Jenner & Block: Corporate Purchaser Not Liable to the Government for CERCLA Liability; Former Operator Must Begin Cleanup

Jenner & Block: Corporate Purchaser Not Liable to the Government for CERCLA Liability; Former Operator Must Begin Cleanup

Gabrielle Sigel   By Gabrielle Sigel, Partner, Jenner & Block

In long-running litigation regarding one of the costliest Superfund cleanups in the country, the U.S. District Court for the Eastern District of Wisconsin reversed a decision it reached just 5 months earlier and found that Appleton Papers Inc. ("API") was not liable to the federal government for performance of a cleanup. U.S. v. NCR Corp. and Appleton Papers Inc., No. 10-C-910 (U.S. Dist. Ct. E.D. Wis. Apr. 10, 2012) (Free Download). The cleanup involves PCBs discharged into the Fox River for decades before CERCLA was enacted, by a division of NCR Corp. then called the Appleton Papers Division.

PCBs Warning Notice

The federal cost recovery litigation involves a 1978 agreement between NCR and API. In that agreement, NCR sold its Appleton division to API, subject to an indemnity agreement which provided that API would take responsibility for liabilities including non-compliance with environmental laws of which the Appleton division had received notice. As of 1978, CERCLA did not exist. In 1995, NCR sued API in New York federal court regarding API's responsibility for the Fox River contamination. That court concluded that the 1978 agreement was not clear as to whether CERCLA liability was included in the indemnity. The parties then agreed to submit the matter to binding arbitration, as a result of which an arbitration panel found the contract ambiguous, and reached a decision, going beyond the contract language, assigning API 60% of expenses exceeding $75 million.

After the federal government brought this CERCLA cost recovery action in 2010, API filed a summary judgment motion asserting that it had no liability under CERCLA to the federal government. The government alleged that, based on the 1978 sale agreement, API had assumed liability for the CERCLA cleanup costs. After initially agreeing with the government in a December 2011 decision, in this later decision on API's motion for reconsideration, the Arkansas Federal Court granted API summary judgment.

The court found the 1978 agreement did not impose CERCLA liability because a non-existent CERCLA could not have been a legal violation of which the Appleton Division had received notice. Second, because the 1978 agreement is silent on the issue of liability for future environmental laws and did not contain a broad assumption of liability, these factors suggest that API did not intend to assume such liability. Third, the court evaluated the impact of the 1978 agreement's statement that no third party was to be beneficiary of the agreement. The court found that such a clause could not by contract eliminate all government enforcement. However, the clause here provides further evidence that the agreement was not intended to make API liable to the government for future environmental laws. Finally, the court found that the arbitration panel's decision that API was responsible for a larger share of costs did not estop API from arguing here that it did not assume liability to the federal government. The arbitration panel's discussion was based on "quasi-equitable factors" regarding who should pay, but was not a decision that API had, by contract, assumed liability to the government. Therefore, the district court concluded that API was not a CERCLA liable party to the federal government.

Two weeks after this decision determining that AP was not liable, the court returned to a pending government motion for a preliminary injunction requiring the dredging of PCBs from a portion of the Fox River. U.S. v. NCR Corp. and Appleton Papers Inc., No. 10-C-910 (U.S. Dist. Ct. E.D. Wis. Apr. 27, 2012) (Free Download). With API's dismissal from the suit, NCR was left as the sole party responding to the injunction motion. NCR argued that the injunction not be issued because the government was not likely to prevail on its claims that NCR is jointly and severally liable for the PCB cleanup. Specifically, NCR argued that the harm to the river is divisible and it would only be responsible for at most 9% of the costs. The court granted the injunction after rejecting the divisibility argument. The court found that divisibility for CERCLA claims would only rarely be granted. Here, NCR's divisibility argument was based on the volume of PCBs it contributed to the cleanup site. The court found that the volume, even if correct, did not reflect a division of the harm because PCB placement, toxicity, and effect on human population were the true harms. These harms had little to do with the volume of PCB discharged.

Therefore, NCR was required to immediately begin a dredging operation at least 660,000 cubic yards of river sediment. The court's order found not only the corporation bound by the injunction, but NCR's officers, agents, employees, and "attorneys who are involved in decision-making concerning the performance or direction of remediation work ...".

Gabrielle Sigel, a partner in Jenner & Block's Environmental Practice, is Co-Chair of her Firm's Climate and Clean Technology Law Practice. Ms. Sigel's national practice focuses primarily on environmental, safety and health litigation and counseling, toxic tort defense, and insurance coverage litigation and counseling. She recently concluded several toxic tort lawsuits concerning a contaminated site located in a residential area.

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