EPA’s `Back to the Future’ Model Administrative Orders: Statutory Limits on Resolving Future CERCLA Liability

In 2015, EPA released Revised Model Administrative Orders, including a model Administrative Order on Consent (which it now calls an Administrative Settlement Agreement and Order on Consent or ASAOC) and a revised Unilateral Administrative Order. (EPA Memorandum from Cynthia L. Mackey, Director, Office of Site Remediation Enforcement to Regional Counsels, Regions I-X and Superfund National Policy Managers, Regions I-X, Issuance of Revised Model Administrative Settlement Agreement and Order on Consent and Unilateral Administrative Order for Removal Actions, Sept. 30, 2015; EPA Memorandum, Issuance of Revised Model Remedial Design/Remedial Action Unilateral Administrative Order and New Statement of Work, Sept. 30, 2015; see also Model Remedial Design/Remedial Action Consent Decree, Sept. 2015).

In the case of Unilateral Administrative Orders (UAO), the last full removal order memorandum had been issued by EPA over twenty years before (Id., at 2.).

This revision provided EPA with the opportunity to modify its practices in light of judicial criticism. The Sixth Circuit’s decision not to pay any attention to EPA’s internal policy guidance documents and model agreements in resolving certain legal issues interpreting a specific EPA agreement is striking. (E.g., Fla. Power Corp. v. FirstEnergy Corp., 810 F.3d 996 (6th Cir. 2015), quoting Hobart Corp. v. Waste Mgmt. of Ohio, 758 F.3d 757, 770-771 (6th Cir. 2014)).

Unfortunately, the revised model orders will exacerbate judicial criticism rather than alleviate it. EPA’s “back to the future” model language even seems to put the Agency on the side of non-settling PRPs rather than those with whom it settles by asserting a legal position that accelerates CERCLA’s statute of limitations to extinguish the settlor’s contribution action. There is nothing in the 2015 memoranda accompanying the model agreements to indicate that EPA understands the potential effect of its language, though it is difficult to believe that the Agency (or at least its lawyers at the Department of Justice) do not understand the potential effect. In actuality, though, courts may read the model language inserted in agreements to have no force and effect, because, as explained below, relevant provisions of the model agreements are inconsistent with the CERCLA statute (Cf. 42 U.S.C. §9657)).

“Back to the future” problems occur with two provisions of the model agreements, which the agency styles (1) Payment of Response Costs and (2) Effect of Settlement/Contribution. The first commits the respondents to “pay to EPA all Future Response Costs not inconsistent with the NCP” with the amounts paid into a “Future Response Costs Special Account.” (Model Administrative Settlement Agreement and Order on Consent for Removal Actions, ¶ 46. Payments for Future Response Costs, at 23). The model document mandates, “These funds shall be retained and used by EPA to conduct or finance future response actions at or in connection with the Site.” (Id., ¶ 46.a, at 23.)

The second provision commands, “The Parties agree that this Settlement constitutes an administrative settlement pursuant to which each Respondent has, as of the Effective Date, resolved liability to the United States within the meaning of Section 113(f)(2) and 122(h)(4) of CERCLA, 42 U.S.C. §§9613(f)(2) and 9622(h)(4) and is entitled, as of the Effective Date, to protection from contribution actions or claims as provided by Sections 113(f)(2) and 122(h)(4) of CERCLA, or as may be otherwise provided by law, for ‘matters addressed’ in this Settlement. The ‘matters addressed’ in this Settlement are the Work, Past Response Costs, and Future Response Costs.” (Model Administrative Settlement Agreement and Order on Consent for Removal Actions, ¶ 83, at 35.) For cleanup tasks, the model “Effective Date” language states, “This Settlement shall be effective __ days after the Settlement is signed by the Regional Administrator or his/her delegate…” (Model Administrative Settlement Agreement and Order on Consent for Removal Actions, ¶ 107, at 44.) For recovery of response costs, the “Effective Date” provision allows a comment period for EPA to modify or withdraw its response cost compromise included within the order. Id.

Settling the Future

Administrative orders, whether unilateral or on consent, are issued under the authority of Section 106, requiring the recipient to undertake cleanup tasks under the statute (42 U.S.C. §9606(a)). The UAO and the AOC are civil enforcement actions under the statute because they impose legal obligations on the recipients which they otherwise would not have (PCS Nitrogen, Inc. v. Ross Dev. Corp., 104 F. Supp.3d 729 (D.S.C. 2015)).

Moreover, they are usually not de minimis settlements as described in Section 122(g) nor are they small cost recovery settlements as described in Section 122(h), the two types of administrative orders expressly referred to in one of CERCLA’s statute of limitations, Section 113(g)(3)(B). Notwithstanding the language in EPA’s model agreements, those provisions of CERCLA plainly do not apply to other Section 106 AOCs. For example, de minimis settlements under CERCLA are unusual in that the settlor must agree to “waive all the claims (including a claim for contribution…)” as a “condition for settlement (42 U.S.C. §9622(g)(8)(A)). This condition obviously does not apply to other CERCLA settlements, where settlors have a statutory right of contribution (See 42 U.S.C. §§9613(f)(1), 9613(f)(3)(B)).

Except for de minimis settlements, to the extent that a cleanup agreement imposes longer-term or costlier cleanup, termed “remedial action” under the statute, the statute expressly precludes settlement of liability except in the form of a judicial consent decree (42 U.S.C. §9622(d)(1)(A)). The statute expressly commands, moreover, that a covenant not to sue not be effective until the settlor is in “full compliance” with a consent decree, and that any special covenant not to sue concerning “future liability” to the United States “shall not take effect until the President certifies that remedial action has been completed.” (42 U.S.C. §9622(f)(3)). To the extent that AOs command less costly and shorter term cleanup, termed “removal” under the statute, the statute discourages litigation over the terms of the AOC until completion of the tasks called for. Generally, there can be no litigation over an AO until the government sues to enforce the order or to collect penalties for its violation (42 U.S.C. §9613(h)(2)). After completion, where the complying PRP contests liability or the reasonableness of the order, it may seek reimbursement from the government (42 U.S.C. §9606(b)(2)). To trigger the statute of limitations for contribution upon the initial signing of the order, as EPA’s “back to the future” model language contemplates, rather than upon the completion of the tasks called for in the order would eviscerate the defendant’s right of contribution where full compliance with the order takes substantially longer than three years. Such a “trigger” would cut off the right of contribution before the covenant not to sue included in the cleanup agreement can be legally effective (Cf. 42 U.S.C. §9622(f)(1)(C)).

Resolving Claims Before Cleanup

This “back to the future” problem with EPA’s model language becomes even more obvious from an analysis of CERCLA’s statute of limitations system and related settlement provisions. Departing from otherwise applicable principles of res judicata, CERCLA envisions multiple response actions and related cost recovery suits regarding completed response actions and past costs for a release of a hazardous substance. The principal cost recovery statute of limitations requires that an “initial” suit be filed with three years of the completion of a removal action or within six years of “initiation of physical onsite construction” of a remedial action (42 U.S.C. §9613(g)(2)(A-B)). The statute expressly reserves claims for subsequent responses or costs of the subsequent responses for future lawsuits, which rely upon the liability determinations made in the “initial” suit (42 U.S.C. §9613(g)(2)). The subsequent actions “must be commenced no later than 3 years after the date of completion of all response action.” The statute requires that the CERCLA plaintiff split its cause of action into multiple suits, in which the plaintiff sues for costs after they are incurred.

Several provisions of CERCLA’s settlement section show that CERCLA liability cannot be resolved for “future liability” except in very limited circumstances, such as where a remedial action is a “permanent solution” such as incineration of hazardous substances, or involves “only a minor portion of the response costs at a facility.” (42 U.S.C. §9622(g)(2)). In other circumstances, settlements must include provisions permitting subsequent suits for later response actions and their costs (E.g., 42 U.S.C. §9622(f)(6)). Even in the narrow circumstances where the statute permits settlement of “future liability,” a covenant not to sue cannot be effective until the action is completed (42 U.S.C. §9622(f)(3)). There also must be an “exception” to the covenant for “future liability” where “such liability arises out of conditions which are unknown at the time the President certifies… that remedial action has been completed at the facility concerned.” (42 U.S.C. §9622(f)(6)(A)).

In short, the statute does not permit a person to resolve “its liability to the United States” for responses not yet completed or response costs not yet incurred (Cf. 42 U.S.C. §9613(f)(2)). Therefore, since the statute does not authorize settlements inconsistent with these provisions, EPA’s model language envisioning settlement for “Future Response Costs” violates CERCLA.

The second provision of the 2015 model agreements noted above would make an AOC recipient’s “contribution protection” for cleanup tasks effective shortly after its signing of the AOC with EPA. This relates to the question of when a claim for contribution against a settling party is extinguished by operation of law “regarding matters addressed in the settlement.” (42 U.S.C. §9613(f)(2)). For example, if the government sues a non-settlor, and the non-settlor then files an action for contribution against the AOC recipient “regarding matters addressed” in the AOC, the AOC recipient would move to dismiss the contribution action on the grounds of “contribution protection.” Because of “contribution protection,” EPA apparently desires that the “date of an administrative order” as used in the relevant statute of limitations (42 U.S.C. §9613(g)(3)(B)). mean a date shortly after an order is signed rather than the later date in which the work called for in an order is completed. In that event, the AOC recipient could dismiss the non-settlor’s contribution claim against it even though the work called for in the AOC had not been completed. This simplifies EPA’s litigation with non-settlors, since the AOC recipient can be dismissed immediately from that litigation.

Permitting an AOC recipient to “resolve” its liability to the government before the extent of the liability is known, however, presents logical problems. Until the actions called for in the AOC are completed, the AOC recipient’s right of contribution is in fact inchoate. If the actions called for in the AOC are not completed when the government files its action against the non-settlor, the extent of the common liability has not been fixed. (Ekotek Site PRP Committee v. Self, 881 F. Supp. 1516, 1523 (D. Utah 1995)) It is therefore impossible to know whether the AOC recipient has paid more than its “fair share” of the common liability Id. , at 1523-24. To the extent that the work called for in the order remains incomplete, the government’s claim against the non-settlor is also inchoate because the court cannot know the “amount of the settlement” by which the government’s claim should be reduced 42 U.S.C. §9613 (f)).

As the Supreme Court has explained, “Contribution is defined as the ‘tortfeasor’s right to collect from others responsible for the same tort after the tortfeasor has paid more than his or her proportionate share, the shares being determined as a percentage of fault.” (United States v. Atl. Research Corp., 551 U.S. 128, 138 (2007) (quoting Black’s Law Dictionary 353 (8th ed. 2004)). Logically, a judgment in a contribution action for a proportionate share must follow determination of the amount of the total liability which is then divided into proportionate shares.

It is impossible to enter a final judgment in a contribution action or EPA’s action against non-settlors without first determining the total liability. Where contribution claims are brought in the same action as the original action against the defendant (contribution plaintiff), the court may determine the total liability and proportionate shares together prior to entering final judgment. Where there is a settlement of the original plaintiff’s action against the defendant (contribution plaintiff) without litigation, CERCLA envisions that the court will determine the total liability and proportionate shares in the contribution action. This is a necessary pre-condition of the court’s determination of whether the contribution plaintiff has paid more than its proportionate share of the liability and thus becomes entitled to reimbursement of the excess in a judgment in the contribution action. It is also a pre-condition for determining the “amount of the settlement” by which EPA’s judgment should be reduced in any EPA action against non-settlors (42 U.S.C. §9613(f)(2)). For this reason, EPA’s “back to the future” approach risks putting AO recipients and the courts in an impossible situation.

Under CERCLA’s system of multiple suits for the same release of a hazardous substance, there can be multiple contribution claims that go along with various cleanup tasks which occur during the Superfund cleanup process. For example, the United States may bring an action for its costs of an emergency removal action. The defendants in that action may seek contribution, but only in connection with the removal action, not future cleanup tasks at the site. The court is to enter a declaratory judgment on liability (and potentially on allocation of proportionate shares) which may be used not only to determine the amount for which each party is liable in that action but which binds the determination of liability as future response actions occur. Thus, after a subsequent remedial investigation and feasibility study (RI/FS), the determination of liability and allocation in the initial cost recovery action is to be used in any subsequent action to determine how much each party owes for the RI/FS. The process will be followed again once the remedial design/remedial action (RD/RA) is conducted for the same facility. The RD/RA may even be divided into “operable units,” concerning which there may be separate suits. Each suit deals with cleanup tasks (the emergency removal, RI/FS, and RD/RA) once they are completed and costs are known. The model agreements are inconsistent with this approach, which the statute appears to require.

Under EPA’s “back to the future” approach, CERCLA’s statute of limitations for contribution actions would expire if the administrative order takes slightly more than three years to complete, since the “effective date” of the contribution protection is said to be a few days after the order is signed rather than completion of the actions called for in the order. For civil actions, which a growing number of courts read to include AOs for cleanup, the relevant statutory provision triggers the limitations period for contribution actions on “the date of judgment … for the recovery of suchcosts or damages 42 U.S.C. §9613(g)(3)(A) (emphasis added).

For de minimis and small cost recovery settlements, the relevant provision states, “No contribution action for any response costs or damages may be commenced more than 3 years after [certain orders or settlements] ... with respect to such costs or damages.” (42 U.S.C. §9613(g)(3)(B) (emphasis added)). These two provisions each require that the costs or damages already have been incurred on the date of entry of the judgment or settlement. The effective date of an administrative order or settlement can only relate to “such” costs or damages, that is, not to future costs and damages.

Under the legal position embodied in EPA’s model agreements, a CERCLA settlement can address future liability (i.e. cleanup tasks not yet completed) and by so doing “resolves liability to the United States.” A non-settlor’s potential right of contribution regarding that future liability against the settlor would be immediately extinguished by operation of law because the settlor “shall not be liable for claims for contribution regarding matters addressed in the settlement.” (E.g. 42 U.S.C. §9613(f)(2).)

This is illogical because it contemplates a contribution claim against the settlor for cleanup tasks and costs which are not yet established because the tasks have not been completed and the costs have not yet been incurred by the plaintiff. Ironically, EPA’s implicit interpretation favors non-settling parties over those with whom it settled in those parties’ contribution claim disputes by commencing the limitations period on contribution claims prematurely.

Conclusion

Courts should reject the “back to the future” interpretation of CERCLA embodied in EPA’s revised model settlement agreements.

EPA cannot settle CERCLA claims for “future response costs” that have not yet been incurred. EPA cannot “resolve liability” triggering contribution protection and CERCLA’s statute of limitations upon the signing of an AO.

The statute of limitations on CERCLA contribution claims does not expire until three years after the date of the judgment in the court’s disposition of an action to enforce the order or from a judicially-approved settlement. In the absence of an EPA action to enforce the order or a judicially-approved settlement, a complying AO recipient has a right of contribution under CERCLA §113(f) because an AO is a civil action, but the statute of limitations on that cause of action does not begin to run until after judicial review of the order or upon the completion of the response or incurrence of costs called for in the order.

As a result, EPA should draft each administrative order so that “the effective date of any administrative order should be the date of … judicial approval, so that the settling party will have three years after judicial approval in which to seek contribution from other PRPs regarding their contribution. The orders should, of course, also specify that the matters addressed in the settlement are not ‘resolved’ … until the settling order recipient has actually paid the costs or performed the tasks called for in the order.” (Alfred R. Light, Dealing with the Complexity of Settling Private CERCLA Claims: Due Process, Article III, and Sovereign Immunity, 1 St. Thomas J. Complex Lit. 1, 36 (2015).