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January 20, 2014 Article

Seventh Circuit Takes a Second Look at Its Decision on CERCLA Liability after EPA Settlement

The court added yet more wrinkles to this already crag-filled area of the law

by Jessica Wall and Travis Godwin

In a rare amended decision, the Seventh Circuit has added yet more wrinkles to an already crag-filled area of the law: when parties who have settled their liability with the Environmental Protection Agency can bring claims for contribution, versus claims for cost-recovery, under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The court’s original decision in Bernstein v. Bankert, 733 F.3d 190 (7th Cir. 2013)(dated December 19, 2012) caused such concern regarding the liability of potentially responsible parties (PRPs) upon settlement with the EPA that the EPA felt compelled to join the defendant-appellants as amicus curiae urging rehearing of the case by a panel. The Seventh Circuit issued its amended decision on July 31, 2013.

In Bernstein, the trustees of a fund created to finance and oversee the cleanup of a former waste-handling and disposal site incurred significant costs in undertaking removal actions at the site.  The trustees entered into two administrative orders by consent (AOCs) with the EPA, one in 1999 and another in 2002, forcing such removal actions. The EPA approved the work completed under the 1999 AOC in October 2000. In 2008, the trustees brought several claims, including a cost recovery claim under CERCLA § 107(a), against the former owners of the site, their corporate entities, and their insurers. When the trustees filed suit, the work under the 2002 AOC remained unfinished, and the EPA had not deemed it completed.

CERCLA § 107(a) grants an “any person” a cause of action to sue a PRP for cleanup costs incurred in a removal or remedial action. CERCLA § 113(f), by contrast, provides causes of action for PRPs to recover response costs from other PRPs.

The trial court held that the trustees could not bring a CERCLA cost recovery claim under § 107(a) because the trustees did not voluntarily clean up the site when they entered the 1999 and 2002 AOCs. Rather, the trustees’ claim was properly construed as one for contribution under CERCLA § 113(f) because the 1999 and 2002 consent orders required the trustees to undertake removal actions. The trial court further found that the statute of limitations under § 113(f) had run and thus the trustees’ CERCLA claims failed.

On appeal, the Seventh Circuit found in its original December 2012 opinion that whether CERCLA claims were available to the trustees turned on the difference between the 1999 AOC and the 2002 AOC. Both AOCs contained language specifying that the trustees were not released from CERCLA liability until the trustees performed their obligations under the AOC completely and satisfactorily.  Because the trustees had completed their work under the 1999 AOC, they had resolved their liability to the United States. After analyzing CERCLA’s statutory construction—as well as case law in the Second, Third, Fifth, Sixth, Eighth, and Eleventh Circuits—the Seventh Circuit held that the trustees could not bring a cost recovery claim under § 107(a) because “a plaintiff is limited to a contribution remedy when one is available.” As a result, the only CERCLA claim available to the trustees for the costs incurred per the 1999 AOC was a contribution action under § 113(f). The statute barred that action because more than three years had elapsed since either the effective date of the AOC or the completion of the work done pursuant to it. 

By contrast, because the trustees had not yet completed the work under the 2002 AOC, and the EPA had not yet approved the completed work, the court determined that the trustees had not resolved their liability to the United States as understood under CERCLA. The court wrote

To the extent that the Trustees’ suit seeks to recover expenses arising out of their performance of the 2002 AOC, it is not a contribution action. The Trustees have been subjected to no civil action under [CERCLA §§ 106 or 107], so a contribution action under [CERCLA§ 113(f)(1)] is unavailable.  On the other hand, under the plain terms of the AOC, they could not have ‘resolved [their] liability to the United States ... for some or all of [the work performed under the 2002 AOC] or for some or all of the costs of [the work performed under the 2002 AOC] in an administrative ... settlement’ at any time before satisfactory discharge of their obligations under the 2002 AOC.  Since the work to be performed under the 2002 AOC was ongoing when this action was filed, and no notice of approval had issued which would trigger the conditional covenants not to sue, a contribution action under [CERCLA § 113(f)(3)(B)] is likewise unavailable.  What the Trustees have done, with respect to the work called for by the 2002 AOC, is incur costs of response consistent with the national contingency plan, as is required to file a cost recovery action under [CERCLA § 107(a)].

Thus, because the work under the 2002 AOC was ongoing when the trustees filed suit, and the trustees’ liability was still unresolved, the trustees could not bring a contribution action under § 113(f).  Instead, because the trustees incurred response costs, their claim was properly construed as a cost recovery action under § 107(a).

The 2012 Bernstein decision gave rise to concern in the environmental law community, especially from the EPA. Chief among the EPA’s concerns was whether Bernstein’s holding suggested that a party may never structure a settlement agreement with the EPA to resolve liability upon execution of the agreement rather than upon completion of its requirements.

The Seventh Circuit amended its decision in July 2013 to address those concerns. First, the defendants below argued that the 2012 decision should be revisited because an AOC “compels” a PRP to incur costs; thus, a party may recover those “compelled” costs in a contribution action. The Seventh Circuit rejected this argument as an inaccurate reading of Supreme Court precedent in United States v. Atlantic Research Corp., 551 U.S. 128, 139 (2007). Second, the court discussed the argument advanced by both parties, that entering into a settlement agreement with the EPA resolves liability under CERCLA. Here, the Seventh Circuit rejected the EPA’s statutory interpretation, and wrote, “[t]o meet the statutory trigger for a contribution action under § 9613(f)(3)(B), the nature, extent, or amount of a PRP’s liability must be decided, determined, or settled, at least in part, by way of agreement with EPA.” The court followed the plain meaning of the language of the AOC and found that the trustees did not resolve liability by entering into the 2002 AOC with the EPA. Finally, the court addressed the policy considerations at stake, namely, that PRPs will be discouraged from settling with the EPA quickly if entering into a settlement does not resolve a PRP’s liability. The court found these policy considerations unpersuasive and noted that although a settling PRP may not sue a nonsettling PRP until the settling PRP’s liability is resolved, that settling PRP may pursue a cost recovery action. The court added, “whether, and when, a given settlement ‘resolves’ a party’s liability to the EPA for purposes of [contribution under § 113(f)] is ultimately a case-specific question dependent on the terms of the settlement before the court.”

From a practical perspective, Bernstein reminds practitioners to consider their settlement options and language closely. On one hand, a conditional settlement similar to the trustees’ 2002 AOC (one that does not decide, determine, or settle the nature, extent, or amount of a PRP’s liability immediately upon signature) benefits a PRP by providing a cost recovery action with a longer statute of limitations, joint and several liability, and recovery against PRPs who have settled with the EPA. On the other hand, a final settlement (one that decides, determines, or settles the nature, extent, or amount of a PRP’s liability immediately) benefits a PRP by resolving its liability with the government, resolving the threat of an enforcement suit, and protecting the PRP from contribution actions from other parties. However, a final settlement will make only a contribution claim available to a PRP, and the statute of limitations begins to run from the date of settlement. In addition, because whether a settlement “resolves” liability is a case-specific question, practitioners should scrutinize provisions similar to those in the Bernstein AOCs carefully to evaluate potential suit options going forward.

Following Bernstein, many practitioners are still criticizing even the amended decision as it leaves open the question of what happens when a PRP has fulfilled its settlement obligations to the EPA, but cost recovery litigation remains pending. One could read Bernstein to hold that, at least in in the Seventh Circuit, such an action must be dismissed and reconfigured as a contribution claim.

On October 29, 2013, the former owners of the site filed a petition for a writ of certiorari in the Supreme Court. Soon, the Supreme Court may take the opportunity to clarify the holding, rationale, and implications of the Seventh Circuit’s opinion in Bernstein.  If so, we’ll keep you posted.

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