August 29, 2018 Articles

NJDEP Settlement Precludes Contribution Claim

A cautionary tale that could limit the ability of nonsettling parties to obtain contribution from parties that enter into a settlement with a single agency that does not purport to address the full scope of response costs incurred at a site.

By Duke K. McCall III and Conrad W. Bolston

On July 23, 2018, a New Jersey federal district court rejected the attempt of Compaction Systems Corp. and Compaction Systems Corp. of Connecticut, Inc. (collectively, Compaction) to recover from Carter Day Industries, Inc. (CDI), Combe Fill Corporation (CFC), and Combustion Equipment Associates, Inc. (CEA) (collectively, Carter Day Parties) a portion of the $11 million in cleanup costs that Compaction paid to the U.S. Environmental Protection Agency (USEPA) and the New Jersey Department of Environmental Protection (NJDEP) for costs incurred at the Combe Fill South Superfund Site (Site). In concluding that the Carter Day Parties were entitled to summary judgment on Compaction’s CERCLA contribution claim, the court rejected Compaction’s argument that contribution protection under CERCLA only applies to bar claims to recover monies paid to the state or federal agency that was the party to the prior settlement. Instead, the court found that the NJDEP’s settlement with one of the Carter Day Parties served to bar any contribution claim that Compaction might assert under CERCLA for monies that Compaction subsequently paid to both the NJDEP and the USEPA.

Background
CFC owned the Site, which operated as a landfill, from 1978 until CFC filed for bankruptcy in October 1981. Compaction operated the Site pursuant to an agreement with CFC from 1978 until the closure of the landfill in 1981.

The NJDEP filed a $5 million proof of claim in the CFC bankruptcy for costs related to the Site. CFC and the NJDEP settled the NJDEP claim for $50,000 in January 1984. The USEPA also filed an application for reimbursement of administrative expenses in the CFC bankruptcy, claiming CERCLA response costs at the Site. CFC and the USEPA settled the USEPA claim for $50,000 as well.

CEA, an affiliate of CFC, also filed for bankruptcy in October 1981. As it did in the CFC bankruptcy, the NJDEP filed a $5 million proof of claim in the CEA bankruptcy for costs related to the Site. The NJDEP claim was disallowed. The USEPA never filed a claim in the CEA bankruptcy.

After the completion of CEA’s bankruptcy reorganization, CDI, the reorganized successor to CEA, initiated an adversary proceeding against the USEPA and the NJDEP, seeking a declaration that the claims of the NJDEP and the USEPA related to the Site were discharged in bankruptcy. The court dismissed the action against the USEPA, observing that the USEPA had not brought a CERCLA claim against CEA. CDI and the NJDEP subsequently settled the adversary proceeding, and “all claims of NJDEP against Carter Day with respect to the Combe Fill sites [were] discharged.”

In 1998, the USEPA and the NJDEP filed suit against Compaction and other parties, seeking to recover response costs regarding the Site. Compaction and other parties entered into a consent decree with the USEPA and the NJDEP in 2009, which provided for the payment of $69 million in past costs, $3.2 million for natural resource damages, and the purchase of an annuity for future response costs totaling $27 million. Compaction paid $11 million as its share of the consent decree costs. Compaction also voluntarily accepted an additional judgment of $26 million, to be paid only if it was able to recover an amount exceeding $11 million from the Carter Day Parties.

Compaction subsequently filed CERCLA cost-recovery and contribution claims against the Carter Day Parties. The Carter Day Parties moved for summary judgment on all claims.

The Court’s Decision
Following Third Circuit precedent, the court held that Compaction could not pursue a CERCLA cost-recovery claim. Because Compaction had entered into a consent decree with the USEPA and the NJDEP and sought to recover costs paid to the USEPA and the NJDEP, the court found that Compaction was limited to a contribution claim under CERCLA section 113(f). The court rejected Compaction’s argument that the $26 million contingent judgment was “voluntary” and, thus, recoverable under CERCLA Section 107(a). The court noted that any payment made on that judgment would be to reimburse the USEPA and the NJDEP for response costs, natural resource damages, or future response costs and that the $26 million contingent judgment was the result of postlawsuit negotiations. Therefore, the court found that Compaction had not voluntarily incurred costs presuit and was limited to a section 113(f) contribution claim.

Compaction conceded that CFC’s settlements with both the USEPA and the NJDEP barred its contribution claim against CFC. Compaction further conceded that its contribution claims against CEA and CDI were barred, in part, by CDI’s settlement with the NJDEP. Compaction argued, however, that because CDI never settled with the USEPA, Compaction could still pursue a contribution claim for $9.5 million because that portion of the Compaction consent decree payment was paid to reimburse the USEPA.

The court rejected Compaction’s argument. Because section 113(f)(2) bars contribution actions against any “person who has resolved its liability to the United States or a State in a[] . . . judicially approved settlement,” 42 U.S.C. § 9613(f)(2) (emphasis added), the court concluded that CDI’s settlement with the NJDEP barred all contribution claims, including such claims for monies paid to the USEPA.

Conclusions and Implications
The court’s decision applies a “plain language” reading of the statute to conclude that a settlement with either the United States or a state will bar all future contribution claims. The effect of the court’s decision may be limited by the fact that most CERCLA settlements limit the contribution protection afforded by the settlement to the “matters addressed” in the settlement and define the matters addressed. However, the court’s decision serves as a cautionary tale and could limit the ability of nonsettling parties to obtain contribution from parties that enter into a settlement with a single agency that does not purport to address the full scope of response costs incurred at a site.

 

Duke K. McCall III is a partner and Conrad W. Bolston is an associate in the Washington, D.C., office of Morgan, Lewis & Bockius LLP.


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