Third Circuit Limits Settling PRPs’ Ability to Recover from Other PRPs

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In-Sites

June 28, 2010

The Third Circuit Court of Appeals’ recent decision in Agere Systems, Inc., et al. v. Advanced Environmental Technology Corporation, et al., ___ F.3d ___, No. 09-1814 (3rd Cir. April 12, 2010) may have a very significant impact upon the ability of settling potentially responsible parties (PRPs) to recover response costs from other PRPs under §§107 and 113 of CERCLA.

The case involves the Boarhead Farms Superfund Site, where a group of settling parties sued non-settling PRPs, most of whom settled or were dismissed before trial. However, one contribution defendant, Carpenter Technology, went to trial. Following a bench trial, Judge Legrome D. Davis of the Eastern District of Pennsylvania determined that Carpenter was responsible for 80 percent of all response costs, and Carpenter appealed to the Third Circuit.

Relying on the Supreme Court’s decision in Atlantic Research, the Third Circuit held that a CERCLA §113 contribution claim only exists where the contribution plaintiffs and defendants have “common liability.” In Agere Systems, plaintiffs’ contribution claims were based, in part, on payments made to the United States under the terms of a consent decree the settling PRPs had entered into with the United States. The consent decree was filed by the United States simultaneously with a complaint. Carpenter claimed that at the time the complaint was filed, the statute of limitations applicable to the United States’ claim against the PRPs had expired, and thus, the settling PRPs and the non-settling PRP no longer had “common liability” because the government could not have sued the non-settling PRP for cost recovery due to the expiration of the statute of limitations. The Court remanded the case for additional fact finding because it was unclear from the record when the statute of limitations had expired. But clearly, the Court was of the view that if the Government’s statute of limitations had run as to the non-settling party, then the requisite “common liability” did not exist and the settling plaintiffs did not have a §113 contribution claim against the non-settling party.

In addition, the Court addressed the merits of plaintiffs’ claim under §107 of CERCLA. The Third Circuit noted that typically, a defendant in a §107(a) suit could file a §113(f) counterclaim for equitable apportionment under CERCLA. However, the settling plaintiffs had received contribution protection under the provisions of the consent decree, and thus, they could not be sued for contribution, and Carpenter was unable to assert a §113(f) counterclaim. The Court was not willing to allow the plaintiffs, who were also PRPs, to escape all liability by imposing joint and several liability on Carpenter under §107(a) for all response costs that had been incurred. Indeed, it described such a result as “perverse”, because a primary goal of CERCLA was to make all polluters pay. It concluded that a plaintiff who is shielded from contribution counterclaims, because it has received contribution protection under §113(f)(2), does not have a §107(a) claim for costs incurred pursuant to a CERCLA consent decree.

The case will likely have an immediate impact on litigation among Superfund PRPs in the Third Circuit. Although many of the facts in this case are common in CERCLA litigation, the Third Circuit’s rulings do not appear to be consistent with case law elsewhere.

For settling PRPs, the decision may profoundly alter the settlement process, particularly in situations where tolling agreements have been utilized. It is common in many matters for the government to secure tolling agreements from some, but not all, PRPs. By the time the matter is resolved with the settling PRPs and action has been taken by the government to trigger contribution rights (such as the filing of a complaint to lodge and obtain judicial approval of a consent decree), the cost recovery statute of limitations may have run, leaving the settling parties without a CERCLA contribution remedy. And whereas the Supreme Court in Atlantic Research noted an apparent “overlap” between sections §§107 and 113 of CERCLA, there now appears to be a big gap in the ability of settling parties to recover response costs from non-settling PRPs.