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Penn Cent. Corp. v. United States

ELR Citation: 26 ELR 20401
Nos. No. 92-1, 862 F. Supp. 437/39 ERC 1333/(Sp. Ct. R.R.A., 08/23/1994)

The court holds that the Regional Rail Reorganization Act of 1973 does not bar the U.S. government from pursuing a cost recovery action under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) against railroad companies that are successors to the former owners of contaminated rail yards. In 1976, Congress mandated that Penn Central transfer certain properties to a newly created private railroad corporation, which in turn transferred some of the property in question to other rail companies. The U.S. government filed two CERCLA actions involving properties conveyed under the Rail Act. Penn Central seeks to prevent the government's CERCLA actions from proceeding, and a declaratory judgment barring the present and any future CERCLA actions against it for its preconveyance activities at two rail yards. Successor railroads seek to insulate themselves from any CERCLA liability that occurred while the properties were under Penn Central's watch.

The court first rejects Penn Central's claim that the government's CERCLA actions will deprive it of its right to just compensation for the transferred properties by retroactively diminishing the amount it received under the terms of the settlement agreement involving the transfer of the properties. Penn Central's liability is derived from its role as the polluter, not merely as the owner or operator of the properties. And the earlier valuation proceedings are not a shield to potential CERCLA liability, because there is no evidence that either negotiating team in those proceedings considered the environmental condition of the properties in the course of those negotiations. Therefore, it is impossible to conclude that the amount that Penn Central received for the properties reflected that consideration of these environmental handicaps and was included in the agreement. The court rejects the argument that the settlement agreement is final and immune from the reach of subsequent litigation, and therefore rejects challenges to the retroactive imposition of CERCLA liability. The court next holds that res judicata does not bar the government's CERCLA claims, because the issues have not previously been litigated and valuation of the properties in the valuation proceedings and settlement agreement did not include evaluation of their environmental condition. The court also rejects Penn Central's defense based on the doctrine of compensable unconstitutional erosion, because these threatened CERCLA cleanup costs are not operating costs incurred during the period of government-forced operation. The court holds that the retroactive enforcement of CERCLA obligations does not drop the compensation that Penn Central received for the property below the constitutional minimum value mandated by the Fifth Amendment. The court next holds that releases executed as part of the settlement agreement do not bar the government's CERCLA claims, because the releases do not encompass these claims. The releases are unambiguous and are concerned exclusively with ensuring interim rail service and with the valuation of the properties transferred. The court rejects Penn Central's theory that it has already paid once for the CERCLA claims or that the valuation of the properties necessarily subsumed assessment of the environmental condition of the properties. The court also rejects Penn Central's claim that the government could have preserved a CERCLA claim and that by failing to do so, the government released its right to bring such a claim later. The government would have needed to preserve a claim that would otherwise have been released, and the releases do not affect the claims under CERCLA, which at the time did not even exist.

The court next holds that the successor railroads is not liable for contamination occurring before the date of the conveyance. The "as is" clause in the transfer agreement fails to transfer Penn Central's liability to the successor railroads. The court also holds that §302(c) of the Rail Act does not obligate the successor railroads to clean up the properties. Under §302(c), Congress intended to have the successor railroads make the rail system modern and efficient. There is no evidence that Congress intended to shoulder the successors with the entire financial burden of remedying decades of Penn Central's environmental abuse.

The court holds that the conveyance documents, read in the light of the Rail Act's fresh-start policy, limit the liability of the successor railroads to the time of the conveyances forward. CERCLA preempts whatever Rail Act policy might address the liability allocation among the parties. Moreover, the fresh-start policy that Congress sought to bestow on successors under the Rail Act has nothing to do with considerations of environmental burdens. Although Congress sought to eliminate the fiscal burdens that plague the successors' predecessors, this fresh-start policy is in no way impeded by allowing the government to proceed with its CERCLA claims. The court holds that Rail Act §303(b)(2)'s "free and clear" provision does not bar the CERCLA claims. There is no evidence that the provision was intended to insulate the parties from the type of statutory liability at issue here or any other obligations. The court also holds that claims for environmental cleanup costs are well outside the temporal and topical parameters suggested by the tariffs set forth in the Rail Act's "other charge" provision. A CERCLA claim is an equitable action seeking reimbursement of costs, not a periodic tax, assessment, or charge.

The court holds that federal district courts should determine whether divisibility of harm allows for the allocation of liability rather than the imposition of joint and several liability. The issue of allocating CERCLA liability requires further evidentiary hearing, and this court is not the appropriate forum for CERCLA claims.

Counsel for Plaintiff
Louis A. Craco
Willkie, Farr & Gallagher
One Citicorp Ctr.
153 E. 53d St., New York NY 10022
(212) 821-8000

Counsel for Defendants
Timothy Burns, Christopher S. Vaden
Environment and Natural Resources Division
U.S. Department of Justice, Washington DC 20530
(202) 514-2000

Before WISDOM, Presiding Judge, and GASCH and GREEN, JJ.