Ninth Circuit Addresses Several CERCLA Issues of First Impression in the Circuit

In AmeriPride Services Inc. v. Texas Eastern Overseas Inc., the Ninth Circuit examined several issues under CERCLA, some of which were issues of first impression in the Circuit, including:

1. whether a district court must apply a specific method of allocating the set-off for settlements between private CERCLA parties, 
2. whether a party’s right to seek contribution for costs paid in third-party settlements requires an independent analysis of whether the settlement costs were “necessary” response costs incurred consistent with the National Contingency Plan (“NCP”), and
3. how to properly determine the date on which prejudgment interest begins to accrue in private party CERCLA cost recovery actions.1

The facts of the case are complicated, but worth reciting because they were essential to the Ninth Circuit’s analysis. The case involved PCE contamination at an industrial site located in Sacramento, California (“Site”). Valley Industry Services (“VIS”) had operated a dry cleaning and laundry business at the Site for 17 years, and had later merged with Texas Eastern Overseas, Inc. (“TEO”), which assumed VIS’s liabilities. During a portion of the time VIS operated at the Site, VIS was a wholly owned subsidiary of Petrolane, Inc. (“Petrolane”).

 

In 1983, Petrolane sold the Site, which eventually came under the ownership of AmeriPride Services Inc. (“AmeriPride”). During AmeriPride’s period of Site ownership, additional PCE was released into soil and groundwater. Contamination spread onto adjacent property owned by Huhtamaki Foodservices (“Huhtamaki”), and contaminated groundwater wells owned by California-American Water Company (“Cal-Am”). Chromalloy American Corporation (“Chromalloy”), a nearby property owner, also contributed to the contamination at the Site.

 

Upon discovering PCE in soil, AmeriPride contacted regulatory authorities and was instructed to conduct sampling and install monitoring wells at the Site. A State agency then took regulatory control of the Site, and AmeriPride incurred costs in connection with Site investigation and remediation under the authority of the State agency.

 

In 2000, AmeriPride filed an action in the District Court for the Eastern District of California against VIS, Petrolane, TEO, and Chromalloy under CERCLA sections 107 and 113. TEO asserted a counterclaim under CERCLA section 113 for contribution. While the litigation was pending, AmeriPride settled with Chromalloy and Petrolane, for $0.5 million and $2.75 million, respectively.
 

Thereafter, Cal-Am and Huhtamaki  separately sued AmeriPride, which settled each matter in exchange for a release of claims. AmeriPride paid Cal-Am $2 million to settle claims for response costs, damages, and other relief relating to well contamination, and paid Huhtamaki $8.25 million to settle claims for cost recovery claims under CERCLA and state law, as well as common law causes of action for nuisance, trespass, and negligence. The district court approved these settlements in an order that noted that it would apply the “proportionate share approach” of the Uniform Comparative Fault Act, (“UCFA”) for purposes of determining how the settlements would impact the nonsettling parties.

 

On summary judgment, the district court found that TEO was responsible for AmeriPride’s response costs under CERCLA section 107 as a matter of law, but required AmeriPride to seek contribution for its settlement amounts paid to Cal-Am and Huhtamaki under CERCLA section 113, and permitted AmeriPride to amend its complaint to assert its claims for those costs under section 113. The district court did not address whether the Cal-Am and Huhtamaki settlements were for necessary response costs incurred consistent with the NCP, although it noted that AmeriPride’s other response costs satisfied that requirement. The district court set a bench trial to resolve remaining issues.

 

Following the bench trial, the district court entered a judgment against TEO, finding that AmeriPride had incurred $15,508,912 in damages, subject to equitable allocation. This amount was calculated by subtracting the $3.25 million in settlement payments AmeriPride received from Chromalloy and Petrolane from a calculated $18,758,912 in total response costs. Next, the district court allocated the $15,508,912 amount equally between AmeriPride and TEO. Following unsuccessful post-trial motions, TEO timely appealed the district court’s judgment.

 

On appeal, TEO first argued that CERCLA requires that district courts apply the “proportionate share approach” of the UCFA  to determine how to credit settlements in cases involving private settlements with a subset of the potentially responsible parties.

 

As the Ninth Circuit explained, under the UCFA “proportionate share approach,” when an injured party settles with one of multiple tortfeasors, the settlement reduces the injured party’s claims against the nonsettling tortfeasors by the amount of the settling tortfeasor’s proportionate share of the damages without regard to the dollar amount of the settlement. Under this approach, the nonsettling tortfeasors are responsible only for their proportionate share of the costs, even if the settling tortfeasor settles for less than its fair share of the injury. Therefore, the nonsettling tortfeasor bears the risk of not being fully reimbursed for all of its recoverable costs.

 

In contrast, under the “pro tanto approach” of the Uniform Contribution Among Tortfeasors Act (“UCATA”),  when an injured party settles with one of multiple tortfeasors, the settlement reduces the injured party’s claims against the nonsettling tortfeasors by the dollar amount of the settlement. Under this approach, if a settling tortfeasor settles for less than its proportionate share of the injury, the nonsettling tortfeasors will pay more than their proportionate share of the injury. Similarly, if a settling tortfeasor settles for more than its  proportionate share, the nonsettling tortfeasors may reap a benefit.

 

Consistent with First Circuit jurisprudence, and contrary to Seventh Circuit jurisprudence, the Ninth Circuit held that in allocating liability to a nonsettling defendant in a CERCLA contribution action between two private parties, the district court is not required to apply either the UCFA “proportionate share approach” or the UCATA “pro tanto approach,” but instead enjoys discretion to determine the most equitable method of apportionment. The Ninth Circuit noted that imposing a mandatory directive was contrary to congressional intent behind CERCLA. Specifically, the Court found compelling the fact that CERCLA expressly requires the use of the UCATA “pro tanto approach” when the federal or state government settles with a private party, but is silent on what approach to use with respect to settlements between private parties. The Ninth Circuit interpreted that silence to mean that “Congress did not intend to impose a uniform requirement for a particular approach in private party settlements.

 

Despite the Ninth Circuit’s conclusion that district courts have discretion to determine the method for allocating settlement set-offs in the context of private party settlements under CERCLA , the Court nevertheless vacated the district court’s judgment and remanded the case.  In doing so, the Ninth Circuit reasoned that because the district court first ruled that it was adopting the UCFA “proportionate share approach,” but then effectively applied the UCATA “pro tanto approach,” TEO did not have a reasonable opportunity to present evidence and argument regarding the fairness of the court’s allocation. Therefore,  remand was necessary to give the district court an opportunity to explain how its approach complied with CERCLA section 113 and furthered the goals of CERCLA, whether under the UCFA “proportionate share approach” or the UCATA “pro tanto approach.”  

 

On appeal, TEO also argued that the district court made two other legal errors in calculating the amount subject to equitable allocation, by failing to determine whether AmeriPride’s settlements with Huhtamaki and Cal-Am were solely for “necessary” response costs incurred consistent with the NCP, and by basing the prejudgment interest accrual date on the date the costs were incurred by AmeriPride on the grounds that the interest accrual date was a matter of equity rather than statutory requirement.

 

In accordance with the Tenth Circuit’s jurisprudence and based on “the statutory scheme as a whole,” the Ninth Circuit found that consistency with the NCP is an element of a CERCLA section 113 claim, as is the case with a CERCLA section 107 claim. The Court first examined the structure of CERCLA, noting that section 113 incorporates section 107 to the extent it delineates the nature of recoverable costs. Next, the Court reasoned that allowing a party to recover settlement money in a contribution action without first requiring the party to prove that the settlement reimbursed the recipient for necessary response costs incurred consistent with the NCP could produce incongruous results—as, for example—AmeriPride could successfully defend a 107 action by Huhtamaki or Cal-Am by establishing inconsistency with the NCP, settle with Huhtamaki and Cal-Am for liability under state law, and then seek contribution under CERCLA section 113 against TEO for the settlement monies it paid. Therefore, the Ninth Circuit concluded that the district court erred in failing to determine the extent to which the amounts paid by AmeriPride to Cal-Am and Huhtamaki were incurred for necessary response costs consistent with the NCP.

 

With respect to the issue of the prejudgment interest accrual date, the Ninth Circuit concluded that because CERCLA section 113 incorporates the liability provisions of section 107, the district court was not free to exercise discretion in determining the methodology for calculating prejudgment interest. Rather, the Ninth Circuit joined the majority of other circuits having addressed the issue and concluded that the 107 prejudgment interest provision—stating that interest accrues from the later of the date of a payment demand or the date of an expenditure—was to be read into the contribution provisions under CERCLA section 113. As a result, on remand, the Ninth Circuit instructed the district court to apply the statutory interest provision in CERCLA section 107 to determine when interest began to accrue on the costs incurred by AmeriPride. 

 

       1  The Ninth Circuit also considered a discrete state law issue—whether the assignment of a party’s causes of action for recovery against its insurers  is proper under California Code of Civil Procedure section 708.510—and concluded that it was not, as that section limits assignments to “all or part of a payment due,” which does not include causes of action.

 

- Rick Coffin, Marc Zeppetello, and Sherry Jackman

 

For more information, contact Rick Coffin at rcc@bcltlaw.com or (415) 228-5420, Marc Zeppetello at maz@bcltlaw.com or (415) 228-5496, or Sherry Jackman at sej@bcltlaw.com or (415) 228-5412.

EPA Announces Final Rule Eliminating ASTM Phase I ESA Standard E1527-05 from CERCLA “All Appropriate Inquiries Rule”

On October 6, 2014, the EPA announced a final rule amending the “All Appropriate Inquiries Rule” [40 CFR Part 312] (“AAI Rule”) for conducting environmental site investigations of potentially contaminated property.

The final rule removes reference to the ASTM International 2005 standard – ASTM E1527-05 – as an acceptable standard for undertaking “all appropriate inquiries” necessary to qualify for certain liability protections under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), including the bona fide prospective purchaser defense and innocent landowner defense. In June of this year, EPA had announced its intention to eliminate the reference to the 2005 standard, which was replaced in 2013 by an updated standard, ASTM 1527-13, that contains new requirements.

The purpose of the final rule is to “reduce any confusion associated with the regulatory reference to a historical standard that is no longer recognized by its originating organization [ASTM International] as meeting its standards for good customary business practice.”

EPA also believes that its final rule will promote the use of the updated 2013 ASTM standard. As EPA notes, most environmental professionals are likely already using the updated standard, described as “a currently recognized industry consensus-based standard to conduct all appropriate inquiries as provided under CERCLA.”

The effective date for the new rule is October 6, 2015, “to provide parties with an adequate opportunity to complete AAI investigations that may be ongoing [under the 2005 standard] and to become familiar with the updated industry standard (ASTM E1527-13).”

For more information on the AAI Rule and the updated ASTM 1527-13 standard, see our prior blog post.

-- Don Sobelman and Nicole Martin

For more information, contact Don Sobelman at des@bcltlaw.com or (415) 228-5456, or Nicole Martin at nmm@bcltlaw.com or (415) 228-5435.

Debtors Beware: Resolving Environmental Liabilities in a Judicially Approved Bankruptcy Settlement Triggers the Statute of Limitations on CERCLA Contribution Claims

When an entity that has filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code resolves its environmental liability to a state or the United States via a settlement agreement, there are several steps involved in the process.  Typically, the debtor and the state or United States will first execute a written settlement agreement.  The parties will then submit that agreement for approval by the bankruptcy court.  If the bankruptcy court approves the settlement, it will issue a written approval.  The settlement is then incorporated into the plan of reorganization.  If the bankruptcy court approves the plan of reorganization, it will issue a written confirmation. 

Given the numerous steps involved in the process, the debtor entity may be uncertain as to which of the steps starts the clock on its statute of limitations for contribution claims under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) subsection 113(f).  The relevant statute of limitations provision is CERCLA section 113(g)(3)(B), which provides: “No action for contribution for any response costs or damages may be commenced more than 3 years after . . . entry of a judicially approved settlement with respect to such costs or damages.”  42 U.S.C. § 9613(g)(3)(B).  Recent decisions issued in federal district courts in Washington, Montana, Utah, New York, and Colorado confirm that the statute of limitations under CERCLA section 113(g)(3)(B) is triggered on the date that the bankruptcy court approves a settlement agreement between the debtor and the government, not on the date that the bankruptcy court approves a plan of reorganization or the date a plan of reorganization becomes effective. 

In ASARCO LLC v. HECLA Mining Company, 2012 WL 5929962 (E.D. Wash., November 27, 2012), defendant Callahan Mining Corporation (“Callahan”) filed a motion to dismiss a CERCLA contribution claim, arguing, in relevant part, that the bankruptcy court’s approval of Asarco LLC’s (“Asarco”) settlement with the State of Washington triggered the statute of limitations under CERCLA section 113(g)(3)(B).  Asarco argued that the statute of limitations did not begin to run until either the bankruptcy court approved the confirmed plan of reorganization or the plan of reorganization became effective.  Asarco further argued that even if its settlement with Washington triggered the statute of limitations, its complaint was still timely when the rules for computing time under Rule 6(a) of the Federal Rules of Civil Procedure are applied.  The district court denied Callahan’s motion to dismiss, stating that Rule 6(a) was relevant in determining the statute of limitations and thus impliedly holding that the triggering event for Asarco’s contribution claim was the judicial approval of the bankruptcy settlement, not the approval of the confirmed plan of reorganization or the effective date of the plan of reorganization.  2012 WL 5929962 at *5.  

In ASARCO LLC v. Atlantic Richfield Co., 2012 WL 5995662 (D. Mont. Nov. 30, 2012), defendant American Chemet Corporation (“American”) similarly moved to dismiss a CERCLA contribution claim on statute of limitations grounds, arguing that Asarco resolved its liabilities in settlement agreements with the United States Environmental Protection Agency (“EPA”) that were judicially approved in 1990 and 1998.  In response, Asarco argued that the statute did not begin to run until either the bankruptcy court approved the confirmed plan of reorganization or the plan of reorganization became effective.  The district court denied American’s motion to dismiss, but held that, “The plain language of § 9613(g)(3)(B) contradicts [Asarco’s] contention that the statute of limitations did not begin to run until its Reorganization Plan was either approved by the Bankruptcy Court or became effective.”  2012 WL 5995662 at *2.  The court held that the statute of limitations runs from the date of the entry of the settlement agreement, not the date that each provision of that settlement takes effect.  Id.

In a third case, ASARCO LLC v. Xstrata PLC, 2013 WL 2949046 (D. Utah, June 14, 2013), defendant Xstrata PLC (“Xstrata”) filed a motion to dismiss, arguing that Asarco’s CERCLA contribution complaint was filed outside the applicable statute of limitations under CERCLA section 113(g)(3)(B) because more than three years had passed since the bankruptcy court approved a private party settlement relating to Asarco’s environmental liabilities.  Asarco argued the entry of the order approving the private party bankruptcy settlement did not trigger the statute of limitations; it was triggered when Asarco’s plan of reorganization became effective because that is when the amount of liability under the private agreement was fixed.  The court rejected both parties’ arguments and denied the motion to dismiss, reasoning that under CERCLA section 113(g)(3)(B), the triggering date for the statute of limitations was the bankruptcy court’s June 5, 2009 approval of a settlement entered between Asarco and EPA, which gave rise to Asarco’s right to contribution under CERCLA section 113(f)(3)(B).  2013 WL 2949046 at *3-5.  Because Asarco filed its complaint on June 5, 2012, its complaint was timely.  Id. at *5. 

In a fourth case, Asarco LLC v. Goodwin, U.S. District Court, S.D.N.Y., Case No. 1:12-cv-03749, Docket Nos. 30-32, defendant trustees filed a motion to dismiss Asarco’s CERCLA contribution claim, arguing that the bankruptcy court’s approval of Asarco’s settlement of its environmental liabilities with the State of Washington more than three years prior to the date of Asarco’s original complaint triggered the statute of limitations under CERCLA section 113(g)(3)(B) and barred Asarco’s claim.  Asarco argued that its claims were timely because the statue of limitations was not triggered until the amount of its liability was fixed, which occurred when its plan of reorganization was confirmed.  Case No. 1:12-cv-03749, Docket No. 35.  The court rejected Asarco’s argument and granted the defendant trustees’ motion to dismiss on the basis that Asarco’s claims were time-barred, among other reasons.  Case No. 1:12-cv-03749, Docket No. 41 and transcript of hearing on motion to dismiss.     

Finally, in ASARCO LLC v. Union Pacific Railroad Company, 2013 WL 5291422 (D. Colo., September 19, 2013), the court adopted the recommendation of the magistrate judge and granted defendants’ Union Pacific Railroad Company (“Union Pacific”) and Pepsi-Cola’s (“Pepsi”) motions to dismiss.  Both Union Pacific and Pepsi argued that Asarco’s CERCLA contribution complaint was time barred under CERCLA section 113(g)(3)(B) because more than three years had elapsed since the date that the bankruptcy court approved a settlement between Asarco and EPA.  Asarco argued that the statute did not begin to run until the bankruptcy court approved the confirmed plan of reorganization and the plan of reorganization became effective.  The court held that “the date a settling party makes payment is irrelevant” and that the statute of limitations was triggered by the bankruptcy court’s entry of the settlement between Asarco and EPA.  2013 WL 5291422 at *5.  The court cited the Atlantic Richfield Co. and Xstrata opinions (supra) as persuasive authority. 

Based on these decisions, debtors who resolve their environmental liability to a state or the United States via settlement should be prepared to file any claims for contribution under CERCLA subsection 113(f) within three years of the date that the bankruptcy court issues its approval of the settlement agreement. 

--Estie Kus

For more information, contact Estie Kus at (415) 228-5463 or emk@bcltlaw.com.

Third Circuit Holds That Settlement With a State Agency Is Sufficient to Give Rise to CERCLA 113(f)(3)(B) Contribution Claim

Since the Supreme Court’s decisions in Cooper Industries, Inc. v. Aviall Services, Inc., 543 U.S. 157 (2004) and United States v. Atlantic Research Corp., 551 U.S. 128 (2007), there has been continuing uncertainty about whether a CERCLA potentially responsible party (“PRP”) can bring a cause of action for contribution against other PRPs under CERCLA §113(f) where the PRP has settled with a state agency under state law, but has not resolved its liability with the U.S. EPA or a state agency via an “administrative or judicially approved settlement” under CERCLA. 

This issue, which Cooper Industries and Atlantic Research left undecided, is of importance to any PRP that has resolved its liability under state environmental laws without settling CERCLA claims and then seeks contribution for response costs.

In Trinity Industries, Inc. v. Chicago Bridge & Iron Co., 2013 WL 4418534 (3d Cir. Aug. 20, 2013), the Third Circuit  allowed such a contribution action to proceed, holding that CERCLA Section 113(f)(3)(B) “requires only the existence of a settlement resolving liability to the United States or a state ‘for some or all of a response action’” to support a PRP’s contribution claim.  Id. at *3-5.  The Third Circuit’s decision provides further insight into this important issue, but signals a circuit split that may require further clarification from the Supreme Court.

Trinity Industries, Inc. and Trinity Industries Railcar Corporation (“Trinity”) entered into a consent order with the Commonwealth of Pennsylvania naming Trinity as a “responsible person” for the release of hazardous substances at a site that it owned and had for some period used for manufacturing railcars.  The consent order required Trinity to undertake remediation of the site under the supervision of the Pennsylvania Department of Environmental Protection.  The consent order was entered under state environmental laws and did not explicitly resolve Trinity’s liability under CERCLA.  Trinity subsequently filed a contribution claim under CERCLA § 113(f)(3)(B) against a former owner of the site for a share of the remediation costs.

Persuaded by arguments of both Trinity and the United States, which filed an amicus brief in support of Trinity’s position, the court of appeals agreed that the statutory language of CERCLA § 113(f)(3)(B) does not require resolution of CERCLA liability in order to pursue a Section 113(f)(3)(B) contribution claim.  Rather, it only requires the existence of a settlement resolving liability to the United States or a state “for some or all of a response action.”  “Section 113(f)(3)(B) does not state that the ‘response action’ in question must have been initiated pursuant to CERCLA – a requirement that might easily have been written into the provision.”  Trinity Industries, 2013 WL 4418534 at *4.  The court also noted that because remediation standards established under state law were considered “applicable, relevant and appropriate” to satisfy requirements under CERCLA and that compliance with those state remediation standards relieved a party from CERCLA liability, the consent order at issue had eliminated the risk of future CERCLA enforcement actions by the government.  Id. at *5.

The Third Circuit’s decision in Trinity Industries conflicts with the Second Circuit’s holding that CERCLA § 113(f)(3)(B) only allows for contribution claims where a PRP’s liability under CERCLA has been resolved.  See, e.g., Consol. Edison Co. of N.Y., Inc. v. UGI Utils., Inc., 423 F.3d 90, 95 (2d Cir. 2005); W.R. Grace & Co. v. Zotos Int’l, Inc., 559 F.3d 85, 91 (2d Cir. 2009).  In declining to follow the Second Circuit, the Trinity Industries court notes that the Second Circuit’s Consolidated Edison decision relied on the legislative history of CERCLA § 113(f)(1) rather than Section 113(f)(3)(B).  The Third Circuit’s decision instead relied on the plain language of Section 113(f)(3)(B), and relevant legislative history, as well as Third Circuit precedent that declined to impose a requirement that a government agency specifically invoke CERCLA in its oversight activities as a condition precedent to bringing a CERCLA cost recovery action.  Trinity Indus., 2013 WL 4418534 at *4-5 (citing United States v. Rohm & Haas Co., 2 F.3d 1265 (3d Cir. 1993)). 

-- Tom Boer and Nicole Martin

For more information, please contact Tom Boer at (415) 228-5413, jtb@bcltlaw.com, or Nicole Martin at (415) 228-5435, nmm@bcltlaw.com.