United States v. Nicolet, Inc.

No. 85-3060 (E.D. Pa. August 15, 1989)

The court approves a Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) settlement under which a bankrupt owner of the Ambler, Pennsylvania, waste disposal site will reimburse a small part of the response costs incurred by the United States, even though other defendants may have to bear a disproportionately greater share of the remaining costs. The settling defendant is in Chapter 11 bankruptcy and after liquidation, will be worth $ 1,500,000, which is less than its liabilities. The defendant agreed to reimburse the government for $ 900,000 in response costs — $ 550,000 from the defendant and $ 350,000 from its insurer. The court defers to the consent decree negotiated on behalf of a "specially equipped" federal administrative agency. Another defendant objected that the government settled too cheaply, thereby affording Nicolet unfair contribution protection. The court finds the settlement to have been negotiated at arm's-length and therefore determines that it is fair. The government conceded that this settlement constitutes only a modest percentage of the total response costs incurred at the site. However, the court finds that $ 900,000 is a substantial sum from a liquidating bankrupt with staggering liabilities. The settlement is thus reasonable and consistent with CERCLA's goals.

[Other decisions in this litigation are published at 17 ELR 21085, 21088, and 21091, 18 ELR 20845 and 21411, 19 ELR 21192, and 20 ELR 20864.]

Counsel listed at 20 ELR 20864.

[20 ELR 20866]

Broderick, J.:

Memorandum

On May 30, 1985, the United States, on behalf of the Environmental Protection Agency ("EPA"), filed suit against defendant Nicolet, Inc. ("Nicolet"), alleging that Nicolet was liable, pursuant to § 107(a) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. § 9607(a), for costs incurred by the EPA in responding to a release of a hazardous substance at a waste disposal site in Ambler, Pennsylvania ("Ambler Site"). On March 13, 1986, Nicolet filed a third-party Complaint against T&N plc ("T&N") (formerly known as Turner & Newall PLC), alleging that T&N was solely and directly liable for the response costs and/or was liable for contribution or indemnity to Nicolet for such costs as a consequence of T&N's relationship to the previous owner of the Ambler site. Subsequently, on June 5, 1987, the United States amended its Complaint to add T&N as a defendant.

On July 17, 1987, Nicolet filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. §§ 1101 et seq., in the Bankruptcy Court for the Eastern District of Pennsylvania. Accordingly, on September 1, 1987, pursuant to § 362(a) of the Bankruptcy Code, the action was placed in the Civil Suspense file. On January 12, 1988, this Court granted the United States' Motion for Declaration of Inapplicability of Automatic Stay, and removed the case from civil suspense. United States v. Nicolet, Inc., No. 85-3060 [18 ELR 20845] (E.D. Pa. January 12, 1988), affirmed, nos. 88-1079 & 88-1110 [18 ELR 21411] (3d Cir. September 16, 1988). Though remaining in Chapter 11 bankruptcy, Nicolet has gone out of business and is liquidating all of its assets.

On February 22, 1988, T&N moved to dismiss the First Amended Complaint filed by the United States. The United States filed both an opposition to the motion to dismiss as well as a motion for leave to file a Second Amended Complaint. Based upon a request by the parties, this Court deferred ruling on both motions pending disposition of the ongoing settlement negotiations between the United States and T&N. Upon being informed that the United States and T&N were unable to reach a settlement, the Court, on May 10, 1989, granted the United States' Motion for Leave to File a Second Amended Complaint and denied defendant T&N's motion to dismiss.

Following extensive negotiations, the United States and Nicolet, on May 15, 1989, executed a proposed Consent Decree settling the government's claims against Nicolet. Under the Consent Decree, the United States will receive $ 900,000.00; $ 550,000.00 of which will come from Nicolet, and $ 350,000.00 from Nicolet's property damage insurers. Pursuant to § 122(i) of CERCLA, 42 U.S.C. § 9622(i), the Attorney General is required to provide an opportunity to persons who are not named as parties to the Consent Decree to comment on the proposed reimbursement of CERCLA response costs before its entry by the Court as a final judgment. Accordingly, on May 25, 1989, the Attorney General, pursuant to 28 C.F.R. § 50.7, published, in the Federal Register, a Notice of Lodging describing the Consent Decree. See 54 Fed. Reg. 22638-9. During the ensuing thirty day public comment period, the United States received one comment, a letter submitted by T&N, the remaining party in the underlying litigation. T&N opposed the proposed Consent Decree on the ground that, in T&N's view, the United States settled with Nicolet too cheaply, thereby affording Nicolet unfair contribution protection. See 42 U.S.C. § 9613(f).

After reviewing both the public comments and the proposed Consent Decree, the Attorney General, on July 7, 1989, filed, with this Court, a Motion to Enter Consent Decree. The government's motion was opposed by both defendant T&N and Third Party Defendant KBH Associates.¹ On July 26, 1989, the United States Bankruptcy Court for the Eastern District of Pennsylvania authorized Nicolet to enter into the Consent Decree with the United States. For the reasons stated below, this Court will grant the motion of the United States and approve and enter the proposed Consent Decree between the United States and Nicolet.

It is well established that voluntary settlement of disputes is favored. Pennwalt Corp. v. Plough, Inc., 676 F.2d 77, 80 (3d Cir. 1982); Autera v. Robinson, 419 F.2d 1197, 1199 (D.C. Cir. 1969). As the Third Circuit has stated:

Voluntary settlement of civil controversies is in high judicial favor. . . . When the effort [to settle] is successful, the parties avoid the expense and delay incidental to litigation of the issues . . .

Pennwalt Corp. v. Plough, Inc., 676 F.2d at 80. Both the parties and the public benefit from the "saving of time and money that results from the voluntary settlement of the litigation." Citizens for a Better Environment v. Gorsuch, 718 F.2d 1117, 1126[13 ELR 20975] (D.C. Cir. 1983). Thus, the consent decree is a "highly useful tool for government agencies," for it "maximizes the effectiveness of limited law enforcement resources" by permitting the Government to obtain compliance with the law without lengthy litigation. United States v. City of Jackson, Mississippi, 519 F.2d 1147, 1151 (5th Cir. 1975); see also United States v. Hooker Chemicals & Plastics Corp., 540 F. Supp. 1067, 1080[12 ELR 20701] (W.D.N.Y. 1982); United States v. Louisiana, 527 F. Supp. 509, 511 (E.D. La. 1981).

Given the strong policy favoring consent decrees, see SEC v. Randolph, 736 F.2d 525, 528 (9th Cir. 1984), courts are urged, whenever possible, to preserve the bargained for positions of the parties to the settlement by strictly construing the terms of the decree. See United States v. ITT Continental Baking Company, 420 U.S. 223, 238, 95 S. Ct. 926, 935 (1975). As the Supreme Court held in United States v. Armour & Co.:

Consent decrees are entered into by parties to a case after careful negotiation has produced agreement on their precise terms. . . . Thus the decree itself cannot be said to have a purpose; rather the parties have purposes, generally opposed to each other, and the resultant decree embodies as much of those opposing purposes as the respective parties have the bargaining power and skill to achieve.

402 U.S. 673, 681-82, 91 S. Ct. 1752, 1757 (1971). Viewed in this light, the consent decree, a memorialization of the bargained for position of the parties, is similar to any other voluntary settlement agreement. Williams v. Vukovich, 720 F.2d 909, 920 (6th Cir. 1983); United States v. City of Miami, 664 F.2d 435, 439-40 (5th Cir. 1981) (en banc).

[20 ELR 20867]

However, a consent decree, especially one that impacts the interests of the public at large, is more than a simple contractual settlement between parties. Kelly, et al. v. Thomas Solvent Company, et al., No. K86-164 (W.D. Mich. June 5, 1989) slip op. at 15. It is a judicial act providing for a continuing decree of injunctive relief. Carson v. American Brands, 450 U.S. 79, 84, 101 S. Ct. 993, 996 (1981); Williams v. Vukovich, 720 F.2d at 920; Plummer v. Chemical Bank, 668 F.2d 654, 659 (2d Cir. 1982). Indeed, "judicial approval of a settlement agreement places the power and prestige of the court behind the compromise struck by the parties." Williams v. Vukovich, 720 F.2d at 920; see also Stotts v. Memphis Fire Department, 679 F.2d 541, 557 (6th Cir. 1982). The consent decree will therefore not be approved where the agreement is illegal, a product of collusion, inequitable, or contrary to the public interest. United States v. City of Jackson, Mississippi, 519 F.2d at 1151.

II.

Judicial review of a consent decree is committed to the informed discretion of the trial judge. United States v. Hooker Chemical and Plastics Corp., 776 F.2d 410, 411 [16 ELR 20079] (2d Cir. 1985); United States v. Jones & Laughlin Steel Corp., 804 F.2d 348, 351 [17 ELR 20004] (6th Cir. 1986). The trial court, however, does not have the power to modify a proposed consent decree; it can only approve or reject it. Officers for Justice v. Civil Service Commission, 688 F.2d 615, 630 (9th Cir. 1982), cert. denied, 459 U.S. 1217 (1983); see also Williams v. City of New Orleans, 694 F.2d 987, 993 (5th Cir. 1982).

As with other litigation settled by consent decrees, in cases brought by the United States a court should "assure itself that there has been valid consent by the concerned parties and that the terms of the decree are not unlawful, unreasonable, or inequitable." United States v. City of Jackson, Mississippi, 519 F.2d at 1151. The balancing of competing interests affected by a proposed consent decree in a case brought by the United States "must be left, in the first instance, to the discretion of the Attorney General." United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir.), cert. denied, 454 U.S. 1083 (1981); see also United States v. Associated Milk Producers, Inc., 535 F.2d 113, 117 (8th Cir.), cert. denied, 429 U.S. 940 (1976). This principle is particularly important where the consent decree has been negotiated by the Justice Department on behalf of a federal administrative agency "specially equipped, trained and oriented in the field." United States v. National Broadcasting Co., 449 F. Supp. 1127, 1144 (C.D. Cal. 1978).

The trial court is not required to make the same in depth analysis of a proposed cost recovery settlement that may be required, post trial, to order an allocation of costs among parties jointly and severally liable. There is obviously no requirement that the Court try the case in order to settle it. Officers for Justice v. Civil Service Commission, 688 F.2d at 625; City of Detroit v. Grinnell Corp., 495 F.2d 448, 462 (2d Cir. 1974). "The Court must eschew any rubber stamp approval in favor of an independent evaluation,yet, at the same time it must stop short of the detailed and thorough investigation that it would undertake if it were actually trying the case." United States v. Hooker Chemical & Plastics Corp., 540 F. Supp. at 1072, quoting City of Detroit v. Grinnell Corp., 495 F.2d at 462; see also United States v. Seymour Recycling Corp., 540 F. Supp. 1334, 1337-8 [13 ELR 20192] (S.D. Ind. 1982).

III.

Congress and the Courts have prescribed essentially similar factors for a court to consider in reviewing a proposed consent decree under CERCLA. The legislative history for the 1986 amendments to CERCLA establishes that a court's role in reviewing a "Superfund" settlement, is to "satisfy itself that the settlement is reasonable, fair, and consistent with the purposes that CERCLA is intended to serve." H.R. Rep. No. 253, Part 3, 99th Cong., 1st Sess. 19 (1985). This three part test of (1) fairness, (2) reasonableness, and (3) consistency with CERCLA's goals, is similar to the tests courts employed in evaluating CERCLA settlements prior to the 1986 amendments. Kelly v. Thomas Solvent, slip op. at 17-18. See, e.g., United States v. Conservation Chemical Co., 628 F. Supp. 391, 400 [17 ELR 20158] (W.D. Mo. 1985); United States v. Seymour Recycling Corp., 554 F. Supp. at 1337-38; United States v. Ketchikan Pulp Co., 430 F. Supp. 83, 86 [7 ELR 20369] (D. Alaska 1977).

As previously stated, under the proposed Consent Decree, the United States will receive $ 900,000.00, $ 550,000.00 of which will come from Nicolet, and $ 350,000.00 from Nicolet's property damage insurers. The record clearly shows, and the government concedes, that such payment constitutes only a modest percentage of the total response costs incurred at the Ambler site. However, this Court concludes that $ 900,000.00 constitutes a substantial sum of money to obtain on a claim against a liquidating bankrupt with the staggering liabilities presently confronting Nicolet.

The estimated value of Nicolet's liquidated assets is $ 1,500,000.00. See Disclosure Statement to Accompany Debtor's Second Amended Plan of Reorganization. However, the value of just one category of claims against Nicolet's estate — the administrative expense claims excluding EPA's claims for post-petition response costs relating to the Ambler site — is estimated to be $ 1,618,000, a sum larger than the total value of Nicolet's estate. Id. at 8-11. In addition, Nicolet is a named defendant in 50,000 personal injury lawsuits relating to exposure to asbestos, and approximately 200 property damage lawsuits. Id. at 13-16. Notwithstanding these staggering fixed and potential liabilities, and $ 51,000 in fixed liabilities of trade creditors, Nicolet has arranged a "global settlement" of the claims against it mandating a payment of $ 900,000.00 to the United States.² We further note that to the extent the $ 900,000.00 is not paid in full from both the proceeds of Nicolet's liquidation and the contribution of Nicolet's property damage insurers, it will be paid by NuNic, Inc., Nicolet's sole shareholder. Id. at 18-20.

A. The Fairness of the Proposed Consent Decree

In United States v. Hooker Chemical & Plastics Corp., 607 F. Supp. 1052, 1057 [15 ELR 20801] (W.D.N.Y.), aff'd, 776 F.2d 410 [16 ELR 20079] (2d Cir. 1985), the court noted that in determining whether a settlement is fair, a court should look to factors such as whether the parties negotiated in good faith, and whether the settlement reflects a compromise based upon litigation risks, providing that "a court should not attempt to resolve every factual dispute underlying the agreement but may look to a number of factors, including the good faith efforts of negotiation, the opinions of counsel, and the possible risks involved in the litigation if the settlement is not approved." Based upon an application of these factors, this Court finds that the proposed Consent Decree is fair.

First, the more than four years of often contentious litigation between Nicolet and the United States unequivocally demonstrates the adversarial vigor with which the parties pursued their clearly adverse interests. The record fully supports the conclusion that the proposed consent decree resulted from good-faith, arms length negotiations between the two parties. See City of New York v. Exxon, Hax. W. Lit. Rep. 13,520 (S.D.N.Y. Sept. 30, 1988).

Second, it is clear that both the United States and Nicolet faced substantial litigation risks. While the United States faced few, if any risks, in proving the elements of CERCLA liability against Nicolet, it is clear, as previously discussed, that the government faced the very real risk of trying its case against Nicolet to judgment, and then finding that its judgment against Nicolet, a liquidating bankrupt, was practically worthless. Nicolet, of course, faced the risk of joint and several liability for all of the United States' response costs to date, as well as its future costs. See United States v. Monsanto Co., 858 F.2d 160, 171 [19 ELR 20085] (4th Cir. 1988), cert. denied, U.S. (1989); United States v. Wade, 577 F. Supp. 1326, 1338 [14 ELR 20096] (E.D. Pa. 1983). Thus, we view the Consent Decree as a legitimate, good-faith compromise reflecting the balancing of these respective litigation risks.

We have considered and rejected defendant T&N's argument that the proposed Consent Decree is unfair because it permits Nicolet to settle "too cheaply."³ Certainly, this Court understands T&N's [20 ELR 20868] desire to maximize Nicolet's contribution to the payment of response costs and thereby reduce its liability for response costs. However, T&N has presented no evidence to suggest, and the record does not support the conclusion, that the settlement negotiations were anything other than at arms-length and in good faith.

B. The Reasonableness of the Proposed Consent Decree and Its Consistency With the Public Interest and CERCLA's Goals

The Conservation Chemical court set forth several factors relevant to whether a Superfund settlement is "reasonable": (1) the nature and extent of the hazards at the Site; (2) the degree to which the remedy provided for in the Decree will adequately address the hazards present at the site; (3) the possible alternative approaches for remedying the hazards at the site; (4) the extent to which the consent decree furthers the goals of the statutes that form the basis of the litigation; and (5) the extent to which the court's approval of the consent decree is in the public interest. United States v. Conservation Chemical Co., 628 F. Supp. at 402. The reasonableness factor therefore focuses primarily on the technical, cleanup aspects of the settlement, which are not in issue in this proposed Consent Decree. However, the fourth and fifth factors are applicable here, and this Court find[s] that the proposed Consent Decree meets the requirements they set forth.

Congress enacted CERCLA in response to widespread concern over the severe environmental and public health effects resulting from improper disposal of hazardous wastes and other hazardous substances. Dedham Water Company v. Cumberland Farms Dairy Inc., 805 F.2d 1074 [17 ELR 20223] (1st Cir. 1986); Eagle Picher v. EPA, 759 F.2d 922 [15 ELR 20460] (D.C. Cir. 1985); Lone Pine Steering Committee v. EPA, 600 F. Supp. 1487, 1489 [15 ELR 20109] (D.N.J.), aff'd, 777 F.2d 882 [16 ELR 20009] (3d Cir. 1985), cert. denied, 476 U.S. 1115 (1986). The statute is designed to facilitate the prompt cleanup of hazardous dumpsites by providing a means of financing governmental and private responses and by placing the ultimate financial burden upon those responsible for the danger. City of Philadelphia v. Stepan Chemical Co., 554 F. Supp. 1135, 1142-43 [12 ELR 20915](E.D. Pa. 1982). Thus, settlements of CERCLA cases in which the defendants agree to reimburse the Superfund for past expenditures and to undertake work that would otherwise be funded with Superfund money is in the public interest. See United States v. Conservation Chemical Co., 628 F. Supp. at 402-403; see generally Grad, A Legislative History of the Comprehensive Environmental Response Compensation and Liability Act of 1980, 8 Columbia Journal of Environmental Law 1 (1982). Cost effective settlement practices also preserve precious resources of the government in their efforts to clean up hazardous waste sites as quickly and cheaply as possible. Note, Developments in the Law-Toxic Waste Litigation, 99 Harv. L. Rev. 1458 (1986).

The proposed Consent Decree clearly squares with Congress' goal in enacting CERCLA by providing for Nicolet to reimburse the Superfund $ 900,000.00, money which the EPA may then use to fund further response actions either at the Ambler Site or other sites. Kelly v. Thomas Solvents, slip op. at 20. Finally, we note that in settling first, Nicolet has furthered the public interest by indirectly encouraging other parties to so settle. As the court stated in United States v. Seymour Recycling Corp.:

There is a public interest in encouraging parties to come forward first in an effort to settle enforcement cases. This is consistent with the general policy favoring the compromise of claims.

554 F. Supp. at 1339. Thus, this Court finds that the proposed Consent Decree is reasonable, consistent with the goals of CERCLA, and in the public interest.

IV.

For the reasons stated above, this Court will grant the motion of the United States to Approve and Enter the Consent Decree.

ORDER

AND NOW, this 15th day of August, 1989, for the reasons set forth in this Court's Memorandum of August 15, 1989,

IT IS ORDERED that the United States' Motion to Enter Consent Decree is GRANTED; and

IT IS FURTHER ORDERED that the Consent Decree is Entered as a Final Judgment as to all claims between plaintiff United States and defendant Nicolet.

1. On June 5, 1989, defendant T&N filed a Third Party Complaint against, inter alia, KBH Associates ("KBH"), alleging that KBH is an "owner" of the Ambler site within the meaning of CERCLA. Because KBH did not become aware of the proposed Consent Decree between Nicolet and the United States until after the expiration of the thirty day public comment period, no such comments were filed. In its opposition to the government's Motion to Enter Consent Decree, KBH argues that the settlement affords Nicolet unfair contribution protection.

2. It is unsettled law in the Third Circuit whether post-petition CERCLA response costs are entitled to an administrative expense priority. See Southern Railway Company v. Johnson Bronze Company, 758 F.2d 137 (3d Cir. 1985). Assuming, however, that CERCLA response costs are so entitled, the record clearly shows that non-EPA administrative expense claims against Nicolet's bankruptcy estate amount to over $ 1,600,000.00. Thus, it is clear that in the event Nicolet was forced to liquidate under Chapter 7 of the Bankruptcy Code, which would inevitably occur if the Consent Decree is rejected, the United States could well receive far less on its administrative expense claim than the $ 900,000.00 provided under the Consent Decree.

3. Defendant T&N's second argument, that the definition of Nicolet contained within the Consent Decree, will discourage settlement is without merit. Indeed, subsequent to the filing of their opposition, T&N and the United States reached an agreement in principle to settle their litigation.