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July 27, 2011 Articles

Proper Recovery of "Compelled" Costs of Response under CERCLA

The question of "compelled" costs that are neither incurred voluntarily nor incurred by reimbursing another party was left open by the Supreme Court. It has now been answered.

By M. Camila Tobon – July 27, 2011

When the U.S. Supreme Court decided United States v. Atlantic Research Corp., 551 U.S. 128 (2007), the Court settled a long-standing judicial debate over when potentially responsible parties (PRPs) under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. § 9601, et seq., could pursue other PRPs for “cost recovery” instead of “contribution.” The Court concluded that parties that had voluntarily incurred response costs in cleaning up hazardous substance contamination could pursue other PRPs through a “cost recovery” action under section 107 of the statute. But parties that had reimbursed response costs through satisfying a settlement agreement or court judgment could only bring a claim against other PRPs for “contribution” under section 113 of the statute.

But what about “compelled” costs of response that are neither incurred voluntarily nor incurred by reimbursing another party? The Supreme Court declined to decide this question in Atlantic Research, leaving open whether parties that had settled their liability under sections 106 or 107 through a consent agreement, and thus incurred costs pursuant to the consent agreement, could recover from other potentially responsible parties under section 107, or section 113, or both. As the Court stated, “[i]n such a case, the PRP does not incur costs voluntarily but does not reimburse the costs of another party.”

Recently, in Morrison Enterprises, LLC v. Dravo Corp., 638 F.3d 594 (8th Cir. Neb. 2011), the Eighth Circuit answered the question left open by Atlantic Research, concluding that Morrison Enterprises and the City of Hastings, Nebraska, could not sue Dravo Corp. for cost recovery under section 107 because they had previously settled their liability under sections 106 and 107 through a series of agreements on consent (AOC) and consent decrees (CD) and, thus, were not incurring costs voluntarily to remediate groundwater contamination at the Hastings Ground Water Contamination Superfund Site. Because contribution under section 113 was the exclusive remedy available to Morrison and Hastings, summary judgment granted in favor of Dravo was affirmed.

The facts of the case are as follows. In 1986, the area where the City of Hastings’s drinking-water wells are located was designated as the Hastings Ground Water Contamination Superfund Site due to the presence of contaminants including ethylene dibromide (EDB), carbon tetrachloride (CT), and other volatile organic compounds (VOCs). The contamination at the site was determined to be originating from seven source areas, three of which were the focus of litigation between the plaintiffs, Morrison and Hastings, and defendant Dravo.

The first source area was the FAR-MAR-CO subsite, where Morrison was identified by the Environmental Protection Agency (EPA) as a potentially liable party for the release of hazardous substances. Morrison settled its potential liability for the FAR-MAR-CO site in a 1991 AOC, a 1996 AOC, and a 2008 CD. Both the 1996 AOC and 2008 CD obligated Morrison to operate a treatment system, referred to as “Well-D,” to remove trichloroethylene (TCE), EDB, and CT from the groundwater.

The second was the Colorado Avenue subsite, where Dravo was identified by the EPA as a potentially liable party for the release of TCE. Dravo entered into a 2006 CD with the EPA for the remediation of TCE at the Colorado Avenue subsite.

The third was the North Landfill subsite, where the EPA identified Hastings and Dravo as PRPs. Hastings entered into a 1992 AOC addressing its liability for the North Landfill subsite. Both Hastings and Dravo then entered into a 1998 CD to perform a source-control remedy, and then a 2007 CD for the operation of Well-D and containment of the migration of VOCs from the North Landfill subsite.

In Court 
In 2008, Morrison and Hastings sued Dravo, seeking, inter alia, cost recovery pursuant to CERCLA section 107 and a declaratory judgment of Dravo’s liability for future response costs under CERCLA section 113(g)(2). The plaintiffs did not seek contribution from Dravo pursuant to section 113(f) of CERCLA. Dravo raised, as an affirmative defense, the argument that the plaintiffs were entitled only to a claim for contribution under section 113(f); the plaintiffs’ motion to strike this affirmative defense was denied. A subsequent amended complaint did not include a CERCLA contribution claim, and Dravo’s amended answer raised the same affirmative defense.

Dravo first moved for summary judgment on Hastings’s water-supply-system claim, arguing that the statute of limitations barred the claim. The district court agreed, based on a finding that Hastings’s replacement of its water system constituted a remedial action rather than a removal action under CERCLA, for which the statute of limitations had lapsed. The Eighth Circuit affirmed on this point.

Dravo also moved for summary judgment on Morrison and Hastings’s Well-D claims, arguing that the plaintiffs could not pursue a cost-recovery action under CERCLA section 107. The district court granted Dravo’s motion in part, finding that CERCLA section 113(f) provided the plaintiffs’ exclusive remedy. Morrison then filed a motion for leave to amend its complaint to assert a section 113 contribution claim that was denied. The plaintiffs appealed the district court’s summary judgment rulings as to their CERCLA liability claims, and Morrison appealed the district court’s denial of its motion for leave to amend the complaint.

In answering the question whether the proper claim against Dravo by Morrison and Hastings was under section 107 or section 113, the Eighth Circuit analyzed two arguments. First, that Morrison and Hastings could sue under section 107 because they “voluntarily” incurred costs for remediating the TCE through operation of the Well-D system. Second, that Morrison and Hastings could not sue in contribution under section 113 because there was no common liability between the parties because in Morrison’s case, responsibility was for releases of entirely different wastes and, in Hastings’s case, Dravo was the sole party responsible for releases at the Colorado Avenue subsite.

The Eighth Circuit rejected the first argument, that the plaintiffs “voluntarily” incurred costs for remediating the TCE through operation of the Well-D system. With regard to Morrison, the court of appeals held that the 1996 AOC specifically obligated Morrison to operate Well-D to remove TCE from the groundwater as a liable party under section 107. The court of appeals stated that Morrison’s reading of Atlantic Research—that “voluntarily” refers to actions taken “without any establishment of liability to a third party, such as through a judgment or court order”—was incorrect. Unlike the plaintiff in Atlantic Research, Morrison had been sued under sections 106 and 107 and entered in administrative settlements to resolve its liability. Furthermore, the 1996 AOC specifically obligated Morrison to operate Well-D to remove TCE from contaminated groundwater as a “liable party.” Thus, the court of appeals concluded, Morrison was not incurring costs voluntarily.

With regard to Hastings, the court of appeals found that Hastings was obligated, as a liable party, to perform certain remedial actions at the site by the 1992 AOC and to address liability for migrating TCE by the 1998 CD and 2004 AOC. Further, by Hastings’s own account, it was obligated to continue operation of Well-D to contain migration of the TCE plume. The court of appeals thus concluded that Hastings had not operated Well-D voluntarily.

Hastings also argued that the district court’s focus on Well-D was too narrow. Instead, the focus should be on Dravo’s liability for contamination from the Colorado Avenue subsite. Because Hastings’s settlement of liability at the North Landfill subsite was separate from Dravo’s liability at the Colorado Avenue subsite, Hastings argued, its operation and maintenance of Well-D to clean up contamination from the latter was voluntary. The Eighth Circuit disagreed, noting that under CERCLA, once a party is liable under section 107(a), it is liable for its share of any and all response costs, not just the costs “caused” by its release. As a result, the court of appeals affirmed the district court’s conclusion that Hastings must use contribution under section 113 to allocate responsibility for operating Well-D to remove accumulating TCE because Hastings and Dravo are both responsible for the release of TCE into the city’s groundwater and because TCE contamination from the North Landfill and Colorado Avenue subsites had migrated to the FAR-MAR-CO subsite.

Turning to the “common liability” argument, the Eighth Circuit held that the shared liability between Morrison, Hastings, and Dravo for contaminating the groundwater and for operating Well-D to remove those contaminants was sufficient to support a claim for contribution under CERCLA. Morrison argued that it did not share common liability with Dravo because it was never subject to liability under section 107 for response costs necessary to address TCE from the Colorado Avenue subsite, or anywhere else. Similarly, Hastings argued that because it was not liable for hazardous-substances releases at the Colorado Avenue subsite, it did not have a right to contribution. Hastings also challenged the district court’s focus on Well-D, arguing that common liability arises from conduct leading to an indivisible harm and not from a single solution to multiple, divisible harms.

The court of appeals disagreed that the scope of liability suggested by the plaintiffs was that which was contemplated by CERCLA. First, the focus of CERCLA is on whether the defendant’s release or threatened release caused harm to the plaintiff in the form of response costs. Second, when multiple parties are liable for response costs, the focus turns to allocation of each party’s respective responsibility, which is determined through a contribution claim under section 113. The Eighth Circuit agreed with the United States, as amicus curiae, that because Well-D removes hazardous substances for which Morrison, Hastings, and Dravo are each responsible, they are jointly and severally liable for the response costs to operate it. The court of appeals also noted that Morrison, Hastings, and Dravo were each liable through various consent agreements to remediate TCE by operating Well-D. This shared liability was therefore sufficient to support a section 113 contribution claim, the court of appeals concluded.

On Morrison’s appeal of the district court’s denial of its motion for leave to amend the complaint to add a section 113 contribution action, the Eighth Circuit affirmed. The court of appeals agreed that Morrison had ample notice from Dravo’s answer and response to Morrison’s motion to strike its affirmative defense that Dravo contended that contribution under section 113 was Morrison’s exclusive remedy and found no abuse of discretion in the denial of the motion for leave to amend.

Following its decision in Morrison, the Eighth Circuit now joins the Second and Third Circuits in answering the question left open in Atlantic Research, concluding that, where multiple parties are involved, section 113(f) of CERCLA provides the exclusive remedy for a liable party compelled to incur response costs pursuant to an administrative or a judicially approved settlement under CERCLA sections 106 and 107. See Niagara Mohawk Power Corp. v. Chevron USA, 596 F.3d 112, 124 (2d Cir. 2010); Agere Sys., Inc. v. Advanced Envtl. Tech. Corp., 602 F.3d 204 (3d Cir. 2010). However, the issue is not settled as lower courts are still working through arguments on both sides. When litigating outside the Second, Third, and Eighth Circuits, the plaintiffs’ interests in seeking to recover compelled costs of response would be best protected by asserting both a section 107 cost-recovery claim and a section 113 contribution claim until such time as other circuits have the opportunity to address this issue or until such time as the Supreme Court answers the question it left open in Atlantic Research.

Keywords: environmental litigation, Atlantic Research, Morrison, Hastings, EDB, CT, TCE, Dravo, FAR-MAR-CO

M. Camila Tobon is an associate with the environmental group of Shook Hardy & Bacon in Miami, Florida.

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