The U.S. Court of Appeals for the Third Circuit has ruled a potentially responsible party’s (PRP) settlement with New Jersey resolving its state-law liability in connection with contamination at a municipal landfill did not protect it from third-party lawsuits seeking contribution toward expenditures made by EPA on the same site. New Jersey Department of Environmental Protection v. American Thermoplastic Corp., Nos. 18-2865 and 19-2243 (3rd Cir. September 8, 2020). The opinion highlights CERCLA § 113(f)(2), which provides “[a] party who has resolved its liability to the United States or a State in an administrative or judicially approved settlement shall not be liable for claims for contribution regarding matters addressed in the settlement.” The opinion also emphasizes CERCLA § 104 cooperative agreements in the context of settlements.
In 1978 Carter Day (f/k/a Combustion Equipment Associates) purchased the Combe Fill Superfund Site, which operated as a landfill from 1948 to 1981. The landfill was run by its subsidiary, Combe Fill Corporation, which hired Compaction to conduct operations at the landfill. In 1981, the site closed and Combe filed for Chapter 7 bankruptcy. EPA and NJDEP filed claims, both of which were settled.
In 1980, Carter Day filed for Chapter 11 bankruptcy. NJDEP filed a claim, which the court rejected because only Combe was liable for the costs for cleaning up the Site under New Jersey law. EPA did not file a claim. Carter Day and NJDEP subsequently entered into a settlement agreement by which “all claims of NJDEP against Carter Day with respect to the Combe Fill sites” were discharged, and NJDEP was enjoined “from pursuing any claims against Carter Day with respect to the Combe Fill sites.”
In 1983, EPA added the Site to the National Priorities List. EPA and NJDEP entered into a cooperative agreement that designated NJDEP as the lead agency to oversee the cleanup. USEPA contributed 90% of the cost of managing and performing the work, while NJDEP paid 10%. The agreement expressly “negated and denied” the authority of either party to “attempt to negotiate on behalf of the other.”
Compaction settled claims related to the Site with EPA and NJDEP in 2009. In 2011, Compaction brought a claim for contribution pursuant to CERCLA § 113(f)(2) against Carter Day. In determining whether Carter Day’s prior settlement with NJDEP barred Compaction’s claim, the district court and the Third Circuit focused on the “matters addressed” in the settlement. Particularly, whether the settlement included both state and federal claims that could have been brought against Carter Day.
The parties agreed that because it was a judicially-approved settlement that identified all NJDEP claims related to the site, Compaction could not seek contribution of costs it paid to NJDEP from Carter Day. The District Court reasoned that because the language in the settlement agreement encompassed all of NJDEP’s claims related to the site, and because a settling party receives the same contribution protection whether it settles with a state or the United States, the settlement with NJDEP barred all costs sought in contribution by Compaction.
The Third Circuit reversed, finding the settlement was limited to claims by NJDEP. The Third Circuit observed that the while NJDEP’s claims were barred by the Carter Day bankruptcy, the EPA was not involved in the bankruptcy case. In addition, the Court reasoned it would be inequitable to allow Carter Day to avoid liability, given that “EPA bore the lion’s share of the Site’s cleanup costs.”
The Third Circuit emphasized the importance of the cooperative agreement, finding that because the agreement “reiterates the statutory allocation costs and states that the NJDEP cannot recover funds on behalf of the USEPA . . . [i]t defies reason and the plain language of the Cooperative Agreement that the matters addressed in the NJDEP Settlement with Carter Day could include expenditures incurred—per statute and contract—solely by the United States.”
The decision serves to warn PRPs of the pitfalls of not explicitly identifying the “matters addressed” in a settlement, especially when settling with either state or federal agencies. PRPs should also consider the effect of cooperative agreements and not assume settling all claims related to the Site with one agency releases the claims of the other.