United States v. Wade

No. 79-1426 (E.D. Pa. April 27, 1984)

The court rules that any judgment against defendants in a Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) cost-recovery action that is based on joint and several liability must be reduced by the full amount received by the government in earlier settlements in the action. The court first notes that it has held, 14 ELR 20437, that pre-CERCLA response costs are not recoverable under the statute. It then holds that although settlement could include recovery of pre-CERCLA costs, plaintiff is not entitled to reduce the settlement offset by such an amount. Applicable precedent establishes the rule that settling defendants can bind themselves to the resolution of claims that later prove to be invalid, but that defendants that did not settle are entitled to the full benefit of the invalidation of those claims. The court rules that the intent of the parties to the settlement concerning the application of the payment to pre-CERCLA costs is irrelevant. The court declines to rule on the reduction of an apportioned judgment by the settlement amount, however, limiting its holding to a judgment based on joint and several liability.

[Related decisions are published at 12 ELR 21051, 13 ELR 20815, 14 ELR 20096, 14 ELR 20435, 14 ELR 20436, 14 ELR 20437, 14 ELR 20440, and 14 ELR 20441.

Counsel are listed at 14 ELR 20096.

[14 ELR 20439]

Newcomer, J.:

Memorandum

Plaintiffs have settled with some forty-one companies, thereby recovering in excess of $2,000,000 for use in cleaning up the hazardous waste dumpsite on which this litigation is founded. At the time the settlement agreements were entered into the United States, and later the Commonwealth, were seeking to recover, among other amounts, cleanup costs incurred prior to the enactment of CERCLA. Accordingly plaintiffs, and presumably the settling parties, based their settlement negotiations and calculations on figures that included plaintiffs' pre-CERCLA costs. On March 22, 1984 I ruled that § 107 of CERCLA does not provide for recovery of costs incurred prior to the statute's enactment. The generator defendants now seek a ruling that all amounts received by the plaintiffs in settlement are to be credited against any judgment entered against the defendants, which in effect would not permit the government to allocate any portion of the settlement funds to what are now known to be unrecoverable pre-CERCLA costs.

The interpretation of settlement agreements is governed by certain well-settled principles that I do not believe are seriously in dispute here. First, a settlement agreement is a contract that is to be enforced in accordance with general contract principles, one of which is that the contract is to be construed to give effect to its language and the intent of the parties. Under either Pennsylvania or federal law, in the absence of a clear intent to the contrary, the release of one joint tortfeasor does not constitute a release of other potential joint tortfeasors; however, a plaintiff who has recovered an item of damage from one joint tortfeasor may not recover the same item of damage from another joint tortfeasor. Zenith Radio v. Hazeltine Research, 401 U.S. 321, 348 (1971).

Finally, the good faith compromise of a bona fide claim is adequate consideration to support a settlement contract. Thus, a defendant's subsequent discovery, for example, of a full and complete defense to a previously settled claim, without more, will not suffice to relieve the defendant of its obligations under the settlement agreement. Ransburg Electro-Coating Corp. v. Spiller & Spiller, 489 F.2d 974, 977 (7th Cir. 1973).

The settlement agreements at issue provide in part as follows:

4. The United States and the Commonwealth agree to apply all sums paid by the Company pursuant to this Agreement (a) toward necessary response and remedial activities in connection with the Wade site, and (b) toward restitution and reimbursement of their past expenditures associated with response and remedial activities in connection with the Wade site.

The Agreement was used as early as the fall of 1981, less than a year after CERCLA was enacted and a time when a large chunk of plaintiffs' "past expenditures associated with response and remedial activities in connection with the Wade site" were pre-CERCLA costs.I cannot conclude, as a matter of law, that the parties did not intend for a portion of the funds paid in settlement to be allocated to release of the plaintiffs' claims for pre-CERCLA costs. At best, further evidence would have to be produced on this issue. The claim for pre-CERCLA costs was a bona fide one and certainly the settling defendants would not now be entitled to a refund of that portion of their settlement payments on the ground that such costs are now known to be unrecoverable; however, the fact that the parties who made the bargain could not disturb it does not, as the plaintiffs suggest, necessarily resolve the issue of whether a third party should be able, in effect, to do so.

Two competing interests are presented. On one hand, plaintiffs argue they are entitled to the benefit of the bargain they struck with the settling parties. As noted above, this would be true enough were the settling defendants attempting to recover amounts allegedly paid in settlement of pre-CERCLA costs claims. Such a result, however, would be based at least in part on the need for finality in settlements. No such policy is implicated here.

On the other hand, the generators rely on the principle that a party is entitled to recover only for legally cognizable injuries and to recover for those injuries only once. Clearly this principle is not an ironclad one for, as noted above, the good faith compromise of a bona fide claim cannot be set aside simply because subsequent events reveal the defendant had a valid defense. On the other hand, I have been cited to no case in which a plaintiff was permitted to allocate settlement funds to injuries that are not legally cognizable and in fact certain other cases suggest to the contrary.

In Lupton v. Torbey, 548 F.2d 316 (10th Cir. 1977), plaintiff sought to recover for personal injuries allegedly resulting from the defendants' negligence and also sought to recover on behalf of her husband for loss of consortium.¹ Two of the defendants settled both claims prior to trial, and each settlement agreement specifically required that two-thirds of the settlement fund be applied to plaintiff's direct claim and one-third be applied to plaintiff's claim brought on behalf of her husband. Prior to trial plaintiff and her husband were divorced and the claim for loss of consortium was dismissed. A third defendant went to trial on plaintiff's direct claim and damages were assessed in excess of the total amount paid in settlement.

Following trial the plaintiff contended that only two-thirds of the amount received in settlement — or the amount designated by the parties as representing payment for plaintiff's direct claim — was to be deducted from the judgment. Defendant quite predictably argued that the entire settlement fund was to be applied to reduce the judgment against him. Defendant prevailed both in the trial court and on appeal. The Tenth Circuit reasoned in part:

It is apparent that the tort-feasors who settled prior to trial would have no particular interest in how the total amounts they paid were allocated between [plaintiff's spouse and plaintiff] . . . . Any tort-feasors, other than those then settling, had no part, nor authority, nor say in the total settlement nor in the allocation . . . . Also the record here contains no facts whatever relative to the damages for loss of consortium. Under these circumstances, the trial court had no alternative but to consider the settlement amounts as a total figure for all causes then asserted. The plaintiff and the settling tort-feasors could not by agreement bind [the nonsettling defendant] by such an allocation or division. The alloction had no basis in fact as far as this litigation is concerned and cannot be recognized, other than as a total amount.

548 F.2d at 319-320.

Less directly on point is Hageman v. Signal Liquid Propane Gas, Inc., 486 F.2d 479 (6th Cir. 1973). In that case plaintiff sued two separate defendants seeking $225,000 for pain and suffering and an unspectified amount for wrongful death. Prior to trial defendant [14 ELR 20440] Rheem entered into a settlement agreement in which judgment was entered in favor of the plaintiff on the pain and suffering claim in the amount of $350,000 and the wrongful death claim was dismissed as to Rheem. Rheen paid $350,000 in settlement. Plaintiff's claim against the remaining defendant for wrongful death proceeded to trial and a verdict was returned in excess of $500,000.

The issue on appeal, once again, was the amount by which the judgment was to be reduced. Defendant first argued that the judgment should be reduced by the entire $350,000 because the claim for which it was purportedly given — pain and suffering — was barred by the statute of limitations. Having concluded that the statute of limitations did not bar the claim for pain and suffering the Court of Appeals did not address this argument and thus the case is less like the one presently before me.

Defendant's second argument was that defendant Rheem could not have intended, despite the clear language of the settlement agreement, to settle a $225,000 claim for $350,000. Thus, the parties must have intended that some portion of the settlement fund be applied to the wrongful death claim. The Court of Appeals agreed and remanded the case for the purpose of determining the appropriate allocation of the $350,000 between the pain and suffering and the wrongful death claims. While the case refers to allocation of settlement funds as being an issue that is to be resolved in accordance with the intent of the parties, its result stands equally for the proposition that parties may not allocate settlement funds to clearly unrecoverable claims.

The rule that emerges from Lupton, and to a lesser extent Hageman, is that settling defendants can bind themselves to the settlement of claims that subsequently prove to be invalid but that nonsettling defendants reap the benefit of the knowledge that subsequent developments provides.²

Moreover, assuming plaintiffs were correct in their contention that the intent of the parties cotrols, the net result might well be the same. The United States asserts with respect to the settlement agreements that the "pre-CERCLA costs would have been the costs longest outstanding, and would be expected to be the first costs to be reimbursed. Thus, the Agreement clearly contemplated that settlement money would first be allocated to pre-CERCLA costs." I understand this to mean that the United States believes it is free to allocate settlement money first to recover all pre-CERCLA costs and that only upon full recovery of these costs need it appropriate anything to post-CERCLA costs. While this might ultimately emerge as the intent of the parties were an inquiry undertaken, it is less than obvious to me at this time and in fact seems unlikely.

Each of the agreements entered into clearly states that the settling party is being released from "any and all" claims and demands. Presumably, therefore, the settling party paid some consideration for the release of each of the various claims and demands asserted or that could be asserted. Furthermore, paragraph 4 of each agreement states by implication that the plaintiffs will apply the monies received to future costs as well as past costs. Finally, the United States vigorously argued earlier in this litigation that the parties intended a portion of the settlement fund to be applied to future costs. All of this suggests to me that, even if the intent of the parties were to control, the plaintiffs would not be free to recover their entire pre-CERCLA costs from settling parties. In any event I have concluded that the intent of the parties simply is not relevant to the issue of allocation of settlement funds in this case.

Thus I conclude applicable law³ requires, at a minimum, that all monies received in settlement of this litigation be subtracted from any judgment obtained by plaintiffs after trial, subject to the following caveat. I have not yet ruled on whether the defendants will be subject to joint and several liability or whether apportionment will be possible. In the absence of a clear picture of how apportionment, if possible, would proceed, I am reluctant to rule at this time that the generators would be entitled to a reduction by the full settlement figure of an apportioned judgment. My ruling is therefore limited to the defendants being held jointly and severally liable for the cost of all cleanup. I specifically decline to rule on any issues concerning the reduction of an apportioned judgment by settlement funds.

Order

AND NOW, this 27th day of April, 1984, upon consideration of the generator defendants' motion for a ruling that, at a minimum, all monies received in settlement are to be credited against any judgment entered against defendants, and all responses thereto, it is hereby ordered that the motion is GRANTED in part and DENIED in part in accordance with the accompanying memorandum.

AND IT IS SO ORDERED.

1. Under the relevant state law the spouse of an injured party had no direct cause of action for loss of consortium. Instead, the procedure described above was followed.

2. I do not read Zenith Radio v. Hazeltine Research, 401 U.S. 321 (1971), as reaching a contrary conclusion. The United States characterizes that case as one in which the court allocated settlement money to a claim barred by the statute of limitations, reasoning that "it is the status of the claim at the time of settlement, not at the time of trial, that determines whether money may be allocated to it." United States' Supplemental Memorandum at 4. As it relates to the issue before me that case simply stands for the proposition that when parties settle a claim that is not time barred at the time of settlement, in subsequent litigation at a time when the settled claim would be time barred the defendant in the subsequent litigation may or may not be entitled to a degress of relief on the basis of the prior settlement. The case in no way stands for the proposition that settling parties can allocate costs to claims which, as a matter of law at the time of settlement, are not recoverable.

3. With respect to the issues ruled on in this opinion, I believe that both Pennsylvania and federal law would lead to the same result. I therefore do not address the issue of which law applies.