A federal court in California has determined that settlements with individual defendants in cases under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) should reduce other defendants’ liability by the amount ultimately determined to be the settling defendant’s share, rather than by the amount of the settlement. Lewis v. Russell, No. 03-2646 (E.D. Cal. 11/9/12).

At issue were perchloroethylene (PCE) releases from a dry cleaning operation. The property owner sued past owners, past operators of the dry cleaning business, entities that supplied PCE for use at the site, and the local city, seeking to recover cleanup costs. The plaintiff reached a $30,000 settlement with one of the PCE supplier defendants, Workroom Supply, Inc. (WSI). The plaintiff had alleged that WSI constituted a site operator by virtue of its PCE deliveries to the dry cleaning business, while WSI claimed that it lacked sufficient control over operations to constitute an operator. Of all the defendants, only the city, allegedly liable because of responsibility to provide upkeep to sewer lines, objected to the settlement.

The court concluded that the settlement amount was fair in light of questions about WSI’s liability and potential ability to pay. Assessing the settlement’s impact on other defendants, the court noted that the Ninth Circuit had never ruled on the way in which such settlements affect the liability of other defendants in a CERCLA case. The court analyzed two approaches, a pro tanto reduction, which reduces other defendants’ liability by the amount of the settlement, and the proportionate share approach, which reduces other defendants’ liability by the amount of the settling party’s actual share of liability.

Under the latter approach, where a settling defendant pays less than its allocated liability, presumably determined at trial, the non-settling defendants’ liability to the plaintiff is reduced by the larger allocated amount, rather than by the amount actually paid in the settlement. Noting that the Ninth Circuit had adopted proportionate share analysis for other kinds of cases, the court determined that applying the proportionate share approach for CERCLA cases is appropriate because it protects the non-settling defendants from potential underpayments by settling entities.