If you incur response costs under CERCLA can you assert a claim under Section 107 of CERCLA, or are you limited to a contribution claim under Section 113?
By way of background, Section 107 and Section 113 provide distinct rights under CERCLA. Under Section 107, a potential responsible party (PRP) is strictly liable for all necessary costs of remediation or removal incurred at a Superfund site. Liability under Section 107 can be joint and several but it need not be if a PRP demonstrates that the harm is divisible. Under Section 113, a PRP can seek contribution from another PRP to the extent it has paid more than its equitable share of response costs. Also, the statute of limitations under Section 107 and Section 113 are different: Section 107 has a 3 or 6-year statute of limitations depending on the circumstance; Section 113 is 3 years.
Parties performing remediation under a settlement with the Government, either by way of a Consent Decree or an Administrative Order, typically press for a claim under Section 107 when suing other PRPs who have not participated in the remediation funding. As noted above, the advantages of doing so include presenting a claim for which the defendants could be held jointly and severally liable, and benefiting from a six-year statute of limitation period rather than the three-year statute of limitation period governing Section 113 claims.
In U.S. v. Atlantic Research Corp., 551 U.S. 128 (2007), the Supreme Court held that the mere fact that a party was itself liable under CERCLA did not foreclose it from asserting a claim under Section 107. Atlantic Research left unanswered, however, the question of whether a Section 107 claim could exist for a liable party itself performing remediation under a settlement where it had resolved its liability to the Government.
With its ruling in Bernstein, et al. v. Bankert, et al., and Auto Owners Mutual Insurance Company, ___ F.3d ___ (Dec. 19, 2012), the Seventh Circuit has now joined the Second, Third, Fifth, Sixth, Eight, and the Eleventh Circuits in holding that a cost recovery action under Section 107 is not available under that circumstance because a contribution claim under Section 113 is.
The Seventh Circuit’s ruling is helpful in clarifying the overlap between the two CERCLA provisions. After Atlantic Research, some courts had concluded that the key trigger for allowing a claim under Section 107 was whether the remediation was performed “voluntarily,” as opposed to being compelled by a governmental demand or order. The Seventh Circuit refused to follow this approach, noting that CERCLA does not address whether an action is or is not voluntarily. According to the Seventh Circuit, however, the statute does address permissible claims where a party has resolved its liability to the Government as part of a settlement. Where liability has been resolved, it is relegated to a Section 113 claim for contribution to obtain an allocation of liability. To allow both a Section 107 and Section 113 claim, the Seventh Circuit held, would be nonsensical because it would have the effect of nullifying the CERCLA amendment that created Section 113.
Now for the facts of Bernstein v. Bankert: Plaintiffs were trustees of a fund created to finance and oversee a cleanup project at the Third Site, a VOC-contaminated Superfund site in Indiana. Defendants were the former owners of the Third Site — the Bankert family — and their corporate entities. In 1999, the trustees entered into an Administrative Order of Consent (AOC) with the EPA. They met their obligations under the 1999 AOC and obtained EPA approval. In 2002, they entered into another AOC. When Plaintiffs filed their case in the District Court, the work under the 2002 AOC was still ongoing.
Under both the 1999 and 2002 AOCs, the trustees could hold and manage funds, obtain additional funds as needed from the settlors, and file suit against those who did not meet their obligations to the trust. Plaintiffs filed their six-count complaint against the Bankerts because the Bankerts did not pay into the trust or meet their other obligations under the trust. Count 1 of the complaint was brought as a CERCLA Section 107 cost recovery action. The District Court dismissed Count 1 because it construed that count as a Section 113 contribution claim that was barred by the statute of limitations. Plaintiffs appealed to the Seventh Circuit.
In reviewing Plaintiffs’ appeal, the Seventh Circuit first looked at whether Plaintiffs’ claim, asserted as a claim for cost recovery, was truly a Section 107 or Section 113 claim. It did so by looking at the claim from two perspectives: the 1999 AOC and the 2002 AOC. As for the 1999 AOC, the Court held that Plaintiffs’ claim was for contribution under Section 113 because the trust had resolved its liability to the U.S. when it brought the claim. Even though the trust also incurred necessary response costs consistent with the National Contingency Plan, the Court found that a Section 107 clam was unavailable. Because the three-year statute of limitations on a contribution claim had passed, the Court’s decision meant it was too late for the trustees to recover costs they incurred in carrying out the 1999 AOC.
As for the 2002 AOC, however, the Court held differently. Because the trustees had not been subject to a civil action under Section 106 or Section 107 or resolved its liability to the government, the Plaintiffs fell in the cost recovery bucket. The statute of limitations had not yet been triggered (because the removal action under the 2002 AOC was still ongoing), so the claim survived.
It remains to be seen how other Circuit Courts of Appeals will address the issues underlying this case. The clear trend, however, is that cost recovery actions under Section 107 are not available when contribution claims under Section 113 are!