Bernstein v. Bankert: CERCLA Claims by Settling Parties
By Bina Joshi – March 21, 2013
On December 19, 2012, the Seventh Circuit Court of Appeals issued a decision in Bernstein v. Bankert, No. 11-1501 and 11-1523 (Dec. 19, 2012), addressing when Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) § 113 contribution actions and CERCLA § 107 cost-recovery actions may be brought by parties that have settled their liability with regulators through settlement. The decision sought to add clarity to the CERCLA claim scheme expounded by the U.S. Supreme Court in Cooper Industries v. Aviall Services Inc., 543 U.S. 157 (2004) and in United States v. Atlantic Research Corp., 551 U.S. 128 (2007). However, the decision potentially leads to greater confusion regarding when and how recovery is available for costs incurred under a CERCLA settlement agreement.
The plaintiffs in Bernstein incurred costs undertaking removal actions at a CERCLA site that was a former tank-and-drum-storage, waste-handling, and disposal facility. The costs were incurred under two administrative orders on consent (AOCs) that the plaintiffs entered into with the U.S. Environmental Protection Agency (EPA). Work under the 1999 AOC was completed and approved by the EPA in October 2000. Work under the 2002 AOC was ongoing when the litigation began. The plaintiffs brought a CERCLA § 107(a) cost-recovery claim against the former owners of the site and their insurers, seeking to recover the costs incurred under the AOCs.
The defendants argued that the plaintiffs inappropriately brought the CERCLA cost-recovery claim. According to the defendants, because the plaintiffs had entered into the AOCs, they had resolved their liability with the government and, accordingly, the only possible action the plaintiffs could bring was a contribution claim under section 113(f). Additionally, the defendants argued, any possible contribution claim by the plaintiffs was barred by the statute of limitations because it had been more than three years since the plaintiffs had entered into the AOCs.
The district court agreed, holding that plaintiffs could not bring a section 107(a) claim against the defendants, but instead should have brought a section 113(f) contribution claim, and that the statute of limitations for a section 113 contribution claim had run.
The Seventh Circuit agreed that the only claim available to the plaintiffs for the costs they incurred under the 1999 AOC was a section 113(f)(3) contribution action. The court held that once a party had completed its work under an AOC and received the EPA’s approval of that work, the only type of claim available to recover costs incurred under the AOC is a contribution action. According to the court, once a contribution action is available, a party cannot bring a section 107(a) recovery action for these costs. Finally, the court agreed that any contribution claim for the 1999 AOC work was barred by the statute of limitations, regardless of whether the statute of limitations started running when the parties entered into the settlement agreement or when the parties completed their work under the settlement agreement.
That said, Seventh Circuit disagreed that the only claim available to the plaintiffs for the 2002 AOC costs was a contribution claim. Rather, the court held that a settling party may bring a claim for contribution only when it has completed all of its obligations under a settlement agreement with the government. Prior to that time, the party may bring a cost-recovery action under section 107(a). The court reasoned that section 113(f) allows contribution actions when a party (1) has been subject to a civil action pursuant to sections 9606 or 9607 or (2) has resolved its liability to the government. A party entering into an administrative settlement has not been sued by the government; thus, it has a contribution action only if it has resolved its liability. The court concluded that liability is not resolved until a party has completed all of its obligations under the settlement and the EPA has certified the completion of those obligations.
The plaintiffs’ work under the 2002 AOC was ongoing; thus, they could not bring a contribution claim under section 113(f). However, the court held that the plaintiffs could bring a cost-recovery claim under section 107(a) of CERCLA for the costs of performing the 2002 AOC work. The court explained that by performing work under an AOC, the plaintiffs were incurring “costs of response consistent with the national contingency plan, as is required to file a cost recovery action under § 9607(a).” The defendants argued that in Atlantic Research the Supreme Court held that a cost-recovery action is available only when a plaintiff has incurred costs voluntarily. When a plaintiff is compelled to incur costs (such as under an AOC) those costs may be recovered only through a contribution action. The Seventh Circuit disagreed with this interpretation of Atlantic Research. Rather, it explained that the Court’s conclusion in Atlantic Research was that “costs incurred voluntarily are recoverable only by way of” a section 107(a) claim, while a party seeking reimbursement of costs paid to other parties can recover only by way of a section 113(f) claim. In the Seventh Circuit’s view, the Court left open the question of the type of action available to parties who are compelled to incur response costs via a settlement. The Seventh Circuit further reasoned that there was no other case law or statutory text supporting the defendants’ argument that section 107(a) actions may be brought only by a person incurring costs voluntarily. Thus, the Seventh Circuit concluded that plaintiffs could bring a suit under section 107(a) for costs they were compelled to incur under the AOC that were consistent with the national contingency plan. However, once plaintiffs complete their work under the AOC and the EPA certifies the completion of that work, plaintiffs will no longer have a section 107(a) action; instead, they will have an action under section 113(f)(3).
Notably, while the plaintiffs had brought a single cost-recovery claim for the removal actions conducted under both AOCs, the court looked at each AOC separately for purposes of determining which claim applied and whether the statute of limitations had expired. The court said that even though the contribution-recovery action with respect to the 1999 AOC was time-barred, a cost-recovery action for the removal under the ongoing 2002 AOC was not. The court reasoned that the removal actions called for by the two AOCs were “temporally discrete projects,” thus the statute of limitations ran separately for each of the actions.
The decision is decidedly favorable to parties that have entered into an AOC who are seeking recovery from non-settling parties.
Reconciling Bernstein with Other Case Law
The implication of Bernstein is complicated by other case law. The decision sought to fill in a gap that was left after the Cooper and Atlantic Research decisions. In Cooper, the Supreme Court held that a private party that has not been subject to a civil action under sections 106 or 107 of CERCLA as a potentially responsible party (PRP) could not pursue a contribution action under section 113(f)(1) of CERCLA. Following Cooper, there was confusion regarding whether PRPs had access to section 107 cost-recovery claims, or whether they were limited to section 113 actions. In Atlantic Research, the Supreme Court held that any person who has incurred response costs may bring a cost-recovery action under section 107, regardless of his or her status as a PRP. In addition, the Court explained, a PRP has the right to a contribution action under section 113 for liability that it had previously settled with the government.
Notably, the Supreme Court appeared to recognize a remaining gap in its Atlantic Research decision, but chose not to address the gap in that case. The Court noted in a footnote:
We do not suggest that §§ 107(a)(4)(B) and 113(f) have no overlap at all. For instance, we recognize that a PRP may sustain expenses pursuant to a consent decree following a suit under § 106 or § 107(a). In such a case, the PRP does not incur costs voluntarily but does not reimburse the costs of another party. We do not decide whether these compelled costs of response are recoverable under § 113(f), § 107(a), or both. For our purposes, it suffices to demonstrate that costs incurred voluntarily are recoverable only by way of § 107(a)(4)(B), and costs of reimbursement to another person pursuant to a legal judgment or settlement are recoverable only under § 113(f).
Atlantic Research, 551 U.S. at 139 n. 6. (emphasis added).
Several subsequent courts held that costs that a PRP is compelled to incur under a CERCLA consent decree may be recovered only through a contribution claim under section 113(f). E.g. Niagara Mohawk Power Corp. v. Chevron U.S.A. Inc., 596 F.3d 112 (2d Cir. 2010); ITT Indus., Inc. v. BorgWarner, Inc., 615 F. Supp. 2d 640 (W.D. Mich. 2009). These courts specifically held that PRPs could not recover costs incurred pursuant to a consent decree by bringing a cost-recovery action under section 107. In yet another case, RSR Corp. v. Commercial Metals Co., 496 F. 3d 552, (6th Cir. 2007), the Sixth Circuit held that the appropriate remedy for a PRP that had incurred costs under a consent decree was a section 113 contribution action and that the statute of limitations for that contribution action started to run on the date the consent decree took effect.
The Bernstein decision appears to complicate the previous line of cases limiting recovery by parties subject to settlement agreements to section 113 contribution actions and contradicts the Sixth Circuit statement that the statute of limitations for contribution actions runs from the date the consent decree becomes effective. This signals the possibility for another circuit split regarding the scope of sections 107 and 113.
Open Questions Regarding Implementation
The defendants in Bernstein and commentators have noted that the Seventh Circuit’s decision leads to greater confusion when it comes to CERCLA claims. Perhaps one of the largest areas of confusion from the decision is the question of what happens to a claim that starts as a cost-recovery action once the plaintiff has completed its performance under an AOC. The Seventh Circuit noted that “a plaintiff is limited to a contribution remedy when one is available.” Does this mean that once a plaintiff has completed its performance under an AOC, any cost-recovery action the plaintiff previously brought for work conducted under the AOC must be dismissed and a new contribution action brought? Will the previously brought cost-recovery action be allowed to continue?
The court’s holding that a contribution action to recover for costs related to a settlement does not arise until work under that settlement is complete and approved by the EPA has a significant impact on how the statute of limitations for such actions are likely to be calculated in the future. It suggests that the limitations period for such actions does not start running until work under the settlement agreement is complete. While actions under some CERCLA settlement agreements may occur quickly, others can take much longer to complete. This will allow for a greatly elongated time frame under which parties can bring actions, and uncertainty among non-settling PRPs regarding when an action might be brought.
In addition, the scheme set up via the Seventh Circuit’s opinion would appear to result in a party’s potential remedy getting more restrictive after fulfilling its obligations under an AOC compared to when it is still completing the terms of the settlement. This could be seen as punishing those parties that fully and efficiently complete their settlement obligations, while benefitting parties that might choose to draw out and delay completing actions under a settlement agreement to pursue section 107(a) claims against other PRPs.
Finally, if the trigger for resolving a party’s liability is the completion of settlement obligations and not the signing of the settlement agreement, it would arguably leave the settling party vulnerable to a lawsuit by the government while it is performing its duties under an AOC. Based on the Bernstein decision, the party’s liability would not be “resolved” and, therefore, the settling party would not be entitled to the contribution protection provided in section 113(2). A counterargument is that AOCs often include provisions under which the government covenants not to sue during the performance of the AOC. This suggests that perhaps liability is not resolved by simply signing an AOC and the government should be able to sue while work under the AOC is being performed in the absence of a specific covenant not to sue.
The defendants in the case have filed petitions for rehearing or rehearing en banc with the Seventh Circuit. They argue that the Seventh Circuit overlooked authoritative decisions from other circuits, including the Sixth Circuit opinion in RSR Corp., which supports rehearing. As of the date this article went to publication, the United States had indicated that it may file an amicus brief in the case, due March 14, 2013. Hopefully, any rehearing or rehearing en banc will bring a measure of much-needed clarity to what remains an uncertain area in CERCLA law.
Keywords: environmental litigation, CERCLA, Comprehensive Environmental Response Compensation and Liability Act, Atlantic Research, PRP, section 107(a), section 113(f)
Bina Joshi is an associate at Schiff Hardin LLP in Chicago, Illinois.