Source: Inside EPA Weekly Report, July 11, 2014
Posted on: http://fpn.advisen.com
Appellate court judges at June 26 oral arguments were dismissive of EPA policy arguments that the agency will face tougher challenges in achieving cleanups at Superfund sites unless the court clearly rules that parties who sign consent agreements with the agency are barred from bringing cost recovery claims under section 107 of the Superfund law — with one of the judges emphasizing the ruling will be based on application of the law rather than policy objectives.
At issue in Hobart Corp., et al. v. Waste Management of Ohio, et al., pending in the U.S. Court of Appeals for the 6th Circuit, is whether a potentially responsible party (PRP) can make section 107 cost recovery claims against others even if the PRP has signed an administrative order on consent (AOC) with EPA.
Signing such an agreement would typically limit the PRP to bringing contribution claims under section 113 of the Comprehensive Environmental Response, Compensation & Liability Act (CECRCLA), which has a shorter statute of limitations for filing suits than section 107. But the 7th Circuit ruled last year in Bernstein v. Bankert that signing an AOC with EPA may not, in some circumstances, resolve a PRP’s liability with the government until the cleanup work is completed, thereby allowing the party to sue to recover costs from others under section 107.
EPA as an amicus party argued the 7th Circuit’s ruling would make it less likely for PRPs to settle with EPA and begin cleanup because they could opt to drag out cleanup actions to avail themselves of the longer statute of limitations period under section 107. But the 7th Circuit in an amended decision rejected EPA’s arguments, and the high court earlier this year declined to review the matter.
In the Hobart litigation, EPA as an amicus party is again pressing for a clear statement that signing an AOC resolves a PRP’s liability, arguing in an amicus brief in Hobart that the 7th Circuit was “flatly wrong” in its analysis in Bernstein of the incentives PRPs have to settle with the agency (Inside EPA, June 6).
The U.S. District Court for the Southern District of Ohio last year found the plaintiffs in Hobart were limited to section 113 contribution action based on the language of the AOC they signed, but the court also found the section 113 claims were time barred.
The plaintiffs appealed to the 6th Circuit, arguing the district court’s decision is contrary to a 2007 6th Circuit ruling, ITT Industries v. BorgWarner, where the court found that a plaintiff that had signed an AOC had a cause of action under section 107.
But the defendants and EPA counter these arguments are without merit, saying the AOC in this case explicitly provides that plaintiffs have resolved some or all of their liability to the United States and therefore are limited to a section 113 claim.
At oral arguments, Department of Justice attorney Nicholas DiMascio, representing EPA, began by pressing for a ruling that would remedy EPA policy concerns. “The main point that I want to make here this morning is that construing this settlement in line with the parties’ expressly stated intent to resolve liability and thus give rise to contribution rights is absolutely essential to the prompt cleanup of contaminated sites under the CERCLA regime,” he said, according to an audio recording of the arguments posted on the court’s website.
But Judge Raymond M. Kethledge responded, “I think we get that. We understand your policy argument in the brief, but at least speaking for myself, at the end of the day, we’re applying a statute here, not a policy argument.”
“And you’re also applying an agreement that we entered into with the plaintiffs,” DiMascio added, urging the judges to examine how the AOC contains all the elements that appellate courts, including the 7th Circuit, have said are necessary for PRPs to resolve liability to the United States.
The specific wording of the AOC at issue in the case appears to be key to how the 6th Circuit may rule, with plaintiffs arguing that even though the agreement includes language saying liability is resolved and EPA has made a covenant not to sue the plaintiffs, those provisions are conditional.
“The covenant not to sue doesn’t really kick in until you finish the work because if you stop working or EPA decides to take over, you’re still subject to suit under 107 or 106,” the plaintiffs’ attorney Larry Silver said during oral argument.
For there to be a true resolution of liability, the agreement should state the PRP’s liability under section 106 or 107 of CERCLA related to performing specific acts and making certain payments is hereby terminated, he said. This would put the covenant not to sue into effect with no reservations or conditions, and if EPA needed to enforce the terms of the agreement, it could bring a breach of contract claim against the PRP. “But EPA, obviously, wants to keep everything and all its options,” he said.
“That’s a very coherent argument,” Kethledge said. “No circuit court, I guess, has adopted that more absolute approach to liability?”
Silver responded that the 7th Circuit in Bernstein did, adding that “Bernstein is probably the case that goes the most deeply into the issues.” While the ITT ruling from the 6th Circuit came to the same conclusion about liability, it did not as fully address the underlying issues, he said.
Judge Karen Nelson Moore asked Silver what his fallback argument is if the judges think the Hobart settlement agreement is qualitatively different than Bernstein. “Is there any hope for your clients?”
Although he initially floundered in response to Moore, on rebuttal Silver said the plaintiffs also believe that even if the court finds the AOC fits the characteristics of a section 113(f)(3)(B) settlement, the section 113 statute of limitations does not apply to the type of “work settlement” the plaintiffs signed, where they agreed to perform a remedial investigation and feasibility study per section 104 of CERCLA. The plaintiffs argue in a legal brief that the administrative order they signed with EPA was not in fact a cost recovery settlement and was not included among the list of triggers under section 113’s statute of limitations clause.
Glenn Harris, representing the defendants, also urged the judges to look at the language in the AOC, arguing that the Hobart AOC is significantly different than the one the 7th Circuit examined in Bernstein and that the 6th Circuit dealt with in ITT Industries.
Kethledge suggested to Harris that there is a “gray area” in the agreement in terms of resolution of liability. “I mean, Mr. Silver does have a point. This isn’t just, you pay me a million bucks, and I release my claim. It’s far from it,” he said.
But Harris countered that there are key differences between the agreements the plaintiffs are trying to tie together. In the Bernstein AOC, the language says the covenant not to sue only becomes effective when EPA issues a notice of completion that the work is done, but in the Hobart AOC, the agreement says the liability is resolved immediately and EPA is only able to take over the work if the PRP does not perform under the agreement. “That is night and day different,” he said.
“There can be no doubt whatsoever that the intent of both the United States and the plaintiffs here was that this was [a CERCLA section 113(f)(3)(B)] settlement, that they had the right to go sue us, which is exactly what they did, and that they were immune now, as long as they complied with the contract, from further enforcement action. That’s the bargain that they got. And they’re now telling you, well, we didn’t really get that bargain. We got nothing,” Harris said.