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.

Conclusion

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’s Dismissal of Buyer’s Fraud Action in Allegedly Contaminated Gas Station Sale Highlights the Need for Land Purchasers to Conduct Independent Environmental Assessments

Posted by in Environmental Litigation, Land Use & Development, Remediation on October 1, 2012

A Washington federal district court denied purchaser Pyramid Gold, Inc.’s claim that it was misled as to the level of contamination present at the gas station it purchased from BP West Coast Products, LLC.   Pyramid Gold agreed to the sale after receiving an environmental baseline assessment conducted by BP West Coast that revealed contamination below reporting and remediation action levels imposed by Washington state law.  However, when Pyramid Gold entered into negotiations to sell the property five years later, its potential buyer discovered contamination exceeding levels requiring cleanup under Washington state law.   Ultimately the potential sale failed, and Pyramid Gold and its owner, Hatem M. Shalabi, filed suit against BP West Coast and other BP entities alleging fraud and negligent misrepresentation in the land sale transaction.  The defendants filed a motion to dismiss all defendants except BP West Coast (“non-party defendants”) as non-parties to the sales agreement, and seeking summary judgment in favor of BP West Coast on the elements of fraud and negligent misrepresentation.

The court granted the non-party defendants’ motion to dismiss based upon plaintiffs’ failure to plead any factual basis for their inclusion.  The court also granted BP West Coast’s motion for summary judgment on the fraud and negligent misrepresentation claims, finding that plaintiffs failed to prove at least one element common to both: “reliance on the truth of the representation of an existing fact.”  In fraud and negligent misrepresentation claims, reliance on a representation is only justified when reasonable under the circumstances, and requires that the plaintiff have exercised due care and diligence on his own part in ascertaining relevant facts at his disposal.  Here, the court found that reasonable minds could not differ that plaintiffs were not justified in their reliance on any alleged statement by BP West Coast that there was little or no contamination on the property.  The court considered that BP West Coast’s baseline environmental assessment report was conducted by a third party consultant and clearly stated that some contamination on the property existed.  Pyramid Gold received the report, but nevertheless agreed under the terms of the sales agreement that it was buying the property “solely in reliance on its own investigation” and acknowledged that BP West Coast was selling the property “as is.”  In fact, Pyramid Gold never conducted its own environmental assessment.  In the course of the transaction, Pyramid Gold further acknowledged that BP West Coast was making no representation or warranty as to the accuracy of the third party consultant’s environmental assessment.  While Pyramid Gold argued that it was ignorant as to the contents of the agreement on this issue, the court gave no weight to that argument.  It is well-settled under Washington law that a party who is afforded the opportunity to read a plain and unambiguous written instrument cannot claim to be ignorant of its contents.  Accordingly, the court granted BP West Coast’s motion for summary judgment, entering judgment for the defendant.

The Pyramid Gold case highlights the need for land purchasers to be well-informed of the environmental terms in land sale transactions and to conduct independent environmental assessments of subject properties out of an abundance of caution, even in the face of a seemingly reliable environmental assessment conducted by the seller or third-party consultants retained by the seller.

Shalabi and Pyramid Gold  v. Atlantic Richfield Co., et al., case no. 2:11-cv-00505-BHS (9/20/12 W.D. Wash.)

by Clare Bienvenu & John D. Edgcomb

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.)

California Bill Limiting Deposition Time Set to Take Effect January 1, 2013

Posted by in Environmental Litigation on September 21, 2012

By Clare Bienvenu & John Edgcomb, Esq.

This week Governor Jerry Brown signed A.B. 1875 into law, adding Section 2025.290 to the California Code of Civil Procedure.  The law, which will take effect on January 1, 2013, requires that many depositions be limited to seven hours in total.  While the seven hour limit is the default under the new rule, several exceptions apply. A court may authorize additional time if “needed to fairly examine the deponent or if the deponent, another person, or any other circumstance impedes or delays the examination,” and parties may stipulate that the default limit does not apply to specific depositions or to the entire proceeding.  The seven hour limit does not apply to complex litigation, expert witnesses, employment cases, or parties added after the deposition has concluded.  Despite the exemption for depositions in complex litigation, a 14 hour limit will be applied to complex litigation depositions where a witness has a fatal medical condition, evidenced by a medical affidavit attesting there is a substantial doubt the witness will survive for another six months.

The new law is similar to deposition limitations under the Federal Rules of Civil Procedure and that of several other states.  Fundamentally, the new law shifts the burden from counsel for the deponent, who formerly had to seek a protective order from the court to avoid an excessively long deposition, to the counsel of the party taking the deposition, who will soon have to secure the agreement of the other parties or obtain an order from the court to obtain more than seven hours of deposition time in specific circumstances.

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.

California Supreme Court Invalidates the Last Vestiges of the Common Law Release Rule – Plaintiffs May Recover the Unsatisfied Portion of All Awarded Damages from Nonsettling Joint Tortfeasors, Even in the Absence of a Good Faith Settlement

Posted by in Environmental Litigation, Insurance & Liability on September 6, 2012

By Clare Bienvenu & John Edgcomb

Until the California Supreme Court’s recent ruling in Leung v. Verdugo Hills Hospital, S192768, the common law release rule was technically still good law in California.  Yet, the rule has long lain dormant due to jurisprudence and legislation that significantly narrowed its scope of applicability. Nevertheless, the particular set of facts that arose in Leung triggered the application of the common law release rule and, in turn, prompted the California Supreme Court to authoritatively end this rule’s application.

In short, the common law release rule provides that a plaintiff’s settlement with one joint tortfeasor automatically releases all other joint tortfeasors from liability as well. The rule arose out of the traditional common law rationale that there can only be one compensation for a single injury and that, in the instance of joint wrongdoers, each wrongdoer is responsible for the entire damage. As a result, compensation of plaintiff by any one of several jointly responsible tortfeasors in return for a release satisfies plaintiff’s entire claim, thereby releasing the other joint tortfeasors as well.

California courts first narrowed the scope of the common law release rule by holding that using the terminology “covenant not to sue,” rather than  “release,” in a settlement with one of several joint tortfeasors would preserve the plaintiff’s right to recover additional compensation from the remaining nonsettling joint tortfeasors. The California Legislature further narrowed the scope of the rule’s application by enacting section 877 of the Code of Civil Procedure, providing that where a court determines that a settlement has been entered into in “good faith,” the settlement does not automatically discharge other joint tortfeasors from liability, but merely reduces the claims against the remaining joint tortfeasors by the settlement amount. Thus, compliance with section 877 protects a plaintiff’s interest in recovering the full amount of damages by making the common law release rule inapplicable and preventing the release of nonsettling joint tortfeasors. Compliance with section 877 also protects the settling tortfeasor from all liability for contribution to the non-settling tortfeasors for payment of the remaining damages awarded at trial.

Despite these constraints on the application of the common law release rule, until Leung, the rule still applied in the narrow circumstance where a settlement was not determined to be in good faith under section 877. This is the circumstance under which Leung made its way to the California Supreme Court. In Leung, the plaintiff, a newborn baby boy, suffered irreversible brain damage six days after his birth, and the plaintiff, through his guardian ad litem, sued both the pediatrician and the hospital for negligence.  The plaintiff settled with the pediatrician prior to trial for $1 million, but the trial court denied the pediatrician’s application for a determination of a good faith settlement under section 877, stating that the settlement was grossly disproportionate to the pediatrician’s expected share of liability under a reasonable person standard. However, the plaintiff and the pediatrician proceeded with the settlement anyway.  At trial, the jury found the pediatrician 55% at fault, the hospital 40% at fault, and the plaintiff’s parents 5% at fault and awarded the plaintiff approximately $15 million in damages.  The trial court found the hospital jointly and severally liable for 95% of the damages, minus the $1 million already paid to the plaintiff in settlement. The hospital appealed, claiming that since the settlement had not been found to be in good faith under section 877, the settlement released it from liability as well under the common law release rule. The Court of Appeals reluctantly agreed with the hospital, on the basis that the California Supreme Court had never affirmatively abandoned the common law release rule in full.

The California Supreme Court granted the plaintiff’s petition for review and held, in this landmark decision, that the common law release rule is no longer to be followed in California. The Court’s decision focused on the harsh results that application of the rule can cause. For instance, in the case at hand, application of the rule meant the plaintiff would recover only 1/15th of his total awarded damages. The Court found the abolition of the rule to be in keeping with the legislative intent behind section 877’s enactment, which was to ameliorate the harshness and inequity of the common law release rule.

Abandoning the rule necessitated that the Court decide how to apportion liability among joint tortfeasors when the apportionment standard under Code of Civil Procedure section 877 does not apply because a trial court has determined that a tortfeasor’s settlement has not been made in good faith. The Court adopted the “setoff-with contribution” approach for this apportionment scenario. Under the “setoff-with contribution” approach, the money paid to the plaintiff in settlement is credited against the damages assessed against the nonsettling tortfeasors, the nonsettling tortfeasors pay that remaining amount to the plaintiff, and the nonsettling tortfeasors are then entitled to seek contribution from the settling tortfeasor for any damages in excess of their equitable share.  The Court found this approach to be appropriate because it does not change the respective positions of the parties and is fully consistent with the concepts of comparative fault and joint and several liability.

The California Supreme Court’s abandonment of the common law release rule and adoption of the “setoff-with-contribution” approach makes conditioning the effectiveness of any proposed pre-trial settlement on the obtaining of a good faith determination from the presiding court of critical importance for settling defendants. Where a proposed settlement is not determined to have been made in good faith by the trial court, but the settling defendant nonetheless proceeds with its settlement, that defendant bears the risk of a contribution action brought by joint tortfeasors who are assessed excess damages at trial.  The abandonment of the common law release rule perhaps does the least for nonsettling joint tortfeasors, who have no control over another defendant’s settlement. If a defendant and plaintiff decide to settle without the court’s good faith determination, the nonsettling tortfeasor is not released from liability, but must instead pay upfront all awarded damages that were not covered by the settlement and only then may file a contribution action against the settling defendant for its remaining share, exposed to the risk that the settling defendant may lack the financial ability to reimburse the nonsettling tortfeasor in this later contribution action.  On the other hand, plaintiffs fare well in the abandonment of the rule. Regardless of whether a settlement is in good faith or not, plaintiffs are able to recover the full amount of awarded damages, minus what they have already received in settlement, from nonsettling joint tortfeasors.

State of California v. Continental Insurance: California Supreme Court Ruling Paves the Way for “Stacking” Multiple Insurance Policy Limits in Response to Certain Environmental Cleanup Claims

Posted by in Environmental Litigation, Insurance & Liability, Remediation on August 30, 2012

by Clare Bienvenu & John D. Edgcomb

On August 9, 2012, in State of California v. Continental Insurance, S170506, the California Supreme Court applied the “all sums-with-stacking” rule to allow the State of California to “stack” the policy limits of several successive insurance policies to recover for continuous environmental property damage incurred over a twelve year period. This ruling, which was based on the plain language of the commercial general liability (CGL) policies involved, allows the State of California to recover the aggregate amount of the individual policy limits up to the entire amount of the property damage, instead of limiting the State’s recovery to the pro rata allocation scheme proposed by the insurers.

The case arose out of the court-mandated cleanup of the Stringfellow Acid Pits waste site in Riverside County, a waste disposal site designed and operated by the State from 1956 to 1972. Several different factors in the location and design of the site caused continuous groundwater contamination from 1964 through 1976, which the State estimates will cost as much as $700 million to clean up. The State sued each of the insurers that issued a CGL policy covering the site during the twelve-year period of groundwater contamination for indemnity.

This case involves, and the ruling directly affects, a particular kind of property damage referred to as a “long-tail” injury.  A “long-tail” injury is continuous and progressive property damage that is not attributable to one identifiable cause but, rather, to a continuing series of events. For that reason, identifying which insurance policy is responsible for covering a “long-tail” loss is difficult, if not impossible.  Such “long-tail” claims regularly arise in the context of environmental damage, products liability, and toxic tort actions. Thus, the Supreme Court’s decision will have significant ramifications in the litigation of such claims when based on insurance policies that contain similar language to the CGL policies at issue here.

The language of all of the CGL policies in Continental Insurance required the insurers to pay “all sums which the insured shall become obligated to pay . . . for damages . . . because of injury to or destruction of property” and limited the insurers’ liability to a specified dollar amount of the “ultimate net loss [of] each occurrence.” The court analyzed its prior decisions in Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, and Aerojet-General Corp. v. Transport indemnity Co. (1997) 17 Cal.4th 38, and found them to stand for the principle that where a policy contains such “all sums” language, and there is a continuous loss, any portion of which occurs during the policy period, an insurer’s indemnity obligations extend beyond the expiration of the policy period up until the point where the continuous loss terminates. The court pointed out that the plain language of the CGL policies in the case at hand did not restrict the insurer’s liability to sums expended or damage incurred solely “during the policy period,” and, thus, the Montrose and Aerojet principle applied. Therefore, since all of the CGL policies covered the risk of environmental damage to the Stringfellow site at some point during the continuous groundwater contamination, each insurer’s indemnity obligations were triggered as to the entirety of the damage, up to each policy’s limits.

After finding that the “all sums” language of the policies allowed each of the policies to cover up to the amount of the entire property damage, the court went on to find that the language of the CGL policies at issue did not limit “stacking” of the coverages. “Stacking” means that where several policies are triggered by one occurrence, each policy can satisfy the claim up to the full limits of that policy, and these policy limits can be “stacked” across several policy periods to cover the entire continuous loss. The court found the “all-sums-with-stacking” rule to be in keeping with its previous decisions in Montrose and Aerojet, as well as permitted by the insurance policy language involved – specifically, the insurance policies did not prohibit “stacking.” This, in effect, allowed the State to “stack” insurance coverage from the different policy periods during which the damage occurred creating coverage limits equal to the sum of all of the limits of the purchased insurance policies. The court opined that the “all-sums-with-stacking” rule is particularly appropriate to the “uniquely progressive nature of long-tail injuries that cause progressive damage throughout multiple policy periods.” Cont’l.  Ins. at 15.

The Supreme Court’s decision has definitive implications for the litigation of future “long-tail” claims, including environmental cleanup claims, arising under past insurance policies that contain the “all sums” language and that do not prohibit “stacking”: principally, the “all-sums-with-stacking” rule will apply to permit the insured to recover the full extent of each policy that was in force when some part of the continuous property damage occurred and to “stack” those policy limits up to the amount of the entire property damage.  The decision likely will affect future California insurance policies by encouraging insurers to incorporate policy language defeating the “all-sums-with-stacking” rule.  Future insureds should be watchful for policy language prohibiting stacking, limiting indemnity, and specifying pro rata coverage allocation rules.

Oregon District Court holds that NEPA requires further analysis of cumulative impacts in use of herbicides for controlling invasive species under Forest Service management plan.

Posted by in Administrative Law, Environmental Litigation, NEPA on August 23, 2012

In League of Wilderness Defenders/Blue Mountains Biodiversity Project v. United States Forest Service, No. 3:10-CV-01397-SI (D. Ore. Jun. 29, 2012)[link to PDF available here], the District Court for the District of Oregon – Portland Division considered the use of herbicides in controlling invasive plant species in the Wallowa-Whitman National Forest, an area of approximately 2.3 million acres in northeast Oregon and western Idaho.  The Court defined an invasive plant as “a non-native plant whose introduction does or is likely to cause economic or environmental harm or harm to human health,” citing Executive Order No. 13,112, 64 Fed. Reg. 6,183 (Feb. 3, 1999).

In 2005, the Regional Forester for the Pacific Northwest Region of the U.S. Forest Service (also known as Region Six) approved a new management direction on preventing and managing invasive plants, and revised its management direction to approve a list of ten herbicides.  As required by the National Environmental Policy Act (“NEPA”), the Forest Service prepared an Environmental Impact Statement (“EIS”).  The final version, released in March 2010 by the U.S. Forest Service, recommended increasing the use of herbicides to control invasive plants and allowed the use of all ten of the herbicides approved at the regional level.  To reflect these changes, the Wallowa-Whitman National Forest amended its local management plan, and approved this recommended approach in an April 2010 Record of Decision.  The League of Wilderness Defenders (“LOWD”), as a stakeholder, had provided comments to the Forest Service’s EIS, appealed the Forest Service’s decision within the agency, and finally sought judicial review in the Oregon District Court.

LOWD argued that the Forest Service, in approving an Invasive Plants Treatment Project for the Wallowa-Whitman National Forest (the “Project”), did not comply with three federal statutes: the National Forest Management Act, 16 U.S.C. § 1600 et seq. (“NFMA”); NEPA, 42 U.S.C. § 4321 et seq.; and the Clean Water Act, 33 U.S.C § 1251 et seq.  The District Court reviewed these claims under the applicable legal standard that it may set aside an agency’s decision only where it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”  Administrative Procedure Act (“APA”), 5 U.S.C. § 706(2)(A).

First, the Court described the requirements of the NFMA.  The NFMA requires the Forest Service to develop “land and resource management plans” for units of the National Forest System. 16 U.S.C. § 1604(a).  These plans must provide for multiple and sustained yield of products and services including “coordination of outdoor recreation, range, timber, watershed, wildlife and fish, and wilderness.”  Id., §1604(e)(1).  The Ninth Circuit has explained that NFMA is not the Forest Service’s only consideration when developing site-specific plans.  The Lands Council v. McNair, 537 F.3d 981, 990 (9th Cir. 2008).  After a plan is developed, all subsequent actions must be consistent with that plan.  16 U.S.C. § 1604(i).    In this case, the Court found that the Forest Service’s explanation of its modeling data was reasonable, on an appropriate scale, and consistent with the Forest Service’s conclusion, and therefore the agency had complied with NFMA.

Second, the Court reviewed the requirements of NEPA, stating that it declares a broad commitment to environmental quality and prescribes the necessary process but does not mandate particular results.  In general, NEPA requires that before any major Federal action significantly affecting the quality of the human environments, a responsible official must prepare a detailed statement that includes (i) the environmental impact of the proposed action, (ii) any adverse environmental effects which cannot be avoided, (iii) alternatives to the proposed action, (iv) the relationship between short-term uses and enhancement of long-term productivity, and (v) any irreversible commitments of resources involved in the proposed action.  42 U.S.C. § 4332(C).  In this case, the Court accepted the Forest Service’s decision that the project should focus primarily on treatment of existing infestations of invasive plants rather than on prevention of future infestations, and concluded that the agency had evaluated a reasonable range of alternative actions.

However, the Court found that the cumulative impacts analysis in the Forest Service’s EIS was insufficient, even under a standard of deference to the agency’s determination in an area involving a high level of expertise.  McNair, 537 F.3d at 987.  The Court held that the Forest Service did not adequately evaluate the cumulative impacts when considered in conjunction with other actions.  Specifically, the EIS presented “vectors” that spread invasive plants (including recreation, grazing, vegetation management, wildfire and prevents, logging, road use, and agriculture) but did not consider the impact of continued introduction and continued treatment.  The Court found that the EIS did not address how continued use of herbicides could affect forest lands that are already highly impacted by these activities that are introducing the invasive species.  In addition, the Court found that the EIS was insufficient because it assumed that direct impacts would be minimal, and concluded that a thorough cumulative impacts analysis was not needed based on that assumption.  The Court found that such an analysis is the very point of a cumulative impacts analysis, and avoiding the analysis is insufficient.  Moreover, this conclusion focuses the EIS exclusively on herbicide use impacts, rather than considering non-chemical activities and their impacts.  Accordingly, the Court remanded the issue for further analysis.

Finally, the Court disagreed with LOWD’s argument that the Forest Service should have evaluated the possibility that permits would be required if CWA standards were amended.  LOWD admitted that at the time the project and EIS were adopted, the Forest Service did not need permits to comply with the CWA.  The Court held it is not arbitrary or capricious to omit discussion of a likely change in law that would require permits.