The Ninth Circuit Issues Major Superfund Decision

By Richard M. Frank, The Daily Journal

Earlier this month, the 9th Circuit U.S. Court of Appeals handed down a major decision interpreting the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known as the Superfund law. The 9th Circuit ruled that companies potentially liable under CERCLA for hazardous waste clean-up efforts have a right to intervene in cases where the government has worked out a settlement with other parties who bear possible legal liability for the same hazardous waste site to challenge the settlement terms. In doing so, the 9th Circuit, for the first time, weighed in on a major issue of CERCLA law that has divided federal courts around the nation.

The 9th Circuit is, after the U.S. Supreme Court, the most important court in the nation for environmental law and lawyers. Given the vast natural resources found within its borders, the high volume of cases on its docket, and the concomitant number of 9th Circuit judges, it should come as no surprise that in recent years this Circuit has averaged roughly one published environmental law decision per week.

Some of those decisions are, of course, more consequential than others. The Court of Appeals' June 3 ruling in United States v. Aerojet General Corp., 2010 DJDAR 8140 is one of its most significant environmental rulings of the past year.

The Aerojet case arose in Southern California. The San Gabriel Basin is a vast groundwater basin in eastern Los Angeles that provides a source of drinking water for over one million Angelinos. Unfortunately, that groundwater basin has for many years been severely contaminated with volatile organic compounds and perchlorate: the U.S. Environmental Protection Agency discovered the groundwater contamination in 1979, and five years later listed the San Gabriel Basin on EPA's notorious Superfund list for investigation and eventual clean-up.

In 2000, EPA issued a decision prescribing what has evolved into an $87 million, government-supervised plan to remove contaminants from the San Gabriel Basin and to prevent further underground migration of the polluted groundwater. Simultaneously, EPA and California officials from the state Department of Toxic Substances Control (DTSC) began negotiating with some 67 different companies identified as having owned or operated industrial facilities that used hazardous substances believed to have leached from the surface to contaminate the San Gabriel groundwater aquifer. In Superfund parlance, these companies are known as "potentially responsible parties," or PRPs; under CERCLA, state and federal governments are entitled to recover their costs of cleaning up sites contaminated with hazardous wastes from those PRPs. Often, in an effort to avoid or limit their own legal liability for the costs of CERCLA-mandated clean-ups, the PRPs associated with a particular Superfund site will seek to shift responsibility and clean-up costs to their fellow PRPs.

And that's precisely what occurred in the case of the San Gabriel Basin Superfund site, which eventually gave rise to the 9th Circuit's decision in Aerojet.

In 2007, EPA, DTSC and local water districts whose groundwater supplies had been contaminated negotiated a settlement with 10 of the San Gabriel Basin PRPs, under which those PRPs agreed to contribute $8.1 million to the hazardous waste clean-up effort. A critically important feature of a settlement with the government under CERCLA - at least from the standpoint of settling PRPs - is that under Section 113(f)(2) a settling party is inoculated against further government claims and contribution claims from non-settling PRPs.

In October 2007, EPA filed a friendly lawsuit against the 10 settling PRPs in federal district court in Los Angeles, simultaneously lodging a proposed consent decree incorporating the terms of the CERCLA settlement that EPA had negotiated with them.

Meanwhile, the government's negotiations with the other PRPs were not going as well. The water districts had previously filed their own federal lawsuits against the non-settling PRPs, who now faced the very real prospect of bearing the lion's share of financial responsibility for the overall San Gabriel Basin clean-up, based on the governments' demands.

Those non-settling PRPs filed administrative comments with EPA objecting to the proposed consent decree. They simultaneously sought to intervene in the government's lawsuit against the settling PRPs, in an effort to either block that settlement or induce changes to the agreement more favorable to the interests of the non-settling PRPs. The PRP interveners relied upon both the general federal intervention rule, Federal Rule of Civil Procedure 24, and a particularized intervention provision contained in CERCLA Section 113(i).

The district court denied the non-settling PRPs motions to intervene, and simultaneously approved the consent decree. In doing so, the district judge relied on her own, 2004 published decision in another CERCLA case, where she had concluded that non-settling PRPs in analogous circumstances lacked a legally sufficient interest to warrant intervention as of right to contest a proposed CERCLA settlement between the government and other PRPs.

The non-settling PRP's in Aerojet appealed to the 9th Circuit. They noted that both the 8th and 10th Circuit Courts of Appeal had disagreed with the district judge (and with a handful of other district courts) and previously held that non-settling PRPs may intervene in CERCLA litigation that threatens to cut off their rights to third party financial contribution under Section 113(f).

The 9th Circuit's decision in the Aerojet case came down squarely on the side of the non-settling PRPs. Writing for a unanimous panel, Judge William Fletcher concluded that a non-settling PRP has a right to intervene in litigation to oppose a consent decree incorporating a settlement that, if approved, would bar contribution from the settling PRPs.

The 9th Circuit judges found this result compelled both by the plain language of CERCLA Section 113, and by the legislative history and policy considerations underpinning the Superfund law. They agreed in Aerojet that the relevant language of Section 113 is "unambiguous" in affording non-settling PRPs a right to intervene: "Precisely because Section 113(f)(2) cuts off the contribution right of non-settling PRPs...they have significant protectable interests that support intervention as of right."

Unsuccessfully, EPA and DTSC had cited the desirability of giving the government negotiating leverage to encourage early settlement in CERCLA cases, thereby facilitating rapid and thorough clean-up of toxic sites. The government regulators similarly warned that mandatory intervention would contravene CERCLA's liability scheme and promote protracted and wasteful litigation. The 9th Circuit, however, concluded that these policy considerations are offset by the fact that allowing non-settling PRPs to intervene in CERCLA litigation to represent their own interests helps ensure that the costs of hazardous waste cleanup efforts are actually spread equitably among those responsible for the contamination. Even if intervention is allowed, judicial approval of a settlement will still cut off the non-settling PRPs' contribution interest, thus "keeping intact" CERCLA's goal of inducing timely settlements.

A fair reading of the 9th Circuit's Aerojet decision strongly suggests that it reflects the correct interpretation of CERCLA, Federal Rule of Civil Procedure 24 and underlying principles of due process. It is hard to argue persuasively that the financial interests of non-settling PRPs aren't impaired by consent decrees the government negotiates with other companies. That's especially true given CERCLA's overarching principle that those responsible for hazardous waste contamination should bear the resulting clean-up costs. In aligning itself foursquare with the other federal circuit that have opined on the intervention question, the 9th Circuit has provided some welcome certainty to CERCLA practitioners. And the Aerojet decision likely marginalizes the precedential value of those reported district court decisions that have ruled to the contrary.

It seems unlikely that the government will seek Supreme Court review of the Aerojet decision, or that it will prevail before the justices in the unlikely event that certiorari is sought and granted.

Nevertheless, there are some very real, adverse consequences associated with the 9th Circuit's decision. Without question, Aerojet will make future CERCLA litigation between the government and PRPs more complex and time-consuming. This is especially true in light of the Supreme Court's decision last year in Burlington Northern (129 S.Ct. 1870) - another key CERCLA case from California where the justices rejected the government's theory of joint and several liability in Superfund cases, in favor of an allocation of legal and financial responsibility for contaminated site clean-up among all responsible PRPs based on a judicial assessment of relative fault among them.

Equally important, Aerojet may undermine incentives for early settlement with the government and prolong the life of CERCLA cases. In the past, settling PRPs could write a check and close their file. After Aerojet, arguably settlements remain subject to challenge until the last PRP has been identified, which may be years after a settling PRP has signed off on the consent decree. PRPs contemplating settlement now have one more reason to consider whether they will be able to structure a more favorable deal by waiting. Delay, in turn, raises the transaction costs associated with the litigation for every party, including the government.

Finally, the 9th Circuit's Aerojet decision underscores a significant criticism of CERCLA that many commentators have voiced ever since Congress first enacted the statute three decades ago: by relying on a fault-based system to assess legal and financial responsibility for hazardous waste pollution and clean-up, CERCLA guarantees a process under which complex, costly and time-consuming litigation is the norm. That's probably good news for Superfund attorneys. But one wonders if a no-fault system in which the focus was on prompt contaminated site remediation might - in the greater scheme of things - be a more effective use of finite public and private dollars.

Richard Frank is executive director of the Center for Law, Energy & the Environment at the U.C. Berkeley School of Law and, in 2010, is serving as a visiting lecturer at the U.C. Davis School of Law.