LIBRARY. CERCLA Case Law Developments ENVIRONMENTAL COST RECOVERY & LENDER LIABILITY UPDATE. Full Article

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1 ENVIRONMENTAL COST RECOVERY & LENDER LIABILITY UPDATE As a service to Jenner & Block's clients and the greater legal community, the Firm's Environmental, Energy and Natural Resources Law practice maintains this online resource center that offers the latest case law and other developments in Environmental Cost Recovery & Lender Liability. Please also visit the Firm's Corporate Environmental Lawyer Blog for current developments in this area. Jenner & Block will update this web page with new developments and items of interest as they become available. For further information, please contact Partner Gabrielle Sigel. Full Article June 2009 Related Practices Environmental and Workplace Health & Safety Law CERCLA Case Law Developments Tenth Circuit: PRP Cannot Recover More than CERCLA Response Costs On May 29, 2009, the U.S. Court of Appeals for the Tenth Circuit held that when a PRP seeks contribution under CERCLA 113(f), the PRP cannot rely on the collateral source rule to collect amounts exceeding its response costs after settlement with other parties. Friedland v. TIC-The Indus. Co., 566 F.3d 1203 (10th Cir. 2009). In Friedland, plaintiff, the former owner of an abandoned mine, settled 107 CERCLA claims brought by federal and state authorities by paying more than $20 million in response costs, and expending more than $28 million in legal costs defending the government s cost recovery action. Friedland then brought claims against other parties, including insurance companies, and settled those claims, recovering more than the $20 million he had spent in response costs. Friedland then brought this CERCLA 113(f) contribution action against two other parties involved with the mine. These defendants moved for summary judgment, arguing that Friedland had no damages to recover based on his recoveries in other cases. The district court agreed and Friedland appealed. Friedland argued that, under the collateral source rule, payments received from other parties could not be credited against his claims against these CERCLA defendants. The court held that the common law collateral source rule did not apply to a PRP s CERCLA contribution claims. The rule, which allows a tort victim to receive more than the cost of its injury, had no application to the equitable cost allocation scheme applicable to claims among PRPs under CERCLA 113(f). Friedland also argued that the more than $20 million he already received should be allocated to his legal fees and not his response costs, in order to demonstrate that he had unrecovered response costs to pursue in this case. The court refused to allocate the previously received payments to legal fees, finding that the prior settlement agreements did not direct payment solely for legal fees. Thus, defendants were entitled to a credit for the full amount paid by other

2 parties for the same environmental damages. Because defendants could not be liable for legal fees under CERCLA 113(f), after crediting Friedland s previous recoveries, there were no damages for him to pursue in this case. Therefore, the trial court s grant of summary judgment to the CERCLA defendants was affirmed. AOC s Stipulated Penalties Does Not Bar CERCLA Statutory Penalties for Breach of AOC On June 1, 2009, the U.S. District Court for the District of New Jersey held that U.S. EPA can seek statutory civil penalties under CERCLA, in addition to stipulated penalties, for a party s failure to comply with a CERCLA Administrative Order on Consent ( AOC ). United States v. SB Bldg. Assocs., Ltd., 2009 U.S. Dist. LEXIS (D.N.J. Jun. 1, 2009). In SB Bldg. Assocs., SB, as site owner, entered into an AOC after U.S. EPA found contamination at a site. The AOC had certain deadlines and other requirements, which U.S. EPA claimed were not met. In October 2008, U.S. EPA brought a federal suit against SB under CERCLA 106(b)(1), 107(a) and 107(l), seeking U.S. EPA s response costs, civil statutory penalties of $ 32,500 (the statutory maximum), stipulated penalties under the AOC, and a lien on the site. SB moved to dismiss U.S. EPA s demand for statutory penalties. SB argued that U.S. EPA had no right to statutory penalties because the AOC provided for stipulated fines, at a much lower rate. U.S. EPA argued that the clear terms of the AOC allowed it to seek CERCLA statutory relief in addition to the AOC s stipulated penalties. Reading the AOC, the court agreed with U.S. EPA s argument, and held that the government s complaint pleaded sufficient facts which, if true, would justify the relief requested. As a result, the court denied the motion to dismiss. Federal Investigation Constitutes CERCLA Removal Barring Clean Water Act Citizen Suit On June 2, 2009, the U.S. District Court for the Western District of Washington held that the U.S. Forest Service s investigative actions at federally-owned land constitutes a removal action that, under CERCLA 113(h), eliminates the court s jurisdiction to hear a Clean Water Act citizen suit for discharges from that land. Wash. Envtl. Council v. Mount Baker-Snoqualmie Nat l Forest, 2009 U.S. Dist. LEXIS (W.D. Wash. Jun. 2, 2009). In Wash. Envtl. Council, plaintiff environmental group brought a Clean Water Act citizen suit against the Forest Service, as the current owner of several abandoned mines, for allegedly contaminated discharges from those mines. In 2006, the Forest Service argued in a motion for judgment on the pleadings that, pursuant to CERCLA 113(h), the court had no jurisdiction because the Clean Water Act suit constituted a challenge to a selected CERCLA remedy. CERCLA 113(h) provides that a federal court does not have jurisdiction to review any challenges to removal or remedial actions selected under [ 104 of CERCLA]. At that time, the court denied the motion without prejudice, finding that the Forest Service s activities prior to 2006 were too preliminary to constitute remedy selection under 113(h). After conducting further investigative activities, the Forest Service again tried to eliminate the claim by filing a motion for summary judgment, asserting a

3 remedy had now been selected and federal jurisdiction barred. On this second try, the court agreed with the Forest Service. The court first found that the Forest Service s actions were pursuant to CERCLA 104, and not CERCLA 120, the latter of which addresses U.S. EPA s remediation on federally owned Superfund property. Because the mines were not on the NPL and the actions were being taken by an agency other than U.S. EPA, 120 did not apply. The court then found that a response action indeed had been selected even though (1) the Forest Service had only conducted the equivalent of an RI/FS; (2) no particular response action had been selected for the mines; and (3) the Forest Service s investigative study allowed for a no action alternative. Refusing to follow the Seventh Circuit s decision in Frey v. EPA, 403 F.3d 828 (7th Cir. 2005), the court stated that, based on the Ninth Circuit s decision in Razore v. Tulalip Tribes of Washington, 66 F.3d 236 (9th Cir. 1995), a removal action includes evaluative activities such as those under an RI/FS. The court held that the Forest Service s actions here, which were akin to an RI/FS, constituted a 104 removal action. Finally, the court found that plaintiff s lawsuit is a prohibited challenge under 113(h), even though plaintiff is not a PRP, because it seeks an order related to the goals of the cleanup. Razore, 66 F.3d at 239. Thus, the court granted summary judgment to the Forest Service and found, pursuant to CERCLA 113(h), that it had no jurisdiction to address plaintiff s lawsuit. Destruction of Samples Leads to Preclusion of Contamination Evidence On May 21, 2009, the U.S. District Court for the District of Connecticut held that when a consulting firm hired by a CERCLA plaintiff to take soil samples did not preserve the samples or the analytical data, and the property was remediated before other parties could sample, plaintiff is precluded from offering any evidence based on the destroyed samples. Innis Arden Golf Club v. Pitney Bowes, Inc., 2009 U.S. Dist. LEXIS (D. Conn. May 21, 2009). In Innis Arden, a property owner discovered and subsequently remediated PCB contamination on its property. Plaintiff had hired consultants to conduct onsite testing and eventually remediate the property, under a retention agreement that specifically recognized that cost recovery might be pursued against third parties. Plaintiff then brought a CERCLA cost recovery action against neighboring property owners. Pursuant to the consultant s document and sample retention policies, electronic data packages (other than sampling results) and the samples themselves were destroyed prior to and in the early stages of the litigation, and were not produced to opposing parties. Pitney Bowes, one of the defendant PRPs, moved for sanctions against plaintiff for failing to preserve that evidence. The court found that plaintiff s expert s destruction of this information and physical samples constituted spoliation of evidence in contravention of federal law. Moreover, plaintiff s argument that Pitney Bowes had no intention to rely on this evidence at trial was found to be of no consequence because plaintiff breached its

4 duty to preserve the evidence and Pitney Bowes did not waive its right to examine that evidence. The court held that plaintiff s action deserved a severe sanction, amounting to more than an adverse inference at trial. Id. at *31. As a result, the court ruled that plaintiff could not use in any pre-trial or trial proceedings any evidence based on the samples it destroyed. RCRA Case Law Developments First Circuit: RCRA Preliminary Injunction Cannot Order Full Remedy On June 19, 2009, the U.S. Court of Appeals for the First Circuit held that remediation is not appropriate relief for a plaintiff securing a preliminary injunction under RCRA. Sanchez v. Esso Std. Oil Co., 2009 U.S. App. LEXIS (1st Cir. Jun. 19, 2009). In Sanchez, plaintiffs are owners of a gasoline station at which Esso owned three underground storage tanks ("USTs") and at which Esso supplied petroleum products to be stored in the USTs. After discovering contamination on their property, plaintiffs brought RCRA claims against Esso alleging breach of RCRA s UST regulations and imminent and substantial endangerment. Upon filing suit, plaintiffs sought a preliminary injunction which, after a two-day hearing, resulted in an order requiring Esso to conduct and pay for an environmental assessment and all necessary... corrective actions, and removal of all pollution.... Id. at *3. Esso appealed, raising two jurisdictional challenges to the RCRA claims and seeking to modify the preliminary injunction because it imposed a final remedy without the benefits of a full trial. The court agreed with Esso that the preliminary injunction order went too far and remanded the case to the trial court. First, the federal appellate court rejected Esso s jurisdictional arguments. The court found that plaintiffs gave appropriate pre-suit notice of their claims because, by alleging that the disposed petroleum products were a hazardous waste, the 60-day, rather than 90-day, notice provisions applied. The court also found that the State s separate action against Esso relating to MTBE contamination from gasoline did not constitute a state enforcement action precluding plaintiffs lawsuit here. Specifically, the court noted that the State s MTBE litigation against multiple petroleum companies, service station owners, and others, differed in scope, contaminants, and regulatory violations from plaintiffs claims relating to their property, even though the remedy in plaintiffs case could address a portion of the concerns in the State s MTBE case. Finally, with respect to the scope of the preliminary injunctive order, the appellate court held that the trial court s order violated the limitations of a preliminary injunction proceeding under federal law. Id. at * The trial court s proceeding should not have decided ultimate liability; instead, it should have taken such action to preserve the status quo before a full trial on the merits. Therefore, the appellate court reversed that portion of the preliminary injunction order that addressed Esso s liability beyond conducting the site assessment, and remanded the case to the trial court

5 for further proceedings. In those proceedings, the trial court is to consider requiring plaintiffs to post bond for any portion of the order which obligates Esso to pay money. NFR Letter Not Grounds for Dismissal of RCRA Suit On June 9, 2009, the U.S. District Court for the Northern District of Illinois held that a property owner who obtained a no further remediation ( NFR ) letter cannot dismiss a RCRA suit for contamination which allegedly migrated to adjoining property. Snellback Props, L.L.C. v. Aetna Dev. Corp., 2009 U.S. Dist. LEXIS (N.D. Ill. Jun. 9, 2009). In Snellback Props., Aetna purchased a property in 2005 that formerly had dry cleaning operations onsite. Prior to that purchase, Aetna obtained an NFR letter from the Illinois Environmental Protection Agency relating to the property. Two years later, Snellback purchased an adjacent property and discovered contamination on its land that allegedly originated from Aetna s property. In July 2008, Snellback brought suit against Aetna for trespass and nuisance in state court. While the state case was pending, Snellback filed its RCRA citizen suit in federal court seeking to compel Aetna to address the Snellback property. Aetna moved to dismiss the federal action on several grounds. First, Aetna argued that the federal court did not have jurisdiction because the NFR letter mooted the RCRA claim. The court held that the RCRA claim is not moot because, at best, the NFR letter: (1) releases Aetna from state law, not RCRA liability, and (2) provides prima facie, not conclusive proof that Aetna s property, but not Snellback s, is clean. After finding lack of mootness, the court also denied Aetna s request to abstain under Colorado River Water Conservation Dist. v. U.S., 424 U.S. 800 (1976), because the property is not under state jurisdiction, the state case is in an early stage, and plaintiff s claim is based on federal law. Finally, the court held that the NFR letter does not preclude a RCRA claim based on imminent and substantial endangerment. The court found that the NFR letter is not conclusive proof that a property is free of all hazards, thus, there was no basis to dismiss Snellback s RCRA claim. RCRA Default Judgment Ordered as Sanction for Discovery Violations On June 5, 2009, the U.S. District Court for the Southern District of Indiana, in response to what it determined were extraordinary discovery abuses by the defendant in a RCRA citizen suit case, entered a default judgment against the defendant West, L.L.C. v. Red Spot Paint & Varnish Co., 2009 U.S. Dist LEXIS (S.D. Ind. Jun. 5, 2009). In this case, 1100 West brought a RCRA citizen suit against Red Spot, a nearby property owner, seeking abatement of a plume that included solvent contamination. Through all of discovery and pre-trial proceedings, Red Spot repeatedly denied historical use of certain solvents. However, on the eve of trial, 1100 West received certified documents from U.S. EPA in response to a FOIA request, which indicated that Red Spot had historically used those solvents. In response to 1100 West s emergency motion, the court delayed trial and extended discovery, including waiving Red Spot s

6 attorney-client and work product protections West then moved for sanctions, specifically a default judgment against Red Spot. After an evidentiary hearing, the court ruled that, under Rule 37 of the Federal Rules of Civil Procedure and the court s inherent authority, 1100 West was entitled to the sanction of a default judgment. The court noted that this sanction can be imposed after a clear record of willful behavior or fault, which includes objectively unreasonable behavior. Id. at *72. The court found that Red Spot s behavior was contumacious, willful, and egregious, Id. at *94, particularly because its representatives testified under oath that solvents were not used, contrary to known information. The court imposed sanctions finding Red Spot liable under RCRA, requiring it to take all action to remediate the solvent plume on 1100 West s property, and ordering Red Spot to pay 1100 West s legal fees relating to discovery and the sanctions proceedings. State Case Law Developments Pennsylvania: Indemnification Does Not Establish Successor Liability On June 11, 2009, the U.S. District Court for the Eastern District of Pennsylvania held that an indemnification agreement in an asset sale does not subject the purchaser to successor liability for CERCLA purposes. United States v. Sunoco, 2009 U.S. Dist. LEXIS (E.D. Pa. Jun. 11, 2009). In Sunoco, AR sold property to Sunoco in In 1992, AR and Sunoco settled disputes regarding terms in the sale agreement, through a settlement agreement. In that settlement agreement, Sunoco agreed to defend and hold harmless AR from claims relating to remediation of the property. Meanwhile, the U.S. detected petroleum contamination at a federal facility that it traced to the former AR, now Sunoco, property. The U.S. brought suit under state statutory environmental and other laws to recover its cleanup costs from AR and Sunoco. Among the federal government s claims was that Sunoco was liable as AR s successor for the cleanup costs. Specifically, the U.S. argued that the settlement agreement established Sunoco s successor liability for AR s previous activities at the site. The court ruled against the U.S. as to Sunoco s successor liability. The court noted that a company acquiring property can be held to have successor liability if that company assumes the seller s liability. However, examining the terms of the language of the settlement agreement between AR and Sunoco, the court held that Sunoco s indemnity did not contain an express assumption of liabilities. Instead, noted the court, Sunoco undertook solely to defend and indemnify AR. Absent an express assumption of liability, Sunoco could not be held to be a successor. As a result, the court granted Sunoco s motion for summary judgment and denied that aspect of the government s claim.