Seventh Circuit Defines Rights to Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) Cost Recovery and Contribution Actions
On July 31, 2013, the Seventh Circuit issued an amended opinion in Bernstein v. Bankert, confirming and expanding an earlier ruling with two important CERCLA-related holdings:
Cost recovery claims under CERCLA Section 107 and contribution claims under Section 113(f) are distinct and mutually exclusive remedies, and a plaintiff is limited to a contribution remedy when one is available.
Settlement agreements with EPA (or state agencies) that contain conditional resolutions of liability that are not effective immediately -- such as where the agency's release of the responsible party from liability and its covenant not to sue are conditioned upon the responsible party's satisfactory completion of cleanup obligations -- may not bring a contribution claim under Section 113(f) until the conditions have been satisfied and the resolution of liability is final.
Background - Cost Recovery versus Contribution
CERCLA (Comprehensive Environmental Response, Compensation and Liability Act) provides private parties that have incurred costs associated with an environmental cleanup with two potential rights of action against another person liable or potentially liable for cleanup costs (a "potentially responsible party" or "PRP"). First, CERCLA Section 107(a) allows PRPs to sue other PRPs to recover "necessary costs of response" that have been incurred for CERCLA removal or remediation actions. This is known as a cost recovery action. Second, under CERCLA Section 113(f)(3)(B), a PRP that has resolved its CERCLA liability to the state or federal government in an administrative or judicial settlement may "seek contribution" from a party that has not resolved its liability through such a settlement. This is known as a contribution action.
Holding 1: Cost Recovery and Contribution Are Distinct and Mutually Exclusive Remedies
In Bernstein, the plaintiffs sought reimbursement for remediation actions undertaken pursuant to two different consent orders with EPA. The first consent order had been signed in 1999, and the EPA approved the plaintiffs' performance of the remedial actions the next year. Thus, the completed consent order satisfied the prerequisite for a Section 113(f) contribution action, i.e., it was a settlement that resolved the PRP's liability to the government. The question was whether the plaintiffs could also maintain a cost recovery action because they had incurred "necessary costs of response." The Seventh Circuit held that they could not -- "a plaintiff is limited to a contribution remedy when one is available" -- because contribution actions are procedurally distinct from cost recovery actions. This holding is consistent with the rulings in other circuits that have addressed this issue.
Holding 2: "Conditional" Settlements Do Not Support Contribution Actions
The plaintiffs also sought reimbursement under a second consent order, signed in 2002. The work to be performed by the plaintiffs under the 2002 order was still ongoing when the lawsuit was filed, and EPA had not issued any approvals of the work. Thus, EPA's release and covenant not to sue the plaintiffs remained "conditional" on satisfactory performance by the plaintiffs. In addition, the order provided that the plaintiffs did not admit to any liability. The Seventh Circuit held that, under these circumstances, the 2002 order did not "resolve the liability" of the plaintiffs. Because a resolution of liability is a statutory prerequisite to bringing a Section 113(f) contribution action, the court held that a contribution action was not available to recover costs incurred pursuant to the 2002 order. The court contrasted the terms of the 2002 order with the terms of a settlement in another case in which EPA had apparently agreed, effective immediately, "'not to sue or take administrative action' that would impose additional liability," language that was held to have resolved liability. Accordingly, the court's amended opinion noted that it is possible for PRPs to "obtain an immediately effective release from the EPA in a settlement" and thereby qualify for a contribution claim. Even though the Bernstein court held that such language was not included in the 2002 order, and thus the plaintiffs could not pursue a Section 113(f) contribution action, the court did find that the plaintiffs had a valid claim for cost recovery under Section 107 because they had incurred "necessary costs of response."
Practical Impact and Some Open Questions
The Bernstein opinion contains several practical lessons for PRPs that are considering whether to enter consent decrees with EPA or a state agency. The court's holding that cost recovery and contribution claims are distinct and exclusive remedies means that a settling PRP must carefully consider which remedy will be available to it after signing the settlement. Section 107 cost recovery claims can have several advantages over contribution claims, including a longer statute of limitations, the ability to impose joint and several liability on other PRPs (at least in some circumstances), and the ability to recover even against other PRPs that have settled with the government. On the other hand, a PRP can protect itself from contribution claims by other PRPs by resolving its liability to the government (and thereby limiting itself to a contribution action). A PRP's approach on this issue will be dictated by site-specific factors, including the number and status of the other PRPs.
A settling PRP should carefully review the Bernstein opinion for guidance on the impact of specific settlement language. The court suggested that finality could be achieved through language stating that upon signature, the EPA or state agency would "not sue or take administrative action that would impose additional liability" on the settling PRP. Conversely, the court's opinion suggests that a disclaimer of liability (a common provision in settlement agreements) might indicate that the resolution of liability is not final.
The Bernstein opinion leaves some questions open, however, chief among them whether other language might suffice to "resolve" the PRP's liability. The Seventh Circuit's amended opinion noted that this is "ultimately a case-specific question dependent on the terms of the settlement before the court." Both EPA and PRPs may have good reasons to make CERCLA settlements conditional on future performance or to include a disclaimer of liability, and all parties will need to consider how the precise language may play out in light of the Bernstein opinion. Another question is what happens if a "conditional" settlement is fulfilled during the litigation of a cost recovery action? These issues will need to be addressed in future cases.
For now, PRPs negotiating settlements with EPA or other agencies should be mindful that simply inking a settlement will not necessarily resolve their liability for purposes of CERCLA cost recovery and contribution actions. In addition, PRPs considering bringing claims against other PRPs should carefully consider whether to plead cost recovery or contribution (or perhaps both), lest they find out years later that, because the wrong claim was pled, they are barred from asserting the correct claim.