CERCLA Settlement Considerations

Previously published in The Practical Real Estate Lawyer, January 2012

If the EPA is happy, the case will stay settled.

As environmental regulatory programs have matured, the government has taken a less flexible approach to negotiation and settlement of enforcement actions than was the case a decade past. There are laudable reasons for this evolution, principally conservation of limited personnel resources and application of consistent requirements and provisions on a national basis. This mechanized approach, however, can result in overly stringent or harsh agreements on particular issues, produce inequitable results, and impede resolution of contentious issues or dampen creative approaches to settling intractable disputes.

Negotiation and settlement attends enforcement at all levels — administrative, civil judicial, and criminal cases. If the government were forced to litigate every action, far fewer would be disposed of than can be resolved through negotiation and agreement. Accordingly, settlement is the cornerstone of the federal enforcement program. Indeed, Congress, in the 1986 Superfund Amendments and Reauthorization Act, emphasized settlements as a means to effectuate cleanup of hazardous wastes and to reduce the costs associated with protracted litigation, and EPA's policy on self-policing furthers the settlement approach in enforcement actions. Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations, 60 Fed. Reg. 66706 (dec. 22, 1995); revised at 65 Fed. Reg. 19618 (Apr. 11, 2000), supplemented by Granta Nakayama, Audit Policy: Frequently Asked Questions (Apr. 30, 2007).

1. CER CLA Settlement Procedure

   Section 122 of CERCLA42 U.S.C. §9622, provides specific authority for EPA to enter into negotiated settlements, and EPA's mandate under section 122 is to seek settlement agreements whenever practicable and in the public interest in order to expedite remedial actions and to minimize litigation. See 42 U.S.C. §§9604(a)(1), 9606, and 9622. Guidance on CERCLA settlement policies include: Interim CERCLA Settlement Policy (Dec. 5, 1984); Interim Guidance on Orphan Share Compensation for Settlors of Remedial Design/Remedial Action and Non-Time-Critical Removals (June 3, 1996); Addendum to the Interim CERCLA Settlement Policy (Sept. 30, 1997); Revised Settlement Policy and Contribution Waiver Language Regarding Exempt De Micromis and Non-Exempt De Micromis Parties (Nov. 6, 2002).Given its quarter-century experience with CERCLA actions, EPA has devised model settlement documents for both judicial and administrative actions. Issuance of Model CERCLA Peripheral Party Cashout Consent Decree and Model CERCLA Ability to Pay Peripheral Party Cashout Consent Decree (Jan. 11, 2001); Issuance of Revised Model CERCLA Section 107 Consent Decree for Recovery of Past Costs and Revised Model CERCLA Section 122(h)(1) Agreement for Recovery of Past Response Costs (Feb. 6, 2003); Issuance of Revised Model Administrative Order on Consent for Remedial Investigation and Feasibility Study (Jan. 21, 2004); Issuance of Model RD/RA Consent Decree (May 2001); Issuance of Revised Model CERCLA De Minimis Landowner Consent Decree and Revised Model CERCLA De Minimis Landowner Administrative Order on Consent (May 13, 2004); Issuance of Final Model Administrative Order on Consent for Remedial Design (Jan. 6, 2005); Issuance of Revised Model Administrative Order on Consent for Removal Actions (Jan. 30, 2007); Issuance of Revised Model RD/RA Consent Decree (August 1, 2011).

   If EPA decides not to pursue settlement negotiations for a particular site, it is required to notify potentially responsible parties (PRPs) in writing, explaining the government's decision. 42 U.S.C. §9622(a). Because settlement agreements generally are the preferred and most cost effective means for cleaning up sites, this paper addresses some of the principal issues associated with a typical negotiated settlement. This discussion first reviews the events normally associated with the settlement process and then explores some of the more commonly negotiated issues between EPA and PRPs, setting forth several negotiating issues and problems that arise regarding actual remediation efforts.

2. Normal Events In The Settlement Process

   After EPA completes its task of identifying PRPs, it can initiate formal settlement action by notifying the PRPs that the government is willing to commence the settlement process. 42 U.S.C. §9622(a). In addition to this formal notification, CERCLA section 122 also requires that EPA provide certain information to these PRPs which is designed to enhance the likelihood that agreements can be reached among the PRPs. This information includes a listing of all identified PRPs by name and address, the volume and type of hazardous waste contributed by each PRP, and a ranking by volume of the hazardous substances at the site. 42 U.S.C. §9622(e)(1).

   In an effort to provide PRPs with the opportunity to meet and discuss their settlement options, a statutorily- mandated moratorium is imposed upon further EPA actions following the formal PRP notification. 42 U.S.C. §9622(e)(2). Once the moratorium period commences, EPA is generally prohibited from initiating any cleanup or remedial actions for 120 days and from commencing a Remedial Investigation (RI) and Feasibility Study (FS) for 90 days. An exception to the time-imposed moratorium exists however, when: (1) EPA must respond to a significant threat to public health or the environment; or (2) the PRPs fail to submit a settlement proposal within 60 days of notification. 42 U.S.C. §9622(e)(2)(B) and 9622(e)(5). Upon such a failure, EPA may begin financing a response action or initiating a Remedial Investigation and Feasibility Study (RI/FS). Following completion of the RI/FS, EPA makes the preliminary identification of the appropriate site remedy in its Record of Decision (ROD). 40 C.F.R. §300.430.

   Even when PRPs make a settlement offer within 60 days, EPA is authorized to begin negotiations only if the offer comes from a sufficient number of the PRPs so as to constitute a substantial proportion of the site cleanup costs, or a substantial portion of the necessary remedial action. Getting a sufficient faction of PRPs to agree among themselves as to their percentage of responsibility or their share of expenses is usually a formidable task which can often prevent EPA from considering any PRP proposal because it fails to meet the "substantial proportion" requirement. In order to assist in the allocation and settlement process, EPA is authorized to issue a Nonbinding Preliminary Allocation of Responsibility (NBAR). 42 U.S.C. §9622(e)(3) (A). While not binding in any future settlement negotiations or litigation against PRPs, this process allows EPA to allocate percentages of the total response costs to the various PRPs.

   EPA's allocation is...