The Third Circuit issued an important decision last week regarding the contribution protection afforded to parties who enter into approved settlement agreements with a state or the federal government under Section 113(f)(2) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).
On September 8, 2020, the Circuit Court filed its opinion in New Jersey Department of Environmental Protection v. American Thermoplastics Corporation et al., a case which dealt with the remediation of a landfill superfund site in New Jersey. In 1978, the site was purchased by Carter Day Industries, Inc. (Carter Day), and “ran through” its subsidiary, the Combe Fill Corporation (Combe Fill), until the site’s closure in 1981. Combe Fill hired Compaction Systems Corporation of Connecticut, Inc., and Compaction Systems Corporation (collectively, Compaction) to conduct operations at and transport hazardous materials to the site.
In 1983, the U.S. Environmental Protection Agency (EPA) added the site to the National Priorities List for long-term remedial evaluation and response. To promote an efficient cleanup, EPA and the New Jersey Department of Environmental Protection (NJDEP) entered into a cooperative agreement which, among other things, designated NJDEP as the lead agency overseeing the cleanup at the site. Under the cooperative agreement, EPA agreed to pay 100% of the costs of managing and performing the remedial investigation and feasibility study and 90% of the costs of the remedial action, with NJDEP paying the remaining 10%. Notably, the agreement also clearly set forth that neither party had the authority to attempt to negotiate on behalf of the other. Over the years, EPA incurred more than $104 million in costs at the site, and NJDEP incurred $24 million in costs.
In 1990, Carter Day entered into an approved settlement agreement with NJDEP (Settlement Agreement) that discharged “all claim[s] of NJDEP against Carter Day with respect to the [site].” EPA was not a party to the Settlement Agreement.
In 1998, EPA sued 24 potentially responsible parties (PRPs)—including Compaction—to recoup its remediation costs at the site. NJDEP filed a separate action against a number of the same defendants, and the two cases were eventually consolidated before the District Court. Eleven years later in 2009, EPA and NJDEP entered into a global consent decree (Consent Decree) with Compaction and the majority of the defendants for $62.6 million. EPA will receive 81.5% of the Consent Decree amount, and NJDEP will receive the remaining 18.5%. Compaction contributed $11 million in total as part of the Consent Decree—including more than $6.5 million to EPA and $1.5 million to NJDEP. Additionally, Compaction consented to a judgment of $26 million (Consent Judgment), provided, however, that Compaction would only be obligated to pay amounts toward the Consent Judgment if its recoveries from its CERCLA contribution actions against other PRPs exceeded $11 million.
Next, Compaction brought a contribution action against Carter Day in 2011. Carter Day moved for summary judgment, later granted by the District Court without oral argument, on the grounds that the Settlement Agreement with NJDEP precluded contribution suits against Carter Day by other PRPs at the site under Section 113(f)(2) of CERCLA regardless of whether those parties sought recovery for federal or state liability.
On appeal, the Third Circuit analyzed the language and intent of Section 113(f)(2) and concluded that settlement agreements must be construed narrowly when determining whether the settlement with one sovereign (such as a state) covers the contribution claims and liability stemming from another (such as the federal government). Although the Settlement Agreement contained broad language referring to the remedial costs connected to the site, the Third Circuit found it only included specific language concerning liability with respect to NJDEP and its expenditures. Accordingly, the Circuit Court determined that contribution protection only applied to claims from PRPs tied to NJDEP’s cleanup costs and expenses at the site, and did not apply to EPA’s costs. To the Third Circuit, a contrary holding would allow Carter Day to avoid liability for any federal expenditures incurred at the site—which totaled about 90% of the costs to date—and potentially incentivize future PRPs to settle with a state in hopes of barring other PRPs from seeking contribution on federal claims, which cover the vast majority of cleanup costs under the current statutory scheme. The Third Circuit reversed and remanded the matter to the District Court for further proceedings.
Any PRP entering into or contemplating entering into a settlement agreement with a state or with EPA will want to pay close attention to this decision by the Third Circuit. Moving forward, it is imperative that PRPs fully understand their exposure to liability from prospective contribution claims under Section 113(f) of CERCLA, both on a federal and a state basis, prior to entering into such agreements purporting to offer broad contribution protection.