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Weighing Two Circuit Splits, Ohio District Court Allows Declaratory Judgment and Contribution Claims to Proceed

On March 1, 2021, the U.S. District Court for the Southern District of Ohio issued a ruling denying in part the summary judgment motion of Defendants Ingersoll-Rand and Trane U.S., against whom Plaintiff FIP Realty Co. brought various claims related to the historic release of VOCs on a site now owned by Plaintiff. See Fip Realty Co. v. Ingersoll-Rand Plc, No. 2:19-cv-03291. After acquiring the site out of receivership in 2010, Plaintiff retained several environmental consulting firms and undertook voluntary remediation efforts pursuant to the Ohio Voluntary Action Program (VAP). Six years later Plaintiff submitted a No Further Action (NFA) letter to the Ohio EPA, which in turn issued a Final Order and Covenant releasing Plaintiff from liability at the site as a result of its successful remediation. In 2019 Plaintiff filed the instant lawsuit seeking to recover remediation costs under CERCLA Sections 107(a) and 113(f)(3)(B), and to obtain a declaratory judgment under Section 113(g)(2) that Defendants are liable for all future costs. Defendants moved for summary judgment on various issues, two of which are the subject of disagreement among the federal appellate courts.

The first issue the Court grappled with is whether a declaratory judgment claim for future costs is cognizable absent a viable claim for past costs. Plaintiff acknowledged that its Section 107(a) claim to recover past costs was untimely. For such claims CERCLA establishes a six-year limitations period, which begins “when physical, on-site construction of the remedial action commences.” Plaintiff, however, began initial remedial tasks in 2002, rendering its 2019 lawsuit untimely. Defendants argued that Plaintiff’s declaratory judgment claim for future costs must be dismissed because with the dismissal of the Section 107(a) claim, Plaintiff lacked a “predicate” claim. With the absence of binding precedent from the Sixth Circuit Court of Appeals, the Court looked elsewhere and noted a circuit split on the issue. The Second, Third, Eighth and Ninth Circuits all require a valid predicate claim. They look to the text of Section 113(g)(2), which states that “the court shall enter a declaratory judgment on liability for response costs . . . that will be binding on any subsequent action or actions to recover further response costs” (emphasis added). The use of the term “subsequent action” suggests that the “response costs” to which “liability” initially attaches are past costs. Meaning, without a judgment as to liability on past costs, there can be no declaratory relief for future costs. From a policy standpoint, these circuits observe that it would be a waste of judicial resources to allow relief as to future costs before establishing liability for past costs. The First and Tenth Circuits, on the other hand, do not require a predicate claim for past costs. They do not interpret the above-quoted language as precluding a declaratory judgment on future costs without a valid claim for past costs. They also observe that in certain circumstances plaintiffs have obtained such declaratory relief. In one Tenth Circuit case, for instance, the Court ruled that while the plaintiff failed to prove its remedial actions were consistent with required standards and practices, the plaintiff was not precluded from pursuing declaratory relief for future costs. Cnty. Line Inv. Co. v. Tinney, 933 F.2d 1508, 1512 (10th Cir. 1991).

The Southern District of Ohio followed the approach of the First and Tenth Circuits. While agreeing that the text of Section 113(g)(2) does not condition declarations of future liability on viable past-cost claims, the Court seemed particularly swayed by underlying policy justifications. Namely, the Court was concerned about the prospect of tortfeasors escaping cleanup liability–imposed via declaratory judgment—merely because of procedural defects with a Section 107(a) claim. Thus, the liability and future obligation to pay of Defendants Ingersoll-Rand and Trane U.S. should not depend on Plaintiff’s compliance with the statute of limitations to recover past costs. Accordingly, the Court denied Defendants’ motion for summary judgment as to Plaintiffs Section 113(g)(2) claim.

After resolving one circuit split, the Court faced yet another, this time related to Plaintiff’s Section 113(f) contribution claim. Generally, this CERCLA claim allows a plaintiff to seek contribution from other parties after it has resolved “its liability  to . . . a State for some or all of a response action . . . in an administrative or judicially approved settlement.” 42 U.S.C. § 9613(f)(3)(B) (emphasis added). Thus only when its governmental liability for a “response action” is resolved can a plaintiff bring such a claim. The Defendants argued that the contribution claim should be dismissed because, among other reasons, the Final Order and Covenant upon which this claim was based did not release Plaintiff’s liability under CERCLA specifically. Rather, the Covenant released Plaintiff “from all civil liability . . . to perform additional investigational and remedial activities.” Defendants argued the Plaintiff therefore did not fully resolve its CERCLA liability with Ohio, rendering its Section 113(f)(3)(B) claim premature. The Court explained that the issue “whether a non-CERCLA settlement agreement may give rise to a contribution action has also split the circuits.” On one side, the Second Circuit has held that Section 113(f) creates a right to contribution only when liability for CERCLA claims specifically—and not broader environmental or property claims generally—is resolved, observing that “response action” under Section 113(f) is a CERCLA-specific term. The Third, Seventh, and Ninth Circuits disagree, holding that non-CERCLA settlement agreements can form the predicate for a contribution claim. They contrast Section 113(f)(3)(B) to Section 113(f)(1), which permits a plaintiff to seek a contribution claim after it was sued by another party in a Section 107(a) action. Section 113(f)(3)(B), though, lacks a similar internal cross-reference to CERCLA, suggesting that the term “administrative or judicially approved settlement” is not limited to a CERCLA-specific settlement.

The Southern District of Ohio agreed with the reasoning of the Third, Seventh, and Ninth Circuits. Plaintiff’s settlement with the Ohio EPA by way of the Final Order and Covenant satisfied the requirement of a government settlement to bring a contribution action under Section 113(f), even though the Covenant did not release Plaintiff of CERCLA liability specifically. The Court therefore denied Defendants’ motion for summary judgment on this claim.  Notably, this second issue may be decided this year when the United State Supreme Court issues its decision in Guam v. United States, Docket No. 20-382. 

This decision serves as a reminder that CERCLA still engenders disagreement among courts even 40 years after its passage and that companies seeking contribution must ensure that their approaches to  cost recovery are guided by the laws of the jurisdiction in which its efforts take place.