ELR Citation: ELR 20540
No(s). 91-15729 (9th Cir. Jan 28, 1993)

The court holds that a district court improperly awarded attorney fees in a private-party suit under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) because the words "enforcement activities" in CERCLA §101(25) do not explicitly authorize the payment of attorney fees as part of the response costs incurred in recovery actions, and the district court's award of monetary damages for future response costs violated CERCLA. Parties who owned and operated a dry cleaning plant, which caused contamination to neighboring property, were sued under CERCLA and state law. They now appeal from the district court's award of attorney fees under CERCLA §107(a)(4)(B) to the neighboring property owner, and seek reversal of the district court's order requiring the parties to pay $1.1 million to the neighboring property owner for deposit in an escrow account to fund the future cleanup of the contaminated property.

The court, in addressing for the first time whether CERCLA authorizes private parties to recover attorney fees as enforcement costs, rules that the words "enforcement activities" in §101(25) do not provide the express authorization of attorney fees required under U.S. Supreme Court precedent applying the American Rule to prevailing parties. The Ninth Circuit has never specifically ruled on this issue and the district courts in the Ninth Circuit have split in ruling on this issue. Turning to U.S. Supreme Court case law, the court notes that under both Alyeska Pipeline Service Co. v. Wilderness Society, 5 ELR 20286, and Runyon v. McCrary, 427 U.S. 160 (1976), the Supreme Court has ruled that in the absence of express congressional authority for the award of attorney fees, the American Rule precludes a prevailing party from recovering attorney fees. The court observes that Congress has repeatedly demonstrated that it knows how to express its intention to create an exception to the American Rule, as it did in CERCLA §§104(b) and 310(f). Moreover, the fact that those district courts that have confronted this issue disagree on the question whether attorney fees are allowable under §§101(25) and 107(a)(4)(B) demonstrates that the words "enforcement activities" do not explicitly signal, with persuasive clarity, that Congress intended to provide an award of attorney fees to private litigants. The court next declines to adopt a contrary ruling by the Eighth Circuit, the only other circuit to rule on this issue, because although attorney fees are ordinarily expended in private response actions, this fact does not permit a federal court to read into the phrase "necessary costs of response" explicit congressional authority to award attorney fees. The cost of representation cannot be shifted by implication under the American Rule. Moreover, the Eighth Circuit's reliance on CERCLA's policy that private response actions will enhance contamination cleanup to support its conclusion that Congress must have intended that litigants may recover attorney fees in a private response action was rejected by the Supreme Court in Alyeska.

The court next holds that the district court erred in ordering the dry cleaning defendants to pay the neighboring property owner $1.1 million to fund the cleanup, because CERCLA prohibits awards of future response costs. The court holds that the fact that most of the funds placed in the escrow account at issue have been expended on the cleanup is not thereby moot. The fact that payments have been made in satisfaction of a money judgment does not foreclose an appeal. The court also holds that the issue of whether the neighboring property owner waived its right to appeal the award by failing to object before the district court is not decisive, because the question whether CERCLA permits the recovery of future response costs is a matter of law subject to review on appeal, and the challenged order is part of the record. The court next holds that because the neighboring property owner had not cleaned up its property at the time the district court entered its judgment, it failed to meet its burden of proving in an adversary proceeding that its expenses were necessary and incurred in a manner consistent with the national consistency plan. Thus, that portion of the award of monetary damages based on CERCLA is set aside.

Finally, the court holds that CERCLA does not preempt a state-law recovery, but because the district court failed to indicate what portion of the monetary damages awarded to the neighboring property owner was compensation for the costs of repair based on a finding of liability under the state-law claims, the monetary award is vacated and remanded for such a finding. However, the court holds that the district court did not award damages for diminution of the market value of the property due to the contamination, but properly awarded damages representing the loss of use of the contract sale price between the original sale date, which fell through due to the buyers learning of the contamination, and the actual sale date.

A dissenting judge would hold that plaintiff's attorney fees are properly recoverable under CERCLA §107(a)(4)(B) and the amended version of §101(25), and that the district court's establishment of an escrow fund should not be reversed because that question was never properly raised by the defendants in the district court.

Counsel for Plaintiff-Appellee
Steven L. Hock
Thelen, Marrin, Johnson & Bridges
Two Embarcadero Ctr., Ste. 2200, San Francisco CA 94111
(415) 392-6320

Counsel for Defendants-Appellants
Robert H. Bunzel
Bartko, Welsh, Tarrant & Miller
900 Front St., 3d Fl., San Francisco CA 94111
(415) 956-1900