Reducing Environmental Risk

The Second Circuit Follows the Supreme Court’s Holdings in Atlantic Research and Cooper Industries.

In a recent Second Circuit decision, W.R. Grace & Co. v. Zotos International, No.: 05-cv-2798 (March 4, 2009), the Court followed two recent Supreme Court decisions on the oft-contested issue of when and under what sections of the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) (the “Superfund” statute) a potentially responsible party (“PRP”) can recoverits response costs.

W.R. Grace, a PRP, incurred response costs cleaning up its property that was a former disposal site for a chemical manufacturing company. W.R. Grace entered into its first administrative consent order with the New York State Department of Environmental Conservation (“DEC”) in 1984. Then, in 1988, those parties entered into a second consent order. W.R. Grace remediated the site in 1993 and has maintained it since then. W.R. Grace incurred $1.7 million on remedial activities at the site through April 2004. Grace commenced this action in 1998 under CERCLA § 113(f) to seek contribution from Zotos, which arranged for the disposal of organic compounds and hazardous wastes at the site prior to W.R. Grace’s purchase of it, for Zotos’s proportionate share of response costs.

After a bench trial, the District court held that Grace was not entitled to contribution because it had not previously been a party to a CERCLA civil action (by the government or a private party), under either § 106 or 107, as § 113(f) requires.

The Second Circuit Court of Appeals reversed because of the Supreme Court’s holding in Atlantic Research Corp., 127 S.Ct. 2331 (2007) (holding that CERCLA § 107(a) provides potentially responsible parties with a cause of action to recover necessary costs of response from other PRPs) and Cooper Indus., Inc. v. Aviall Servs., Inc., 543 U.S. 157 (2004) (holding private parties who have not been sued in a CERCLA administrative or cost recovery action may not bring a contribution suit under § 113, but without addressing directly whether § 107(a) provided relief). W.R. Grace, at 7.

In making its determination, the Court held that the consent order with DEC did not settle W.R. Grace’s CERCLA liability. Id., at 11. Therefore, the court reasoned, Grace’s § 113 contribution action against Zotos was not “during or following any civil action under [§ 106]” (as is usually the case when a PRP enters into a consent order with the federal government) and a § 113(f) contribution action was not available. See CERCLA § 113(f). So, while the Second Circuit held that W.R. Grace does not have a cause of action under § 113(f), it allowed the suit to go forward under § 107(a) because W.R. Grace incurred response costs under that section when it remediated the site pursuant to its consent order with DEC.

The Court further reasoned, “under the plain language of the statute, the fact that a party enters into a consent order before beginning remediation is of no legal significance with respect to whether or not the party has incurred response costs as required under § 107(a).” Id., at 13.

This holding is consistent with CERCLA’s underlying policy goals, namely, to encourage private party cleanups. If the holding were otherwise (not allowing a PRP who entered into an administrative order on consent to pursue a claim under either § 107 after it uncured response costs under that administrative order), then PRPs would never enter into an administrative orders on consent. After all, W.R. Grace’s actions here saved the parties and the government litigation costs, and presumably limited ongoing contamination. Id., at 17.



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