Third Circuit Addresses Settling PRPs' Rights to Cost-Recovery and Contribution Under CERCLA, by Radcliffe Dann
For potentially responsible parties ("PRPs") looking to settle their CERCLA liability, either with the government or, perhaps, with other PRPs, two important issues were left open or unclear after the Supreme Court's decision in United States v. Atlantic Research Corp., 551 U.S. 128 (2007), namely: (1) whether PRPs that incurred cleanup costs, not voluntarily but pursuant to a consent decree with EPA, are permitted to recover those costs under CERCLA § 107, § 113, or both; and (2) whether PRPs that have paid for cleanup work, pursuant to a private settlement agreement, may recoup those costs in a CERCLA cost-recovery action under § 107.
In Atlantic Research, the Supreme Court attempted to clarify the distinct causes of action available to PRPs under CERCLA §§ 107 and 113. The Court held that PRPs that incurred response costs voluntarily may only recover those costs via a cost-recovery action under § 107, while PRPs that reimburse the response costs of other parties pursuant to a legal judgment or settlement are recoverable only via a contribution action under § 113. The Court, however, specifically left open the issue of whether a party that incurs response costs pursuant to a consent decree with EPA—which, necessarily, are compelled, not voluntary, response costs—may recover those costs under § 107, § 113, or both.
This was the precise issued presented in the Third Circuit's recent decision in Agere Systems, Inc. v. Advanced Environmental Technology Corp., 602 F.3d 204 (3d Cir. 2010). The case arose from cleanup actions undertaken at the Boarhead Farms Superfund Site in Bucks County, Pennsylvania. The issues on appeal involved two sets of plaintiffs. The first set was comprised of PRPs that had entered into consent decrees with EPA, following suit under § 107, to conduct certain cleanup work at the site ("Consent Decree Plaintiffs"). The Consent Decree Plaintiffs subsequently brought § 107 and § 113 claims against the only non-settling PRP ("Non-Settling Defendant") to recover their response costs incurred under these consent decrees. The Non-Settling Defendant argued that the Consent Decree Plaintiffs could not bring a § 107 cost-recovery action and, instead, were limited to a § 113 contribution claim because, once a party has been sued or settled under CERCLA, its sole avenue of relief is § 113.
As the court noted, the issue is not simply a matter of academic interest. Indeed, a § 107 cost-recovery claim provides for joint and several liability. Thus, if PRPs like the Consent Decree Plaintiffs—who were responsible for a significant portion of the contamination at the site—may bring a § 107 cost-recovery claim, they could then shift 100 percent of the cleanup costs to the defendant PRP. This, necessarily, would result in an inequitable distribution of response costs. Typically, a defendant PRP can blunt such inequitable distribution by filing a § 113 counterclaim for contribution. Indeed, this tactic, according to the Supreme Court in Atlantic Research, prevents inequitable distribution between PRPs in a § 107 action. That tactic, however, was not available to the Non-Settling Defendant in Agere Systems because the Consent Decree Plaintiffs, by entering into the consent decrees with EPA, received protection from such contribution claims pursuant to CERCLA § 113(f)(2), which provides that "[a] person who has resolved its liability to the United States or a State in an administrative or judicially approved settlement shall not be liable for claims for contribution regarding matters addressed in the settlement." Thus, if a § 107 cost-recovery action was available to the Consent Decree Plaintiffs, the Non-Settling Defendant would have no § 113 counterclaim and, therefore, be unable to force an equitable distribution of response costs.
Because of this "perverse result," the Third Circuit held that, since the primary goal of CERCLA is to make polluters pay, plaintiffs like the Consent Decree Plaintiffs do not have a § 107 cost-recovery action against other PRPs for costs incurred pursuant to consent decrees in a CERCLA suit.
The second set of plaintiffs was comprised of PRPs that subsequently entered into a private settlement agreement with the Consent Decree Plaintiffs pursuant to which they contributed money to a trust account that was used to fund the work under the consent decrees ("Private Settlement Plaintiffs"). Thus, the Private Settlement Plaintiffs were in a different procedural position than the Consent Decree Plaintiffs. They were not a party to the consent decrees with EPA; rather, they had paid out pursuant to a private settlement agreement with the Consent Decree Plaintiffs. Therefore, based on the Supreme Court's decision in Cooper Indus., Inc. v. Aviall Serv., Inc., 543 U.S. 157 (2004), the Private Settlement Plaintiffs did not have a § 113 contribution claim because such claims are not available to parties that were never themselves sued for response costs by EPA or other PRPs. Accordingly, the Private Settlement Plaintiffs were forced to assert a § 107 claim to recover their costs against the Non-Settling Defendant.
In response, the Non-Settling Defendant argued that, because the Private Settlement Plaintiffs did not "incur" their own cleanup costs, they did not have a § 107 claim. Indeed, the Supreme Court in Atlantic Research held that a PRP may only bring a § 107 cost-recovery action to recover costs it had "incurred" in cleaning up a site, and when a party pays to satisfy a settlement agreement or court judgment, it does not "incur" response costs but, instead, reimburses other parties for costs that those parties incurred. If the Third Circuit were to accept the Non-Settling Defendant's argument, the Private Settlement Plaintiffs would be completely barred from recovering their costs under CERCLA because, as noted above, § 113 was unavailable.
Such a result, according to the Third Circuit, would discourage participation in cleanup efforts. Indeed, the court noted that PRPs will be unlikely to settle and step forward unless they know they can seek some of the amounts that they will contribute to the cleanup effort. Therefore, based on CERCLA's purposes to encourage private parties to assume financial responsibility for cleanups, the Third Circuit held that PRPs in the Private Settlement Plaintiffs' position are permitted to bring a § 107 cost-recovery action for the amounts they paid to help with cleanup, even if those costs are related to a settlement obligation with other PRPs. In that case, however, a § 113 counterclaim for contribution would be available to the PRP defendant to blunt any inequitable distribution of response costs.
Other Circuit Courts have yet to weigh in, but the Third Circuit's holding, at least in regards to the unavailability of a § 107 claim to PRPs like the Consent Decree Plaintiffs, seems to be on solid ground considering the potential inequitable distribution of response costs that would result. Thus, a PRP that has entered into a consent decree with EPA, thereby receiving contribution protection, can reasonably expect to be limited to a § 113 contribution claim to recover its costs from other PRPs.
Whether other courts follow the Third Circuit's holding in regards to the Private Settling Parties, however, is more uncertain. The court's decision may be limited to the specific facts of the case. The Supreme Court in Atlantic Research seemed to draw a clear line between "incurred" and "reimbursed" cleanup costs. Only the former could be recovered under § 107. In Agere Systems, the court permitted the Private Settling Parties to use § 107 to recover their costs paid out under the private settlement agreements. As noted above, however, those costs were paid into a trust account that was used to fund the cleanup work directly. Thus, those costs fell into a gray area between "incurred" and "reimbursed" cleanup costs. Furthermore, the court's decision may provide a perverse incentive for PRPs. Indeed, the court failed to consider that the purpose of CERCLA is not only to encourage participation in cleanup efforts, but to encourage early settlement with EPA. The court's decision may, contrary to this purpose, provide PRPs with an incentive to resist settlement with EPA and, instead, hold out for a later settlement with other PRPs that did settle with EPA. Such private settlements would not be subject to EPA enforcement—e.g., penalties for failure to comply. Thus, other courts may be reluctant to follow the Third Circuit's holding.