Ryan Whaley Coldiron Shandy

In a case decided March 4, 2009, the Second Circuit Court of Appeals held that a potentially responsible party (PRP) that voluntarily enters into a consent order for CERCLA cleanup with a state agency may bring a cause of action against other PRPs for response costs under Section 107(a)(4).

Recently, the United States Supreme Court has handed down two rulings addressing the operation of the CERCLA liability provisions:
1) In Atlantic Research, the Supreme Court held that Section 107(a) provides PRPs – and not just “innocent parties” – a cause of action to recover response costs against other PRPs.
2) In Cooper Industries, the Supreme Court held that private parties that had not yet been sued in a CERCLA administrative or cost-recovery action could not seek contribution under Section 113.
Prior to the Supreme Court rulings, most courts had adhered to the standard that Section 107 was only available to innocent parties, but that Section 113 would be available to all PRPs to recover contribution.

In W.R. Grace & Co. v. Zotos International, Grace voluntarily entered into an administrative order on consent (AOC) with the New York state environmental agency. According to the AOC, Grace would reimburse the agency for some response costs already spent, and would conduct RI/FS and remediation activities. The AOC specifically provided that Grace was not admitting guilt and expressly released Grace from any claims made by the state agency, but did not purport to shield Grace from any CERCLA claims made by EPA.

Through 2004, Grace had spent $1.7m in remedial activities, and sued Zotos for either response costs under Section 107 or contribution costs under Section 113. Zotos argued that Grace could not recover under Section 107 because Grace was compelled by the AOC to incur remediation costs, and also that Grace could not recover under Section 113 because that section only applies when a party seeks contribution after resolving all CERCLA liability with both the state and federal governments.

While the Second Circuit agreed with respect to Zotos’ Section 113 claim – Grace could not seek contribution because, although it had resolved all liability with the state, it had not resolved all liability with EPA – it applied Atlantic Research and Cooper Industries to hold that a private party that had not yet been sued by the state or federal agency, but that had merely “voluntarily” entered into a cooperative agreement with either of those entities and as a result incurred response and remediation costs, could seek recovery of response and remediation costs under Section 107(a)(4). This way, PRPs would not be discouraged from cooperating with environmental authorities to achieve a timely and effective cleanup under CERCLA.

In another recent case, the federal court for the Western District of Michigan clarified that the holding in W.R. Grace & Co. v. Zotos International does not apply where the PRP sustains expenses pursuant to a consent decree following a suit by EPA or the state agency under Sections 106 or 107(a). In that case, the only relief available will be Section 113(f). ITT Industries v. Borgwarner, Inc., No. 1:05-CV-674 (W.D. Mich. Mar. 31, 2009).

The opinion in W.R. Grace & Co. v. Zotos International, 559 F.3d 85 (2d Cir. 2009), can be found at http://caselaw.lp.findlaw.com/data2/circs/2nd/052798p.pdf.