April 16, 2015

Ninth Circuit Deepens Uncertainty for Responsible Parties Settling Contribution Claims at Complex CERCLA Sites

Arnold & Porter Advisory

On April 2, 2015, the United States Court of Appeals for the Ninth Circuit issued a decision in AmeriPride Services Inc., v. Texas Eastern Overseas Inc.,1 holding that, in a contribution suit under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), the US district courts have discretion in accounting for past settlements between responsible parties.  This holding deepens an unresolved circuit split, and increases uncertainty regarding the legal effect of settlement with fewer than all responsible parties at complex CERCLA sites.

Potential Approaches to Settlement by Some, But Not All, Responsible Parties

At complex multi-party CERCLA sites, one responsible party will often agree to perform a cleanup with the intent of later suing other potentially responsible parties to recover their share of cleanup costs.  In this context, the party performing the cleanup will often find that some responsible parties are willing to settle early and, for a variety of reasons, others are not.  The key question addressed by the Ninth Circuit is what effect settlement between some, but not all, responsible parties will have on the liability of non-settling responsible parties.

Generally, when a statute does not provide an approach for determining how to credit settlements in cases involving settlements with less than all the jointly and severally liable tortfeasors, courts look to one of two competing methods: the Uniform Contribution Among Tort Feasors Act (UCATA) or the Uniform Comparative Fault Act (UCFA). 

The UCATA approach provides that settlement with one tortfeasor reduces the claim against other tortfeasors by the dollar value of the settlement.  Under the UCATA dollar-value approach, if an injured party settles for too little with one tortfeasor, the non-settling tortfeasors will pay more than their proportionate share.  This encourages early settlement, but can also encourage inequitable "sweetheart" deals in which a plaintiff may seek to settle early with one or more defendants to the detriment of others. 

The UCFA approach provides that settlement with one tortfeasor reduces the claim against other tortfeasors by a proportionate share of the damages.  Under the UCFA approach, an injured party who settles for too little may not receive full recovery.  This discourages early settlement before the liability of all parties is well understood and reduces the litigation risks for non-settling defendants.  It could, on the other hand, result in a more equitable allocation.

Background and Procedural History of AmeriPride v. TEO

The AmeriPride action arose out of trichloroethylene (TCE) contamination of soil and groundwater associated with the operation of a laundry in an industrial area of Sacramento, California.  Parties responsible for contributing to contamination at the site included AmeriPride Services Inc. (AmeriPride), Texas Eastern Overseas Inc. (TEO), Chromealloy American Corporation (Chromealloy), and Petrolane, Inc. (Petrolane). 

Under the direction of the state agency, AmeriPride performed investigation and remediation of the contamination.  It then settled its CERCLA contribution claims against Chromealloy and Petrolane.  In its order approving these settlements, the District Court stated that it would adopt the UCFA approach for purposes of determining the legal effect of the settlement agreements with other responsible parties -- meaning that the settlements with Chromealloy and Petrolane would reduce the contribution claim against TEO, the only non-settling party, by a proportionate share (rather than a dollar value). 

Meanwhile, AmeriPride's contribution suit against TEO continued to be litigated, and the District Court eventually held that, contrary to its representation in its approval of the settlements, it would apply the UCATA approach and reduce AmeriPride's claims against TEO by the dollar value (rather than the proportionate share) of the settlements with the other two responsible parties.  TEO appealed to the Ninth Circuit.      

The Court's Decision Regarding the Treatment of CERCLA Settlements

On appeal, the Ninth Circuit held that CERCLA gives a district court discretion to choose between the UCATA and UCFA approaches to private party settlements in a Section 113 contribution action.  The Ninth Circuit remanded the case for further proceedings, however, because it believed the District Court's midstream change in approach may have unduly prejudiced TEO. 

To reach its holding, the Ninth Circuit first recognized that CERCLA expressly requires courts to apply the UCATA dollar-value approach to settlement agreements between the government and a private responsible party.  However, because the statute does not contain a similar provision extending to settlements between two private responsible parties, the Ninth Circuit fell back on Section 113's general mandate that a "court may allocate response costs among liable parties using such equitable factors as the court determines are appropriate," leaving the treatment of private party settlements up to district courts.

The Ninth is the third circuit court to address the question of whether the UCFA or the UCATA approach should be applied to CERCLA private party settlements.  The AmeriPride decision concurs with the First Circuit's holding in Am. Cyanamid Co. v. Capuano,2but declines to follow the reasoning of the Seventh Circuit in Akzo Nobel Coatings, Inc. v. Aigner Corp.3 In Akzo, the Seventh Circuit held that CERCLA requires application of the UCATA proportional share approach. 

In light of both the circuit split and the Ninth Circuit's decision to leave the choice between the UCATA and UCFA approach to the district courts, significant uncertainty remains as to how private party settlements will be treated in an equitable allocation among responsible parties.  Knowing which approach will apply is important to understanding how to value a settlement, and without this certainty, parties in CERCLA contribution suits may be inclined to litigate rather than settle.  It is important to bear in mind that early resolution of this question will likely require an up-front commitment of resources from both responsible parties and the court.  Differently situated responsible parties are likely to favor different approaches.  Parties implementing a remedy are likely to favor the UCFA proportionate share approach, while all other parties are likely to favor the UCATA dollar-value approach.  Therefore, early resolution of this question may require a court to invite briefing on the issue if and when the first private party settlements occur.

  1. No. 12-17245, ___ F.3d ____ (9th Cir. 2015).

  2. 381 F.3d 6 (1st Cir. 2004).

  3. 197 F.3d 302 (7th Cir. 1999).

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