In City of Emeryville v. The Sherwin-Williams Company, the Ninth Circuit recently underscored that CERCLA settlements can be a risky business that don’t always produce finality, particularly when neither the United States nor a state is a party.

The Ninth Circuit decision grew out of a federal court action by the City of Emeryville involving contamination at a manufacturing facility that had been operated by Sherwin-Williams. Sherwin-Williams settled that suit and obtained what it thought was broad protection against contribution claims based on contamination “at, on, under, and emanating from” the facility.

After Sherwin-Williams had performed its obligations under the settlement, the Emeryville Redevelopment Agency filed a lawsuit in state court involving contamination at a property adjacent to the former Sherwin-Williams facility. Sherwin-Williams was a defendant in that new action, as were the City of Emeryville and other parties who had not been involved in the federal court action. When the City of Emeryville and those other parties cross-claimed against Sherwin-Williams, Sherwin-Williams went back to federal court to enforce its settlement and its contribution protection. The District Court agreed with Sherwin-Williams and ruled that the settlement barred any claims in the state court action by the City of Emeryville and the other parties to the extent those claims were based on contamination migrating from the former Sherwin-Williams facility.

On appeal, the Ninth Circuit agreed that claims by the City of Emeryville were barred but ruled that claims by the other parties who had not been included in the original federal action or who had not received notice of the settlement could not be precluded. According to the Ninth Circuit, the broad contribution protection authorized by Section 113(f)(2) of CERCLA is triggered only when the settlement involves either the United States or a state and the City of Emeryville was not a state no matter how hard Sherwin-Williams claimed it was. The Ninth Circuit went on to hold that a federal court in approving a CERCLA settlement has authority to provide contribution protection but only with respect to parties who are PRPs with respect to the site that is the subject of the settlement.

Although it may seem like a harsh result for Sherwin-Williams, it’s hard to disagree with the reasoning of the Ninth Circuit. While it is fair to hold the City of Emeryville to the deal it made and bar its contribution claims against Sherwin-Williams, it would be palpably unfair to bar claims by parties that did not participate in the original settlement, did not know of the settlement, and had no reason to know of it because they were not PRPs with respect to the former Sherwin-Williams facility. Whether or not the state court ultimately limits Sherwin-Williams’ liability for the adjacent property based on its undertakings in its settlement with the City of Emeryville, the lesson seems clear. Finality in Superfund settlements can be illusory, particularly where the settlement does not involve the federal or state government.