Jenner & Block: Seventh Circuit “Clarifies” Position On CERCLA 113 v. 107 Claims

On July 31, 2013, the Seventh Circuit Court of Appeals issued an Amended Opinion in the case of Bernstein v. Bankert, Nos. 11-1501 and 11-1523. As discussed previously in this blog, the Seventh Circuit's original opinion addressed, among other things, the circumstances in which a plaintiff can bring a contribution claim under section 113 of CERCLA verses a cost recovery claim under section 107 of CERCLA. The Seventh Circuit originally held that the plaintiffs did not have a contribution claim under section 113 of CERCLA because the Administrative Order on Consent ("AOC") at issue did not resolve the plaintiff's liability until the remediation work was completed and the covenant not to sue from EPA was effective. Because the plaintiff did not have a CERCLA 113 claim, the court held that it could pursue a cost recovery claim under section 107 of CERCLA. The plaintiff and EPA sought rehearing, claiming that this interpretation of CERCLA would be detrimental to EPA's enforcement authority and discourage future potentially responsible parties ("PRPs") from entering into settlement agreements because they would not be able to seek contribution until all of the work under the agreement was completed.

The Seventh Circuit granted the motion for rehearing, in part, but only to clarify its opinion, keeping the original holding in place. The court's amended opinion explains that although the AOC in the Bernstein case did not trigger contribution rights because the covenant not to sue was not effective until remedial work was completed, EPA can enter into settlement agreements with future PRPs that contain an immediately effective release from EPA, in which case, the PRP will have resolved its liability and could seek contribution under section 113 of CERCLA.

The three primary elements the Seventh Circuit examined in the AOC were:

1.  The covenant not to sue did not take effect until all work under the AOC was completed.

2.  The covenant not to sue was conditioned upon the complete and satisfactory performance by respondents of their obligation under the AOC.

3.  The respondents did not admit liability.

The relevant language in the Bernstein AOC states that "upon issuance of the [Notice of Completion], U.S. EPA covenants not to sue Respondent…In consideration and upon Respondent's payment of [EPA's response costs], U.S. EPA covenants not to sue or take administrative action against Respondent under Section 107(a) of CERCLA…These covenants are conditioned upon the complete and satisfactory performance by Respondents of their obligations under this Order." In addition, the respondent stated that entry of the AOC "shall not constitute any admission of liability by any (or all) of the Respondents nor any admission by Respondents of the basis or validity of U.S. EPA's findings, conclusions or determinations contained in this Order." Bernstein, slip op. at 20-21.

In contrast to the Bernstein AOC, the court cites a Sixth Circuit opinion as an example of a settlement agreement with an immediately effective promise not to sue that would establish a contribution right under section 113 of CERCLA. RSR Corp. v. Commercial Metals Co., 496 F.3d 552 (6th Cir. 2007), [enhanced version available to lexis.com subscribers]. The Seventh Circuit also states that "EPA can structure its settlements with future PRPs in such a way as to resolve liability effective immediately upon execution…In fact, the EPA's current model AOC has already incorporated provisions to that effect." Bernstein, slip op. at 45. The court cites the EPA website, which posts the Model AOC for Removal Action, issued in 2007.

In the consent decree at issue in RSR, the respondent expressly does not admit liability. As for the covenant not to sue, the consent decree states: "the United States covenants not to sue or to take administrative action against Settling Defendants…Except with respect to future liability, these covenants not to sue shall take effect upon the receipt by EPA of the payments required by [the consent decree]. With respect to future liability, these covenants not to sue shall take effect upon Certification of Completion of Remedial Action by EPA….These covenants not to sue are conditioned upon the satisfactory performance by Settling Defendants of their obligations under this Consent Decree."

Looking at the model AOC cited by the court in Bernstein, the language is similar to the consent decree in RSR. The model AOC contains a non-admission of liability clause. The covenants not to sue by EPA take effect upon receipt by EPA of past response costs (if applicable) or on the effective date of the AOC. The covenants not to sue in either situation are "conditioned upon the complete and satisfactory performance by Respondents of all obligations under this Settlement Agreement."

Based on the language in the Bernstein AOC as compared to the language in the RSR consent decree and the EPA Model AOC, it is hard to determine what language the Seventh Circuit requires be used or not used in a settlement agreement to allow for a contribution claim by the settling party. The Bernstein opinion cites non-admission of liability language and the conditional nature of the covenant not to sue as evidence that the settling party's liability has not been resolved. However, the settlement agreements the court sites as examples where liability has been resolved also contain non-admission language and conditional covenants not to sue. Thus, the only difference that is apparent is whether the covenant not to sue is effective upon the effective date of the settlement or on some initial payment verses whether the covenant not to sue is effective upon completion of the removal action (although even this distinction is not entirely clear because the RSR consent decree only resolved past liability immediately; with regard to future liability, the covenants not to sue only took effect upon completion of the remedial action).

The practical implication of the amended Bernstein opinion is not clear. Trial courts in the Seventh Circuit may very well have difficulty interpreting this confusing opinion. In addition, the parties in Bernstein may seek further review in the Seventh Circuit or the Supreme Court. Therefore, now more than ever, any CERCLA suit brought in the Seventh Circuit should assert both 107 and 113 claims (if there are otherwise valid bases for such claims), because it remains unclear which type of CERCLA claim a trial court will find to be the most appropriate.

A copy of the Amended Bernstein opinion is available here, [enhanced version available to lexis.com subscribers].

   Allison Torrence, Associate, Jenner & Block

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