Environmental Contribution Claims: You Snooze, You Lose

ASARCO, LLC v. Celanese Chemical Corp., 792 F.3d 1203 (9th Cir. 2015) –

ASARCO, as a successor to the owner of a Superfund site, sued CNA as the successor to a lessee that operated a sulfur dioxide plant on the site, seeking a contribution for environmental cleanup costs. The district court granted CNA’s motion for summary judgment on the basis that the statute of limitations had run, and ASARCO appealed to the 9th Circuit.

ASARCO’s predecessor operated a silver and lead smelter, depositing byproducts on the property and on the adjacent tideland that was leased from a state agency. After the smelter closed, a portion of the property that included a sulfur dioxide plant was leased to Virginia Chemicals (a predecessor of CNA). Operation of the sulfur plant over the years led to contamination of the soil with sulfuric acid. In 1976 a state agency issued a cleanup and abatement order that was subsequently amended and then conditionally rescinded.

After the sulfuric dioxide plant shut down, Wickland Oil Company (Wickland) bought the property and leased the adjacent tideland to use as a marine fuel terminal. Wickland learned from the state that the property was contaminated. The property was placed on the state Superfund list, and Wickland incurred environmental response costs.

In 1983 Wickland sued both ASARCO and the state agency that leased the tideland to establish liability for the response costs. Initially the district court rejected the claims on the basis that they were not ripe, but the 9th Circuit reversed and remanded so that Wickland was allowed to pursue its claims.

In 1989 Wickland, ASARCO and the state agency landlord entered into an “Agreement for Entry of Consent Judgment” to “settle and compromise the [district court lawsuit], and to establish a procedure for allocating past and future costs attributable to the events and conditions underlying the [district court lawsuit].” The district court entered a judgment based on the agreement in March 1989.

Although the parties were aware that Virginia Chemicals (CNA’s predecessor) was cited as contributing to the contamination and it was referred to in the Wickland lawsuit, it was never brought into the litigation as a party and was not a party to the consent agreement.

Sixteen years later ASARCO filed a Chapter 11 bankruptcy. Wickland’s successor, the state agency landlord, and a state regulatory agency asserted claims in the bankruptcy for ASARCO’s share of past and future environmental costs. The claims indicated that the remediation was not complete and sought to recover costs to complete the remedy. In March 2008 ASARCO obtained bankruptcy court approval of a settlement of the response cost claims.

Just under three years later in April 2011 ASARCO filed a new lawsuit against CNA seeking contribution under CERCLA. Contribution rights of one potentially responsible party (PRP) against another under Section 113(f) of CERCLA arise only if (1) it is already involved in a lawsuit under Section 106 (federally required abatement action response costs) or (2) claims are made under Section 107(a) (government or private party cleanup cost recovery).

Under the first alternative, a three-year statute of limitations is triggered when the lawsuit is settled or a judgment is entered. Under the second alternative, the limitations period begins to run when a person has “resolved its liability to the United States or a State for some or all of the response action or for some or all of the costs of such action in an administrative or judicially approved settlement.” The district court granted summary judgment to CNA on the basis that the claims were barred by the statute of limitations relating to the second alternative involving judicially approved settlements.

Specifically, the district court found that Section 113(g)(3)(B), which provides the statute of limitations for contribution claims following a “judicially approved settlement,” applied to any settlement, whether it was between private parties or between a private party and a governmental entity. Thus the statute of limitations began to run in 1989 when the original 1989 consent judgment was entered. The 2008 bankruptcy settlement addressed the same costs, and so a new contribution claim did not accrue and the statute of limitations was not restarted.

The 9th Circuit framed the appeal as a question of statutory interpretation: can a private party settlement agreement create a claim for contribution under CERCLA that is excepted from the three-year statute of limitations?

ASARCO acknowledged that it could have brought a contribution claim against CNA/Virginia Chemicals after judicial approval of the 1989 agreement. So the question was whether a contribution claim that accrued under Section 113 could be excepted from the three-year statute of limitations. And if not, if a claim is subject to the statute of limitations and the time has expired, whether the claim can be revived by subsequent events.

To make a long story short, the 9th Circuit agreed with the district court and held that judicial approval of a private party settlement agreement starts the three-year clock running. A later bankruptcy approved settlement that fixes the costs of the original agreement (as opposed to settling different issues) will not revive the contribution claim.

ASARCO argued that the contribution right involving a judicially approved settlement required a settlement with the government, as opposed to a private party settlement. However, the court concluded that Congress did not intend to allow a contribution claim absent one of the two conditions identified in Section 113(f). And if a private party contribution claim was allowed but was not subject to the three-year statute of limitations, that would create a contribution right that would never expire.

The court based its decision on rules of statutory construction that focused on enforcing the plain language of the statute – although it noted the qualification that the plain language should be interpreted in light of the statute’s context, so that the court would examine a statute as a whole, including its object and policy; and the court did not rule out looking at legislative history.

Turning to the facts of this case, the 9th Circuit examined the scope of the 1989 agreement and the effect of the 2008 bankruptcy settlement. The court viewed the 1989 settlement agreement as a matter of contract interpretation, and under state law the intention of the parties was key. In this case it was clear that the parties intended to set up a procedure to allocate both past and future costs attributable to the industrial operations and resulting pollution that occurred at the property.

Since the remedial action plan included work in the Virginia Chemicals leased area, the cleanup work giving rise to ASARCO’s contribution claim against CNA/Virginia Chemicals was clearly included in the original 1989 agreement. Although not all of the costs were known at the time, the 1989 agreement was intended to be comprehensive.

The 2008 bankruptcy settlement only resolved the costs arising from cleanup efforts according to the terms of the 1989 agreement. It did not go beyond the original ASARCO responsibilities and did not relate to a new cost that could give rise to a new claim for contribution. The court also rejected Asarco’s contention that there is a contribution claim only after costs are fixed.

The court determined that the 2008 bankruptcy settlement did not create a new contribution claim, nor could it revive expired claims. In the court’s view, if a right to contribution that had expired was permitted after subsequently fixing costs with the government, then fixing costs through a bankruptcy settlement with the government would allow ASARCO to receive a benefit that it had not paid for and would allow it to circumvent the statute of limitations.

Accordingly the 9th Circuit found that Asarco’s contribution claim was barred by the statute of limitations.

Once again the “plain language” reading of a statute is not necessarily so plain to everyone. The court implicitly acknowledged the difficulties in interpreting CERCLA when it included statements such as the following: CERCLA is a “complex statute with a ‘maze-like structure’ and ‘baffling language.'” “Clearly, neither a logician nor a grammarian will find comfort in the world of CERCLA. It is not our task, however, to clean up the baffling language Congress gave us…”

Vicki R Harding, Esq.

About BankruptcyRealEstateInsights

Vicki R. Harding was a partner in the Detroit office of Pepper Hamilton LLP who moved to Arizona seeking warmer weather. Ms. Harding continues to handle commercial transactions with an emphasis on real estate and bankruptcy issues (but no longer owns a snow shovel).
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