Settling CERCLA Actions

CHAPTER 26

 

SETTLING
CERCLA

ACTIONS

 

Philip
L. Hinerman

John
L. Taft*

 

 

 

Philip L. Hinerman is an attorney with the
Environmental Practice Group of the Philadelphia, Pennsylvania, office of the
law firm of Pepper, Hamilton & Scheetz, Previously he served as corporate
counsel for Leaseway Transportation Corp., where he focused on environmental
issues affecting the transportation industry. Mr. Hinerman has represented
generators and transporters in numerous federal Superfund and similar state matters
in twelve states and four EPA regions. He also has an active practice providing
advice in corporate acquisitions, loans, compliance and auditing.

 

John L. Taft is partner in charge of the
Business Investigation Services Group in the Los Angeles, California, office of
Coopers & Lybrand, where he is actively involved in both the litigation
services and business reorganization services practices. Mr. Taft is a CPA and
graduated from the University of Nevada-Reno. He is a member of the American
Institute of Certified Public Accountants, the California Society of Certified
Public Accountants. the National Association of Real Estate Investment Trusts.
the Real Estate Investment Association. the American Electronics Association,
and the Semiconductor Industry Association.

 

*The
authors gratefully acknowledge the assistance of Thomas M. Neches, formerly of
Coopers & Lybrand’s Dallas. Texas office in preparing this chapter.

 

 

SETTLING
CERCLA ACTIONS

 

§ 26.1
  Introduction

§ 26.2
  Overview of Settlement and Enforcement
Alternatives

§ 26.3
  Potential Liabilities

§ 26.4
  —Cost Recovery Claims

§ 26.5
  —Administrative Orders

§ 26.6
  Settlements

§ 26.7
  —Chronology of Settlement

§ 26.8
  —Defenses to Liability Impacting
Settlement

§ 26.9
  —Allocations of Liability

§
26.10 —Settlements by Use of Notice
Letters

§
26.11 —EPA De Minimis Settlements

§
26.12 —Landowner’s Settlement

§
26.13 Negotiating Consent Decrees with
EPA

§
26.14 —Covenants Not to Sue

§
26.15 —Contribution Protection

§ 26.16
—Remedy Selection

§
26.17 —Incurred and Future EPA Costs

§
26.18 —Dispute Resolution Provisions

§
26.19 —Stipulated Penalties

§
26.20 —Mixed Funding

§
26.21 —Miscellaneous Provisions

§
26.22 —Benefits to Settling Parties

§
26.23 —Failure of Settlement

 

 

 

§ 26.1 – Introduction

 

Hazardous
waste is produced in the United States at a rate of 700,000 tons per day, or
approximately one ton per year for each person in the united States. As a
result of disposal practices which adversely affected public health, Congress
enacted in 1980 the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA) commonly known as Superfund. The Superfund is a fund of
money for cleanup of sites managed by the Environmental Protection Agency. The
CERCLA Program achieved few successful cleanups in its first years of
existence.

 

Congress
sensed that private cleanups of sites were not being performed as frequently as
initially hoped and enacted the Superfund Amendments and Reauthorization Act of
1986 (SARA), giving EPA additional authority to compel potential responsible
parties (PRPs) to clean up sites and giving added incentives for private
cleanups. SARA expanded the program and authorized $10.1 billion for federal
cleanup when willing and able PRPs could not be found, Following SARA’S
enactment. the average cleanup cost of a facility rose to in excess of $25
million.[1] EPA estimates that total
cleanup costs for the current 1,200 Superfund sites will total $30 billion.[2] The Office of Technology
Assessment estimates that spending for cleanups at toxic waste sites could
sites could eventually reach $500 billion.[3]

 

Given
the enormous costs involved in cleanups, both PRPs and the government realize
benefits when CERCLA enforcement actions are settled rather than litigated in
court. Settlements save litigation costs for all parties. Cleanups of settled
sites need not await the ultimate resolution of a trial. Also, cleanups
performed by RRPs generally cost less then those performed by the EPA’s
contractors. Finally, settlement allows the government to focus on cleaning up
the most significant waste sites and allows the RRPs to focus their energies
and finances on other matters.

This
chapter addresses settlements with EPA and other parties and discusses many of
the issues that commonly arise in the process of settling CERCLA cleanup
actions. An overview of settlement and enforcement alternatives is followed by
a discussion of liability issues that should be addressed when preparing
settlement strategies.

 

§ 26.2 – Overview of Settlement and
Enforcement Alternatives

 

EPA’s
enforcement process begins with a search for PRPs. Once they are identified,
EPA may offer to negotiate a settlement with the PRPs for the conduct of a
Remedial Investigation and Feasibility Study (RI/FS) identifying conditions at
a site and analyzing alternatives for cleanup,[4] for reimbursement of EPA
costs incurred responding to the site, or for conduct of the Remedial Design
and Remedial Action (RD/RA), which addresses remediation of the site.

 

Generally,
settlements with EPA are of three types. First, PRPs agree to fund and perform
a substantial portion, often 100 percent, of the cleanup and to conduct the
RD/RA. These settlements often reimburse EPA for its incurred costs and costs
needed to conduct future oversight of remediation.

           

Second,
EPA and PRPs may enter into mixed funding agreements. Mixed funding uses monies
from both the Superfund and the PRPs for remediation. Mixed funding is most
likely to be accepted by EPA when some, but not all, of the PRPs are willing to
perform the cleanup, and when there are financially viable nonsettlors from
whom EPA can recover Superfund’s share of the mixed funding agreement.

 

Third,
de minimis and landowner settlements may be entered into by parties who
contributed very small amounts of hazardous waste with low toxicity. A de
minimis settlement may eliminate numerous small volume contributors from the
negotiation and litigation process, which can save all parties time and money.
Most frequently, these settlements provide for premiums exceeding the normal
share of the settlor’s costs in exchange for release of liability.

 

Generally,
EPA will only consider a settlement proposal from a PRP if the initial offer
from the PRP constitutes a substantial portion of the cost of cleanup or the
remedial action.[5]
EPA may enter into negotiations with PRPs even when the offers from the PRPs do
not represent a substantial portion of the cost of cleanup if the proposal is
related to an administrative settlement of a cost recovery action in which
total cleanup costs are less than $200,000 or involve a bankrupt PRP.

 

Pursuant
to its 1985 Interim Settlement Policy,[6] EPA will analyze
settlement proposals using the following criteria:

 

1.         Volume of waste contributed to site by
reach PRP

2.         Nature of wastes contributed

3.         Strength of evidence tracing the wastes
at the site to the settling parties

4.         Ability of the settling parties to pay

5.         Litigative risks in proceeding to trial

6.         Public interest considerations

7.         Precedential value

8.         Inequities and aggravating factors

9.         Nature of the case that remains after
settlements.

 

Mixed
funding and de minimis settlements are seldom implemented. During the three
years following the enactment of SARA, EPA reached RD/RA settlements at 78
sites, Of these settlements, EPA reported nine mixed funding and 18 de minimis
settlements. The reasons for the limited use of mixed funding and de minimis
settlements include: 1) limited EPA staff trained and experienced in these
types of settlements; 2) limited EPA staff and financial resources to address
issues other than actual cleanup of sites; and 3) lower priority at EPA for
settlements that do not address the remediation of the site.

           

When
EPA is unable to reach a negotiated agreement, it has two options under CERCLA
to achieve cleanup or PRP response. First under § 106 of CERCLA, the EPA can
issue an administrative order to compel PRPs to clean up the site, Second, EPA
can remediate the site using Superfund monies under § 104 and then seek
recovery of its cleanup costs from PRPs under § 107.

 

The
EPA has a number of additional investigatory and enforcement tools aside from
the negotiated or ordered response. Among other things, it can issue subpoenas
to obtain information, file liens against properly to recover its cleanup
costs, and issue nonbinding preliminary allocations of responsibility
calculating each PRP’s share of a site cleanup cost.

 

§ 26.3 – Potential Liabilities

 

Following
the passage of CERCLA in 1980, EPA experienced the growing pains normally
associated with the start-up of a major program. The courts cooperated in this
start-up in an effort to speed cleanups at hazardous waste sites. The courts
broadly construed CERCLA liability provisions and deferred judgement on issues
of allocation among the parties. Almost every person or entity involved in
commerce using or producing hazardous substances or disposing or these
substances was said to be subject to strict liability (without fault) and joint
and several liability providing that one or all parties were liable for the
full amount of remediation costs.

           

The
case law was not instructive on ways to allocate this liability among the
various parties. Therefore, settlement theories and strategies are of prime
importance. To evaluate settlement theories and strategies, one must first be
knowledgeable about the grounds of potential liabilities.

 

Under
§107 of CERCLA, parties in the chain of treatment, disposal, and storage of
hazardous substances[7]
may be liable for cleanup costs and penalties. The four classes of liable
parties are: (1) owners and operates of facilities where hazardous substances
are present; (2) persons who arranged to treat, store, or dispose of hazardous
substances; (3) persons who operated disposal sites at the time of the
hazardous substance’s disposal; and (4) persons who transported hazardous
substances to sites they selected. Of the four classes of responsible parties,
the generators are the class of parties who most frequently participate in the
settlement of CERCLA claims.

 

The
statutory defenses to liability under CERCLA are that: 1) the contamination was
caused by act of God or act of war, 2) the problem was solely caused by a third
party; and 3) the potential defendant “exercised due care” and
“took precautions against foreseeable acts or omissions ” of third
parties.[8] Additionally, owners of
property have a defense if they acquired the property after reasonable
precautions were taken to determine the presence or absence of hazardous
substances, or it the acquisition was by bequest.[9]

 

§ 26.4 – Cost Recovery Claims

 

CERCLA
§ 104 allows EPA to use Superfund monies for initial response, Subsequently, §
allows the EPA to seek the recovery of these monies from PRPs. Under § 113 of
CERCLA, parties may be jointly and severally liable for response costs incurred
by EPA in connection with a site from which there is a release or a potential
release of hazardous substances. Furthermore, CERCLA § 109 allows EPA to assert
administrative penalties which, in certain situations, allow assessments of up
to $ 75000 per day in penalties.

 

EPA
asserts its cost recovery claim against PRPs either by sending a demand latter
or by issuing an order, Frequently, EPA asserts the Claim at the onset of a
remedial action because it is attempting to obtain PRP participation for future
actions so that EPA need not commit Superfund moneys for sites at which the
PRPs will respond.

 

PRPs
often seek to participate in the performance of a remedy and avoid a more
costly recovery actions, because EPA’s costs of remedy typically exceed those
costs which may be incurred by private parties. Also, through negotiation, PRPs
may have input on the planned remedy that the EPA selects in its Record of
Decision (ROD).

 

§ 26.5 – Administrative Orders

 

EPA
has increased its use of administrative orders under § 106 of CERCLA, responding
to congressional complaints that it was not aggressive in its pursuit of
private party cleanups. Under § 106, EPA can order one or more PRPs to
undertake a response action to prevent or cease a release from a site at which
hazardous substances are located, If a PRP is named in an EPA order and that
party fails to undertake .the ordered action without “sufficient
cause,” a court may impose a civil penalty of up to $25000 per day in
civil penalties for the period of non-compliance and also award EPA treble the
cost of any response incurred by the Superfund.

 

CERCLA
does not define “sufficient cause.” Civil cases have addressed the
issue and defined sufficient cause to include the financial inability to
perform the order,[10] the lack of a threatened
or actual release of hazardous substances,[11] and the failure of a
party to be a liable party under CERCLA.[12] In the 1980 debate on
CERCLA, Senator Stafford provided the genesis of these defenses by stating that
the sufficient cause language was intended to:

 

encompass defenses such as the
defense that the person who was the subject of the [EPA] order was not the
party responsible under the act for the release of hazardous substances. if
would certainly be unfair to assess punitive damages against the party, who for
a good reason, believed himself not to be the responsible party. For example,
if there were, at the time of the order, substantial facts in question, or if
the party subject to the order was not a substantial contributor to the release
or threatened release, putative damages should either not be assessed or should
be reduced in the interest of equity. There could also be ‘sufficient cause’
for not complying with an order if the party…did not at the time have the
financial or technical resources to comply or if no technological means for
complying was available. We also intend that the [EPA’s] order, and the
expenditures for which a person might be liable be liable for punitive damages,
must be valid.[13]

 

EPA
has issued memoranda on the use and issuance of administrative orders. A
September 1983 Guidance Memorandum on Use
and Issuance of Administrative Orders Under § 106 (a) of CERCLA focused on
the four factors EPA evaluates in deciding whether or not to issue an
administrative order.

 

1.         Financial status of the parties

2.         Number of parties

3.         Certainty of the needed response

4.         EPA’s readiness to litigate the merits
of the order .

 

In
its February 1989 Guidance on CERCLA
Section 106 Judicial Actions, EPA
refined these points and stated its preference to use orders if relatively few
PRPs are available. Also, EPA stated it would consider “carving out”
settlements by issuing orders requiring performance of some part of the
response work by nonsettling parties.

 

Section
106 does provide for an opportunity to confer with EPA following receipt of an
order. Given the potential exposure for treble damages under § 106 of CERCLA
and the lack of clarity in the sufficient cause defenses to the order, there is
much incentive for PRPs to attempt to negotiate a settlement of a § 106 order.

 

Section
106(b)(2) allows a PRP to comply with orders and make a later claim against EPA
for reimbursement if it can show the order was arbitrary or if the party was
not responsible under § 107. PRPs with substantial resources may consider this
option, although no claim under this section has been allowed by the EPA to
date.

 

§ 26.6 – Settlements

 

After
a sufficient number of PRPs have decided that the benefits of a settlement
outweigh the costs and risks of litigation, the focus becomes what companies
are PRPs, what each PRP contributed, how much each contributed, and how the
settlement will be funded by each PRP.

 

§ 26.7 – Chronology of Settlement

 

Settlements
with the EPA are frequently entered into at the early stages of site cleanup.
At the later stages of a cleanup or prior to an offer to EPA to perform the
cleanup, PRPs usually attempt settlement among each other. Private party
settlements present unique issues. EPA settlements typically focus on total
cost recovery and the liability of parties for performance of the remedial work
at the site. Private party settlements, however, normally involve establishing
mechanisms for technical review of EPA’s suggested remediation, assessing
monetary shares for expenses, and establishing mutual defense groups.

Prior
to settling with either the EPA or other PRPs the parties typically review the
number and alleged involvement of all PRPs at the site, In order to assess
individual exposure at a site, PRPs need to know the relationship of their
alleged contributions to the contributions of other viable PRPs. EPA normally
has taken the first step to determine who the initial PRPs are at a site. EPA’s
investigation often starts with the business records of site operators. These records
may contain customer lists, shipping documents, and invoices. To identify other
possible generators and transporters, EPA (or its contractor) may have
conducted interviews with employees at the waste disposal site, waste
transporters, and persons who live in the vicinity of the site. This
information may be compiled by EPA into a so-called waste-in list, which is often an inaccurate and incomplete first
cut of PRPs.[14]

 

EPA
typically follows up this list with a questionnaire to the identified parties. This
questionnaire, issued under the investigatory authority of CERCLA § 104, is
broad in scope and is similar to interrogatories that might be filed in a
lawsuit. EPA also has subpoena authority under CERCLA § 122(e)(3)(b) but does
not normally utilize that authority.

 

At
most sites, the PRPs interested in settlement gather additional information on
other PRPs. Often working with government information obtained from a Freedom
of Information Act request, the parties may retain an outside consultant or
common counsel to prepare a waste-in list of PRPs at the site. That list
includes volume and/or toxicity information about the about the parties PRPs
perform this task routinely, even if the EPA has previously compiled a list,
because PRP-prepared lists are usually more accurate and more inclusive of new
potential parties.

 

CPAs
and other financial experts who specialize in environmental litigation
consulting often perform these information gathering activities. The experts
may perform the following procedures:

 

1.         Collect and review government business
records

2.         Interview government and business
personnel

3.         Conduct historical research of site
operations

4.         Reconstruct chain of title

5.         Update PRP names and addresses

6.         Conduct PRP corporate historical
research

7.         Assess PRP ability to pay for the
cleanup

8.         Consolidate and organize records.

           

Often,
the information gathering continues throughout be negotiation or litigation
period. In fact, given the often incomplete records at sites, information
gathering is seldom finished to the complete satisfaction of all PRPs.

 

§ 26.8 – Defenses to Liability
Impacting Settlement

 

Two
defenses to liability are frequently asserted at Superfund sites to reduce
potential settlement shares: the transporter defense and the innocent landowner
defense. Under § 107(a) (4) of CERCLA, transporters are only liable for
transportation of hazardous substances to disposal sites they have selected.
Transporters asserting this defense often locate bills of lading showing
direction by shippers. Landowners often assert that they are entitled to the
innocent purchaser defense of § 101(35). To establish this defense, the
landowner must provide evidence that it acquired the property without reason to
know that hazardous substances were disposed of on it.

 

            Although CERCLA § 107(b) provides a
defense if releases are caused by acts of God, war, or third parties, no party
has been released by EPA from a CERCLA suit on these grounds.[15]

 

§ 26.9 – Allocations of Liability

 

The
most divisive problem among PRPs is the method of allocating monetary shares
for settlement. Section 113(f)(1) of CERCLA provides for allocation based on
equitable factors: “In resolving contribution claims, the court may
allocate response costs among liable parties using such equitable factors as
the court determines are appropriate.”[16]

 

Several
cases have set out these equitable factors to be considered in allocations.
These factors are based on criteria proposed for CERCLA by Senator Gore in
1980, even though the criteria were not adopted in the original Superfund bill.[17] The Fifth Circuit stated
in Amoco Oil Co. v. Borden, Inc.[18] that the relevant factors
include:

 

The
amount of hazardous substances involved; the degree of toxicity or hazard of the
materials involved; the degree of involvement by parties in the generation .
transportation, treatment, storage or disposal of the substances; the degree of
care exercised by the parties with respect to the substances involved; and the
degree of cooperation of the parties with government officials to prevent any
harm to public health or the environment.[19]

 

Courts
have also considered other factors with regard to landowner liability, such as
the circumstances surrounding the conveyance of property, the price paid, and
any discounts granted. Because allocations vary on case-by-case basis for
similarly situated parties, past precedence gives little guidance as to the
proper method of allocating liability among PRPsin order to aid in establishing
settlement shares.[20]

 

Settlement
allocations are most often based on waste-in lists consisting solely of
volumes, Volume allocations are the easiest of the allocation formulas.
Toxicity of waste streams is considered at sites at which toxicity of the waste
varies and significantly affects the proposed remedy. Toxicity does inject a
degree of subjectivity to the list that makes this type of allocation difficult
to calculate.

 

Independent
experts can be of great assistance in determining PRP waste contributions and
cleanup cost allocations. Technical experts may characterize waste types and
quantify the volumes associated with each PRP based upon available records.
CPAs may also assist by determining the costs to implement remediation and by
allocating the costs among the PRPs based upon a comprehensive cost allocation
model. These calculations may assist the PRPs and the government in reaching a
settlement acceptable to the largest number of parties.

 

§ 26.10 – Settlements by Use of
Notice Letters

 

In
the 1986 SARA amendments, Congress gave EPA several settlement tools to
encourage PRP participation in the remedy at a Superfund site. Section 122 of
CERCLA provides opportunities for PRPS to organize and to take over the
performance of the cleanup. The EPA may, at its option, initially notify PEPs
that it is considering action by sending a general
notice letter stating that a remedy is being proposed. It provides PRPs
with time to organize and develop an offer to conduct or finance the selected
response or comment on the appropriateness of that response.

 

Following
the general notice letter, EPA may issue a special
notice letter, which allows selected PRPs a period of time in which to
negotiate with EPA to perform the response action. This special notice letter
must provide each PRP with the names and addresses of all known PRPs, the
volume and nature of substances contributed by each PRP ,if available, and a
ranking by volume of substances found at the facility, if known. CERCLA §
122(e)(l) also provides that the agency must make this information available in
advance of the special notice letter upon a PRP’s request. With that
information, PRPs may consider the viability of privately funding an RI/FS,
determine the likelihood of de minimis cash settlements, and develop an overall
settlement strategy.

 

After
the issuance of a special notice letter, EPA may not undertake cleanup or
remedial actions at the site for 120 days nor initiate an RI/FS for 90 days.
EPA may, however, conduct other studies, including remedial designs, in this
moratorium period. If the PRPs have not submitted a good faith proposal to the
EPA within 60 days of receipt of the special notice letter, the moratorium
period ends and EPA may commence response actions or initiate an RI/FS.

 

If
§122 settlement procedures are used, the EPA must also notify state and natural
resource trustees of any pending settlement negotiations. States have the
opportunity to participate in those negotiations, subject to the right to
intervene in § 106 actions to secure compliance with any more restrictive state
cleanup standards.

 

PRPs
agreeing to perform the remedial action then enter into a consent decree with
the government pursuant to § 122(d)(1)(A).The decree is open for public
comment, as discussed in § 26.13.If EPA determines not to use the § 112
settlement process, the only statutorily mandated PRP notice is provided in
§113(k)(2)(D),which states that PRPs will be identified and notified “as
early as possible” before EPA’s selection of response action.

 

§ 26.11 – EPA De Minims Settlements

 

The
EPA is encouraged by CERCLA § 122(g) to enter into prompt settlements with de
minimis waste contributors. On June 19,1987 ,EPA issued its Interim Guidance on Settlements with De
Minimis Waste Contributors under Section 122(a) of SARA.[21] at 54 Fed. Reg.34235.
This EPA policy encourages de minimis parties to present group settlement
offers. To be eligible for a de minimis waste contributor settlement with EPA,
a party must have contributed no more than a minimal amount of hazardous substances
to a facility, and the substances contributed must not be significantly more
toxic than other hazardous substances found at the site. These settlements
allocate to PRPs their percentage share of liability and normally add a premium
payment, to cover cost overruns and future response costs, in exchange for a
covenant not to sue.

 

Prior
to determining whether it will entertain de minimis settlements, the EPA
obtains an estimate of the cost of cleaning up the contamination. As a general
rule, EPA will not consider de minimis settlements until the completion of a
PRP search or until the EPA believes that it has adequate information about
each settling party’s waste contributions.

 

The
first de minimis settlement proposal drafted by EPA under § 122(g) involved the
Cannons Engineering site in Bridgewater, Massachusetts, The EPA stated that
parties are eligible for early settlement if their “volumetric
contribution… does not exceed 1% of the total waste volume listed for that
site”[22]
A settlement premium of 60 percent was added to the volumetric share to
reimburse cost overruns incurred following settlement. De mimimis settlors paid
100 percent of their volumetric share, plus 60 percent of their volumetric
share for unexpected costs, plus an additional 100 percent premium, for a total
260 percent share. Subsequent de minimis settlement proposals at other sites
have ranged across the spectrum and vary from site to site.

 

§ 26.12 – Landowner’s Settlement

 

The
landowner faces unique settlement issues in determining whether it can assert
the innocent landowner defense. That defense must meet several threshold tests
to establish that the landowner is, in fact, innocent. Under CERCLA §§ 101(35)
and 107(b)(3), the landowner must have acquired the property by bequest or without
knowledge or reason to know of the disposal of hazardous substances.

 

Technically,
the party who has satisfied the statutory burden is innocent and is not liable
for any costs.[23]
To be innocent, however, the landowner must provide some showing of the exercise
of due care at the time it acquired the property. Information is seldom
available regarding the condition of the property at the time of purchase.
Additionally, the party claiming innocent landowner status should provide
documentation and evidence of representations made by the seller at the time of
sale. Because the evidence to support the defense is rarely available, the
landowner often participates in settlement.

 

In
1989, EPA issued its De minimis
Landowner’s Settlement Policy.[24] The policy focuses on the
amount of evidence a party needs to produce to establish its innocent landowner
defense. The policy requires that, to be innocent, a purchaser must obtain
property without “actual or constructive knowledge” of its use for
disposal of hazardous substances. If the property is acquired by inheritance or
bequest, the policy also imposes a standard that the landowner must have
conducted “all appropriate inquiry,” although the statute does not
expressly impose this requirement.[25]

 

§ 26.13 – Negotiating Consent
Decrees with EPA

 

There
are the two types of consent agreements that PRPs may negotiate with EPA. The
first is a cash out settlement, which
involves an agreement to pay all or a portion of the costs of the response
action the government has determined to be appropriate for the facility. This
type of agreement does not require court approval, although it is often
obtained.[26]

 

The
second type of consent agreement provides for performance of the remedial work
by the PRPs. These agreements typically are more difficult to negotiate.
Because future performance by PRPs is mandated, additional provisions are
required to address dispute resolution during performance, changed conditions
at the site, and failure to perform in accordance with deadlines because of
force majeure events. Additionally, these agreements contain stipulated
penalties for failure of the settling parties to comply with the terms of the
agreement.[27]

 

Negotiated
settlements between PRPs and the EPA for performance of the work and settlement
of claims are incorporated into either a consent
order or a consent decree, A consent order is an administrative order
issued by EPA and agreed to by the PRPs. These orders normally involve the
PRP’s payment of costs incurred by EPA under CERCLA § 107 and performance of
work by PRPs. The orders must be published in the Federal Register for comment
at least 30 days before they become final. The EPA then reviews comments prior
to the final acceptance of the order. Nonsettlors may mount a challenge to the
EPA’s selected remedy set out in the order by filing suit in the federal court
pursuant to § 113 of CERCLA. Any challenges to the other terms of the
administrative settlement must be brought under the citizens’ suit provisions
of CERCLA § 310.

 

Consent decrees normally are sought if PRPs and
EPA agree either to settle § 106 orders for response actions or to perform
major response actions that will lead to private party cost recovery actions.
Pursuant to § 122(d) of CERCLA, the decrees are entered in United States
District Court in which the site is located. Prior to entry, the Department of
justice must review whether the decree is appropriate, proper, and adequate.
There is no explicit judicial review mechanism for that determination set out
in CERCLA. The final consent decree is then lodged with the court for 30 days
prior to final judgment, for public comment.

 

The
Parties choosing to settle with EPA must focus on negotiating the terms of the
consent decree in a form proposed initially by EPA. The high rate of EPA
employee turnover provides an interesting aspect to negotiating the terms of
these decrees. The EPA teams may lack negotiation experience, and some PRPs may
attempt to use this lack of experience to their clients’ advantage. The EPA
team, however, may also resist innovative proposals for settlement in order to
avoid potential criticism from the EPA hierarchy.

 

The
1986 SARA amendments required that consent decrees contain several provisions.
EPA drafted a Model Administrative Order on Consent for CERCLA Remedial
Investigation/Feasibility Study, which was made public on January 30, 1990,
incorporating these and other general provisions. The model order has been
roundly criticized by the defense bar as being a “wish list”
containing all items EPA would like to have in an order, not items reasonably
agreeable to PRPs in a final order. These provisions and other typical
provisions that may arise are discussed below.

 

§ 26.14 – Covenants Not to Sue

 

Whether
settling past costs or agreeing to future performance, the settling parties
should always insist on a covenant not to sue from the EPA pursuant to CERCLA §
122(c) and (f). The covenant should state that the EPA will not sue settling
parties for expenses incurred by the government to date and for those incurred
for future activities performed by EPA which may result in statutory liability
to the settling parties, As to costs incurred by EPA to the date of the decree,
the covenant is effective as of the date and decree is entered. The covenant
not to sue for future costs is not effective until EPA “certifies”
that remediation has been” completed.”

 

Generally,
the scope of the covenant not to sue depends on the nature of the remedy.
Typically there will be a more complete release if a more permanent remedy will
be instituted. Setting parties should focus on foreclosing all governmental
liability by including all relevant federal and state government agencies
including natural resource trustees (such as the U.S. Department of the
Interior and similar state agencies).

 

EPA’s
Interim Guidance on Covenants Not to Sue[28] and § 122(f) of CERCLA
contemplate two types of covenants not to sue. Discretionary covenants provide for a reopener and reserve the
right of the EPA to sue for unknown future conditions after it certifies
completion of the remedial action. The EPA provides a discretionary covenant if
it determines that the covenant is in the public interest, that it would
expedite response actions consistent with the National Contingency Plan, that
the settling party is in full compliance with the terms the consent decree, and
that a response action has been approved by EPA.

 

Special covenants typically contain no reopener and
will be granted in either of two events. First, EPA will grant a special
covenant if it has required PRPs to dispose of hazardous substances off—site
despite an offer from PRPs for on—site treatment consistent with the National
Contingency Plan. Second, EPA will grant this covenant if the response action
will destroy, eliminate, or permanently immobilize waste at the site so that no
current or foreseeable future health or environmental risks exist. Special
covenants are also appropriate for de minimis settlements or for
“extraordinary circumstances” to be determined by the EPA.

 

In
EPA’s Interim CERCLA Settlement Policy
and in its guidance entitled Drafting
Consent Decrees in Hazardous Waste Imminent Hazard Cases (May 1, 1985), it
indicated that covenants will be limited to remedial work actually performed.
This interpretation would provide very limited protection to PRPs, if agreed
to, and will not extend the covenant to liabilities associated with off—site
disposal of waste. In its Interim
Guidance on Covenants Not to Sue, EPA stated that it will seek to include a
reopener to cover situations in which new information reveals that the earlier
remedy no longer protects human health or the environment.EPA agreed, however,
that it must demonstrate that the additional remedial action required results
from conditions not known at the time the decree was entered.

 

§ 26.15 – Contribution Protection

 

If
fewer than all PRPs settle, those settlors are exposed to possible action by
later sued parties for contribution. Contribution claims are based on the
theory that the initial settling parties must ultimately pay their appropriate
percentage of any costs for which the nonsettling parties may be held liable.
Settling parties would point to CERCLA § 122(h) (4), which states that any
party resolving its liability to the United States is not liable for claims of
contribution “regarding matters addressed in the settlement.” This section
potentially provides broad protection for settlers from actions brought by the
nonsettling parties. The section also benefits nonsettlors because it provides
for a reduction in potential liability of nonsettlors if an administrative or
judicially approved settlement is entered.

 

Pursuant
to § 122, contribution protection extends only to matters addressed in the
settlement. There has been controversy as to whether or not the contribution
protection provisions extend to causes of action from private parties incurring
response costs. In EPA’s Guidance on Covenants Not to Sue, the EPA suggests
that contribution protection for settlers should correspond to the items
covered in EPA’s covenant not to sue (that is, EPA’s expenses).

 

To
qualify for contribution protection, the consent decree must be “judicially
approved.”[29]
The court approval may be as little as a review of the decree and supporting affidavits
to as much as a full evidentiary hearing.[30]

 

 

§ 26.16 – Remedy Selection

 

The
consent decree formalizes the remedy selected by the ROD if settling parties
will be performing work. CERCLA § 117(c) requires that the EPA explain any
significant difference between the ROD and the work to be performed as set out
in the consent decree.

 

The
selected remedy is often referred to as the remedial action plan (RAP). In
negotiating compliance with the RAP, consideration should be given to the possibility
that the actual conditions at the site may differ from that set out in the RAP.
Parties should provide in the agreement with the EPA for independent
negotiation of change to the RAP required by these changed conditions. That
negotiation provision should provide for input from technical experts in order
to maximize the likelihood that technical solutions will be reasonable and cost
effective.

 

Under
§ 121(d) of CERCLA, the remedial action must comply with applicable, relevant,
and appropriate requirements (ARARs) of federal law and more stringent state
law. The EPA has issued its interpretation of the meaning of ARARs in its
Interim Guidance on Compliance with Applicable State and Federal CERCLA
Requirements for Remedial Actions,[31] and in its Memorandum on
CERCLA Compliance With Other Environmental Statutes.[32] It is EPA’s position that
applicable requirements are cleanup, control, and other environmental
protection requirements promulgated under federal or state law that
specifically address a similar hazardous substance problem for which those
standards are legally required. Relevant and appropriate requirements are
criteria which may not be legally applicable to the specific circumstances at
the site but which address similar problems at other sites. ARARs may be set
for levels of chemicals (such as those set by the Safe Drinking Water Act) or
levels of action or cleanup (such as those set by RCRA closure regulations).
Additionally, local requirements such as siting laws for hazardous waste
facilities may be applicable. Federal or state guidance documents are not
ARARs, but they may be considered for cleanup levels, particularly if no
specific ARARs exist.

 

During
the consent decree negotiation, the EPA may actively seek comments on its
proposed ARARs. The parties should be prepared to propose and negotiate the
ARARs, because the EPA recognizes that they are set on a site—by—site basis.
Also, negotiations should address whether ARARs must be met at all points
inside the site or only at the boundaries of the site. Significant savings can
result if the ARARs standards need only apply to the area in which waste was
disposed.[33]

 

CERCLA
§ 121(d) provides some flexibility in the designation of ARARs and allows PRPs
to propose alternative concentration limits (ACLs). ACLs are a way to obtain an
extra degree of cost effectiveness by setting more relaxed cleanup standards.
ACLs have been most effectively used in groundwater cleanups.

 

EPA
typically seeks to require compliance with ARARs at the earliest practical time.
It may also that ARARs’ compliance be met for a significant period before
allowing the shutdown of other remediation at the site. The costs of continued
operations can be expensive. A reasonable time frame for ARAR compliance should
be negotiated, because CERCLA does not specifically speak to this issue.

 

The
EPA also may attempt to establish cleanup targets or goals instead of using
statutorily required standards. EPA’s cleanup goals often focus on improving
the quality of the site, rather than removing the contamination. PRPs should
resist this, because the remedy should only be what is needed to eliminate the
spread of contamination onto adjoining sites.

 

EPA
provides certifications when construction is completed and before commencement
of maintenance activities. This certification period allows EPA to determine
that the remedy is achieving the requirements set forth in the RD and ROD. EPA
typically does not alter the ROD or impose additional cleanup requirements in
the period following completion of the remedy unless a previously unknown
condition has been discovered. The settling parties should be careful, however,
to ensure that the certification decision does not allow the EPA to have an
increased time to require additional work without having to use any negotiated
reopener provision. EPA has indicated in the past that it would include a
limitation on certification decisions. upon request.

 

Other
suggestions for dealing with remedy selection and completion in consent decrees
include the following.

 

1.   State a preference for effective cleanups,
not a requirement to complete remediation by a set date.

2.   Avoid over—committing to the extent of making
the required cleanup if it exceeds the levels set out in an ARAR.

3.   As much as possible, avoid an unlimited time
period for operation of a specific treatment component.

4.   Specify that the PRP’s cleanup, if conducted
in compliance with the EPA’s design, be cost
effective. The language in the decree can be helpful in any later private
cost recovery action in which the PRP must prove its costs were reasonable and
cost effective. Cost effective means that the remedy implemented should be
efficient and achieve the appropriate level of health and environmental
protection.[34]

5.   Keep in mind that, although a complete
release of liability may be obtained for the total destruction of hazardous
substances, this may necessitate a more extensive cleanup. The legal benefits
of a complete release should be balanced against the cost of achieving that
result.

 

§ 26.17 – Incurred and Future EPA
Costs

 

Pursuant
to CERCLA § 107(a), EPA is authorized to recover, among other things,
previously incurred response costs and future oversight costs. Significant
savings can result from using technical consultants to analyze EPA’s claim of
past and future costs.

 

The
EPA has taken the position that personnel and program overhead costs necessary
to support the Superfund operations are recoverable, These expenses include Superfund’s
share of rent, utilities, telephones, administrative support, program
management, and fringe benefits.[35] In connection with PRP
performance of the RI/FS, § 104(a) (1) of CERCLA, however, only requires that
settlers reimburse the Superfund for “any costs incurred … under, or in
connection with, the oversight contract or arrangement (for the cleanup).” As
to cleanups conducted by the government, § 107(a)(4)(A), (B), and (D) only
provide recovery of removal, response, or remedial costs and health assessment
costs. PRPs often argue that the statutory language does not contemplate
recovery of indirect costs.

 

The
settling parties should attempt to limit future EPA costs to a fixed dollar
amount, to require strict accounting of these costs, to retain the right to
challenge the appropriateness of the costs, and to limit recovery of state
oversight costs above and beyond the federal oversight costs.

 

Technical
experts should review the EPA’s government cost accounting and procurement
methods. The cost claim should not include costs that have been excessive,
duplicative, unnecessary, or inadequately documented.[36] Additionally, settling
parties should evaluate whether government expenditures resulting from technical
foul—ups have increased the overall cost of government activities. PRPs at
several sites have avoided paying some indirect costs, such as duplicative EPA
office rent already recovered at other sites, excessive technical services, and
undocumented contractor charges, which were initially included in EPA’s cost
claim. EPA’s lack of accounting for payment of outside contractor costs is also
a fertile ground for reduction. Sometimes these costs are attributable to
contract at other sites that are not properly chargeable to the site in
question.

 

Expert
assistance is essential to analyze the costs incurred by the EPA, Department of
Justice, contractors, and other claimants. Furthermore, the government may
delay filing claims until millions of dollars have been expended at a
particular facility, and it is wise to retain an expert to monitor and control
costs as soon as significant expenses are incurred by the government. In
addition, experts should be retained to analyze the cost allocation
methodologies used by the government, which may yield unfair costs charged to
PRPs.

 

Numerous
procedures can be undertaken by CPAS and other experts to analyze incurred
costs and cost allocations. Settlors should consider retaining experts to
perform tasks such as the following:

 

1.   Compute the cost of government response
actions determined to be inconsistent with the National Contingency Plan

2.   Identify and challenge unnecessary,
duplicative, excessive, or improperly performed work

3.   Challenge indirect costs allocated
inappropriately to the facility by EPA and other federal government agencies

4.   Review the adequacy of incurred cost
documentation

5.   Identify and challenge excess costs resulting
from multiple layers of contractors and subcontractors

6.   Determine appropriate contractor costs and
indirect cost rates

7.   Analyze the propriety of contractor
allocations to sites

8.   Compare contractor costs to market rates

9.   Evaluate compliance with government
contracting requirements

10. Compare actual incurred costs to budgeted costs

11. Determine the costs applicable to individual
PRPS.

 

§ 26.18 – Dispute Resolution
Provisions

 

CERCLA
§ 121(e) requires that consent decrees contain some dispute resolution mechanism.
These clauses are important because modifications to the RD and RA arise
frequently during cleanup and should be expeditiously resolved.

 

The
burden of proof established by these is significant. In the 1985 consent decree
guidance memorandum, the EPA took the position that the invocation of dispute
resolution should not stay the obligation of setting parties to perform work
required under the order. Additionally, the guidance placed the burden of proof
in dispute resolution on settling parties to demonstrate that their position is
correct and that their position is correct and that EPA’s position is arbitrary
and capricious.

 

PRPs
should consider the scope of the review and argue that limited review using the
arbitrary and capricious standard should not apply. At a minimum, parties
should exempt those issued that are not related to the adequacy of the remedy,
such as oversight cost and capricious standard. To the extent the review of the
EPA’s administrative record, the parties should preserve that right to
supplement the record with other materials.

 

§ 26.19 – Stipulated Penalties

 

Section
121(c) of CERCLA requires that stipulated penalties be included in consent
decrees. These penalties may be provided in lieu of possible civil,
administrative, and judicial penalties that may be assessed pursuant to § 109
of CERCLA. Stipulated penalty amounts are usually in the $1,00 to $5,000 range
and seldomly reach the § 109 penalty maximum of $25,000 daily for the initial
violation and $75,000 for second and subsequent violations. Although actual
penalties vary significantly from site to site, one clear principal, set out in
EPA’s January 24, 1990 Memorandum on the
Use of Stipulated Penalties in Settlement Agreements,[37] is that penalties will be
set higher after the initial penalty, because the party is a “repeat offender.”

 

These
penalties are especially significant if impose during any period of dispute
resolution. If EPA refuses to stay obligations to perform the disputed activity
under the order, penalties could be assessed in the absence of stay. However,
EPA is often unwilling to forego stipulated penalties unless there are
legitimate disputes related to modifications of the work. EPA’s concern that
dispute resolution may be invoked frivolously has often lead to EPA’s waiving
penalties only if the PRPs prevail in dispute resolutions. This risk of PRPs’
losing dispute resolution and facing significant penalties, however, may deter
the settling parties from presenting valid disputes.

 

Settling
parties often request provisions allowing a chance to “cure” a failure to
perform prior to the imposition of stipulated penalties. This type of provision
can help parties avoid costly fines if they fail to meet one deadline and that
failure pushes back other deadlines, triggering cascading penalties. Also,
language in EPA’s model consent order provides that if EPA extends one
deadline, that extension does not also extend later deadlines. Stipulated
penalties should not accrue for missing the later deadlines if the delay is directly
related to a previously extended deadline. Parties should also not be
responsible for penalties for insubstantial requirements, such as reporting and
record keeping obligations, and for delays caused by EPA’s actions in reviewing
and evaluating material.

 

In
1987, EPA retained Clean Sites, Ind. (see Chapter 24) to conduct an analysis of
stipulated penalties with input from various groups in the environmental bar.
On May 4, 1988, Clean Sites issued its Agreements
in Principle on Stipulated Penalties, which should be consulted in crafting
a stipulated penalty provision. This report developed a consensus on 11
principles that should guide parties in developing stipulated penalty
provisions. These principles include a forgiveness of penalties during certain
force majeure events.

 

The
analysis of stipulated penalties is another area in which CPAs and other
financial experts may provide useful assistance to PRPs. CPAs may provide
documentation and expert support to challenge the appropriateness of EPA’s determination
of penalties. CPAs can analyze the appropriateness of the underlying
assumptions in EPA’s penalty determination models. They can calculate the
economic benefits that may be derived due to the failure of the PRP to comply
and test the sensitivity of the economic benefit to changes in assumptions used
in the penalty determination model. CAPs can also analyze the impact of
additional factors on penalty calculations, including the significance of
violations, the extent of health and environmental harm, the number of
violations, the duration of noncompliance, the history of recalcitrance, and
the PRP’s ability to pay.

 

§ 26.20 – Mixed Funding

 

Settling
parties often attempt to obtain a mixed funding
agreement with EPA CERCLE § 122 (b) allows Superfund moneys to be used in
connection with private response dollars, provided the EPA “pre—authorizes” the
use of fund money. Typically, the preauthorization is triggered by the PRPs’
filing of a formal request for mixed funding.

 

Reimbursement
from the Superfund is limited to amounts that should have been the
responsibility of any unidentified or nonsettling parties. This includes
“orphan shares” for parties who are “unknown, insolvent, similarly unavailable
or (who) refuse to settle.”[38] EPA typically attempts to
obtain reimbursement of Superfund expenditures from these nonparticipating
parties by way of a § 107 cost recovery action. EPA may require settlors to
waive or assign their claims against those nonsettlors in exchange for the
mixed funding. Alternatively, EPA has, at some sites, agreed to assert a claim
against nonsettlors and for a fixed period of time attempt settlements with
those nonparticipating parties. Failing settlement or judgment, EPA then may
obtain reimbursement of the mixed funding portion from the initial settlors.[39]

 

EPA
may agree to provide mixed funding for additional remediation or actions
required due to changed conditions, in proportion to the amount provided by the
original mixed funding agreement, under § 122(b) (4).

 

United States v. General Motors
Corp.[40] was one of the first
mixed funding agreements reached under CERCLA. That agreement required General
Motors to conduct a cleanup estimated to cost over $9 million. General Motors
obtained one—third of its costs from the Superfund. EPA has typically refused
to consider mixed funding proposals in which the government component exceeds
the percentage agreed to in the GM cleanup.

 

§ 26.21 – Miscellaneous Provisions

 

A
number of other issues typically arise based on the particular facts of each
settlement. These miscellaneous include the following.

 

Disclaimer of Liability. The Parties should include a
disclaimer of liability. This disclaimer should state explicitly that
participation in the consent agreement is not admission of liability for any
purpose. CERCLA §122 (d) (1) contemplates that no admissions of liability need
to be obtained by EPA. The disclaimer is especially important in settlement of
claims which will be later asserted against non—settling parties.

 

Site Access. If the PRPs do not own the site,
EPA will require that the parties use their “best efforts” to obtain access to
the site. The decree should specify that, if these efforts fail, EPA will
secure site access under statutory authority at CERCLA § 104(e) (j).

 

Financial Security. Consent decrees often include
requirements to provide financial security, such as bonds, If a participating
company is in a strong financial position, the parties may be able to avoid the
cost of these security mechanisms by providing financial information. CPAs may
assist PRPs by performing audits or other procedures that help document the
financial position of the company.

 

EPA Indemnity. EPA may seek to require that
settlors indemnify EPA against liability related to remedial work, without
regard to fault. The government, however, is unwilling to provide a similar
indemnification for its actions. The indemnification obligation should relate
only to liability that arises from the acts of the settlors and their
contractors. Additionally, it should be worded to encompass claims for which
the parties may obtain insurance.

 

Parties Bound. EPA’s Standard form consent order
includes language that birds “officers, directors and principals” of settling
companies. This language should be avoided because the corporate fiduciary
duties of officers and directors do not include being personally liable under a
consent order with EPA.

 

Findings of Fact. The EPA’s draft order also
includes a section on findings of facts. In order not to be bound in subsequent
proceedings, parties should suggest that the findings be denominated as EPA’s
findings, without an admission by the settling party.

 

 

§ 26.22 –Benefits to Settling
Parties

 

EPA
always has the option of cleaning up a Superfund site without involving PRPs.
Most experienced parties know that it is best to become involved in site
assessment and participate in the RI/FS early in the process in order to
influence the selection of the remedy, thereby reducing future liability and
costs.

 

It
is also in EPA’s best interests to maximize the use of the private sector’s
technical resources and financial contributions through settlement. From a
technical standpoint, the private sector typically has greater technical expertise
than EPA and can provide valuable input.[41] The private sector also
has more incentive to design an effective remedy in order to minimize future
liability. If the EPA elects to perform the cleanup itself, past experience
shows that the cleanup will be more costly than if the PRPs perform the work
Estimates indicated that the EPA’s costs are 30 to 40 percent higher than
equivalent private cleanups.[42]

 

Retaining
CAPs and other financial experts to perform economic analyses of remedial
alternatives may both increase the likelihood of settlement and reduce the
settlement amount. Technical experts can review the appropriateness of cleanup
criteria. For example, experts can determine whether appropriate concentration
limits have been set. Experts can analyze underlying assumptions for
reasonableness and consistency among alternative remedies. CPAs can verify the
accuracy of calculations and test the sensitivity of a proposed remedy’s cost
estimates to changes in key assumptions. CPAs may also compare site cost estimates
to a variety of standards, including industry standard costs, quotes obtained
independently from contractors, costs estimated for similar remedial solutions
at other sites, and actual costs incurred for remedial solutions at other
sites.

 

 

§ 26.23 – Failure Of Settlement

 

If
settlements fail, it is often EPA’s practice to sue some, not all, of the PRPs.[43] Target defendants
typically are large generators and financially solvent companies. These
companies therefore have additional incentive to settle.

 

The
sued parties have limited success in arguing that the action should be
dismissed due to the government’s failure to join indispensable parties.[44] Typically, third parties
are brought in by the initial defendants pursuant to Rule 14 of the Federal
Rules of Civil Procedure, which provides the basis for defendants to add third
parties in a contribution action.

 

Adding
additional PRPs may facilitate settlement in some cases and lead to confusion
and administrative problems in others. Typically, PRPs only add other “deep
pockets” because the cost of assembling PRPs without financial resources
increases the transaction costs and may delay final settlement. Also, parties
should consider whether addition of other parties will affect their position
regarding joint and several liability. If this liability is imposed, a
Superfund defendant may be required to pay more than its proportional share.
Addition of parties is also warranted if PRPs may wrongfully conclude that they
are not potentially responsible because they are not named in the lawsuit.

 

Superfund
cases are among the most complex, costly, and time—consuming of all
litigations. Therefore, the use of case management orders and bifurcation of
issues has assisted in the prompt resolution of these cases. Discovery is often
staged so that the initial discovery issues address the links between
generators and hazardous substances found at sites. Counsel for the private
litigant should rely upon partial motions for summary judgment to attempt to
resolve as many liability issues as possible within the scope of this stage of
discovery. Even if these motions are not granted, they provide an opportunity
for the government or the private litigant to make its best case.

 

Settlements
are frequently not obtained in appropriate cases due to the inexperience of
counsel and corporations in this complex area. Parties often miss crucial
opportunities to resolve issues short of trial. Because Superfund liability is
increasingly costly, parties should commit to promptly assessing exposure and
defining their desired course of defense.

 

By
utilizing the technical and legal resources available, PRPs may avoid long—term
financial drain by settling liability at reasonable dollar amounts at early
stages in the proceedings.