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 9th 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:
- 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.
- The defendants brought third-party claims against a number of other PRPs, including Ashland.
- Some original defendants (including this firm’s client, Ciba-Geigy) settled.
- 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.
- A number of third-party defendants, not including Ashland, settled with UTC – and the government.
- 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.
- 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.
- It is not clear if Ashland signed the AOC, but, according to an EPA affidavit, Ashland agreed to perform certain cleanup work.
- Ashland spent approximately $2 million performing the work.
- 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.
- 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 1st Circuit Court of Appeals. Plan C? I can’t wait to see what Justice Thomas would make of this fine mess.
A good argument can be made that Judge Lisi got it exactly right. A contribution action is when one party satisfies (i.e., pays money in settlement or judgment) a common liability owed to another, and then seeks to recover from those other liable parties for the sum paid in excess one’s liability share. If, in contrast, direct costs are incurred in remediation, whether under government coercion or not, then response costs are recoverable under 107 (performance is not satisfaction of a common liability; performance is the incurrence of response costs). Under the incorrect approach favored by EPA, EPA wants to control who can sue whom, and what a party’s allocation should be. But that is a judicial function. As Judge Lisi correctly concludes, when Ashland sues under 107, UTC and the others can counterclaim under Section 113. Under this process, the prior allocation, as well as prior payments made for the surface remediation, become relevant, and the court, acting in equity on the 113 counterclaim, can then “allocate response costs among liable parties using such equitable factors as the court determines are appropriate.” Yes, this does mean that EPA cannot summarily control who gets sued (unless, of course, EPA itself performs the work); however, it properly leaves resolution of allocation claims to the courts, rather than to EPA’s judgment.