A federal court recently ruled that a government contractor may be found liable for cleanup of contamination (and additional damages) caused by an accident at a federal cleanup site, even if the contractor was working under the supervision of the federal government. Environmental firms employed by the federal government to assist with cleanup efforts should take note of – and address in their contracts and insurance agreements – potential exposure to such liability.

Background

The Gold King Mine, located in southwestern Colorado, has been the focus of state and federal cleanup efforts for several decades. EPA contracted with Environmental Restoration, LLC (ER) beginning in 2014 to assist with repairing drainage problems at this site. In August 2015, while conducting an excavation related to the investigation of contaminated drainage within the mine, a crew of government and contractor employees led by EPA hit a "spring" that leaked approximately 3 million gallons of untreated drainage from the mine into a nearby river. The contaminated drainage flowed downstream and allegedly caused extensive natural resource damage.

The State of New Mexico and the Navajo Nation (together, the "Plaintiffs") eventually brought suit in the District of New Mexico (the "Court") against numerous governmental and non-governmental entities involved at the Gold King Mine site, including the EPA and ER. The complaints seek costs and damages resulting from the spill under the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and state tort law.

ER moved to dismiss the Plaintiffs' complaints as they pertain to ER's liability for the damages. In particular, ER argued that it is not a "covered person" under CERCLA and that it is shielded from state tort law liability as a result of federal preemption and the "government contractor defense." The Court issued an order on February 12 that rejected these arguments and allowed the case to proceed against ER.

Court's Order

The Court first addressed ER's motion to dismiss the Plaintiff's CERCLA claims. CERCLA provides for cost recovery from a "covered person" for contamination cleanup. A "covered person" includes (among other categories):

  • An Operator: Any person who "owned or operated" the facility at the time contamination occurred;
  • An Arranger: Any person "who by contract, agreement, or otherwise arranged for disposal or treatment" of hazardous substances; and
  • A Transporter: Any person who "accepts…any hazardous substances for transport to disposal or treatment facilities" where a release occurs.

42 U.S.C. § 9607(a). The Court ruled that the Plaintiffs pleaded sufficient facts to allege that ER is a "covered person" under any of these three categories. Thus, even though EPA may have exhibited ultimate control over the site at the time of the accident, ER's involvement in the overall cleanup process at the mine resulted in exposure to potential CERCLA liability.

Second, the Court denied ER's argument that the Plaintiffs' state tort law damage claims were preempted by CERCLA. The Court determined that factual development of the record was required before considering whether these claims are preempted. Therefore, the Plaintiffs' state tort law claims – seeking compensatory, restitutionary, and punitive damages, as well as attorneys' fees – survived ER's motion.

Finally, the Court considered the "government contractor defense," which extends the protection of government immunity (assuming it exists for federal employees under the circumstances) to contractors hired by the government. In order to use this shield against liability, the Court determined that ER must show (1) EPA approved reasonably precise cleanup procedures, (2) ER followed EPA's reasonably precise instructions, and (3) ER revealed to EPA any dangers regarding the cleanup activity unknown to EPA. Since ER could not show, based on the pleadings, that any of these requirements were met, the Court determined that ER could not use this defense, at least at this point in the proceedings.

Why This Matters

The federal government often uses outside contractors to do the "heavy lifting" in an environmental cleanup project. This recent ruling shows how participation in these projects can expose a government contractor to potentially significant liability, even where the supervising federal agency may have been in control at the time of an accident. A carefully drafted complaint may provide enough ambiguity to allow both CERCLA and state law claims to survive a motion to dismiss.

Contractors should take precautionary steps to guard against large-scale liability in these cases. For example, contractors should ensure that their insurance coverage and limits are adequate to cover a worst-case scenario based on the specific project. Additionally, contractors should take steps to protect themselves in their contracts with the government. Finally, in order to increase the likelihood of securing the protection of government immunity, contractors should ensure that their actions at the cleanup site are based on clear instructions provided by the employing federal agency and that such instructions are well documented.

On March 15, the House of Representatives Subcommittee on Energy and Mineral Resources will hold a hearing on this topic and discuss possible reforms needed in federal legislation to protect government contractors that are vulnerable to potentially significant risk. More information on the hearing can be found on the Subcommittee's website.