Real Property & Environmental Law Alert : New Jersey, New York, Pennsylvania & Delaware Lawyers & Attorneys for Real Estate Development & Environmental Law

When NCR and Appleton objected to the work plan, EPA sought a preliminary injunction compelling Appleton and NCR to comply with its proposal. The Court evaluated the criteria used to determine whether preliminary injunctive relief was appropriate. As to the likelihood of success on the merits, both NCR and Appleton claimed that the harm caused to the Fox River was divisible and that they were not subject to joint and several liability under CERCLA Section 107. After careful analysis of the Supreme Court’s 2009 decision in Burlington Northern and Santa Fe Railway Co. v. United States, 129 S. Ct. 1870 (2009) and §433A of the Restatement of the Law, Second, Torts, the Court determined that critical to its analysis was the fact that when the cleanup entails the dredging of PCBs in river sediments, the “cost of cleanup bears little relation to the relative volume of PCB’s released into the River.” Accordingly, it determined that apportioning liability based upon volume was not advisable. It noted that most courts considering the issue analyzed whether the pollution in question could be divided, rather than whether the cost of cleaning up the contamination is separable based upon volume or geography.

Ultimately, the divisibility question is a causation question, and when the case is about cleanup we should be concerned with assessing to what extent the parties’ behavior caused the cleanup expenses rather than which parties caused the pollution itself.

Judge Griesbach concluded that the costs to cleanup the PCB contamination in the Fox River were not reasonably divisible based upon volume.

Alternatively, even viewing the “harm” as the pollution, the Judge determined that the Site was not divisible based upon volume, because of the following factors:

1. vast quantities of PCB’s have flowed downstream;
2. what is in the River at this time is not necessarily representative of the pollution released into the River decades ago; and
3. geography and the flow of the river over 50 years have created a variety of different areas requiring remediation.

The Court also denied NCR’s argument that there was a geographic basis to divide responsibility. NCR failed to link the cost of cleaning up a portion of the River to the specific amounts and locations of the PCB contamination. Because PCBs were found everywhere and because the cost of remediating a given section of the River was not directly dependent on the level of contamination, the Court concluded that NCR would have little likelihood of success showing that certain areas of the River are separable on the basis of geography.

Finally, Appleton argued that the United States was not likely to succeed on the merits because its liability under CERCLA was far from clear. Appleton claimed that its liability was based upon a theory of successor liability which was not applicable under the particular facts of this case. The defendant Appleton was the entity which bought two plants from NCR and agreed to assume certain liabilities from the seller. However, the Court refused to conclude that Appleton was likely to have any liability to the United States because its liability was solely based upon an equitable, successor liability theory, which was a legal theory designed to prevent injustice, but which did not create a wholly new, suable entity. NCR, the seller, remained in existence, and thus, there was no liability for Appleton to “succeed” to. The Court concluded that “when the seller of assets is still in existence and its liability to the government is still “live”, an assumption of liability agreement like the one at issue here does not create liability on the buyers’ part, it merely creates a duty to indemnify the seller.”

Appleton and NCR had created an LLC to perform the remediation and Appleton retained a 60 percent interest in the LLC. Thus, Appleton effectively controlled the cleanup, and the Court concluded that an injunction directed towards NCR would essentially be meaningless, because without Appleton’s concurrence, NCR lacked the ability to achieve the level of remediation that the government wanted.

Unhappy with the Court’s denial of its motion for preliminary injunctive relief, the United States subsequently renewed its motion to compel the parties to resume the remediation of the Fox River. It asked the Court to fashion an equitable remedy under which the LLC would no longer be controlled by Appleton. But having previously determined, preliminarily, that Appleton was not a liable party, Judge Griesbach was unwilling to fashion a “creative solution” under which Appleton would be compelled to give up its control in a company in which it had a controlling interest and denied the renewed motion on July 28, 2011.

Although the Court was faced with a somewhat unique set of facts in this matter, its divisibility analysis must be carefully evaluated and understood for possible applicability in other contaminated sediment cases.

Irvin M. Freilich is a Director in the Gibbons Real Property & Environmental Department.

Environmental: Sources confirm that there is little beyond the capabilities of this team, which has in-depth expertise in litigation, regulatory concerns and real estate transactions affected by environmental issues. “A well-managed and responsive practice that seeks to provide the best possible representation in an affordable and pragmatic manner.”

Real Estate: Gibbons offers a broad selection of real estate services. “They are able to provide a deep well of resources, good bench strength and a rapid service.”

In addition, the following members of the Group were among the 18 individual Gibbons attorneys that received glowing reviews in the guide’s individual rankings:

Russell B. Bershad, Real Estate: Market sources consider Russell Bershad to be “easy to deal with, accessible and well connected within the business community. “He is hugely admired for his skillful handling of real estate financing, leases and transactions.”

Irvin M. Freilich, Environmental: Irvin Freilich has a wealth of experience in cost recovery and environmental litigation actions. His arrival at the firm added “a welcome layer of depth to the capabilities of the group.”

John H. Klock, Environmental: John Klock possesses a strong construction background that lends itself well to his site remediation work. Clients pay tribute to his “fantastic intellect and skillfulness in meeting our needs.”

Edward F. McTiernan, Environmental:  Edward McTiernan oversees much of the team's work in his capacity as practice leader and is felt to be “indispensable in dealing with the very largest of projects.”

Susanne Peticolas, Environmental: Susanne Peticolas wins the acclaim of interviewees as a result of her “strategic, cost-conscious approach” and “practical engagement” with clients' concerns.

Vapor intrusion is the product of subsurface contamination entering into overlying structures which then are released into the structure in the form of vapor. This creates a threat to individuals inhabiting the structure who may inhale or ingest the contaminant. Currently, vapor intrusion is not a pathway of concern under the HRS. However, in May 2010, the Government Accountability Office (the “GAO”) issued a report entitled “EPA’s Estimated Costs to Remediate Existing Sites Exceed Current Funding Levels, and More Sites are Expected to Be Added to the National Priorities List.” In it, the GAO concluded that there is the potential for unacceptable human exposure to contamination if vapor intrusion is not addressed through the HRS. The GAO recognizes that sites that possess vapor intrusion contamination may be placed on the NPL due to other pathways. However, the report notes that there are contaminated sites that do not qualify for the NPL but would if vapor intrusion factored into the scoring.

EPA engaged in public outreach regarding this topic and held several listening sessions to facilitate public participation. The public comment period closed on April 16, 2011. EPA received about 60 comment letters in response to the EPA announcement. The vast majority of the respondents favor adding vapor intrusion to the HRS as a benefit to the public health. These include United States Senator for New Jersey, Robert Menendez, and the New Jersey Department of Environmental Protection, as well as professors, attorneys, community groups, and others. The Utility Solid Waste Activities Group (“USWAG”), an association of over 100 utilities, energy companies and associations, and utility operating companies take the position that the addition of a vapor intrusion pathway to the HRS is unnecessary. USWAG believes, among other things, that vapor intrusion sites will be eligible for placement on the NPL based on already existing pathways under the HRS. Furthermore, USWAG contends that the addition of a vapor intrusion component will impose significant costs on the Superfund program and would not lead to quicker site remediation.

EPA has reviewed the feedback and expects to issue a Notice of Proposed Rulemaking by January 2012.

Sandro G. Ocasio is an Associate in the Gibbons Real Property & Environmental Department.

However, one of the most powerful deterrents to decaBDE sales is likely to be Wal-Mart’s Product Safety and Regulatory Notice of December 28, 2010. The notice, issued to Wal-Mart’s suppliers announced that beginning June 1, 2011, it would enhance its testing of consumer products for all polybrominated diphenyl ethers (PBDEs), including decaBDEs. What vendor would risk its supply contract with the world’s largest retailer when faced with clear direction backed up with enhanced testing?

EPA would appear to agree. As quoted in The Washington Post, Steve Owens, assistant administrator of the EPA’s Office of Chemical Safety and Pollution Prevention, stated: “Wal-Mart has taken an important step toward protecting children and families from exposure to toxic chemicals … EPA has long had concerns about PBDEs.” The Washington Post noted that although EPA had cited PBDEs as chemicals of concern in 2010, it had not been able to limit their use. In the absence of federal action, states and retailers have stepped up. The result is more complexity for corporate compliance because the various bans and limitations rarely correspond with each other, differing by products covered and dates of implementation.

Susanne Peticolas is a Director in the Gibbons Real Property & Environmental Department.

On July 3, 2008, the City and Morrison sued Dravo under §§107 and 113(g)(2) of CERCLA; they did not assert a claim under §113(f) of CERCLA. The City and Morrison argued that the costs incurred to construct and operate the groundwater remediation system could be recovered under §107. The District Court concluded that CERCLA §113(f) was the exclusive remedy available to a party that incurs response costs pursuant to an administrative order or a judicially approved consent decree. It also found that the City’s §107 cost-recovery claim for replacement of the City’s water system was barred by the applicable statute of limitations, and refused to allow Morrison’s motion for leave to amend its complaint to assert a claim under §113.

On appeal, the Eighth Circuit affirmed the decision of the District Court. Relying upon the Atlantic Research decision, the Court noted that §107(a)(4)(B) was only available to a private party who had voluntarily incurred response costs and that §113(f) allowed a contribution claim for a person who is liable or potentially liable under §107(a) during or following a civil action under §§106 or 107. It declined to allow a party with a §113(f) claim to also proceed under §107(a), because doing so would in effect, “nullify the SARA amendment and abrogate the requirements Congress placed on contribution claims under §113” quoting from Niagra Mohawk Power Corp. v. Chevron U.S.A., Inc., 596 F.3d 112, 128 (2nd Cir. 2010). The Eighth Circuit also relied upon pre Atlantic Research cases limiting a liable party to claims under §113. See Dico, Inc. v. Amoco Oil Co., 340 F.3d 525, 531 (8th Cir. 2003). Although the Supreme Court had noted the potential overlap between §107(a) and §113(f), in not only the Atlantic Research decision but also in Key Tronic Corp. v. United States, 511 U.S. (816) (1994), the Eighth Circuit determined that there was no overlap for a liable party compelled to incur response costs pursuant to an administrative order or a judicially approved settlement.

The decision highlights the need to assert all possible bases for recovery in cost recovery cases, given the complexities of CERCLA and the divergent and oftentimes conflicting interpretations of it.

Irvin M. Freilich is a Director in the Gibbons Real Property & Environmental Department.

The decision in Dimant considered the Spill Act’s somewhat open ended “in any way responsible” standard for liability. However, the analysis, and especially the court’s reluctance to fill in any gaps connecting the defendant to the discharge, or the discharge to the contamination, is very similar to a recent CERCLA decision from the Northern District of New York. In an unpublished decision in DVL, Inc. v. General Electric (Docket No. 07-cv-1075, N.D.N.Y., December 6, 2010), the Federal District Court granted summary judgment based largely upon a private cost recovery plaintiff’s failure to establish that defendants disposed of PCBs on plaintiff’s property. The District Court acknowledged that CERCLA contains a “relaxed” causation requirement which can be satisfied by circumstantial (as opposed to direct) evidence. Nevertheless, in DVL the District Court found that testimony concerning historical practices at other nearby sites and mere proximity to a manufacturing operation which produced PCBs was insufficient to satisfy plaintiff’s burden of showing that defendants had disposed of PCBs at plaintiff’s site. As in Dimant, there was no doubt that defendant handled the chemical which caused the contamination. Nevertheless, the property owner could not recover because it failed to connect the defendants to the particular PCBs which drove the clean-up of its property.

Dimant and DVL show that defendants - even defendants that produced or handled the toxic chemical at issue - can prevail in clean-up cost recovery litigation. Despite the ambiguous nature of the liability provisions in New Jersey’s Spill Act and the relaxed proofs allowed by CERCLA, a plaintiff seeking to recover clean-up costs must meet its burden by proving causation at each step in the chain between the defendant and the contamination. The “nexus” requirement in both Spill Act and CERCLA require that plaintiffs connect the dots with evidence not mere speculation.

The defendants sought contribution from plaintiffs Appleton Papers Inc. and NCR Corp., which themselves or through their predecessors made carbonless copy paper using a coating that contained PCBs. Waste paper from the manufacturing process was sold to the recyclers, whose manufacturing process also discharged PCBs. In December 2009, Judge Griesbach had determined that the plaintiffs could not receive contribution from other parties because they knowingly took the risk that the product they made, sold, and mobilized would harm the environment. Their fault, said Judge Griesbach, outweighed all other equitable factors in his determination of how cleanup costs should be allocated for OUs 2 through 5. He used the same analysis in his recent decision to find that the paper companies must reimburse the defendants for their costs in these areas, stating:

Although the Defendants may have discharged roughly half of the PCBs into OU2-OU5, and although some of them may have polluted the river in other ways,” he wrote, “they do not share any of the culpability for the PCB pollution that gave rise to this CERCLA action.

The plaintiffs did manage to salvage a partial victory with respect to OUs 2 through 5. Many defendants had received payments from insurers regarding their cleanup activities in those areas. The court determined that there should be no windfall and that the amounts some insurers paid to some of the defendants would subject to the collateral source rule and the plaintiffs were entitled to discovery on the issue.

OU1, the upstream stretch, presented a different situation. The paper companies’ discharges to OU2 could not have caused the PCB contamination there (because the river flows in only one direction), so they could bear CERCLA liability for cleanup costs at OU1 only if they could be said to have “arranged for” the disposal of PCBs there within the meaning of CERCLA Section 107(a)(3). In its 2009 opinion in Burlington Northern and Santa Fe Ry. Co. v. United States, the Supreme Court held that “arranger” liability required an intent to dispose of the material in question. Here, while the paper companies clearly wished to get rid of the waste paper, they sold it (rather than paying someone to haul it away). In addition, the record was not clear as to whether they had sufficient knowledge that the PCBs in the waste paper would end up in the river. Such unresolved fact questions, said Judge Griesbach, were enough to require denial of the defendants’ motion for summary judgment as to OU1.

It was a split decision from Judge Griesbach for the plaintiff paper companies -- a loss (albeit with some limited success) on OUs 2 through 5, and a win on OU1. But their win was only temporary, and given Judge Griesbach’s past decisions, it seems clear that they are still swimming against the current.

John H. Klock is a Director in the Gibbons Real Property & Environmental Department. Paul M. Hauge, an Associate in the Gibbons Real Property & Environmental Department, co-authored this post.

The Hearthside decision comes on the heels of two decisions recently decided by Judge Robert Bryan in the Western District of Washington State, in United States v. Washington State Department of Transportation, and discussed in an earlier blog determining what is a "'facility’ under CERCLA and interpreting 'arrranger.'" Judge Bryan’s “facility” decision was a case of first impression, while his "arranger" opinion built on the U.S. Supreme Court decision in Burlington Northern v. United States, 129 S.Ct. 1870, 1875-76 (2009).

Notwithstanding thirty years of CERCLA decisions, the courts are only now coming to determine the meanings of basic terms like "arranger," "facility," and "owner." Clearly it pays to follow basic law school advice and read the statute!

John H. Klock is a Director in the Gibbons Real Property & Environmental Department.

Arranger Liability Broadened

The Court, mindful of Burlington Northern’s holding that an entity may qualify as an arranger when it takes intentional steps to dispose of a hazardous substance, broadly interpreted arranger liability under §107(a)(3) of CERCLA to conclude that WSDOT arranged for the disposal of hazardous substances because:

1. WSDOT designed the drainage system at issue with the specific purpose of discharging highway runoff into the environment;
2. WSDOT had knowledge that the runoff contained hazardous substances;
3. there was an actual release of hazardous substances into the environment;
4. WSDOT had control over how the runoff was disposed of because not only did it design the drainage system but it also had the ability to redirect, contain or treat its contaminated runoff.

Whereas most courts examining the issue of arranger liability post-Burlington Northern have narrowed the scope of liability, Judge Bryan took the opposite approach. However, he also concluded that issues of fact precluded him from determining whether WSDOT could properly assert the “federally permitted release” exemption under §107(j) of CERCLA, or whether it could establish the third party defense to liability under §107(b).

Facility Definition Narrowed

In the other opinion, the Court focused on the meaning of “facility” under §107(a)(1) (imposing liability on an owner and operator of a facility) and §107(a)(2), (imposing liability on a person, who at the time of disposal of hazardous substances, owned or operated a facility at which such hazardous substances were disposed). The United States argued that the entire Commencement Bay Site was a facility and that WSDOT was an owner of property within the borders of the Site. WSDOT claimed that the waterways were the facility, which it did not own.

Relying upon U.S. v. Township of Brighton, 153 F.3d 307, 313 (6th Cir. 1998), the Court determined that the bounds of a facility should be defined by the bounds of the contamination. It concluded that the United States’ definition was too broad because it would impose liability on persons not related to the contamination. The Court’s analysis focused upon the following:

1. facility is defined in §101(a) of CERCLA as an “area where a hazardous substance has been deposited, stored, disposed of, or placed, or otherwise come to be located;”
2. the Commencement Bay Site included properties owned by different parties, with no common purpose among the different owners;
3. in order to be a liable party under CERCLA Section 107(a)(1), WSDOT must be “the owner or operator of the facility in which the United States incurred a response cost.” (Slip Opin. At 5).

WSDOT was not the owner or operator of the waterways and although it owned the Tacoma Spur Property, no response costs were incurred on that property, so WSDOT was not found to be a liable party under Section 107(a)(1).

Significantly, Judge Bryan also noted that if the party was only connected factually to a portion of the property, that distinction should be drawn in its divisibility analysis. Slip Opin. at 4.

As to liability under Section 107(a)(2), the Court found that there was a genuine issue of material fact as to whether the hazardous substance, coal tar, was disposed of through the drainage systems on the Tacoma Spur Property.

These rulings are likely to have widespread ramifications in the many river and harbor sites which are pending throughout the United States. And whereas Judge Bryan extended arranger liability under CERCLA to public entities that designed and managed stormwater systems, he narrowly defined a “facility” under CERCLA, and thus, limited the scope of owner/operator liability in such cases. These issues will most definitely be the subject of future litigation.

Irvin M. Freilich is a Director in the Gibbons Real Property & Environmental Department.

Carl Dooley, President and CEO of the American Chemistry Council issued a statement in response to EPA’s announcement, calling EPA’s proposal “a lose-lose for the environment and the economy.” Mr. Dooley points out that since 1995, responsible parties have continued to pay for the cleanup of Superfund Sites, -- they have paid for sites for which they were responsible, they helped pay for “orphan” sites where they were not responsible parties and they have paid corporate taxes including the Corporate Environmental Income Tax. More importantly, he views EPA’s proposal as being in direct conflict with the desire to grow US jobs and double US exports. According to Mr. Dooley, EPA’s suggestion “will cost US jobs and damage our nation’s global competitiveness without positively affecting site remediation.”

With the recent events in the Gulf and the Deepwater Horizon, EPA’s “polluters pay” declaration will likely be well received in Congress and by the American public.

Irvin M. Freilich is a Director in the Gibbons Real Property & Environmental Department.