The First Circuit recently affirmed the District of Rhode Island’s approval of a superfund consent decree entered into between the United States Environmental Protection Agency (“EPA”), the State of Rhode Island and several Potentially Responsible Parties despite opposition by third party PRPs that the settlement was arbitrary and capricious and contrary to the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). Emhart Indus., Inc. v. CNA Holdings LLC, No. 19-1563, slip op. (1st Cir. 2021 Feb. 17, 2021). What makes this case unique, and bolstered the arguments of the objectors, is that the settlement incorporated work pursuant to a ROD that the District Court had already determined has not been selected in accordance with law. Nevertheless, both the District Court and the First Circuit held that the finding did not preclude the settlement, leaving the objectors exposed to contribution claims for a remedy potentially inconsistent with the National Contingency Plan (“NCP”). In affirming the lower court, the First Circuit highlighted the “integral part” that early settlement plays in CERCLA’s statutory scheme, thus giving deference to the settling parties.

Background

Emhart concerns contamination of a three-mile segment of the Woonasquatucket River and surrounding area (the “Site”) which EPA placed on its National Priorities List for cleanup under CERCLA. Between 2000 and 2003, EPA issued various administrative orders to Emhart Industries, Inc. (“Emhart”) and other PRPs directing them to engage in certain response actions. In 2006 and 2011, Emhart brought suit under CERCLA sections 107(a) and 113(f)(1) against, among others, the United States Department of Defense, the United States Air Force, and the United States Department of the Navy (collectively the “Federal Agencies”). The United States counterclaimed on behalf of the Federal Agencies for contribution and on behalf of EPA for cost recovery under section 107(a) of CERCLA. In 2012, EPA issued the Record of Decision (the “2012 ROD”) for the Site, which estimated that costs for implementing the response action could reach over $100 million. Eventually, the State of Rhode Island brought its own claims against Emhart under CERCLA and state law, and the United States asserted claims against additional PRPs, including CNA Holdings LLC, Exxon Mobil Corporation, and Union Oil Company of California (collectively the “Appellants”).

Pursuant to a case management order, the District Court decided to handle the litigation in three phases. Phase I involved a determination of, among other things, whether Emhart was jointly and severally liable to the United States as a responsible party under section 107(a) of CERCLA and whether the Federal Agencies were liable for cost recovery or contribution. After a twenty-day bench trial, the court found against Emhart on its liability to the United States and further found that Emhart had not sufficiently established that the Federal Agencies were responsible for the contamination at the Site.

Phase II addressed the response action that EPA ordered Emhart to carry out and its impact on responsible parties under CERLCA. Specifically, the court addressed whether EPA’s remedy-selection process in the 2012 ROD was arbitrary, capricious, or otherwise not in accordance with law. Although the court found that EPA followed the basic steps required by CERCLA and the NCP in developing its remedial action for the Site, it also held that Emhart had sufficiently established that, on the then-current record, several decisions EPA made in its remedy-selection process were arbitrary, capricious, or otherwise not in accordance with law.

Phase III was intended to address the underlying liability of the third-party defendants, including the Appellants, as well as their allocated liability. However, before Phase III could commence, the United States, on behalf of EPA and the Federal Agencies as PRPs, the State of Rhode Island and Emhart entered into a proposed a consent decree resolving all claims regarding the Site. Among other things, the proposed consent decree required Emhart to pay approximately $42 million to the United States for its past costs and to undertake a scope of work for future remediation consistent with the remedy in the 2012 ROD. The Federal Agencies were required to pay $550,000 to resolve their liability with respect to the Site. As part of the settlement, Emhart and the Federal Agencies would receive protection from contribution actions or claims for matters addressed by the consent decree. After the passage of the appropriate comment period, the United States and Rhode Island moved for entry of the consent decree on the basis that it was fair, reasonable and consistent with CERCLA’s goals. The Appellants and other third-party defendants opposed entry on the basis that it called for the implementation of a remedy that the District Court previously held was arbitrary and capricious under CERCLA, thereby rendering it inconsistent with CERCLA, and that the proposed consent decree was not substantively fair as a whole because no justification was provided for setting the federal agencies’ payment at $500,000.

The District Court held a hearing on the question of whether to approve the proposed consent decree, and subsequently entered an order approving the consent decree. The court reasoned that the remedial action in the 2012 ROD, when viewed in light of how the statement of work and consent decree propose to effectuate the remedial action, was not inconsistent with CERCLA and the NCP, and vacated its Phase II decision and approved the consent decree. The appellants appealed.

First Circuit’s Decision

On appeal before the First Circuit, the Appellants asserted three main arguments for rejecting the District Court’s approval of the consent decree. First, Appellants contended that the District Court abused its discretion by approving the consent decree because it incorporated a remedy identical to the response action the EPA selected in the 2012 ROD which the District Court determined was arbitrary and capricious under CERCLA. Because there was no objection to relying on evidence not in the administrative record as it existed during Phase II, the First Circuit additionally reviewed the evidence and arguments presented during Phase II of the trial, in a subsequent Motion for Reconsideration and in support of the entry of the Consent Decree, as well as a change in Rhode Island law regarding water quality, to find that the Consent Decree and the Scope of Work were sufficient to address and respond to the flaws the District Court had identified during the Phase II trial.

Second, the Appellants argued that the District Court erred in approving the consent decree because it required the Federal Agencies to pay a mere $550,000 to shield themselves from liability for a cleanup estimated to cost approximately $100 million. The First Circuit disagreed given that Emhart had failed to establish their liability during Phase I, and the Appellants had presented no additional evidence that would question that finding, relying only on the “potential” of additional evidence to be adduced during discovery that would have preceded Phase III. Because the District Court had a “plausible explanation” for approving the amount to be paid by the Federal Agencies, and rejecting unfounded claims that the settlement was “nepotistically brokered,” the First Circuit held that it did not act arbitrarily or capriciously in so doing.

Finally, the First Circuit rejected Appellant’s claim that the District Court failed to meaningfully review the settlement. The District Court catalogued the extensive evidence it reviewed, thereby indicating that tit had carefully considered the relevant issues, the First Circuit noted when it emphasized that an appellate court should invalidate a consent decree only when it finds something “deeply amiss,” which was not the case here. Accordingly, the First Circuit affirmed the District Court’s approval of the consent decree.

While it is unclear whether the Appellants had their own opportunity to settle with the United States, this case certainly highlights the benefits that are conferred on parties who settle early and the risks of not doing so to non-settling parties.

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