It’s Not Over Yet – Parties Can Join in Litigation to Oppose EPA Settlements, Court Says

The Ninth Circuit recently joined the Eighth and Tenth Circuits in finding that non-settling parties can intervene in litigation to oppose settlements between the U.S. Environmental Protection Agency and other settling responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act or CERCLA. This decision is significant because it may delay and raise the cost of these settlements and may actually discourage them from being made at an early stage. (Read the Ninth Circuit case here, United States v. Aerojet General Corporation)

Under CERCLA, parties who own or formerly owned contaminated property (or contributed to the contamination of the property) must pay to clean them up. The EPA and state environmental agencies typically negotiate with the parties who may be responsible for paying to cleanup the property over how much they should pay to cleanup the property. These potentially responsible parties are known as PRPs. CERCLA allows PRPs to go after other PRPs to get them to pay for their fair share of the cleanup.

In big contaminated areas, such as former industrial zones, there can be hundreds of potentially responsible parties. However, CERCLA bars PRPs from seeking payment from other PRPs who have obtained an approved settlement of their liability with the government. This, in turn, provides a powerful incentive for PRPs to settle with the government early. Typically, non-settling PRPs are then left to fight amongst themselves over how much each should pay to cleanup the property.

The Aerojet case dates back to 1979, when the EPA discovered extensive groundwater contamination in the San Gabriel Basin, a groundwater reservoir in eastern Los Angeles that serves as the drinking source for over a million people. Over the next two decades, the EPA identified and notified PRPs – most of whom were industrial sources – of their obligations to pay for the cleanup based on their ownership or operation of facilities that used hazardous substances. In March 2007, 10 of the PRPs settled with the government and agreed to pay for a portion of the cleanup. They sought to finalize their settlement in federal court. Shortly thereafter, some of the non-settling PRPs sought to join the litigation to oppose the settlement. The lower court denied their request.

The Ninth Circuit reversed the lower court. It ruled that the non-settling PRPs had a right to join in the litigation to protect their interests in obtaining money from the settling PRPs to pay to cleanup the property. The court found that because CERCLA bars non-settling parties from obtaining contribution from settling parties, it is important that the non-settling parties have an opportunity to oppose these settlements. The court rejected the settling parties’ arguments. They said that giving non-settling parties the right to intervene might discourage parties from settling early with the government.

The strategy to deal with potential CERCLA liability may change as a result of this decision. Meantime, non-settling PRPs should be aware of this decision and carefully consider whether to join the litigation to oppose any government settlements. This decision may also raise the cost of litigation for settling PRPs, because they will now have to deal with non-settling parties who may oppose their settlements.