United States: Ninth Circuit Holds that Non-Settling Potentially Responsible Parties Under CERCLA May Intervene as a Matter of Right

The U.S. Court of Appeals for the Ninth Circuit ruled last week that potentially responsible parties ("PRPs") in Superfund cases that are not settling with the government may intervene in a consent decree approval proceeding. In United States v. Aerojet General Corp., No. 08-55996, 2010 WL 2179169 (9th Cir. June 2, 2010), the court reasoned that because the consent decree provided immunity to those settling PRPs from contribution claims, non-settling PRPs have a "significantly protectable interest" under CERCLA to ensure that a consent decree contains a fair and reasonable allocation of costs and liability. In making this ruling, the Ninth Circuit joined the Eighth and Tenth Circuits in this approach. This ruling has significant implications for PRPs that are not part of settlement discussions with the Environmental Protection Agency ("EPA"), because they will be able to weigh in on the fairness of a consent decree that may impact their contribution rights.

Background

In 1979, the EPA discovered groundwater contamination in the San Gabriel Basin, a groundwater reservoir in Los Angeles County. The site was designated as a federal Superfund site and listed on the National Priorities List in 1984. Initially, the EPA determined that the groundwater contained volatile organic compound ("VOC") contamination that required containment and remediation. EPA sent Notice of Liability Letters to PRPs throughout the 1990s. In 2000, the EPA issued an Interim Record of Decision ("IROD") that contained a 30-year remedial plan to clean VOCs from the groundwater. The estimated cost at the time was around $14 million, plus an additional $14 million for the state and federal governments' costs.

In 2005, the EPA issued an Explanation of Significant Differences updating the IROD to address perchlorate contamination, which had been detected since the issuance of the IROD in levels exceeding drinking water standards. By 2007, the estimated costs to clean up the site had increased dramatically. The costs to respond to VOCs alone had increased from $14 million to $26 million. An additional $46 million was estimated for perchlorate remediation. The governments' costs also increased by $1 million. The total cost of cleanup at the site had grown from $28 million to $87 million.

In October 2007, the EPA reached a proposed settlement with certain parties that would shield them from contribution claims by the non-settling parties in exchange for a payment of approximately $8.1 million, a sum significantly lower than the estimated $87 million cost of cleanup. In March 2008, certain non-settling PRPs moved to intervene in the EPA's lawsuit with the settling parties in an effort to weigh in on the consent decree. The district court denied intervention and lodged the consent decree. The non-settling PRPs appealed.

The Ninth Circuit reversed and held that non-settling PRPs have the right to intervene to oppose a consent decree that could bar their contribution claims against settling PRPs.

The Ninth Circuit's Analysis

The Ninth Circuit focused its analysis on two sources of law: Federal Rule of Civil Procedure ("Rule") 24(a)(2) and Section 113(i) of CERCLA. Aerojet, 2010 WL 2179169, at *4. The court analyzed the rights of the non-settling parties under Rule 24(a) under the four-part test established in California ex rel. Lockyer v. United States, 450 F.3d 436, 440 (9th Cir. 2006). Rule 24(a) requires that (1) the motion must be timely; (2) the applicant must claim a significantly protectable interest relating to the property or transaction which is the subject of the action; (3) the applicant must be so situated that the disposition of the action may, as a practical matter, impair or impede its ability to protect that interest; and (4) the applicant's interest must be inadequately represented by the parties to the action. Aerojet, 2010 WL 2179169, at *4.

The court also examined the right to intervene contained in Section 113(i) of CERCLA, which provides that "any person may intervene as a matter of right when such person claims an interest relating to the subject of the action and is so situated that the disposition of the action may, as a practical matter, impair or impede the person's ability to protect that interest, unless the President or the State shows that the person's interest is adequately represented by existing parties." Id. (citing 42 U.S.C. § 9613(i)).

The court compared the two standards and concluded that they differed only in providing a different burden of proof under the fourth prong of the test. Under Rule 24(a)(2), the burden of showing inadequate representation is on the applicant; under Section 113 of CERCLA, it is the government that must show that the applicant's interests are adequately protected to avoid intervention. Id.

The court concluded that the first prong of the test—timeliness of the motion—was undisputed and met. The court then analyzed whether the non-settling parties had a "significantly protectable interest." Id. The court held that the non-settling PRPs had a significant protectable interest in the litigation between the EPA and the would-be settling PRPs because their contribution rights against the settling PRPs would be directly affected by the proposed consent decree. The court also emphasized that because the non-settling PRPs could be held liable for the remaining response costs, they have an "obvious interest in the amount of any judicially-approved settlement." Id. at *5. The court concluded that the second prong—whether the non-settling parties had a significantly protectable interest—was met. Id.

The court then analyzed the third prong—the impairment of interests—and concluded that it had been met. In particular, the court examined whether other opportunities for the non-settling PRPs to protect their interests existed. The court looked at whether CERCLA's notice and comment period provided such means. In concluding that it did not, the court reasoned that once a consent decree has been negotiated, the interests of the government and the settling PRPs are essentially aligned and that "it would be unrealistic to expect the government to abandon or substantially modify the proposed consent decree" in response to the comments of the non-settling PRPs. Id. at *8.

Finally the court concluded that, regardless of which party bears the burden of proof in showing the adequacy of representation, the interests of the non-settling PRPs were not adequately represented by the existing parties. Id. at *8-9.

Conclusion

This case is significant because it allows non-settling PRPs in the Ninth Circuit to intervene in consent decree proceedings to which they are not a party in order to protect their interests in those proceedings. Consent decrees often involve many months of protracted negotiations between the government and would-be settling parties. The settlements reached in these cases now potentially could be upset through the intervention of non-settling parties. This will be of particular concern to those involved in multi-party sites. For those non-settling parties, it will be important to be aware of potential consent decree proceedings in order to be able to exercise the right to intervene.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.