(State) Settlors Beware, Too: In Reversal, Third Circuit Declares that State Settlement Does Not Protect Against Federal Claims under CERCLA

Previously, the District of New Jersey ruled that a polluting party’s settlement agreement with the New Jersey Department of Environmental Protection (NJDEP) provided contribution protection from the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) claims based on costs incurred by the United States Environmental Protection Agency (USEPA) at the same site, even though USEPA was not a party to the settlement. In a prior blog post discussing that decision, we noted that the District Court’s decision was likely to be appealed. It was. On appeal, the Third Circuit considered the inquiry of “[w]hether a polluting party’s settlement with the State of New Jersey protects it from lawsuits seeking contributions toward expenditures made by the Federal Government on the same site,” and determined in a precedential opinion that, “the answer here is no.”

CERCLA section 113(f)(2) provides that “[a] person who has resolved its liability to the United States or a State in an administrative or judicially approved settlement shall not be liable for claims for contribution regarding matters addressed in the settlement.” The District Court applied the analysis commonly adopted by other federal courts to determine the “matters addressed” of the previous settlement where the scope is not made explicit by the agreement itself. This analysis includes factors such as the location, time frame, hazardous substances, and specific cleanup costs that the agreement covers. The court determined that the “matters addressed” by the NJDEP settlement pertained to the entire site. Additionally, the District Court found persuasive the disjunctive term “or” in the statute as a sufficient trigger for contribution protection stemming from the NJDEP settlement and protecting against the USEPA-related claims.

However, the Third Circuit determined that the NJDEP settlement covered, and therefore protects against claims arising out of, NJDEP expenditures. The court noted that it is appropriate to “interpret the matters addressed in an agreement narrowly when determining whether settlement with one sovereign covers the claims of another.” The court further referenced the cooperation agreement between USEPA and NJDEP with regard to the subject site under which USEPA “bore the lion’s share” of 90 percent of the site’s cleanup costs, and the “matters addressed” by the NJDEP settlement did not include any more than the NJDEP’s 10 percent apportionment.

As a matter of policy, the Third Circuit also explained that its interpretation is most consistent with the purposes and procedures of CERCLA. The purpose of CERCLA is to promote prompt and effective cleanups and that the responsible parties bear their appropriate and respective shares of the cleanup costs. The court explains that its decision encourages Potentially Responsible Parties (PRPs) to “settle with both the relevant State and Federal Governments,” and avoids a “perverse incentive[ ] for a PRP to resolve [State] claims only in the hope of barring other PRPs from seeking contribution on federal claims.”

The Third Circuit’s reversal avoids the potential pitfall of stifling the incentive for a party to settle with USEPA with an expectation of being able to seek and obtain contribution from third-party PRPs. A party that is seeking to settle a claim with a state government should also be sure to understand exactly what is and is not covered and protected from a subsequent contribution claim.

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