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U.S. Ninth Circuit Rules Military Contractor Liable on CERCLA Clean-up Costs

Written by: By Whitney Jones Roy and Whitney HodgesSheppard Mullin Richter & Hampton LLP

TDY Holdings, LLC brought suit for contribution under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) against the U.S. government relating to environmental contamination at TDY’s manufacturing plant. The district court granted judgment in favor of the government after a 12-day bench trial and allocated 100 percent of past and future CERCLA costs to TDY. On appeal, the Ninth Circuit held that the district court sharply deviated from the two most “on point” decisions regarding allocation of cleanup costs between military contractors and the U.S. government when it determined the cases were not comparable, clarified the applicability of those cases, and remanded the case to reconsider the appropriate allocation of cleanup costs between TDY and the U.S. government.

TDY (formerly known as Ryan Aeronautical Company) owned and operated a manufacturing plant near the San Diego airport

From 1939 through 1999, TDY (formerly known as Ryan Aeronautical Company) owned and operated a manufacturing plant near the San Diego airport. TDY’s primary customer was the U.S. government—99 percent of TDY’s work at the plant between 1942 and 1945, and 90 percent of the work thereafter was done pursuant to contracts with the U.S. military. The United States also owned certain equipment at the site from 1939 to 1979. Id. at 1006. Chromium compounds, chlorinated solvents, and polychlorinated biphenyls (PCBs) were released at the site as a result of their use during manufacturing operations. Id. In some cases, the government’s contracts required the use of chromium compounds and chlorinated solvents. Id. After passage of the Clean Water Act and other environmental laws classifying these chemicals as hazardous substances in the 1970s, TDY began environmental remediation and compliance at the site and billed the government for the “indirect costs” of that work, which the government paid. Id. at 1006–07. TDY incurred over $11 million in response costs at the site. Id. at 1007. Until the plant’s closure in 1999, the government reimbursed 90 to 100 percent of TDY’s cleanup costs at the site. Id. at 1007, 1010.

In 2004, the San Diego Unified Port District brought CERCLA claims against TDY. TDY and the Port District entered into a settlement agreement in March 2007 in which TDY agreed to cleanup releases at the site. TDY then brought suit for contribution under 42 U.S.C. § 9613(f)(1) and declaratory relief against the United States. Id. at 1007. The district court granted TDY’s motion for partial summary judgment declaring that the United States was liable as a past owner of the site under CERCLA. Id. After a 12-day bench trial on equitable allocation of costs, the district court held that the contamination caused by the hazardous substances at issue was attributable to TDY’s storage, maintenance, and repair practices, as well as spills and drips that occurred in the manufacturing process, rather than to the government’s directives to use the chemicals. Id. Accordingly, the district court allocated 100 percent of the past and future response costs for remediation of the three hazardous substances to TDY. Id. at 1008.

On appeal, TDY argued that the district court erred (1) when it allocated liability according to “fault”; (2) that the government’s role as owner rather than operator should not have been a dispositive factor in the court’s allocation, and (3) that the government should bear a greater share of response costs because it specifically required use of the chemicals at the site. Id. The court of appeals summarily rejected TDY’s first two arguments, but found that the district court did err in its analysis and application of binding authority on point: United States v. Shell Oil Co., 294 F.3d 1045 (9th Cir. 2002) and Cadillac Fairview/California, Inc. v. Dow Chem. Co., 299 F.3d 1019 (9th Cir. 2002). Id. at 1008–09. Shell Oil and Dow Chemical each produced products to support the U.S. military during World War II and incurred liability for contamination caused by hazardous chemicals that the government required to be used. In both cases, the Ninth Circuit affirmed the district courts’ allocation of 100 percent of cleanup costs to the government because “the contractors’ costs were ‘properly seen as part of the war effort for which the American public as a whole should pay.’” Id. at 1009.

The Ninth Circuit disagreed with the district court’s conclusion that Shell Oil and Cadillac Fairview were not comparable, but agreed that some deviation from their allocations were appropriate. Id. The Ninth Circuit agreed that the government exercised less control over TDY than it did over Shell Oil Co. or Dow Chemical. In support of this determination, the court noted that the government was an operator, rather than an owner, of TDY’s site, that the government-owned equipment was removed from the site 20 years before TDY ceased operations, and that TDY’s own practices at the site caused the contamination. Id. at 1010. Furthermore, the district court properly determined that “industrial operations undertaken for the purpose of national defense, standing alone, did not justify allocating all costs to the government.” Id.

However, the Ninth Circuit held that, in allocating 100 percent of cleanup costs to TDY, the district court failed to consider that the government required TDY to use two of the three chemicals at issue beginning in the 1940s, when the need to take precautions against environmental contamination from these substances was not known. Id. Furthermore, the Ninth Circuit determined that “[t]he court’s acknowledgement of the evolving understanding of environmental contamination caused by these chemicals, and TDY’s prompt adoption of practices to reduce the release of hazardous chemicals into the environment once the hazards became known, further undercuts the decision to allocate 100 percent of the costs to TDY.” Id. The district court also failed to consider the parties’ lengthy course of dealing through 1999, when the government paid between 90 and 100 percent of cleanup costs at the plant. Id. Although “a customer’s willingness to pay disposal costs . . . cannot be equated with a willingness to foot the bill for a company’s unlawful discharge of oil or other pollutants,” the Ninth Circuit nevertheless determined it should have been a relevant factor in the allocation analysis. Id.

This article was originally published on the Sheppard Mullin Real Estate, Land Use & Environment Law Blog

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About the Authors

Whitney Jones Roy is a litigation partner in firm’s Los Angeles office. Ms. Roy was recognized by Law360 as a “Female Powerbroker” and by the Daily Journal as one of the Top 100 Women Lawyers in California in 2014.  Ms. Roy has experience in all aspects of California and federal civil procedure through trial. She also defends her clients on appeal when necessary.  Ms. Roy also specializes in complex environmental litigation and related products liability litigation. Her expertise includes the Clean Air Act, CERCLA, RCRA, design defect, failure to warn, negligence, nuisance, and trespass.

Whitney Hodges is an associate in the Real Estate, Land Use and Natural Resources Practice Group in the firm’s San Diego office. She also serves on the firm’s Diversity and Inclusion Committee, Pro Bono Committee, Recruiting Committee, Energy, Infrastructure and Project Finance Team and Latin Business Team.  Ms. Hodges specializes in the representation of clients involved in real estate development. Her practice focuses on advising and representing major residential, industrial, commercial and mixed-use development projects, as well as Native American Indian tribes and renewable energy developers through all phases of the land use regulatory process and environmental compliance.

 

 

U.S. EPA Sees New Challenges Ahead for Superfund

by  Loren R. Dunn and Eric L. Klein, Beveridge & Diamond PC

The U.S. EPA released a four-year “strategic plan” in mid-February that continues to emphasize the Superfund program as one of Administrator Scott Pruitt’s top priorities.  While it has been clear since last summer’s Superfund Task Force report that the agency’s new leadership wants to accelerate Superfund site cleanups, the agency’s new strategic plan reveals for the first time that the U.S. EPA also sees emerging challenges ahead for Superfund.

“A number of factors may delay cleanup timelines,” the agency wrote in its strategy document.  These factors include the “discovery of new pathways and emerging contaminants” such as vapor intrusion and per- and polyfluoroalkyl substances (PFAS), and new science such as “new toxicity information or a new analytical method.”

Photo Credit: Michael Paulsen / Houston Chronicle

According to the strategic plan, the emergence of this kind of new information can reopen previously settled remedy determinations – and the Superfund sites that still remain on the National Priorities List (NPL) already tend to be the harder cases, with more difficult patterns of contamination and more complex remedies.  The U.S. EPA flagged in particular its waste management and chemical facility risk programs, where “rapidly changing technology, emerging new waste streams, and aging infrastructure present challenges[.]”

It remains to be seen whether the agency’s cautions in the Superfund section of its strategy document represent a meaningful shift in the agency’s frequently-stated intention to reinvigorate the Superfund program.  Early in his tenure, Mr. Pruitt charged his Superfund Task Force with generating a series of recommendations centered around Mr. Pruitt’s goals for Superfund: faster cleanups, the encouragement of cleanup and remediation investments by PRPs and private investors, and a process centered on stakeholder engagement and community revitalization.  In December 2017, in response to one of the Task Force’s recommendations, the agency released a list of 21 high-priority NPL sites that Mr. Pruitt targeted for “immediate and intense attention,” according to an U.S. EPA press release.  The cautionary notes in this week’s strategic plan are a subtle shift in tone for the U.S. EPA.

At the same time, the document also sets forth a plan for improving the consistency and certainty of EPA’s enforcement activities in the regulated community.  It remains to be seen how U.S. EPA intends to achieve consistency while being responsive to state and tribal interests.

These goals, of course, will depend on the details of implementation, which are not set forth in the strategic plan.  And such details will depend on the agency’s budget, which remains in flux for 2019 and beyond.  For example, U.S. EPA’s proposed budget for fiscal year 2019 sought a roughly $327 million cut in the Superfund program, but the funds were added back into the budget proposal as part of last-minute budget agreement reached in Congress last week, securing the program’s funding in the short-term.   Last year, the administration proposed a 30% cut in the agency’s funding  but Congress balked and eventually approved a budget that cut roughly 1%.

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About the Authors

Loren R. Dunn represents regional and national companies at locations throughout the country in environmental regulation and litigation issues.  Loren’s environmental projects have involved hazardous waste and large multi-party toxics cleanup sites, including marine and fresh water sediment sites, landfills, and natural resource damages claims. He has also conducted extensive work obtaining permits for key facility operations. He has particularly deep knowledge of the following industries: manufactured gas facilities, regulated utilities, smelters and metals refineries, pesticide sites, and large area contamination sites.

Eric L. Klein is an environmental civil litigator and regulatory counselor in the Washington, D.C. office of Beveridge & Diamond, P.C.  He has handled cases in state and federal courts throughout the United States, litigating a variety of complex civil and commercial matters before juries, trial and appellate courts, arbitrators and administrative tribunals.  Mr. Klein frequently litigates both statutory and common law claims, and specializes in challenging and defending technical experts in the litigation of complex environmental torts.

This article was first published on the Beveridge & Diamond PC website.