Ninth Circuit Overturns District Courts, Becomes Third Circuit to Allow Intervention in CERCLA Settlement Proceedings

On June 2, 2010, the Ninth Circuit held that a non-settling potentially responsible party (“PRP”) may intervene, by right, in settlement proceedings under the Comprehensive Environmental Recovery, Compensation, and Liability Act (“CERCLA”). This decision overturned the opposite position taken by district courts in the Ninth Circuit, and aligned the Ninth Circuit with two other U.S. Circuit Courts of Appeals on the intervention question. In United States v. Aerojet General Corp.,[1] the Ninth Circuit joined the Eighth and Tenth Circuits[2] in ruling that a non-settling PRP’s right to contribution represents an interest sufficient to satisfy the requirements for intervention under the federal rules and CERCLA. Reversing the district court, the decision firmly rejected the argument that the CERCLA contribution interest was too contingent or speculative to support intervention. The court also dismissed arguments that CERCLA’s policies favoring early and efficient settlement outweigh a non-settling PRP’s right to intervene.

Before the Tenth Circuit’s 2009 decision in United States v. Albert Investment Co.,[3] the conventional wisdom held that the “majority” rule was against intervention by non-settling PRPs. See Adam Orford, Break on Through: Tenth Circuit Allows Non-Settling PRP To Intervene in CERCLA Settlement Proceedings, Marten Law News (Dec. 23, 2009). With Aerojet, the majority view has shifted, as every Circuit that has weighed in on the issue has decided in favor of intervention.[4] The decision also changes the landscape within the Ninth Circuit, as Aerojet rejected the reasoning of two district court opinions within the Circuit holding against intervention.[5] As a result, the decision will likely spur more non-settling PRPs to intervene in CERCLA settlement proceedings to protect their contribution interests.

Background

The Aerojet case arose out of EPA’s effort to clean up groundwater contamination in California’s San Gabriel Basin, a drinking water source serving more than a million people.[6] Groundwater contamination was first discovered in the Basin in 1979, and in 1984 EPA targeted the area for investigation and cleanup. To facilitate the effort, EPA divided the Basin into eight “operable units.” The Aerojet litigation focused on a unit in the south-central portion of the Basin—the South El Monte Operable Unit, or “SEMOU.”[7]

After an extensive investigation, EPA issued its initial cleanup plan, the Interim Record of Decision (“IROD”), for the SEMOU in 2000. Under the IROD, local water providers within the Basin would pump and treat the contaminated groundwater, selling the treated water to their customers.[8] The water providers entered into negotiations with the PRPs in the SEMOU to recover the cost of the pump and treat operations and eventually reached a settlement agreement with ten of the more than sixty PRPs.[9] EPA and the State of California approved, and the U.S. Department of Justice (“DOJ”) filed a friendly suit against the ten PRPs in the Central District of California to perfect the settlement in a consent decree.[10] Under the proposed decree, the ten settling PRPs agreed to pay $8.1 million of the estimated total of $87 million in cleanup costs in the SEMOU.[11]

DOJ published notice of the proposed consent decree in the Federal Register, and a group of PRPs in the SEMOU who were not party to the settlement (the “non-settling PRPs”) submitted comments objecting to the proposal. Unhappy with the government’s response, the non-settling PRPs moved to intervene in the settlement proceedings.[12] The district court—relying in part on a previous decision from the Central District—denied the motion,[13] and the non-settling PRPs appealed to the Ninth Circuit.[14]

Settlement and Contribution Protection under CERCLA

CERCLA seeks to force the parties responsible for hazardous-waste contamination to pay for its remediation.[15] In order that each PRP pay its fair share of the remediation costs, CERCLA Section 113(f)(1) authorizes PRPs to bring contribution actions to allocate cleanup costs between responsible parties.[16] In order to facilitate settlement and reduce litigation, however, Section 113(f)(2) provides contribution protection to PRPs who settle with the government in an administrative or a judicially approved consent decree.[17] Contribution protection under Section 113(f)(2) insulates a settling PRP from future contribution actions that relate to the matters addressed in a consent decree.[18] Parties to the settlement may still seek cost-recovery or contribution against non-settling parties,[19] and non-settling parties face the potential for joint and several liability for the remaining costs of the cleanup.[20]

The Ninth Circuit’s Decision

As in the Eighth and Tenth Circuit decisions that preceded it,[21] the Aerojet case centered on whether a non-settling PRP’s potential loss of contribution rights pursuant to Section 113(f)(2) presented a significant enough interest to support intervention in CERCLA settlement proceedings. Federal Rule of Civil Procedure 24(a)(2) permits intervention as of right when a party: (1) files a timely motion; (2) claims an interest relating to the property or transaction that is the subject of the action; (3) is situated such that the action may impair or impede the party’s ability to protect its interest; and (4) shows that the existing parties to the action do not adequately represent the party’s interest.[22] CERCLA Section 113(i) provides for intervention as a matter of right on a similar standard, except that the government (not the movant) bears the burden on the fourth prong of the test.[23]

Focusing on the second prong of the test, the court defined the interest at stake: “Applicants here seek to intervene to protect their rights to contribution under CERCLA, and to ensure that the consent decree embodies a fair and reasonable allocation of liability.”[24] The court concluded that the non-settling PRPs had a protectable interest in the litigation because, pursuant to Section 113(f)(2), entry of the consent decree would cut off their contribution rights against the settling parties.[25] The court also held that the PRPs had an interest in the amount of the judicially-approved settlement because the PRPs might be liable for the remaining amount of the cleanup costs.[26]

The Ninth Circuit panel rejected the reasoning of the Aerojet district court and a 2004 Ninth Circuit district court ruling, once thought to be in line with the majority view, holding that the contribution right was insufficient to permit intervention under CERCLA.[27] These decisions focused on two broad themes: (1) the contribution right under CERCLA was a “contingent” or “speculative” interest that would not support intervention;[28] and (2) intervention for non-settling parties was inappropriate under CERCLA Section 113(i) because CERCLA’s legislative history and underlying policies supported denying intervention.[29]

The Aerojet court disagreed that CERCLA’s contribution interest was contingent or speculative, noting that although a party cannot be made to pay a contribution claim before it is found liable, a PRP’s interest in a contribution claim under Section 113(f)(1) arises before liability is established.[30] Aerojet also rejected legislative history and policy arguments as a basis for denying the intervention right. Several courts, after finding ambiguity in the language of CERCLA’s intervention section, Section 113(i), denied intervention to non-settling PRPs on the basis that it would “undermine the clear Congressional intent behind CERCLA … to generate early and efficient settlement.” [31] The Aerojet court countered with a policy argument supporting intervention—that CERCLA seeks to treat all PRPs fairly. “Allowing non-settling PRPs to intervene in CERCLA litigation to represent their own interests helps ‘ensure that the costs of [hazardous waste site] cleanup efforts [are] borne by those responsible for the contamination.’ ”[32] Regardless, the court concluded that policy arguments were irrelevant because Section 113(i) unambiguously “confers a right to intervene on ‘any person’ who ‘claims an interest’ in the litigation, should the disposition of the action ‘impair or impede’ that interest.”[33] Section 113(i), the court explained, does not contain a “restriction on intervention by non-settling parties.”[34] Ultimately, the Ninth Circuit reversed the district court holding that since non-settling PRPs face losing their contribution rights under Section 113(f)(2), they have “significant protectable interests that support intervention as of right.”[35]

The Ninth Circuit also briefly addressed whether CERCLA’s notice and comment procedure for consent decrees provides non-settling PRPs with a means to adequately protect their interests.[36] The court rejected this proposition, noting that once the settling parties and the government have agreed, their interests “are essentially aligned and are adverse to those of non-settling PRPs who oppose entry of the decree.”[37] Indeed, the court explained it would be “unrealistic” to believe that the government would “abandon or substantially modify” the proposed consent decree in response to the non-settling PRPs comments “at this late stage of the process.”[38]

Conclusion

The Aerojet decision continues the trend towards allowing non-settling PRPs to intervene in CERCLA settlement proceedings. The Ninth Circuit’s decision has conclusively shifted the majority rule on the issue and more challenges to settlement agreements by non-settling PRPs are likely to follow.

For more information regarding CERCLA or the Aerojet case, please contact Russell Prugh or any other member of Marten Law’s Waste Cleanup practice group.