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Future Response Costs Held In Trust May Not Be Recoverable in CERCLA Contribution Action

On September 14, 2020, the U.S. Court of Appeals for the Ninth Circuit held that speculative, potential future response costs are not recoverable in a contribution action under CERCLA, even if the party seeking contribution has already made an expenditure for such costs pursuant to a settlement. The response costs at issue in ASARCO LLC v. Atlantic Richfield Co, No. 18-35934, D.C. No. 6:12-cv-00053-DLC (9th Cir. Sept. 14, 2020) were part of a cash-out bankruptcy settlement that resolved plaintiff ASARCO LLC’s liability for several contaminated sites. Only a portion of the settlement funds paid by ASARCO had been spent on remediating the site in question, with the rest held in trust to address future potential response costs. Although the Ninth Circuit affirmed the district court’s allocation of 25 percent of the cleanup responsibility to the defendant, Atlantic Richfield, it vacated and remanded the district court’s decision with respect to the future costs.

ASARCO and its predecessors owned and operated a lead smelting facility at the East Helena, Montana site from 1888 to 2001. Atlantic Richfield and its predecessors leased a portion of the site and operated a zinc fuming plant from 1927 to 1972. Both operations at the site released arsenic into environment, and the site was added to the CERCLA National Priorities List in 1984. In 2005, ASARCO filed a Chapter 11 bankruptcy petition, and as part of the bankruptcy proceedings, entered into consent decrees which resolved outstanding environmental liabilities at several Montana sites. One of the consent decrees established a trust to administer cleanup of the East Helena site, and ASARCO paid approximately $111.4 million into the trust. That figure was based on the cost estimates for installing and operating a pump-and-treat system to address the arsenic contamination in groundwater. The trust, however, never implemented the pump-and-treat system, choosing less costly remedial actions instead. After the most recent accounting, approximately $50 million remained in the trust for further remediation efforts, in part due to the savings from never implementing the pump-and-treat system.

In 2012, ASARCO brought a contribution action against Atlantic Richfield under CERCLA §§ 107 and 113. Atlantic Richfield argued, and the district court agreed, that the action was barred by the statute of limitations. ASARCO appealed, and the Ninth Circuit vacated the district court’s summary judgment order and remanded for further proceedings, finding that Asarco’s contribution claim was timely. We reported on the Ninth’s Circuit’s opinion in Asarco LLC v. Atlantic Richfield Co., 866 F.3d 1108 (9th Cir. 2017) here.

On remand, the district court found that ASARCO had incurred approximately $111.4 million in response costs for cleanup of the site, and that Atlantic Richfield was liable for 25 percent of those costs, approximately $27.8 million. Atlantic Richfield appealed the district court’s decision to the Court of Appeals for the Ninth Circuit.  

Recoverable costs “incurred” by ASARCO did not necessarily include the funds remaining in the trust

Atlantic Richfield argued that the $111.4 million amount of “incurred” costs included costs that had not yet been, and might never be, incurred. Moreover, there was a reversion provision in ASARCO’s settlement agreement whereby unused settlement funds in the trust would be redirected to remediate other ASARCO sites, including sites where Atlantic Richfield had no liability. In the matter before the Court in particular, Atlantic Richfield argued that because the trust no longer expected to implement the pump-and-treat remedy, which was costlier that the remedial actions already implemented by the trust, the remaining funds in the trust exceeded the estimated costs of the future remedial work planned at the site. Thus, Atlantic Richfield contended that only the response costs incurred so far should be eligible for contribution, which amounted to $61.4 million.

ASARCO responded that the entire sum paid in the settlement, $111.4 million, was a cost actually incurred under CERCLA. Specifically, the sum paid by ASARCO was an irrevocable monetary payment intended to fund the environmental cleanup of the site. ASARCO argued on policy that precluding recovery for these types of future costs would jeopardize CERCLA’s policy objective of incentivizing settlements and early cleanups.

The Ninth Circuit agreed and vacated in part and remanded to the district court for further consideration of what response costs are sufficiently concrete and non-speculative such that they would be eligible for contribution under CERCLA, holding that “speculative, potential future response costs are not recoverable in a CERCLA contribution action, even if the party seeking contribution has already made an outlay for such costs pursuant to settlement.”  Under CERCLA, the court noted, a party is entitled to recover an allocated portion of the “necessary costs of response incurred . . . consistent with the national contingency plan,” 42 U.S.C. § 9607(a)(4)(B), and that while most settlements equate with incurred response costs, they do not do so inherently. Noting that the Ninth Circuit historically has refused to award future response costs, the Court explained that a party seeking contribution for funds discharging CERCLA liability in a settlement agreement must show that the settlement amount represents necessary response costs incurred consistent with the National Contingency Plan. The Court acknowledged that the meaning of “incur” is sufficiently broad to include amounts involved in some liability settlements, but not so broad that it includes future expenses that are “mere potentialities.” The best path forward where speculative future response costs are involved, the court guided, is for a party to seek a declaratory judgment, whereby liability for future response costs would be allocated at a set percentage across responsible parties.  

The court was quick to emphasize that the facts in this case were unusual, and its holding should be construed narrowly. In particular, the court’s holding was shaped by the scenario of a cash-out bankruptcy settlement, reached as part of a global settlement of liability for several contaminated sites, with a reversion provision that diverts unused funds to other sites for which only one of the parties is responsible. Further, the projected costs and methods of the remediation process fluctuated over time, resulting in the available settlement funds overrepresenting the likely future costs of the remediation work to be completed.

The district court did not abuse its discretion or err in allocating 25 percent of the responsibility to Atlantic Richfield                                                                                                

Atlantic Richfield argued secondly that the district court erred in finding it liable for 25 percent of the cleanup costs. The district court failed to account for the volume and toxicity of waste each party handled, Atlantic Richfield argued, and failed to adequately explain what factors the court considered in reaching its allocation of liability. The Ninth Circuit disagreed with Atlantic Richfield and affirmed the district court’s allocation.

CERCLA empowers a court in a contribution action to “allocate response costs among liable parties using such equitable factors as the court determines are appropriate.” 42 U.S.C. § 9613(f)(1). The district court here based its analysis on the Gore factors and on the duration of each party’s operation at the site, recognizing that ASARCO was the primary polluter at the site but also that Atlantic Richfield was more than a de minimis contributor. The lack of evidence about the specific levels of contamination produced by early operations at the site and Atlantic Richfield’s refusal to acknowledge any responsibility left the court largely to chose among the different potential allocation equations offered by ASARCO and steered it to apply general principles of equity and fairness in allocating responsibility to compensate for the “mathematical uncertainties.” In settling on its allocation, the district court meticulously applied each of the Gore factors in its analysis, which included weighing (1) the ability of the parties to demonstrate that their contribution to the discharge could be distinguished; (2) how much waste was involved and the degree of its toxicity; (3) the degree of the parties’ involvement in the generation, transportation, treatment, storage, or disposal of the hazardous waste; (4) the degree of care exercised by the parties with respect to the hazardous waste; and (5) the degree of cooperation by the parties with federal, state, or local officials.

Because the district court assessed the record evidence and underlying equities sufficiently, the Ninth Circuit affirmed the district court’s liability allocation. To that end, the Ninth Circuit found that the district court had not abused its discretion in this step of its analysis.