Third Circuit Rules NJDEP Settlement Doesn’t Shield Landfill Owner from Federal Contribution Claims

NJDEP does not shield a landfill owner from lawsuits seeking contributions toward expenditures made by the Federal Government on the same Superfund site…

A prior settlement with the New Jersey Department of Environmental Protection (NJDEP) does not shield a landfill owner from lawsuits seeking contributions toward expenditures made by the Federal Government on the same Superfund site, according to the Third Circuit Court of Appeals. Reversing the lower court, the Third Circuit held in New Jersey Department of Environmental Protection et al. v. American Thermoplastics Corp. et al. that the settlement applied only to the NJDEP’s claims.

CERCLA Contribution Claims

Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), both the State and the Federal Governments may recover their clean-up costs directly from Potentially Responsible Parties (PRPs). CERCLA also authorizes entities who have taken actions to clean up hazardous waste sites to seek monetary contribution from other parties who are also responsible for the contamination. Section 113(f)(3)(B) specifically provides that a person that has “resolved its liability” for “some or all of a response action or for some or all of the costs of such action” pursuant to a settlement agreement with the government “may seek contribution from any person who is not party to a settlement.”

The case centers on Section 113(f)(2), which gives PRPs that settle with the Federal or State Government protection from other PRPs’ contribution claims as long as those claims and the settlement address the same “matters.” The provision specifically provides that “[a] person 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.”

Remediation of Superfund Site

The dispute involves remediation costs related to the Combe Fill South Landfill Superfund Site (Site), which functioned as a municipal landfill from 1948-1981. In 1978, Carter Day Industries, Inc. (Carter Day), then known as Combustion Equipment Associates, Inc., purchased and ran the Site through its subsidiary, the Combe Fill Corporation (Combe Fill), until it closed. During this period, Combe Fill hired Compaction Systems Corporation of Connecticut, Inc. and Compaction Systems Corporation (collectively, “Compaction”) to conduct operations at and transport hazardous materials to the Site. In 1983, the U.S. Department of Environmental Protection (EPA) added the Site to the National Priorities List for long-term remedial evaluation and response. As part of the cleanup effort, the EPA and the NJDEP entered into a cooperative agreement that designates the NJDEP as the lead agency to oversee the Site’s cleanup.

In 1982, Carter Day filed a petition for Chapter 11 protection. The Bankruptcy Court disallowed New Jersey’s claim because only Combe Fill was liable for the costs of cleaning up the Site under New Jersey law. One year later, EPA notified Carter Day and roughly 190 other entities that they were PRPs for the Site’s cleanup costs. Carter Day sought a declaratory judgment that it had discharged its CERCLA liability in its bankruptcy reorganization. However, the Second Circuit Court of Appeals declined to exercise its discretionary jurisdiction under the Declaratory Judgment Act because it found that “the USEPA investigation of the Site was at a preliminary stage and deciding the claim prematurely would interfere with ‘Congress’s policy of expediting cleanup.’”

In 1990, Carter Day filed another adversary proceeding seeking a determination that the NJDEP claim had been discharged in bankruptcy. The Bankruptcy Court approved a settlement between Carter Day and the NJDEP that discharged “all claim[s] of [the] NJDEP against Carter Day with respect to the [Site]” (the “NJDEP Settlement”). The parties agreed that “the prior disallowance of the NJDEP’s proof of claim in [Carter Day]’s Chapter 11 case had res judicata effect and barred the NJDEP’s claims.”

In 1998, the United States sued 24 PRPs—including Combe Fill’s contractor, Compaction—in the District Court for the District of New Jersey to recoup costs it incurred remediating the Site. The NJDEP filed a similar lawsuit against many of the same defendants, and the two cases were consolidated before the District Court. Under the terms of a Consent Decree, Compaction agreed to contribute $11 million, including more than $6.8 million plus interest to the EPA, over $1.5 million plus interest to the NJDEP, and over $433,000 for natural resources damages payable to the NJDEP as one of the natural resources trustees.

In 2011, Compaction filed an amended third-party complaint seeking contribution from Carter Day. The District Court sided with Carter Day, concluding that the NJDEP Settlement protected it from contribution. On appeal, Compaction acknowledged that Carter Day’s settlement with the NJDEP precludes Compaction from seeking contributions for its liability to that State agency, but argued that the “matters addressed” in the NJDEP Settlement with Carter Day do not include claims by the EPA. Accordingly, Compaction argued that it could seek contribution for that portion of its payments under the Consent Decree.

Third Circuit’s Decision

The Third Circuit reversed the District Court’s decision. “Our interpretation of the scope for the ‘matters addressed,’ as well as CERCLA’s purpose and procedures, tell us the NJDEP Settlement cannot protect Carter Day from contribution actions by other PRPs related to federal liability,” U.S. Circuit Judge Thomas L. Ambro wrote. “The scope of the NJDEP Settlement resolves ‘all liabilities [of Carter Day] to [the] NJDEP.’ We do not believe it discharged liabilities to the USEPA.”

The Third Circuit first addressed the scope of the “matters addressed” in the NJDEP Settlement. The court acknowledged that it had previously explained in United States v. Se. Pa. Transp. Auth., 235 F.3d 817 (2000) that “[i]n light of Congress’s intent to induce settlements, all settlement[s] should be presumed to afford to the settlor’s protection against claims for contribution regarding an entire site, unless there is an explicit provision to the contrary.” However, as the court further explained, “this does not tell us which sovereigns are covered by a settlement.”

For guidance, the Third Circuit turned to the Seventh Circuit’s decision in Akzo Coatings v. Aigner, 30 F.3d 761 (1994), a case involving a PRP that settled with state and federal agencies but faced contribution actions for remedial costs to another PRP. In considering whether Section 113(f)(2) protected the settling PRP, the Seventh Circuit reasoned that reading the matters addressed in the settlement broadly “would defeat the policy of CERCLA[,]” as neither the Federal Government nor the party settling its claims had proper incentive to protect another PRP’s contribution rights. Accordingly, the appeals court concluded that “it [is] prudent to require the settling parties to be more explicit when they intend to bar contribution for work” performed outside of those parties’ efforts.

Applying the Seventh Circuit’s reasoning, the Third Circuit interpreted the NJDEP Settlement narrowly to conclude that it did not cover Carter Day’s liability to the Federal Government. “Although this language is broad, the Settlement, by its own terms, concerns only liability to the NJDEP,” Judge Ambro wrote. “Thus, despite its broad language referring to all remedial costs connected to the Site, the agreement’s specific language regarding the NJDEP ties only to the State’s expenditures.”

The Third Circuit further noted that in light of the reasonable expectations of the parties, it is “sensible to limit the protection under the NJDEP Settlement to New Jersey’s claims.”  As Judge Ambro explained, “it would have been unreasonable for either the NJDEP or Carter Day to expect that the NJDEP Settlement addressed any liability stemming from the USEPA’s clean-up costs.

The Third Circuit further noted that allowing Carter Day to avoid liability for any Federal expenditures would not equitably apportion the remedial costs. “The USEPA bore the lion’s share of the Site’s cleanup costs,” Judge Ambro wrote. “Affirming the District Court would allow a party to avoid massive liability by settling with an agency responsible for 10% of the total sticker price.”

The Third Circuit rejected Carter Day’s argument that construing narrowly the scope of its settlement protection affronts CERCLA’s goal of incentivizing early settlement. “While we acknowledge that our decision here could affect a PRP’s incentive to settle, ultimately it vindicates CERCLA’s goal of equitably distributing liability without extinguishing incentives to settle,” Judge Ambro wrote. “[A] settling-PRP is protected only insofar as a consent decree and a contribution action address the same matters. In effect, our decision encourages a PRP to settle with both the relevant State and Federal Governments.”

“Further, construing the NJDEP Settlement to apply only to NJDEP’s claims avoids creating perverse incentives for a PRP to resolve those claims only in the hope of barring other PRPs from seeking contribution on federal claims,” he added. “As noted above, that outcome would be a boon to the industry, as the statutory scheme allocates the vast majority of the clean-up costs to the Federal Government.”

Lastly, the Third Circuit noted that its decision aligns with CERCLA Section 104, which details the cooperation required between the Federal Government and the States with regard to remedial actions and the allocation of costs between them, as well as the Cooperative Agreement between the NJDEP and EPA, which “states that the NJDEP cannot recover funds on behalf of the USEPA, and vice versa.” As Judge Ambro wrote, “It 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.”   

Key Takeaway

The Third Circuit’s precedential decision in New Jersey Department of Environmental Protection et al. v. American Thermoplastics Corp. et al. makes it clear that a polluting party’s settlement with the NJDEP does not protect it from lawsuits seeking contributions toward expenditures made by the federal government on the same site.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Dan McKillop, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.