EPA Outfoxed on Fox River

In what is described as the country’s biggest Superfund site, Judge William Griesbach of the Eastern District of Wisconsin on July 5, 2011, rejected the United States’ attempts to compel defendants Appleton Papers Inc. and NCR Corporation to comply with an EPA directive requiring sediment remediation in the Fox River at a rate substantially similar to the rate at which they had remediated sediment over the last few years.

A Unilateral Administrative Order issued by EPA in 2007 required the dredging and disposal of approximately 3.5 million cubic yards of sediment from the Fox River, as well as the installation of caps and the use of sand to cover PCB-laden riverbed sediment. In 2009, NCR and Appleton created a limited liability corporation (“LLC”) to perform the work and the LLC entered into a long term contract with Tetra Tech to perform the remediation. Although they dredged 550,000 cubic yards of material in 2009 and 743,000 cubic yards in 2010, NCR and Appleton proposed a reduction in the amount of dredging for 2011. EPA rejected this proposal and instead, issued a work plan requiring the dredging of between 605,000 and 810,000 cubic yards of sediment in 2011.

When NCR and Appleton objected to the work plan, EPA sought a preliminary injunction compelling Appleton and NCR to comply with its proposal. The Court evaluated the criteria used to determine whether preliminary injunctive relief was appropriate. As to the likelihood of success on the merits, both NCR and Appleton claimed that the harm caused to the Fox River was divisible and that they were not subject to joint and several liability under CERCLA Section 107. After careful analysis of the Supreme Court’s 2009 decision in Burlington Northern and Santa Fe Railway Co. v. United States, 129 S. Ct. 1870 (2009) and §433A of the Restatement of the Law, Second, Torts, the Court determined that critical to its analysis was the fact that when the cleanup entails the dredging of PCBs in river sediments, the “cost of cleanup bears little relation to the relative volume of PCB’s released into the River.” Accordingly, it determined that apportioning liability based upon volume was not advisable. It noted that most courts considering the issue analyzed whether the pollution in question could be divided, rather than whether the cost of cleaning up the contamination is separable based upon volume or geography.

Ultimately, the divisibility question is a causation question, and when the case is about cleanup we should be concerned with assessing to what extent the parties’ behavior caused the cleanup expenses rather than which parties caused the pollution itself.

Judge Griesbach concluded that the costs to cleanup the PCB contamination in the Fox River were not reasonably divisible based upon volume.

Alternatively, even viewing the “harm” as the pollution, the Judge determined that the Site was not divisible based upon volume, because of the following factors:

  1. vast quantities of PCB’s have flowed downstream;
  2. what is in the River at this time is not necessarily representative of the pollution released into the River decades ago; and
  3. geography and the flow of the river over 50 years have created a variety of different areas requiring remediation.

The Court also denied NCR’s argument that there was a geographic basis to divide responsibility. NCR failed to link the cost of cleaning up a portion of the River to the specific amounts and locations of the PCB contamination. Because PCBs were found everywhere and because the cost of remediating a given section of the River was not directly dependent on the level of contamination, the Court concluded that NCR would have little likelihood of success showing that certain areas of the River are separable on the basis of geography.

Finally, Appleton argued that the United States was not likely to succeed on the merits because its liability under CERCLA was far from clear. Appleton claimed that its liability was based upon a theory of successor liability which was not applicable under the particular facts of this case. The defendant Appleton was the entity which bought two plants from NCR and agreed to assume certain liabilities from the seller. However, the Court refused to conclude that Appleton was likely to have any liability to the United States because its liability was solely based upon an equitable, successor liability theory, which was a legal theory designed to prevent injustice, but which did not create a wholly new, suable entity. NCR, the seller, remained in existence, and thus, there was no liability for Appleton to “succeed” to. The Court concluded that “when the seller of assets is still in existence and its liability to the government is still “live”, an assumption of liability agreement like the one at issue here does not create liability on the buyers’ part, it merely creates a duty to indemnify the seller.”

Appleton and NCR had created an LLC to perform the remediation and Appleton retained a 60 percent interest in the LLC. Thus, Appleton effectively controlled the cleanup, and the Court concluded that an injunction directed towards NCR would essentially be meaningless, because without Appleton’s concurrence, NCR lacked the ability to achieve the level of remediation that the government wanted.

Unhappy with the Court’s denial of its motion for preliminary injunctive relief, the United States subsequently renewed its motion to compel the parties to resume the remediation of the Fox River. It asked the Court to fashion an equitable remedy under which the LLC would no longer be controlled by Appleton. But having previously determined, preliminarily, that Appleton was not a liable party, Judge Griesbach was unwilling to fashion a “creative solution” under which Appleton would be compelled to give up its control in a company in which it had a controlling interest and denied the renewed motion on July 28, 2011.

Although the Court was faced with a somewhat unique set of facts in this matter, its divisibility analysis must be carefully evaluated and understood for possible applicability in other contaminated sediment cases.

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