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

Recently, I expressed concern that District Courts, which traditionally have never seen a CERCLA plaintiff they didn’t like, would ignore the Supreme Court’s Burlington Northern decision – at least until there is another Supreme Court decision affirming that Supremes really meant the two-part holding in Burlington Northern: (1) divisibility isn’t that hard and (2) parties aren’t liable as arrangers unless they actually intended to dispose of hazardous material. 

Although it shouldn’t be earthshaking, I was therefore encouraged to see last week’s decision in Schiavone v. Northeast Utilities Service Company. In Schiavone, the defendants sold used transformers to a scrap yard. Their policy was to drain the transformers before sale. The Court concluded that there remained a material dispute whether the defendants sent PCB-containing transformers to the site. Nonetheless, the Court granted the defendants’ motion for summary judgment on the ground that there was no evidence that the defendants intended to dispose of PCBs. Citing to Burlington Northern, the Court stated that:

The defendants’ specific intent to dispose of the transformers themselves is not enough to make them “arrangers” under § 9607(a), even if the defendants had knowledge that oil was in the used transformers when they sold them…. The plaintiffs have produced no evidence that could support a conclusion that the defendants had as a purpose in their dealings with [the scrap yard] disposing of transformer oil containing PCBs.  Consequently, the plaintiffs have not created a genuine issue of material fact as to whether the defendants arranged for the disposal of a hazardous substance.

Sometimes, justice does triumph. I am hopeful that arranger cases where the defendant wasn’t actually intending to dispose of hazardous substances will start to fade away. I remain less optimistic about the divisibility side of Burlington Northern, but one can always hope.

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Two recent decision illustrate that PRPs do hold some cards in hazardous waste litigation, particularly if they are willing to be aggressive in investigating the contamination. Both cases demonstrate that “victims” or bystanders can face serious consequences if they do not cooperate with the investigation.

In Carlson v. Ameren Corporation, the plaintiffs had purchased a former manufactured gas plant from Ameren Corporation. They brought suit under RCRA, seeking an injunction requiring that Ameren remediate the property. Ameren filed counterclaims against the Carlsons, alleging that they had refused to cooperate with the cleanup. The question was whether such a lack of cooperation could constitute proof that the owner was “contributing to or has contributed to the handling” of the solid or hazardous waste at issue in the case. The 7^th Circuit rule requires “active involvement in handling or storing of materials.” Denying the plaintiffs' motion to dismiss the counterclaim, the court concluded that “obstruction may be construed as active storage of materials.” 

The Carlsons prevented Ameren from accessing and repairing the land. Furthermore, as a result of their affirmative action in obstructing the repair of the land, the Carlsons are allegedly permitting the continued leaching of hazardous material into the land. As a result, the Carlson’s [sic] may be said to be actively contributing to the condition of the Property.

Voggenthaler v. Maryland Square presents a different situation, but reinforces the lesson that even those probably not otherwise liable need to cooperate. In this case, downgradient property owners had sued a mall owner and a dry cleaner located at the mall, alleging contamination from a PCE release at the dry cleaner. The defendants were clearly liable, but were seeking other deep pockets to contribute to the cleanup. Another mall, the Boulevard Mall, was located across the highway from Maryland Square. That mall contained a Sears store and other automotive uses that could have used, and released, PCE. The original defendants filed a third-party complaint against the Boulevard Mall. They also filed a request for inspection under Rule 34 in order to implement environmental testing on the Boulevard Mall property, intended to provide evidence that there was a separate source of contamination affecting the plaintiffs. When Boulevard Mall refused, Maryland Square filed a motion to compel.

I’ll spare you all of the procedural details; the bottom line is that Magistrate Judge Foley, while acknowledging that the third party claims against Boulevard Mall were weak, allowed the motion to compel. The decision is worth reading and provides an interesting discussion of “fishing expeditions” versus “discovery of relevant and potentially admissible evidence.” In short, the Court refereed what might be called a preliminary battle of the experts and concluded that the Maryland Square expert had made - barely - enough of a case that the Boulevard Mall property might be a source of contamination to justify the testing. Interestingly, Magistrate Judge Foley said that, if he were deciding a summary judgment motion, he would have ruled that Maryland Square’s claims would not survive. However, under “a more lenient discovery standard,” he concluded that Maryland Square had “made a sufficient threshold factual showing to support the proposed testing. 

The lesson for known PRPs? Aggressive efforts to investigate contamination can be a useful sword in litigation. The lesson for others? If the PRPs are acting responsibly, you had better cooperate.

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My partner Robby Sanoff blogged last week about the “Illusion of Finality in CERCLA.” His post addressed City of Emeryville v. Sherwin-Williams, in which the 9^th Circuit Court of Appeals held that a person who was not a party to a prior settlement could bring a contribution claim against such a settling party, at least where the new claim involved contamination at a downgradient property, rather than the property that was the subject of the first settlement.

City of Emeryville seems to have been rightly decided. The only real lesson it teaches is that a PRP who wants to settle and achieve finality must do everything possible to ensure that all potentially liable parties are brought to the table and that the site is properly defined.

However, a case from earlier this summer just came to my attention. Its lesson is different. Its lesson is that CERCLA is just plain nuts, and judges’ efforts to harmonize its decisions can do more harm than good. Ashland v. Gar Electroplating teaches that there is no finality under CERCLA and that parties who step up to the plate to settle with the government and perform cleanups can be subject to joint and several cost recovery claims brought by recalcitrants. Alice in Wonderland, here we come.

Although Ashland seems wrong, Judge Lisi’s decision is a not surprising consequence of the simplistic CERCLA jurisprudence announced by Justice Thomas in Aviall and Atlantic Research. In holding that contribution claims are limited to those who have been the subject of litigation or certain kinds of settlements with the United States or a state, and that PRPs not subject to suits or administrative orders can bring cost recovery actions under § 107 of CERCLA, the Supreme Court has opened a Pandora’s Box.

What evil genie was loosed in Ashland? The facts are too complicated for a complete recital, but some history is required. Here goes:

1.                   The government sued a number of parties, including United Technologies, under CERCLA. The claims related to the Davis Liquid Waste Site, in Smithfield, Rhode Island.

2.                   The defendants brought third-party claims against a number of other PRPs, including Ashland.

3.                   Some original defendants (including this firm’s client, Ciba-Geigy) settled.

4.                   The United States went to trial against UT and obtained a finding of liability. UTC then settled with the government and agreed to perform a portion of the remedy. It also agreed to allocate sums recovered from the third-party defendants with the government.

5.                   A number of third-party defendants, not including Ashland, settled with UTC – and the government. 

6.                   The case against Ashland (and some other non-settlors) went to trial. Ashland was found liable. The judge allocated liability and imposed a percentage share on Ashland. 

7.                   At some point, EPA directly notified Ashland that it was a PRP and sent Ashland an administrative order on consent, requiring it to perform certain groundwater cleanup.

8.                   It is not clear if Ashland signed the AOC, but, according to an EPA affidavit, Ashland agreed to perform certain cleanup work.

9.                   Ashland spent approximately $2 million performing the work.

10.               It then brought claims under § 107 of CERCLA.  It had no contribution claim, because nothing had happened to bring Ashland under the ambit of § 113.

11.               The United States and the State of Rhode Island both filed amicus briefs on behalf of those sued by Ashland, arguing that their respective settlements with UTC barred Ashland’s claims.

Faced with these facts, what did Judge Lisi do? First, she found that Ashland does have a right to bring claims under § 107. Because it was not sued by the United States or Rhode Island, Ashland was not limited to contribution claims.

Second, Judge Lisi found that the allocation previously reached in the private action was not applicable to this case, precisely because the private case was for contribution and this case is a claim under § 107, which is assumedly one for joint and several liability. While Judge Lisi noted that the defendants in this action can bring counterclaims for contribution, the burden is on them to prove that the harm is divisible. 

As someone might say, OMG. Here’s what Justice Thomas has done to us. The recalcitrant party has a joint and several claim against those who settled with the government, and the burden is on the good guys to prove that liability should not be joint and several. 

If I may be permitted to gloat, I raised this specter following Aviall and Atlantic Research, and was generally told not to worry; the district courts would find ways to reach practical results. Plan B would seem to be the 1^st Circuit Court of Appeals. Plan C? I can’t wait to see what Justice Thomas would make of this fine mess.

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In City of Emeryville v. The Sherwin-Williams Company, the Ninth Circuit recently underscored that CERCLA settlements can be a risky business that don’t always produce finality, particularly when neither the United States nor a state is a party. 

The Ninth Circuit decision grew out of a federal court action by the City of Emeryville involving contamination at a manufacturing facility that had been operated by Sherwin-Williams. Sherwin-Williams settled that suit and obtained what it thought was broad protection against contribution claims based on contamination “at, on, under, and emanating from” the facility.

After Sherwin-Williams had performed its obligations under the settlement, the Emeryville Redevelopment Agency filed a lawsuit in state court involving contamination at a property adjacent to the former Sherwin-Williams facility. Sherwin-Williams was a defendant in that new action, as were the City of Emeryville and other parties who had not been involved in the federal court action. When the City of Emeryville and those other parties cross-claimed against Sherwin-Williams, Sherwin-Williams went back to federal court to enforce its settlement and its contribution protection. The District Court agreed with Sherwin-Williams and ruled that the settlement barred any claims in the state court action by the City of Emeryville and the other parties to the extent those claims were based on contamination migrating from the former Sherwin-Williams facility. 

On appeal, the Ninth Circuit agreed that claims by the City of Emeryville were barred but ruled that claims by the other parties who had not been included in the original federal action or who had not received notice of the settlement could not be precluded.   According to the Ninth Circuit, the broad contribution protection authorized by Section 113(f)(2) of CERCLA is triggered only when the settlement involves either the United States or a state and the City of Emeryville was not a state no matter how hard Sherwin-Williams claimed it was. The Ninth Circuit went on to hold that a federal court in approving a CERCLA settlement has authority to provide contribution protection but only with respect to parties who are PRPs with respect to the site that is the subject of the settlement.

Although it may seem like a harsh result for Sherwin-Williams, it’s hard to disagree with the reasoning of the Ninth Circuit.   While it is fair to hold the City of Emeryville to the deal it made and bar its contribution claims against Sherwin-Williams, it would be palpably unfair to bar claims by parties that did not participate in the original settlement, did not know of the settlement, and had no reason to know of it because they were not PRPs with respect to the former Sherwin-Williams facility. Whether or not the state court ultimately limits Sherwin-Williams’ liability for the adjacent property based on its undertakings in its settlement with the City of Emeryville, the lesson seems clear. Finality in Superfund settlements can be illusory, particularly where the settlement does not involve the federal or state government. 

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There are only two permissible answers to this question:

1.                   Yes

2.                   I don’t know.

I was reminded of this reality in reading the decision issued earlier this month in Solutia v. McWane, in which Chief Magistrate Judge Greene of the Northern District of Alabama held that a party which incurs response costs pursuant to a consent decree or administrative order may not bring an action for cost recovery under § 107 of CERCLA and is instead limited to a contribution action under § 113 of CERCLA. 

For those of our readers who are either masochists or do Superfund law for a living and thus have to keep up with this stuff, the decision is worth reading; it’s a useful summary of the post-Atlantic Research, post-Aviall case law. At bottom, the decision is a reasonable, practical result. Why should the nature of a private party’s right of action depend on whether the party did the cleanup itself or instead reimbursed the government for costs incurred pursuant to a government-led cleanup?

I will say that it’s not obvious to me that the Supreme Court would agree, were it to hear the case, simply because the Supreme Court has appeared to be so fixated on the traditional common law understanding of the nature of contribution as the right of a contribution plaintiff to receive a payment from a third party defendant when the contribution plaintiff has paid to the original plaintiff more than its fair share of a common liability.  Direct response costs don’t fit neatly into that traditional contribution model. However, it's probably a moot point, because it is hard to picture this issue getting to the Supreme Court. I expect the justices to conclude that they’ve heard enough of these cases by now.

We’re still left with my original question. Why is it that 30 years after CERCLA was passed and 24 years after the SARA amendments, the nature of third party claims still isn’t clear? Because CERCLA is incomprehensible, that’s why.

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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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Last week, Judge William Griesbach, of the Federal District Court for the Eastern District of Wisconsin, issued an important Superfund contribution decision, which shows just how much equitable discretion judges have in resolving contribution claims. In Appleton Papers v. George Whiting Paper, Judge Griesbach ruled, on summary judgment, that one equitable factor, knowledge of the potential environmental harm caused by PCBs, trumped all others, and that the plaintiffs, who had manufactured carbonless copy paper, or CCP, had no right to contribution from paper companies which used CCP and as a result discharged substantial amounts of PCBs into the Fox River.

The basis for Judge Griesbach’s holding was that “between parties who produced the product and those who merely processed it and recycled it along with all other paper products or water sources, these latter parties are significantly less blameworthy.” (The Judge’s italics, not mine.) This is not necessarily an unreasonable conclusion and probably within the Judge’s discretion to make, but does it follow that that is a sufficient basis to determine, without a trial, that the defendants were – literally – infinitely less blameworthy?

Interestingly, the plaintiffs had produced evidence that the defendants’ discharges had polluted the Fox River, even aside from PCBs. The Judge held that, because such other pollution did not cause response costs, it was irrelevant to the equitable judgment regarding who should pay to clean up PCBs.

The Judge also acknowledged that much of the contamination occurred before the plaintiffs themselves knew of the environmental risks posed by PCBs. Notably, however, the Judge did not discuss whether response costs would have been any different had discharges ceased as soon as the plaintiffs gained knowledge of the risks.

I’m not surprised that the plaintiffs in this contribution action are being held to bear the lion’s share of response costs. I am surprised that, on summary judgment, the court was able to conclude that the defendants’ share, notwithstanding their knowing pollution of the Fox River, and notwithstanding that much of the harm was caused before anyone had knowledge of the risks posed by PCBs, was a big, fat, zero.

What’s the real lesson here? The real lesson is that, while Judge Griesbach both noted that his equitable power is “broad and loose,” and acknowledged that it is “not unfettered,” the emphasis is greatly on the side of "broad and loose," and less so on the side of “not unfettered.” 

I’ve made this point in the past, but lesson one of Superfund contribution actions remains – Get The Judge On Your Side.

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In an interesting decision issued a few weeks ago, a District Court in Georgia held that a property manager at a strip mall could not be held liable as an owner of a facility under CERCLA. However, the court held that the property manager could be liable as an operator of the facility. I don't think that the decision is correct, but if it is the law, then property managers would be wise to consider carefully what responsibilities they are willing to assume and what sort of indemnification agreements may be required with the actual property owners.

The case, Scarlett & Associates v. Briarcliff Center Partners, involved a strip mall which had as one of its tenants – surprise, surprise – a dry cleaning operation. The owner had almost no connection to the property. It had leased the entire strip mall. When the lessee ran into financial problems, its lender took over the property and engaged Faison & Associates to manage the property for it. Faison managed the property for approximately two years, until the bank sold the lease.

It seems obvious that Faison was not an owner of the property, since it neither owned nor leased the property, and the court agreed.

However, the court denied Faison’s motion for summary judgment on operator liability. Looking to the Bestfoods decision, the court concluded that there was sufficient evidence that Faison "manage[d], direct[ed], or conduct[ed] operations specifically related to pollution….” The evidence cited by the court, however, is troubling, to say the least. In ruling against Faison, the court noted that Faison had informed the dry cleaner of certain EPA requirements and requested documentation that the dry cleaner was in compliance. There was also evidence that Faison “generally was responsible for managing and maintaining the shopping Center and performing all acts necessary to effect [the bank’s] compliance with all laws….”

I don’t think that that’s enough. In fact, the reverse seems to be the case. Don’t we want property managers to be taking steps to ensure that operating lessees comply with applicable regulations? If that can be evidence that the manager is an operator, the only result will be to cause property managers to be more hands off, which means less oversight, which means less compliance. The law has to be that property managers can take steps to ensure that lessees are in compliance without such steps being interpreted as “operation” of the facility by the manager.

Nonetheless, with this decision out there, if I were a property manager, I’d be very carefully reviewing my contracts both to ensure that I have minimized the likelihood that I will be considered an operator and to ensure that I have received proper indemnifications from the property owner.

Good luck.

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For those following developments in Superfund cost recovery and contribution case law after the Atlantic Research decision, it seemed worth noting that the Second Circuit Court of Appeals recently held, in W.R. Grace & Co. – Conn. v. Zotos International, Inc., that a party who incurs response costs pursuant to a state consent order has a right to bring an action to recover those response costs under § 107 of CERCLA.

Thus, the 2^nd Circuit has answered the question left open by note 6 in Atlantic Research, and come down on the side of actions under § 107, rather than § 113. Although it is only dicta in Zotos, the 2^nd Circuit also seemed to support the view the claims under § 113 will be narrowly limited to those that really are traditional contribution claims, i.e., actions in which the contribution plaintiff seeks to recover from one party payments that it made to another party – usually the United States or a State – to address the contribution plaintiff’s potential liability under CERCLA.

I’m tempted to say that this result is unsurprising and perhaps even obvious – except that nothing is unsurprising or obvious under CERCLA. As I have previously noted, only the Supreme Court seems to think that interpreting CERCLA is a straightforward exercise, so there is no assurance that the Zotos interpretation will sweep the land.

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For those of you who haven’t been keeping up with the law on private cost recovery and contribution claims under CERCLA, following the decision in Atlantic Research, I recently participated in a panel discussion on the issue. A copy of my presentation can be found here.

The most contentious issue during the discussion was whether private parties who have settled with the government and performed direct cleanups – as opposed to reimbursing the government – as a result of such settlements have an action for cost recovery under § 107 of CERCLA or an action for contribution under § 113 of CERCLA. 

My own view is that the Supreme Court has backed itself into a corner by so narrowly associating claims under § 113 with traditional contribution claims. It seems to me that the Court has limited contribution claims to situations where one liable party has reimbursed the original plaintiff for more than the contribution plaintiff’s fair share of the common liability. Thus, in a situation where the private plaintiff has directly incurred response costs – even if following a consent decree – no contribution claim lies. This is also consistent with a plain reading of § 107 – and we know that the Supreme Court loves plain language interpretations of CERCLA – which provides for claims for response costs, without any distinction being drawn between whether those costs were incurred voluntarily or not.

As I said at the panel, I just wish that the language of CERCLA was as clear to me and all of the practitioners with whom I work as it apparently is to Justice Thomas and the rest of the Supreme Court.

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