The CERCLA Contribution Protection Racket: EPA Can Only Settle Its Own Claims, Not Private Party Claims

Since 1986, the Comprehensive Environmental Response, Compensation, and Liability Act has contained an express right of contribution.

One key feature of the provision has become known as “contribution protection.”

That provision states:

A person who has resolved its liability to the United States or a State in an administrative or judicially approved settlement shall not be liable for claims for contribution regarding matters addressed in the settlement. Such settlement does not discharge any of the other potentially liable persons unless its terms so provide, but it reduces the potential liability of the others by the amount of the settlement.

This paper focuses on one particular feature of this language: What are the “claims for contribution” that are extinguished by operation of law when a person has resolved its liability to the United States or a State?

In its internal policy guidance and model settlement documents, the EPA takes the position that it may extinguish any claim “for all response actions taken or to be taken and all response costs incurred or to be incurred, at or in connection with the Site, by the United States or any other person.”

By addressing in the settlement claims asserted by other plaintiffs seeking response costs, the United States would extinguish those claims even though they are not part of the claim of the United States in connection with the site.

Congress did not intend this in 1986, and such a provision would be unconstitutional under the Fifth Amendment.

Courts should instruct the United States regarding the concept of derivative liability at the core of the definition of “contribution” and principles of Due Process, which constrain its ability to settle the claims of others

The Protection Racket

A protection racket is not the same as extortion. In an extortion racket the racketeers agree not to attack a business. In a protection racket the racketeers agree to defend a business from any attack. A protection racketeer cannot tolerate competition within its sphere of influence from another racketeer.

As a result, racketeers negotiate territories in which they can monopolize the use of violence in settling disputes. These territories may be geographic, or they may be a certain type of business or form of transaction. More generally, a racket is a service that fraudulently offers to solve a problem. An archetype of the protection racket is where the racketeer indicates that he will protect a store from potential damage that the same person or group would otherwise inflict upon it.

The EPA and the Department of Justice have been running a very unusual form of the protection racket. The territory that the Government seeks to monopolize is the Superfund site, for example the sites listed on CERCLA’s National Priorities List under the National Contingency Plan. ¹40 C.F.R. Part 300 Annex.

Once such a territory is designated, the EPA negotiates settlement with certain parties associated with the territory, such as those who arranged for disposal of wastes found there and past and present owners and operators of the site. In the settlement agreement, the Government includes a provision from its model settlement agreement addressing all “response costs” incurred or to be incurred in connection with releases of hazardous substances at the site. ²See Memorandum from Marcia E. Mulkey, Director, Office of Site Remediation Enforcement, U.S. Environmental Protection Agency, and Bruce S. Gelber, Chief, Environmental Enforcement Section, Environment and Natural Resources Division, U.S. Department of Justice to Directors, Office of Site Remediation and Restoration et al., Interim Revisions to CERCLA Judicial and Administrative Settlement Models to Clarify Contribution Rights and Protection from Claims Following the Aviall and Atlantic Research Corporation Decisions, March 16, 2009, at 4. The Government thereby purports to “protect” the settling defendant from claims by others in connection with any response costs at the site.

This is a protection racket because the Government apparently does not know (or has blinded itself to the reality) that it does not have the legal authority to provide the protection its settlements contemplate.

This scheme is a “racket” because of the provisions of the settlement agreement guaranteeing that “response costs” claims of persons other than the United States addressed in the settlement are eliminated, in the words of EPA’s model settlement that the settling party is “entitled, as of the [effective date], to protection” from claims for matters addressed to include “all response actions taken or to be taken and all response costs incurred or to be incurred, at or in connection with Site, by the United States or any other person.” ³March 16, 2009 Memo, at 4. The problem is that the United States lacks the legal authority to extinguish another person’s claims for response costs under CERCLA. As the district court put the matter in U.S. v. Hardage, 750 F. Supp. 1460, W.D. Okla., “CERCLA provides the United States with no authority to settle private party response costs claims.” ⁴750 F. Supp. at 1494-95.

Moreover, as we show below, were CERCLA or other federal law to purport to authorize such settlement authority for the United States, the statute would violate the Constitution’s Due Process Clause. The Government should know better.

A Simple Analogy–The ‘Car Wreck’

Imagine a simple three-party scenario outside environmental law, with which practically all lawyers are familiar—the automobile accident. There is a three-car collision. The driver of Car 1 has $10,000 in medical expenses; the passenger in Car 1 also has $10,000 in medical expenses. The driver of Car 2 is uninjured (he was driving a Hummer). The driver of Car 3 has $100,000 in medical expenses.

The driver and his passenger in Car 1 sue the driver of Car 2. They do not sue the driver of Car 3. The driver of Car 1 then enters into a settlement agreement with the driver of Car 2. The settlement contains a provision that states:

The Parties agree, and by entering this Consent Decree this Court finds, that each Defendant is entitled, as of the effective date of this settlement, to protection from contribution actions or claims as provided by [a tort law provision identical to Section 113(f)(2)] for `matters addressed’ in this settlement. The matters addressed in this settlement are all claims relating to the accident which is the subject of plaintiffs’ claim, including claims for medical expenses incurred by the driver of Car 1 or any other person, except for the passenger in Car 1.

In subsequent litigation by the driver of Car 3 against the driver of Car 2, the driver of Car 2 (with the support of the Car 1 plaintiff) asserts that the Car 3 claim must be dismissed because of the Car 1/Car 2 settlement.

Let me introduce the dramatis personae: The accident is the release of a hazardous substance from a facility within the meaning of CERCLA. Medical expenses are response costs. The driver of Car 1 is the United States (EPA). The passenger in Car 1 is the State. The driver of Car 2 is a generator defendant. The driver of Car 3 is the site owner.

In exchange for a settlement payment (presumably its $10,000 and some “premium” [shall we call it the “protection” money], the Car 1/Car 2 Settlement agreement extinguishes the right of the Car 3 driver to recover for her own medical expenses (response costs). The Settlement would have also extinguished the passenger’s right to sue, but for the exception included in the settlement document. The waiver provision in the Settlement would require the driver of Car 2, if he had medical expenses (response costs), to give up his claim against the Car 3 driver as well. This is the contribution protection racket.

Contribution

It is obvious, however, that the drafters of Section 113(f) were envisioning the more conventional definition of contribution. Under this conventional definition of “contribution,” the “contribution protection” provision of Section 113(f)(2) is not all that novel. It follows principles set forth in Restatement (Third) of Torts as to the effect of settlement on claims derivative of claims that are the subject of a settlement.

The Restatement 3d Torts: Apportionment of Liability 23, for example, at comment i states, “Contribution against a settlor: A person who settles with the plaintiff before final judgment is not liable for contribution to others for the injury.” ⁵Restatement 3d Torts: Apportionment of Liability 23, comment i.

It is apparent under the Restatement’s principles that “contribution” means liability derivative of the claim of the original plaintiff. Under the Restatement, a prerequisite of contribution is: “A person seeking contribution must extinguish the liability of the person against whom contribution is sought for that portion of liability, either by settlement with the plaintiff or by satisfaction of the judgment.” ⁶Restatement 3d of Torts 23, comment b. The right of contribution derives from the claim of the plaintiff against the defendant; it bears no connection to claims for other injuries arising out of the same transaction or occurrence.

The Sanctity of Due Process

Perhaps the most strained feature of the Government’s post-Atlantic Research position on contribution protection is its “backup” legal contention, where it argues in the alternative in the circumstance that a court rejects its contention that a party’s private cost recovery claim is a “claim for contribution” within the meaning of CERCLA Section 113(f)(2).

Judge Mary Lisi of the U.S. District Court for the District of Rhode Island summarizes DOJ’s “backup” argument, that Government settlements can bar subsequent private claims based on the common law rule that the sovereign is in privity with individual citizens invoking similar remedies and can extinguish private claims. ⁷Ashland, Inc. v. Gar Electroforming, 729 F. Supp. 2d 526, 538, D.R.I..

In effect, the Government contends in the alternative that the private party asserting a cost recovery claim and the Government should be treated as the same person, or at least be deemed in “privity” such that the Government is representing that person to such an extent that it may extinguish or compromise the private party’s claim.

The Government seems oblivious that the legal position it advocates violates the Due Process Clause of the Fifth Amendment. First-year law students generally are not so oblivious, because they must confront the due process issue when they are introduced to class actions using the hoary Supreme Court decision, Hansberry v. Lee, 311 U.S. 32.

The facts of that case dealt with a racially restrictive covenant that barred African Americans from purchasing or leasing land in a Chicago neighborhood. The covenant had been upheld in a prior class action lawsuit, which had included Lee, along with all the other neighborhood homeowners, as members of the class (though not parties in the case). The defense in the present case argued that Hansberry could not contest the covenant because it had already been deemed valid by the court in the prior lawsuit.

The Supreme Court explained in Hansberry at the outset

It is a principle of general application in Anglo-American jurisprudence that one is not bound by a judgment in personam in a litigation in which he is not designated a party. … A judgment rendered in such circumstances is not entitled to the full faith and credit which the Constitution and statutes of the United States prescribe, and judicial action enforcing it against the person or property of the absent party is not that due process which the Fifth and Fourteenth Amendments require. ⁸Hansberry v. Lee, 311 U.S. 32, 40 (1940).

There is a limited exception to this principle for class actions, but representative litigation is also limited by the Due Process Clause. ⁹311 U.S. at 40.

In Hansberry the Supreme Court noted that the absent parties had “substantial interests” that were “not necessarily or even probably the same as those who they are deemed to represent and thus representation of the absent parties does not afford that protection to absent parties which due process requires.” ¹⁰311 U.S. at 45. It exclaimed

Apart from the opportunities it would afford for the fraudulent and collusive sacrifice of the rights of absent parties, we think that the representation in this case no more satisfied the requirements of due process than a trial by a judicial officer who is in such situation that he may have an interest in the outcome of the litigation in conflict with that of the litigants. ¹¹311 U.S. at 45.

So the earlier litigation did not bind the absent parties who had been designated members of the class in that earlier litigation.

The U.S. Supreme Court in U.S. v. Atlantic Research, 127 S. Ct. 2331, acknowledged the private cause of action under CERCLA Section 107(a)(4)(B) separate from derivative claims for contribution. To extinguish such an independent cost recovery claim through a settlement with others violates the sanctity of Due Process. The language of Section 113(f)(2) is plain that only claims for contribution properly understood are extinguished by statute.

The Government’s alternative position that its relationship to non-settling parties implies an ability to represent those parties for the purpose of extinguishing their independent cost recovery claims is prima facie absurd. It is as absurd as the notion in Hansberry v. Lee that the representative of a racist homeowners association, seeking to enforce a racially restrictive covenant, represented Mr. Burke, who sought to sell his property to Mr. Hansberry, an African American. In the words of the Supreme Court, to permit such representation would afford opportunities “for the fraudulent and collusive sacrifice of the rights of absent parties.” ¹²311 U.S. at 45.

Conclusion

When the original version of the Comprehensive Environmental Response, Compensation, and Liability Act was enacted in 1980, Rep. David Stockman (R-Mich.) (later budget director in the Reagan administration) objected,

We have an open-ended enabling statute that … makes EPA literally the czar over every hazardous waste site in the entire country. … It covers every waste site, every junk yard, every municipal dump in the country, including those on private property.” ¹³A Legislative History of CERCLA, Serial No. 97-14 (1983), at 299-300.

Stockman went on to object that Superfund covers “everybody who throws away an empty bottle of Pepsi Cola or Diet Pepsi,” complaining that “there is absolutely no guidance as to where all these costly activities to clean up hazardous waste will be triggered.” ¹⁴Id. at 301. He complained again and again that “the EPA has plenary power.” ¹⁵Id.

But CERCLA does not grant plenary power to the Government at CERCLA sites. The language added to CERCLA in the Superfund Amendments and Reauthorization Act made specific and particular CERCLA’s liability regime. Section 113(f) particularizes the right of contribution and the effects of settlement on that right.

Under CERCLA’s precise language, the Government only has authority to resolve its own claims, extinguishing only contribution claims relating to those claims. It is time to end the CERCLA contribution racket.