Ninth Circuit Questions De Minimis CERCLA Settlement and Deference to State

The Ninth Circuit’s recent decision in Arizona v. Tucson rebuked a district court’s rubber-stamp approval of several consent decrees under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA). The district court failed to adequately scrutinize the decrees because it did not compare the proportion of total projected costs to be paid by the settling parties with the proportion of liability attributable to them. The Ninth Circuit further found that where a state, as opposed to the federal government, is a party to a proposed CERCLA consent decree, the state will not be afforded the same degree of deference as would the federal government. This decision does not change the legal standards for approval of CERCLA consent decrees, but it does suggest that courts will be taking a closer view of even de minimis settlements, and approval orders will more specifically identify how the court evaluated and applied the standards. In addition, it appears that state agencies will not be granted the same level of deference as EPA in the consent decree approval process.

Factual Background

This case involves the allocation of cleanup costs at the Broadway-Patano Landfill Site (the Site), a hazardous waste site in Tucson, Arizona. In 2009, several potentially responsible parties (PRPs) sought to enter into early settlement agreements with the Arizona Department of Environmental Quality (State). These agreements required the settling parties to pay specified damages to the State in exchange for a full release of liability under CERCLA and the Arizona Water Quality Assurance Revolving Funds (WQARF), and contribution protection pursuant to CERCLA § 113(f)(2).

The State filed a motion for judicial approval of consent decrees formalizing the agreements on March 11, 2011. The motion stated that the total estimated cost of remediation was $75 million and that each settling party was liable for a de minimis share of the total site costs. Several PRPs who were not parties to the decrees moved to intervene in the action (Intervenors), arguing that the State lacked evidence to support its finding that the settling PRPs were de minimis contributors to the contamination at the site, and failed to adequately support its $75 million cost estimate. Intervenors further requested a court order declaring that the State could not, in the future, hold Intervenors jointly and severally liable for costs related to the Site’s cleanup.

The district court denied Intervenors’ challenge to the consent decrees, finding that the State’s assertion that the decrees served the public interest was owed deference. The opinion did not address either the adequacy of the State’s total site cost estimate or the support (or lack thereof) for the State’s granting the settling parties de minimis status. The district court also denied the Intervenors’ request for declaratory relief.

Ninth Circuit’s Review

Reviewing the district court’s findings de novo, the Ninth Circuit affirmed in part and reversed in part the district court’s order approving the de minimis parties’ consent decrees.

Consent Decrees Rejected for Lack of Support

Following the precedent set by the Ninth Circuit in the 1995 decision United States v. Montrose,¹ the Court explained that a CERCLA consent decree cannot be approved by a court unless it is procedurally and substantively “fair, reasonable, and consistent with CERCLA’s objectives.” The district court must therefore determine that the agreement is based upon some acceptable measure of fault, and that it apportions liability among the settling parties according to a rational, if necessarily imprecise, estimate of each PRP’s contribution to the contamination. The court emphasized that the district court must gauge the adequacy of a CERCLA settlement by comparing the proportion of total projected costs to be paid by the settlors with the proportion of liability attributable to them. The district court should then factor into the equation any reasonable discount for litigation risks and time savings.

Rather than undertake the substantive analysis required by Montrose, the district court simply deferred, in a footnote, to the State’s determination that the total costs at the site would be $75 million and that the settling entities’ liability was de minimis. The Ninth Circuit found that this cursory review did not satisfy the Montrose standard, which requires the district court to “actually engage with that information and explain in a reasoned disposition why the evidence indicates that the consent decrees are procedurally and substantively ‘fair, reasonable, and consistent with CERCLA’s objectives.’” At a minimum, the district court should “engag[e] in a comparative analysis” that examines the rationales for both the total site costs and the settling parties’ individual liability.

The district court justified its superficial review by explaining that the State was owed deference, and that the court should not second-guess the State absent a showing that its judgment was arbitrary, capricious, and devoid of any rational basis. Typically, however, consent decrees brought before a court for approval are negotiated with EPA; thus, applicable case law emphasizing the deference owed the government is generally referring to the federal government. The Ninth Circuit ruled here that a state agency’s interpretation of CERCLA is not afforded the same degree of deference as a federal agency. Thus, while a state agency with environmental expertise is afforded “some deference,” that deference cannot replace a court’s substantive review of a consent decree to determine whether it is “fair, reasonable, and consistent with CERLCA’s objectives.”

For these reasons, the Ninth Circuit vacated the district court’s approval of the consent decrees and remanded for the court to undertake a more comprehensive review.

Denial of Intervenors’ Request for Declaratory Relief

Intervenors sought a declaration that the State could not hold them jointly and severally liable for cleanup costs at the site, and the district court denied that request. The Ninth Circuit affirmed, finding the request was not properly before the district court. Intervenors did not request an order regarding future liability in their complaints; rather, they requested the relief in their brief opposing the State’s motion to enter the consent decrees. If Intervenors wished to obtain a declaratory judgment, the Ninth Circuit instructed that they must file a separate action seeking such relief or move to amend their complaints on remand.

Summary and Conclusions

In sum, the Court found:

• A district court must independently scrutinize the terms of a CERCLA consent decree.
• Specifically, a district court must compare the proportion of total projected costs to be paid by the settling parties with the proportion of liability attributable to them, even in de minimis settlements.
• A state agency’s interpretation of CERCLA is not entitled to the deference afforded to EPA, the federal agency charged with enforcing the statute.
• A request for declaratory judgment must be filed in a complaint or a separate action seeking such relief.

While this case did not necessarily break new ground in CERCLA jurisprudence, it did reaffirm the principle that where a CERCLA consent decree absolves a PRP of liability for a particular site, the settling PRP’s cash payment or other contribution must be reasonably related to its actual share of liability, and the district court is responsible for ensuring that consent decrees meet that standard. This analysis applies to all consent decrees, even de minimis settlements, which historically had received less scrutiny and relied more heavily on agency deference.

Contacts

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