August 15, 2005

Who Pays Cleanup Costs? Navigating the Post Cooper v. Aviall Waters

Holland & Knight Newsletter
Amy L. Edwards


On December 13, 2004, the United States Supreme Court issued a landmark decision concerning the contribution provisions of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Since issuance of the Court’s decision in Cooper Industries, Inc. v. Aviall Services, Inc., 125 S. Ct. 577, 160 L. Ed. 2d 548 (2004), there has been considerable speculation about how lower courts will interpret the case and apply it in other contribution actions. This article will review some recent post Aviall decisions.

By way of background, the Supreme Court ruled in Aviall that, under Section 113(f)(1) of CERCLA, a potentially responsible party (PRP) that cleans up a contaminated site must be or must have been part of an civil action involving either Section 106 or Section 107(a) of CERCLA as a prerequisite for bringing a contribution action against other PRPs. This case began when Cooper sold four aircraft engine maintenance facilities to Aviall, which soon discovered that the purchased properties were contaminated with hazardous substances that had leaked into the ground and groundwater from underground storage tanks and spills. State environmental regulators in Texas threatened an enforcement action if Aviall failed to clean up the properties. After incurring more than $5 million in costs to clean up the sites, Aviall sued Cooper to recoup some of its costs in a contribution action.

CERCLA contains three potential mechanisms for allowing parties to recoup their clean-up costs: 1) a Section 113(f)(1) contribution action may be brought “during or following any civil action” under CERCLA Section 106 or Section 107; 2) a Section 113(f)(3) contribution action may be brought if a party has resolved its liability to the United States or a State for a response action in an “administrative or judicially approved settlement”; or 3) a Section 107(a) cost recovery action may be filed.

The Fifth Circuit Court of Appeals ruled en banc that Aviall could pursue a claim against Cooper under Section 113(f)(1) of CERCLA. The Supreme Court reversed that decision, holding that the express language of Section 113(f) precluded a party from filing an action for contribution unless a civil action under Section 106 or 107 had been previously filed against the party seeking contribution, or unless the party had resolved its liability in an administrative or judicially approved settlement. Aviall lost despite its argument that such a holding would undermine one of the fundamental purposes of CERCLA by discouraging voluntary cleanups. In its decision, the Court opined that the express statutory language in CERCLA was controlling, not the legislature’s intent.

Plaintiffs potentially facing dismissal of their Section 113(f) contribution actions are now attempting to recover their cleanup costs under a different section of CERCLA – Section 107. The courts have generally held that Section 107 actions may only be brought by “innocent” parties. Some parties have argued that Section 107 nevertheless contains an implied right of contribution. Recent rulings in Illinois and Texas have supported this position by finding an implied right of contribution under Section 107(a) of CERCLA.

In Metropolitan Water Reclamation District of Greater Chicago v. Lake River Corp., 365 F. Supp. 2d 913, No. 03-C-754, decided on April 12, 2005, the U.S. District Court for the Northern District of Illinois allowed a Section 107 claim to move forward. A similar decision was reached in Vine Street LLC v. Keeling, E.D. Tex., No. 6:03-CV-223, March 24, 2005. Both Courts ruled that there was an implied right of contribution under Section 107(a)(4)(B). These Courts seem to have been persuaded by the fact that the plaintiffs had already performed the voluntary cleanups and could no longer sue under Section 113(f). As a result, the Courts allowed the plaintiffs to bring Section 107 implied contribution actions instead.

Other cases suggest that it may be difficult to win the right to sue under Section 107. In Elementis Chemicals v. TH Agriculture and Nutrition LLC, 2005 U.S. Dist. LEXIS 1404 (January 31, 2005), the U.S. District Court for the Southern District of New York ruled that the Second Circuit had precedent restricting Section 107 actions strictly to “innocent landowners.” The Supreme Court’s decision in Aviall had not overruled this precedent, so it remained binding in the Second Circuit. Interestingly, the U.S. District Court for the Eastern District of Texas stated in Vine Street that such precedents may no longer be applicable because they address cases where responsible parties sought to use both Section 113 and Section 107. The Vine Street Court cited prior rulings in the First Circuit in making its decision that a Section 107 claim could move forward. The Vine Street Court determined that Section 113(f) must be read to create a specific claim for contribution under certain circumstances, while Section 107(a) contemplates a wider range of actions, including PRPs seeking contribution costs in voluntary cleanups.

Another question that has arisen is whether an EPA order can constitute a “civil action.” In a somewhat troubling decision, the U.S. District Court for the Northern District of Illinois interpreted this issue quite narrowly. See Pharmacia Corp. v. Clayton Chemical Acquisition LLC, U.S. Dist. LEXIS 5286 (N.D. Ill. March 8, 2005). In this case, the plaintiff and 18 other PRPs had entered into an Administrative Order on Consent (AOC) under Section 106 to undertake a remedial investigation and feasibility study for a Superfund site. The EPA subsequently issued a Unilateral Administrative Order (UAO). The plaintiffs then brought a contribution action against other previously unnamed PRPs to recover some of the $3 million they had spent implementing the AOC and the UAO. The District Court concluded that the AOC was not an “administrative settlement” because it had been issued under CERCLA Section 106 [abatement actions], not under CERCLA Section 122 [settlements]. Ultimately, the Court reasoned that the document was not an “administrative settlement” for the following reasons: 1) if the AOC had been intended to be an administrative settlement, the caption on the AOC would have stated that it was being issued pursuant to Section 122(d)(3); 2) the document was always referred to as an “order” not a “settlement”; 3) a provision in the AOC stipulated that penalties were based on Section 106; and, 4) the AOC contained standard language stating that the AOC did not constitute an admission of liability by a party.

More recently, the U.S. District Court for the District of Connecticut held that Aviall bars a property owner’s CERCLA contribution claims against other PRPs if the owner was subject to a state administrative order. See Cadlerock Properties Joint Venture, LP v. Schilberg, 2005 U.S. Dist. LEXIS 14701 (July 18, 2005). In Cadlerock, the property owner argued that he had a viable contribution claim because the state environmental agency had issued an administrative order against him. Not persuaded, the District Court held that the order was not the same as an EPA-issued administrative order under CERCLA Section 106. Further, the Court found that the owner had filed his contribution claim before, not during or following, a civil action under either Sections 106 or 107, and dismissed the claim. According to the Court, the owner also did not have an implied contribution claim under Section 107(a).

Because the Aviall decision allows Section 113 contribution claims where a PRP had resolved its liability in an administrative settlement, a few courts have wrestled with the issue of what exactly constitutes an “administrative settlement.” In City of Waukesha v. Viacom International, Inc., 2005 U.S. Dist. LEXIS 5560 (March 23, 2005), the city had entered into a cost-sharing pilot program with the Wisconsin Department of Natural Resources (WDNR) to clean up a landfill. The city filed a lawsuit against successor companies that had arranged to dispose of hazardous substances in the landfill. The lower court ruled that the city could file a contribution action; however, following issuance of the Supreme Court’s decision, the defendants filed a motion to dismiss the earlier decision, citing the Aviall decision. The Court ruled that the WDNR contract was not an administrative settlement because the contract did not refer to CERCLA on its face. In addition, the statute that authorized the WDNR to enter into such contracts stated that the agency’s contract would not affect any common laws or other laws pertaining to liability for damages.

As the above cases illustrate, it will be more difficult for plaintiffs to obtain cost recovery or contribution from other PRPs in the wake of the Aviall decision. Parties who are involved in pending contribution claim litigation, or who are considering cleaning up properties voluntarily, should consult with experienced environmental counsel to develop an effective strategy for meeting the strict requirements of the CERCLA statute (as interpreted by the courts in Aviall and subsequent decisions) if they wish to recoup their costs from other parties.

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