In U.S. v. NCR Corp., 2012 U.S. App. LEXIS 16097 (7th Cir. 8/3/12) the United States Court of Appeals for the Seventh Circuit declined to adopt the Third Restatement of Torts reflecting a national trend away from joint liability. This ruling seems to fly in the face of the legislative history of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) that liability should be governed by traditional and evolving principles of common law.
The statutory language of CERCLA does not expressly impose joint liability. Courts interpreting the scope of CERCLA liability have been guided by the legislative history that provided that issues of liability “shall be governed by traditional and evolving principles of common law.” Beginning with U.S v. Chem-Dyne Corp., 572 F. Supp. 802, 805 & 807 (S.D. Ohio 1983), courts have generally held PRPs are presumptive jointly liable unless a party can show the harm is capable of apportionment. It is a rare case where a court will find distinct harms at a contaminated site. Instead, most courts will simply wave their hand and say the contamination too complex and therefore indivisible. In so holding, courts have tended to point to the section 433A of the Second Restatement of Torts as support for imposing joint liability.
Restatements are not codifications of law. They are treatises prepared by law professors, judges and notable practicing attorneys that reflect the current state of the law. When CERCLA was enacted in 1980, the state of the law for joint liability was reflected by the section 433A of the Second Restatement of Torts. This section provides that “[d]amages for harm are to be apportioned among two or more causes where (a) there are distinct harms, or (b) there is a reasonable basis for determining the contribution of each cause to a single harm.” In demonstrating that harm is capable of apportionment, a party need only present evidence showing a “reasonable” and “rational” basis for a “rough estimate,” or a “fair apportionment among the causes responsible.” §433A (1)(b) & comments. b and d.
At the Second Restatement was published in 1965, the law in most states was that a party who partially negligent (known as contributory negligence) would be barred from recovering against a negligent party. Thus, if a plaintiff was found to be 10% contributory negligent, the plaintiff would be barred from recovering any amount from the defendant even though the defendant was 90% responsible for the harm.
Because of the harshness of this rule, beginning in the late 1960s states began to gradually replace the rule that contributory negligence functioned as an absolute bar to suit with a doctrine known as comparative negligence. Under this fairer approach, a partially negligent plaintiff could maintain an action but a jury could reduce the recovery in proportion to the plaintiff’s negligence. The comparative negligence approach has been broadly accepted so that only five states now allow contributory negligence to function as a complete bar to the plaintiff’s recovery
The Third Restatement of Torts which was published in 2000 reflects this trend towards comparative negligence. The Restatement encourages apportionment through its underlying policy that “no party should be liable for harm it did not cause, and an injury caused by two or more persons should be apportioned according to their respective shares of comparative responsibility.”
In the NCR case, an amicus brief was filed by The American Tort Reform Association urging the court to follow the Third Restatement because the law on apportionment had evolved since CERCLA was enacted as evidenced by section 26 of the Restatement (Third) of Torts. However, the judges dismissed this argument in a footnote, suggesting that this was a policy question better left for the Congress. The court also asserted that it was bound by the Supreme Court’s decision in Burlington Northern & Santa Fe Railroad Co. v U.S., 556 U.S. 599 (2009) to apply the apportionment principles of the Second Restatement. The court also weakly rationalized that some of the states that had moved away from joint liability had retained joint liability rules for claims involving hazardous or toxic substances. It should be noted that the three states the court identified (Alaska, Idaho and Nevada) are not exactly influential in American jurisprudence. And 3 states out of 50 does not necessarily seem to amount to a trend to this author.
Moreover, Congress did spoke back in 1980 when it said that liability should be premised on evolving concepts of common law. Comment a to section 17 of the Third Restatement explains that “joint and several liability has been substantially modified in most jurisdictions both as a result of the adoption of comparative fault and tort reform during the 1980s and 1990s. Moreover, § 10, comment a, the authors’ state:
“… The adoption of comparative responsibility, which permits plaintiffs to recover from defendants even though plaintiffs are partially responsible for their own damages, has had a significant impact on the near-universal rule of joint and several liability. The rationale for employing joint and several liability and thereby imposing the risk of insolvency on defendants-that as between innocent plaintiffs and culpable defendants the latter should bear this risk-does not coexist comfortably with comparative responsibility. Joint and several liability has also been justified on the ground that each defendant’s tortious conduct is a legal cause of the entirety of the plaintiff’s damages. Of course, with the adoption of comparative fault, the plaintiff who is comparatively negligent is also a legal cause of the entirety of the damages”
It is really amazing how the federal courts still cling to the outdated Second Restatement that has been displaced by the Third Restatement. Even the US Supreme Court declined to use the Third Restatement in Burlington Northern –perhaps because it was able to find divisibility under the old Second Restatement test. However, the Supreme Court’s failure to rely on the Third Restatement appears to have made federal courts more reluctant to embrace the Third Restatement. Federal judges might not like the direction of the law is heading but it is definitely evolving away from presumptive joint liability and CERCLA’s legislative commands courts to apply this evolution of the law. Perhaps the next time the Supreme Court hears a CERCLA case, it will use the opportunity to bring the law of torts into the 21st century.
Following is a detailed discussion of the Seventh Circuit’s opinion in US v NCR as well as recent decisions in a related proceeding involving the Fox River contamination in Appleton Papers, Inc. v. George A. Whiting Paper Co
Background
Contaminated sediment sites are extremely complex because of commingled contamination, multiple pollution sources and the need to minimize re-suspension of contamination. The Fox River may be the most complex river sediment site in the country. The zone of contamination (ZOC) extends 38.2 miles upstream from Green Bay and stretches at least 21.5 miles into the bay. The Fox River has been divided into for operable units (OUs) with Green Bay identified as OU5. To date, more than 2 million cubic yards have been dredged. When the cleanup is completed, EPA estimates that 8 million cubic yards of PCB-contaminated sediments will be dredged or capped at a cost of $1.5 billion.
The Fox River sediments were contaminated PCBs discharged primarily from paper mills that manufactured or recycled carbonless copy paper (CCP) between 1954 to 1971. The PCBs were contained in an emulsion manufactured by NCR. The emulsion contained microscopic dye capsules that burst when pressure was applied by a pen or typewriter. The microcapsules were dissolved by a form of PCBs known as Aroclor 1242. The emulsion could be inserted between two sheets of paper, thereby creating a copy of the top sheet of paper without the need to use carbon paper. NCR sold the emulsion to Appleton Coated Paper Company (ACPC) to manufacture business forms that NCR would sell to its customers. ACPC would coat the paper products and then sell them back to NCR. The Wisconsin Department of Natural Resources (WDNR) estimated that 39% of the PCBs discharged into theFox Riverwere attributable to the CCP manufacturing process.
ACPC sold trims, cutting and other paper scraps (known as “broke”) that was generated during the manufacturing of CCP to paper recyclers who recovered the wood fibers from the product for reuse into other paper products. In addition, printers and paper converters sold their scrap from manufacturing forms to the recyclers. The WDNR estimated that 56% of the PCBs discharged into the river resulted from the recycling process during the production period.
Even after PCBs were no longer used in CCP, wastepaper recyclers continued to process PCB-contaminated wastepaper for several decades from stock of unused CCP and old files discarded by businesses and homes. The WDNR estimated that only 2% of the total PCBs discharged to the river came from the post-1971 releases. PCBs were also detected in effluent of other paper mills that did not process CCP as well as discharges from POTWs that received wastewater from paper mills.
Beginning in 1969, NCR and ACPC became involved in a series of complex corporate transactions. Because of the close relationship of the firms, NCR acquired ACPC and merged it into another subsidiary that was renamed Appleton Papers Inc. In 1973, API was merged into NCR and became the Appleton Paper division of NCR. In 1978, NCR sold its API division to Germaine Monteil Cosmetiques Corp (GMCC), a subsidiary of B.A.T Industries, p.l.c. (BAT) who assumed certain liabilities. API was later involved in more complex transactions that are not relevant to this discussion.
After the discovery of PCB contamination in theFox River, EPA and WNDR entered into a series of administrative orders with numerous of parties between 2001 and 2004. The agencies issued separate Records of Decision (RODs) for OUs 1-2 and OUs 3-5. CR entered into an administrative order on consent in 2004 to prepare a remedial design (RD) for OUs 2-5 and entered into a judicial consent decree in 2006 to perform the initial phase of the remedial action for OU4.
Based on new information, EPA and the WNDR amended the ROD for OUs 2-5 in June 2007. The amended ROD called for a combination of dredging and capping. In November 2007, EPA issued a section 106 unilateral administrative order (UAO) to NCR, API and other directing them to begin implementing phase 2 of the remedial action for OUs 2-5. In 2009, the agencies entered into a de minimis settlement with a number of municipal sewerage authorities and PRPs based on responses to section 104(e) information requests. The settlement was challenged by NCR but approved by the district court and affirmed by the Seventh Circuit in U.S.v. George A. Whiting Paper Co., 644 F.3d 368 (7th Cir. 2011)
NCR and API took the lead to implement the UAO and formed a limited liability corporation to carry out the obligations of the UAO. 550,000 cubic yards of sediment were dredged in 2009 and approximately 743,000 cubic yards in 2010 at a cost of approximately $50 million. In the wake of unfavorable contribution rulings (discussed below), NCR and Appleton informed EPA in 2011 that they wanted to reduce the scope of the work because they felt they had already incurred more than their fair share of the cleanup. The companies proposed dredging 250,000 cubic yards. EPA not only rejected this request but modified the ROD via an explanation of significant difference (ESD) that called for dredging between 605,000 and 810,000 cubic yards. The modification was estimated to increase the cost of the work by 62%. By the end of 2011, NCR had completed about half of the dredging required for OU4. NCR and API refused to commit to perform any further remediation work in 2012. In response, the United Statesfiled a motion for a preliminary injunction in 2011 to require completion of the work.
District Court Litigation
In January 2008, NCR and API filed an action seeking apportionment and recovery of their cleanup costs. In a series of rulings, the United States District Court for the Eastern District of Wisconsin held that (i) the harm was not capable of apportionment, (ii) NCR and API could not bring a cost recovery action under section 107 because they were subject to a 106 action, and (iii) NCR and API were not entitled to contribution under section 113(f) because of their awareness of the risks associated with PCBs and their tardy response to this danger. Appleton Papers, Inc. v. George A. Whiting Paper Co, 572 F. Supp. 2d 1034(E.D.WI. 2008); 2009 U.S. Dist. LEXIS 117112 (E.D.WI. 12/16/09). For similar reasons, the court also ruled that NCR and API were liable for contribution to the defendants. Appleton Papers, Inc. v. George A. Whiting Paper Co., 776 F. Supp. 2d 857 (E.D.WI. 2010).
In a motion for a preliminary injunction, a plaintiff must show that it is likely to succeed on the merits, is likely to suffer irreparable harm without the injunction, that the harm it would suffer is greater than the harm that the preliminary injunction would inflict on the defendants, and that the injunction is in the public interest.
NCR argued an injunction was warranted because the harm to the Fox Riverwas divisible and had to be apportioned among all of the potentially responsible parties based on volume. In the wake of Burlington Northern, NCR said the court should find that the government had a low likelihood of success. The district court rejected this argument, finding that under Section 433A of the Second Restatement of Torts, the harm to the site was not reasonably capable of apportionment. The court said that divisibility cases tend to view the harm as the physical pollution. Under this view, the question before the courts is if the pollution can be divided rather than if the cost of cleaning up the pollution is separable based on geography or volume. The court also acknowledged that this could be because a typical divisibility case assumed that more pollution equals more cleanup cost, particularly when the pollution involves a discrete piece of land or geographically distinct areas.
Because of the complexity of theFox Rivercontamination, the court said cleanup expenses were not reasonably correlated with the volumes of pollution each party contributed. For example, the court said because of river currents, depth, the presence of dams and geography, the PCBs left in the river sediments were not necessarily representative of the pollution that was released during the period that carbonless copy paper (CCP) was produced.
Moreover, the court explained, the cost of the remedy is influenced in part by whether the contamination is capped or dredged, and this, in turn, may be influenced by the depth of the contamination and its location. Some of the PCBs are buried deep below the river floor underneath clean sediment, and these deposits can be capped relatively cheaply (or even ignored altogether). Other deposits are closer to the surface and must be dredged. These independent factors, the court held, precluded an apportionment analysis based primarily volumes of PCBs the parties discharged or even geography.
NCR also argued there would not be any irreparable harm since at the pace requested by EPA, PCBs would continue to remain in the river for years. The court rejected this argument, reasoning that it was continued exposure to PCBs that was the irreparable harm. The court said while the expedited pace of cleanup would not result in complete reduction of contamination, it would make the river safer sooner.
While the court found that the government had met is burden for obtaining a preliminary injunction, the court said it was unlikely that the government could prove API was a liable party under its successor liability theory. This created a problem for the court since API controlled the LLC that was directing the cleanup. Given the complexity of the cleanup action and other contractual issues, the court said an injunction directed solely at NCR would essentially be meaningless. Since NCR did not have the power to implement the UAO at that time, the court said it had no option but to deny the injunction. U.S. v. NCR Corp, 2011U.S. Dist. LEXIS 72245 (E.D.WI. 7/5/11).
In the wake of the court’s preliminary injunction ruling, API then filed a motion for summary judgment on the issue of liability. Despite its earlier misgivings, the court concluded that the continued existence and liability of NCR did not preclude a finding that API assumed CERCLA liability. Moreover, the court ruled that the government was correct that API had assumed CERCLA liability under the 1978 assumption agreement. U.S. v NCR, 840 F. Supp. 2d 1093 (E.D.WI. 2011). Four months later, on a motion for reconsideration, the court reversed itself again, earning the moniker of “Judge Waffler”. The court concluded that terms of the 1978 assumption agreement were not broad enough to encompass the CERCLA liability. U.S. v NCR, 2012 U.S. Dist. LEXIS 49978 (E.D.WI. 4/10/12).
The government then filed another motion for preliminary injunction, this time directing it only at NCR. As it did in the 2011 preliminary injunction motion, NCR raised the divisibility issue again, supplemented with some additional facts. However, the result was the same.
NCR asserted that the harm is theoretically capable of apportionment because its experts have been able to demonstrate that only 9% of the PCBs in the upper OU4 and just 6% of the PCBs in the lower OU4 came from its facilities which were located twenty or more miles upstream in OU2. The court said that while NCR had provided additional scientific evidence that there were other sources of PCBs, it remained unconvinced that the harm was anything but a single, indivisible harm.
The court reasoned that cubic yard of sediment cost the same to dredge or cap whether it contained 10 ppm or 100 ppm PCBs. In addition, the court said the determination to cap or dredge was not primarily based on the mass of PCBs in a particular location but on the depth of the PCBs and if the overlying sediments were cleans. The court noted that some portions of the river can be cleaned with a “production dredge” which was larger and more cost-effective while other portions require a smaller, less efficient dredge. The court cited to two examples to illustrate the lack of nexus between volume and cleanup costs. The court said that one area with 1,356 ppb of PCBs costs $24 million to remediate while another area with only 97 ppm of PCBs costs $220,000. Thus, area 1 had roughly 14 times the amount of PCBs but cost more than 100 times as much to remediate. The most extreme example, the court said was an area that had only 18 ppm of PCBs that cost more than $15 million to remediate whereas another area with nearly 2,500 ppm of PCBs cost four million less to cleanup.
The court also pointed to other factors that redistributed PCBs such as natural phenomenon that caused the river to flow upstream for discrete periods of time, a shipping channel and turning basin in OU4 that had been dredged for decades by the Army Corps of Engineers using mechanical dredging that increases sediment dispersion and large vessels with large displacements and propellers that stirred up sediments in shallower waters where PCBs may be at their most dangerous.
The court also said that PCBs were not fungible and that the harm depended more on where the PCBs were located rather than their concentrations. The court said that PCBs buried safely beneath layers of sediment did not pose as much a risk as PCBs that were on the surface sediments where they could become available bottom-feeders and fish at the top of the food chain that can be consumed by humans. Thus, the court said it did not make sense to focus so narrowly on the relative masses of PCBs discharged by each part. Moreover, the court noted that each year significant quantities of PCBs are washed through the river into Green Bay and Lake Michigan where they essentially becomes unrecoverable. As a result, the court issued an order requiring NCR to implement EPA’s Modified Work Plan for 2012. U.S. v. NCR, 2012U.S. Dist. LEXIS 59089 (E.D.WI. 4/27/12)
Seventh Circuit Opinion
NCR obtained an expedited review of the preliminary injunction known as an interlocutory appeal but did not obtain a stay of the injunction. Under an interlocutory appeal, the court reviews the district court’s decision on an abuse of discretion standard. The appeals court will give deference to the lower court’s findings of fact. Here, NCR’s principal grounds for contesting the preliminary injunction was that its liability was less than the costs it had already incurred and the district court had erred when it found the harm was not reasonably capable of apportionment.
The appeals court said a divisibility analysis consisted of two steps. First, the court had to determine if the harm was theoretically capable of apportionment. Second, if the court conclude the harm was capable of apportionment (i.e., was divisible), the court then had to decide how to apportion the damages based on factual findings.
After declining to apply the Third Restatement away from joint liability as we discussed earlier, the court reviewed the district court’s findings. The appeals court said it agreed that NCR had not met its burden of showing the harm in this case was capable of apportionment but relied on a different sub-section of section 433A to reach the same conclusion.
The court said that apportionment was improper when there were multiple causes that each would have been sufficient by itself to bring about the result, such as when merging fires burn a building. Applying this rule to the case, the court said that NCR did not put forth any evidence to refute the government’s contention that NCR’s contributions of PCB would, alone, require approximately the same remedial measures. The court said that assuming NCR’s calculations were correct that it contributed only 9% of the volume of the PCBS to the upper OU4 and 6% of the volume of the PCBs in the lower OU4, it did not necessarily follow that NCR was responsible for only 9% or 6% of the cleanup costs. Even if all that were present in the river were NCR’s contributions, the court said, the river would still need to be dredged and capped because EPA has set a cleanup standard of 1.0 ppm of PCB. In other words, the court said, the need for cleanup was not linearly correlated to the amount of PCBs that each paper mill discharged but to the presence of the PCBs about the cleanup level. The details of the cleanup might vary depending on exactly how much PCBs were present, the court explained, but this did not mean the underlying harm caused—the creation of a hazardous, polluted condition—was divisible.
NCR argued that the district court erred by defining harm as the remediation cost and that the proper measure was the level of pollution and contamination as a measure of the harm. The appeals court agreed that cleanup costs were not an exact proxy for harm but reflected the damage caused by the pollution. However, the court said it was not persuaded that taking into account remediation costs to approximate harm caused by pollution was so far off the mark. The court said that there was not necessarily one universal way to should approach apportionment in pollution cases. In simple cases, the court said, it may be reasonable to assume that the respective harm done by each of the defendants was proportionate to the volume of the contaminant each discharged into the environment. However, in more complex sites where a chemical is harmful when it surpasses a certain amount, when a chemical becomes harmful only when mixed with other contaminants, it will not suffice to look solely at the amount of contamination present to estimate the harm. The court said that cleanup costs may sometimes be a relevant factor for courts to use to determine the level of contamination, and thus the level of harm, caused by each polluter.
NCR asserted that district court’s approach was inconsistent with Burlington Northern. However, the court said the only issue before the court was the calculation of the apportionment because the parties had agreed the harm was capable of apportionment. The court also said that while it agreed that Burlington Northern said that apportionment calculations need not be precise, it disagreed that court’s must always adopt such an approach. Such a rule, the court reasoned, would replace an evidence-based apportionment calculation with a rougher appeal to equity.
The appeals court also agreed with the district court that the balance of the equities favored issuing an injunction. NCR argued that it should not have to bear the costs of the cleanup before it is determined to be liable on the merits. NCR said it would be difficult for it to recoup such costs given the district court prior rulings that NCR is not entitled to contribution. The appeals court said that there was time enough to sort out the various parties’ liabilities since it had not yet reviewed those prior rulings and there were possibly other avenues for NCR. The court pointed out that NCR had been incurring cleanup costs pursuant to a consent decree and that some appeals courts have ruled that parties incurring costs after a consent decree may pursue cost recovery under CERCLA section 107. Since it was an open question if and to what extent NCR might be able s to recoup any costs in future proceedings for costs it should not have paid, the appeals court ruled that the district court’s weighing of the equities did not amount to an abuse of discretion. Accordingly, the court affirmed the preliminary injunction requiring NCR to complete the specified 2012 remediation work.