In United States v. Reuland Electric Company,1 the District Court for the Central District of California reined in the contribution protection afforded under three nearly identical Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) consent decrees by allowing a related common law contribution action to proceed against the protected parties. There, Reuland Electric and two other potentially responsible parties (“PRPs”) each signed consent decrees with the United States to resolve their liability for groundwater contamination in the Puente Valley Operable Unit of the San Gabriel Valley Superfund Site. Subsequently, Northrop Grumman, another PRP for the same site, paid a local water purveyor several million dollars to settle the purveyor’s claim for costs arising out of treatment systems that it had installed on two of its wells. Northrop then sought contribution to those costs from other PRPs, including those who had already been granted contribution protection pursuant to their consent decrees, by filing a common law contribution action in state court. The defendant PRPs turned to the same District Court that had entered their decrees, requesting that the court enforce the decrees by either enjoining the state court action or providing a favorable interpretation of the decrees that they might use in state court. The District Court interpreted the contribution protection language of the movants’ decrees narrowly, finding not only that the protection applied to “CERCLA response costs” exclusively, but also that the costs sought by Northrop were not, in fact, such costs. The court’s decision — and the Environmental Protection Agency’s puzzling intervention in support of Northrop Grumman — suggests that PRPs who sign consent decrees expecting comprehensive contribution protection may nevertheless remain liable to other PRPs who pursue contribution under non-CERCLA legal theories.
Per CERCLA Section 113(f)(2), “A person who has resolved its liability to the United States or a [s]tate in an administrative or judicially approved settlement shall not be liable for claims for contribution regarding matters addressed in the settlement.” Section 113(f)(2) was added to CERCLA as part of the 1986 Superfund Amendments and Reauthorization Act in an effort to induce PRPs to settle their liability with the agency overseeing the cleanup. The incentive to settle is twofold: first, Section 113(f)(2) gives the settling PRP a “measure of finality”2 by providing protection against contribution actions brought by other PRPs. Second, CERCLA’s imposition of joint and several liability means that PRPs who do not settle with the government may be left holding the bag for PRPs who settle for less than their fair share, with no recourse against early settlers. This result — the so-called “carrot and stick approach”3 — was intended by Congress to “encourage quicker, more equitable settlements, decrease litigation and thus facilitate cleanups.”4 By permitting Northrop to pursue its contribution action in state court, Reuland calls into question the value of these incentives.
Prior to the Reuland decision, several courts had acknowledged the policy rationale underlying Section 113(f)(2), and the few recognized limitations on the scope of that protection were easily consistent with the provision’s language and purpose.
For instance, in City of Emeryville v. Robinson,5 the Ninth Circuit declined to enforce a PRP’s contribution protection where the consent decree was not only between the PRP and a municipality (as opposed to “the United States or a State”), but also where the plaintiffs’ damages arose out of contamination to an entirely different site than that addressed by the decree. Similarly, Akzo Coatings, Inc. v. Aigner Corp.6 limited contribution protection only to those actions and costs logically consistent with the defendant’s consent decree. Akzo is particularly noteworthy for its dissection of the consent decree to derive its “matters addressed,” which had not been explicitly spelled out in the decree itself. As a result, the Akzo court was left to determine the scope of the defendant’s contribution protection on the basis of hints, context and other documents like the site Records of Decision. In fact, the ambiguity of this crucial term prompted the court to clarify that “if the parties have included terms explicitly describing the ‘matters addressed’ by their settlement, then those terms will be highly relevant to, and perhaps even dispositive of, the scope of contribution protection.”7
By contrast, the Reuland decrees explicitly defined “matters addressed” to include “Past” and “Future Response Costs.”8 These terms were also defined in the decrees to include “all costs... allocated to [or incurred at or relating to] the Site.”9 Reuland asserted that the costs at issue in the state court action fit this definition, as those costs arose from systems that treated the same contamination in the same groundwater body that the consent decrees “addressed” — namely, volatile organic compound (VOC) contamination in groundwater located in the Puente Valley Operable Unit (Area 4) of the San Gabriel Valley Superfund Site.
The court, however, looked beyond the plain language of the consent decrees and read into the definition of “matters addressed” a requirement that covered costs must arise specifically from “CERCLA response costs.”10 Movants argued in the alternative that even if the decrees’ contribution protection was limited to “CERCLA response costs,” the costs at issue satisfied the requirement because “response” actions, under CERCLA, are broadly defined to include “the cleanup or removal of released hazardous substances from the environment.” The court disagreed, finding that the pumping and treating of groundwater to remove VOCs did “not appear to be a ‘removal’ within the meaning of CERCLA because it is not ‘cleanup or removal... from the environment...’ rather, these systems clean the water at the wells so it can be consumed by the public.”11 Perhaps recognizing that its decision rested on a distinction without a difference, the District Court left the door open for the state court to undertake a “more in-depth examination of specific components of” the costs to determine whether those “specific components” qualified as “CERCLA response costs.”12 Without addressing the chilling effect of its decision on CERCLA settlements, the court denied the motions.
Reuland should stand as a warning to PRPs who may be contemplating settlement with the government in exchange for comprehensive contribution protection under Section 113(f)(2). In light of Reuland’s limitations on CERCLA contribution protection, PRPs can and should take practical steps to ensure that they receive the full benefit of their bargains with the EPA or any other agency overseeing a site cleanup. First and foremost, the import of a clear and explicit definition of “matters addressed” cannot be overstated. As in all contracts, the language should be clear enough to foreclose the possibility that a court will look beyond the four corners of the agreement to discern its meaning. Second, no matter how broad a decree’s “matters addressed” may be, PRPs should not expect the decree to protect them against costs that could conceivably be considered “non-CERCLA response costs.” If conditions at a site are such that “non-CERCLA” costs may be incurred by any party, PRPs should not assume that even the most expansive consent decree brings the promised “measure of finality,” and they should negotiate a settlement price commensurate with that level of protection.
Finally, more recent caselaw suggests that a good faith settlement determination under the Uniform Comparative Fault Act, Section 6 and California Code of Civil Procedure, Section 877.6 may substitute for the sweeping protection that a PRP might have expected from Section 113(f)(2). Two short days after the District Court for the Central District of California issued its Reuland decision, the Hon. Judge Philip Gutierrez, also of the Central District, approved a proposed good faith settlement determination that explicitly barred contribution and indemnity claims “arising out of the facts alleged in the Consolidated Action..., regardless of when such claims are asserted or by whom.”13 The order went on:
Such claims by any non-settling Party are barred regardless of whether they are brought pursuant to CERCLA section 107, CERCLA section 113, or any other theory, as any claims against the Settling Defendants arising out of the facts alleged in the Consolidated Action are in the nature of contribution claims arising out of a common liability, whether framed in terms of federal or state statute or common law.14
Subsequent settlement orders entered in this same case have echoed this protective language,15 and although the orders have not yet been tested, they do show that federal courts may be expanding beyond the language of CERCLA in an effort to provide stronger contribution protection than that offered under CERCLA post-Reuland. PRPs seeking comprehensive contribution protection should insist on these kinds of far-reaching good faith settlements as counterparts to their CERCLA consent decrees.
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1 No. CV 08-5618, 2011 WL 2518802 (C.D. Cal., June 8, 2011)
2 United States v. Cannons Eng’g Corp., 899 F.2d 79, 92 (1st Cir. 1990).
3 United States v. Pretty Products, Inc., 780 F.Supp. 1488, 1494 (S.D. Ohio 1991).
4 H.R. Rep. No. 99-253, at *6, reprinted in U.S.C.C.A.N. 2853, 2840-41.
5 621 F.3d 1251 (9th Cir. 2010).
6 30 F.3d 761 (7th Cir. 1994).
7 Akzo, 30 F.3d at 766 n. 8.
8 Reuland, 2011 WL 2518802 at *3.
10 Id. at **4-5.
11 Id. at *5 (emphasis in original).
12 Id. at *6.
13 Order for Determination of Good Faith Settlement and Barring of Claims, City of Colton v. American Promotional Events, Inc., et al., No. CV 09-1864 (C.D. Ca., June 10, 2011) (emphasis added).
14 Id. (emphasis added).
15 See Amended Order Determining Good Faith Settlement and Barring Claims, City of Colton v. American Promotional Events, Inc., et al., No. CV 09-1864 (C.D. Ca., Dec. 22, 2011).
This article was originally published by Bingham McCutchen LLP.