A recent decision by the Sixth Circuit Court of Appeals, applying New York contract law, illustrates the impacts a tenant’s environmental activities can have on a landlord and the importance of addressing environmental compliance issues in a lease. Wilmington Trust Co. v ARP Generating Co., (June 8, 2017)was a breach of contract case brought by the owner of a facility, alleging that a consent order between the tenant and EPA was a breach of several lease provisions.

The Defendants financed the construction of a power plant, sold the power plant to a group of investor-financed trusts and then leased the facility back from the trusts. Plaintiff was acting as trustee for several of the owner trusts. Essentially, EPA commenced litigation against a number of power plant owners and operators to require additional pollution control equipment. The Defendants entered into a Consent Decree resolving the litigation and subsequently amended the Consent Decree to delay significant requirements until after its lease expired. Plaintiffs then challenged that action as a breach of the lease.

The court provided a lengthy analysis of the lease provisions that is beyond the scope of this post. For our purposes, it is sufficient to know that a tenant’s activities can impose environmental liabilities on the landlord and it is best to try to address these issues during lease negotiations. The typical office lease will not be allocating the same potential liabilities as a power plant (the scrubber initially agreed to by the defendants had an estimated cost of $1.4 billion). Nevertheless, the parties to a lease ought to address responsibility for a host of environmental issues that could occur.

In Town of Islip v Datre, 2017 WL 1157188 (EDNY, March 28, 2017), the court misread CERCLA and added a requirement that a defendant know that it is disposing of hazardous waste. This post will examine the causes of this error.

The first cause of the error is trying to interpret language in a Supreme Court decision without any attempt to examine the underlying reasoning. The Supreme Court in Burlington Northern noted that “arranger liability,” unlike other Superfund liability such as owner/operator liability, is not strict liability. The basis for that conclusion was the meaning of the word “arrange.” Arrange means to make a plan and one cannot make a plan accidentally. Based on that, all one needs to know is that they are disposing of something – then they have arranged for disposal. The precise issue before the court was whether accidental spills could be the source of arranger liability and the court examined the extent to which knew about these spills and never addressed the issue of whether they knew that what they were disposing of was hazardous.

The second cause of the error is a failure to examine the history of the development of CERCLA liability. Early cases had waste generators arguing that they should not be liable because they did not know that they were handling hazardous waste. Numerous courts made clear that they did not have to know they were handling a hazardous waste. There is nothing in Burlington Northern to indicate that they intended to overturn that line of cases.

As someone who has a history of representing responsible parties at Superfund sites, I tend root for the defendant because there are areas of unfairness in Superfund. However, as someone who has published numerous law review articles on Superfund issues, I would be very surprised if this is not overturned on appeal. My analysis of the arranger issue in Burlington Northern can be found in the University of Baltimore Law Review, volume 40, pages 383-418.

Release reporting requirements are not often litigated, but a recent decision from the Eastern District of California provides explains how the release reporting requirements under CERCLA relate to the release reporting requirements under EPCRA. In United States v Gibson Wine Co., 2017 WL 1064658 (E.D Cal. 2017), EPA alleged that failure to provide notice of a release of anhydrous ammonia was a violation of both CERCLA and EPCRA (among others). Defendant moved to strike the CERCLA claim on the ground that it was redundant in light of the EPCRA claim. The district court denied the motion.

The court explained that the two notices are not redundant because they serve different purposes. CERCLA (the Comprehensive Environmental Response, Compensation and Liability Act) requires a notice to the National Response Center because of concern about the risks of industrial pollution. The goal of CERCLA is cleanup. EPCRA (the Emergency Planning and Community Right to Know Act) requires notice to local government agencies to assure that the information is publicly available so that agencies can respond appropriately. Because the goals of the two notice are different, the court concluded that the claims were supplementary and not redundant.

A recent decision of the United States Court of Appeals for the District of Columbia addresses important issues regarding challenges to regulatory action.  The case, Center for Regulatory Reasonableness v EPA, 2017 WL 763916, arose out of certain policy letters issued by EPA in 2011 that explained and arguably changed two EPA policies regarding publicly owned water treatment facilities.  The policy letters were challenged and the challengers prevailed in the Eighth Circuit Court of Appeals.  See, Iowa League of Cities v EPA, 711 F3d 844 (2013).   EPA then stated that it would not acquiesce to the Eighth Circuit’s decision outside of the Eighth Circuit and the Center for Regulatory Action challenged EPA’s non-acquiescence statements.

The court held that it did not have jurisdiction to hear the case because the Clean Water Act only gives courts of appeals jurisdiction to hear challenges to EPA-promulgated effluent or discharge standards and the non-acquiescence statements were not a “promulgation” because they did not announce a new standard.  Interestingly, the 2011 policy letters were a “promulgation.”  The Eighth Circuit’s decision had explained that whether an act is a “promulgation” depends on whether it has a binding effect on regulated parties.  Apparently, the court concluded that the 2011 letters had a binding effect, while the acquiescence letters merely explained the effect of the 2011 letters.

Next the court explained that to the extent that the Center for Regulatory Reasonableness was really challenging the 2011 letters, its challenge was untimely.  Challenge had to be within 120 days, as it was in the Eighth Circuit.

The result is that (1) the Eighth Circuit vacated the 2011 letters because they were the promulgation of effluent standards without notice and comment as required by the Administrative Procedure Act; (2) EPA accepts that decision as binding only in Eighth Circuit and treats the 2011 letters as binding in the rest of the country; and (3) the time to challenge the letters for violating the Administrative Procedure Act outside the Eighth Circuit has passed.

The Center for Regulatory Reasonableness may still find a way out of this unreasonable result, but the lesson learned is that when challenging regulatory action, you need to move quickly and you may not be able to rely on challenges in other jurisdictions.

 

The New York State Department of Environmental Conservation recently published proposed amendments to the Part 617 environmental review regulations.  The text of the amendments as well as the generic environmental impact statement assessing the impact of the proposed amendments can be found on the NYSDEC website.  Public comments on the regulations are being accepted until May 19, 2017.

The basic thrust of the regulations is to “streamline the process without sacrificing meaningful environmental review.”  Anyone with experience in the area knows that the process needs streamlining.  Among the areas addressed are additional categories of Type II actions (actions that do not require an impact statement) and new provisions regarding deadlines.

Interested parties should review the proposal  let their voice be heard.   Anything that can streamline the process should be welcome.  It is possible, however, that the regulations are not the primary reason that the process needs to be streamlined.  Local government officials who oppose projects use the SEQRA process to delay and add to the cost of projects.  Therefore, in all likelihood, well intended regulatory change is likely to have little real impact on the process.

In Asarco, LLC v Noranda Mining, Inc., 2017 WL 24609 (10th Cir. 2017), the court held that Asarco could proceed with a contribution claim against Noranda, in part because  there was no necessary inconsistency between (1) Asarco’s representations to the bankruptcy court that its settlement with EPA was fair and equitable and (2) Asarco’s claim in the contribution action that in its settlement with EPA, it paid more than its fair share of the remediation costs.

Asarco is a mining company is a mining company that filed for Chapter 11 bankruptcy in 2005.   Approximately $6.5 billion dollars worth of environmental claims were brought against it and, after years of negotiation, a comprehensive settlement was reached, whereby, Asarco agreed to pay approximately $1.79 billion dollars to resolve environmental claims.  In seeking court approval of the settlement, Asarco produced evidence that the settlement was fair and equitable.

In 2013, the reorganized Asarco brought a contribution claim against Noranda alleging that in settling environmental claims arising out of the Lower Silver Creek/Richardson Flat site, it paid more than its fair share of the remediation costs.  Noranda moved for summary judgment in part based on the doctrine of judicial estoppel – arguing Asarco could not tell one court that the amount paid was fair and equitable and then tell another court that the amount was more than its fair share.  The district court granted the motion and the 10th Circuit reversed.

The court’s reasoning was based in part on the uncertainty inherent in environmental cleanup costs.  Due to that uncertainty, it is not unusual for a party to settle for an amount that it believes is more than its fair share and then seek contribution from others alleging that it paid more than its fair share.

The result does not necessarily mean that the same settlement figure can be fair and equitable in one context and more than their fair share in another.  It does mean, however, that because estimates of future cleanup costs can vary so greatly, Asarco will have the opportunity to prove that it paid more than its fair share in a settlement that it asserted to be fair.

The relationship between 42 USC section 107(a) (the cost recovery provision) and 42 USC section 113 (the contribution provision) has been the subject of two Supreme Court decisions and much debate.  The decision of the United States District Court of Nevada in Diamond X Ranch v Atlantic Richfield Company (Arco), 2016 WL 4498211 (August 26, 2016) adds a new twist to the debate as the court allowed a cost recovery defendant to bring a cost recovery counterclaim.

Diamond X brought a section 107(a) cost recovery claim against Arco alleging that contamination at the ranch was caused by drainage from the Leviathan Mine site, a site at which Arco is a responsible party.  Arco asserted counterclaims under both sections 107(a) and 113 and Diamond X moved to dismiss the section 107(a) claim on the ground that cost recovery plaintiffs are limited contribution clams under section 113.    The court denied the motion to dismiss reasoning that while ordinarily, a cost recovery defendant is limited to a contribution counterclaim (because the counterclaim is for a portion of the costs that are the subject of the cost recovery action), here a cost recovery counterclaim is appropriate because Arco is seeking to recover costs in the counterclaim that are not the subject of Diamond X’s cost recovery claim.  Arco’s theory is that Diamond X’s maintenance of its property and its irrigation caused the disposal of hazardous waste on the Diamond X property.  EPA had issued unilateral orders under section 106 requiring Arco to address contamination and the Arco counterclaim addressed those costs.

Nearly all courts limit a cost recovery defendant to a contribution counterclaim.  There are, however, significant advantages to being a cost recovery plaintiff.  Key among them are joint and several liability and a longer statute of limitations.  Thus, if the Diamond X decision is not reversed on appeal, we may see many cost recovery defendants working to make counterclaim allegations similar to Arco’s.