Second Circuit Short Circuits Cooper Industries

The Second Circuit Court of Appeals, on September 9, 2005, permitted Consolidated Edison, a potentially responsible party (“PRP”) who conducted a “voluntary” cleanup, to bring a cost recovery claim under CERCLA §107(a). ConsolidatedEdison Company of New York, Inc. v. UGI Utilities, Inc., No. 04-2409 – CV (2d Cir. September 9, 2005) (“Con Ed”). The decision is one of several recent cases around the country that point to a revival of §107(a) as a means of recovering voluntary cleanup costs under CERCLA.

When CERCLA was passed in 1980, it did not contain a provision expressly allowing one PRP to sue another. That provision was put into the CERCLA statute in 1986, when Congress added an express right of “contribution” by enacting §113(f)(1). Prior to 1986, federal courts “implied” a right of contribution by reading §107(a) of the statute to allow one PRP to sue another PRP.

After 1986, it was common for PRPs to sue each other under both §107(a) and §113(a), and this practice continued into the mid-1990s. Then, in a series of decisions, a number of courts – including the Second Circuit – came to a different reading of §107(a). Reasoning that Congress, in §113(a) had added an express right of contribution, these courts held that a PRP should use that provision, and that §107(a) was limited to claims brought by parties who were not PRPs. The Second Circuit reached this conclusion in 1995 in Bedford Affiliates v. Sills, 156 F.3d 416 (2nd Cir. 1995) (“Bedford Affiliates”), and other circuits, including the Ninth Circuit, did the same. See, Pinal Creek Group v. Newmont Mining Corp. 118 F.3d 1298, 45 ERC 1588 (9th Cir. 1997) (“Pinal Creek”).

Thereafter, the practice among litigants allocating CERCLA costs changed again. PRPs stopped bringing §107(a) claims, and began relying exclusively on §113(f)(1).

But the settled expectation of PRPs that they could rely on §113(f)(1) to recover their costs was shattered by the Supreme Court’s landmark December 2004 decision in Cooper Industries v. Aviall Services, Inc., 125 S. Ct. 577 (2004) (“Cooper Industries”). In the Cooper Industries case, the Supreme Court, based on what it termed the “natural meaning” of CERCLA §113(f)(1), held that a party could only bring a “contribution” action under CERCLA §113(f)(1) after it had been sued. Parties who “voluntarily” cleaned up property – even under an order from EPA or a state – could not avail themselves of CERCLA §113(f)(1) to recover their costs.

The double whammy of no §107(a) claim (Bedford Affiliates and Pinal Creek) and no §113(f)(1) claim (Cooper Industries) has the effect of leaving parties who conduct voluntary cleanups – i.e. who cleanup without first being sued – with no federal claim under CERCLA to recover their costs. It was to avoid this harsh result that a three judge panel of the Second Circuit held in Con Ed that the prior Bedford Affiliates case could be distinguished. Notwithstanding the prior Bedford Affiliates decision in the same circuit, the panel in Con Ed allowed a party who had cleaned up sites voluntarily to proceed with its cost recovery action under §107(a).

Con Ed involved cleanups at manufactured gas plants in Westchester County, New York. Defendant UGI had operated the same plants at an earlier time. Con Ed sued UGI under CERCLA §113(f)(1). During the course of the litigation between Con Ed and UGI, the Supreme Court decided Cooper Industries.

The three judge panel in the Con Ed case was clearly troubled by the prospect that Con Ed – which had committed to spend upwards of $100 million cleaning up the manufactured gas plants – would be left with no federal claim against UGI. Judge Katzmann concluded that a cost recovery claim could be brought by Con Ed under §107(a) without overturning the Bedford Affiliates decision, citing “critical distinctions” between the two cases.

He found that a party, like Con Ed, which had incurred purely “voluntary” costs could be found to have incurred “necessary costs of response” within the meaning of §107(a); whereas a party, like Bedford Affiliates, who had entered into a consent order and incurred cleanup costs due to the imposition of liability through an administrative order “has not, in fact, incurred ‘necessary costs of response’”. The “critical distinction” between the Con Ed and Bedford Affiliates cases, according to Judge Katzmann, was that a party which has not been made to participate in an administrative proceeding, “but, if sued, would itself be liable under §107(a), may still recover necessary response costs incurred voluntarily but not under a court or administrative order or judgment.” By characterizing costs incurred outside of an EPA or state administrative order as “costs of response,” Judge Katzmann sidestepped the Bedford Affiliates precedent and concluded that Con Ed could sue UGI.

While this tightrope dance of statutory construction may have been necessary for the three judge panel in Con Ed to avoid reconsideration of Bedford Affiliates, in the end, the panel appears to have been motivated more by a desire to reach a preferred outcome than by the cannons of statutory construction. At one point in the opinion, Judge Katzmann states candidly:

“We believe we would be impermissibly discouraging voluntary cleanups if we were to read §107(a) to ‘preclude parties that, if sued, would be held liable under §107(a) from recovering necessary response costs.’ With this economic disincentive in place, such parties would likely wait until they are sued to commence cleaning up any site for which they are not exclusively responsible because of their inability to be reimbursed for cleanup expenditures in the absence of a suit.”

The Second Circuit is not the only court struggling with this policy and legal dilemma. It is evident that a number of federal courts around the country are troubled by the Supreme Court ruling in Cooper Industries and, like the Con Ed court, are struggling to find ways to allow parties who have incurred costs to recover them from other responsible parties. For example, on August 4, 2005, a federal District Court in California held that even though a PRP cannot sue for joint and several liability under §107(a), it may nevertheless sue for contribution under that same provision. Ferguson v. Arcata Redwood Co., N.D. of Cal. No. C-03-05632 (August 4, 2005) (“Ferguson”). In addition to the Ferguson case, federal District Courts in the Eastern District of California have twice held since the Cooper Industries decision that a PRP can sue under §107(a). Kotrous v. Goss-Jewett Co., 2005 WL 1417152 (E.D. Cal. June 16, 2005); and Adobe Lumber Inc. v. Taecher, 2005 WL 1367065 (E.D. Cal. May 24, 2005), but see Goodrich Corp v. Emhart Indus. Inc. No. 04-0759, slip op. at 8 (C.D. Cal. May 4, 2005) (holding that a PRP cannot sue under §107 in light of the Ninth Circuit decision inPinal Creek).

The court decisions that have arisen since Cooper Industries and the strange readings given recently to the CERCLA statute to avoid its harsh results suggest that the issue of CERCLA contribution rights may be headed back to the Supreme Court. In the meantime, for PRPs which have conducted voluntary cleanups and are pursuing contribution claims, the Second Circuit’s Con Ed decision provides new hope and authority for those claims.

For more information, contact Brad Marten.