Allocation of Superfund Cleanup Costs Among Potentially Responsible Parties: The Role of Binding Arbitration

Kenneth P. Cohen

Editors' Summary: The high cost of resolving environmental disputes through litigation has made alternative dispute resolution (ADR) an increasingly attractive alternative. The high transaction costs of Superfund litigation would seemingly provide a strong incentive for the parties to use ADR. While non-binding mediation and negotiation techniques have been attempted in most Superfund cases, potentially responsible parties (PRPs) often reach an impasse on the issue of the proper allocation of cleanup costs. These cost allocation disputes will in turn often affect ongoing negotiations with EPA over the appropriate remedy at the site. To prevent this "spillover" effect, the author proposes that PRPs bifurcate the allocation and remedy selection issues by submitting the cost allocation dispute to binding arbitration. While CERCLA does not explicitly provide for bifurcation, the combined use of EPA's mixed funding authority and binding arbitration of cost allocation disputes could create a hybrid bifurcated proceeding and remove many of the obstacles to the voluntary cleanup of hazardous waste sites.

Mr. Cohen is the managing attorney of the environmental law section of the Exxon Company, U.S.A., law department. Baylor University, J.D., 1975; Yale Law School, LL.M., 1976. The author gratefully acknowledges the research assistance provided by Mary Lynn Hollis in the preparation of this Article.

[18 ELR 10158]

Many environmental disputes are now settled by alternative dispute resolution (ADR) — whether mediation, arbitration, or minitrial — instead of adjudication, and some ADR techniques are being used in Superfund cases.¹ However, very few potentially responsible parties (PRPs) have been willing to arbitrate cost allocation issues related to Superfund cleanups.² Yet the very nature of hazardous waste site cleanup negotiations presents special problems for effective dispute resolution, which suggests that PRPs should submit most cleanup cost allocation disputes to binding arbitration.

Background

Nonbinding mediation or negotiation techniques have been attempted in nearly all Superfund cases. These negotiations may involve the investigations, studies, or response work to be undertaken by PRPs or the reimbursement by PRPs of cleanup costs incurred by the government. For these negotiations to successfully conclude in a voluntary cleanup by PRPs, a consensus must exist among PRPs on all of the major issues, including liability concerns, allocation of cleanup costs, and site remediation alternatives.

Quite often an independent third party is retained to help PRPs design appropriate resolutions to disputes that arise in the course of a Superfund case.³ The presence of this independent third party can introduce needed objectivity and credibility in the negotiation process. Indeed, the third party can sometimes inject these elements before positions are hardened by both EPA and PRPs. However, many PRPs have discovered that something more than nonbinding mediation techniques may be required in order to reach a voluntary cleanup agreement with EPA.

The three most important ingredientsfor a successful [18 ELR 10159] settlement among PRPs for voluntary cleanup of a hazardous waste site are allocation, allocation, and allocation. However, frequently the issue of ultimate allocation of site cleanup costs is faced too early in the negotiation process by PRPs when they do not yet have confidence in the fairness of the procedure for achieving that final allocation.

The Value of Cooperation

As a practical matter, if PRPs join together to investigate the conditions at the waste site and consider available cleanup remedies, then EPA and state governmental agencies are more prone to listen favorably to remedial options put forward by the PRP group.⁴ As it usually costs more for EPA to perform a cleanup than it would for private industry, it makes more sense for PRPs to manage the technical work and thereby potentially save millions of dollars. However, in some cases PRPs cannot convince EPA that a sufficient level of cooperation exists within the PRP group for EPA to permit them to conduct an effective and timely cleanup of the site. In most cases, this lack of cooperation can be traced to the same source — cost allocation disputes. The "spillover" of cost allocation disputes can easily translate into a much more expensive cleanup for PRPs.

Even a casual exposure to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)⁵ is generally sufficient to convince most PRPs that it is prudent to make every effort to enter into a voluntary cleanup agreement with the government. Failure to do so requires PRPs to face the transaction costs of litigation under CERCLA, either in a § 106 case to force a cleanup or a § 107 case for cost recovery. For PRPs the transaction costs of settlement with EPA are in most cases far more attractive than the costs associated with fighting on liability issues. While some CERCLA matters probably can be settled only through litigation (for example, questions involving statutory construction), the rule of thumb on liability issues is that the government usually wins.

Cost Allocation Dispute "Spillover"

When cost allocation negotiations reach an impasse, there is action PRPs can take to prevent a "spillover" of this dispute into the ongoing site remediation negotiations with EPA. To prevent or minimize the "spillover" effect, PRPs should (1) agree to share administrative expenses and technical fees on a per capita basis,⁶ (2) bifurcate the allocation and remedy selection issues by submitting the allocation dispute to binding arbitration, and (3) make every effort to obtain EPA's agreement to promote voluntary cleanup efforts by making any necessary use of its mixed funding⁷ authority under CERCLA.

Even if the cost of preparing the Work Plan and the Remedial Investigation/Feasibility Study (RI/FS) is substantial, in the final analysis it is usually far better for PRPs to focus their efforts on developing a cost-effective cleanup plan; attempt to play a central role in stewarding all remediation efforts for the waste site; and defer the issue of final allocation until the completion of this important analytical phase. This is because:

* Most importantly, disputes at this early stage between PRPs over final allocation can result in delays in working with EPA and state agencies, and EPA may proceed not only with the RI/FS, but also with the actual site cleanup without the active participation of PRPs.

* The RI/FS may disclose new information about the history of the site and the nature and source of the wastes. This information could undermine any premature allocation determination that was based on "old" evidence.

* In a majority of cases, early allocation determinations are based on the waste volume numbers developed by EPA or by a PRP steering committee. In most instances, the parties have not had sufficient time to consider such issues as whether all of the PRPs have been identified, the degree of toxicity, the hydrology of the area, the quality of the evidence linking a PRP to the site, lawful disposal, etc.

* CERCLA imposes both strict and joint and several liability on PRPs. Congress apparently is not concerned with a fair allocation of liability. For this reason, there is usually little the government can gain by rushing into an allocation determination. Only the PRPs themselves have an incentive to install a fair procedure to achieve a final allocation of cleanup costs. While Congress recently authorized EPA to provide a preliminary nonbinding allocation of responsibility (NBAR)⁸ that allocates percentages of the total response cost among the PRPs, only rarely will the NBAR procedure succeed. An NBAR is intended simply as another nonbinding ADR technique. It does not bind EPA in any subsequent negotiation or litigation and is not admissible in any lawsuit. In fact, the NBAR procedure is subject to the same infirmities outlined here and can thus actually exacerbate the "spillover" effect — particularly in large, multiple-party PRP sites.

Problems With CERCLA's Settlement Provisions

CERCLA purports to encourage voluntary cleanups of hazardous waste sites by directing EPA to promote cooperation among PRPs through a number of devices.⁹ These include information sharing,¹⁰ temporary enforcement moratoria,¹¹ government funding of so-called "orphan shares,"¹² and expedited handling of de minimis waste contributors.¹³ However, neither the statutory [18 ELR 10160] language, congressional intent, nor EPA enforcement policy encourages amicable settlement of cost allocation disputes. In fact, the interplay of these three components actually creates formidable obstacles that EPA and PRPs must overcome in order to achieve voluntary settlement. Specifically, three key factors work against this congressional policy of voluntary settlement and cleanup of waste sites.

First, CERCLA's new settlement provisions¹⁴ combine with the government's current enforcement policy¹⁵ to create serious obstacles to voluntary settlement of waste site cleanups. This occurs because the law establishes an unreasonably short time frame for negotiations.¹⁶ Moreover, in many cases, EPA has been unwilling to exercise existing enforcement discretion to assist the settlement process. Additionally, EPA's current remedy-selection process provides only very limited opportunity for public comment.¹⁷ In cases where EPA has performed the RI/FS, PRPs usually have little opportunity to review and comment on EPA's choice of cleanup remedy. This adversely impacts voluntary negotiation efforts concerning performance of the remedial work at the site.

Second, a surprising number of PRPs routinely refuse to cooperate in voluntary Superfund cleanups.¹⁸ By refusing to participate in voluntary cleanup efforts, some PRPs apparently seek to limit their Superfund transaction expenses to the cost of defending themselves against contribution actions brought by PRPs who have settled with the government. In these instances, participating PRPs have been able to negotiate the cleanup of a site with EPA and state agencies only to find that they must then sue to recover costs from recalcitrant PRPs. Of course, when this happens much of the cost advantage of becoming involved with EPA early in the process is lost — waste site cleanup is itself expensive, and cost recovery actions against recalcitrant PRPs significantly increase overall costs.

The third factor working against voluntary settlement is the one emphasized throughout — that negotiations between PRPs concerning voluntary site cleanup often reach an impasse on the proper allocation of the settlement costs. Voluntary cleanup negotiations can fail because of PRP dissatisfaction with either the process used in making allocation determinations or the outcome itself.

Complex Nature of Superfund Cases

The three-pronged nature of many Superfund cases provides powerful incentives for PRPs to join together both to deal with EPA and state governmental agencies on all aspects of the site cleanup, and to respond to any third-party liability actions. Of course, the primary or core case always involves the actual cleanup of the waste site.

Very often disputes arise in the core case between PRPs and EPA concerning a number of legal and technical issues. Difficult liability issues frequently must be addressed. Of immediate concern is whether EPA has properly identified all or substantially all of the parties who are involved with the waste site — i.e., has EPA found all of the PRPs? In addition, individual PRPs and EPA may disagree over the characterization of the materials sent to the site by the PRP. Another common area for disagreement involves the liability provisions EPA seeks to include in an administrative consent order. In addition, EPA and PRPs spend considerable time and effort addressing the major procedural and technical issues, such as:

* Who performs the RI/FS?

* What is the proper cleanup remedy?

* Who designs and constructs the remedial work?

A common second component or sub-case concerns the seemingly inevitable dispute among PRPs over the "fair" allocation of cleanup cost responsibility. This aspect of a Superfund case rarely involves questions of policy, statutory interpretation, or legislative intent. Rather, allocation disputes are analogous to commercial disagreements involving complex technical and scientific facts, and EPA usually leaves these disputes to the PRPs to resolve themselves. Of course, PRPs basically share a common goal: each participating PRP seeks to have the site cleaned up in a manner that is environmentally sound and protective of the public health, yet each PRP works to keep its financial contribution to the cleanup at a reasonable level.

The third component of many Superfund cases today is third-party litigation (usually toxic tort litigation and/or damage to property claims), which is prosecuted against PRPs by individuals living in the proximity of the waste site. It is a fact of life that a growing number of law firms across the country religiously scour the National Priorities List for the purpose of developing viable litigation against deep-pocket PRPs.

Interestingly, many defendants in third-party litigation connected with participation in a hazardous waste site have learned that often they are better able to control their litigation costs by joining together to retain common defense counsel, sharing expert witness expenses, discovery costs, etc. Joint or common defense efforts can significantly reduce both the expense and time associated with this type of protracted and complex litigation.

While many PRPs recognize there can be significant benefits in working together to implement the site cleanup and respond to third-party plaintiffs, there are still a large number of PRPs that refuse to cooperate out of fear their final allocation of site cleanup costs will actually increase, not decrease, as a result of their voluntary participation in cleanup activities. This is unfortunate, as in nearly all cases PRPs could reduce their cash expenditures in Superfund cases by joining together to develop a cost-effective site remediation plan and by preventing a "spillover" of cost allocation disagreements into site remediation negotiations with EPA.

In addition to the "spillover" problem, there are other compelling reasons for PRPs to arbitrate cost allocation disputes. When PRPs are unable to reach an amicable settlement on allocation, the usual result has been that enormous amounts of time and money are spent on litigation involving the government and PRPs — the fight moves into court, which results in further legal expenditures and also can translate into delays of site cleanup. These delays usually result in substantial increases in the ultimate cleanup cost.

[18 ELR 10161]

Additionally, lawsuits over cost allocation issues can raise difficult technical issues, which courts tend to be unwilling to decide. In these instances, it is not unusual for the court to appoint a special master to assist in the case.¹⁹ The disputes increasingly involve sophisticated concepts incorporating statistics, demographics, limnology, hydrology, radiology, etc. Technical issues are intertwined with legal issues. The definition of "hazardous substance" is complicated not only by inclusion of substances considered hazardous or toxic under other federal laws, but also because of various statutory exclusions.

Moreover, not many judges have the knowledge or expertise to understand the technical factors, such as relative toxicity of chemicals, synergism of various chemicals, migration potential, and persistence, which must be evaluated and understood in order to make a fair allocation of cleanup costs between PRPs at a Superfund site. These technical issues are often further complicated by the absence of adequate records, insolvent owners/operators of the site, etc. For this reason, it is not surprising that there are few precedents on the substantive issues involved in allocation of costs at Superfund sites — courts have been reluctant to make decisions on many of these issues.²⁰

Another practical consideration is that there can be personality conflicts and poor communication among PRPs, making it difficult to litigate the cost allocation issues in one lawsuit. It is often particularly difficult for the parties to negotiate and agree on the facts in these cases. Not only are there usually conflicting interests among the multiple parties, the issues also involve public relations problems so parties are sometimes reluctant to cooperate and are fearful of the publicity that accompanies Superfund litigation.²¹

If PRPs are simultaneously engaged in skirmishes over the proper allocation of cleanup responsibility, then many tend to focus their attention on cost allocation issues at the very time that EPA is almost entirely focused on remediation matters. Moreover, as the existence of joint and several liability provides little impetus for EPA to focus on allocation issues, the only viable weapon available to participating PRPs is to file contribution actions against nonparticipating PRPs.

While many Superfund commentators seem to favor nonbinding negotiation or mediation as the best method to allocate cleanup costs, experience has shown that these efforts can often fail. Many PRPs have become disillusioned with voluntary participation in cleanup efforts — and for good reason. PRPs who participate in settlement negotiations with EPA generally are required to spend a great deal of time and money to achieve a negotiated settlement. However, even after achieving an agreement with the government these participating PRPs often find themselves faced with an increased liability for cleanup costs unless they simultaneously pursue contribution actions against the PRPs who elected not to participate. In such instances, the compliance costs of the nonparticipating PRPs are frequently lower than those of the participating PRPs because the transaction costs of participation are forced artificially high by an inefficient settlement process.²²

Bifurcate and Arbitrate Allocation Disputes

If CERCLA created a Chinese wall between site remediation efforts and cost allocation issues, then all Superfund cases could be handled in bifurcated proceedings. The first stage of the case would focus entirely on an analysis of the site, preparation of the RI/FS, and identification of all of the PRPs. Only upon the completion of this first stage would the case then move into the allocation phase. The advantage of a bifurcated procedure is that all PRPs and EPA would be better able to work together to fashion the proper cleanup remedy. This two-pronged structure would solve most of the critical time problems faced by PRPs under the present law and would allow PRPs to assume a more positive role in the selection of the cleanup remedy. In addition, under a bifurcated approach EPA could become directly involved in the process of identifying all of the PRPs. Such a change would bring a greater degree of procedural fairness into this aspect of waste site cleanup cases.

Unfortunately, the Superfund law does not bifurcate remediation and cost allocation issues. However, EPA and PRPs can make use of existing CERCLA provisions, coupled with binding arbitration, and come very close to turning a Superfund site cleanup case into a hybrid bifurcated proceeding.

The Role of Mixed Funding

The key statutory provision relates to so-called "mixed funding" arrangements.²³ Under mixed funding, EPA uses Superfund monies to pay for nonparticipating PRPs' share of the cleanup cost. In other words, mixed funding can relieve the participating PRPs of the tremendous burden of financing 100 percent of the site cleanup and allows them to cooperate with EPA on proceeding with site remediation activities in the absence of 100 percent participation of PRPs.

Although use of mixed funding does indirectly assist in segregating site remediation activities from cost allocation disputes by providing a very significant incentive for settlement, the fight between PRPs over cost allocation can still arise. And, these disputes can still infiltrate or "spillover" into and adversely impact how PRPs address site remediation problems. However, "spillover" could be greatly minimized if PRPs agreed to make use of binding arbitration to resolve cost allocation disagreements.

Advantages of Binding Arbitration

The flexibility of arbitration is the primary reason that it is increasingly being used to resolve large and complex commercial cases.²⁴ Disputes get resolved earlier and [18 ELR 10162] cheaper. In addition, the parties can agree to keep the results confidential. Unlike litigation, arbitration permits PRPs to fully participate in the dispute resolution process. PRPs select the arbitrator and determine the scope of the arbitrator's authority.

More importantly, by submitting allocation disputes to binding arbitration PRPs demonstrate to EPA that allocation disagreements will not adversely impact a cost-effective and timely cleanup remedy.²⁵ For this reason, EPA should support efforts by PRPs to submit allocation disputes to binding arbitration. Recently, both Congress and EPA have recognized that ADR techniques can lower the transaction costs to the government and PRPs in Superfund remedial actions. Under the recent amendments to CERCLA, EPA may enter into binding arbitration for cost recovery claims under § 107, provided the claims are not in excess of $500,000, exclusive of interest.²⁶ EPA is currently developing regulations to implement its new ADR authority.²⁷

One of the obvious advantages of arbitration is that PRPs will save substantial sums of money in legal fees.²⁸ In general, legal costs would be reduced just by the nature of the arbitration process. A final decision will be reached much more quickly through arbitration than through litigation. PRPs will certainly avoid lengthy court delays in getting the case set for trial, and arbitrators are not bound by the procedural rules that govern judicial proceedings. Therefore, many of the procedural arguments that cause numerous court delays would not apply in arbitration, allowing PRPs to resolve the issues more quickly than they could through litigation.

In addition, the arbitrator is not required to adhere strictly to the Rules of Evidence. Trial time can be saved and lengthy appeals avoided on evidentiary questions. (However, refusal to hear relevant evidence is one of the limited grounds for vacating an arbitration award.)

Binding arbitration also means that there are rarely costly appeals of initial decisions.²⁹ The decision by the arbitration panel would be final and the award from a properly conducted arbitration is enforceable in all jurisdictions.

Selecting the Neutral

A key factor in making arbitration work in cost allocation cases is selecting a qualified neutral arbitrator. Experience with arbitration in other business contexts (e.g., the construction industry, insurance claims, textile and apparel industry) suggests that while a three-member panel could be used in order to bring together a blend of backgrounds and talents, there is no compelling reason to favor a panel over a well-qualified sole arbitrator.

There are several ways that the sole neutral or an arbitration panel could be selected. Each party could offer names of proposed neutral arbitrators until all the parties involved agree on the neutral. However, this could be a time-consuming process if a large number of parties are involved. Another procedure is to have each PRP propose a list of arbitrators that would be acceptable to it and then allow other PRPs to strike unacceptable names until agreement can be reached.

The National Arbitration Association (NAA) maintains a list of members of the National Panel of Environmental Arbitrators. After PRPs file a joint request, the NAA could submit a list of names to each party and then each party could strike any unacceptable names. Again, this might be a time-consuming process if PRPs cannot agree on an arbitrator and some negotiation will probably be necessary in order to identify an arbitrator acceptable to the entire group.

Of course, if PRPs are unable to agree on a neutral, then they could agree that the neutral would be selected by the American Arbitration Association (AAA) pursuant to the AAA rules for commercial arbitration.³⁰

Practical Guidelines for Arbitration

The written arbitration agreement should authorize the neutral to retain an assistant to aid the neutral in compiling and analyzing information supplied by the parties. At the time the neutral is selected, each participating PRP should be required to advance monies into a fund that is to be used exclusively to pay all expenses and disbursements of the neutral and the assistant. In addition, the agreement should provide for subsequent payments into the fund as may be necessary to compensate the neutral and the assistant. [18 ELR 10163] At the conclusion of the arbitration, the total fees and disbursements of the neutral and the assistant would be reallocated among the parties in proportion to their allocable shares of the cleanup costs.

The agreement should provide that all parties comply with all reasonable requests of the neutral and to otherwise cooperate in all proceedings. Following consultation with the neutral, the parties should develop a protocol setting forth the procedure for the submission of memoranda to the neutral and the subject matter to be covered by such memoranda. In the event the parties are unable to agree on the protocol, the neutral should have the authority to establish any necessary protocols. The agreement should further provide that following consultation with the neutral, the parties develop a standard set of interrogatories and requests for production of documents seeking disclosure of information needed in connection with the allocation determination. Once again, in the event that the parties are unable to agree on any aspect of the interrogatories or requests for production, the neutral should have the authority to resolve the issue.

If possible, the agreement should require the parties to respond to the interrogatories and the request for production of documents within 45 days of service. Each response should be accompanied by an affidavit certifying and demonstrating that the response was prepared on the basis of a reasonable and diligent search for the requested information. Pending completion of the arbitration, each party should be required to preserve and maintain all documents and other information in its possession, custody, or control that would be discoverable in a lawsuit subject to the Federal Rules of Civil Procedure. Of course, the agreement should not require the disclosure of any information or documents subject to the attorney-client privilege or the work product doctrine.

Each party's answers to the interrogatories should be served on the neutral and on all other parties to the arbitration. All nonprivileged documents responsive to the request for production should be made available for inspection and copying at a central depository, the location of which is agreed on among the parties. In addition, each party should make available a reasonable number of present employees with relevant knowledge for questioning by the parties and, if necessary, by the neutral.

In order to preserve the confidentiality of the arbitration proceedings, the agreement should state that all information and documents disclosed by any PRP are disclosed solely for the purpose of settlements of asserted and unasserted claims, and that all proceedings shall be maintained in confidence and not made public, and shall not be used for any purpose other than the determination of the allocable shares of the parties pursuant to the arbitration.

A key aspect of the arbitration agreement concerns the criteria the neutral is to use in order to determine the allocable shares of each participating PRP. A suggested format is as follows:

Allocation Criteria

The neutral shall use the following criteria in order to determine the allocable share of each party.

A. Volume of Materials

Information concerning the volume of materials contributed to the site by each party shall be evaluated. The volume of materials, however, shall not be the only criterion to be considered. A small quantity of material may have caused proportionately more damages than a larger quantity of a different material. However, the volume of materials may have contributed significantly and directly to the distribution or contamination of either the land or the groundwater and to the damages from the contamination. In addition, if the properties of all wastes at the site are relatively equal, the volume of materials contributed to that site by each party shall provide a convenient, easily applied criterion for measuring each party's allocable share to that plaintiff or plaintiffs.

B. Nature of Materials

The human, animal, and environmental toxicity of any material, including its mobility, persistence, and other properties, shall be considered. As noted above, a small amount of material, or a highly mobile material, may have caused more damage than a larger volume of less toxic or relatively immobile materials. In addition, any disproportionate adverse effects on the environment by the presence of materials contributed by each party shall be considered.

C. Strength of Evidence Tracing the Materials at the Site to Parties

The quality and quantity of the evidence, including the admissibility and reliability of such evidence connecting each party to the materials present at the site shall be evaluated.

The arbitration agreement should then provide for a preliminary hearing and conferences. The purpose of these events is to provide structure to the evidentiary hearings and to ensure that as many procedural matters as possible are resolved prior to the evidentiary hearing. The main event — the evidentiary hearing — will include examination and cross-examination of witnesses, and the neutral may ask questions of his own.

Before the neutral makes a final decision, the neutral should be required to meet with the PRPs and reveal the neutral's preliminary findings. During this meeting, each PRP would have the opportunity to question the neutral regarding the preliminary findings and respond to them. Within a short time after this meeting (such as a week to 10 days) each PRP may file a memorandum, but no new factual evidence not already placed in evidence during the arbitration should be offered or considered by the neutral. Within 30 to 45 days after the meeting, the neutral should issue a final determination and award.

The neutral's award should (1) set forth each PRP's allocable share of responsibility for the cleanup costs, and (2) describe the underlying basis for the determination with respect to each party.

Obstacles to Using Arbitration

Despite the apparent advantages of using binding arbitration to resolve cost allocation disputes, there are a number of factors that operate to prevent consideration of arbitration:

* Lack of Sophistication About CERCLA

Apparently, there are still individuals and companies who believe that CERCLA liability can be avoided by not coming [18 ELR 10164] forward and participating in cleanup activities. While de minimis parties do have valid ground for concern about participating in cleanup negotiations, they should explore their options, including cash-out remedies. However, if a significant number of companies do not participate in the cleanup negotiations, then there is an increased likelihood of litigation and much higher expenses for all parties in the long run.

* EPA Refusal to Promote Settlement

EPA's failure to exercise its enforcement discretion to assist the process can doom even the best efforts by PRPs to achieve a voluntary settlement. Many PRPs may be unwilling to submit cost allocation disputes to binding arbitration in the absence of EPA's agreement to make any necessary use of its mixed funding authority to promote the settlement process.

* Inertia and Uncertainty

Arbitration of cost allocation disputes is new and so there is little experience with it. In addition, the flexibility of arbitration procedures creates unwarranted fears.

* Lawyers Are Suspicious

Use of arbitration means no litigation. No litigation means much lower legal expenses. Many defense attorneys must be pushed into using any binding ADR technique, including binding arbitration.

Conclusion

Through the combined use of mixed funding and binding arbitration, EPA and PRPs could both accelerate the cleanup of hazardous waste sites and substantially reduce the transaction costs associated with the cleanup. Not only is arbitration a preferred alternative to litigation as a means of resolving cost allocation disputes, it can also prevent the "spillover" of cost allocation disagreements into site remediation activities. As this "spillover" can adversely impact timely, voluntary cleanups of hazardous waste sites, EPA should use existing statutory mechanisms in Superfund cases to promote the use of binding arbitration by PRPs.

1. Most attempts to apply ADR techniques to environmental enforcement cases have met with resistance from both the federal government and the private sector. See Mays, Alternative Dispute Resolution and Environmental Enforcement: A Noble Experiment or a Lost Cause?, 18 ELR 10087 (Mar. 1988).

2. Some modest use of binding arbitration is being made. The relatively small group of PRPs involved in the Wauconda Landfill site in Wauconda, Illinois, did make use of binding arbitration to resolve the cost allocation dispute. In addition, PRPs at the Hardage site in Criner, Oklahoma, have recently agreed to utilize binding arbitration in the event mediation efforts on cost allocation are unsuccessful. Nonbinding arbitration has been employed at several sites, including the Bayou Sorrel site in Louisiana and the MOTCO site in Texas.

3. See Krickenberger & Berman, Allocation of Superfund Site Costs through Mediation by a Third Party Neutral, 2 TOXIC LAW REP. 543 (1987) for a very good discussion of the merits of an independent third party assisting voluntary private party remediation of Superfund sites.

4. EPA's current settlement policy may be found at 50 Fed. Reg. 5034 (1985), ELR ADMIN. MATERIALS 35050. See also, EPA Interim Guidance on Streamlining the CERCLA Settlement Decision Process (Feb. 12, 1987), ELR ADMIN. MATERIALS 35014.

5. 42 U.S.C. §§ 9601-9675, ELR STAT. 44001.

6. See Graham & Stoll, A Practical Guide to Negotiating Waste Site Cleanups, 2 TOXIC LAW REP. 619 (1987).

7. CERCLA § 122(b)(1), 42 U.S.C. § 9622(b)(1), ELR STAT. 44058.

8. CERCLA § 122(e)(3), 42 U.S.C. § 9622(e)(3), ELR STAT. 44060. See also EPA Interim Guidelines for Preparing Non-binding Preliminary Allocation of Responsibility, 52 Fed. Reg. 19919 (May 28, 1987), ELR ADMIN. MATERIALS 35065.

9. See Gillon, Negotiating and Drafting Consent Decrees Under the 1986 Superfund Amendments, 13 CHEM. WASTE LITIG. REP. 881 (1987).

10. See EPA Interim Guidance on Notice Letters, Negotiations and Information Exchange (Oct. 19, 1987).

11. See Gillon, supra note 9.

12. See EPA Memorandum on Evaluating Mixed Funding Settlements Under CERCLA (Oct. 20, 1987), ELR ADMIN. MATERIALS 35117.

13. See EPA Interim Guidance on Settlements with De Minimis Waste Contributors Under SARA § 122(g), 52 Fed. Reg. 24333 (June 30, 1987), ELR ADMIN. MATERIALS 35067; EPA Interim Model CERCLA Section 122(g)(4) De Minimis Waste Contributor Consent Decree and Administrative Order on Consent, 52 Fed. Reg. 43393 (Nov. 12, 1987), ELR ADMIN. MATERIALS 35107.

14. CERCLA § 122, 42 U.S.C. § 9622, ELR STAT. 44058.

15. See supra note 4.

16. CERCLA § 122(e), 42 U.S.C. § 9622(e), ELR STAT. 44058.

17. See EPA Interim Guidance on Superfund Selection of Remedies, Dec. 24, 1986.

18. See Gaynor, Stipulated Penalties and Dispute Resolution in CERCLA Consent Decrees: Practical Innovations Can Benefit Everyone, 18 ELR 10153 (May 1988).

19. See Susskind, The Special Master as Environmental Mediator, A.B.A. Standing Comm. on Environmental Law (1987), reprinted in 17 ELR 10239 (July 1987).

20. See, e.g., New York, City of v. Exxon Corp., 633 F. Supp. 609, 16 ELR 20850 (S.D.N.Y. 1986); United States v. Carolawn, 14 ELR 20699 (D.S.C. June 15, 1984); United States v. Metate Asbestos Corp., 584 F. Supp. 1143, 14 ELR 20433 (D. Ariz. 1984); United States v. Union Gas Co., 586 F. Supp. 1522, 14 ELR 20491 (E.D. Pa. 1984); United States v. Wade, 14 ELR 20440 (E.D. Pa. Apr. 27, 1984).

21. Krickenberger & Berman, supra note 3.

22. See Gaynor, supra note 18.

23. See supra notes 7 and 12.

24. See Barrett, Arbitration of a Complex Commercial Case: Practical Guidelines for Arbitrators and Counsel, 41 ARBITRATION JOURNAL 15 (1986); R. Coulson, Business Arbitration — What You Need to Know (1986).

25. The California legislature recently authorized the creation of a waste site cleanup arbitration panel under that state's mini-CERCLA statute. West's Ann. Cal. Health & Safety Code § 25300 et seq. The Act provides that any PRPs with an aggregate alleged liability in excess of 50 percent of the costs of any remedial action may convene an arbitration proceeding by agreeing to submit cost allocation issues to binding arbitration by the California Hazardous Substance Cleanup Arbitration Panel. The panel is to apportion liability based on the following criteria:

1) volume;

2) toxicity;

3) degree of involvement of the PRP in the generation, transportation, treatment, or disposal of the hazardous substance;

4) degree of care exercised by the PRP; and

5) degree of cooperation by the PRP with federal, state, and local officials to prevent harm to human health and the environment.

Each PRP whose cleanup liability is determined by the panel is liable for its apportioned share of the costs of removal and remedial actions at the site. Any PRP who pays its apportioned share of costs or performs specified removal and remedial actions following the arbitration is released from any additional civil liability to any governmental entity. In addition, any PRP not participating in binding arbitration and subsequently found liable under the Act has no right to indemnification from any party who does participate in the arbitration proceeding.

26. CERCLA § 122(h)(2); 42 U.S.C. § 9622(h)(2), ELR STAT. 44062.

27. Guidance on the Use of Alternative Dispute Resolution in EPA Enforcement Cases (Aug. 14, 1987), ELR ADMIN. MATERIALS 35123. This guidance document does not cover binding arbitration, only non-binding ADR techniques. Until additional regulations are issued, EPA is precluded from entering into binding arbitration in cost recovery actions. For an analysis of the use of ADR in environmental enforcement actions, see Mays, Alternative Dispute Resolution and Environmental Enforcement: A Noble Experiment or a Lost Cause?, supra note 1.

28. Putnam, Hayes & Bartlett, Inc., Arbitration and Mediation in Superfund: Potential Cost Savings and Reduction in Case Processing Time (Sept. 1985).

29. Both federal and state courts will abstain from overturning an arbitration award in the absence of fraud, corruption, or other such gross misconduct.

30. Clean Sites, Inc. (CSI) and the AAA recently agreed to share their expertise to enhance the use of ADR in Superfund cleanup cases. The AAA and CSI have agreed to seek areas in which a close working relationship would enhance the two organizations' common objectives in ADR. CSI intends to recommend that, for any cleanup dispute in which arbitration is considered, the parties select at least one arbitrator experienced in environmental matters from AAA's panel of neutrals.