Dealing With the Post-SARA Dynamics of PRP Settlements: Anyone For a Stay?

Michael Dore

Mr. Dore is a partner in the law firm of Stryker, Tams & Dill in Newark, New Jersey. He received his law degree from Rutgers Law School, where he teaches environmental law as an adjunct lecturer.

[17 ELR 10431]

Hazardous waste cases litigated under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) invariably involve large numbers of potentially responsible parties (PRPs). It is not uncommon for a single site to involve hundreds of parties, including the owners and operators of the site, transporters that utilized the site for disposal, and original generators of the waste.

Experience has demonstrated that one of the most significant aspects in these cases is the negotiation of appropriate allocation and settlement arrangements among the PRPs. Failure to achieve a PRP agreement invariably results in significantly increased litigation costs, more expensive governmentally funded cleanups, and compromise of the court's ability to effectively manage related litigation such as toxic tort and insurance coverage claims.¹

CERCLA practitioners have come to realize that the resolution of a successful PRP agreement is more of an art than a science. It requires extensive knowledge of the facts concerning your client, understanding the motivations of each of the major participants in the group, careful consideration of insurance coverage considerations, a willingness to focus on the alternatives that are reasonably available to the group, and many other personal and professional skills.

Prior to the October 3, 1986 enactment of the Superfund Amendment and Reauthorization Act of 1986 (SARA) that overhauled CERCLA, those skills were focused on negotiations between the PRPs and the Environmental Protection Agency (EPA). SARA, however, has introduced two new players — the Department of Justice and the federal courts — to the process. This has resulted in a dramatically different set of dynamics for PRP negotiation efforts. It is crucial for all participants in the process to understand the implications of this change.

Pre-SARA Practice

Prior to SARA it was possible for a critical mass of PRPs to reach agreement with EPA with respect to cleanup efforts, most specifically concerning the allocation of responsibility at the site. Recalcitrant parties had little recourse but to accept the allocation arrangements presented to them or risk being burdened with the imposition of disproportionate liability for cleanup or administrative costs at the site. In essence, the structure of Superfund and EPA's interim settlement policy² put a premium on voluntary agreements to proceed with all or significant portions of cleanup efforts. The willingness of PRPs to fund these efforts gave these parties leverage in negotiating favorable settlement provisions with EPA.

Any party that was unhappy with its position in the PRP allocation arrangement or that refused to participate in the PRP cleanup effort had no forum in which to present its objections. Judicial refusal to entertain preenforcement review of EPA actions³ and EPA's bias toward parties willing to make immediate efforts to correct environmental problems often resulted in the PRP negotiation process essentially consisting of a core group of willing participants and a tag-along assembly of PRPs with no viable alternative but to agree to the terms of the privately funded cleanup. SARA has dramatically changed this process.

In essence, SARA has prohibited administrative consent orders for the cleanup of contaminated sites. Rather, all settlements have to be achieved through a judicial consent decree, thereby involving both the Department of Justice and the federal courts. Congress apparently felt that this was necessary in order to eliminate the danger of "sweetheart deals."⁴ Unless the courts are extremely careful, however, these Superfund provisions may eliminate the possibility of any privately funded cleanup "deals" whatsoever.

[17 ELR 10432]

The Motivation to Settle

When CERCLA was first enacted, many parties seemed anxious to litigate the substantive liability issues that it presented.⁵ As the courts made it clear that almost no challenge to this statute would be successful, however,⁶ PRPs began to focus on the use of privately funded cleanups to reduce the costs of litigation and to control runaway cleanup expenditures.

Invariably, one of the most significant benefits of such private agreements was the avoidance of the significant litigation expenses involved in any multi-party Superfund action. Such actions almost always involved numerous parties and raised a myriad of crossclaims, significant defenses, and a host of issues that could be resolved only with protracted and expensive discovery and litigation costs. It was the desire to avoid this process that led to more than a few Superfund settlement agreements.⁷

The Consent Decree Process

SARA requires EPA to utilize the federal courts to achieve resolution of Superfund cases. However, although it is relatively clear that EPA is powerless to act on the basis of a consent decree until the period for public comment on these decrees has expired,⁸ the extent of the courts' role in reviewing and approving those decrees and in resolving disputes among the parties with respect to their terms is far from clear.

Prior to the enactment of SARA, some courts engaged in extensive fact-finding procedures before approving consent decrees providing for the cleanup of particular sites.⁹ Relatively little statutory or case law support could be found for such extensive hearings, however,¹⁰ and some courts simply approved consent decree settlements at Superfund sites whenever the parties themselves found the terms of those settlements acceptable.

Sources of Problems

It can be anticipated that problems with respect to the entry of Superfund consent decrees will come from two different sources. The first source will be PRPs who are willing to fund the cleanup efforts but only if those expenses are in lieu of, rather than in addition to, Superfund litigation expenses. The second will be PRPs who for a variety of reasons are not prepared to agree to the terms accepted by other parties to the consent decree.

Resolution of these groups' objections raises significant and conflicting problems for the courts. Permitting objecting parties to launch a full-scale attack on the decree or to immediately resolve liability issues outside of the context of that decree may well result in litigation and accompanying expenses that will make the decree itself unappealing to those who would otherwise be willing to accept it. Thus the questions become what should the proponents of the consent decree seek from the court and how should the court react to those requests.

Staying the Proceedings

Unlike administrative consent orders, consent decrees can only be entered after a complaint has been filed. The filing of a complaint has significant impacts upon the rights of the defendants. Among other things, statutes of limitation applicable to theclaims in the complaint are tolled, responsive pleadings are required, and certain affirmative defenses, counterclaims, and crossclaims must be raised. In addition, collateral obligations such as the duty to make disclosures in financial documents or to inform insurance carriers may be triggered. While these consent decrees are promulgated in anticipation of an agreement by the PRPs to conduct cleanup activity at the site, the initiation of the litigation process necessary to enter these decrees may exacerbate the problems faced by settling PRPs.

To deal with this problem, the government and the settling PRPs should consider filing the complaint and the consent decree simultaneously along with an ex parte motion by EPA for an order staying the proceedings and permitting service in the case without use of federal marshals. The motion should describe the background of the site, specify that an agreement was worked out with certain PRPs with respect to site cleanup, and explain that EPA had been in contact with settling PRPs and that they were amenable to the entry of the stay order.

The stay order should require service of the order with the complaint and stay all proceedings in the action, except the designation of a place where further communications with respect to the action can be served. The order should remain in effect pending completion of the cleanup work identified in the consent decree or unless any party moves to vacate the stay on the basis that the cleanup is not being conducted appropriately.

The stay order should permit any recipient of the order to move to vacate the stay returnable 60 days after the receipt of the complaint and stay order. This would force parties to speak up immediately if they chose to object to the entry of the stay and tie their period to object with the public comment period of the decree.

In many cases it will be extremely difficult to get a court to enter such a stay order and to get EPA to agree to this procedural mechanism. An order of this nature will prevent nonsettling PRPs from resolving both their underlying liability and their objections to any allocation of responsibility among the settling PRPs until after the cleanup work contemplated by the decree has been completed. This can present a serious problem for nonsettling PRPs, since delaying crossclaims against other PRPs or the resolution of liability defenses can result in the merits of a party's position being impaired through, for example, the death or other unavailability of key witnesses.

Balanced against these concerns, however, is the need to provide some mechanism for cooperating parties to [17 ELR 10433] engage in cleanup efforts without being forced to have the value of those efforts diminished by massive litigation costs. In addition, any judicial refusal to approve cleanup decrees and stay proceedings pending implementation of those decrees runs the risk of contravening the clear policy of SARA to prevent judicial review from being used as a mechanism for delaying rather than fostering site-specific cleanup efforts.¹¹

The resolution of these problems will hopefully be encouraged by the courts' attitude toward requests for stays of third-party actions in Superfund liability proceedings. To date, the courts have been favorably disposed toward such requests on the practical grounds that failure to impose stays dramatically complicatesSuperfund actions and results in inordinate delays in liability determinations.¹² Similarly, failure to impose "consent decree cleanup stays" will severely prejudice the availability of voluntary cleanup actions at particular sites. Thus, these stays should be allowed whenever their entry would not severely prejudice future proceedings in the litigation, and this prejudice could not be relieved by the entry of appropriate limited exceptions to the stay (e.g., permitting the deposition of a particular witness whose future availability was questionable).

Conclusion

SARA was intended both to foster voluntary cleanup efforts at Superfund sites and to ensure that those efforts were not the product of unreasonable "backroom" deals. To achieve these goals, Congress required the utilization of a judicial consent decree process. Hopefully the stay proposals made in this commentary will permit those goals to be achieved while preserving the nation's environment and avoiding undue prejudice to parties involved in Superfund litigation.

1. See generally M. DORE, TOXIC TORTS: LITIGATION, DEFENSE, INSURANCE (1986).

2. 50 Fed. Reg. 5034, ELR ADMIN. MATERIALS 35050 (Feb. 5, 1985).

3. See, e.g., Wagner Seed Co. v. Daggett, 800 F.2d 310, 16 ELR 21001 (2d Cir. 1986); Lone Pine Steering Committee v. United States Environmental Protection Agency, 777 F.2d 882, 16 ELR 20009 (3d Cir. 1985); J.V. Peters & Co. v. Administrator, 767 F.2d 263, 15 ELR 20646 (6th Cir. 1985). The prohibition on preenforcement judicial review of EPA cleanup actions was codified in § 113(c) of SARA. CERCLA § 113(h), 42 U.S.C. § 9613(h), ELR STAT. 44042.

4. This concern may have been based partially on congressional lack of confidence in EPA that developed following disclosure of Assistant Administrator Rita Lavelle's involvement in attempts to resolve problems at the Stringfellow Acid Pits site in California.

5. See Dore, The Standard of Liability For Hazardous Waste Disposal Activity: Some Quirks of Superfund, 57 NOTRE DAME LAW. 260 (1981).

6. See, e.g., Freeman, Inappropriate and Unconstitutional Retroactive Application of Superfund Liability, 42 BUS. LAW. 215 (1986); Comment, CERCLA 1985: A Litigation Update, 15 ELR 10395 (Dec. 1985); Comment, CERCLA Litigation Update: The Emerging Law of Generator Liability, 14 ELR 10224 (June 1984); and cases cited therein.

7. See Dore, A Practical Guide to Negotiating Superfund Cost Allocation Agreements, 54 DEF. COUNS. J. 352 (1987).

8. See CERCLA § 117, 42 U.S.C. § 9617, ELR STAT. 44045.

9. See, e.g., United States v. Hooker Chemical & Plastics Corp., 540 F. Supp. 1067, 12 ELR 20701 (W.D.N.Y. 1982), aff'd, 749 F.2d 968, 14 ELR 20875 (2d Cir. 1984).

10. See United States v. Ketchikan Pulp Co., 430 F. Supp. 83, 7 ELR 20369 (D. Alaska 1977).

11. See supra note 3 and accompanying text.

12. See, e.g., City of New York v. Exxon Corp., 85 Civ. 1939 (EW) (S.D.N.Y. Jan. 12, 1987); Colorado v. Asarco, Inc., 608 F. Supp. 1484, 1492, 15 ELR 20523, 20527 (D. Colo. 1985).