Law and the Environment : Environmental Lawyer & Attorney : Foley Hoag Law Firm : Boston, Washington D.C.

In an interesting decision issued earlier this month, Judge Lewis Babcock of the District of Colorado ruled, in County of La Plata v. Brown Group Retail, that detection of contamination at levels exceeding state cleanup standards does not, by itself constitute an imminent and substantial endangerment under RCRA. I think that Judge Babcock is correct, but I can’t help but feel that the decision might be different in the blue state of Massachusetts. I was particularly taken by Judge Babcock’s description of the nature and purpose of state regulatory standards:

Regulatory screening levels, action levels, and standards do not identify real or actual risks to human health. Rather, these regulations are designed to protect the public health by identifying the level of chemical exposure at which there is no threat of harm with a large margin of error. Exceedance of regulatory screening levels, action levels, or standards therefore does not demonstrate a real or actual risk to human health.

Tell it to MassDEP.

I think it’s wonderful that a federal judge has said that “regulatory … standards do not identify real or actual risks to human health.” He’s right, of course, and we often forget that when conservative assumption is piled on top of conservative assumption in the establishment of a standard, the standard may end up having only the most tenuous connection to any actual concern about human health.

I wish I could make equally kind statements about Judge Babcock’s handling of the CERCLA claims in the same case. Like many judges implementing the Supreme Court’s decision in Burlington Northern, Judge Babcock shrugged off the defendant’s divisibility arguments, notwithstanding that the arguments the defendant made were well within the ambit of the types of considerations the Supreme Court said were relevant in Burlington Northern. I feel we are destined to continue the cycle of lower court decisions which simple-mindedly whack the defendant, followed every few years by a Supreme Court decision that says fairly simply: No, that’s not the way it’s supposed to be.

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In late 2009, Judge Griesbach ruled, in Appleton Papers v. George A. Whiting Paper, that parties who were significantly more “blameworthy” than others were not entitled to contribution from the less blameworthy parties. Last week, Judge Griesbach ruled on the cross-contribution motions from the defendants. 

The defendants took a simple view. If the plaintiffs are not entitled to contribution from the defendants, because the plaintiffs were almost entirely at fault, then the defendants should be able to receive 100% of their own response costs in contribution from the plaintiffs. Plaintiffs, not surprisingly, took a contrary view. Plaintiffs' position was that the court still needed to assess the defendants’ contribution claims in light of the full panoply of equitable factors and that, because the plaintiffs had cooperated with the government and the defendants had caused some releases themselves, the plaintiffs should not have to pay 100% of defendants’ costs.

Judge Griesbach was having nothing of the plaintiffs’ arguments. To him, it remains really a simple analysis:

[C]ases reject the idea that a district court has to follow some sort of mechanical laundry-list approach to assessing contribution liability, and I am satisfied that basing contribution on fault, under the totality of the circumstances of this case, is a sound approach to resolving the liability for the river cleanup.

I remain of the view that, while the outcome of the case is permissible, it is a surprise that the judge was so willing to make these decisions on summary judgment; they seem more the stuff of trial to me. However, the judge’s willingness to decide this case on summary judgment only emphasizes the important lessons of this case. Fault matters, and the parties who succeed in tarring other parties with the label of “fault” are going to be the big winners in contribution cases – Gore Factors be damned.

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When the Burlington Northern decision was first announced, I concluded that “never has the Supreme Court done so much by doing so little.” On May 5, Judge John Mendez, of he Eastern District of California, proved me at least half right. In United States v. Iron Mountain Mines, joint and several liability was imposed on the defendants in 2002. The 2002 decision stated that “given the nature of pollution at the site, it would be difficult to identify distinct harms.” The court did not analyze whether there was a reasonable basis for apportionment of liability. 

Following the Burlington Northern decision, the defendants moved for reconsideration, arguing that Burlington Northern constituted an intervening change in the law. Defendants argued that “the Supreme Court clearly meant to send a signal to other courts that they must begin evaluating apportionment in a different way.” I think that the defendants in Iron Mountain were right.  Unfortunately, that’s not the standard for a motion for reconsideration.   If Iron Mountain were being decided for the first time today, the defendants might get a better result, but that doesn't mean that they win their motion for reconsideration.

What the Supreme Court really said in Burlington Northern isn’t that the law was wrong; it is that District Courts weren’t applying the law correctly. District court judges had their collective judicial thumbs firmly on the side of the government. The Supreme Court simply told the lower courts to take those thumbs off the scales. I hope that this decision will not encourage lower courts to keep the thumbs on the scales.

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One of the outstanding questions following the Supreme Court decisions in Aviall and Atlantic Research was whether a party which had entered into a consent decree with the United States and incurred direct response costs as a result could bring an action for cost recovery under § 107 of CERCLA or whether such a settling party would instead have a contribution action under § 113. The problem facing practitioners and the courts following Atlantic Research was that the Supreme Court seemed to have backed itself into a corner. By focusing its analysis of § 113 so narrowly on the traditional common law understanding of contribution, it at least suggested that contribution claims under § 113 might be limited to situations in which the plaintiff had paid “reimbursement” to satisfy a “common liability.”

Unfortunately, if a party which settled with the government and paid direct response costs could instead bring an action under § 107, then the defendant in the private action would face the specter of joint and several liability, notwithstanding that the private plaintiff was also liable. The Supreme Court thought it addressed this issue in Atlantic Research by noting that the defendant in a private action under § 107 could bring a contribution counterclaim, thus forcing an equitable allocation. However, as the Third Circuit noted in Agere Systems v. Advanced Environmental Technology, decided earlier this week, the Supreme Court’s solution doesn’t work when the private plaintiff has entered into a consent decree with the government pursuant to which it has protection against claims for contribution under § 113. Can Justice Thomas say “oops”?

What was the Third Circuit’s solution? Like Justice Thomas, it chose the straightforward approach. It simply barred private claims under § 107 where the private plaintiff would otherwise be liable under CERCLA, but, by virtue of contribution protection, would be immune from a counterclaim under § 113. While the holding is certainly right as a matter of policy, as a matter of law it seems largely a case of what we lawyers might call ipse dixit – basically, it’s so because I say so. Because it would be unfair to allow a private liable party to obtain a joint and several verdict against another private party, the court simply forbid it.

Interestingly, the Third Circuit did not address the question whether the plaintiffs had a right to bring a contribution action under § 113; it appeared to assume that they had such a right, without discussing the Supreme Court’s indication that contribution claims might be limited to reimbursement. If forced to face the issue directly, the Third Circuit would presumably have said that, just as we have to be fair to private defendants and not impose joint and several liability on them, we have to be fair to private plaintiffs and give them some kind of remedy. If they don’t have claims under § 107, they simply must have claims under § 113.

Given the practicality of the result, it seems likely that other courts of appeal will follow the Third Circuit’s lead. However, if the issue does somehow make it up to the Supreme Court, I still wouldn’t bet on the outcome there. They have surprised us before with their Superfund jurisprudence.

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The Chairman's Mark of the Clean Energy Jobs and American Power Act (S. 1733), released late Friday night by Senate Environment & Public Works Committee Chair Barbara Boxer, fills in some of the details left out of the earlier-introduced Boxer-Kerry bill, notably identifying which sectors will get CO₂ allowances allocated to them for free. The bill largely follows the lead of the House-passed ACES, and in some areas uses identical language. For instance, as in ACES, the largest share of allowances (30%) is allocated to state-regulated local electric-distribution companies, who are instructed to use any revenue from the allowances to protect consumers from electricity price increases.

The precise allocation numbers are sure to be a source of debate as the negotiations move forward through the remaining 5 committees and individual Senators negotiate for their states’ interests to be met in the bill. But do the allocation numbers actually matter? A recent post by Harvard Professor Robert Stavins makes the case that once the decision has been made to allocate a set number of allowances for free, to whom they are assigned does not have a significant impact on the environment performance of the cap and trade regime or on the overall social costs imposed by the regulatory system.

That's why it is significant that one of the largest differences between the Chairman's Mark of the Senate Bill and ACES is how many allowances will not be allocated for free.  The size of the pot of allowances in the Senate bill to be set aside for the Treasury Department's use for deficit reduction rises from 10% in 2012 to a high of 25% between 2040 and 2050.  In comparison, the House bill earmarks for the Treasury Department only those allowances which are not already freely allocated or auctioned, a piece which falls to 1% by 2014.  The set of allowances marked for direct sale at auction is also larger in the Senate bill -- 15% of all allowances will be auctioned each year through 2029, rising to 18.5% in later years.  As in ACES, one of the key uses for the auction revenues are direct rebates to consumers to help them deal with higher energy bills.

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 Comprehensive Energy and Climate legislation is moving along through the Senate, and could come to a floor vote by October. Six Senate committees – Agriculture, Commerce, Energy & Natural Resources, Environment & Public Works, Finance and Foreign Relations -- have jurisdiction over portions of the bill, a tactic that Senate leadership hopes will give a number of influential, but as yet undecided, Senators input and a stake in the bill’s passage. Chair of the Environment and Public Works Committee Barbara Boxer (D-CA) will go first with a draft, and plans to unveil her climate bill September 8^th, following the Senate’s return from summer recess. As Greenwire reported, Senate Majority Leader Harry Reid (D-NV) hopes to do work out as many problems as possible before bringing the bill to the floor, but is still shooting for a vote as early as October.

So what’s going to be in the bill? A lot of what was in ACES, for one. Greenwire reports Chairwoman Boxer as saying that "the Waxman-Markey bill is the mark we're working off to write our bill. I would say tweaks are more of what you're going to see than major changes." 

But Senate Finance Committee Chairman Max Baucus (D-MT), who is also a member of the Environment & Public Works Committee, could be a roadblock to passage of the bill. Baucus has increased his climate, energy and trade staff, bringing as many as 10 aides into various meetings on the legislation, and said he plans to mark up climate provisions dealing with emissions allocations and trade. It is not yet clear if his Finance Committee will schedule a markup before the Environment & Public Works Committee, or whether Baucus will wait until after EPW reports out a bill. Either way, Baucus will play a critical role as the most senior Democrat on Boxer's committee and a leading centrist Democrat with a voice that carries tremendous weight in the leadership ranks. 

Members of the Senate Agriculture Committee will also play a key role in shaping the bill. The Committee plans to hold hearings to explore the role for agriculture and forestry in climate change legislation. Two major farm groups on opposing sides of the debate, as well as senior Obama Administration officials will all testify at the hearing. Agriculture Committee Chairman Harkin (D-Iowa) noted today that one of the provisions he would like to see changed is the allocation of allowances to the utility sector based on both historic emission levels and retail sales – a compromise that the Edison Electric Institute focused on including in the House bill.  

Meanwhile More liberal members such as Sens. Sheldon Whitehouse (D-RI), Bernie Sanders (I-VT), and Frank Lautenberg (D-NJ) are pushing for tighter emissions limits than the 17% target included in the House-passed bill. 

Ultimately, compromise is likely to be the name of the game, just as it was in the House. 

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As highlighted in yesterday's issue of Greenwire, one of the controversial aspects of the  American Clean Energy and Security Act (ACES) passed by the House Energy & Commerce Committee last night is that 35% of the allocated allowances created in the cap-and-trade program will go for free to the electric power industry.  30% will go to Local Distribution Companies, or LDCs, traditional regulated utilities who sell power directly to consumers, and 5% will be allocated to independent merchant energy generators that sell power to wholesale power markets, primarily in the Northeast, Great Lakes, California and Texas.

Not surprisingly, the allocation between LDCs and merchant generators is the subject of substantial political infighting. Merchant generators own 40% of the nation's generating capacity, but as Greenwire reports, the National Association of Regulatory Utility Commissioners, which represents the LDCs, is campaigning to knock out any share of allowances for merchant generation.  

Following an amendment to ACES that passed Committee yesterday, the emission allowances given to local distribution companies must be used exclusively for the protection of retail ratepayers against rising electricity rates.  In other words, utilities have to pass on the savings from their 30% of allocated allowances to their customers.  Not so for the allowances given to merchant generators, who sell power into the grid, rather than directly to consumers.  Their 5% share could apparently be worth $2.7 billion to $5.5 billion a year, depending on how high the price of carbon allowances are in the program's first years. 

The 5% allocation to merchant generators is seen as necessary to obtain support from House members from Texas and the Midwest who represent a number of coal-fired merchant generators.  Such votes could be critical in a House floor vote, which is the next hurdle for ACES.

Even though ACES was voted out of the Energy and Commerce Committee last night, the allocation debate is not necessarily finished.  Chairman Waxman said he would accommodate Republican requests to have at least one more day of additional hearing testimony over the distribution of emission allowances next month. 

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