Tenth Circuit finds that Ch. 11 Bankruptcy Debtor’s Settlement of CERCLA Claims No Bar to Post-Reorganization Contribution Action Against Other PRPs

The Tenth Circuit recently ruled in Asarco, LLC v. Noranda Mining, Inc. that a mining company (“Plaintiff”) could maintain a contribution action against another mining operation (“Defendant”) under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) despite the Plaintiff’s earlier representation in Bankruptcy proceedings that its fair share of liability for contamination at the site in question was $8.7 million — the amount it paid to settle the Environmental Protection Agency’s claim.

The pertinent facts arose, largely, from the Plaintiff’s Chapter 11 Bankruptcy and a global settlement of all environmental claims. The global settlement, reached in 2009, resolved environmental claims at 52 different sites across 19 states, with a total cost of about $1.79 billion. Included among the myriad claims being settled was the one at issue in this case: an $8.7 million payment to address the Plaintiff’s share of liability at two related sites near Park City, Utah (“the site”). Defending the reasonableness of the settlement figure before the Bankruptcy Court, the Plaintiff maintained that $8.7 million represented its proportionate share of liability for contamination at the site.

In 2013, following its Chapter 11 reorganization, the Plaintiff filed a CERCLA contribution claim against the Defendant, another potentially responsible party at the site, arguing that the $8.7 million it paid to settle the EPA’s claim in the bankruptcy proceedings was, in fact, greater than its fair share of liability at the site. The Defendant moved for summary judgment, insisting that the Plaintiff was judicially estopped from seeking contribution at the site. Judicial Estoppel is an equitable concept which courts may rely on to prohibit a party from changing a position it had previously taken before the court for the sake of convenience. In this case then, the Defendant argued that because the Plaintiff had already represented to the Bankruptcy Court that its proportionate share of liability was $8.7 million, the Plaintiff could not later take the inconsistent position in a CERCLA contribution action that its liability was actually less. The District Court agreed, and held that based on the Plaintiff’s statements before the Bankruptcy Court, it was judicially estopped from maintaining a CERCLA contribution claim against the Defendant.

On appeal however, the Tenth Circuit took the contrary view, reversing the lower court’s grant of summary judgment. Unlike the District Court, the Tenth Circuit found that the Plaintiff’s statements were not “clearly inconsistent” with one another because the $8.7 million settlement figure was both presented to and understood by the Bankruptcy Court to be an inexact estimate of the Plaintiff’s liability at the site. On this point, the Tenth Circuit emphasized that the settlement and the Plaintiff’s reorganization plan, both of which were approved by the Bankruptcy Court, explicitly reserved the Plaintiff’s right to pursue contribution for the sites that were subject to the settlement. Thus, while the application of judicial estoppel is appropriate to prevent parties from gaining an unfair advantage by virtue of their inconsistent statements before a court, the Tenth Circuit concluded that no such purpose would be served in this case; the Plaintiff’s statement to the Bankruptcy Court that $8.7 million represented its fair share of liability was an inexact estimate and, if it turned out to be an overestimate, the Plaintiff had retained its right to seek contribution.

The Tenth Circuit’s holding in this case may be viewed as a lesson to debtors settling CERCLA claims as part of a Chapter 11 Bankruptcy: in agreeing to settle environmental claims in a bankruptcy, be sure to carefully reserve your right to seek contribution from other potentially responsible parties.

Jacob J. Franchino, an Associate in the Gibbons Real Property & Environmental Department, authored this post.
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