The Generators' Dilemma in Superfund Cases

James A. Rogers

Mr. Rogers is a partner in the Washington, D.C. office of Skadden, Arps, Slate, Meagher & Flom.

Corporate America's environmental lawyers lately have been turning from such staple issues as the snagged Clean Air Act amendments, the next round of federal water pollution control regulations, and even the regulatory demands of the Resource Conservation and Recovery Act (RCRA). This dramatic shift of attention away from most traditional environmental regulatory issues has not occurred because those matters have suddenly lost importance; rather, it is because with increasing frequency the client companies are being confronted with ubiquitous EPA requests/notices/demands (the proper characterization is a matter of hot debate) which announce that the recipient may be held responsible for the possibly formidable costs of cleaning up an abandoned hazardous waste site. Because the federal government steadfastly maintains that cleanup liability can be founded merely on the basis of one's having generated wastes that found their way to the problem site, and because it contends that financial exposure is not necessarily limited to the ratio one's wastes bear to the total volume of material shipped to the site, it is not difficult to see why these EPA missives receive a careful reading in the corporate legal department.

In most cases, the firm that created the wastes ("generator") had no involvement with the actual disposal activities. Generators usually had a contractual arrangement with a local hauler. Specific information on the method or location of disposal was rarely fed back to the generator. Even up to the mid-1970s, it appears that many haulers — who were not sophisticated analysts of the potential danger of chemical pollution — were guided by simple economic theory: avoid high transportation and disposal costs. In other words, most haulers trucked the wastes to the nearest and cheapest landfill. Many of those economic decisions are now coming back to haunt generators — even those that dealt with reputable haulers and paid a premium for the disposal of wastes.

The CERCLA Cleanup Program

Charged under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA)¹ to supervise the cleanup of the nation's most serious abandoned hazardous waste sites (as well as to respond to releases of pollutants in other settings), EPA has embarked on a massive program of notifying parties who, under the government's reading of CERCLA, may be held accountable for the costs of cleanup. In a few situations the persons who owned or operated the facilities are still to be found and have viable business entities; more often, the site operators cannot be found or are insolvent. (The situation is only slightly different with respect to transporters.) But most of the generators are still doing business, and because many may be characterized as "deep pockets," CERCLA cases have largely evolved into tangles between generators and the government. Indeed, in some cases there are literally hundreds of generators that have at least some paper connection with a CERCLA site and sensible management of those cases has resulted in the establishment of generator committees to negotiate with the government. In a few cases, the generators have also been divided into "tiers" based on their apparent volumetric contribution to the site — with different terms of settlement offered by (or to) members of the different tiers.

As with any new area of law, a jargon has developed to speed the communications among those involved, and the key terms are those concerning the nature of the remedial approach and liability. For example, "phased cleanup" means that the government is seeking relief in stages: first, immediate action to make the site secure; next, rapid removal of any remaining drums and bulk liquids; and finally, exploring the need for — and carrying out if warranted — remedial actions to clean groundwater or soil. Likewise, a "total buy-out" means that in exchange for a monetary payment, a generator will receive a complete release from liability from the federal, state and local governments for any and all claims with respect to existing surface problems and groundwater and soil problems that may be detected later.² A total buy-out is clearly the preferred result for all those companies that do not wish to litigate a case or to monitor the time-consuming and expensive process of evaluating and mitigating the environmental consequences of subsurface migration of chemicals. However, because the governments often are unsure of what ultimate groundwater and soil cleanup costs may be, early cases have seen the federal government attempting to bifurcate the discussions of settlement into negotiations over surface cleanup and groundwater problems. In return for payment of monies roughly commensurate with a company's volumetric share of wastes sent to a site, the company is released with respect to surface cleanup only (where costs are more readily ascertainable); the government usually retains claims for soil and groundwater pollution.³ Conversely, firms refusing to settle on the surface portion, and who allegedly shipped more than de minimis amounts of wastes to a site, have been named as defendants in lawsuits.⁴

An attorney counseling a generator faced with potential legal exposure in a CERCLA case is still sailing in uncharted waters, with no clear precedents or interpretations to guide his or her thinking. Like most federal environmental statutes, CERCLA's liability provisions are written in a style that defies modern English usage. It is difficult to determine the extent to which the vagueness in [12 ELR 15050] CERCLA is deliberate. The statute addresses a complex, high-stakes subject, and it was drafted under intense time pressure by many people with quite different points of view on important questions; that combination almost guarantees that there will be ambiguous language — often to protect compromises needed for passage. That leaves to the courts and administering agencies many of the key policy choices. In the legislative history of CERCLA particularly, there is also an indication that important topics, such as strict liability, were left unresolved, because the debate in Congress on those issues would have jeopardized the bill's passage.

Those faced with the prospect of becoming embroiled in a CERCLA case must wrestle with legal issues that fall into three broad categories: those surrounding the categories of persons who are potentially liable under the injunctive and money recoupment sections of the Act; those surrounding the standard of liability under CERCLA with respect to those persons who are proper defendants; and those relating to rights of contribution of one generator (or other liable party) against other responsible parties. Lower federal courts have now begun to address these issues, but it will be a year or more before the courts of appeals hammer out reliable interpretations.

The Early CERCLA Cases

First on the list of unresolved legal issues that must be tackled when assessing alternative approaches to a CERCLA case is the relevance to ultimate liability of a generator's knowledge of, or involvement in, disposal activities at the site. This is the only issue on which courts have provided some guidance. If a generator's involvement is sufficiently remote, for example, it may be immune from injunctive relief (although still liable, under one court's view, for reimbursement of government expenditures).

Both RCRA⁵ and CERCLA provide for injunctive relief when the federal government proves that an imminent hazard exists.⁶ In a number of cases the government has sought to use these provisions against a broad range of parties to force, by injunction, the recovery of cleanup or related posts incurred (or to be incurred) at an inactive hazardous waste disposal site. In United States v. Wade,⁷ the court ruled that the federal government may not obtain injunctive relief against "non-negligent past off-site generators" of hazardous waste under these imminent hazard provisions.

The court rejected the government's contention that such generators are persons "contributing to" the disposal of hazardous waste within the scope of § 7003 of RCRA, and held that they "are not proper defendants under Section 7003." Also, the court concluded that § 106 of CERCLA was intended to be used in emergency situations where the discharge of a hazardous substance "could be stopped by an injunction," and thus such generators are not proper defendants under that section.

As a separate ground for its decision, the court also held that in the circumstances of that case, the request for an injunction requiring those generators to design and implement a cleanup program — and to reimburse the government for pollution control expenses already incurred — was "transparently a prayer for money damages," and was not authorized under either § 7003 of RCRA or § 106 of CERCLA. In reaching its conclusion that the relief requested by the government was not appropriate, the court relied in part on the District Court opinion in United States v. Price,⁸ a case involving a suit under § 7003 (and the emergency provisions of the Safe Drinking Water Act) against the present owners and the former owners and operators of a landfill. In Price the court held that a request for an injunction to compel defendant to conduct a study of pollution emanating from the landfill and to provide an alternative water supply was tantamount to a request for damages. In a strongly worded opinion dated September 14, 1982, however, the Third Circuit rejected the lower court's holding on this point, while affirming on factual grounds the refusal to grant the government a preliminary injunction.⁹ The court held that "the funding of a diagnostic study … though it would require monetary payments, would be preventive rather than compensatory."¹⁰ The Third Circuit's ruling does not touch on the question whether offsite generators are persons within the scope of § 7003, however; Wade remains the only law on that point.

The Wade decision will clearly affect the willingness of some off-site generators¹¹ to settle cases early in the proceedings — but if the government retains the power to hold non-negligent off-site generators liable for the reimbursement of CERCLA costs incurred by the government under § 104, they may only be postponing the day of payment. On this important issue that had not previously been addressed by a court, the Wade court stated in dicta that the federal government has "clear authority" under CERCLA to pay for cleanup of a site itself, and then seek from past off-site and non-negligent generators the costs of that remedial effort. Because it was not central to its decision, the court may have exaggerated the class of persons liable under § 107 of CERCLA. That provision can be read to impose liability only on generators who "arranged for disposal or treatment" at a particular facility; if a transporter chose the site or delivered the wastes to a site other than that designated by the generator, it is possible that there may be no cause of action against the generator.¹² Even if this view is followed by the courts, [12 ELR 15051] however, it may require discovery and a trial to establish the necessary exculpatory facts.

Whether there is strict and joint and several liability under CERCLA, and what those concepts mean, in the context of a hazardous waste case, are issues on which both the statute and legislative history leave room for debate. On these questions and the closely related issue of the right to seek contribution, there are no judicial pronouncements.¹³ Unraveling the complex questions presented is a task to which entire law journal articles can be devoted,¹⁴ and is beyond the scope of this article.

For a generator that decides it is willing to settle on the basis of some fair apportionment of liability, the only legal issue of concern is whether, if there is joint and several liability and rights of contribution under CERCLA, the federal government and settling parties can erect effective barriers against a later action by a non-settler (or whether the government is willing to provide some form of indemnification to settling parties). Unquestionably, after a federal judge validates the language in a particular settlement document which attempts to protect against later contribution actions, there will be far more incentive to enter into these settlements.¹⁵ Based on the enormous importance to federal policy of encouraging consensual solutions to CERCLA cases, it is likely that courts will accede in this regard.

Practical Issues

In addition to the novel and as-yet-unanswered legal issues involved in CERCLA cases, counsel for a CERCLA generator also faces tough practical decisions. Unlike cases arising under other federal environmental statutes, which generally address recent or current activities of the company itself, it may be impossible to gather the facts that are necessary to analyze one's chances at trial. The connection of a company to a CERCLA site may be as insubstantial as an alleged single shipment of unknown wastes, from an unknown plant, one day in 1967, which comes to an EPA attorney's attention because the disposal site operator made a pencil notation on some loose paper that day. Or a waste hauler, in an effort to appear to be cooperative with EPA, may try to recall handling the waste of as many generators as possible, knowing that it is in his best interest to spread the risk. Reconstructing events often means calling employees back from retirement, and sending someone to search through dusty archives for some records that rarely are identified by the name of the disposal site. (Indeed, EPA occasionally cannot even supply the names of the haulers, who are the company's only link with the site.)

In addition, it is often difficult for corporate counsel to decide whether to take an active and aggressive posture in response to EPA demands, because the maximum exposure of his company may be relatively small (even if costs of cleanup and damages are calculated on a worst case basis) as long as liability is apportioned among generators on some understandable basis — usually the government's crude calculations of volume of wastes sent to a particular site. In fact, the cases in which the government has the best chance of raising substantial sums through settlement may be those in which there are many generators, none of which is so exposed as to warrant mounting a traditional legal defense — which would certainly involve time-consuming and expensive motion practice, discovery, trial, and at least one appeal.

For counsel that want to settle quickly and avoid even the costs of monitoring developments in the largest cases, including the costs of attending generator committee meetings, there has been a significant impediment: the government has in some cases refused to settle with individual generators. Instead, it has demanded that a minimum number of companies, or a minimum percentage of waste volume, be represented in a settlement package.

While it may be possible for generators to join together and file papers on pure legal questions, it is doubtful that one counsel could represent more than one generator at a trial. Each generator may have a separate factual defense and one defense may succeed only at the expense of others (for example, if liability is affected by factors such as the relative toxicities of wastes). The early and highly publicized CERCLA settlements, in other words, may testify less to the strength of the government's overall legal positions and factual allegations than to the preference of many alleged generators to avoid the lengthy litigation likely to be required before meritorious defenses can be presented to a judge.

Indeed, two other factors suggest that the early CERCLA consent decrees may not accurately reflect the settling parties' ultimate exposure had the cases gone to trial. This is a time of recession for many of the firms involved in CERCLA cases, and undoubtedly there is less enthusiasm for devoting legal resources to these cases than there might be in better times. Also, intense pressure from Congress and the press have helped to spur EPA and the Department of Justice to initiate CERCLA cases that have not been prepared as thoroughly as most federal lawsuits; many companies have been swept into the proceedings on the basis of evidence and assumptions that federal judges will clearly never accept.

For example, the government has been identifying as a potentially responsible CERCLA party anyone who had dealings with the disposal site operator. But the generator may have shipped innocuous wastes to the facility, or the generator's wastes could have been reclaimed and sold (as [12 ELR 15052] was supposed to happen at solvent recyclers) or even incinerated. The government is claiming, in effect, that there is liability for simply dealing with an irresponsible hauler or site operator, a theory which has obvious constitutional as well as statutory problems. Yet for many generators the cost of pursuing their legal arguments on this point is disproportionately large compared to the amount for which they can settle the case.

The process of resolving CERCLA lawsuits is still at an early stage of development, forcing generators' counsel to make many strategic decisions on a best-guess basis. For example, in at least one case the government has been suggesting settlement without regard to the extent of actual contamination of soil and groundwater by particular wastes.¹⁶ CERCLA does not mandate that foreign substances in the subsurface environment must be removed to limits of detection; rather, CERCLA can be read to require cleanup only so far as is necessary to protect the public health and welfare. Indeed, the recently issued National Contingency Plan, authorized by § 105 of CERCLA, prescribes a complex process for taking account of both the costs and the effectiveness of alternative remedial programs.¹⁷ Thus, even if a company's wastes were sent to a landfill and those wastes found their way into the soil or groundwater, it may be that those substances pose low or negligible dangers and that remedial actions are unnecessary.

Further, even if there is strict liability for generators under § 107 of CERCLA, causation should still remain a necessary element of a CERCLA cause of action. In other words, it is difficult to see how there can be liability arising out of disposal of wastes where the wastes in question were not the reason that cleanup costs were incurred.¹⁸ Even more difficult issues are raised when the cleanupactions are made more expensive by the presence of certain pollutants. Thus, if groundwater monitoring wells must be sunk 20 feet deeper than otherwise necessary, because one solvent found at the site attenuates in soil less rapidly than others, the companies which generated that particular solvent should perhaps pay more of the cleanup costs than would be allocated on a purely volumetric basis.

Adding to the lack of predictability stemming from the factual and legal uncertainties in CERCLA cases are the varying approaches that lead counsel for both industry and government have taken to important issues. Strong attitudes toward settlement may develop, based more on chemistry between opposing lawyears, or on philosophical predelictions of the counsel for generators alleged to have contributed the most waste to the site (and on the perceived involvement of the federal or state governments themselves in generating wastes found at the site), rather than on national pronouncements or settlement policy emanating from EPA headquarters and the Justice Department.

The Aftermath of Chem-Dyne

Now that important precedents for the wording of settlement documents have been established in the South Carolina Recycling and Chem-Dyne cases,¹⁹ it is less likely that individual negotiations will substantially change the language of releases from liability. But it appears that there are a variety of other important questions the responses to which will be left to case-by-case determination. These vital practical concerns include the threshold amount of waste for which a generator will be included on a complaint (there may be different rules for notice letters), whether EPA and the Department of Justice will provide names of other alleged responsible parties, and whether they will turn over evidence of a generator's involvement. Another key question is whether the government will settle with individual generators. In some cases it has balked at individual settlements, and has instead imposed requirements that a "critical mass" of generator and waste volume be assembled before settlement can be achieved.

Finally, there may be less reason now than a few months ago for generators to settle CERCLA cases. The Wade decision may, if followed, make it far more difficult for the federal government to recover from generators, because EPA does not have enough money in the CERCLA Superfund to conduct thorough remedial actions at all sites (and even if it did the Office of Management and Budget may not release much of it). Also, there are a number of preconditions in CERCLA § 104 which must be met before EPA can expend more than one million dollars in funds (unless there is a continuing emergency), and at least two of these — the minimum financial contribution by the state in which the facility is located and the commitment by the state government to find a home in that state for exhumed hazardous substances²⁰ — may pose major obstacles to forcing generators to pay under § 107 for the large-scale cleanups contemplated at many sites.²¹ From the point of view of pure litigation strategy, it may now be worth the risk of allowing the government to run up early remedial costs to "wait and see" if it can satisfy the § 104(c) requirements and if groundwater and soil analyses implicate the generator's particular wastes in the environmental problem.

It is going to be impossible to obtain answers to the major CERCLA legal questions without taking those issues to the courts of appeals, and possibly the Supreme Court. But with respect to the many other practical problems that have been discussed, the federal government can add much predictability to the CERCLA cases by adopting clear policies on key day-to-day questions. Agreeing to release promptly information concerning a generator's alleged involvement with a site and showing a willingness to settle with individual generators on a consistent basis are just two of many steps that could be taken to lessen the near-chaos that exists in some cases. [12 ELR 15053] Most generators' counsel instinctively attempt to avoid confrontations with the government, and few would choose an important environmental matter on which to make a public challenge to uncertain laws. However, the current difficulty of determining from the government the basis for one's alleged responsibility with respect to an abandoned hazardous waste site, and finding a government representative who is willing and authorized to discuss settlement, and other related problems, are forcing many counsel to adopt approaches that they would not otherwise have embraced. EPA and the Justice Department must be more responsive and more consistent, if the CERCLA cases are not to turn into enormous "reverse" class actions that consume millions of dollars of legal fees, retard cleanup activities, and end up frustrating all involved.

1. 42 U.S.C. § 9607 et seq. (Supp. IV. 1980, ELR STAT. 41941).

2. "Buying out" claims of all three levels of government requires that the responsible federal, state and local agencies all be parties to the settlement agreement.

3. See Settlement Agreements in United States v. Chem-Dyne Corp. et al., 12 ELR 30026 (S.D. Ohio Civ. No. C1-82-840, filed Aug. 26, 1982); United States and South Carolina Dep't of Health and Envtl. Control v. South Carolina Recycling and Disposal, Inc. et al. (D.S.C. No. 80-1274-6, filed Mar. 23, 1982).

4. United States v. Chem-Dyne, ELR PEND. LIT. 65763 (S.D. Ohio, filed Aug. 26, 1982), and second amended complaint in South Carolina, ELR PEND. LIT, 65762 (D.S.C., filed Aug. 26, 1982).

5. 42 U.S.C. § 6901 et seq., ELR STAT. 41901.

6. RCRA § 7003, 42 U.S.C. § 6973, ELR STAT. 41922; CERCLA § 106, 42 U.S.C. § 9606, ELR STAT. 41947.

7. 12 ELR 21051 (E.D. Pa. Sept. 7, 1982).

8. 523 F. Supp. 1055, 11 ELR 21047 (D.N.J. 1981).

9. United States v. Price, 12 ELR 21020 (3d Cir. Sept. 14, 1982).

10. 12 ELR at 21023.

11. In United States v. Reilly Tar and Chem. Corp., 12 ELR 20954 (D. Minn. Aug. 20, 1982), the court held that a past owner and operator of a wood preserving plant could be held responsible under RCRA § 7003 and CERCLA § 106 with respect to present releases of hazardous substances. Although the defendant was a generator in the literal sense, it was also the party that owned and operated the facility at the time the hazardous substances were released.

12. Section 107(a) sets out four classes of persons that are liable uncer CERCLA. Under subsection (4) transporters are held responsible for accepting any hazardous substance and taking it to the site "selected by such person." There would appear to be little reason to impose on generators of waste — who in most situations are more removed from day-to-day activities at a disposal site — a standard of liability more stringent than that imposed on transporters. Thus, when Congress in subsection (3) states that generators "who by contract, agreement, or otherwise arranged for disposal or treatment, or arranged with a transporter for disposal or treatment, of hazardous substances … at any facility," it makes sense to read this in symmetry with subsection (3). That is, Congress intended liability to attach to those who picked the site.

13. One might contend that the decision in City of Philadelphia v. Stepan Chem. Co., 12 ELR 20915 (E.D. Penn. Aug. 4, 1982), implies that there is a right of contribution. There the court allowed the City of Philadelphia, "itself possibly subject to liability for governmental response costs," to bring an action against other alleged CERCLA responsible parties, to recover site cleanup costs purportedly incurred consistent with the National Contingency Plan. In addition, state courts have ruled on certain of these issues as they arise under state superfund statutes. See, e.g., State Dep't of Envtl. Protection v. Ventron Corp., 440 A.2d 455, 12 ELR 20281 (N.J. Super. Ct. App. Div. 1981).

14. See, e.g., Note, Joint and Several Liability for Hazardous Waste Releases Under Superfund, 68 U. VA. L. REV. 1157 (1982).

15. It may be less than a year before courts face this question, because in at least one case certain of the non-settling generators appear to be on the verge of attempting to join generators that settled.

16. Seymour Recycling Corporation's site in Seymour, Indiana.

17. 40 C.F.R. § 300.68(h), (i), & (j), added by 46 Fed. Reg. 31180 (July 16, 1982), ELR REG. 47435.

18. Perhaps under those facts the government would be able to recover a portion of the costs of assessing the site and determining that remedial steps were unnecessary as to those particular wastes.

19. See note 3, supra.

20. CERCLA § 104(e)(3), 42 U.S.C. § 9604(c)(3), ELR STAT. 41945.

21. One engineering firm estimated an outside cost of $41,000,000 to remedy the problems at the Stringfellow site in southern California. Anderton and Barto, Stringfellow, A Case History of Closure Facilities," 1982 NAT'L CONF. ON ENVTL. ENG'G at 466.