107 may bring an action to recover those costs under § 107(a), or whether its remedy is limited to § 113(f) contribution claim.  Atlantic Research, 551 U.S. at 139 n. 6.  This issue was presented as a matter of first impression to the Eleventh Circuit in Solutia Inc. v. McWane, which held that parties subject to a consent decree are limited to filing claims for contribution under CERCLA § 113(f), and may not file claims for cost recovery under CERCLA § 107(a).  Solutia Inc. v. McWane, Inc., 672 F.3d at 1236-1237.

Certain defendant PRPs sued by Solutia and Pharmacia plaintiffs had settled their liability in a separate settlement agreement with EPA (the “Settling Defendants”).  CERCLA § 113(f)(2) provides that “[a] person who has resolved its liability to the United States or a State in an administrative or judicially approved settlement shall not be liable for claims for contribution regarding matters addressed in the settlement.” 42 U.S.C. § 9613(f)(2).  Accordingly, the plaintiffs’ CERCLA §113(f) contribution claims against the Settling Defendants were precluded by §113(f)(2).  The Eleventh Circuit reasoned that permitting § 107(a) cost recovery claims by plaintiffs against Settling Defendants would undermine the structure of CERCLA and thwart the contribution protection given to settling PRPs, discouraging future settlements. Solutia Inc. v. McWane, Inc., 672 F.3d at 1236.

Federal Court Dismisses CERCLA Suit based on Lack of Necessary Response Costs

Posted by in CERCLA, Environmental Litigation on September 25, 2012

By Clare Bienvenu & John D. Edgcomb

In Stratford Holding, LLC v. Fog Cap Retail Investors, et al., Stratford Holding LLC (“Stratford”) sued its lessees, Fog Cap Retail Investors LLC (“Fog Cap”) and Foot Locker Retail Inc. (“Foot Locker”), under CERCLA §§ 107 and 113, seeking cost recovery for costs incurred in assessing alleged PCE contamination in the soil and groundwater of its property.  Allegations of PCE contamination arose when Stratford, upon conducting a visual inspection, discovered poor housekeeping practices at a commercial dry cleaning business on the property.  Since the commercial dry cleaning business subleased the property from Fog Cap and Foot Locker, Stratford made demand upon them as its direct lessees to investigate the potential contamination further.  Fog Cap commissioned an environmental investigation in response, finding no PCE contamination.  However, Stratford thereafter conducted another assessment that revealed PCE concentrations of 1200 ppb in the soil and 56 ppb in the groundwater.  When Fog Cap and Foot Locker declined to reimburse Stratford for the costs of the assessment and refused to agree to restore the premises to its pre-lease condition, Stratford filed suit in federal court for cost recovery under CERCLA §§ 107 and 113, among other claims.  Fog Cap and Foot Locker moved to dismiss the CERCLA claims under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim under which relief can be granted.

In order to establish a prima facie case for cost recovery under CERCLA, a plaintiff must show that: (1) the site is a CERCLA “facility”; (2) there was a release or threatened release of a hazardous substance; (3) the plaintiff incurred response costs consistent with the National Contingency Plan (NCP); and (4) the defendant is a potentially responsible party.  The only point of contention in the motion to dismiss was whether the costs incurred by Stratford were “necessary” and incurred in a manner consistent with the NCP under CERCLA §107(a)(4)(B).  According to well-established CERCLA jurisprudence, there must be an actual and real threat to human health or the environment in order for response costs to be “necessary.”   Using a rationale that is somewhat novel in CERCLA litigation, the court agreed with Fog Cap and Foot Locker that the response costs were not “necessary” and dismissed Stratford’s claim.

First, the court reasoned that the determination by the state environmental agency, the Georgia Environmental Protection Division (GEPD), not to list the site on its Hazardous Site Inventory was a major indicator that Stratford’s investigation response costs were unnecessary.  GEPD issued its decision not to list the site in a Release Notification, noting that it had conducted its own assessment and found no release exceeding a reportable quantity.  GEPD neither compelled further investigation or remediation of the site nor issued a statement that no further investigation or remediation was required.  Nevertheless, given that the agency is required to list a site on the Hazardous Site Inventory if the contamination poses a threat to human health or the environment, the court concluded that GEPD’s decision not to list the site was the equivalent of a government determination that the PCE contamination posed no threat to human health or the environment.  Further, the court considered that Stratford proffered no additional facts to show that its response was necessary to prevent a real threat to human health or the environment.

CERCLA caselaw clearly establishes that agency enforcement action is not a prerequisite to private party cost recovery.  Therefore, the absence of such agency action is not conclusive on the issue of whether any response costs incurred were “necessary.”  Here, however, the court was faced with a slightly different scenario – an agency, presented with some evidence of contamination, chose not to take any action to compel remediation.   The court cited its own decision, Southfund Partners III v. Sears, Roebuck & Co., 57 F.Supp.2d 1369 (N.D. Ga. 1999), in support of its conclusion.  In Southfund, a plaintiff similarly sought recovery of response costs for remedial efforts to remove contamination following a determination by the George Department of Natural Resources that the contaminant release was under the reportable quantity.  The court granted the defendant summary judgment in that matter, reasoning that upon considering that the state agency did not require remedial efforts to be undertaken, “no reasonable juror could find the response costs to be necessary.”  Southfund, 57 F.Suppp.2d at 1378.

The federal district court for the Northern District of Georgia clearly follows the rationale that where an investigation reveals contamination, but a government agency determines the release to be under the reportable quantity and declines to require remediation, the recovery of response costs will not be allowed – except, perhaps, if the plaintiff offers convincing additional evidence showing that its response was necessary to prevent a real threat to human health or the environment.  However, not all courts are willing to dismiss a CERCLA claim under such facts.  The Ninth Circuit Court of Appeals has specifically reserved rendering an opinion on whether “response costs not required by state and local agencies may [] be necessary.”  NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986).  The federal district court for the Northern District of California denied summary judgment on the issue of the necessity of response costs in connection with perchlorate levels in water supply wells that were below drinking water criteria.  While the facts did not indicate the details of government agency determinations in connection with the response, the court was unwilling to grant summary judgment on the basis of contamination below applicable regulatory criteria, stating that “whether or not perchlorate contamination in the subbasin posed a threat to human health appears to be a dispute of material fact, and this issue is not resolvable on summary judgment.”  Santa Clara Valley Water Dist. v. Olin Corp., 655 F. Supp. 2d 1066, 1072 (N.D. Cal. 2009).

Lastly, the Stratford Holdings court considered Stratford’s argument that because the NCP requires a Remedial Investigation and Feasibility Study (RI/FS) before determining whether a site is a threat to human health or the environment, it was still in the process of proving a threat to human health and the environment, and thus the claim should not be dismissed.  The court opined that even if an RI/FS later revealed a threat, Stratford’s claim for cost recovery at this point in time was premature.  In making this statement, the court may have been signaling that should Stratford complete its RI/FS and find a demonstrable threat to human health and or the environment, it could refile its claim for investigation costs at that time.

Based on these grounds, the court dismissed Stratford’s federal claims.  After declining to exercise supplemental jurisdiction over Stratford’s remaining state law claims, the court terminated the action.

Stratford Holding LLC v. Fog Cap Retail Investors LLC et al., case no. 1:11-cv-03463 (9/17/12 N.D. Ga.)

Federal District Court Allows Chevron to Proceed with a CERCLA § 107 Cost Recovery Action to Attempt to Hold Non-Settling “Smaller Responsible Parties” Jointly and Severally Liable for All Response Costs

Posted by in CERCLA, Cost Recovery, Environmental Litigation, Remediation on September 11, 2012

By Clare Bienvenu & John D. Edgcomb

The United States District Court for the Eastern District of California denied defendants’ motion to dismiss in Chevron’s CERCLA § 107 cost recovery action against them in connection with the EPC Eastside Disposal Facility site outside of Bakersfield, CA.  In June 2005, Chevron, as one of several parties deemed responsible by the California Department of Toxic Substances Control (“DTSC”) for the presence of hazardous substances at the site, entered into a Consent Order with DTSC, under which it agreed to spearhead the cleanup activities at the site.  Chevron has settled with hundreds of companies and individuals in return for contribution to the substantial cleanup costs associated with the site’s remediation. However, several “smaller responsible parties,” as they characterize themselves in the motion, have declined to settle with Chevron, and, as a result, Chevron filed suit, seeking to hold them jointly and severally liable for all response costs under CERCLA § 107.

A CERCLA § 107 cost recovery action is reserved for potentially responsible parties (PRPs) that voluntarily incur response costs and allows the plaintiff PRP to hold a defendant PRP jointly and severally liable for all response costs, unless the defendant can show there is a reasonable basis for apportionment.  In contrast, a CERCLA § 113 contribution action is appropriate where a PRP has been sued under CERCLA §§ 106 or 107, or enters into a settlement to resolve its CERCLA liability to the United States or a state.  A CERCLA § 113 contribution action enables the plaintiff PRP to hold other defendant PRPs liable only for their equitable share of response costs. In this case, the “smaller responsible parties” argued in their motion to dismiss that Chevron was not entitled to bring its § 107 cost recovery claim against them because Chevron did not voluntarily incur response costs, based on its status as a party to the Consent Order with DTSC.  Instead, they argued, Chevron was limited to a CERCLA § 113 contribution action.

The court found that since Chevron has not been sued under CERCLA §§ 106 or 107 and has not entered into a “settlement” to resolve its CERCLA liability, a § 113 contribution claim was inappropriate. Further, the court found that the Consent Order the Chevron entered into with DTSC is neither “a satisfaction or release from liability” nor a mechanism barring Chevron from acting voluntarily in the response.  Accordingly, Chevron was entitled to bring a § 107 cost recovery action against the defendants.  The court also rejected defendants’ allegation that Chevron’s assertion of the § 107  cost recovery claim was overreaching in that it threatened the defendants with joint and several liability due to their inability to reach a settlement agreement. The court pointed out that CERCLA provides protection against inequitable results, because where PRPs, such as the defendants, are sued in a § 107 cost recovery action and held jointly and severally liable, those PRPs are entitled to seek contribution from the plaintiff and others under § 113 to attempt to recover their excess costs.

ELG wins Summary Judgment for CNA in Asarco’s $33M CERCLA Contribution Claim Suit

Posted by in CERCLA, Environmental Legislation and Regulation, Environmental Litigation on June 29, 2012

On June 6, 2012, U.S. District Judge William Alsup granted summary judgment to ELG client CNA Holdings, LLC (“CNA”) in a CERCLA § 113(f) contribution suit brought against it by Asarco LLC.  COURT ORDER   Asarco filed the suit in 2011 against CNA, and several other defendants, to recoup a substantial portion of $33 million in anticipated cleanup costs it paid to DTSC in settlement of a bankruptcy claim filed by DTSC regarding a Superfund site in northern California known as the Selby Slag Site.  The Selby Slag Site was formerly the location of a smelter operated by ASARCO on the shore of San Francisco Bay for over 50 years.  In 1989, ASARCO had entered into a prior settlement regarding the allocation of past and future Selby Slag Site response costs with the State Lands Commission and Wickland Oil Company.