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Superfund Cleanup Deals Could Get Trickier After Federal Memo

Sept. 17, 2020, 10:00 AM

Hashing out cleanup costs for some of the most contaminated sites in the country could become more complicated under a new Justice Department memo affecting settlements.

Agency lawyers aren’t allowed to tap government coffers for settlement deals that don’t fully resolve claims against the U.S., the Office of the Associate Attorney General said in a March 5 letter obtained by Bloomberg Law under the Freedom of Information Act.

Several outside lawyers said they’d been trying to track down the memo for months to figure out how it would affect their clients involved in Superfund cleanups.

The Justice Department maintains the directive doesn’t impose significant changes on Superfund settlements.

“Agreements continue to be done in roughly the same terms,” said Jonathan Brightbill, principal deputy assistant attorney general in the department’s Environment and Natural Resources Division.

‘Such a Hard Line’

But some outside attorneys worry the restriction—depending on how it’s applied—could make it difficult for companies to settle Superfund cases where the federal government is responsible for part of the cleanup bill, like at New York’s Gowanus Canal or the Bonita Peak Mining District in Colorado.

“It’s not a favorable development for the program, or for making progress on settlements in general, for the government to be taking such a hard line on this,” said David Freeman, director of the environmental law department at Gibbons P.C. in New York.

But Peter Hsiao, a partner at King & Spalding LLP in Los Angeles and a former senior trial lawyer for the Justice Department, said the memo amounts to business as usual.

“The memo clarifies but does not appear to change the Justice Department’s policy,” he said.

Pay-as-You-Go’

The memo, directed to the department’s Environment and Natural Resources Division, targets the combination of one-time payments with pay-as-you-go settlement structures sometimes used in cleanup negotiations for Superfund sites.

In these cases, a one-time payment may not be enough to cover cleanup if new contaminants are discovered late in the process, leading to a need for an open-ended payment structure.

Under a pay-as-you-go approach, a party potentially responsible for cleaning up a site commits to covering a percentage of the bills, but the exact amount remains uncertain until more investigation or remediation is done.

Federal money for cleanup deals sometimes come from the Treasury Department’s Judgment Fund, a pool of cash set aside for settlements Congress hasn’t directly funded through agency budgets. In 2019, the fund paid out about $130.7 million for agencies settling Superfund cases, according to Treasury’s records.

The Justice Department’s memo says the Judgment Fund is available only for final judgments that nail down “the amount to be paid to satisfy the claim.” It cites Government Accountability Office guidance for federal fiscal policy that says it isn’t in the government’s interest to pay judgments while its legal obligations are “still subject to change.”

As a result of the memo, the department is willing to draw from the Judgment Fund for either one-time payments, or pay-as-you-go structures, but not situations where one-time payments are followed by pay-as-you-go, according to the department.

The Justice Department issued the directive amid broader scrutiny from the Trump administration on the use of the Judgment Fund. The document notes that the Environment and Natural Resources Division had requested guidance on the issue.

Uncertain Impacts

The settlement policy could affect ongoing cleanup at Superfund sites like the Gowanus Canal, where the U.S. Navy is a potentially responsible party, and the Bonita Peak Mining District, where the Environmental Protection Agency is a potentially responsible party as a result of the 2015 Gold King Mine blowout. At those sites, cleanup is guided by the Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA.

The Environmental Protection Agency declined to comment on the memo.

Crowell & Moring LLP attorney Elliott Laws, who worked at the EPA during the Clinton administration, initially warned the policy would make it “extremely difficult to move forward at sites where DOJ is involved.”

But he said he found it “very encouraging” that the Justice Department appears to be interpreting the memo to still allow pay-as-you-go deals focused on individual segments of the cleanup process, such as remedial design and action.

If, for example, the United States agrees to pay 25% of costs in the design phase of a cleanup, and further investigation shows the government is actually responsible for a greater share, it won’t have to go back and pay more toward that phase because it was finalized at 25%, Laws said.

“It’s still risky for the other parties since cost estimates and final costs often are wildly different, but having the government agency’s contributions during the process is something that a lot of parties would prefer to costly and risky” post-cleanup payment adjustments or litigation, he said.

‘Rather Illogical’

Crowell & Moring attorney Amanda Shafer Berman, who worked at the Justice Department for a decade until last year, likewise said it’s “reassuring” that the agency doesn’t view the memo as scrapping the pay-as-you-go structure entirely.

But, she said, it’s also “rather illogical to then disallow such settlements when alongside an initial one-time payment.”

While pay-as-you-go settlements were never the department’s preferred approach, they “were the reality in a lot of cases because the bigger the site, the harder it is to know how much it’s going to cost to clean up,” Berman said.

Freeman, from Gibbons P.C., remained unconvinced by the Justice Department’s assurance that the directive doesn’t prohibit the pay-as-you-go settlement structure altogether.

The memo says it targets pay-as-you-go deals only when combined with a one-time payment, he said, but its legal analysis “would appear to rule out any pay-as-you-go scheme—irrespective of whether or not there was an initial, one-time payment.”

To contact the reporters on this story: Sylvia Carignan in Washington at scarignan@bloombergindustry.com; Ellen M. Gilmer in Washington at egilmer@bloombergindustry.com

To contact the editor responsible for this story: Anna Yukhananov at ayukhananov@bloombergindustry.com

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