CERCLA Cost Recovery

In this topsy turvy world of CERCLA, we learned for the first time from the United States Supreme Court through its Atlantic Research decision¹ -- 27 years after Congress created CERCLA -- what cost recovery and contribution mean under CERCLA² , upending many years of widespread expectations in the process. To help understand this tidal decision and to start identifying the next generation of uncertainty and expectations for CERCLA cost recovery, this paper reviews the history of CERCLA cost recovery and contribution, the Atlantic Research decision, and a short list of the next round of likely disputed issues in this mad, mad, mad world of CERCLA cost recovery.

History

As enacted in 1980, Section 107(a) defines four categories of PRPs, 42 U.S.C. §§ 9607(a)(1)-(4) (i.e. owners, operators, arrangers, and transporters), and makes them liable for, among other things:

(A) all costs of removal or remedial action incurred by the United States Government or a State or an Indian tribe not inconsistent with the national contingency plan; [and]

(B) any other necessary costs of response incurred by any other person consistent with the national contingency plan.

42 U.S.C. § 9607(a)(4)(A)-(B).

After CERCLA's enactment in 1980, litigation arose over whether Section 107, in addition to allowing the Government and certain private parties to recover costs from PRPs, also allowed a PRP that had incurred response costs to recover those costs from other PRPs³. More specifically, the question was whether a private party that had incurred response costs, but that had done so voluntarily and was not itself subject to suit, had a cause of action for cost recovery against other PRPs⁴. Various courts held that Section 107(a)(4)(B) and its predecessors authorized such a cause of action.⁵

After CERCLA's passage, litigation also ensued over the separate question whether a private entity that had been sued in a cost recovery action (by the Government or by another PRP) could obtain contribution from other PRPs.⁶ As originally enacted in 1980, CERCLA contained no provision expressly providing for a right of action for contribution.⁷ Some District Courts nonetheless held that, although CERCLA did not mention the word "contribution," such a right arose either impliedly from provisions of the statute, or as a matter of federal common law.⁸

Thus, courts in the first few years after enactment supported a strong right by non-governmental persons performing cleanups or reimbursing others who performed cleanups. According to the Supreme Court, some courts even expanded the right of cost recovery or contribution, depending on how one defines those two terms.⁹

Congress saw these cases, and presumably agreed with them. Congress amended CERCLA in 1986 to codify the right to contribution. This would presumably eliminate remaining uncertainty resulting from a judicially created implied right of contribution. Congress added the following provision in Section 113(f)(1) of CERCLA:

Any person may seek contribution from any other person who is liable or potentially liable under section 9607(a) of this title, during or following any civil action under section 9606 of this title or under section 9607(a) of this title. Such claims shall be brought in accordance with this section and the Federal Rules of Civil Procedure, and shall be governed by Federal law. In resolving contribution claims, the court may allocate response costs among liable parties using such equitable factors as the court determines are appropriate. Nothing in this subsection shall diminish the right of any person to bring an action for contribution in the absence of a civil action under section 9606 of this title or section 9607 of this title.

42 U.S.C. § 9613(f)(1).

Congress also created a separate express right of contribution, Section 113(f)(3)(B), for "[a] person who has resolved its liability to the United States or a State for some or all of a response action or for some or all of the costs of such action in an administrative or judicially approved settlement." 42 U.S.C. § 9613(f)(3)(B).

In the 1994 case of Key Tronic¹⁰ the Supreme Court made several statements about Sections 107 and 113 whose meaning were subsequently debated among lower courts. Key Tronic held that a private person's attorney fees were not "necessary costs of response" within the meaning of Section 107(a)(4)(B). In so holding the Supreme Court stated that Sections 107 and 113 created "similar and somewhat overlapping" remedies.¹¹ The Court further stated that Section 107 "unquestionably provides a cause of action for [potentially responsible persons (PRPs)] to seek recovery of cleanup costs."¹² The Key Tronic Court divided, however, on the question whether the right to contribution is implicit in Section 107(a)'s text, as the majority determined, or whether Section 107(a) expressly confers the right, as the dissenters urged.¹³ The majority stated: Section 107 "implies-but does not expressly command-that [a PRP] may have a claim for contribution against those treated as joint tortfeasors."¹⁴ The dissent maintained: "Section 107(a)(4)(B) states, as clearly as can be, that '[c]overed persons ... shall be liable for ... necessary costs of response incurred by any other person.' Surely to say that A shall be liable to B is the express creation of a right of action."¹⁵

With this backdrop, the federal Circuit Courts of Appeals started to weigh in on the relationship between Sections 107 and 113. From the mid to late 1990s, they effectively reversed course and narrowed the scope of Section 107 cost recovery rights for PRPs. These courts held that a PRP was limited to a Section 113 contribution action against other PRPs and did not have a right of cost recovery available under Section 107.¹⁶ Part of the rationale was that Section 113 would be rendered meaningless if a PRP were allowed a claim under Section 107. Thus, the right of cost of recovery under Section 107 for PRPs had been essentially eliminated by the Circuit Courts within a few years after Key Tronic. Governments still had Section 107 available to them for cost recovery against PRPs, but a PRP was limited to Section 113 contribution for cost recovery of cleanup costs.

In the 2004 case of Aviall, the cost recovery avenue through Section 113 was eliminated by the Supreme Court for a PRP who performed a voluntary cleanup.¹⁷ Aviall held that a PRP who had not first been sued under CERCLA could not use Section 113(f)(1) for contribution, contrary to the Circuit Courts who would have likely allowed contribution for a voluntary cleanup. The Court reached its conclusion by applying a literal interpretation of the express terms of Section 113(f)(1). The Court chose not to consider the question of whether Section 107 was available to such a PRP for cost recovery.

With the Circuit Courts having shut down Section 107 as a path to cost recovery for PRPs who perform voluntary cleanups, and the Supreme Court shutting down Section 113, cost recovery by PRPs who performed voluntary cleanups looked bleak. Such PRPs would have to get sued first or settle with the government pursuant to Section 113(f)(3)(B) to ensure contribution rights against other PRPs to recover cleanup dollars. To make matters worse for these PRPs, some District Courts narrowly construed Section 113(f)(3)(B) to limit the circumstances that would create the right of contribution under Section 113(f)(3)(B). For example, some courts held that only settlements with EPA under CERCLA, not State settlements, would create such a right, and even EPA settlements had to have comprehensive language resolving all CERCLA liability without reopeners.¹⁸

As darkness set in for PRPs performing voluntary cleanups in the aftermath of Aviall, some Circuit Courts saw the light and began to allow Section 107 cost recovery actions for PRPs who were ineligible for contribution under Section 113.¹⁹ One Circuit Court, however, refused to change its prior holding that prohibited a PRP from using Section 107 for costs recovery even where the PRP was ineligible for Section 113 contribution.²⁰ The stage was set for the Supreme Court to resolve the issue.

Atlantic Research Decision

Atlantic Research held that a PRP who performs a voluntary cleanup may use Section 107 for cost recovery against another PRP. Like it did in Aviall, the Court followed an express language interpretation of the statute.

Atlantic Research leased property at the Shumaker Naval Ammunition Depot, a facility operated by the Department of Defense. At the site, Atlantic Research retrofitted rocket motors for the United States. Using a high-pressure water spray, Atlantic Research removed pieces of propellant from the motors. It then burned the propellant pieces. Some of the resultant wastewater and burned fuel contaminated soil and groundwater at the site.

Atlantic Research voluntarily cleaned the site at its own expense without any governmental order requiring it to do so and then sought to recover some of its costs by suing the United States under both Section 107(a) and Section 113(f). After Aviall foreclosed relief under Section 113(f), Atlantic Research amended its complaint to seek relief under Section 107(a) and federal common law. The United States moved to dismiss, arguing that Section 107(a) does not allow PRPs (such as Atlantic Research) to recover costs. The District Court granted the motion to dismiss.

The parties' dispute centered on what "other person[s]" may sue under Section 107(a)(4)(B). The Government argued that "any other person" refers to any person not identified as a PRP in Sections 107(a)(1)-(4) (i.e. owners, operators, arrangers, and transporters). In other words, the government argued, subparagraph (B) permits suit only by non-PRPs and thus bars Atlantic Research's claim. Atlantic Research countered that subparagraph (B) takes its cue from subparagraph (A), not the earlier paragraph (1)-(4). In accord with the Eighth Circuit's reversal of the District Court decision, Atlantic Research believed that subparagraph (B) provides a cause of action to anyone except the United States, a State, or an Indian tribe-the persons listed in subparagraph (A).

Reading the express provisions of the statute literally, plainly and as a whole, the Court wrote that the language of subparagraph (B) can be understood only with reference to subparagraph (A).²¹ The provisions are adjacent and have remarkably similar structures, according to the Court. Each concerns certain costs that have been incurred by certain entities and that bear a specified relationship to the national contingency plan. Bolstering the structural link, the text also denotes a relationship between the two provisions. By using the phrase "other necessary costs," subparagraph (B) refers to and differentiates the relevant costs from those listed in subparagraph (A).

In light of the relationship between the subparagraphs, wrote the Court, it is natural to read the phrase "any other person" by referring to the immediately preceding subparagraph (A), which permits suit only by the United States, a State, or an Indian tribe. The phrase "any other person" therefore means any person other than those three. Consequently, concluded the Court, the plain language of subparagraph (B) authorizes cost-recovery actions by any private party, including PRPs.

In doing so, the Court rejected various government arguments, some of which raise issues that will likely get litigated in the future. The Court rejected the government's argument that subparagraph (B) refers only to "innocent" persons, not PRPs,²² reasoning that acceptance of the government's argument would reduce the number of potential plaintiffs to almost zero, rendering subparagraph (B) a dead letter.

The Court also rejected the government's argument that the Court's interpretation would create conflict between Sections 107 and 113, the type of conflict that the Courts of Appeals tried to avoid. One feared conflict was that allowing PRPs a Section 107 claim would allow them to circumvent Section 113's shorter statute of limitations. Another feared conflict was that PRPs would eschew Section 113 in favor of Section 107's joint and several liability. Finally, the government claimed that allowing PRPs a Section 107 claim would eviscerate the contribution protection provided by Section 113.

In rejecting the government's arguments, the Court first distinguished between cost recovery and contribution to explain the "clearly distinct remedies" under Section 107 and Section 113.²³ Citing Black's Law Dictionary, the Court defined "contribution" as the "tortfeasor's right to collect from others responsible for the same tort after the tortfeasor has paid more than his or her proportionate share, the shares being determined as a percentage of fault." Thus, said the Court, Section 113(f)(1) permits suit before or after the establishment of common liability. A PRP's right to contribution under Section 113(f)(1) is contingent upon an inequitable distribution of common liability among liable parties, explained the Court.

By contrast, Section 107(a) permits recovery of cleanup costs, wrote the Court, but does not create a right to contribution. A private party may recover under Section 107(a) without any establishment of liability to a third party. Moreover, explained the Court, Section 107(a) permits a PRP to recover only the costs it has "incurred" in cleaning up a site. When a party pays to satisfy a settlement agreement or a court judgment, it does not incur its own costs of response. Rather, it reimburses other parties for costs that those parties incurred.

Accordingly, concluded the Court, the remedies available in Sections 107(a) and 113(f) complement each other by providing causes of action "to persons in different procedural circumstances." Section 113(f)(1) authorizes a contribution action to PRPs with common liability stemming from an action instituted under Section 106 or Section 107(a). And Section 107(a) permits cost recovery (as distinct from contribution) by a private party that has itself incurred cleanup costs. Hence, a PRP that pays money to satisfy a settlement agreement or a court judgment may pursue Section 113(f) contribution. But by reimbursing response costs paid by other parties, the PRP has not incurred its own costs of response and therefore cannot recover under Section 107(a). As a result, though eligible to seek contribution under Section 113(f)(1), the PRP cannot simultaneously seek to recover the same expenses under Section 107(a). Thus, the PRP cannot choose the desired statute of limitations, explained the Court.

The Court reserved for another day the issue of whether expenses incurred pursuant to a government order are recoverable under Section 107 or Section 113 because those expenses would not be "voluntary." This issue is now being litigated in some District Courts across the country.

As to joint and several liability, the Court assumed without deciding that Section 107 provides for joint and several liability.²⁴ It said that any perceived inequities of allowing a PRP a joint and several liability claim under Section 107 could be remedied by the defendant filing a Section 113 counterclaim that would trigger an equitable apportionment of liability between the parties.

The Court further explained that contribution protection would still be effective because it would bar claims for contribution under Section 113.²⁵ The settlement bar, however, did not stop cost recovery under Section 107 claims. The Court believed that its interpretation would not discourage settlement because a defendant always had the right of a contribution counterclaim to a Section 107 claim to show that it already paid its fair share in settlement.

Where Are We Going From Here?

After auditing your cleanup strategies in light of Atlantic Research, keep your seatbelts fastened until the Supreme Court has turned off the litigation sign. Until the Supreme Court decides if compelled cleanups permit a Section 107 or a Section 113 claim, PRPs seeking cost recovery may prefer to perform a voluntary cleanup to assure themselves of a Section 107 claim. On the other hand, a PRP client has to weigh other interests, such as insurance coverage that is triggered only by compelled cleanup costs, with the risk that a Court would bar cost recovery to such a PRP.

PRPs need to closely look at jurisdictional issues and see if there are other options available to them other than a cleanup order. Some agencies are more flexible in looking for creative ways to achieve the desired result of cleanup. Sometimes leverage needs to be applied, so pointing out limitations on governmental jurisdiction may help an agency become more creative. It remains to be seen if an administrative order on consent establishes enough "voluntariness" to permit a Section 107 claim, or whether the compelling nature of the order may warrant different treatment. Moreover, it remains to be seen whether an order on consent establishes a "common liability" that would limit the respondent to a Section 113 claim for contribution. The terms of the order will likely play a significant role in this issue.

New issues will arise in drafting enforcement and settlement documents. Can you draft an "order" that is "voluntary" in nature such that it would allow a Section 107 claim? What happens if the cleanup order is under RCRA instead of CERCLA? What if it is under state law? Would a RCRA order or a state law order trigger rights under CERCLA? The order may have to expressly address CERLCA to increase the probability of obtaining the desired effect.

What does the "establishment of a common liability" really mean when you are settling if one of your goals is to preserve a contribution claim? Most settlements have "no admission" clauses, so how would such a clause affect the analysis that a settlement establishes a common liability? While one could argue that settlement with a state or the federal government is all one needs to preserve a Section 113 claim, one must be prepared for some new arguments that the settlement may have to establish a "common liability" under CERCLA before the right to "contribution" under any subparagraph of Section 113 is perfected.

What are the incentives to settle if contribution protection will not bar a Section 107 cost recovery claim from other PRPs who choose not to settle? If you are one of the non-settling PRPs, you may now have more leverage than you previously believed. What type of contribution protection will you seek, if any, in settlement documents? Is there another way to settle now to get finality if there are other PRPs who have not settled and will perform the cleanup? There will likely be new efforts to re-open some previous settlements that have a contribution protection clause. While the Court says that a settling PRP can always raise a contribution counterclaim, clients prefer not having to be dragged into court in the first instance and paying lawyers to prove that the client already paid its equitable share.

Renewed litigation interest in joint and several liability is inevitable, as well as the interplay between Sections 107 and 113. A renewed interest may also be found in the cases decided before the mid-1990s when the Circuit Courts started restricting Section 107.

In conclusion, CERCLA litigation is as interesting now, for practitioners (but not clients), as it was 20 years ago. More surprises are due. Practitioners should regularly audit their cleanup and cost recovery strategies as caselaw develops.

¹ United States v. Atlantic Research Corp., __ U.S. __, 127 S.Ct. 2331 (2007).

² Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. 9601-9675, a.k.a. "Superfund."

³ Cooper Industries, Inc. v. Aviall Services, Inc., 543 U.S. 157, 161-162 (2004).

⁴ Id.

⁵ Id. (citing cases).

⁶ Id. at 162.

⁷ Id.

⁸ Id. (citing cases).

⁹ This paper uses the term "cost recovery" in a broader, pragmatic sense of any person trying to recover their costs from another person. Whatever label is used, clients just want to recover some or all of their money from others who should be paying some or all of the costs.

¹⁰ Key Tronic Corp. v. United States, 511 U.S. 809 (1994).

¹¹ Id. at 816.

¹² Id. at 818.

¹³ Aviall, at 172 (Ginsburg, J., dissenting).

¹⁴ Id.

¹⁵ Id.

¹⁶ Id. at 169 (citing Bedford Affiliates v. Sills, 156 F.3d 416, 423-424 (C.A.2 1998); Centerior Serv. Co. v. Acme Scrap Iron & Metal Corp., 153 F.3d 344, 349-356 (C.A.6 1998); Pneumo Abex Corp. v. High Point, T. & D.R. Co., 142 F.3d 769, 776 (C.A.4 1998); Pinal Creek Group v. Newmont Mining Corp., 118 F.3d 1298, 1301-1306 (C.A.9 1997); New Castle County v. Halliburton NUS Corp., 111 F.3d 1116, 1120-1124 (C.A.3 1997); Redwing Carriers, Inc. v. Saraland Apartments, 94 F.3d 1489, 1496, and n. 7 (C.A.11 1996); United States v. Colorado & E.R. Co., 50 F.3d 1530, 1534-1536 (C.A.10 1995); United Technologies Corp. v. Browning-Ferris Industries, 33 F.3d 96, 98-103 (C.A.1 1994)).

¹⁷ Cooper Industries, Inc. v. Aviall Services, Inc., 543 U.S. 157 (2004).

¹⁸ Differential Dev.-1994, Ltd. v. Harkrider Distrib. Co., 470 F. Supp.2d 727, 738-43 (S.D.Tex.2007); Niagara Mohawk Power Corp. v. Conrail, 436 F. Supp.2d 398, 402 (N.D.N.Y.2006); ASARCO, Inc. v. Union Pac. R.R. Co., No. 04-2144, 2006 WL 173662, *7 (D.Ariz. Jan. 24, 2006); Pharmacia Corp. v. Clayton Chemical Acquisition LLC, 382 F. Supp.2d 1079, 1084-1086 (S.D.Ill. 2005); BASF Catalysts LLC v. United States, 479 F. Supp.2d 214, 218-220 (D.Mass. 2007).

¹⁹ Consolidated Edison Co. of N.Y. v. UGI Utilities, Inc., 423 F.3d 90 (C.A.2 2005); Metropolitan Water Reclamation Dist. of Greater Chicago v. North American Galvanizing & Coatings, Inc., 473 F.3d 824 (C.A.7 2007).

²⁰ E.I. DuPont de Nemours & Co. v. United States, 460 F.3d 515 (C.A.3 2006).

²¹ United States v. Atlantic Research Corp., __ U.S. __, 127 S.Ct. 2331, 2336 (2007).

²² Id. at 2336-2337.

²³ Id. at 2337-2338.

²⁴ Id. at 2338-2339, n. 7

²⁵ Id. at 2339.