Second Quarter 2006

The CERCLA Craziness Continues: What Do the Latest Post-Cooper v. Aviall Decisions Mean for Brownfields Transactions?

Holland & Knight Newsletter
Amy L. Edwards

The courts continue to meander all over the map as they try to decide whether parties that have conducted voluntary cleanups should have any contribution rights under Section 113 of CERCLA against other responsible parties, or cost recovery rights under CERCLA Section 107.

Some of the most recent decisions have demonstrated a fundamental misunderstanding of the nature of the CERCLA liability scheme, and the forces that led to the creation of state voluntary cleanup programs (VCPs) and the brownfields movement as an alternative to the federal joint, strict and several liability scheme.

One such decision is ASARCO v. Union Pacific, 2006 WL 173662 (D. Ariz. 2006). In that case, the U.S. District Court for the District of Arizona determined that the plaintiff had not resolved its CERCLA liability because it had not entered into a CERCLA 113(f)(3) settlement. The Court focused on a rarely used provision in CERCLA – Section 104(d)(1)(A) – as the basis for its conclusion that the plaintiff’s settlement with the state could not constitute a settlement of its federal CERCLA liability.

“To allow an agreement between a state and a private entity that lacks EPA backing to serve as a basis for a CERCLA contribution claim would effectively circumvent the requirement that states need to seek authorization from the EPA in order to participate in the CERCLA process.” (Slip at 7).

Accordingly, the Court ruled that the plaintiff could not recover from the prior owner/operator of the site any of the $30 million it had spent in voluntarily cleaning up the site.

The Court reasoned that the only way that the United States could resolve a party’s liability was by conferring a covenant not to sue, and that a covenant not to sue could be granted only if the party was in full compliance with a consent decree. (Slip at 9). Absent such a settlement, the court concluded that a party could not proceed with an action for contribution under Section 113(f)(3)(B) of CERCLA.

The Court found that the only way in which an administrative settlement with a state could be a basis for a CERCLA 113 contribution action was if the state had entered into a cooperative agreement with EPA pursuant to CERCLA Section 104(d)(1)(A). The Court seemed to be under the impression that CERCLA was a delegated program. This position showed a fundamental misunderstanding of the CERCLA program and the reasons why state VCPs were developed in the first place – to provide an alternative mechanism for resolving one’s potential CERCLA liability.

It is important to remember that, during the 1980s and 1990s, purchasers and their lenders avoided contaminated sites, particularly in older, blighted urban neighborhoods, because of the specter of joint, strict and several liability under CERCLA. The specter of potentially unlimited liability, regardless of fault, for any contamination that might be present resulted in a mass exodus of jobs and taxes out of blighted urban neighborhoods. In response, the nation’s mayors and governors promoted state VCPs as an alternative mechanism for resolving concerns over potential federal environmental liability. The state VCP and brownfields movement recognized that, while very few contaminated sites constituted “sites of federal interest,” purchasers and their lenders still needed to have a way to determine whether contamination was within acceptable regulatory standards. The state VCPs offered a mechanism for obtaining that degree of regulatory certainty.

The magnitude of this issue is demonstrated by a recently released EPA report entitled “State Brownfields and Voluntary Response Programs: A Response from the States.” According to this report, approximately 47,000 sites have been successfully remediated under state cleanup programs. By way of contrast, according to EPA enforcement records, only a small percentage of this number – approximately 1,500 sites – have been cleaned up pursuant to an EPA Consent Order or judicial settlement in the past five years.

To date, 22 states have had the acceptability of their VCP programs acknowledged by means of a Memorandum of Understanding with EPA. In addition, Section 128 of the Brownfields Amendments of 2002 prevents federal overfiling if a site has been investigated and remediated pursuant to an eligible state response program. It is anticipated that most state VCP programs would constitute eligible state response programs. None of this was taken into consideration in the Asarco decision.

If the Asarco decision is followed in other jurisdictions, virtually no state voluntary cleanups will ever constitute CERCLA settlements that would allow a “volunteer” to recoup some of its cleanup costs from other responsible parties. The volunteer will be left to hope that it will be found to be a “non liable” party that can recoup its costs in a CERCLA Section 107 cost recovery action, or that it negotiated adequate contractual protections. This post-Cooper trend in cases is likely to continue to have a chilling effect on voluntary cleanups under state VCP programs.

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