Overview

In Asarco, LLC v. Noranda Mining, Inc., the Tenth Circuit Court of Appeals held that representations made to the bankruptcy court that the Debtor’s settlement of environmental claims reflected only the Debtor’s share of the cleanup costs did not judicially estop the Debtor from brining a contribution claim against another potentially responsible party for those same costs.

Background

Asarco, LLC (“Asarco”) is a mining smelting, and refining company. It filed for protection under Chapter 11 of the Bankruptcy Code in August 2005. After approximately $6.5 billion of Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) environmental claims were brought against the company in the chapter 11 case, Asarco agreed to a settlement of $1.79 billion with the Environmental Protection Agency (“EPA”) to resolve the environmental claims at 52 sites in 19 states. At issue in the case is the settlement for one site in particular, namely, the Lower Silver Creek/Richardson Flat Site (the “Site”), which settled for $7.4 million for cleanup costs associated with the Site.

The bankruptcy court approved the global $1.79 billion settlement with the EPA on June 5, 2009 finding that it met the two required legal standards required for approval, namely that the settlement was “fair, equitable, and in the best interests of the estate” pursuant to Bankruptcy Rule 9019(a) and that it was “fair, reasonable, and consistent with CERCLA,” pursuant to CERCLA.

In June 2013, Asarco brought an action against Noranda Mining, Inc. (“Noranda”) under 113(f) of CERCLA, seeking contribution for the $8.7 million ($7.4 million principal plus $1.3 million in interest) the company paid to settle the claims for the Site. The United States District Court for the District of Utah granted summary judgment in favor of Noranda. The District Court held that Asarco was judicially estopped from pursuing its claim because of representations it made to a bankruptcy court concerning its settlement agreement for the Site. Asarco appealed to the Tenth Circuit.

Tenth Circuit’s Analysis

To meet the standards required to approve a settlement under Bankruptcy Rule 9019 and CERCLA, Asarco presented the bankruptcy court with evidence that the settlement agreements were fair and equitable, and that the $7.4 million settlement amount reflected only Asarco’s proportionate share of liability for the cleanup costs. The district court held that Asarco was judicially estopped from bringing the contribution claim because Asarco had represented to the bankruptcy estate that the settlement represented only Asarco’s proportionate share of liability for the Site. Noranda had argued that claiming contribution against Noranda amounted to evidence that the $7.4 million settlement amount constituted an overpayment, and that Asarco effectively concealed a multi-million dollar asset from its creditors and the bankruptcy court.

The three factors that typically inform a court’s decision to apply judicial estoppel are: (1) a party takes a position that is “clearly inconsistent” with its earlier position; (2) adopting the later position would create the impression that “either the first or the second court was misled,” and (3) allowing the party to change its position would give it “an unfair advantage or impose an unfair detriment on the opposing party if not estopped.”

The district court found that (1) Asarco told the bankruptcy court that its fair share of liability for the Site was $7.4 million; (2) Asarco then claimed that this amount actually represented more than its allocable share of costs (evidenced by the contribution claim against Noranda); and (3) it followed that the two statements were “clearly inconsistent.”

Noranda argued that the bankruptcy court could only have approved the settlement if it were correlated to Asarco’s comparative fault, and that it could not approve the settlement if Asarco was taking on the entirety of the potential liability. In dismissing this argument, the Tenth Circuit held that while a CERCLA settlement should be fair, reasonable, and roughly correlated with the responsible party’s comparative fault, this does not do away with the contribution provisions of the CERCLA. The Tenth Circuit reasoned that a settlement is not necessarily unfair if a settling party pays more than an amount equivalent to its comparative fault, because, otherwise, no party would settle until a mini-trial was held to determine its exact share of environmental liability and there would never be need for a contribution action by a settling party.

Acknowledging the tension between Bankruptcy Rule 9019 and CERCLA, the Tenth Circuit dismissed the notion that the bankruptcy court would err if it approved a settlement that might have been for more than Asarco’s exact share of environmental liability. The Tenth Circuit concluded that CERLCA allows a party to settle for an inexact amount and later seek contribution from other parties for any amounts it overpaid. Because doing so, without more, does not equate to pursuing inconsistent positions, the Tenth Circuit held that the district court’s conclusion was inconsistent with the nature of CERCLA claims and of Asarco’s underlying settlement.

Conclusion

This case highlights the potential contradiction of seeking approval of a CERCLA settlement with the bankruptcy court and subsequently seeking contribution from another party for the same claims. The Tenth Circuit demonstrates that this contradiction should not bar CERCLA contribution claims because it would disincentivize settlements and would render such contribution provisions superfluous.