On Sept. 8, in N.J. Department of Environmental Protection v. American Thermoplastics Corp., Nos. 18-2865 & 19-2243, slip op., -- F.3d -- (3d Cir. 2020), the U.S. Court of Appeals for the Third Circuit (Court of Appeals) held that a responsible party that previously settled with the N.J. Department of Environmental Protection (NJDEP) is still liable for U.S. Environmental Protection Agency (USEPA) response costs in a third-party contribution action under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). It thus reversed a district court decision granting summary judgment and dismissing a contribution claim as barred by the prior NJDEP settlement, and remanded the matter for further proceedings.
This case arises from the Combe Fill South Landfill Superfund Site (Landfill) in Chester and Washington Townships, New Jersey. The defendant in the instant contribution action (Defendant) purchased the Landfill in 1978 and operated it through a subsidiary until the Landfill closed in 1981. Defendant, during its ownership, hired the plaintiff in this case (Plaintiff) to, among other things, transport hazardous waste to the Landfill.
In 1983, USEPA added the Landfill to the National Priorities List. USEPA and NJDEP entered into a “Cooperative Agreement” designating NJDEP as the lead oversight agency for the remediation of the Landfill. USEPA would, in turn, “contribute one hundred percent (100 percent) of the cost of managing and performing” a remedial investigation and feasibility study and “ninety percent (90 percent) of the cost of managing and performing” the remedial action, with NJDEP paying the other 10 percent. A later amendment clarified that “[n]othing contained in [the] Cooperative Agreement shall be construed to create . . . the relationship of agency between [US]EPA and [NJDEP]” and “negated and denied” the authority of either agency to “attempt to negotiate on behalf of the other.” Ultimately, USEPA incurred over $104,000,000 in costs for the Landfill remediation, and the NJDEP incurred roughly $24,000,000.
Before the cleanup, Defendant had filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York (Bankruptcy Court). NJDEP filed a claim in those proceedings, which the Bankruptcy Court disallowed because New Jersey law at the time dictated that only Defendant’s subsidiary, i.e., the actual operator of the Landfill, was liable for the contamination. USEPA did not file a claim.
In 1983, USEPA notified Defendant and many other potentially responsible parties that they were liable for cleanup costs relating to the Landfill. In response, Defendant filed a declaratory-judgment action in the United States District Court for the Southern District of New York arguing that its CERCLA liability had been discharged through the Chapter 11 bankruptcy. The court dismissed that action as unripe, because the investigation of the Landfill was incomplete and disposing of the action would interfere with Congress’ policy under CERCLA of expediting remediation. The U.S. Court of Appeals for the Second Circuit affirmed.
In 1990, Defendant filed another declaratory-judgment action in the Bankruptcy Court seeking a determination that NJDEP’s claim for cleanup costs had been discharged in bankruptcy. NJDEP and Defendant then reached a settlement (NJDEP Agreement) that resolved “all claim[s] of the NJDEP against [Defendant] with respect to the [Landfill].” USEPA was not a party to the NJDEP Agreement.
In 1998, USEPA and NJDEP filed actions in the United States District Court for the District of New Jersey to recover all Landfill-related costs. The agencies later entered into a consent decree with many of the potentially responsible parties, including Plaintiff, for $62,600,000. USEPA received 81.5 percent of the funds, and NJDEP received 18.5 percent. Plaintiff paid $11,000,000 toward that settlement, with about $6,800,000 going to USEPA, $1,500,000 going to NJDEP, and $433,000 going to NJDEP acting in its trustee capacity as natural resource damages. Plaintiff also consented to a judgment of $26,000,000 in favor of USEPA, but it only had to pay on that judgment to the extent its third-party contribution recoveries exceed $11,000,000. Defendant was not a party to the consent decree.
In 2011, Plaintiff filed a subject contribution action against Defendant to recover its consent decree payments attributable to USEPA costs. Defendant moved for summary judgment, arguing that the NJDEP Agreement granted it contribution protection as to both NJDEP and USEPA costs. Relying primarily on CERLCA Section 113(f)(2), which provides that “[a] person who has resolved its liability to the United States or a State in an administrative or judicially approved settlement shall not be liable for claims in contribution regarding matters addressed in the settlement,” the District Court dismissed the action. It held that because the NJDEP Agreement concerned the entire Landfill it “addressed” all costs incurred by both agencies and therefore granted Defendant contribution protection against any related claims. That broad contribution protection barred Plaintiff’s action. Plaintiff moved for reconsideration and USEPA filed a brief in support. The motion was denied, and Plaintiff and USEPA appealed.
As a preliminary matter, the Court of Appeals held that USEPA had standing to appeal the District Court’s decision. Standing under Article III of the U.S. Constitution requires a party to have “(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Spokeo, Inc. v. Robins, -- U.S. --, 136 S. Ct. 1540 (2016). Over Defendant’s objection, the Court of Appeals held that USEPA had a real and specific stake in the outcome because its ability to collect an additional $26,000,000 from Plaintiff was tied to Plaintiff’s recoveries in third-party contribution actions. The District Court’s decision to dismiss Plaintiff’s contribution claim thus directly impacted USEPA’s rights and created an injury in fact that gave USEPA standing to appeal.
On the merits of the appeal, the Court of Appeals held that the phrase “matters addressed,” as used in CERLCA Section 113(f)(2), must be interpreted narrowly when determining the preclusive scope of a settlement with a governmental entity, particularly where it is asserted that the settlement bars contribution claims relating to the costs of a separate governmental entity. The Court of Appeals resolved the preclusive scope of the NJDEP Agreement based on a plain reading of the document and the parties’ intent in settling. Although the settlement lacked a “Matters Addressed” section, the Court of Appeals read it as concerning only NJDEP liability and not USEPA liability. The Court of Appeals also found that Defendant and NJDEP expected to resolve NJDEP costs only, as the settlement addressed NJDEP’s claims in bankruptcy proceedings in which the USEPA played no role. It also noted that, from an equitable perspective, blocking Plaintiff’s contribution claim would unfairly allow Defendant to dodge USEPA’s lion’s share of the Landfill cleanup costs. Thus, the Court of Appeals held that the NJDEP Agreement did not grant Defendant contribution protection against claims for USEPA costs, and reversed summary judgment.
While the Court of Appeals acknowledged that its narrow reading of the NJDEP Agreement could affect a potentially responsible party’s decision to settle in the future, it concluded that its holding would ultimately promote “CERCLA’s goal of equitably distributing liability without extinguishing incentives to settle.” In essence, the holding will encourage parties to seek a global settlement with all relevant state and federal agencies to ensure the greatest contribution protection possible. Such settlements avoid costly taxpayer-funded lawsuits as well. The holding also prevents a windfall to potentially responsible parties that might attempt to settle with a state agency to avoid contribution claims on federal costs. Finally, it respects the cost-splitting established by state and federal agencies in documents like the Cooperative Agreement entered into by USEPA and NJDEP for the Landfill remediation.
In the environmental arena, complete walkaways are rare. In negotiating settlements with regulators, potentially responsible parties should carefully consider what claims are being resolved, which governmental entities should be a party to the ultimate resolution, and how that resolution (and any resulting contribution protection) is structured in the settlement document. This will help ensure the greatest possible protection against future claims.
If you have any questions about the Court of Appeals’ holding, contribution protection, or environmental settlement agreements, please contact the authors of this client alert.