It has been more than a decade since the United States Supreme Court decided Burlington Northern & S.F. R. Co. v. United States, 129 S. Ct. 1870 (2009), holding that liability under Section 107(a) of CERCLA is not necessarily joint and several, but in appropriate circumstances can be divisible. And yet, courts still struggle to determine when liability is divisible and thus subject to apportionment rather than equitable allocation, with the latter, joint and several liability, still remaining the go to default. The March 30, 2020 decision from the U.S. District Court for the Southern District of Indiana, in the case of Von Duprin, LLC v. Moran Electric Service, Inc., No. 1:16-cv-01942-TWP—DML (S.D. Ind. Mar. 30, 2020), is no exception. The Court found that liability for a comingled plume of volatile organic compounds (“VOCs”) was divisible, but then applied equitable factors to allocate liability. And, in getting to its final decision, the Court also discussed what costs can be recovered under 107(a), the standard for determining compliance with the National Contingency Plan (“NCP”), and what steps a lessee needs to take to avail itself of the bona fide prospective purchaser (“BFPP”) defense. This is going to be a long one, so pull up a chair.
The Parties, Facts and Litigation
Plaintiff Von Duprin, LLC and its corporate predecessor (“Von Duprin”) owned and operated property in Northeast Indianapolis and in connection with its operations released PCE, TCE and other hazardous chemicals into the soil. In 2009, after Van Duprin had sold the property to Threaded Rod Company, the Indiana Department of Environmental Management (“IDEM”) determined that the property and groundwater was contaminated with VOCs and notified Von Duprin that it was a potentially responsible party in August 2013. Van Duprin thereafter began investigating vapor intrusion at downgradient properties, installed vapor mitigation systems in residences of affected downgradient properties, and researched potential methods of in situ remediation of the groundwater plume, all with IDEM’s involvement. In addition, Von Duprin paid Threaded Rod $1.5 million in settlement of claims resulting from the contamination.
Moran Electric Services, Inc. (“Moran”) had owned and operated two properties upgradient from the Van Duprin property, 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 Moran and Zimmer properties and a third property, the Ertel property, which was also upgradient from the Van Duprin property. Major did not use VOCs or any of the hazardous substances in question on the properties.
In 2016, Von Duprin filed its action for cost recovery under Section 107(a) and for declaratory relief under 113(g)(2) of CERCLA against Moran and Major, as well as the former owner and operator of the Zimmer property, Zimmer Paper Products, although Zimmer Paper Products never appeared in the action and had default entered against it. Van Duprin sought costs totaling $3,238,945.80, which included the amount paid to Threaded Rod in settlement and IDEM’s oversight costs. In turn, Moran and Major asserted contribution cross-claims and counterclaims under Section 113(f), seeking contribution for any liability allocated to them.
On summary judgment, the Court had determined two important issues: (1) notwithstanding the fact that the groundwater plume contained contamination comingled from various sources, liability was capable of being apportioned and (2) Major was a BFPP for the Moran property and for one of the two parcels that made up the Zimmer property (the “Packaging Parcel,”) but that factual issues precluded it from making the same finding with respect to the Ertel property or the other Zimmer property parcel (the “Paper Parcel.”) The Court held a bench trial in July and August of 2019, addressing factual issues as to which costs were recoverable, the apportionment of past and future costs at the Site, and whether Major could avail itself of the BFPP defense for the Ertel Property or the Paper Parcel.
The Court found that Major was not entitled to assert the BFPP for either the Ertel property or the Paper Parcel. As to the Ertel property, although Major completed a Phase I prior to leasing the property, it was not completed or renewed within 180 days prior to entering into the lease of the property, a requirement of the “all appropriate inquiries” prong of the BFPP test. 40 CFR § 312.20. As to the Paper Parcel, the Court held that the Phase I conducted prior to the purchase, while adhering to the ASTM standards for such assessments in effect at the time, nevertheless did not meet the specific requirements of 40 C.F.R. §§ 312.21 and 312.22.
Section 107 and Divisibility
On the issue of divisibility, the Court stated that because it was possible to determine how much each property contributed to the contamination, it was “true but irrelevant” that it was impossible to tell where the VOCs came from once they entered the plume and commingled downgradient. In this regard, the Court relied primarily on the testimony of Moran’s expert, who utilized extensive sampling data from all four properties, consisting of “thousands of individual data points,” to determine both the magnitude and the chemical characteristics of the discharges from each of the properties. Using this information, the expert found that the Von Duprin property contributed 54.2% of the solvents, the Moran property 3.11%, the Zimmer property 28.94%, and the Ertel property 13.77%. So far, so good.
However, the Court then relied on unspecified other evidence presented at trial and applied equitable factors to, instead, “allocate” 50% of the liability to the Von Duprin property, 20% to the Moran property, 20% to the Zimmer property 10% to the Ertel property. The Court performed this apparent equitable allocation notwithstanding its express adoption of the principle that “equitable considerations play no role in the apportionment analysis,” citing Burlington Northern. It is, in fact, difficult to square these two concepts in the Court’s decision.
Then, having allocated liability between the sources, the Court reverts back, it appears, to divisibility in deciding each party’s liability for the properties. As to the 50% liability attributed to the Von Duprin property the Court found Von Duprin 100% responsible and as to the 10% liability attributable to the Ertel property the Court found Major 100% liable, those parties being the only ones left standing in the litigation for each property. With regard to the Moran property, because the Court determined that Major was a BFPP for that parcel, Moran was held 100% responsible, again as the only party standing. Finally, the Court found Major 100% liable for the Zimmer property as there was no evidence that Moran had contaminated the property. 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%.
But even after all of that, the Court went on to state that Von Duprin must bear “any share attributable” to contamination from the Packaging Parcel because Major had a BFPP defense to liability and Von Duprin did not establish any other party’s liability for that share of the harm. And yet – neither the Court nor the parties appear to have identified any such liability, and all of the past costs were fully allocated by the final order.
Is this all very, very confusing? Yes, it is. Has the Court really relied on a divisibility analysis here, or simply the same allocation that it otherwise would have performed pursuant to the contribution cross and counterclaims? The latter appears to be the case, both because it relied on equitable factors to readjust the liability attributable to each parcel (factors that are more often used to determine a party’s share of joint liability) and because rather than leaving Von Duprin holding the bag for any portion of liability attributable to absent PRPs as would be the case if the harm was divisible, the Court merely allocated 100% of those costs to one of the two defendants.
Finally, in what may end up being the more important aspect of the opinion, the Court analyzed each of the past costs that Von Duprin was seeking to determine whether they were recoverable as “necessary response costs” that “were consistent with the [NCP].” A private party response is consistent with the NCP if the action, when evaluated as a whole, is in substantial compliance with the NCP’s applicable requirements, and results in a CERCLA-quality cleanup. 40 C.F.R. § 300.700(c)(3)(i).
Initially, the Court held that because “many NCP requirements do not apply to the investigation phase of a response,” the investigative costs did not have to be incurred consistent with the NCP and were therefore recoverable without further evaluation. As to the remedial costs themselves, the Court conducted a rigorous analysis of nine general NCP provisions that were relevant to Von Duprin’s response costs and found that Von Duprin had fully complied with only some of them and was noncompliant with many, including the requirements to perform an engineering evaluation/cost analysis or its equivalent, to create a sampling and analysis plan or a quality assurance project plan, and to prepare and implement a health and safety plan. The Court also found that Von Duprin only partially fulfilled the requirement to comply with all Applicable or Relevant and Appropriate Requirements and the requirement to sufficiently engage the community in the remediation. Nevertheless, the Court determined that “taken as a whole,” Von Duprin’s remediation substantially complied with the NCP and resulted in a CERCLA-quality cleanup. The court noted that Von Duprin’s compliance was not perfect but reasoned that because CERCLA is to be liberally construed to both effectuate environment cleanups while at the same time holding responsible accountable, “the NCP requirements are not intended to be a checklist of required actions for private remediations.”
There were two costs, however, that the Court excluded. First, the Court found that the $1.5 million paid to Threaded Rod was not recoverable under Section 107 because it was not a clean-up cost incurred by Von Duprin – but that the cost might have been recoverable under Section 113(g)(3), had Von Duprin plead such a claim, which it did not. (Section 113(g)(3) is actually the statute providing the limitations period for contribution claims that are brought pursuant to Section 113(f)). The Court also rejected Von Duprin’s claim for IDEM oversight costs as there was insufficient evidence that these costs related to oversight of the groundwater plume work, as opposed to remediation of the Von Duprin property itself.
So, what lessons are to be learned from this case? There are a few. First, that a good expert who takes a scientific approach to allocation will go a long way toward providing a party with credibility at trial. Second, that purchasers of contaminated property must pay careful attention to the requirements of the BFPP defense, and in particular the standards for making all appropriate inquiries. Third, that while perfect compliance with the NCP is not required for recovery of costs, substantial compliance that results in a “CERCLA-quality” clean-up is. And finally, that application of a divisibility analysis remains a challenge in many instances and is rarely clean or simple.