On September 3, 2021, the United States Court of Appeals, Seventh Circuit, vacated the lower court’s determination that liability for remediating the environmental harm associated with a groundwater plume was divisible under Section 107 of CERCLA. In Von Duprin LLC v. Major Holdings, LLC, the environmental harm stemmed from a groundwater plume created from decades of known pollution involving four parcels and primarily four parties. No. 20-1711 (7th Cir. Sept. 3, 2021). As we reported here, the trial court’s apportionment of liability appeared to intermingle factors relevant to both an allocation and apportionment of liability. The appellate court found the same, and vacated the trial court’s apportionment of liability due in part to the apparent application of factors relevant to an allocation of joint liability. At a threshold level, the appellate court also vacated the trial court’s determination at summary judgment that a reasonable basis existed to apportion liability based on causal factors, rather than allocate joint liability based on equitable factors. The appellate court affirmed, however, the trial court’s holdings related to the bona fide prospective purchaser (BFPP) defense, compliance with the National Contingency Plan (NCP), and the admission of expert testimony.
The Parties and the Properties
Von Duprin LLC and its predecessor owned and operated property in Northeast Indianapolis, using degreasers and a variety of chemical products, including trichloroethylene (TCE) and perchloroethylene (PCE). In August 2013, Von Duprin was notified by the Indiana Department of Environmental Management (IDEM) that it was a potentially responsible party (PRP) after IDEM’s investigations determined that the property and groundwater was contaminated with VOCs. Von Duprin undertook remediation efforts at a cost of $3.2 million, including settling with the subsequent owner of the property for $1.5 million. Von Duprin initiated the lawsuit at issue by filing a cost-recovery claim under CERCLA Section 107(a) against current and former owners of adjacent properties, as identified below.
Moran Electric Services, Inc. (“Moran”) owned and operated two properties upgradient from the Van Duprin property, called the Moran property and the Zimmer property (which consisted of two parcels). Moran released VOCs in its operations on the Moran property. Major Holdings, LLC and Major Tool and Machine, Inc. (“Major”) subsequently leased and then purchased the upgradient properties and a third property, called the Ertel property, which also was upgradient from the Van Duprin property. Major did not use VOCs or any of the hazardous substances in question on the properties. These current and former owners of the properties upgradient to the Von Duprin property asserted contribution cross-claims and counterclaims against Von Duprin under Section 113(f) of CERCLA, seeking contribution for any liability allocated to them.
Trial Court Proceedings
On summary judgment, the trial court sided with Moran that the environmental harm associated with the groundwater plume could be apportioned, despite the plume containing contamination comingled from various sources over decades. The trial court also determined that Major was a BFPP for the Moran property and for one of the two parcels that made up the Zimmer property, but the factual issues precluded it from making the same finding with respect to the Ertel property or the other Zimmer property parcel.
The court held a bench trial in July and August of 2019, in which it sided with Moran’s expert in apportioning liability based on the expert’s determination of the extent to which each property contributed to the groundwater plume. The court “allocated” 50% of the liability to the Von Duprin property, 20% to the Moran property, 20% to the Zimmer property, and 10% to the Ertel property. The court then appeared to apportion each party’s liability with respect to the properties, finding Von Duprin 100% responsible for the Von Duprin property; Major 100% liable for the Ertel property and Zimmer property; and Moran 100% responsible for the Moran property (with Major relying on the BFPP defense). Thus, the Court held that for both past recoverable and future costs, Moran was liable to Von Duprin for 20% and Major was liable for 30%. Through it all, the court listed “equitable factors” leading to its decision, leading readers to question whether the court allocated the joint liability of the parties in connection with defendants’ Section 113(f) cross claims or apportioned the liability of the parties based on causal factors in accordance with Von Duprin’s Section 107(a) cost recovery claim.
Additionally, the court held that Von Duprin’s settlement with Threaded Rod was a cost inconsistent with the NCP and therefore not recoverable. The court also found that Major was not entitled to assert the BFPP defense for either the Ertel property or one of the parcels comprising the Zimmer property, finding that Major did not meet specific requirements of the “all appropriate inquiries” standard and in 40 C.F.R. §§ 312.21 and 312.22.
On appeal, Major alleged that the trial court improperly denied it the benefit of the BFPP defense to liability for two of the properties and that Von Duprin failed to prove its response costs were incurred consistent with the NCP. Major also challenged the trial court’s calculation of damages, contending that the district court conflated the allocation and apportionment processes. Von Duprin cross-appealed, arguing that the trial court should never have concluded that the harm was capable of apportionment.
The appellate court affirmed the trial court’s decisions in connection with the BFPP defense and costs incurred that were consistent with the NCP. However, the court vacated the trial court’s finding at summary judgment that the environmental harm was divisible and vacated the court’s decision after trial apportioning liability. Because the appellate court’s discussion of the decisions it affirmed was brief, this article focuses on the issues subject to the court’s vacatur.
Threshold Determination to Apportion Liability
The appellate court first held that the trial court approached the apportionment question at the summary judgment stage at “too high a level of generality,” focusing too intently on whether apportionment was “theoretically” possible and not whether it was possible based on the evidence. The error stemmed from the trial court’s application of the Burlington Northern test, which in deciding whether the harm can be apportioned first requires courts to determine whether the harm at issue is “theoretically capable of apportionment.” Burlington Northern & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 614 (2009). The lower court focused too heavily on the “theoretical,” and not enough on the Burlington Northern second step—whether the evidentiary record provides a reasonable basis for actually apportioning the liability among PRPs. The complexity inherent in the environmental harm at issue—the formation of a comingled plume formed over several decades from unknown quantities and concentrations of released hazardous waste—required more than the theoretical to overcome the substantive burden imposed on the party requesting that cost-recovery liability be divided among the parties instead of joint and several.
The trial court’s substantive error caused a “closely-related procedural misstep” at the summary judgment. As a substantive matter under CERCLA, the party contending that the court should abandon joint and several liability in favor of divisible liability bears the burden that a reasonable basis for apportionment exists. The procedural rule controlling whether summary judgment is appropriate works in tandem with the substantive law governing the parties’ cost-recovery claims. Here, however, the trial court did not account at summary judgment for the substantive burden that the moving parties would face at trial on the basis for apportionment. In fact, the evidentiary burden seemed to apply to the responding parties to affirmatively disprove that the harm was capable of apportionment. The appellate court found that the “displaced norm of joint and several liability in favor of apportionable harm” subverted the substantive law underlying cost-recovery claims and was made despite there being a genuine dispute over material facts that bore on the question of whether the harm was capable of apportionment. For these reasons, the appellate court vacated the trial court’s threshold decision, emphasizing that the trial court on remand should analyze the facts at a higher level of particularity.
Trial Court’s Determination of Liability
The appellate court next addressed the basis by which the trial court awarded costs of remediation. As noted above, the court treated the factors applicable to apportionment and allocation interchangeably, so much so that the appellate court did not know how the court arrived at its determinations of liability. Apportionment and allocation under CERCLA arise from separate statutes. As discussed above, apportionment operates in an action to recover response costs under Section 107(a), but only where the harm is divisible. The determination of the appropriate apportionment of liability is guided by causation. Allocated liability arises under Section 113(f), which authorizes PRP defendants to seek contribution toward the liability from the party seeking cost recovery in the first instance. Courts allocate liability “using such equitable factors as the court determinates are appropriate.” 42 U.S.C. § 9613(f)(1).
Even more challenging for the appellate court was the lack of explanation for why the trial court relied on some factors and discounted others. The opinion left the appellate court “of the firm conviction that the court merged and conflated its consideration of apportionment and allocation.” Left unable to determine what portions of the liability awards reflect apportionment and what portion reflects allocation, the appellate court vacated trial court’s judgment of liability.
In sum, the appellate court’s opinion “break[s] no new ground on the law of apportionment in CERCLA cases,” but it illustrates how apportionment of liability under CERCLA is the exception, and not the norm. Cleanups that involve pollution events occurring from multiple parties over decades—as is often the case for CERCLA causes of action—often present too many complexities for courts to find a reasonable basis to apportion liability, particular at summary judgment.