Likely Increase in Cases Addressing CERCLA Private Party Cost Recovery and Contribution Issues in 2009

January 8, 2009
Client Alert Newsletter Forecast 2009

In our 2008 Client Alert Forecast edition, we predicted a likely increase in the filing of private party cost recovery actions in the wake of the U.S. Supreme Court decision in United States v. Atlantic Research Corp., which held that a party that has engaged in a voluntary cleanup of a contaminated site may recover costs from other potentially responsible parties ("PRPs") under Section 107(a) of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), providing a separate remedy from Section 113(f), which grants a PRP the right to seek contribution from other parties only where it has been compelled to pay (by court judgment or government settlement) more than its fair share of a joint liability. As noted last year, while Atlantic Research restored incentives for PRPs to clean up polluted sites even before the government required them to do so, the decision left open several other potential issues, including: whether cleanup costs incurred by a PRP pursuant to a consent decree following an EPA administrative enforcement action are recoverable under Section 107(a), Section 113(f), or both; whether a PRP who has agreed to perform a response action under a federal or state agency consent order can bring an action under Section 107(a); and whether parties that have settled their cleanup liability with the government in exchange for "contribution protection" can be exposed to cost recovery actions brought by other PRPs under Section 107(a).

Looking forward to 2009 and beyond, as companies look for ways to recoup cleanup costs in a down economy, we anticipate a continued increase in private party cost recovery and contribution actions, where the above unresolved and additional related issues may be addressed by the courts. Indeed, we have already seen several recent cases addressing the scope and rights of parties in CERCLA cost recovery and contribution actions, including the recent decision of the U.S. District Court for the Western District of Washington in Port of Tacoma v. Todd Shipyards Corporation. The Port of Tacoma case illustrates the difficulties that litigants and the courts have had in defining PRP contribution rights since the Supreme Court decisions in Cooper Industries, Inc. v. Aviall Services, Inc. and Atlantic Research. The Port of Tacoma ("Port") brought a Section 113 contribution action against Todd Shipyards Corporation ("Todd"), seeking to recover costs the Port incurred in carrying out a consent decree it had entered into with the United States to resolve a Section 107 action filed against the Port. Todd subsequently asserted a third-party contribution claim against the United States, and the government moved to dismiss on the basis that Todd had not been directly sued under Section 106 or Section 107.

In September 2008, the Court denied the government's motion, concluding based on a narrow reading of Aviall and Atlantic Research that Todd's contribution claim could proceed because its potential liability "stemmed" from the liability the Port incurred as a result of a Section 107 action. Four months later, however, the Court took the unusual step of reversing itself, concluding that it "committed manifest error" in allowing Todd's claim to proceed. In so doing, the Court discredited the earlier distinction it had drawn between Aviall and Atlantic Research—which addressed whether a party that voluntarily incurs response costs may recover from other parties—and the Port of Tacoma case—involving whether a contribution defendant could itself pursue a contribution claim against a third party. This distinction, the Court explained, did not create an exception to the fundamental holding in Aviall and Atlantic Research that a contribution defendant must have been sued directly under Section 106 or 107 before seeking contribution from others under Section 113.

In United States v. Kramer, the U.S. District Court for the District of New Jersey also addressed the scope of CERCLA contribution claims in the context of the availability of certain defenses to liability. Specifically, the issue in Kramer was whether a divisibility of harm defense was available to a defendant in a Section 113(f) contribution action. In Kramer, a group of PRPs that entered into a consent decree with state and federal governments settling their liability with respect to the Helen Kramer Landfill in Mantua, N.J., filed a Section 113(f) contribution action against Alumax Mill Products, Inc. ("Alumax"), a non-settling PRP, alleged to have disposed of its hot mill waste on the landfill's roads. Opposing a motion for summary judgment on liability, Alumax argued that while its hot mill waste contained some of the hazardous substances identified by the settling PRPs (such as copper and zinc), the waste did not contain all the hazardous substances, including phenol and chromium, and thus, Alumax was entitled to assert a divisibility defense to liability under CERCLA. The Court disagreed with Alumax, distinguishing between application of the defense in CERCLA contribution and cost recovery actions. In the latter, courts may apportion liability, rather than impose joint and several liability, if a defendant can show that the harm caused by its waste is divisible. Thus, the Court held that while the divisibility defense to joint and several liability is frequently invoked in cost recovery actions under Section 107(a), it is not a defense to a contribution action under Section 113(f).

Another recent decision addressing issues specific to private-party cost recovery claims is BNSF Railway Co. v. California. In BNSF, the Burlington Northern and Santa Fe Railway Corp. ("BNSF") and the Union Pacific Railroad Co. ("Union"), defendants to a Section 107 cost recovery action brought by a redevelopment agency for costs the agency incurred to clean up a property it was developing, asserted a counterclaim against the agency for contribution seeking to recover its attorney's fees incurred, in part, to identify other parties that may also be responsible for the contamination on the agency’s property. The railroads argued that the attorney's fees they incurred were recoverable under the U.S. Supreme Court decision in Key Tronic v. United States, which held that costs "closely tied to" a contaminated site's cleanup, such as "work performed in identifying other PRPs" are recoverable as "necessary costs of response" because "tracking down other responsible solvent polluters increases the probability that a cleanup will be effective and get paid for," which in turn benefits the entire cleanup effort. The Key Tronic court further held, however, that costs incurred just "in pursuing litigation" are not recoverable response costs. Applying this distinction, the BNSF Court addressed whether the costs the railroad companies spent to identify other PRPs contributed to the cleanup of the site in any fashion, or were instead costs incurred solely to protect the railroad companies' interests as defendants to the agency's cost recovery action. The Court found that the costs incurred by the railroads did not advance the cleanup of the site and therefore were litigation expenses, not recoverable response costs under CERCLA.

The above cases illustrate a variety of the issues courts may face in deciding CERCLA private cost recovery and contribution actions as the case law continues to sort itself out in the wake of the Supreme Court's decision in Atlantic Research and as companies turn to CERCLA in looking to recover cleanup costs in the current economic downturn.