The U.S. Court of Appeals for the Seventh Circuit recently allowed a cost recovery suit under CERCLA Section 107(a) to proceed despite the fact that in 2002 the plaintiffs entered into an Administrative Order on Consent with U.S. EPA requiring cleanup of a Superfund site. Most circuits have held that plaintiffs in similar circumstances have resolved their CERCLA liability in an "administrative or judicially approved settlement," and as a result are limited to contribution under CERCLA Section 113(f). Bernstein, et al. v. Bankert, et al. establishes new precedent in the Seventh Circuit regarding the availability of CERCLA cost recovery under 107(a) after a potentially responsible party (PRP) enters into an administrative settlement with the government. This precedent may be of value to similarly situated PRPs in other federal circuits as well.
CERCLA 107 and 113
Private parties that have incurred response costs associated with contaminated sites have two potential rights of action under CERCLA: "cost recovery" under 107(a) and "contribution" under 113(f). Section 107(a) grants a PRP the same rights as an innocent party to sue another PRP for the necessary costs of response incurred in a CERCLA removal or remedial action. In contrast, a PRP can obtain contribution for response costs in only two circumstances:
- From PRPs that are liable or potentially liable under 107(a), but only during or following a civil action under 106 or 107(a).
- A PRP that has resolved its CERCLA liability to the government in an administrative or judicially approved settlement may seek contribution from any PRP that has not.
Cost recovery and contribution are also subject to different statutes of limitation. The limitation periods for cost recovery are three years for removal actions, commencing after completion of the removal action, and six years for remedial actions, commencing after initiation of physical onsite construction of the remedial action. Contribution actions have a three-year limitations period, commencing with the date of judgment in any action under CERCLA for recovery of costs, the date of an administrative order under 107 or entry of a judicially approved settlement for cost recovery.
Following the U.S. Supreme Court decisions in Aviall (2004) and Atlantic Research (2007), most circuits have not permitted PRPs to pursue cost recovery when a contribution claim is available. Most circuits have further held that PRPs that enter into judicially or administratively approved settlements, such as an administrative order on consent or consent decree, are limited to contribution under 113(f).
In Bernstein, the plaintiffs asserted a cost recovery claim under 107(a) for expenses they incurred during a removal action at a Superfund site in Zionsville, Indiana. The district court ruled that the plaintiffs, having entered into an Administrative Order on Consent with U.S. EPA in 2002 regarding the removal work (AOC), could not pursue a claim of cost recovery because their CERCLA liability to the government with respect to the removal work was resolved. As a result, the plaintiffs were limited to contribution under 113(f); a claim they could not maintain because the three-year statute of limitations for contribution began running in 2002, six years before the plaintiffs filed suit in 2008.
On appeal, the Seventh Circuit agreed with the other circuits that have held a PRP is limited to CERCLA contribution when it is available. However, the court took a novel approach regarding whether an administrative settlement automatically resolves a PRP's CERCLA liability and as a result limits that PRP to contribution. The Seventh Circuit concluded a contribution action under 113(f) is not available simply because an administrative settlement has occurred. Instead, the trigger for CERCLA contribution is the resolution of liability through that settlement, which does not occur until a PRP has satisfactorily discharged its obligations under the administrative agreement and U.S. EPA has certified completion of the same. Until that time, the PRP may pursue cost recovery under 107(a) (assuming the PRP has not been subjected to civil action under CERCLA 106 or 107).
With respect to the plaintiffs in Bernstein, the Seventh Circuit determined the work required of them under the 2002 AOC was ongoing at the time they filed suit. The court also found that U.S. EPA had not issued a notice of approval certifying completion of the work that triggered the conditional covenants not to sue provided to the plaintiffs under the AOC. The court, therefore, concluded the plaintiffs met neither of the two prongs for contribution under 113(f) noted above and their cause of action was instead one for cost recovery under 107(a). The court further ruled the three-year statute of limitations applicable to a claim for cost recovery of expenses incurred for a removal action had not begun to run, let alone expired, when the plaintiffs filed suit in 2008 because the removal action had not been completed.
The immediate impact following Bernstein, at least in the Seventh Circuit, is that a signatory to an administrative settlement with the government is not automatically prohibited from seeking cost recovery against other PRPs under 107(a). Additionally, while the Bernstein holding is not controlling in other circuits, it will provide PRPs in those circuits with potentially useful arguments to assert regarding the scope and availability of cost recovery under 107(a).