In Cannons Engineering, the First Circuit Court of Appeals famously stated that, when CERCLA consent decrees arrive at the courts of appeal for review, they do so “encased in a double layer of swaddling,” because both the EPA decision to enter into the decree and the district court review of the EPA decision are entitled to significant deference. Last week, in Arizona v. City of Tucson, the 9th Circuit Court of Appeals concluded that, where a state consent decree is concerned, the first layer of swaddling is somewhat thinner than where EPA is concerned. The Court also made clear that deference is not abdication, and that district courts may not simply take an agency’s word in concluding that a settlement is fair.
Factually, the case is not that complicated, and it’s a story Superfund practitioners have often seen. Hazardous waste site is discovered. Old witness is deposed. He names names. Some of those names went to the State of Arizona and asked for mercy. Arizona gave it to them, proposing to enter into a consent decree with 22 allegedly de minimis parties. Larger parties intervened in the action and objected to the settlement. The district court allowed the intervention, denied the intervenors’ request for discovery, and required the State to supplement its motion for entry of the decrees with additional information about its methodology for calculating the settlement amounts.
The district court approved the settlements, determining that “the public interest is best served through entry of the agreements.” Finding that the district court had shirked its duty to determine whether the settlements were fair and reasonable, the Court of Appeals reversed and remanded.
The decision has been getting a fair bit of play largely because the 9th Circuit found that state decisions regarding settlement are not entitled to the same degree of deference as those made by EPA. The Court stated that state agencies are entitled to “some deference with regard to questions concerning their area of expertise,” but that a state agency is “not entitled to deference … concerning its interpretation of CERCLA’s mandate.”
It is worth noting that the Court’s entire discussion on this point was essentially dicta, because it found that:
Even if the EPA had been a party to the proposed consent decrees in this case, the district court would have failed to fulfill its duty to independently scrutinize the parties’ agreements.
The problem was that, while there was evidence in the record concerning how the agency decided what the settlement terms should be, there was no indication that the district court had actually performed any assessment at all, no matter how deferential, of Arizona’s settlement analysis. The 9th Circuit requires – like the other circuits that have faced the issue – that:
In approving a CERCLA consent decree, the district court has an “obligation to independently scrutinize the terms of [the agreement]. … [The mere fact that evidence sufficient to evaluate the terms of an agreement is either before the court or purportedly in the parties’ possession is not alone sufficient. The district court must actually engage with that information and explain in a reasoned disposition why the evidence indicates that the consent decrees are procedurally and substantively “fair, reasonable, and consistent with CERCLA’s objectives.
In short, there may have been evidence in the record sufficient to support the settlements, but the district court did not review that evidence. Instead, it completely deferred to Arizona’s own prior review of that evidence.
I’m assuming that, on remand, the district court will engage in the required review and again approve the settlements. That doesn’t mean that the decision is unimportant, however. Even aside from its ruling on the limited deference due to state settlement determinations, reminding district judges that they have to engage in an independent review of settlements before approving them is a useful cautionary note. After all, believe it or not, sometimes agencies are arbitrary and capricious.