First Quarter 2005

Confusion Reigns in Wake of U.S. Supreme Court's Decision in Cooper Industries v. Aviall Regarding Parties' Ability to Recoup Cleanup Costs

Holland & Knight Newsletter
Amy L. Edwards

On December 13, 2004, the U.S. Supreme Court upset more than two decades’ worth of established practice when it determined that a landowner conducting a “voluntary” cleanup pursuant to a threatened state enforcement action did not have a right to seek contribution from another potentially responsible party (PRP) pursuant to Section 113(f)(1) of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Cooper Indus., Inc. v. Aviall Serv., Inc., 543 U.S. ___, No. 02-1192 (December 13, 2004).

In a seven to two decision, Justice Clarence Thomas, speaking for the majority, took a strict reading of the language in Section 113(f)(1) to find that a contribution action may be brought only “during or following” any civil action that has been brought pursuant to Section 106 or 107 of CERCLA. According to Justice Thomas, “[t]he natural meaning of this sentence is that contribution may only be sought subject to the specified conditions, namely, ‘during or following’ a specified civil action.” Slip at 7. The Court declined to follow Aviall’s suggestion that this language should be read permissively and that the last sentence in Section 113(f)(1) operated as a savings clause that eliminated the need for a prior or ongoing civil action. Aviall’s reading of the statute, according to Justice Thomas, would have rendered a portion of the statute superfluous, which the courts are unwilling to do.

The two dissenting Justices urged the Court to find that Aviall had either a right of cost recovery or an implied right of contribution pursuant to Section 107 of CERCLA. The majority declined to do so since these issues had not been fully briefed.

This case arose after the U.S. District Court, and then the Fifth Circuit, determined that Aviall Services did not have a right of contribution under Section 113(f)(1) of CERCLA to recover up to $5 million in cleanup costs from Cooper Industries. Both Aviall and Cooper had previously owned the aircraft engine maintenance sites and had contributed to the contamination on these sites. Aviall reported the contamination to the state and “voluntarily” cleaned up the contamination under the threat of a state enforcement action. Both the District Court and the Fifth Circuit initially ruled that a PRP seeking contribution from another PRP must first have a pending or adjudged Section 106 administrative order or a Section 107 cost recovery action against it. During rehearing en banc, the Fifth Circuit reversed, holding that a PRP may seek contribution from another PRP regardless of whether it had been sued under either Section 106 or 107 of CERCLA. The U.S. Supreme Court reversed.

Industry practitioners predict many months of confusion as further issues emerge and are litigated. For example, may PRPs now bring actions under Section 107 to recover their cleanup costs? At least one district court has already said no in the wake of the Supreme Court’s decision. Will EPA or state environmental agencies be willing to enter into administrative orders on consent? Will these orders satisfy the civil action requirement of the statute? Will a judicially approved settlement be required instead? Will Congress be willing to step into this void to clarify the circumstances under which one PRP may seek contribution from another PRP?

In the interim, parties who wish to recover some or all of their cleanup costs from another PRP need to think carefully about how best to position themselves to do so. The present state of uncertainty may push parties to conduct more sampling during routine environmental due diligence, thereby reducing the level of uncertainty whether any contamination is present and clarifying the likely magnitude of cleanup costs. In order to have a contractual mechanism to recoup any cleanup costs, purchasers are likely to seek greater contractual protections, such as environmental escrows, letters of credit, price reductions, and the like.

Where cleanup actions are already pending, parties will need to evaluate whether they can assert a cost recovery right pursuant to Section 107 of CERCLA and whether they have any contribution rights under state law. They will also need to evaluate whether EPA or the state environmental agency is likely to assist them in converting a “voluntary” cleanup to a “pending” civil action or a judicial settlement. It is anticipated that many parties may cease conducting voluntary cleanups until these issues are sorted out further.

So, just when we thought that voluntary cleanups were becoming easier, and just when we thought that we understood when the courts would allow us to use cost recovery (Section 107) versus contribution actions (Section 113), the Supreme Court went and changed the rules. Stay tuned for further developments.

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