Last week the Third Circuit held that Combustion Equipment Associates, Inc. n/k/a Carter Day Industries, Inc. (“Carter Day”) was not protected from a contribution claim brought by Compaction Systems Corporation of Connecticut, Inc. and Compaction Systems Corporation (collectively, “Compaction”) for amounts Compaction was obligated to pay to the United States despite Carter Day having resolving its liability to the State of New Jersey for the same site. New Jersey Department of Environmental Protection v. American Thermoplastics Corporation, et al., Nos. 18-2865 & 19-2243 (3d. Cir. Sept. 8, 2020). At issue was whether the settlement agreement between Carter Day and the New Jersey Department of Environmental Protection (“NJDEP”) addressed the same “matter” as the contribution claim brought by Compaction for response costs at the Combe Fill South Landfill Superfund Site (the “Combe Fill Site” or “Site”).

Shortly after the Combe Fill Site was added to the National Priorities List in 1983, NJDEP and the United States Environmental Protection Agency (“EPA”) entered into a cooperative agreement to allocate the remedial investigation and remedial action costs between the sovereigns for the Site. Further, the agreement specified that neither sovereign had the authority to “negotiate on behalf of the other.”

Based on proceedings in its Chapter 11 Bankruptcy, in 1990, Carter Day, a potentially responsible party (“PRP”), entered into a settlement agreement with NJDEP which, among other things, resolved Carter Day’s liability to New Jersey for the “entire Site.”  Several years later, both EPA and NJDEP sued a number of PRPs, including Compaction, to recover their past costs incurred at the Site. In 2009, Compaction, along with a number of PRPs, settled its claims for past and future costs with both EPA and NJDEP and thereafter sought contribution from Carter Day for the amounts it became obligated to pay to the federal government under the settlement agreement. Carter Day, however, argued that its 1990 settlement with NJDEP shielded it from contribution claims under Section 113(f)(2) of CERCLA, which provides that “[a] person who has resolved its liability to the United States or a State in an administrative or judicially approved settlement shall not be liable for claims for contribution regarding matters addressed in the settlement.”

Overturning the decision of the District Court, the Third Circuit rejected Carter Day’s argument, reasoning that while there is a presumption that a settlement for response costs addresses a PRP’s responsibility for an entire site, there is no similar presumption that it covers liabilities to both the state and the United States. Carter Day’s settlement with NJDEP did not expressly define the “matters addressed” but upon analysis, the Court found that it was limited to remedial action costs incurred by the State of New Jersey. Among other things, the Court found that narrowly interpreting contribution protection "vindicates CERCLA’s goal of equitably distributing liability without extinguishing incentives to settle" and, further, that a comprehensive settlement would have been barred by the cooperative agreement between NJDEP and EPA.

This opinion serves as reminder to PRPs negotiating CERCLA settlements that while resolution of remediation claims with a State can bar future contribution claims based upon federal liability, such agreements need to be clear as to the scope of the matters addressed in the settlement. Failure to be mindful of this fact could leave a PRP open to an unexpected contribution claim under Section 113.

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