Environmental Litigation

By Andrew H. Perellis, Kay R. Bonza, and Craig B. Simonsen

iStock_000009254156LargeSeyfarth Synopsis: The U.S. Attorney General has directed the Department of Justice to no longer allow payments to third parties as part of resolving federal cases.  For environmental cases, this prohibition could significantly limit, if not ban, the use of SEPs.

Attorney General Jeff Sessions issued a memo last week to all Department of Justice staff and 94 U.S. Attorney’s Offices, prohibiting payments to nongovernmental entities that are not a party to the litigation as part of a negotiated settlement.  Several environmental groups have interpreted this memo to altogether ban supplemental environmental projects (SEPs) in matters where DOJ is involved.

We previously blogged about EPA’s updated policy documents involving SEPs.  In the environmental context, SEPs are used to allow an alleged violator to voluntarily undertake an environmentally beneficial project related to the violation, in exchange for mitigation of the penalty to be paid.  EPA has traditionally viewed SEPs as furthering “EPA’s goal of protecting and enhancing public health and the environment.”  For example, one company paid for soil restoration on federal land as part of its compensation for air pollution violations at some of its power plants in North Carolina.  Corporate defendants have been agreeable to SEPs as they promote positive public relations.

Not every environmental settlement requires the involvement of DOJ, so for these matters, at least for the moment, SEPs remain available in resolving an alleged violation.  But for matters that require referral to DOJ for resolution, it is a different outcome.  The Attorney General’s memo prohibits DOJ attorneys from entering into “any agreement on behalf of the United States in settlement of federal claims or charges…that directs or provides for a payment or loan to any non-governmental person or entity that is not a party to the dispute.”  By doing this, Sessions is seeking to curb settlement funds from being used to benefit third-party special interest groups or political friends of those in power.

The Sessions’ memo includes two exceptions that may allow SEPs to be utilized in narrow circumstances – when structured so that a governmental entity, instead of a non-governmental organization, receives the SEP benefit, and when the benefit “directly remedies the harm.”  It remains to be seen how DOJ will apply these exceptions as the Sessions’ memo does not elaborate as what constitutes a “governmental entity” or the nexus needed to “directly remedy the harm.”  What is clear is that corporate defendants will see a reduction in the use of SEPs as part of environmental settlement agreements that are negotiated by the DOJ.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of the Seyfarth Environmental Compliance, Enforcement & Permitting Team.

By Andrew H. Perellis, Patrick D. Joyce, and Craig B. Simonsen

shutterstock_132968252Seyfarth Synopsis: The Northern District of Indiana rejected the insurer’s assertion that its pollution exclusion clauses unambiguously included all contaminants.

Indiana, unlike other jurisdictions, is pro-insured when it comes to providing coverage for damages arising from pollution events. This is so even where the insurance policy attempts to exclude coverage.

Old Republic Ins. Co. v. Gary-Chicago Int’l Airport Auth., No. 15-cv-00281 (N.D. Ind., July 25, 2016), is the latest in a line of cases to hold that, in Indiana, if an insurer wants to exclude coverage for pollution, the policy must state with specificity the contaminants and pollutants for which coverage is excluded.

In Old Republic, the Northern District of Indiana denied Old Republic Insurance Company’s (Old Republic) motion for summary judgment, finding that Old Republic must pay defense costs arising from contamination at the Gary-Chicago International Airport (Airport) because of ambiguities in the insurance policies issued by Old Republic.

This case involved an environmental pollution insurance coverage dispute between Old Republic and the Gary-Chicago International Airport Authority (Airport Authority). Old Republic filed a complaint for declaratory relief and reimbursement of defense costs against the Airport Authority after the Indiana Department of Environmental Management (IDEM) initiated an action against the Airport Authority in connection with pollution at the Airport. Old Republic asked the Court to declare that, based on the “absolute pollution exclusion” clauses in the applicable insurance policies Old Republic issued to the Airport Authority, it did not have a duty to defend or indemnify the Airport Authority with respect to this IDEM action.

All insurance policies at issue contained the following exclusion:

This policy does not cover claims directly or indirectly occasioned by, happening through or in consequence of: . . . (b) pollution and contamination of any kind whatsoever….

This is known as an “absolute pollution exclusion.” There parties to this action agreed that there was an oily sheen and that environmental testing had detected concentrations of benzo(a)pyrene, arsenic, and PCBs at the Airport site. Even so, the parties disagreed over whether the “absolute pollution exclusion” remained ambiguous, as ambiguities must be resolved in favor of the insured.

The Seventh Circuit previously held, following the approach recognized by the Indiana Supreme Court, that an absolute pollution exclusion will be enforced where an insurer specifically indicates what falls within the exclusion. Visteon Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 777 F.3d 415 (7th Cir. 2015). Following that approach, the Court concluded that Old Republic’s policies were ambiguous: “Old Republic’s pollution exclusion does not explicitly indicate what constitutes ‘pollution’ or ‘contamination’ so that an ordinary policyholder of average intelligence would know to a certainty that Old Republic would not be responsible for damages arising out of the oily sheen, benzo(a)pyrene, arsenic, and PCBs discovered at the Airport.”

Indiana insureds should be mindful that even broadly worded pollution exclusions may not be enforced if the policy fails to specify exactly what pollutants or contaminants fall within the policy’s exclusions.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of the Environmental Litigation and Toxic Torts Team.

By Andrew H. Perellis, Patrick D. Joyce, and Craig B. Simonsen

iStock_000042612884_MediumSeyfarth Synopsis: The Eighth Circuit found that a class action could not be sustained in an environmental pollution case because “the class lacks the requisite commonality and cohesiveness to satisfy Rule 23.”

In Karl Ebert v.  General Mills, Inc., No. 15-1735 (8th Cir. May 20, 2016), the United States Court of Appeals for the Eighth Circuit found that the District Court erred in certifying a  proposed class of plaintiffs in an environmental pollution case because “the class lacks the requisite commonality and cohesiveness to satisfy Rule 23.” The case was remanded for further proceedings at the District Court.

In this its appeal to the Eighth Circuit, General Mills, Inc., challenged the District Court’s grant of class certification because each plaintiff will need to prove individualized issues of injury, causation, and damages.

In the underlying litigation the plaintiffs, all owners of residential properties in a Minneapolis neighborhood near a General Mills facility, sued General Mills, alleging that the company caused trichloroethylene (TCE) to be released onto the ground and into the environment near the plaintiffs’ neighborhood. The plaintiffs claimed that, as a result of the contamination, TCE vapors migrated into the surrounding residential area, threatening the health of the residents and diminishing the value of their property.

For nearly thirty years, General Mills participated in groundwater clean-up and remediation efforts in the plaintiffs’ neighborhood under the direction of, and in conjunction with, the federal government and the State of Minnesota. In late 2011, in cooperation with the State of Minnesota, General Mills began to evaluate the potential of migration of TCE in the form of vapor from shallow groundwater to the soil above. As noted by the District Court, General Mills installed vapor mitigation systems (VMSs) in 118 homes in the neighborhood.

The plaintiffs first learned of the TCE vapor contamination in 2013, and each of the named plaintiffs received customized VMSs. Seeking to represent a class, the residents asserted five legal claims: (1) violation of CERCLA; (2) common law negligence; (3) private nuisance; (4) willful and wanton misconduct; and (5) violation of the Resource Conservation and Recovery Act. Personal injury claims were not included in the complaint, in a deliberate attempt to avoid class certification problems. This will be discussed below.

The District Court found that the requirements of Federal Rule of Civil Procedure 23 were satisfied, and certified the proposed class. However, the Eighth Circuit reversed, finding that the class lacked the requisite commonality and cohesiveness to satisfy Rule 23.

Specifically, the Eighth Circuit noted that the District Court had attempted to artificially narrow the issues and the class membership so as to create class standing by first excluding personal injury claims and any plaintiffs with identifiable personal injury claims, and then by limiting claims to whether injunctive relief would be warranted. The District Court had bifurcated the action into two phases. It first certified a class under Rule 23(b)(2) to determine whether injunctive relief was appropriate. It then set up a second phase under Rule 23(b)(3) to determine the money-damage portion of the case  .

The Eighth Circuit noted that the use of this sort of “hybrid certification,” insulating the (b)(2) class from (b)(3) the money-damage portion of the case, is “an available approach that is gaining ground in class action suits.” Newberg on Class Actions § 4:38. While Rule 23(b)(3) requires common questions of law or fact to predominate over questions affecting only individual members, Rule 23(a)(2) requires only the establishment of a common question pertaining to an injury suffered by all class members. In this case, though, the Circuit Court concluded that this action could not proceed as a class under either Rule 23(b)(2) or Rule 23(b)(3).

As to Rule 23(b)(2), the Eighth Circuit found the central required element of “cohesiveness” to be lacking. For relief as a class, “the relief sought must perforce affect the entire class at once,” citing Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2558 (2011). As a result, the Eighth Circuit found that “[i]t is the disparate factual circumstances of class members that prevent the class from being cohesive and thus unable to be certified under Rule 23(b)(2).”

For Rule 23(b)(3), the Eighth Circuit concluded that individual issues would predominate the inquiry. Notwithstanding the District Court’s attempt to exclude questions on individualized exposure, the Eighth Circuit found: “any limitations in the initial action are, at bottom, artificial or merely preliminary to matters that necessarily must be adjudicated to resolve the heart of the matter.”

By Andrew H. Perellis and Patrick D. Joyce

Supreme CourtSeyfarth Synopsis: U.S. Supreme Court: mere violation of a statute creating a private right of action is not itself sufficient to satisfy the standing requirement under Article III’s “case or controversy.” To establish federal jurisdiction a plaintiff must still establish an “injury in fact” that is both particularized and concrete. As a result, where an environmental citizen suit is brought to enforce a violation causing no or only intangible harm, it should be closely examined to determine whether standing exists.

Seyfarth recently blogged about the holding and implications of Spokeo v. Robins, No. 13-1339 (U.S., May 16, 2016), involving litigation under the Fair Credit Reporting Act (FCRA) for allegedly incorrect personal information appearing on an internet site. The issue in Spokeo concerned whether the plaintiff had Article III standing (a Constitutional requirement) to pursue a mere statutory violation without alleging how the alleged misinformation caused the plaintiff personal harm.

Here, we evaluate whether Spokeo undercuts the ability of private parties to sue under so-called “citizen suit” provisions found in many environmental statutes governing air, water, and hazardous waste, among others. Many alleged violations that are the target of citizen suits do not arise from an individual’s exposure to pollution but instead involve the failure of the regulated entity to provide statutorily mandated reporting, monitoring or recordkeeping. These are commonly referred to as “paperwork violations.” The harm caused to a plaintiff in such situations is intangible at best.

The district court dismissed Robins’ complaint, saying that Robins had not followed Article III’s requirement to plead injury in fact. 2011 WL 11562151, at *1.  However, on appeal, the Ninth Circuit Court of Appeals concluded that the mere “violation of a statutory right is usually a sufficient injury in fact to confer standing.”  742 F.3d 409, 412.

Prior to the death of Justice Scalia, many observers of the Supreme Court anticipated that the Court would use Spokeo as a vehicle to narrow the situations where Congress could create private rights of action for statutory violations causing a plaintiff no direct injury. However, with the death of Justice Scalia and the potential for a 4-4 deadlock, the ruling in Spokeo is not as definitive as these observers of the Court may have predicted.

Spokeo held that to establish standing, one must allege more than mere violation of a statute purporting to create a private cause of action. However, the Court observed, standing can be established by alleging that a statutory violation caused plaintiff an “injury in fact” that is both “particularized and concrete.” As such, the Court remanded the case to the Ninth Circuit to examine the existence of standing in Spokeo in light of the injury in fact requirement.

The Court in Spokeo acknowledged that an injury could be “intangible.” The Court also recognized that Congress may elevate “concrete, de facto injuries” that were previously inadequate in law to the status of legally cognizable injuries.

Within the context of environmental matters, however, the issue of what would constitute a concrete injury remains uncertain. For example, is the mere existence of a paperwork violation sufficient to cause harm to an environmental activist? Is a plaintiff harmed in a concrete way by not having access to the information that Congress had decided to make public?

We do not know for sure. However, in Spokeo, the Court observed that there are situations where no additional harm needs to be shown beyond a harm identified in a statute. In doing so, it cited two cases that appear to be analogous to paperwork violations. They are:

  • Federal Election Comm’n v. Akins, 524 U. S. 11, 20–25 (1998), which confirmed that a group of voters’ “inability to obtain information” that Congress had decided to make public is a sufficient injury in fact to satisfy Article III.
  • Public Citizen v. Department of Justice, 491 U.S. 440, 449 (1989), which held that two advocacy organizations’ failure to obtain information subject to disclosure under the Federal Advisory Committee Act “constitutes a sufficiently distinct injury to provide standing to sue.”

We view Spokeo as a slight tilt of the playing field in the context of environmental matters. While the tilt is slight, it is nonetheless a tilt that could provide an opening to challenge a citizen suit where a plaintiff cannot articulate or prove harm beyond the mere violation of a statute. After Spokeo, targets of environmental citizen suits are more likely to challenge a plaintiff’s standing. A plaintiff will need to do more than cite to the statutory paperwork violation, and to survive dismissal will need to allege and prove that it suffered a particularized and concrete injury from being denied access to records, monitoring results, or reports that Congress has determined are required from the regulated community.

By Andrew H. Perellis, Patrick D. Joyce, and Craig B. Simonsen

EPA Sign

Seyfarth Synopsis: The 9th Circuit confirmed that an EPAs request for information letter investigating a Superfund cleanup site is a “suit” triggering an insurer’s duty to defend.

This week, the Ninth Circuit Court of Appeals affirmed a District Court decision that an information request issued by the U.S. Environmental Protection Agency in connection with an investigation into a Superfund cleanup site is a “suit” triggering an insurer’s duty to defend. Ash Grove Cement Company v. Liberty Mutual Insurance Company, et al., Nos. 13-35900, 13-35905, and 14-35298 (9th Cir. May 11, 2016).

In the underlying case, Ash Grove received an information request from the EPA pursuant to section 104(e) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. § 9604(e) (104(e) letter), about contamination at the Portland Harbor Superfund Site. Ash Grove promptly forwarded the 104(e) letter to its insurers.

In briefing, the insurers argued that the 104(e) letter was not a “suit” under Oregon law. The Ninth Circuit, though, had previously held that a 104(e) letter is a “coercive information demand” that is “an attempt to gain an end through legal process,” and was therefore a “suit” under Oregon law. Anderson Bros., Inc. v. St. Paul Fire & Marine Ins. Co., 729 F.3d 923, 932-33, 935 (9th Cir. 2013). The Court also rejected the insurers’ argument that the intention of the parties could not have been to treat a 104(e) letter as a “suit,” because the policies distinguished between a “claim” and a “suit.” Id. at 933-34. In addition, the Court addressed and rejected the insurers’ contention that a 104(e) letter cannot constitute a “suit” because it does not require that an “insured take action with respect to contamination within the State of Oregon.” Id. at 934-35.

Finally, the insurers argued, even if the 104(e) letter constituted a suit, their duty to defend ceased after Ash Grove submitted its response to the letter. The Court disagreed, noting that Oregon law provides that the duty “continue[s] as to each unit [of property] until the Record of Decision for that unit [i]s filed.” Schnitzer Inv. Corp. v. Certain Underwriters at Lloyd’s of London, 104 P.3d 1162, 1169 (Or. Ct. App. 2005), aff’d, 137 P.3d 1282 (Or. 2006).

shutterstock_206483089Seyfarth Partner Andrew H. Perellis is quoted in this Forbes Legal News article today, Sierra Club’s Legal Theory In Frackquake Case Draws ‘Star Trek’ Comparison (March 31, 2016).

The article concerns a complaint filed on Feb. 16 in the U.S. District Court for the Western District of Oklahoma, Sierra Club v. Chesapeake Operating LLC, Devon Energy Production Co. LP, and New Dominion, LLC. The complaint was filed under the citizen suit provision of the Solid Waste Disposal Act, amended as the Resource Conservation and Recovery Act, 42 U.S.C. § 6901, et seq. (RCRA).

In particular, the complaint seeks to allege an imminent and substantial endangerment for which injunctive relief is available under RCRA, Section 7002(a)(1)(B). However, the alleged harm is not associated with threaten exposure to the waste water but instead because the disposal of the water under pressure is alleged to increase the frequency and severity of earthquakes in the area.

Perellis, as quoted in the Forbes article, says the lawsuit is the equivalent of using RCRA to sue “a company that warehouses hazardous chemicals over a danger arising from an increase in truck traffic to and from the facility.” Calling the case “the ‘Star Trek’ of lawsuits,” Perellis said, “they are boldly taking RCRA where it has never gone before.”

By Andrew H. Perellis and Patrick D. Joyce

Supreme CourtIn a 5-4 ruling, the U.S. Supreme Court today ruled that the EPA acted unreasonably when it refused to consider the cost of implementing its Mercury and Air Toxics Standard (MATS).

The MATS rule, issued in 2012, established emissions limits from power plants for mercury, filterable particulate matter, and hydrogen chloride.  U.S. power plants were required to come into compliance with the MATS rule by April 16 of this year, but 170 coal-fired power plants received a one year extension to either install control technology or shut down.

EPA estimated that it would cost the power industry nearly $9.6 billion per year in compliance costs while providing a pollution reduction benefit of only $4 to $6 million per year.  However, EPA said that Section 112 of the Clean Air Act only required it to consider compliance costs when establishing an appropriate emission level but not when deciding whether to regulate in the first place.

Justice Scalia, writing for the majority, found that the words “appropriate and necessary” under Section 112 required EPA to consider the costs of the regulation at the initial stages and that “EPA must consider cost—including cost of compliance—before deciding whether regulation is appropriate and necessary.”  Justice Scalia further said “Against the backdrop of [] established administrative practice, it is unreasonable to read an instruction to an administrative agency to determine whether ‘regulation is appropriate and necessary’ as an invitation to ignore costs.” Slip opinion pp 7-8.

Justice Scalia wrote that Section 112 requires EPA to consider “all of the relevant factors” and that “agencies must operate within the bounds of reasonable interpretation. EPA strayed far beyond those bounds when it read §7412(n)(1) to mean that it could ignore cost when deciding whether to regulate power plants.”  Slip op. p. 6.

Writing for the minority, Justice Kagan said that Congress had allocated broad authority to EPA to determine whether to regulate an industry and that EPA had properly considered costs at a later stage in the regulation, something EPA has done in other rules.

By Andrew H. Perellis and Patrick D. Joyce

US Supreme Court Capitol Hill Daytime Washington DCIn the recently released decision in Perez v. Mortgage Bankers Association (MBA), 575 U.S. ____, 135 S.Ct. 1199 (2015), Supreme Court Justices Scalia and Thomas expressed their discontent with agency deference under the “Auer doctrine.”

Another Seyfarth blog, the Wage & Hour Litigation Blog, discusses the major holding in MBA: to reject the reasoning used by the D.C. Circuit that held notice and comment rulemaking pursuant to the Administrative Procedure Act (APA) must take place when an agency issues a new interpretation at odds with a prior interpretation. The focus of this blog is on an issue that MBA did not address, but which is creating friction for the courts. Specifically, what deference, if any, should courts give to an agency interpretation that has not gone through APA notice and comment rulemaking?

Historically, courts have struggled with the extent of deference to give an agency’s interpretations of its own regulations. Under the APA § 553(b)(A), agency interpretive rules and general statements of policy are exempt from notice and comment rulemaking because interpretative rules are non-substantive, and the APA only requires substantive interpretations, having the force of law, to go through notice and comment rulemaking. However, the “Auer doctrine,” from Auer v. Robbins, 519 U.S. 452, 117 S.Ct. 905 (1997), accords substantial deference to an Agency’s interpretation of its own regulations, even if presented in an unofficial manner such as in an amicus brief.

In separate concurrences in MBA, Justices Scalia and Thomas both call into question whether any judicial deference to agency interpretations of regulations is appropriate.

In his analysis, Justice Scalia cites § 556 of the APA for the proposition that only the courts may interpret agency actions, not the agencies themselves. Justice Scalia opines that the purpose of the § 553(b)(A) exemption was to allow agencies to advise the public on the impact of a complex regulation without binding the public to that interpretation.

However, Justice Scalia believes Auer deference allows agencies to both advise and bind the public because the agency can draft the regulation to be broad and vague and then interpret it in a manner that would not have been evident to the public when the regulation was originally proposed for notice and comment. Further, under Auer, a reviewing court is beholden to an agency interpretation unless its interpretation is unreasonable, and the public is thus bound by the agency’s interpretation with the force of law. Justice Scalia calls for abandoning Auer in a future decision, when the question is properly before the Court.

Justice Scalia distinguishes Auer deference and deference to an agency’s interpretation of its governing statute, also known as “Chevron deference,” from Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Under Chevron, if a statutory term is ambiguous, then the agency has authority to construe that term and interpret its meaning within the statutory scheme by promulgating regulations following APA notice and comment procedures. This is arguably permissible because Congress explicitly granted agencies the ability to interpret their governing statutes, and APA rulemaking procedures are followed in establishing the interpretation via regulations. Justice Scalia points out that Auer is unlike Chevron because, under the Auer doctrine, an agency does not use APA notice and comment procedures and Congress has not explicitly granted agencies the ability to interpret their regulations. This difference is enough for Justice Scalia to call for the end of Auer.

Justice Thomas takes a different route when calling Auer into question, looking instead to the separation of powers and checks and balances put in place by the U.S. Constitution. In his concurrence, Justice Thomas refers to the cases dealing with deference to agency interpretations of regulations, beginning with Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 65 S.Ct. 1215 (1945), and calls into question the constitutionality of the entire line of cases, including Auer.

Justice Thomas believes any deference to administrative interpretations of regulations constitutes a transfer of judicial power to the executive, contrary to the language of the Constitution. Because Seminole Rock and Auer erode the judicial obligation to serve as a check on the other branches and muddle the separation between the Judicial and the Executive Branches, Justice Thomas calls for reconsideration of the entire Seminole Rock line of cases, including Auer, at the appropriate moment.

In addition, in a joint concurrence to a prior case, Decker v. Northwest Environmental Defense Center, 568 U.S. ___, 133 S.Ct. 1326 (2013), Chief Justice Roberts and Justice Alito indicated that reconsideration of Auer may be appropriate when the issue is properly before the Court. The issue of Auer deference was not before the Court in MBA or in Decker, but with at least four Justices questioning the continued validity of the doctrine, it is possible the question of judicial deference to agency interpretive rules will be reconsidered in the near future.

Such a reconsideration of Auer could have significant impact upon administrative law. Judicial review of agency action provides important protection against arbitrary or unfair agency action. However, that review is significantly restricted under Auer¸ because a court must defer to an agency interpretation simply because it is issued by the agency, with little check on the reasonableness of the interpretation. Allowing courts to consider but not defer to agency interpretations would compel agencies to be more exacting (and perhaps more forthcoming) when engaging in rulemaking. Rulemaking, while perhaps a tedious process for the agency, required notice to the public, an opportunity for the public to comment, and an opportunity for judicial review, all to ensure that the agency action is consistent with law and not arbitrary or capricious.

By Andrew H. Perellis, Patrick D. Joyce, and Craig B. Simonsen

The Fifth Circuit recently held that a seller of dry cleaning chemicals did not assume Superfund “arranger” liability by merely selling a useful but hazardous chemical with the intent that it be used by a dry cleaning business that then subsequently discharged the contaminant into ground water. Vine Street, LLC v. Borg Warner Corp., No. 07-40440 (5th Cir., January 14, 2015).

Vine Street is one of the first Court of Appeals to consider “arranger” liability under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), 42 U.S.C. § 9607(a)(3), in light of the Supreme Court’s decision in Burlington N. & Santa Fe Ry. Co. v. U.S., 556 U.S. 599 (2009), holding that arranger liability attaches only if there is an intent to dispose of a hazardous substance..

A Borg Warner Corp. subsidiary, Norge, designed and sold dry cleaning equipment to Vine Street LLC in the early 1960s.  Despite efforts to prevent discharge through an engineered reclamation system, some of the perchloroethylene (PERC) used in the dry cleaning process was discharged into the sewer.  In 2006, the District Court held a bench trial and ruled that Norge was liable to Vine Street for 75% of the costs associated with cleaning up PERC plume because Norge knew its reclamation system was not 100% effective and some of the PERC might end up in the sewer.

Borg Warner appealed the judgment to the 5th Circuit, but it was stayed due to ongoing bankruptcy proceedings.  By the time the stay was lifted, the Supreme Court had published its ruling in Burlington Northern that “knowledge alone is insufficient to prove an entity planned for the disposal, particularly when the disposal occurs as a peripheral result of the legitimate sale of an unused, useful product.”

In Vine Street, Borg Warner argued that Norge (and therefore Borg Warner) was not liable to Vine Street under CERCLA because it did not intend to dispose of the PERC when it sold the dry cleaning equipment and an initial supply of PERC to the cleaners in the 1960s.  The Fifth Circuit Court reversed the District Court judgment against the seller, finding that the “purported arranger [must take] intentional steps to dispose of a hazardous substance.”  The District Court had applied an outdated Fifth Circuit standard that only required a “nexus” between a purported arranger and the disposal of waste (Geraghty & Miller, Inc. v. Conoco, Inc., 234 F.3d 917 (5th Cir. 2000).

Vine Street presents us with another reminder that CERCLA’s arranger liability depends upon a fact-specific inquiry as to whether the entity had the necessary intent to dispose of a hazardous substance.

By Andrew H. Perellis and Patrick D. Joyce

The Ninth Circuit Court of Appeals recently held that a district court must provide deeper scrutiny to Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C. §9601 et seq. (1980), consent decrees.

The August 1, 2014 decision in State of Arizona v. Ashton Company Inc. Contractors and Engineers, et al., No. 12-15691 (9th Cir. August 1, 2014) changes what had previously been a virtual rubber stamp of approval into a significant hurdle to speedy CERCLA settlements.  The case addressed liability of several potentially responsible parties (PRPs) under CERCLA and the Arizona Water Quality Assurance Revolving Funds (WQARF). The State of Arizona was seeking recovery of cleanup costs resulting from the contamination of the Broadway-Patano Landfill Site, a hazardous waste site in Tucson, Arizona.

After an investigation that ended in 2009, the State sent settlement offers to those PRPs who had requested early settlement and were also de minimis parties.  The proposed settlement agreements required each settling party to pay a specified amount in exchange for a release of liability under CERCLA and WQARF.

The State initiated the lawsuit to receive judicial approval of the proposed settlement agreements.  However, several non-settling PRPs moved to intervene in the case, objecting to the proposed settlement agreements.  The intervenors argued the State had not provided enough information to the district court to allow the court to make an decision on whether the proposed settlement agreements were fair and reasonable and consistent with CERCLA’s objectives.

The district court approved the proposed settlement agreements, deferring to the Arizona Department of Environmental Quality’s (ADEQ) judgment that “the public interest is best served through entry of th[e] agreement[s].” State of Arizona v. Ashton Company Inc. Contractors and Engineers, et al., No. 10-634 (D. Az. February 21, 2012). The Ninth Circuit Court of Appeals partially reversed the district court’s decision, saying the court had failed to independently scrutinize the terms of the settlements, as required under CERCLA.

Traditionally, early consent decrees have been used as a way to remove de minimis parties from litigation so the court can focus on determining liability for those PRPs who were more involved at a site.  Making a liability determination is not typically a speedy process, as liability is not based solely on the mass or volume of waste provided.  Rather, more complex factors are often taken into consideration including: concentration of hazardous substances contributed, type of hazardous materials contributed, knowledge of effects on the environment, and whether disposal was done in good faith.

In reversing the district court, the Ninth Circuit found the district judge had given too much deference to ADEQ’s assurances that the settlements were fair and reasonable.  Further, the Ninth Circuit criticized the district court for not even discussing the amount each settling PRP would pay.  Rather, the district court merely found the settling PRPs were de minimis because ADEQ calculated their liability to be between 0.1% and 0.2% of the total $75 million cost.  The Ninth Circuit found that a state agency such as ADEQ (unlike U.S. EPA) was not entitled to deference concerning its interpretation of CERCLA, a federal statute, and the district court “may not abdicate its responsibility to independently determine that the agreements are fair, reasonable, and consistent with CERCLA’s objectives.”

After Arizona v. Ashton, to satisfy the Ninth Circuit’s mandate for deeper scrutiny of settlement agreements, the settling parties will now have to provide a suitable record showing that the allocation underlying the settlement is appropriate.  Requiring increased judicial scrutiny of CERCLA settlements is particularly appropriate in light of CERCLA’s provision giving contribution protection to settling parties.  A non-settlor who ultimately pays more than its fair-share of liability has no recourse against parties that have settled and enjoy contribution protection.  As such, judicial scrutiny of whether a settlement is appropriate mitigates against early settlors getting a ‘sweetheart deal.”