By Deborah Quick, Esq.

Reaffirming its prior holding, the Third Circuit Court of Appeals reiterated that by entering into a settlement agreement with the government that immunizes themselves from contribution liability under the federal Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601 et seq., CERCLA), responsible party-polluters relinquish their ability to bring cost-recovery claims against fellow polluters. This opinion notes as well that the Third Circuit’s 2010 position has been adopted by half of the federal Circuits. [Cranbury Brick Yard, LLC v. United States, ___F.3d__, Case No. 18-3287 (3rd Cir. Nov. 22, 2019).]

Background

In 1954, a grenade-fuse warehouse at Unexcelled Manufacturing Co.’s arms manufacturing facility in Cranbury, New Jersey, exploded. Two people died and more were injured. Manufacturing was discontinued and the site was left contaminated with hazardous substances, including unexploded weapons.

In the mid-1970s Cranbury Development Co. purchased the site from Maxxam Group, Inc., Unexcelled’s successor in interest. The New Jersey Department of Environmental Protection (NJDEP) completed its site investigation thirty years later and “issued a directive” ordering that Unexcelled, Maxxam and Cranbury Development Co.—along with the U.S. Navy “which had funded and effectively controlled the site. . . .‘memorialize their commitment to perform the remediation in an Administrative Consent Order.’ But the Navy rebuffed NJDEP and refused to take part.”

In 2005, Cranbury Development and Maxxam entered into a Consent Order with NJDEP. The Consent Order did three things: First, Cranbury Development and Maxxam agreed to clean up the site. Second, NJDEP agreed not to sue them if they complied. Third, all the parties agreed that the “Consent Order constitutes an administrative settlement within the meaning of CERCLA” and “resolve[s] the liability of [Cranbury Development] and Maxxam to the State of New Jersey for some or all of” the cleanup costs.”

In 2006, Cranbury Brick Yard purchased the site, at the same time agreeing to join the NJDEP Consent Order, which was “amended to ‘remove Cranbury Development’ and ‘replace’ it with Cranbury Brick Yard ‘as a Respondent.’” Cranbury Brick Yard obtained permits and began the cleanup in 2013. “But during the cleanup, problems arose. Among them, the contractors unexpectedly punctured and dug up an underground tank holding water and roughly twenty gallons of petroleum. Some of the liquid spilled. Cranbury Brick Yard promptly notified NJDEP. Then it mixed the contaminated dirt with clean dirt and reburied it on-site.” Cranbury Brick Yard claimed to have spent “well over $50 million” on the cleanup.

Cranbury Brick Yard sued the Navy in 2015, seeking both cost recovery and contribution. The district court held: 1) that by amending the Consent Order to step into the shoes of Cranbury Development Co., Cranbury Brick Yard was “immunized from contribution liability” pursuant to § 9613(f)(2), but that therefore Cranbury Brick Yard could not bring a cost-recovery claim; 2) Cranbury Brick Yard brought its own contribution claim outside the limitations period, nine years after the amendment to the Consent Order was entered into; and 3) Cranbury Brick Yard was not a “bona fide purchaser” because it had, after having taken title, reburied contaminated dirt on site, thereby engaging in activity amounting to “disposal.”

The Third Circuit’s Decision

The Third Circuit initially noted that CERCLA gives private litigants two causes of action: cost recovery under § 107(a) and contribution under § 113(f)(1). 42 U.S.C. §§ 9607(a), 9613(f)(1). The court differentiated between the two remedies, elaborating on and applying its holding in Agere Sys., Inc. v. Advanced Envtl. Tech. Corp., 602 F.3d 204, 229 (3rd Cir. 2010), that “if a polluter is immune from contribution claims, it cannot bring cost-recovery claims.”

Under CERCLA, anyone who has incurred costs to cleanup a contaminated cite may sue “to recover ‘any … necessary costs of response.’” 42 U.S.C. § 9607(a)(4)(B) “If a cost-recovery suit succeeds, the defendants are strictly as well as jointly and severally liable.” Pa. Dep’t of Envtl. Prot. v. Trainer Custom Chem., LLC, 906 F.3d 85, 89–90 (3d Cir. 2018).

Potentially responsible parties, who may be held liable for cost-recovery “. . .include[e] the site’s current owner and anyone who owned the site ‘at the time of disposal of any hazardous substance.’” 42 U.S.C. § 9607(a)(1)–(2), 40 C.F.R. § 304.12(m). Further,

If a polluter is or may be liable under CERCLA or has settled its liability with a state or the federal government, it may sue other polluters for “contribution.” Id. § 9613(f)(1), (3)(B). Contribution is a:

. . .tortfeasor’s right to collect from others responsible for the same tort after the tortfeasor has paid more than his or her proportionate share, [with] the shares being determined as a percentage of fault. Atlantic Research, 551 U.S. at 138, 127 S.Ct. 2331 (quoting Contribution, Black’s Law Dictionary 353 (8th ed. 2004)).

So, a contribution action lets a court “allocate response costs among liable parties using … equitable factors.” 42 U.S.C. § 9613(f)(1).

The Third Circuit’s Previous Decision in Agere Systems

But while “[a] polluter who settles its CERCLA liability with the federal government or a state government enjoys immunity under § 9613(f)(2) from contribution claims,” in Agere Systems the Third Circuit held that “if a polluter is immune from contribution claims, it cannot bring cost-recovery claims.” Agere, 602 F.3d at 229. Instead, it can bring only contribution claims. This rule prevents a responsible party from using its settlement with the government as both a “sword and shield.” In the absence of Agere’s restriction, a responsible party could settle with the government for only a portion of the total cleanup costs, thereby eliminating its exposure to joint and several liability from fellow responsible parties seeking cost-recovery—while itself seeking to impose liability on others. Numerous other Circuits have concurred with Agere, see, Whittaker Corp. v. United States, 825 F.3d 1002, 1007 & n.4 (9th Cir. 2016); Hobart Corp. v. Waste Mgmt. of Ohio, Inc., 758 F.3d 757, 768 (6th Cir. 2014); Bernstein v. Bankert, 733 F.3d 190, 202 (7th Cir. 2013); Solutia, Inc. v. McWane, Inc., 672 F.3d 1230, 1236–37 (11th Cir. 2012); Morrison Enters. v. Dravo Corp., 638 F.3d 594, 603 (8th Cir. 2011); Niagara Mohawk Power Corp. v. Chevron U.S.A., Inc., 596 F.3d 112, 127–28 (2d Cir. 2010).

Applying this consensus position here, the Third Circuit concluded that “[b]ecause the amended Consent Order gave Cranbury Brick Yard immunity from contribution claims, it barred Cranbury Brick Yard from seeking cost recovery from other potentially responsible parties.”

Conclusion and Implications

The Agere holding continues to gain traction among the Circuits, as it makes practical sense of a statute “notorious for its lack of clarity and poor draftsmanship,” Lansford-Coaldale Joint Water Auth. v. Tonolli Corp., 4 F.3d 1209, 1221 (3rd Cir. 1993), particularly in light of the Supreme Court’s holding in United States v. Atl. Research Corp., 551 U.S. 128, 141 (2007), that responsible parties could bring both cost-recovery and contribution claims against one another. The court’s decision is available online at: https://www2.ca3.uscourts.gov/opinarch/183287p.pdf