Recently, Reed Smith represented Dravo Corporation in a case captioned Morrison Enterprises, LLC v. Dravo Corporation, before the District Court for the District of Nebraska and the Eighth Circuit. A number of significant issues were addressed in the Eighth Circuit’s decision. This post discusses two issues relating to application of the statute of limitations A separate post addresses the issue of cost recovery versus contribution.

The Decision

The Eighth Circuit issued its opinion in Morrison Enterprises, LLC v. Dravo Corporation, 2011 WL 1237526 (“Morrison”) on April 5, 2011. Two issues relating to the statute of limitations were addressed. First, the court found that a cost recovery suit under §107 of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C. §9607 was not a “subsequent action” under that section where the plaintiff had previously sued the defendant for contribution under Section 113 of CERCLA. Second, the Court found that a decades-long program to install a municipal water supply system was a remedial action subject to the 6-year statute of limitation commencing from the initiation of construction set forth in 42 U.S.C. §9613 (g) (2) (B), and not a removal action, for which the statute of limitation did not begin to run until the project was completed. 42 U.S.C. § 9613 (g) (2) (A).

Factual Background

This part of the decision was based on the alleged release of contaminants from a former manufacturing facility of Dravo Corporation (Dravo) located near the center of Hastings, Nebraska. The City of Hastings sued Dravo for recovery of the full cost of installing a water supply system throughout the entire city. Dravo disputed the extent to which the water supply infrastructure replacement project was attributable to its plant, but that issue was not the subject of its summary judgment motion.

The CERCLA Statute of Limitations

CERCLA contains several distinct statute of limitations provisions; the applicable provision being determined by the type of cleanup being proposed, whether the action is one for cost recovery or contribution, and whether a previous action has been maintained. For cost recovery actions, CERCLA provides that a suit for recovery of the cost of a removal action is three (3) years after completion of the removal action, whereas for a remedial action, the suit must be commenced no later than six (6) years after initiation of physical on-site construction of the remedial action. Finally, for either kind of response action, if a previous suit has been brought, a third statute of limitations provision applies. That provision reads:  

A subsequent action or actions under section [107] of this title for further response costs at the vessel or facility may be maintained at any time during the response action, but must be commenced no later than 3 years after the date of completion of all response action.  

Subsequent or Initial Action

The City contended that this last provision applied. The City noted that, some years earlier, in an action initially brought by the government (U. S. v. Dravo), Dravo had sued the City in a third party action for contribution under §113 of CERCLA (Dravo had alleged that leaks from City pipelines had contributed to the release). The City had counterclaimed, also under §113, for contribution from Dravo for cleanup actions elsewhere in the city. The City’s counterclaim in that action had eventually been dismissed without prejudice.

The City’s position in Morrison was that its counterclaim in U. S. v. Dravo constituted an “initial action”, and that therefore, under Section 113 (g) (2), it could sue for cost recovery at any time until the installation of the water supply system was completed. No court had previously addressed this precise issue.

The court found no difficulty, however, in rejecting the City’s argument. First, it was inconsistent with the text of § 113 (g) (2), which expressly required an initial action under § 107 for a later action under that section to be considered a subsequent one. Second, such an interpretation would do violence to the structure of the statutory scheme because, under the City’s theory, its §113 counterclaim in U.S. v. Dravo would have been both an initial action under § 107, subject to the statute of limitations for § 107 claims and a contribution action under § 113 subject to the statute of limitations for contribution actions. The court therefore found that the City’s suit in Morrison was an initial action.

Remedial or Removal Action

That still left the issue of whether the response action undertaken by the City – the replacement (and expansion) of its water supply system – should be considered a remedial or a removal action. As stated previously, a suit for recovery of the cost of a removal action is three (3) years after completion of the removal action, whereas for a remedial action, the suit must be commenced no later than six (6) years after initiation of physical on-site construction of the remedial action. In Morrison, the event triggering the running of the statute was far more significant than whether the statute was for three years or six. Contamination had been detected in City wells 1983, and physical removal from service of contaminated wells and installation of new wells and pipelines began no later than the mid-1980s. Accordingly, if the response was characterized as a remedial action, the statute had long expired, whereas if the response was a removal action, the picture was less clear cut because ongoing maintenance and expansion of the water supply system had never wholly ceased.

Distinguishing between the two is not always easy. A removal action is defined in the statute to mean “the cleanup or removal of hazardous substances from the environment, such actions as may be necessary to be taken in the event of the threat of release of hazardous substances into the environment … or the taking of such other actions as may be necessary to prevent, minimize, or mitigate damage to the public health or to the environment which may result from a release or threat of release …”

A remedial action is defined as “those actions consistent with a permanent remedy taken instead of or in addition to removal actions in the event of a release or threatened release of a hazardous substance into the environment, to prevent or minimize the release of hazardous substances so they do not migrate to cause substantial danger to present or future public health or welfare or the environment ….”

Both definitions encompass preventive activities, and while they also include some specific examples of measures falling within their scope, those examples were of limited assistance in Morrison because “the provision of alternative water supplies” is expressly included in both definitions.

Notwithstanding the problems caused by the text and by the limited amount of case law, the court was able to conclude that the District Court had been correct to grant summary judgment to Dravo. Based on its own decision in Minnesota v. Kalman W. Abrams Metals, Inc., 155 F.3d 1019 (1998) and the Supreme Court’s holding in Exxon Corp. v. Hunt, 475 U.S. 360 (1986), the Eighth Circuit recognized that the key distinction between the two types of response action is the permanent character (or otherwise) of the remedy. Since the City’s water supply project had been ongoing for over twenty-five years, the court found that it lacked the immediacy and relatively short duration of a removal action.

The court rejected the City’s argument that replacing the water supply “did not prevent or minimize the release of hazardous substances” a phrase found in the definition of a remedial action. The court noted that shutting down contaminated wells and providing alternative water supplies indeed prevented or minimized the release of hazardous substances. Furthermore, the City’s interpretation of the statute would eviscerate the provision including the provision of alternative water supplies within the definition of a removal action. Finding that such a reading was incompatible with the statute, the Court found that the District Court had correctly awarded summary judgment to Dravo and affirmed.