Recently, Reed Smith represented Dravo Corporation in a case captioned Morrison Enterprises, LLC v. Dravo Corporation, before the District Court for the District of Nebraska and the Eighth Circuit. Given that several significant issues were addressed in the Eighth Circuit’s decision, we address the key holdings in two different posts. This post addresses the issue of cost recovery versus contribution. A separate post discusses two issues relating to application of the statute of limitations.
The Decision: CERCLA’s Contribution Section Provides the Exclusive Remedy for a Liable Party Compelled to Incur Response Costs Pursuant to an Administrative Settlement
For four years, courts have been addressing an issue under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) left open by the U.S. Supreme Court in United States v. Atlantic Research Corp., 551 U.S. 128 (2007): whether a liable party sustaining expenses pursuant to a settlement following a suit under CERCLA Sections 106 or 107(a) could recover such compelled costs under Section 107(a), Section 113(f), or both. In ruling on this issue, the Eighth Circuit Court of Appeals recently held that CERCLA Section 113(f) – CERCLA’s contribution section – provides the exclusive remedy for a liable party compelled to incur response costs pursuant to an administrative or judicially approved settlement under Sections 106 or 107. Morrison Enterprises, LLC v. Dravo Corporation, 2011 WL 1237526 (8th Cir. Apr. 5, 2011).
In the case, Appellants Morrison Enterprises, LLC (Morrison) and the city of Hastings, Nebraska – both of which were liable under CERCLA for hazardous substances released into the groundwater – sued Dravo Corporation, a manufacturing site owner also liable under CERCLA. The Appellants filed suit under CERCLA Section 107 and sought to recover groundwater contamination costs related to the operation of Well D, a groundwater extraction and treatment system located downgradient of each party’s relevant source of contamination. The District Court granted Dravo Corporation’s motion for summary judgment, finding that Section 113(f) was the Appellants’ exclusive remedy. The Circuit Court affirmed.
At the outset, the Circuit Court explained that “liable parties which have been subject to Section 106 or 107 enforcement actions are still required to use Section 113.” In ruling for Dravo Corporation, the court held that, because Morrison and the city of Hastings were liable parties compelled to incur response costs pursuant to an administrative or judicially approved settlement under Sections 106 or 107, they could only bring a Section 113(f) claim for contribution.
CERCLA provides two mechanisms to allow private parties to seek costs incurred to remediate a contaminated site: cost recovery under Section 107 and contribution under Section 113. Section 107(a)(4)(B) permits a private party that has voluntarily incurred costs cleaning up a site for which it may be held liable to recover necessary response costs from another liable party through a direct recovery action.
Section 113(f)(1) allows a person to seek contribution from any other person who is liable or potentially liable under Section 107(a) during or following a civil action under Sections 106 or 107. Section 113(f)(3)(B) authorizes “[a] person who has resolved its liability to the United States or a State for some or all of a response action or for some or all of the costs of such action in an administrative or judicially approved settlement” to seek contribution from any person who has not so resolved its liability.
Morrison Enterprises’ Response Costs
The District Court had determined that Morrison could not use Section 107(a) to recover response costs for removing TCE at Well D because Morrison was a liable party that had been subject to a Section 107 enforcement action as evidenced by three administrative orders and a consent decree. These agreements also obligated Morrison to operate Well D to remove TCE and other hazardous substances.
Morrison argued that the District Court erred in finding Morrison could not bring a cost-recovery action because, in Morrison’s view, it “voluntarily” cleaned up TCE contamination for which Dravo was legally liable. Denying any causal connection to releases of TCE anywhere in the Superfund Site, Morrison attempted to analogize its compelled removal of TCE at Well D to the plaintiff’s voluntary clean-up of hazardous substances in Atlantic Research. According to Morrison, “[b]y ‘voluntarily,’ the Supreme Court [in Atlantic Research] meant actions taken ‘without any establishment of liability to a third party,’ such as through a judgment or court order.” See Atlantic Research, 551 U.S. at 139.
The Circuit Court determined that Morrison’s understanding of Atlantic Research and its application here was incorrect. It found that Morrison ignored the terms of its administrative orders. Unlike the voluntary plaintiff in Atlantic Research, which had never been subject to an action under Sections 106 or 107, Morrison was sued under Section 107 for releases and potential releases of hazardous substances and entered administrative settlements to resolve its liability. The court added that, notwithstanding Morrison’s assertions to the contrary, one of the administrative orders specifically obligates Morrison to operate Well D to remove TCE from contaminated groundwater as a “liable party” under Section 107(a). After finding that response costs incurred pursuant to administrative settlements following a suit under Section 106 or 107(a) are not incurred voluntarily, the Circuit Court affirmed that Morrison could not maintain a cost-recovery action under Section 107(a).
The City of Hastings’ Response Costs
The city of Hastings likewise did not voluntarily incur response costs operating a well to remediate contamination in the city’s groundwater. The court found that it was subject to enforcement under Sections 106 and 107, and had resolved its liability to the federal government in administrative and judicially approved settlements, including two administrative orders and two consent decrees. The most recent consent decree requires the city to operate Well D to remediate contamination in the city’s groundwater.
The city argued that the District Court erred in focusing on the remedy, Well D, rather than on Dravo’s liability for contamination originating at a different subsite. In asserting that Dravo’s separate subsite is a separate “facility” under CERCLA, the city argued that it was voluntarily cleaning up Dravo’s contamination from a separate facility at Well D.
The Circuit Court disagreed and found that the city’s focus on specific facilities within the overall Superfund Site “is entirely too narrow given CERCLA’s comprehensive remedial purpose and broad reach.” The court determined that once a party is liable under Section 107(a), it is liable for its share, as determined by Section 113(f), of any and all response costs, not just those costs caused by its release. It held that, while some of the releases of hazardous substances for which the city and Dravo are liable may have initially originated at different subsites, both are responsible for the release of TCE into the city’s groundwater within the site. The court affirmed the District Court’s conclusion that the city must use Section 113(f) to apportion responsibility for response costs incurred operating Well D to remove TCE accumulating there.