November 09, 2018

Endless liability? Evaluating whether to settle or litigate private environmental lawsuits at regulated sites

Jon Rauchway and Mave Gasaway

Government-regulated environmental cleanups can last for decades.  Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund), the primary federal statute for regulating large-scale environmental cleanups, has been described as “a black hole that indiscriminately devours all who come near it.” Long Beach Unified Sch. Dist. v. Dorothy B. Godwin Living Tr., 32 F.3d 1364, 1366 (9th Cir. 1994). For companies responsible for such cleanups, it may seem—as with real black holes—that time slows down and they never emerge. Even when the end to regulatory liability is in sight, private-party lawsuits often follow. In recent years, we have seen an uptick in private lawsuits against companies responsible for government-regulated environmental cleanups, particularly at federal Superfund sites. Unlike most regulatory liability, however, private environmental suits are defensible and companies should think hard about approaching them in the same way as government enforcement actions, where the options are limited.

The problem: increased risk of lawsuits and the pressure to settle

Parties identified by the government as liable at contaminated sites, such as sites being investigated or remediated under CERCLA, face the threat of follow-on lawsuits from private landowners. Such companies are seen as easy targets. After all, there already has been a liability determination, and there often is a lengthy and public administrative record, which may be highly relevant to issues like causation and injury. These suits can pose significant risks in terms of both dollars and reputation.

As with any civil action, a defendant in a private environmental suit will be confronted with the question of whether to settle or take the case to trial. The statistics say the answer is almost always “settle.” It is often reported that up to 97 percent of all civil cases end before trial, most in the form of a settlement. And that percentage is undoubtedly higher for cases involving multimillion-dollar environmental claims because corporations often fear the attention that comes with a jury trial and the potential for a catastrophic verdict associated with environmental harm. The pressure to settle is still greater where the defendant has already been deemed liable for the contamination by the government under CERCLA or a similar regulatory scheme.

But the pendulum may have swung too far in favor of settling these kinds of cases. Although settlement certainly is the best option in some cases, it should not be a foregone conclusion, even when the defendant is liable to the government under federal or state environmental laws. This article discusses some tips, tools, and factors to consider when assessing options for resolution of private environmental lawsuits at regulated sites.

A case study

The authors recently defended a large company in an environmental tort suit. There was no dispute that the contamination on the plaintiffs’ property had come from the company’s facility, which is now a Superfund site. There also was no dispute that the contaminant was a carcinogen, present in concentrations far in excess of regulatory limits. The plaintiffs were well funded and sympathetic; they initially demanded over half a billion dollars in damages. Based on these facts, the case might seem like an obvious one to settle—the company had previously settled cases of similar magnitude.

We believed, however, there was a reasonable prospect the jury would not find the company liable and, even if it did, it was not likely to award damages exceeding the plaintiffs’ settlement demands. We vetted these assumptions carefully based on a variety of risk assessment tools and, ultimately, decided to try the case over three weeks in federal court. The jury returned a complete defense verdict.

Suggested approach: tools, tips, and considerations

As with any significant lawsuit, when confronted with a private suit at a regulated site, a defendant must thoroughly assess the risks associated with trial versus settlement. Available tools include jury consultants (to provide venue and jury pool research), focus groups and mock trials (to provide insight into how a fact finder might react to the evidence), and internal “peer review” sessions with client representatives and lawyers not directly involved in the case (to provide more objective feedback). These and other tools can assist counsel and client in formulating case strategy and deciding whether to settle or go to trial.

Additional factors and considerations unique to environmental cases involving regulated sites include the following:

  • Regulatory liability does not equate to tort liability. Liability under many regulatory schemes like CERCLA is “strict”—meaning parties are liable regardless of fault, culpability, or negligence—and the few established CERCLA defenses are narrow and rarely apply. Conversely, liability under most tort claims requires a showing that the defendant acted culpably or negligently, and there are additional defenses that are often easier to establish. And, facts irrelevant to regulatory liability—like conforming to a standard of care—can make all the difference in a tort suit. Accordingly, regulatory liability does not necessarily weigh in favor of settling a private lawsuit, as demonstrated by our example above.
  • The administrative record matters. A regulated site can generate a voluminous administrative record. The record may contain admissions by the regulated party, findings and conclusions by the regulator, and other evidence that could impact the case, such as analyses of fate and transport of contaminants and risk assessments. Counsel involved in long-term remediation should be cognizant of what is included in the record and should be mindful of admissions and other statements that could negatively impact ongoing or future litigation.
  • Regulatory defenses may bar or limit private-party claims. Some regulatory schemes include defenses to private suits. For example, CERCLA section 113(h) withdraws federal jurisdiction over any “challenges” to CERCLA response actions (with certain exceptions), which may cover certain tort claims. Additional common-law doctrines like administrative preclusion and primary jurisdiction may provide additional defenses. Defendants should carefully evaluate the applicability of any regulatory defenses to private suits.

By following these tips, counsel can assist the client in deciding whether to settle or go to trial.

Jon Rauchway and Mave Gasaway

Jon Rauchway is a partner and Mave Gasaway is an associate at Davis Graham & Stubbs in Denver. Their practices focus on environmental and natural resources litigation and counseling.