July 07, 2020 Articles

Passaic River Litigation Spawns Decision in CERCLA 107/113 Debate

The issue of whether and when a potentially responsible party can bring a claim under section 107 of CERCLA continues to get attention in the courts.

By James P. Ray
Courts are consistently dismissing section 107 claims when the plaintiff has a viable section 113 claim.

Courts are consistently dismissing section 107 claims when the plaintiff has a viable section 113 claim.

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The issue of whether and when a potentially responsible party (PRP) can bring a claim under section 107 of CERCLA continues to get attention in the courts.

When as much as $2 billion is at stake, every disputed issue is significant. Such was the case when the U.S. District Court for the District of New Jersey decided the defendants’ motion to dismiss in Occidental Chemical Corp. v. 21st Century Fox, 2019 WL 9078433 (D. N.J. July 31, 2019). The case involves Occidental’s CERCLA claims against over 100 defendants at the Diamond Alkali Superfund Site on the Lower Passaic River in and around Newark, New Jersey, one of the largest Superfund sites in the country. The defendants moved to dismiss Occidental’s CERCLA section 107 cost-recovery claims, arguing that a responsible party like Occidental cannot bring a section 107 claim when it has a section 113 contribution claim. The court agreed, dismissing the section 107 claims for the majority of costs alleged in the complaint.

Background

The Diamond Alkali Superfund Site includes the former Diamond Shamrock Chemical Company site on Lister Avenue in Newark, the lower 17-mile tidal stretch of the Passaic River, the Newark Bay Study Area, and certain areas affected by contamination in the river. Occidental is the alleged successor to Diamond Shamrock. The site is a classic heavily industrialized area and urban river corridor.

The presence of dioxin (in particular 2,3,7,8-TCDD, the most toxic congener of the dioxin/furan family of over 200 compounds) at the Lister Avenue site and in the river led the Environmental Protection Agency (EPA) to list the site on the Superfund National Priorities List in 1984. Since then, Occidental and hundreds of other parties have spent millions of dollars to investigate the contamination and to take interim remedial measures. The current estimated cost of the final remedy (including bank-to-bank dredging of at least the lower eight miles of the river) exceeds $1.5 billion.

Most parties, with the exception of Occidental, believe that the overwhelming share of 2,3,7,8-TCDD, the primary contaminant driving the need for remediation, came from releases and discharges to the river from Diamond Shamrock’s manufacture of Agent Orange and other chemicals. In earlier litigation, the court hearing Diamond’s insurance coverage claims associated with the site stated that “from 1951 to 1969 Diamond had a mindset and a method of conducting manufacturing operations which were destructive of the land, air and water resources of the environment” and that “even by the standards of the 1951–1969 period, Diamond’s conduct in operating the Newark plant was unacceptably wrong and irresponsible.”

Nonetheless, in 2018 Occidental filed suit against over 100 parties alleged to have contributed dioxin or other contaminants to the river. The EPA has identified several other contaminants of concern, including PCBs, dieldrin, mercury, lead, and several other compounds, but found that each contributes a substantially lower level of risk compared to 2,3,7,8-TCDD. The use and potential release of these other contaminants form the basis of Occidental’s claims against most defendants.

Occidental claims to have incurred costs pursuant to several different enforcement actions taken by the EPA. The specifics of these actions are important to the court’s decision on the motion to dismiss. For example, Occidental and the EPA entered into three separate administrative settlement agreements and orders on consent: one in 2008 for a removal action to dredge contaminated sediments in the river immediately adjacent to the Diamond Shamrock site (river miles 3.0 to 3.8), one in 2011 to study the impacts of combined sewer overflows (CSOs) to the river, and one in 2016 to design the selected remedy (largely dredging and capping) for the lower 8.3 miles of the river. In addition, in 2012 the EPA issued a unilateral administrative order requiring Occidental to remove contaminated sediments from river mile 10.9. Occidental alleged that it spent over $83 million for the 2008 river-dredging removal action and over $2.5 million for the CSO study in 2011. It also estimates that it will spend at least $165 million for the remedial design work. Finally, Occidental claims that it has spent more than $1 million in response to the EPA’s 2012 river mile 10.9 order (compared to over $20 million incurred by many of the defendants, who completed the river mile 10.9 work after Occidental declined to sign the consent agreement to participate in that effort).

There is still substantial work to be done at the site. Upon completion of the remedial design for the lower 8.3 miles, someone will have to implement that portion of the remedy. In addition, the EPA expects to select the remedy for the upper nine miles of the river in 2020, after which someone will have to design and implement that portion of the remedy. And the future work required in the Newark Bay Study Area remains a big unknown. Which party or parties will do this work and how the costs will be allocated have not yet been determined.

Motion to Dismiss

The court dismissed Occidental’s section 107 claims with respect to costs incurred pursuant to the 2008, 2011, and 2016 consent agreements. The critical factor was that Occidental expressly resolved its liability to the EPA regarding the work done pursuant to the agreements. As such, Occidental had contribution protection, shielding it from section 113 counterclaims relating to those costs. The court held, following Third Circuit precedent from Agere Systems, Inc. v. Advanced Environmental Technology Corp., that Occidental could not bring a section 107 claim if it would be shielded from contribution counterclaims. Agere, 602 F.3d 204 (3d Cir. 2010). Quoting Agere, the court stated that “while joint and several liability allows a plaintiff to collect from a single defendant the collective liability of all defendants, it does not permit a plaintiff to recover from a defendant the costs to undo what the plaintiff itself has done.” Occidental, 2019 WL 9078433 at *4, n. 6. Thus, Occidental’s attempt to bring claims for joint and several liability under section 107 for as much as $250 million failed. Those claims must be brought under section 113, where an equitable allocation considering such factors as risk drivers and bad acts may not favor Occidental.

Occidental was able to salvage its section 107 claim for the $1 million in response costs incurred in response to the 2012 unilateral order related to river mile 10.9. The court noted that Occidental was compelled to take action under threat of civil penalties, and thus the costs were not “voluntary.” The court denied the defendants’ motion to dismiss this claim, while acknowledging a split in authority over whether someone who incurred response costs “involuntarily” could nonetheless bring an action under section 107. However, the court dismissed Occidental’s section 113 claim for these costs, finding that because Occidental had not been sued under sections 106 or 107 of CERCLA, it did not have a section 113 contribution claim. As part of that holding, the court held that the 2012 order was not a civil action, acknowledging a split of authority on that issue as well.

The defendants also sought to dismiss Occidental’s other section 113 claims on a number of grounds, none of which were successful at this early stage of the litigation. For example, the defendants claimed that Occidental did not sufficiently allege that it incurred response costs and that the costs were actually incurred by Occidental’s indemnitors. The court held that Occidental’s allegations were sufficient, especially after Occidental conceded that it was not seeking costs incurred by its indemnitors. Similarly, the defendants argued that claims related to the 2008 and 2011 agreements were time-barred. The court found sufficient factual disputes about the applicability of certain tolling agreements and thus declined to dismiss those claims.

Conclusion

The issue of whether and when a potentially responsible party (PRP) can bring a claim under section 107 of CERCLA continues to get attention in the courts, in large part because plaintiffs seem to automatically assert section 107 claims in addition to the more appropriate section 113 claim, “just in case.” Courts are consistently dismissing these 107 claims when the plaintiff has a viable section 113 claim.

The court in the Occidental litigation followed suit, dismissing Occidental’s section 107 cost-recovery claims for nearly $250 million in response costs. Occidental can now pursue its section 113 contribution claims in what will no doubt be a hotly contested equitable allocation battle over who should pay for this potential $2 billion cleanup.

James (“Jim”) Ray is a partner in the Hartford, Connecticut, office of Robinson & Cole LLP. The views expressed in this article are those of the author and not of his firm or clients.


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