The decision could make it easier to recover from the government for CERCLA response costs at former defense production facilities and shift leverage in settlement discussions.
On October 4, a panel of the US Court of Appeals for the Ninth Circuit held in TDY Holdings v. United States that the US government must pay a share of the cleanup costs under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) at a site that produced equipment for the US military. The court therefore reversed and remanded a district court decision allocating 100% of the costs to TDY. The Ninth Circuit held that the district court had erred by failing to properly consider two analogous Ninth Circuit precedents that had allocated all response costs to the government. The Ninth Circuit also held that the district court had failed to consider adequately the government’s significant involvement at the TDY site, including its requirements that TDY use certain hazardous substances and its agreement to cover TDY’s environmental compliance costs.
TDY operated a manufacturing plant in California from 1939 to 1999 that produced aircraft and aircraft parts for the US military’s war efforts, including avionics systems and components of the Apache helicopter. The government, which was its primary customer, was extensively involved at the site, supervising operations, inspecting products, and mandating particular processes and cleaning procedures. The government also owned equipment at the site, including drilling machines, vapor degreasers, and transformers. And, during the plant’s operation, the government agreed to reimburse TDY’s costs of complying with environmental laws.
Operations at the site released compounds that were later designated as “hazardous substances” under CERCLA and other environmental laws, including (1) chromium compounds; (2) chlorinated solvents; and (3) polychlorinated biphenyls (PCBs). In 2007, TDY entered into a settlement with the San Diego Unified Port District that required it to respond to contamination at the site. TDY then sought contribution from the US Government for these response costs under Section 113 of CERCLA.
The US District Court for the Southern District of California held the government liable under CERCLA as a former owner because it had owned equipment at the site where the hazardous substances were discharged. But the district court nonetheless allocated a zero percent share of the response costs to the government, concluding that TDY’s “role as the Site operator” rendered it responsible for all past and future costs of remediating the contamination.
In an opinion authored by Judge Morgan B. Christen for the majority of a three-judge panel, the Ninth Circuit reversed and remanded the district court’s decision, holding that the district court had committed two errors:
Judge Paul J. Watford issued a concurring opinion agreeing with the majority that it was an error to allocate 100% of the cleanup costs to TDY. But he wrote separately to express his view that “the record does support something close to” such an allocation.
The Ninth Circuit’s decision to reverse the district court’s allocation was significant, particularly given that allocations of response costs under CERCLA are subject to an abuse of discretion standard. Section 113 of CERCLA authorizes district courts to “allocate response costs among liable parties using such equitable factors as the court determines are appropriate.” Cadillac Fairview, 299 F.3d at 1025. Thus, the Ninth Circuit concluded that, even though the district court may choose what factors to consider in an allocation and how to weigh those factors, it had clearly erred by holding that TDY must bear 100% of the response costs.
It will be interesting to see how the district court applies the Ninth Circuit’s opinion on remand. The majority opinion opened the door to an allocation of all or a significant share of the costs to the government based on the government’s role at the site and its contracting history. While Judge Watford’s concurrence suggested that the district court could still allocate the “lion’s share” of liability to TDY, that view was not adopted by the two-judge majority of the court.
The Ninth Circuit’s decision is likely to have implications for other former defense manufacturing sites, at which a number of potentially responsible parties (PRPs) are currently pursuing or may choose to pursue CERCLA claims against the US government. The opinion will be particularly useful to PRPs who were directed to use hazardous substances by the government or who contracted with the government for reimbursement of their environmental costs. In addition to being potentially useful in litigation against the government, the decision could also help PRPs at formers defense sites achieve favorable outcomes through settlement.
Bryan Killian, Randy Levine, and Doug Hastings represented TDY on appeal in the Ninth Circuit, along with fellow Morgan Lewis lawyers David Salmons and Jim Dragna. Randy Levine presented oral argument in the case. If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers: