In discussing how the CERCLA subrogation provision works and how the provision relates to common law rules of subrogation, the court provided guidance to future insurers regarding how to avoid the problem that resulted in dismissal of this claim.  In response to plaintiff’s argument that allowing the claim to go forward would be consistent with the purposes of CERCLA, particularly, the goal of requiring responsible parties to pay for the cleanup, the court argued that the insured is in a better position to enforce such claims and insurers should require insureds to pursue claims against responsible parties. 

Menasha claimed that the consent decree was not fair because the United States was not paying its fair share. Menasha also counterclaimed against the United States. To support its claim, Menasha sought discovery (through a freedom of information request) of Justice Department memoranda regarding the negotiations within the Justice Department that led to the payment by the United States.

The court held that the work product privilege protected the memoranda. The court viewed the Justice Department as one law firm and explained that it was important for Justice Department attorneys to be able to be open with each other. The court said this was analogous to a debate within a corporate law department in which attorneys express opposing views. The expression of opposing views does not make the attorneys adverse to each other for discovery purposes.

The Court’s analogy to debate within a corporate law department seems way off point. A corporation cannot sue itself. The United States, on the other hand, is often on both sides of environmental litigation, both as envorcing agency and as a responsible party. In such cases, the govenment as law enforecment agency and the government as responsible party are adverse to each other and should not work together to the detriment of the other responsible parties. The court noted that the settling agencies were not parties to the litigation. If they were that should have created real adversity between the government lawyers and the outcome should in that case be differernt.

The Freedom of Informatin Act makes most government documents publicly available, but exempts nine categories of documents from disclosure.  The government claimed the report at issue was exempt from disclosure based on the exemption for “inter-agency and intra-agency memorandums or letters which would not be available by law to a party in litigation.”  The government’s claim was that the document would not be available to a party in litigation because of the work product doctrine, which protects from disclosure, documents produced in anticipation of litigation or for trial.  Appleton argued that work product should protect theories, opinions and analysis, but not facts.  The court held, however, that the entire report was protected.  There is an exception to the work product doctrine for a party that has a special need for the information, but the court concluded that Appleton had made no showing of special need.

In most environmental matters, the facts are gathered by the potentially responsible parties and the basic information about the contamination is publicly available.   This decision does not change that general rule of procedure.  In this case, however, the governement report at issue was not an investigation report that sampled soil or groudwater and identified the contamination.  Instead, it was a report on which parties are responsible for how much.  Such reports are much more likely to include the governments opinions and theories prepared for litigation (as opposed to being prepared for remediation) and are therefore much more likely to be protected from disclosure.

The decision is important because it protects regulated parties, who are working with a regulatory agency, but who could be subject to regulation under more than one regulatory program, from the claim that the remediation that the regulatory agency approved is not adequate.  There is a significant overlap between CERCLA and RCRA.  In theory they are distinct in that CERCLA deals with inactive hazardous waste sites and RCRA manages the ongoing handling and disposal of hazardsous wastes.  Nevertheless, at many sites that have ongoing activities that generate hazardous waste (and are therefore regulated by RCRA), there were historic releases covered by CERCLA.  Each statute has a bar to claims that, in short says certain remediations approved by the appropriate regulatory body cannot be challenged by third parties.  This encourages parties to work with the regulatory agencies.   The court decision clarifying the relationship between the statutes further encourages cooperation with agencies by protecting them from certain third party claims.

The court affirmed the dismissal on the ground that Congress had, in the clean air act, displaced the common law in this area.  The theory is that if the companies emitted greenhouse gasses pursuant to a clean air act permit, then a court could not use the common law to enjoin or provide a damages remedy for such emissions.  Kivalina’s remedy would have to be through Congress.  A concurring opinion raised an interesting question.  Judge Pro issued a concurrung opinion raising the issue of whether the authorities relied on by the court, which were primarily suits seeking injunctive relief, were compelling in a case in which the plaintiff is seeking damages.  The injunction cases reason, in part that if Congress says you can do something, a court cannot use common law principles to say you cannot.   That does not necessarily imply, however, that a common law court could not provide damages for a party injured by the activity.

The decision reflects a trend in the courts to avoid the use of common law remedies in areas already addressed by Congress.  The irony is that Congress needed to get involved in environmental issues because common law principles did not effectively deal with the issues.  Now, however, plaintiffs are coming to court attempting to use common law principles to address these issues because, in their view, Congress has not effectively dealt with the issues.

The court distinguished allocation from apportionment as follows.  Apportionment was the issue in the Supreme Court’s decision in Burlington Northern, 556 U.S. 599 (2009).  Apportionment is the process of deciding who should pay how much when the parties are not jointly and severally liable (when each is liable only for part).  Allocation, on the other hand, is an equitable doctrine, intended to determine who, among the jointly and severally liable parties, should pay how much.  Equitable considerations play no role in apportionment; but equitable considerations are central to allocation.  The court explained:  “To apportion is to request separate checks, with each party paying only for his own meal.  To allocate is to take an unitemized bill and ask everyone to pay what is fair.” 

The court noted that regarding how to allocate among liable parties, the Second Circuit does not use a fixed list of equitable factors that may be considered, but that many courts use the so-called Gore Factors, which include:  “(1) The ability of the party to demonstrate that his contribution to the release can be distinguished; (2) The amount of hazardous substance involved.  Of course, a small quantity of highly toxic material, or above which releases or makes more dangerous another hazardous substance, would be a significant factor; (3) The degree of toxicity of the hazardous substance involved; (4)  The degree of involvement of the person in the manufacture, treatment, transport, or disposal of the hazardous substance; and (5) The degree of cooperation between the person and the Federal, State, or local government in preventing harm to public health or the environment from occurring from a release.  This includes efforts to mitigate damage after a release occurs.” Yankee Gas at *14 quoting Niagara Mohawk, 596 F.3d at 130 (quoting S. Rep. No. 96-848, at 345-46 (1980)). 

The court also noted that a second list of factors sometimes examined are referred to as the Torres Factors from Judge Torres’ opinion in United States v. Davis, 31 F. Supp. 2d 45, 63 (D.R.I. 1998).  They include:  (1) extent to which the costs are related to waste for which each party is responsible; (2) each party’s level of culpability; (3) degree to which the party benefitted from the disposal; and (4) ability to pay.

In the court’s detailed analysis of the facts and application of the equitable factors, the expert testimony regarding what happened during which time period was central to the court’s conclusions.  Thus, even though this was an allocation case, the reasoning and result were very much what one would expect in an apportionment case.  

It should not come as a surprise that allocation and apportionment, while conceptually distinct, often reach the same result.  Apportionment, the court said was like separate checks at the restaurant – each pays for what they ate.  Allocation, however, the court said, was about fairness.  Factors such as ability to pay, cooperation with the government, culpability and the degree to which a party benefitted from the disposal should be considered.    Sticking with the court’s analogy to the restaurant, whether the people at the table have separate checks or are looking for a fair means of dividing one bill should not make a significant difference because the most fair division will be based on who ate what.

The meat industry challenged EPA’s interpretaton of the statute and the petition was dismissed for lack of standing.  The standing requirement provides that a person cannot bring a claim to challenge any action unless the challenger can show that the action is likely to injure him.  The meat industry argued that it would be harmed by EPA’s ethanol rule because the rule would make it cheaper to produce ethanol, which will increase the amount of ethanol produced, which will increase the demand for corn, which will cause an increase in the price of corn and thereby harm the meat producers who purchase corn to feed their animals.  The court  started its discussion by noting that petitioners needed to show a substantial probability that a ruling in their favor would reduce the production of ethanol.  Absent such a showing, the petitioners could not show that the rule would injure them.  Examining the evidence, the court found the evidence of how ethanol producers would react to the rule to be insufficient to show a substantial probability.

Environmental regulation always has business/economic impacts and businesses that track the regulatory process should follow the lead of the petitioners and comment on the business/economic impacts of regulations as well as commenting on the environmental impacts.  The decision demonstrates, however, how difficult it can be to establish the business/economic impact of a proposed regulation.  One lesson from this case is that it is never enough to show that the challenged rule will have negative effects; one must also show that absent the challenged rule, those negative effects will not occur.

Plaintiffs initiated an action in Texas state court alleging various state law causes of action arising out of defendants’ drilling operations.   Plaintiffs amended their complaint to include claims arising out of the release of hazardous substances, including a CERCLA claim.  Defendants removed the case to federal courts and asked the federal court to maintain jurisdiction over the state law claims by “supplemental jurisdiction.”  28 USC 1367(a).  Plaintiffs moved to remand (i.e. asked the court to return the case to state court) and the court remanded the state law claims to state court.

The court noted that many federal courts have exercised supplemental jurisdiction over state law claims when joined with CERCLA actions, citing McDonald v Timex Corp., 9 F. Supp.2d 120 (D. Conn. 1998); Lentz v Mason, 961 F. Supp. 709 (D. N.J. 1997); and City of New Orleans v Kernan, 933 F. Supp. 565 (E.D.La. 1996).  The court noted, however, that in each case, the exercise of supplemental jurisdiction was discretionary, not mandatory and a court may decline to exercise supplemental jurisdiction if the state law claim “substantially predominates” over the federal claim.

The court concluded that the state law claim predominates here because the state law claims would be entitled to a jury trial, while CERCLA claims would not, the state law claim would include numerous issues that are not related to CERCLA liability (e.g. a negligence claims requires proof of breach of a duty and proximate causation, neither of which is part of a CERCLA claim), and the case began in state court (which indicates that plaintiff defines its claim as primarily based on state law).

The case provides some guidance regarding when environmental claims will be in federal court and when they will be in state court.  To a large extent, the plaintiff controls the nature of its claim.  At the same time, removal to federal court remains an option for defendants and it is the federal court that determines whether it will keep state claims pursuant to supplemental jurisdiction or whether it will remand those claims.  The issue of which court provides the proper forum is often litigated and can take years to resolve.   A good example is the Second Circuit’s decision in In re Methyl Tertiary Butyl Ether (MTBE) Products Liability Litigation, 488 F.3d 112 (2d Cir. 2007), summarizing the numerous court battles over which court should hear th0se groundwater contamination cases.

The court noted that the purpose of the work product doctrine is to protect the thought processes of attorneys and to prevent parties from obtaining a “free ride” on the investigative efforts of others.  The court noted that such reports are only discoverable under “exceptional circumstances” such as where the facts cannot be obtained by any other means and they are central to the case.  Here, the court found no such “exceptional circumstances,” as the court concluded that the observations in question did not relate to a critical time in the litigation.

What does this mean for environmental due diligence documents prepared for a transaction?  Probably not much.  It is not uncommon for a party preparing for a transaction to have the consultant retained by the attorney to try to protect the results from disclosure.  However, the Century Aluminum case did not involve a report prepared for an attorney handling a transaction.  The report at issue was prepared in anticipation of litigation.  The work product doctrine protects the attorney’s thought processes in preparation for litigation.  As such, the plaintiffs requested only data and observations, and did not attempt to obtain the entire report or the opinions of the consultant;  and the court held the data and observations were also protected.  A phase I site assessment prepared for a transaction (and not in anticipation of litigation) is not likely to be similarly protected.  Some portions of such reports may be protected by the attorney client privilege, which protects confidential communications between attorney and client.  A report prepared by a consultant for the attorney to assist the attorney in providing legal advice could thus be protected.  However, the attorney client privilege generally provides less protection than the work product doctrine.  Opinions and conclusions may be protected, but raw data may not be.  The relationship between the work product doctrine and the attorney client privilege in protecting environmental reports is addressed in Occidental Chemical Corp. v OHM Remediation Services, Corp. 175 FRD 421 (WDNY 1997) and Vermont Gas Systems, Inc. v United States Fidelity & Guaranty Co, 151 FRD 268 (D VT 1993).

The issues framed on appeal, particularly whether the Constitution’s due process clause requires that persons subject to an order have the right to go to court to challenge the order, had broad implications for other areas of environmental law.  For example, there is a provision of the Superfund Law that creates the same situation, i.e. an order with severe penalties and no right to judicial review of the order.  Under section 106 of the Superfund Law (42 USC 9606), EPA can order a clean up and the ordered party cannot challenge that order in court until after the clean up. This has been challenged on due process grounds and the challenges have looked very much like the Sackett’s challenge to the Clean Water Act.  For example, in General Electric Co. (GE) v Jackson, 610 F.3d 110 (2010), GE challenged an order under section 106 and the Court of Appeals held that federal courts did not have jurisdiction to the challenge.  The Court of Appeals rejected GE’s due process challenge and GE’s petition for certiorari looked very much like the Sackett’s petition.   Similar arguments were made and the Supreme Court denied cert. in the GE case a short time before granting cert. in Sackett.

Those looking for relief from the threat of EPA 106 orders hoped that the Court would recognize that the imposition penalties without any right to a hearing to challenge the penalties is fundamentally unfair and a violation of due process.  The Sacketts, as individuals,  provided a more compelling case for the Court to eliminate this unfairness that a GE case would.  That is not, however, not what the Court did.  The Court wrote a decision that appears to be limited to the Clean Water Act.  The Court avoided the due process issue entirely.  Therefore, the Court’s decision does not immediately impact other areas of environmental law.

Can the Sackett decision have a broader impact?  Yes, but it will take time to develop.  The first step will probably be analysis of the wording of the Clean Water Act section that was thought to prevent court challenges and the wording of the Superfund Law provision that prevents court challenges.  To the extent that the language is analogous, it may present an avenue to expand the scope of the Sackett decision.