Lockheed Martin Corporation v. United States

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

__________________________________________

)

LOCKHEED MARTIN CORPORATION, )

)

Plaintiff, )

)

v. ) Civil Action No. 08-1160 (ESH)

) UNDER SEAL

UNITED STATES, )

)

Defendant. )

_______________________________________)

MEMORANDUM OPINION

Lockheed Martin Corporation brings this action against the United States under the

Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), 42

U.S.C. § 9601 et seq., for recovery of past and future response costs to remediate the

environmental contamination caused by its corporate predecessor’s operation of three rocket

motor-production facilities – Redlands, Potrero Canyon, and LaBorde Canyon – in California

from 1954 to 1975. Both parties admit to being liable as potentially responsible parties (“PRPs”)

for the contamination at the three facilities under CERCLA § 107(a). The Court held a twelve-

day bench trial from February 10 to March 14, 2014, to determine the equitable allocation of

response costs between the parties. Having considered the evidence, the controlling law, and all

relevant equitable factors, the Court has determined that an equitable allocation for the past

response costs for all three facilities is 0% liability to the United States and 100% liability to

Lockheed. In contrast, the Court will equitably allocate future response costs between the parties

differently for each facility: 29% to the United States and 71% to Lockheed for the Redlands

facility; 24% to the United States and 76% to Lockheed for the Potrero Canyon facility; and 19%

to the United States and 81% to Lockheed for the LaBorde Canyon facility.

1

TABLE OF CONTENTS

BACKGROUND .............................................................................................................................3

I. History of the Sites...................................................................................................3

A. Government contracts for solid propellant rockets at the Sites ...................3

B. Solid propellant rocket operations at the Sites .............................................7

C. General waste disposal practices at the Sites .............................................14

II. Cleanup of the Sites ...............................................................................................15

A. Redlands facility ........................................................................................15

1. Trichloroethylene ...........................................................................16

2. Perchlorate .....................................................................................18

B. Potrero Canyon facility ..............................................................................19

C. LaBorde Canyon facility ............................................................................21

III. Lockheed’s indirect recovery of response costs through U.S.-government

contracts .................................................................................................................22

A. The Federal Acquisition Regulations.........................................................23

B. The Discontinued Operations Settlement Agreement (“DOSA”) .............25

C. Lockheed’s treatment of response costs for the Sites under the DOSA ....27

IV. Procedural history ..................................................................................................29

A. Related actions while the CERCLA statute of limitations was tolled .......29

B. The government’s partial motion for summary judgment .........................33

C. Trial on equitable allocation ......................................................................36

LEGAL FRAMEWORK ...............................................................................................................40

FINDINGS OF FACTS AND CONCLUSIONS OF LAW ..........................................................46

I. Sources of contamination at the Sites ....................................................................47

A. Redlands facility ........................................................................................47

1. Perchlorate .....................................................................................47

2. Trichloroethylene ...........................................................................52

B. Potrero Canyon facility ..............................................................................56

C. LaBorde Canyon facility ............................................................................58

II. Traditional equitable allocation .............................................................................59

A. Limited value of certain equitable factors .................................................59

1. Waste attributable to each party .....................................................59

2. Parties’ relative benefits from waste disposal activities ................60

3. Degree of cooperation ....................................................................60

4. The government’s ownership of waste ..........................................62

5. The government’s ownership of facilities......................................64

6. Knowledge of risk of pollution from AP and TCE ........................65

7. Violation of California water quality laws.....................................68

8. Ability to pay .................................................................................74

9. Indemnification provisions ............................................................74

B. LPC exercised significantly more control than the government over the

day-to-day hazardous waste disposal operations at the Sites.....................79

C. The government acquiesced in many of LPC’s disposal operations at the

Sites ............................................................................................................88

2

D.

Some of LPC’s disposals at the Sites violated internal LPC rules or

government requirements...........................................................................90

E. Conclusion under traditional equitable allocation .....................................93

III. Effect of indirect recoveries on equitable allocation .............................................93

A. Lockheed’s recovery of past response costs would unfairly burden the

taxpayer. .....................................................................................................94

B. Lockheed’s recovery of future response costs would not unfairly burden

the taxpayer. .............................................................................................106

CONCLUSION ............................................................................................................................107

BACKGROUND1

I. HISTORY OF THE SITES

The environmental contamination that underlies this action arose from the operation of

solid propellant rocket production facilities by Lockheed Propulsion Company (“LPC”)2 at three

locations in Redlands and Beaumont, California – the Redlands facility, the Potrero Canyon

facility, and the LaBorde Canyon facility (collectively the “Sites”) – between 1954 and 1975.

A. Government contracts for solid propellant rockets at the Sites

LPC researched, developed, and manufactured state-of-the-art solid propellant rocket

technologies at the Sites in support of military and scientific programs critical to the United

States’ Cold War efforts. (Roman Decl. ¶¶ 21, 23.) Government interest in the development of

solid propellant rocket technologies grew significantly in the 1950s following the Soviet Union’s

successful nuclear tests in 1949 and the Sputnik launches in 1957. (Id. ¶¶ 19, 24-25.) Rocket

motors using solid propellants offered, at a lower cost, several benefits over their liquid-based

counterparts – greater safety, operational readiness, and reliability. (Id. ¶ 24, 27.) The

1

What follows in this section, although labeled “Background” and generally undisputed by the

parties, constitutes findings of fact in accordance with Fed. R. Civ. P. 52.

2

Grand Central Rocket operated the Sites from 1954 to 1963, when LPC purchased the company.

(USX88.0044.) For simplicity’s sake, the Court will refer to GCR and Lockheed Propulsion Company as

“LPC.” During its existence, LPC was an operating division of Lockheed Aircraft Corporation, which, in

1977, became the Lockheed Corporation. The Lockheed Corporation merged with the Martin Marietta

Corporation in 1995 to form the Lockheed Martin Corporation.

3

Eisenhower administration’s decision to initiate the development of several large missile

programs and to prioritize the research and development of solid propellants created the market

for a private solid propellant industry. (Id. ¶ 33.) As the only purchaser of advanced solid

propellant rockets at the time, the United States held monopsonistic control over the solid

propellant industry. (Trial Tr. 65-66 (Roman); Roman Decl. ¶¶ 5, 34.)

LPC was one of the largest participants in that industry, and as a contractor, it developed

or manufactured rockets for eight major Cold War programs: the Vanguard artificial satellite,

the Explorer artificial satellite, the Nike-Zeus anti-ballistic missile system, Project Mercury, the

Apollo Program, the Large Solid Propellant Motor Program, the TAGBOARD reconnaissance

drone, and the Short Range Attack Missile (“SRAM”) program. (Roman Decl. ¶¶ 7, 35.)

President Eisenhower designated four of these programs – Vanguard, Nike-Zeus, Mercury, and

Apollo – as of the “highest national priority.” (Id. ¶¶ 7, 23.)

As described by three aeronautics scholars, “[t]he brief life of the Lockheed Propulsion

Company was marked by rather modest, but notable historical and technical achievements in

solid rocket development.” (PX0088 at 14.) LPC contributed to four major Cold War space

programs both as a developer and manufacturer of solid propellant rocket motors. In the 1950s,

LPC developed and manufactured the third-stage motor for the Vanguard satellite program and

loaded solid propellants into motors for the Explorer satellite program. Following the first of

many successful launches into orbit in 1958, both Vanguard and Explorer were foundational

space race programs. (Roman Decl. ¶¶ 8, 36-37.) LPC later developed and manufactured

launch escape motors for Project Mercury, the United States’ first manned space program. The

escape motors – critical for the safety of the astronaut in the event of an emergency during a

launch – had a 100% reliability rate over numerous tests and missions. (Id. ¶¶ 10, 40-41.)

4

Finally, LPC developed and manufactured the launch escape and pitch control motors for the

Apollo manned lunar exploration program. The motors were part of the space capsule for eight

Apollo lunar missions, including Apollo 8, the first manned orbit of the moon in December 1968,

and Apollo 11, the first manned lunar landing in July 1969. (Id. ¶¶ 11, 42-43.)

From 1958 to 1974, LPC also researched, developed, and tested large solid propellant

motors for NASA and the Department of Defense (“DOD”). Large solid propellant motors were

necessary to generate enough thrust to lift large vehicles into space. Under the Large Solid

Propellant Motor Program, LPC designed, fabricated, and tested the first 120-inch and 156-inch

solid propellant motors and contributed to numerous technological advances later incorporated

by competitors in the Space Shuttle and ballistic missile programs. For instance, the “Lockseal”

device developed by LPC as a solution to solid propellant rocket thrust vector control became a

mainstay in the solid propellant rocket industry. (Id. ¶¶ 12-13, 44-45.)

LPC also contributed as a developer and manufacturer to the conventional Cold War

arms race. LPC developed the second-stage motor for the Nike-Zeus missile, a surface-to-air

missile designed to destroy incoming nuclear warheads. The Nike-Zeus missiles were

successfully tested in 1958 and 1959. (Id. ¶¶ 38-39.) LPC also developed and produced forty-

five motors for the then-highly classified TAGBOARD reconnaissance drone program in the late

1960s. LPC designed motors capable of allowing the unmanned drone to reach an altitude and

speed that would ignite the drone’s ramjet. Once the ramjet ignited, the drone could reach

speeds in excess of Mach 3 and photograph an area sixty miles wide and 3000 miles long in a

single flight. The government ultimately discontinued TAGBOARD in 1971 for technical and

political reasons. (Id. ¶¶ 49-50; see also PX0088 at 13.)

5

LPC’s largest contracts, however, were for the SRAM program. The SRAM was a

nuclear-armed air-to-ground missile designed for use on the aerial front lines in the case of an

American invasion into Soviet territory. (Roman Decl. ¶ 51.) LPC developed and manufactured

a revolutionary two-pulse solid propellant rocket motor, which enabled an individual SRAM to

shut down and then restart mid-flight. This innovation created the possibility for three distinct

flight profiles and an “omni-directional” striking capability for each missile. (Id. ¶¶ 51, 54, 70-

71; see also Trial Tr. at 68 (Roman).)

The Air Force developed the technical requirements for the SRAM program in the spring

of 1964. (Roman Decl. ¶ 53) The Air Force Rocket Propulsion Lab (“AFRPL”) initiated SRAM

research and development contracts with LPC, as well as several of its competitors, that same

year. (Trial Tr. at 1340-41 (Dull).) LPC was the only contractor to successfully demonstrate the

feasibility of a two-pulse motor during its research and development contracts. (Roman Decl. ¶

54.) In 1966, Boeing won the development contract for the SRAM program (Trial Tr. at 1339,

1341 (Dull)) and awarded the subcontract for the development of the propulsion system – i.e.,

the solid propellant rocket motor – to LPC. (Roman Decl. ¶ 55.)

Numerous technical difficulties and rocket failures plagued the SRAM program. (Trial

Tr. at 1341 (Dull); Roman Decl. ¶¶ 56-60.) The September 1969 initial qualification tests for the

SRAM motor were unsuccessful. (Roman Decl. ¶ 61.) Shortly thereafter, Boeing and LPC filed

a $54.2 million claim against the Air Force asserting that the SRAM propulsion system

requirements were “unattainable” and “grossly impracticable.” The Air Force settled the claim

for $20 million before it could be adjudicated. (Id. ¶ 63.)

Setbacks notwithstanding, the Air Force deemed the SRAM motor fit for production in

1971. The Air Force awarded Boeing the first production contract, and Boeing awarded LPC a

6

one-year production subcontract worth $27.6 million. (Id. ¶ 64.) The Air Force awarded Boeing

four more production contracts, and Boeing and LPC entered into four additional production

subcontracts between 1972 and 1975. During that period, LPC produced 1500 SRAM solid

propellant rocket motors and completed 107 consecutive successful test fires. (Trial Tr. at 1395-

96 (Dull); Roman Decl. ¶ 68.) Each SRAM was 150 inches long, nearly 18 inches in diameter

(see Trial Tr. at 1337 (Dull)), and carried a thermonuclear weapon with a yield of approximately

170 kilotons, roughly ten times the yield of the atomic bomb the United States dropped over

Hiroshima during World War II. (Roman Decl. ¶ 69.) Thus, a B-52 bomber with the capacity to

carry 20 SRAMs had a destructive power equivalent to 200 Hiroshima bombs. (Id.)

In light of decreased government focus on solid propellant rocketry for defense and space

exploration purposes, LPC ceased its operations in the summer of 1975 at the end of its fifth

SRAM subcontract. (Id. ¶ 68.) Nonetheless, SRAMs – all of which contained solid propellant

motors produced by LPC – remained a mainstay in the United States’ arsenal through the 1980s

and were considered critical to the deterrent effect of the United States’ strategic bomber force.

(Id. ¶¶ 70-72.) Even twenty years after the first successful SRAM test firing, the Soviet Union

had not developed an air defense system capable of neutralizing the omni-directional capabilities

of SRAMs provided by LPC’s two-pulse rocket system. (Id. ¶ 71.)

B. Solid propellant rocket operations at the Sites

While the parties dispute what happened on a day-to-day basis with respect to operations

at the Sites, particularly relating to the disposal of the hazardous substances, many of the

background facts are undisputed.

LPC began its rocket motor production operations at the nearly 500-acre Redlands

facility in 1954 when it leased the facility from the City of Redlands. (USX15; see also

7

USX11.0020-21.) Between 1958 and 1962, LPC acquired the parcels comprising the much-

larger 9,100-acre Potrero Canyon and 2,500-acre LaBorde Canyon facilities located near

Beaumont, California. (USX12.0044.)3 Lockheed researched and manufactured solid propellant

rockets at the Redlands facility from 1954 to 1975. (USX11.0018-20.) LPC used the Potrero

Canyon facility for manufacturing solid propellant rockets, testing rocket motors, and washing

out defective rocket motors for re-use from 1958 to 1974. (Sterrett Decl. ¶ 213; USX12.0046.)

LPC used the LaBorde Canyon facility for assembling small rocket motors, testing rocket

motors, and washing out defective motors for reuse from 1958 to 1974. (Sterrett Decl. ¶ 214;

USX13.0011-12.)

The design, testing, and production processes for LPC’s contracts followed a general

protocol. The government provided requirements regarding the performance, dimensions, and

interface points of the solid propellant rocket motor. (Trial Tr. at 78 (Oppliger).) From those

specifications, LPC’s engineering analysts manipulated the composition of the propellant and the

physical design of the propellant grain within the rocket casing to achieve desired rocket

performance. (Id. at 78-79.) LPC engineers then designed the rocket casing and casing

insulation based on the characteristics of the propellant grain design. (Id. at 80.) From there,

LPC began the iterative process of testing subscale (and eventually to-scale) rockets against the

government-provided specifications. (See id. at 80-83.)

Although LPC’s applications of solid propellant rocket technology were state-of-the-art,

solid propellant rocket motors themselves are “simple units” with “no moving parts.” (PX91 at

3

Today, the San Bernardino Valley Water Conservation District owns the majority of the

Redlands facility and uses portions of it for water spreading to recharge groundwater. Operators of an

industrial park own the remaining sixty-six acres of the Redlands facility. (USX11.0021.) California

owns and manages as a wildlife area all but nearly 600 acres of the Potrero Canyon facility. Lockheed

owns the remaining acreage under a conservation easement. (USX12.0047.) The County of Riverside

has owned the LaBorde Canyon facility since 2006. (USX13.0011.)

8

934.) A solid propellant rocket “motor consists of an encased energy supply, which is a

combustible mixture of all of the elements required for the generation of propulsive energy” – it

is self-contained and ready to fire when it leaves the factory. (Id.)

A solid propellant is composed of three basic components – an oxidizer and two fuels, a

“rubber-like binder” and powdered aluminum. (Id. at 935.) Because solid propellant

combustion occurs in the closed environment of a rocket’s core, a solid propellant requires much

more oxidizer than fuel. (Id. at 955.) The oxidizer used by LPC consisted of precise proportions

of ground and unground ammonium perchlorate (“AP”). LPC used several grinders at the Sites

to grind raw AP down from 200 microns in diameter (unground) to precise sizes of less than

eight microns in diameter. (Id.) LPC combined the ground and unground oxidizer with a fuel

slurry in a large mixing machine to produce a homogenous fluid propellant. (Id. at 958.)

LPC then “cast” the fluid propellant into the rocket motor case under vacuum conditions,

and “cured” the rocket by heating the cast for nearly a week to “stiffen[] it into a rubbery, shape-

retaining mass.” (Id. at 935, 961.) LPC produced these solid propellant motors in short,

cylindrical segments that could be joined to complete the rocket motor. (Id. at 940.) Once the

nozzle and igniter were added, the rockets were ready for either testing or shipment. (Id. at 938.)

Aside from providing the initial specifications for a particular solid propellant rocket

motor, the government played several additional roles in the design, testing, and production of a

rocket.4 First, as a government contractor or subcontractor, LPC had to comply with any military

and federal specifications incorporated in a particular contract. (PX1057 ¶¶ 13-14 (Speer

Decl.).) Deviation from government specifications required government review and approval.

(Id. ¶ 14.) Second, LPC’s contracts often incorporated by reference specific safety and

4

Because of the lack of contracts and documents from the LPC’s earlier years, this section

focuses primarily on LPC’s later – and biggest – subcontracts under the SRAM program.

9

production manuals. (See Trial Tr. at 941 (Nagle); see also, e.g., PX0001-0003, 0005, 0007,

0009.) The manuals provided guidance for best practices regarding safety and production

processes. Although LPC was not required to comply with all aspects of the referenced and

applicable manuals, LPC was required to comply with, or to seek a waiver or deviation from, any

directives in the manuals that used the words “shall” or “must.” (See Trial Tr. at 439 (Delaney);

id. at 941 (Nagle); PX0007 § 102). Waivers or deviations, however, were commonly sought and

granted. (Trial Tr. at 941 (Nagle); see, e.g., PX400.)

Specifications aside, the government had limited input into LPC’s technical development

of solid propellant rocket motors under government contracts. In the mid-1960s, the government

adopted the so-called Total System Performance Responsibility (“TSPR”) for the SRAM

contracts, meaning that the prime contractor – Boeing – and its subcontractor –LPC – had “total

system responsibility to build th[e SRAM] without any more direction from the Air Force.”

(Trial Tr. at 1338 (Dull); see USX222.0003.) “The Air Force provide[d] a statement of work,

what [it] want[ed] to be built, and a system spec that goes into technical details” regarding

performance, but it did not “dictate the design” of the rocket. (Trial Tr. at 1338 (Dull).)

Given the technical complexity of the SRAM program, LPC held daily early morning

meetings to discuss pertinent program details. (See Trial Tr. at 86 (Oppliger).) Government

representatives from the Air Force Systems Program Office (“SPO”)5 and the AFRPL attended

these meetings, as well as other technical interchange meetings scheduled by Boeing, only on

invitation by Boeing. (Id. at 1341, 1345-47 (Dull).) Although the frequency of these meetings

increased over time due to the repeated rocket motor failures that plagued SRAM, government

representatives at the meetings were instructed not to provide direction, but to only “observe,

5

The SPO, located at Wright-Patterson Air Force Base near Dayton, Ohio, was the Air Force

division responsible for procuring weapons systems, including SRAM. (Trial Tr. at 1335-36 (Dull).)

10

take notes, and report back to . . . supervisors.” (Id. at 1347-48.) Even at SRAM’s preliminary

design review, which included high-ranking officials from LPC, Boeing, and the Air Force, the

Air Force representatives attended only “as observers to witness the progress at [LPC] at that

time.” (Id. at 1349.) Waste disposal practices were not discussed at these technical meetings.

(Id. at 1352.)

At the beginning of its SRAM development subcontract, LPC formed the SRAM

Propulsion Program Review Committee to provide LPC monthly guidance on meeting the

SRAM program’s technical and schedule objectives. (PX0571 at 443.) The Committee was

initially comprised of Lockheed Aircraft Corporation employees who did not generally work for

LPC at the Sites. (Id.) In early 1968, pending the commencement of SRAM rocket motor test

firing, LPC , with the permission of Boeing, expanded the Committee to include several outside

experts, including Boeing engineers, scholars, and Donald Ross, “Mr. Solid Rocket,” from the

AFRPL. (Id. at 444, 446; see Trial Tr. at 1369-70 (Dull).) Although Mr. Ross was generally an

“observer” under the TSPR (Trial Tr. at 1370 (Dull)), he provided some technical input to LPC

through the Committee. (See PX0571 at 0439.) LPC promptly implemented many of the

improvements recommended by the expanded Committee. (See Roman Decl. ¶ 60.)

In 1970, at the request of the SPO, the AFRPL reviewed the design of the SRAM rocket

motor, the test firing results, and LPC’s tooling and manufacturing processes and internal

procedures, to ensure that LPC “w[as] ready for production” and to “document the things that

needed to be completed” before SRAM rocket motor production could begin. (Trial Tr. at 101,

104-05 (Oppliger); see also Trial Tr. at 1356 (Dull); PX0577 at 110.) Pursuant to this review,

the AFRPL provided eight recommendations to Boeing regarding LPC’s readiness for SRAM

rocket motor production. (See PX0577 at 115-18.) These recommendations ranged from the

11

procedural – recommending that Boeing conduct a First Article Contractual Inspection following

the eight test motor firings – to the prudent – suggesting that LPC’s engineering work force

could be reduced by fifty percent once development ended and production began. (Id. at 116,

118.) Although the government recommendations did not bind either Boeing or LPC (Trial Tr.

at 1376-77 (Dull)), LPC ultimately adopted many of them. (Id. at 106 (Oppliger).)

The government’s quality assurance presence at the Sites was much larger than its

technical development presence described above. Although LPC had its own safety and quality

control inspectors (id. at 128), both Boeing (as prime contractor for SRAM) and the Defense

Contract Administration Service (“DCAS”) had offices at the Redlands facility and had the

“right[]” to “roam the production floor and see anything they wanted to see and watch anything

they wanted to watch.” (Id. at 90-92, 94, 110-11.) DCAS officials, Boeing officials, and LPC

engineers reviewed the process specifications and manufacturing process standards before

production could begin and inspected the processes once underway. (Id. at 90.)6 DCAS officials

determined which steps in the production process they wanted to inspect and, in theory, a

production process could not proceed beyond a dedicated inspection point until a DCAS official

had inspected and “stamped off” the process. (Id. at 90-92.)

During the SRAM development and production contracts, DCAS had between four and

five full-time representatives and Boeing had around twenty full-time employees stationed at the

Redlands facility. (Trial Tr. at 111 (Oppliger); id. at 1346, 1357 (Dull).) By comparison, LPC

6

“Process specifications” identified the applicable government specifications for a contract and

provided a high-level description of the production process. (See PX1057 ¶¶ 16-17 (Speer Decl.); see,

e.g., PX328.) Manufacturing process standards, on the other hand, were “how-to” documents that

provided step-by-step instructions for the completion of certain processes in compliance with the process

specifications. (PX1057 ¶ 22; see, e.g., PX913.) That is, “[m]anufacturing process standards were used to

tell the operators how to do or how to use a certain piece of equipment or how to do a certain thing.”

(Trial Tr. at 117 (Oppliger).)

12

had around four hundred employees at the Redlands facility. (Trial Tr. at 139 (Oppliger);

PX1202 at 133.)

The frequency and quality of inspections at the Sites varied over time. “The amount and

kind of inspection to be performed by the Government [wa]s at the discretion of DCAS.”

(USX270.) In its 1970 review of the SRAM Rocket Motor, the AFRPL criticized all three

parties – LPC, Boeing, and DCAS – for practicing a laissez-faire “‘call us and we’ll come and

inspect’” approach to inspecting production processes. (PX577 at 117, 151-52; cf. PX576 at 48-

49, 81.) The AFRPL therefore concluded that that the SRAM program had “not been receiving

the on-station witnessing of work that the program has and continues to deserve” (PX577 at 151-

52) and suggested that SPO recommend to Boeing and DCAS to “re-evaluate their inspection

philosophy and inspection operations with a view to substantially increasing their on-station

witness of work operations besides work results.” (Id. at 117; see also Trial Tr. at 1375-76

(Dull).) After this review, both inspection points and the frequency of inspections increased at

the Sites as the first SRAM production contract got underway. (Trial Tr. at 138 (Oppliger).)

Nonetheless, DCAS continued to “lean[] on Boeing for engineering judgment and decisions

essential to the quality assurance function.” (USX221.0004.)

In addition to their daily quality assurance inspections, DCAS representatives also

occasionally undertook safety inspections at the Sites. (See, e.g., PX476-77, 482-84.)7

However, these inspections were limited to safety risks involving fires and explosions inherent in

the production, testing, and disposal of propellants and did not address safety risks regarding

environmental pollution. (See, e.g., Trial Tr. at 87 (Oppliger).)

7

Prior to the creation of DCAS in 1964, the Los Angeles Ordnance District undertook safety

inspections. (Trial Tr. at 960-61, 1013-14 (Nagle).)

13

C. General waste disposal practices at the Sites

Solid propellant rocket motor research, design, testing, and production processes produce

myriad and voluminous waste streams including waste propellant (used, unused, and defective),

waste solvents containing propellants, and scrap motors. (See PX457 at 801.) As a result,

disposal of waste was “regarded as an integral part of solid propellant rocket operations.”

(PX0009 § 7-1.1.)

During its operations of the Sites, LPC used several organic solvents – including

trichloroethylene (“TCE”) and 1,1,1-trichloroethane (“TCA”) – to clean the equipment used to

produce the solid propellant rocket motors. At the Redlands facility, AP and propellant-laden

wastewaters, AP and propellant-laden solvents, and solvents in general, were first piped,

pumped, or transported via drums to “evaporation pits.” (Trial Tr. at 669 (Feenstra); Feenstra

Decl. ¶¶ 50-51.) These shallow, concrete-lined basins allowed the organic solvents and water to

evaporate, leaving behind a residual sludge containing large amounts of AP. (See Trial Tr. at

700 (Feenstra).)

LPC ultimately disposed of most of its propellant wastes – including sludge taken from

evaporation pits – by burning them in earthen “burn pits” at the Redlands and Potrero Canyon

facilities. (Feenstra Decl. ¶¶ 51, 156.) In some instances, propellant wastes were disposed of

off-site at Camp Irwin – a military facility in the Mojave Desert (now Fort Irwin). (See id. ¶ 42;

PX431; PX440.)

An exception to disposal-by-burning existed, however, for defective rocket motor

casings. Rather than burning the entire rocket motor – and ruining the expensive metal casing –

LPC often attempted to reuse the motor casing by removing the propellant with water. In the

1950s, LPC did this by “soaking out” the scrapped rocket motors in evaporation pits at the

14

Redlands facility. (Feenstra Decl. ¶¶ 47, 152; see also PX429.) Later, LPC began “hogging out”

defective rocket motors at the Potrero Canyon facility using high-pressure water jets to remove

the propellant from the motor casing. (See Trial Tr. at 393 (Delaney); USX49.0068.)

II. CLEANUP OF THE SITES

As of the beginning of the trial, Lockheed had incurred environmental response costs for

the Sites totaling nearly $287 million. Lockheed estimates it will incur another $124 million in

future response costs for the Sites. (See Meyer Decl. ¶ 50 fig. 29.) Because each facility has a

distinct operational and cleanup history, the Court considers them separately below.

A. Redlands facility

TCE8 and perchlorate9 are the principal contaminants driving the cleanup costs relating to

the Redlands facility. Due to a combination of hydrogeologic factors around Redlands, the

majority of the TCE and AP disposed of during LPC’s operations is no longer located at the

facility. (Sterrett Decl. ¶ 44.) Rather, the substances percolated through the soil and into the

groundwater and have travelled downgradient to form the “Redlands plumes,” 10 approximately

four miles away. (See generally id. ¶¶ 29-45; see also Trial Tr. at 286-87 (Blackman).) Because

8

TCE is now recognized as a probable carcinogen for humans (PX1621 at 263) and the ingestion

of TCE-contaminated water has been associated with a wide variety of other health problems.

(USX826.0023, 0067-0111.)

9

During the trial, at the Court’s direction, the parties and witnesses did not distinguish between

“AP” and “perchlorate.” However, the Court must distinguish between the two in this Memorandum

Opinion: while AP is the oxidizer LPC used and disposed of at the Sites, perchlorate is the component of

AP that contaminates the soil and groundwater at the Sites.

AP is an inorganic salt that “dissociates” in water into its constituent cation and anion:

ammonium (NH4+) and perchlorate (ClO4-), respectfully. (See PX1224 at 1; PX1685 ¶ 3.) Perchlorate is

highly soluble and mobile in water and chemically stable. As a result, perchlorate forms persistent

contaminant plumes when it is released into surface or groundwaters. (PX1224 at 1.) Perchlorate is

harmful to human health because, even in the low µg/L range, it can interfere with iodide uptake by the

thyroid gland, thereby resulting in decreased thyroid hormone production. (PX1224 at 4, 35-36.)

10

Although substantially overlapping, the perchlorate and TCE plumes are distinct. (Sterrett

Decl. ¶ 46.)

15

the plumes are “detached” from the Redlands facility, environmental investigation of the facility

cannot demonstrate a “direct connection” between specific locations (and thus production

activities) at the facility and the plumes. (Sterrett Decl. ¶ 52.) That is, simply by looking at the

plumes and the facility, one cannot reliably discern where in the facility the TCE or perchlorate

originated.

1. Trichloroethylene

The California Department of Health Services first discovered the Redlands TCE plume

in 1980. (PX1677 ¶ 1.) Throughout the 1980s, several municipal wells were shut down after

testing revealed TCE concentrations above the California drinking water maximum contaminant

level of 5 µg/L. (Id. ¶ 3.)11 Lockheed began investigating the plume in the early-to-mid 1980s,

concluding in 1985 that a local airport, and not LPC’s activities at the Redlands site, was the

“most likely source” for the TCE. (Id. ¶ 12.) Notwithstanding that conclusion, the Santa Ana

Regional Water Quality Control Board instructed Lockheed to conduct further investigations into

its operations at the Redlands site. (Id.) Lockheed and the Board continued investigating the

Redlands facility as a potential source for the TCE plume into the early 1990s. (Id. ¶¶ 13-32.)

By October 1992, Lockheed argued that continued investigations into the Redlands

facility would be fruitless because whatever TCE might have been disposed of at the facility had

either volatized or dispersed through the porous soil and formed the detached Redlands TCE

plume. (Id. ¶ 33.) In November, the Board informed Lockheed that it had concluded the

Redlands facility was the source of the Redlands TCE plume and that it would order Lockheed to

investigate and cleanup the plume. (Id. ¶ 34.) Lockheed replied that it would consider proposing

11

As of 2008, the maximum TCE concentrations in the plume are in the mid-20 µg/L range.

(USX11.0032.)

16

to the Board a remediation plan that would negate the need for any order and thereafter

undertook a detailed study of the Redlands TCE plume. (Id. ¶¶ 34-35.)

On May 6, 1993, Lockheed denied responsibility for the plume, informing the Board that

“it was [its] position that there was not substantial evidence to indicate that Lockheed was the

source of the TCE contamination in the [Redlands plume], and that Lockheed, therefore, was not

in a position where they could justifiably utilize stockholders’ funds in conducting any additional

work.” (Id. ¶ 36.)12 The Board responded on January 28, 1994, by issuing its first Cleanup and

Abatement Order for the Redlands TCE plume. The Order required, inter alia, that Lockheed

submit a workplan for using groundwater monitoring wells to define the plume and based on

data gathered from those wells, submit and implement plans to first contain and then remediate

the plume. (Id. at 10-11; see also Trial Tr. at 286-87 (Blackman).) On that same day, the Board

also issued an “investigative order” requiring Lockheed to conduct groundwater and subsurface

soil investigations at the Redlands facility. (PX1678 at 10; see also Trial Tr. at 285 (Blackman).)

On April 22, 1994, after discussions with Lockheed, the Board modified its initial Cleanup and

Abatement Order by removing the requirement that Lockheed implement any remedial actions

for the plume while investigations were still ongoing. (PX1679 at 10-11; see also Trial Tr. at

295-96 (Blackman).) Lockheed continued to deny responsibility for the Redlands TCE plume

(see USX653 (January 1994 letter from Lockheed to Board)), but otherwise complied with the

1994 Orders and worked with the Board to develop an acceptable remediation plan. (Trial Tr. at

296-99 (Blackman).)

12

Mr. Blackman explained that Lockheed initially was unconvinced that the Redlands TCE

plume originated from LPC’s operations at the Redlands facility because testing of groundwater at the

facility had not revealed the presence of TCE. (Trial Tr. at 288 (Blackman).) That is, Lockheed was

unconvinced of its liability because the plume was “detached from” the facility. (See id.)

17

2. Perchlorate

In late April 1997, following a breakthrough in testing methodologies for perchlorate (see

Trial Tr. at 301-03 (Blackman)), the California Department of Health Services discovered

perchlorate levels in several wells within the Redlands TCE plume that exceeded California’s

provisional drinking water standard of 18 µg/L. (PX1685 ¶¶ 3-4.)13 The Board connected

LPC’s use of AP at the Redlands facility – and in particular the waste disposal practices – with

the Redlands perchlorate plume. (Id. ¶¶ 3, 5.) The Board accordingly issued a Cleanup and

Abatement Order requiring Lockheed to investigate and then develop and implement a remedial

action plan for the Redlands perchlorate plume. (Id. at 2.) Lockheed appealed the Order, but

complied during the appellate process. (Trial Tr. at 337 (Blackman).) Because the Redlands

facility was “the only source of [AP] in the” watershed, Lockheed eventually accepted

responsibility for the Redlands perchlorate plume. (See id. at 307.) Further, after the discovery

of the perchlorate plume, Lockheed “began to realize that the TCE, which was fully enveloped in

the perchlorate plume, must have also come from the” Redlands facility as well. (Id. at 308.)

Since that time Lockheed has complied with all orders of the Board regarding

investigation, containment, and remediation of the Redlands plumes, including working with

water purveyors (e.g., surrounding municipalities) to reduce TCE and perchlorate concentrations

to acceptable levels and to drill new wells for drinking water supplies. (Id. at 314-17;

USX11.0023-26.) Among other remedial steps, Lockheed treated from select wells TCE-laden

13

As of 2008, maximum perchlorate levels in the plume ranged from 60 to 90 µg/L.

(USX11.0031.)

18

groundwater with granular activated carbon and AP-laden groundwater with an ion exchange

resin. (See Trial Tr. at 319-20 (Blackman); USX11.0041-42.)14

Although Lockheed has removed large amounts of TCE and perchlorate from the

Redlands plumes, concentrations remain at levels that will require continued treatment that may

“go on for many decades.” (Trial Tr. at 321 (Blackman).) As of 2011, Lockheed had incurred

over $231 million in response costs for the Redlands plumes. 15 (See Meyer Decl. ¶ 50 fig. 29.)

Response costs for the Redlands plumes also make up the lion’s share of the more than $25

million in response costs at the Sites from January 1, 2012 to February 10, 2014, and are

expected to comprise the majority of the projected $125 million in future costs for the Sites.

(Trial Tr. at 1188 (Lockheed counsel); cf. Meyer Decl. ¶ 50 fig. 29.)

B. Potrero Canyon facility

Although TCE, TCA-related compounds,16 and polychlorinated biphenyls have been

found in the soil and groundwater at the Potrero Canyon facility, perchlorate is the principal

contaminant of concern at the facility. (Sterrett Decl. ¶¶ 22.) Unlike at the Redlands facility, the

contamination at the Potrero Canyon facility is not detached, so the perchlorate contamination is

traceable to specific locations at the facility. (Feenstra Decl. ¶ 155; Sterrett Decl. ¶ 216.)

14

Granular-activated carbon is a less costly technology than ion exchange, which was developed

specifically for perchlorate contamination. (Trial Tr. at 322 (Blackman).) While response costs for the

Redlands plume in the 1990s were primarily from the cleanup of TCE, the recent, current, and future

costs are perchlorate-driven. (Id. at 1188 (Lockheed counsel).)

15

Facility-specific data are unavailable for response costs incurred after 2011. (See Meyer Decl.

¶ 50 fig. 29; see also USX378; USX401-402.)

16

These compounds include 1,4-dioxane and 1,1-DCE. 1,4-dioxane is a chemical used to

“inhibit” – or stabilize – TCA. (Feenstra Decl. ¶ 155.) Similarly, TCA – once “uninhibited” by the

preferential removal of 1,4-dioxane in water – degrades in the presence of powdered aluminum (a fuel in

rocket propellant) to 1,1-DCE. (Trial Tr. at 674-75 (Feenstra).) Thus, the presence of 1,4-dioxane and

1,1-DCE can indicate the prior disposal of TCA.

19

The primary sources of perchlorate soil contamination at the Potrero Canyon facility are

the Large Motor Washout Area and the Burn Pit Area (Sterrett ¶¶ 220-21),17 with perchlorate

levels as high as 302,000 µg/kg and 171,000 µg/kg, respectively. (USX12.0229-30.) The

former Rocket Motor Production Area is a secondary source area, covering a much larger portion

of the facility but with lower perchlorate soil concentrations (20,400 µg/kg). (Id. at 0229, 0244-

45.) The Sanitary Landfill is also identified as a secondary source area, with soil perchlorate

levels as high as 67,300 µg/kg. (Sterrett Decl. ¶ 222; USX12.0233.)

The Burn Pit Area is the primary source of perchlorate groundwater contamination at the

facility. (Feenstra Decl. ¶ 155; Sterrett Decl. ¶¶ 226-27; USX12.0237-38.) Secondary sources at

the facility include the Rocket Motor Production Area and, to a lesser extent, the Large Motor

Washout Area. (Feenstra Decl. ¶ 165; USX12.0237-38.)

In 1986, Lockheed conducted a historical study of the Potrero Canyon facility (along with

the LaBorde Canyon facility) to better plan later investigations into environmental

contamination. (See USX49.0011.) Following that study and a 1989 Consent Order from the

California Department of Health Services, Lockheed has undertaken further remedial

investigations and some remedial actions at the facility, the most recent and relevant beginning

in 2002. (See USX12.0064-90.)

As of 2011, Lockheed had incurred nearly $21 million in response costs for the Potrero

Canyon facility. (See Meyer Decl. ¶ 50 fig. 29.) Further remedial actions are presently under

evaluation. (Feenstra Decl. ¶ 154; see generally USX699.144-300.) As of 2012, the preferred

remedial alternative for perchlorate-impacted soils at the facility is excavation and off-site

removal. The preferred remedial alternative for perchlorate-contaminated groundwater at the

17

The TCE-contaminated soils identified at the facility – located in the Burn Pit Area – were

remediated in the 1990s. (Sterrett ¶ 224; USX12.0233-35.)

20

facility hydraulic containment through the installation of a pump-and-treat system involving ex

situ treatment of the groundwater, with the discharge of remediated water back into the ground or

into local waterways. (USX699.0299-300.)

C. LaBorde Canyon facility

The soil and groundwater at the LaBorde Canyon facility are also contaminated with

perchlorate and, to a lesser extent, TCE. (Sterrett Decl. ¶¶ 25, 238.) As at the Potrero Canyon

facility, groundwater contamination at LaBorde Canyon is not detached and is therefore

traceable to specific locations of historic operations at the facility. (Id. ¶ 235.) The primary

sources of perchlorate at the facility are the Test Bay Canyons and the Waste Discharge Area.

(Feenstra Decl. ¶ 167; Sterrett Decl. ¶ 239.) Perchlorate has been detected in soil at

concentrations exceeding 100,000 µg/kg and in groundwater at concentrations exceeding

100,000 µg/L. (USX13.0236-38, .0241.)

As was the case at Potrero Canyon, Lockheed undertook a historical study of the

LaBorde Canyon facility in 1986. (See USX49.0011.) The California Department of Health

Services issued a Consent Order requiring cleanup of contamination at the facility in 1989.

(USX13.0012.) Lockheed completed remedial investigations and removal actions from 1990 to

1993, after which the California Department of Toxic Substances Control issued a “Report of

Completion of Removal Action” stating that no further remedial action was necessary. (Id.;

USX700.0037-38.) Groundwater perchlorate contamination was first detected at the facility in

the early 1990s. (Feenstra Decl. ¶ 174.) However, the California Department of Toxic

Substances Control did not reopen the facility for further assessment until 2003. (USX13.0012.)

Since then, Lockheed has engaged in nearly ten years of remedial investigations. (USX13.0027-

31.)

21

As of 2011, Lockheed had incurred over $10 million in response costs for the LaBorde

Canyon facility. (See Meyer Decl. ¶ 50 fig. 29.) Further remedial actions are currently under

evaluation. (USX700.0148-206.) As of 2012, the preferred remedial alternative for the facility

is limited shallow soil removal, plume containment, and institutional controls. (Id. at 0191,

0215.)

III. LOCKHEED’S INDIRECT RECOVERY OF RESPONSE COSTS THROUGH

U.S.-GOVERNMENT CONTRACTS

Lockheed has recovered and continues to recover its response costs for the Sites (and

others sites like them) from its customers by allocating its cleanup expenses to its contracts as

indirect costs. Because the U.S. government is by far Lockheed’s largest customer, to date

Lockheed has indirectly recovered18 $208 million – over 72% of its total past response costs for

the Sites – through indirect costs charged to U.S.-government (primarily DOD) contracts.19

Because the U.S.-government share of Lockheed’s business is larger than it was in the past, the

percentage of total response costs for the Sites that Lockheed has recovered through U.S.-

government contracts is expected to rise in the future.

This cost-recovery system has its foundation in the byzantine federal contracting

regulations and was formalized, as to environmental response costs in particular, by the

Discontinued Operations Settlement Agreement (“DOSA”) signed by Lockheed and the U.S.

18

In its public filings, Lockheed refers to its formalized recoupment of environmental response

costs through its contracts with the U.S. government as a “recovery.” (See USX397.0069 (Lockheed

2012 Annual Report).)

19

The vast majority of Lockheed’s U.S.-government contracts are with the DOD. (See

PX397.0017.) However, Lockheed also has contracts with NASA, the Federal Aviation Administration,

the Social Security Administration, the Department of Treasury, the Department of Justice, the

Department of Health and Human Services, the Environmental Protection Agency, and the U.S. Postal

Service. (Trial Tr. at 1654 (Gatchel); USX397.0016.)

22

Defense Contract Management Agency (“DCMA”)20 in 2000. As a result of these regulations

and the DOSA, the Court must decide, in determining the equitable allocation of response costs

between the parties under CERCLA, what weight, if any, should be given to the fact that a

government contractor (1) has already formally, though indirectly, “recovered” from the U.S.

government a significant portion of its response costs through the pricing of its goods and

services and (2) now seeks to directly recover from the U.S. government those same response

costs under CERCLA. As the parties agree, this is an issue of first impression.21 But before the

Court can address that question, it must explain the relevant regulations and the DOSA, both of

which complicate the resolution of this case.

A. The Federal Acquisition Regulations

Lockheed’s cost-recovery system has an established basis in the complex Federal

Acquisition Regulations (“FAR”) that govern government contracting. Pursuant to the FAR, the

government pays contractors both their “direct” and “indirect” costs, plus a profit. (Wright Decl.

¶ 84.) Direct costs are those costs related to a specific contract, such as materials and labor. See

48 C.F.R. § 31.202. Indirect costs are those costs not associated with a specific contract –

essentially overhead. See id. § 31.203. Profit factors are determined on a contract-by-contract

20

The DCMA is the component of the DOD that engages directly with defense contractors on

issues of contract compliance.

21

Although an issue of first impression, it is far from sui generis. Counsel for the parties

identified at least two other cases involving Lockheed and the government where the same issue will need

to be addressed. (Trial Tr. at 999-1000.) See Lockheed Martin Corp. v. United States, 06-cv-1032-RSL

(W.D. Wash. filed July 21, 2006) (“Seattle Shipyards”); Lockheed Martin v. United States, 06-cv-1438-

RJL (D.D.C. filed Aug. 15, 2006) (“Great Neck”). The issue was also raised in Raytheon Aircraft Co. v.

United States, 2007 WL 4300221 (D. Kan. Dec. 8, 2007), but that case settled before trial. Because

environmental contamination at defense contracting facilities is pervasive, the issue likely looms large in

any case where a major government contractor can sue the government for recovery of environmental

response costs under CERCLA. (Cf. Trial Tr. at 1996 (government closing).)

23

basis. (See Trial Tr. at 600-01 (Wright); id. at 1660-61 (Gatchel).) Across all contracts in 2013,

Lockheed’s operating margin (i.e., pre-tax profit) was over 9.9%.22

The government will only reimburse a contractor for “allowable” indirect costs. An

indirect cost is “allowable” if it is “reasonable,” i.e., “it does not exceed that which would be

incurred by a prudent person in the conduct of competitive business,” 48 C.F.R. § 31.201-3(a), is

“allocable,” complies applicable accounting standards, and is not otherwise disallowed by

regulation or contract. See id. §§ 31.201-2, -4. Although not specifically allowable under the

FAR, see generally id. § 31.205, environmental costs “are normal costs of doing business and are

generally allowable costs if reasonable and allocable.” (PX1862 § 7-2120.1 (Defense Contract

Audit Agency Contract Audit Manual).) 23 Environmental cleanup costs at facilities no longer in

operation are generally allocable as indirect costs. (Id. ¶ 7-7120.7.) Attorneys’ fees and legal

22

See Press Release, Lockheed Martin Corp., Lockheed Martin Reports Fourth Quarter and Full

Year 2013 Results (Jan. 23, 2014), available at http://www.lockheedmartin.com/us/news/press-

releases/2014/ january/0123hq-earnings.html.

23

There was a movement in the late 1980s to make environmental cleanup costs, except for those

at government-owned, contractor-operated facilities, unallowable; however, the proposal was ultimately

withdrawn in the face of industry resistance. See Cpt. Gerald P. Kohns et. al., A Primer on Contractor

Environmental Remediation and Compliance Costs, ARMY LAW., Nov. 1993, at 22, 28. In 1991, a

revised draft environmental cost principle – proposed FAR § 31.205-9 – was approved by Defense

Acquisition Regulation Council and by the Civilian Agency Acquisition Council. Cpt. Joshua H. Van

Eaton, A Not-So Equitable Allocation: The Need for an Environmental Cost Principle, 14 MO. ENVTL. L.

& POL’Y REV. 441, 459 (2007). The proposed principle would have disallowed environmental cleanup

costs except where the contractor could show that it was performing a government contract at the time of

the disposal that required cleanup and that performance of the government contract caused the disposal.

Id. at 460. Even in those instances, however, the contractor would also have to demonstrate

reasonableness of costs, due diligence, compliance with environmental standards of care and laws at the

time of disposal, and the exhaustion of legal remedies to defray cleanup costs. Id. at 473-74. The

regulation was never finalized, presumably because of the moratorium on new regulations in effect at the

time. Id. at 460. Even so, the U.S. Government Accountability Office continued to press for the

development of an environmental cost principle to address what it considered to be inconsistent – and

ultimately detrimental to the government – treatment of environmental costs by contractors. Id. at 461-

63. In 1997, after years of industry resistance, the DOD ultimately abandoned its efforts to develop an

environmental cost principle. Id. at 463-64.

24

costs incurred while pursuing a CERCLA action may also be treated as indirect costs. See 48

C.F.R. § 31.205-47.

For a fixed-price contract, contractors attempt to predict the incurrence of indirect costs

that will be allocated to that contract over its term. Because the price of the contract is fixed, the

contractor benefits from a relatively higher return on its contract if it overestimates the total

indirect costs; on the other hand, if the contractor underestimates the total indirect costs, it will

receive a relatively lower profit on that contract. In contrast, in cost-reimbursement contracts the

contractor is paid for all allowable direct and indirect costs allocated to the contract. Thus, over-

or under-estimating indirect costs with regard to a cost-reimbursement contract does not pose the

same potential for increased or reduced returns. (Cf. Trial Tr. at 1660, 1679 (Gatchel).)

Even after the contractor has allocated indirect costs to specific contracts and has been

paid for those costs pursuant to those contracts, the contractor must credit back to the

government “either as a cost reduction or by cash refund” any “applicable portion of any income,

rebate, allowance, or other credit relating to” those indirect costs “received by or accruing to the

contractor.” 48 U.S.C. § 31.201-5. For environmental cleanup costs in particular, this provision

requires a contractor to credit back to its indirect environmental cost pool any recoveries for

cleanup costs from insurance policies or other PRPs. (Wright Decl. ¶ 50.)

B. The Discontinued Operations Settlement Agreement (“DOSA”)

Lockheed and the DCMA recognized the allowability and appropriate accounting

treatment of environmental remediation expenses as indirect costs when they signed the DOSA

on September 6, 2000. (USX1033 at 10.) The DOSA formally allowed as indirect costs, inter

alia, environmental response costs incurred for “discontinued operations,” sites, or facilities that

25

Lockheed closed, abandoned, or sold prior to January 1, 2000, including all three Sites at issue in

this case. (Id. ¶¶ 1.7-.8.)

Under the DOSA, Lockheed collects its environmental response costs for discontinued

sites in an accounting pool at the corporate level – the Settled Discontinued Operations Pool

(“DiscOps Pool”).24 (Id. ¶ 2.4.) Environmental response costs in the DiscOps Pool are not

charged to contracts immediately upon incurrence; instead, the costs for a given year are

amortized over a five-year period. (USX407 at 5; Mateer Decl. ¶ 8.) Both parties benefit from

amortization because it smoothes costs over time, thereby increasing predictability in multi-year

contract prices and promoting uniformity and comparability in the measurements of contract

costs. (Mateer Decl. ¶ 9; see generally PX1859 at 3-4.)

Lockheed “flows down” the allocable costs for a given year from the DiscOps Pool to its

business units using a three-factor formula typically used in government contracting. (USX1033

¶ 2.8; Wright Decl. ¶ 45.) It is the business units that then develop indirect rates, based partially

on the DiscOps Pool, to use when bidding on and billing government contracts. (Wright Decl. ¶

45; Mateer Decl. ¶¶ 10-12.) The percentage of Lockheed’s indirect costs passed on to U.S.-

government contracts roughly correlates with the U.S. government’s share of Lockheed’s

business for a given year. (Wright Decl. ¶ 74.)

Thus, under DOSA, if Lockheed spent $10 million on environmental response costs at

discontinued operations in the year 2005, it would amortize those costs over the next five years,

and $2 million per year would flow down to its business units from 2006 to 2010. Assuming that

U.S.-government contracts make up 80% of Lockheed’s business, Lockheed would recover $1.6

24

The DOSA also settled disputes between the parties as to the allowability of past response costs

allocated as indirect costs through the DiscOps Pool from 1991 onward. (See USX1033 ¶¶ 2.9-.11.)

Importantly, the DOSA merely formalized past practice and did not materially affect how Lockheed had

treated or would continue to treat the recovery of response costs for the Sites.

26

million per year – or $8 million total – of the response costs through its government contracts. In

addition, Lockheed would recover the remaining $400,000 per year – or $2 million total – in an

identical manner from non-U.S. government contracts.25

The DOSA also provides that Lockheed “shall not realize a double recovery with regard

to any Settled Discontinued Operations Costs,” and to the extent that it does, it “will reimburse

the United States for any such double recovery . . . under government contracts.” (USX1033 ¶

4.7.) Pursuant to this provision, and as required under 48 C.F.R. § 31.201-5, Lockheed credits to

the DiscOps Pool any direct payment it receives for environmental remediation costs at its

discontinued operations, whether in the form of insurance proceeds, settlements, or other

recoveries. (Wright Decl. ¶ 50; Mateer Decl. ¶ 14.) Credits are treated the same as costs and are

amortized over the five years following receipt of the payment. (Wright Decl. ¶ 51.) Therefore,

credits represent a bottom line reduction to the DiscOps Pool, lowering the total indirect costs

passed on to Lockheed’s clients. Thus, again assuming that U.S.-government contracts make up

80% of Lockheed’s business, the U.S. government would receive 80% of the benefit of any

credits allocated to the DiscOps Pool in the form of reduced contract costs. (See Wright ¶ 73-74;

USX1009 at 154-55 (Reese Dep.).)

C. Lockheed’s treatment of response costs for the Sites under the DOSA

To date, the DOSA and DiscOps Pool have functioned as intended. As to the three

discontinued Sites in this case, Lockheed has incurred environmental response costs related to

those Sites, allocated them to the DiscOps Pool, amortized them over five years, and passed them

down to its business units for bidding and billing purposes. Because once individual costs enter

the DiscOps Pool, they are not “tracked” or “followed” (as individual costs) down through the

25

Beyond the U.S. government, Lockheed provides goods and services to other governmental and

some commercial entities, including foreign governments, state governments, municipalities, institutions

of higher education, and the United Parcel Service. (Trial Tr. at 1653-56 (Gatchel).)

27

business unit or specific contracts, it is impossible to identify or trace response costs for the Sites

to any particular government contract. (See Mateer Decl. ¶ 13.) Nonetheless, it is clear that

Lockheed has indirectly recovered, and continues to indirectly recover, response costs for the

Sites from the U.S. government through the indirect costs charged to U.S.-government contracts.

(Wright Decl. ¶ 57-59; USX407 at 4-5.) Indeed, Lockheed boasts that its “underlying tenet in

pricing [its] contracts with the U.S. government” is its “ability to recover [its] costs . . .

regardless of the type of contract.” (USX407 at 4-5.)

As of December 31, 2013, Lockheed had indirectly recovered through its U.S.-

government contracts more than $208 million – or 72% – of its estimated $287 million in total

nominal response costs at the Sites. (Meyer Decl. ¶ 29 & fig. 5.)26 In the future, this “effective

government share” of response costs at the site is expected to rise because U.S.-government

contracts will make up an even higher percentage of Lockheed’s business than in the past. (See

Trial Tr. 581 (Wright); Meyer Decl. ¶ 82 & fig. 30; USX 402.0002.) Indeed, in the past few

years, Lockheed’s recovery rate through U.S.-government contracts has been approximately 87%

(Wright Decl. ¶ 66), and it is predicted that this recovery rate will continue to fluctuate around

that percentage in the near future. (See Trial Tr. 591-93 (Wright); USX 402.0002.) Accounting

for the increase in Lockheed’s U.S.-government contract base, and considering the projected

future cleanup costs for the Sites, the government’s expert economist estimates that Lockheed

will ultimately indirectly recover through U.S.-government contracts nearly 83% of its total

nominal response costs at the Sites. (Meyer Decl. ¶ 30 & fig. 6.)

26

Lockheed also earned, and continues to earn, a profit factor on every dollar of response costs

passed through to its contracts, U.S.-government or otherwise. (See Meyer Decl. ¶ 39; Wright Decl. ¶¶

77, 83.) Thus, the higher the indirect costs charged to the DiscOps Pool, the more profit Lockheed earns

from its clients. (See Wright Decl. ¶ 84.)

28

Aside from its indirect recovery of over 72% of its response costs for the Sites through

U.S.-government contracts to date, Lockheed has also allocated as an indirect cost and

subsequently recovered (though not through the DiscOps Pool) a substantial portion of its legal

fees and costs associated with bringing this action. The government’s expert economist

estimates that Lockheed indirectly recovered through government contracts, in nominal dollars,

over 85% of the $7.35 million in legal fees and costs it incurred between 2007 and 2012. (Meyer

Decl. ¶¶ 163-75.) Lockheed incurred an additional $3.2 million in legal fees and costs through

November 2013 (Gov’t Closing Presentation [Dkt. No. 144] at 245), and undoubtedly, it has

incurred several million dollars more in fees and costs for the extensive pretrial preparation and

trial briefing since December 2013, the expert fees for the six experts who provided testimony at

trial, and the fees and costs associated with the five counsel who attended a twelve-day trial.

According to the government’s expert economist, Lockheed will indirectly recover over 85% of

its total legal fees and costs (presumably at least $10 million) through U.S.-government

contracts. (See Meyer Decl. ¶ 172.)

IV. PROCEDURAL HISTORY

A. Related actions while the CERCLA statute of limitations was tolled

Lockheed did not bring this action for recovery of response costs under CERCLA until

2008, fourteen years after it began remediation efforts at the Redlands facility. The parties,

through Lockheed’s in-house counsel and attorneys within the Environmental and Natural

Resources Division of the Department of Justice, agreed to a tolling of the CERCLA statute of

limitations, see 42 U.S.C. § 9613(g)(2), beginning in 1997. (See PX1788, 1823, 1838, 1849,

2078.) These tolling agreements, specifically for the Redlands site, were in effect from January

27, 1997 to November 1, 2003. (PX 1788, 2078.) The parties renegotiated the agreements on a

29

semi-annual basis during this time period, including negotiating a one-year extension of the

tolling agreement on July 10, 2000 (PX1849), less than two months before Lockheed and the

DCMA entered into the DOSA on September 6, 2000. (USX1033 at 10.)

Although the DOSA addressed environmental cleanup costs, it did not purport to settle

CERCLA liabilities between Lockheed and the government. To the contrary, the DOSA

explicitly provides that it “does not settle any claims, if any, arising under CERCLA.” (Id. ¶

4.18.) Indeed, the DOSA implicitly recognized the potential coexistence of direct recoveries

from the government under CERCLA and indirect recoveries from the government through costs

charged to U.S.-government contracts. In particular, the parties devoted an entire section of the

DOSA to the treatment of the January 20, 2000 Consent Decree signed by Lockheed and the

Department of Justice in the Burbank CERCLA litigation.27 (USX1033 ¶¶ 3.1-.5.) In the

Burbank Consent Decree, the United States agreed to pay Lockheed directly for over forty-four

percent of past response costs and for fifty percent of most future response costs for the site.

(PX1844 ¶¶ 3.1-.6, 4.1-.3.) While the Burbank Consent Decree acknowledged that Lockheed

was already allocating “certain environmental remediation costs” to its discontinued operations

pool, it did not purport to “resolve[]” the “allowability and allocability of these costs.” (Id. ¶

2.14.) Nonetheless, the Consent Decree did specify that under no circumstance could the United

States determine that the agreed-upon past costs were “not properly subject to payment under the

terms of the Decree because the costs were previously reimbursed by the United States or

27

The Burbank case arose when, in 1991, the United States sued Lockheed, among others, under

CERCLA § 107(a) for the recovery of response costs associated with the cleanup of TCE at a former

Lockheed aircraft and aeronautic production facility in Burbank, California. (PX1844 ¶¶ 2.1, 2.5.) The

parties signed an initial consent decree in 1992 requiring Lockheed to operate a groundwater treatment

plant at the Burbank facility and to reimburse the government for response costs it had incurred. (Id. ¶

2.5.) In 1997, Lockheed filed a counterclaim against the government under CERCLA § 113(f), seeking

contribution for its past and future response costs at the Burbank facility. (Id. ¶ 2.9.) The 2000 Burbank

Consent Decree settled Lockheed’s counterclaim against the United States.

30

another party through an overhead pool” like the discontinued operations pool. (Id. ¶ 3.16.) To

counterbalance that provision, the Consent Decree required that “Lockheed Martin shall not

realize a double recovery with regard to any” response costs and “shall credit its continued

operations pool with amounts received from the United States pursuant to this Decree in

accordance with an agreement of Lockheed Martin and the United States.” (Id. ¶ 3.25.) The

“agreement” encompassed the DOSA, wherein the parties agreed to disallow $80.6 million in

costs related to the Burbank site and disallow $29 million in credits paid to Lockheed by the

United States pursuant to the Burbank Consent Decree. (USX1033 ¶¶ 3.1-.3.)

During the tolling period, Lockheed was involved in several related matters. In 1993, a

group of insurers sued Lockheed in state court in California, seeking a declaration that they were

not required to defend or indemnify Lockheed for the costs of environmental remediation at

multiple sites, including the Redlands facility. Procter v. Lockheed Corp., Case No. 731752,

Complaint (Cal. Sup. Ct. May 27, 1993) (PX2070). The trial court ruled for the insurers,

holding, inter alia, that Lockheed’s indirect recovery of response costs through government

contracts triggered the “government reimbursement exclusion” contained in the policies, and

thus, the insurers were not required to defend or indemnify Lockheed. Procter v. Lockheed

Corp., Case No. 731752, Statement of Decision Re: Phase II at 65-79 (Cal. Sup. Ct. Oct. 27,

2003) (PX2073). Prior to the entry of judgment, Lockheed sought declaratory relief in federal

court to enjoin the state court’s preliminary ruling. In that action, the government filed an

application to intervene in support of Lockheed’s position that indirect payments for response

costs through government contracts does not reduce or eliminate insurance coverage under the

government reimbursement exclusion. (PX2069 ¶¶ 25-26 (Porterfield Decl.).) The federal court

dismissed Lockheed’s action for lack of subject matter jurisdiction, and the state court entered

31

final judgment on October 22, 2003. (Id. ¶¶ 27-28.) Lockheed immediately appealed, and on

November 22, 2005, the California Court of Appeal affirmed the trial court’s decision. See

Lockheed Corp. v. Cont’l Ins. Co., 35 Cal. Rptr. 3d 799 (Cal. Ct. App. 2005). The Supreme

Court of California denied Lockheed’s petition for review on March 22, 2006, and the parties

subsequently entered into a confidential settlement agreement whereby the insurers “bought

back” the disputed policies. (Trial Tr. at 479 (Lockheed counsel); PX2069 ¶ 31 (Porterfield

Decl.); PX2075-76.) The proceeds from that agreement were credited to the DiscOps Pool.

(Trial Tr. at 1455-56 (Lockheed counsel).)

In 1995, Lockheed sued Seven W Enterprises, which at the time operated a

manufacturing facility on a portion of the Redlands facility, for recovery of response costs

incurred for the Redlands TCE plume. See Lockheed Martin Corp. v. Seven W Enterprises, 95-

cv-6153, Complaint (C.D. Cal. Sept. 14, 1995). Pursuant to a confidential settlement in late

1996, Lockheed indemnified Seven W from future liability in exchange for a lump sum payment.

Lockheed credited the amount recovered under this confidential agreement to the DiscOps Pool.

(Trial Tr. at 476-77 (Lockheed counsel).)

That same year, a group of plaintiffs filed a toxic tort class action suit against Lockheed

seeking medical monitoring costs and punitive damages based on the contamination of drinking

water from the Redlands TCE plume. See Lockheed Martin Corp. v. Superior Court, 63 P.3d

913, 916 (2003). The California Court of Appeal reversed the trial court’s class certification and,

in 2003, the Supreme Court of California affirmed. Id. at 922. The case settled some ten years

later, while the second bellwether group of plaintiffs was seeking class certification. (Trial Tr. at

372-73 (Lockheed counsel).) Under the DOSA, Lockheed’s payments pursuant to its

32

confidential settlement of the toxic tort action are specifically allowable as indirect costs charged

to the DiscOps Pool. (USX1033 ¶1.8.)

Finally, in 2004, Lockheed – sponsored by The Boeing Company – pursued an appeal

under the Contracts Dispute Act, 41 U.S.C. § 7101 et seq., to the Armed Services Board of

Contract Appeals (“ASBCA”) seeking indemnification from the government for response costs

and toxic tort liabilities at the Sites arising out of LPC’s performance of SRAM production

contracts from 1971 to 1975. See generally In re Boeing Co., ASBCA No. 54853, 06-1 BCA ¶

33,270 (Apr. 12, 2006).28 Lockheed sought indemnification under provisions in its SRAM

production subcontracts that provided for government indemnification for certain claims or

losses resulting from “unusually hazardous” risks. See id. After several rulings on cross-

motions for partial summary judgment, see, e.g., Appeal of the Boeing Co., ASBCA No. 54853,

11-2 B.C.A. ¶ 34,813 (July 28, 2011), the parties filed summary judgment briefs on whether

environmental response costs arising out of LPC’s solid propellant rocket motor production were

“unusually hazardous risks.” (Trial Tr. at 374-75 (government counsel).) On April 15, 2013,

after the toxic tort settlement and before the ASBCA could rule on those motions, Lockheed

(through Boeing) voluntarily dismissed its appeal with prejudice. (USX74.)

B. The government’s partial motion for summary judgment

Meanwhile, after over fourteen years of cleanup actions at the Redlands facility, on July

1, 2008, Lockheed brought this action against the United States under CERCLA § 107(a). The

government filed a counterclaim against Lockheed under CERCLA § 113(f) seeking, to the

extent it was a PRP, equitable allocation of response costs between the parties.

28

Boeing sponsored LPC’s claim because Boeing was the prime contractor for the SRAM

production contracts. (Trial Tr. at 371 (Lockheed counsel).)

33

Several months later, the government moved for a partial summary judgment on the

ground that Lockheed could not recover under CERCLA § 107(a) those response costs for the

Sites that it had already recovered through indirect costs charged to the DiscOps and passed

through to government contracts. (Mot. for Partial Summ. J., Jan. 9, 2009 [Dkt. No. 25-2] at 10.)

The government contended that Lockheed’s recovery of costs under CERCLA, for which the

government-as-client (primarily the DOD) had already indirectly paid pursuant to the DOSA,

would result in a double recovery – a violation of both the DOSA and CERCLA. See 42 U.S.C.

§ 9614(b).

On September 29, 2009, Judge Robertson rejected the government’s legal arguments on

several grounds. See Lockheed Martin Corp. v. United States, 664 F. Supp. 2d 14 (D.D.C.

2009). Judge Robertson first distinguished the bar on double recovery in CERCLA § 114(b)

from the present case. Section 114(b) states that “[a]ny person who receives compensation for

removal costs or damages or claims pursuant to any other Federal or State law shall be precluded

from receiving compensation for the same removal costs or damages or claims as provided in

[CERCLA].” 42 U.S.C. § 9614(b). Judge Robertson faulted the government’s argument for

failing appreciate the distinction between the “government-as-client” and the “government-as-

PRP.” To Judge Robertson, the government-as-client’s indirect cost payments under

government contracts were not “compensation” for the government’s liability in the same

manner as direct payments from an insurer, private PRP, or government PRP. Lockheed Martin

Corp., 664 F. Supp. 2d at 19. Judge Robertson further noted that the DOSA “explicitly states

that it ‘does not settle claims, if any, arising under CERCLA.’” Id.

Judge Robertson also distinguished the double recovery cases cited by the government.

In those cases, plaintiffs sought to recover response costs which they had already recovered from

34

other PRPs (through settlement or state-law versions of CERCLA) or response costs which their

insurers had paid for directly. Id. The courts in those cases applied CERCLA section 114(b) in

order to prevent plaintiffs from receiving “a windfall from its environmental cleanup.” Id.

Judge Robertson concluded that there would be “no windfall” in this case because Lockheed was

required under both the DOSA and the FAR to credit any CERCLA recovery from the

government to the DiscOps Pool. Id. at 19-20. Thus, “any CERCLA recovery from the

government would lead to a commensurate reduction in the [DiscOps Pool] that Lockheed could

charge as indirect costs on its government contracts. From a monetary standpoint, Lockheed

would be back where it started.” Id. at 19.

Judge Robertson also emphasized the “important implications for both parties” –

Lockheed would “improve its competitive position” and the government-as-client would benefit

from decreased contract prices. Id. at 20. Accordingly, Judge Robertson concluded:

If Lockheed is only partially liable for the response costs it is incurring at the Site,

it should not have to include all its response costs in the [DiscOps] Pool. The

ruling on the instant motions ensures that Lockheed may recover separately under

CERCLA from the government-as-PRP (if the suit ends with a recovery),

burdened in its dealings with the government-as-client only by those costs for

which it is actually liable.

Id.

On October 22, 2009, the government moved for reconsideration, inter alia, on the

grounds that Judge Robertson improperly imported requirements, such as the potential for

“windfall,” into the language of CERCLA § 114(b) and failed to address the argument that

Lockheed’s indirect recovery of response costs through government contracts could be

considered as an equitable factor during allocation of response costs under CERCLA § 113(f)(1).

(Mot. for Reconsideration, Oct. 22, 2009 [Dkt. No. 39] at 2-3.)

35

Judge Robertson denied the motion on February 18, 2010. (Mem. Order, Feb. 18, 2010

[Dkt. No. 43] at 2-3.) While remaining steadfast in his denial of summary judgment, Judge

Robertson acknowledged that some of the government’s positions, “including those about the

equitable considerations under Section 113(f)(1) and burden to taxpayers, may be relevant to

allocation determinations that might lie ahead in this litigation.” (Id. at 3.)29 Judge Robertson

therefore left open the door to the equitable double recovery and taxpayer burden arguments that

are now at the center of the allocation phase of the case.30

C. Trial on equitable allocation

The parties engaged in extensive factual and expert discovery over the next four years.

On September 26, 2013, the Court bifurcated the pending trial into two phases: (1) the parties’

liability as PRPs under CERCLA § 107(a) and the equitable allocation of response costs under

CERCLA § 113(f); and (2) the “accurate accounting” of response costs. (Order, Sept. 26, 2013

[Dkt. No. 97] at 2.) The Court scheduled a two-week bench trial for Phase I to begin on

February 10, 2014. (Id.)

Leading up to the trial, the parties stipulated that they were both PRPs liable under

CERCLA § 107(a) for the response costs that Lockheed had incurred at the Sites and that the

Court should allocate liability for the response costs between them according to equitable

principles under CERCLA § 113(f)(1). (Stipulation on Liability, Dec. 20, 2013 [Dkt. No. 103] at

2-3.) The parties also stipulated that, as required under CERCLA, Lockheed had incurred at

least one dollar of “necessary costs of response” at the Sites in a manner “consistent with the

29

In Raytheon (cited supra n. 21), the government raised an affirmative defense analogous to that

rejected by Judge Robertson in this case. 2007 WL 4300221, at *2-3. As Judge Robertson did, the judge

in Raytheon concluded that Raytheon’s indirect recovery of response costs through U.S.-government

contracts could be considered as an equitable matter. Id. at *3. However, as noted, the Raytheon case

settled before the issue of allocation was reached.

30

Following Judge Robertson’s retirement, the case was reassigned to this Court on June 3, 2010.

36

National Contingency Plan.” (Stipulation on Response Costs, Dec. 20, 2013 [Dkt. No. 104] at 1-

2 (quoting 42 U.S.C. § 9607(a)(4)(B)).)

Given the stipulations on liability, the Phase I bench trial concerned only the equitable

allocation of liability under CERCLA § 113(f)(1). The Court presided over the Phase I bench

trial over twelve days beginning February 10 and ending on March 14, 2014. Through no fault

of the parties or their counsel, the evidence at the trial was both voluminous and inconclusive in

many significant respects. Arguably, the most useful testimony came from the only two

witnesses who had been on the ground during LPC’s operations at the Sites, but even those

witnesses had limited recollections. (See, e.g., Trial Tr. at 95 (Oppliger); id. at 1374 (Dull).)

Otherwise, the record suffered from the many shortcomings inherent in CERCLA actions:

hundreds of missing contracts31 and significant gaps in the documents; a lack of

contemporaneous accounts of waste disposal operations at the Sites; almost no fact witnesses,

thus requiring extensive reliance on “historic” depositions, themselves taken some twenty to

thirty years after operations at the Sites; and contamination that, at least at the Redlands facility,

had migrated miles from the location of original disposals. In view of these evidentiary

constraints, the parties understandably relied almost exclusively on experts. The experts, who

provided direct testimony by declaration and were subject to cross examination and redirect at

trial, predictably presented diametrically opposed opinions regarding almost every important

subject, often relying on assumptions that were not sufficiently provable for the Court to draw

any reliable conclusions.

31

Out of the estimated hundreds or thousands of contracts relevant to this action, Lockheed’s

contracting expert had reviewed “perhaps three” and could not confirm that any contract he had reviewed

was actually complete. (Trial Tr. at 148-49 (Johnson).) Without contracts themselves, the experts had to

rely on Master Project Orders and documentation of contract revisions to attempt to piece together the

“very limited database” of contracts available in this case. (Id. at 149.)

37

The testimony and evidence presented at trial addressed five somewhat-overlapping

issues, and as could be expected, on each issue save one, the Court had a battle of the experts.

First, Dr. Peter Roman, Lockheed’s expert historian, provided a mostly undisputed account of

the history of the solid rocket propellant industry and LPC’s government contracts. Second, the

parties presented evidence of the degree of government activity at and control over the Sites with

respect to government specifications, safety manuals, project reviews, and safety inspections.

Each party also called a fact witness to describe the government’s presence at the Sites. Mr.

Gerald Oppliger testified about his experiences working as an engineering analyst for LPC

designing rockets for several government contracts, including SRAM, from 1962 to 1971. (Trial

Tr. at 74-77 (Oppliger).) Mr. Peter Dull testified about his work on SRAM as a propulsion

engineer for the SPO from the program’s inception to Lockheed’s delivery of the rockets. (Id. at

1337-38 (Dull).) Third, the parties put on dueling experts relating to the subject of government

contracting – Mr. Richard Johnson (for Lockheed) and Mr. James Nagel (for the government) –

who provided opinions on whether and to what extent the government, through contracting

regulations, owned the TCE and AP at the Sites.

Fourth, the parties spent an excessively large amount of trial time on the issues of

contamination and, in particular, which of LPC’s activities caused it. Lockheed called Thomas

Blackman to provide foundational testimony regarding the contamination and response actions at

the Redlands facility. Both parties then put on multiple experts. Lockheed’s primary expert, Dr.

Stanley Feenstra, a hydrogeologist, opined on the probable sources of TCE (vapor degreaser) and

perchlorate contamination (burn pits) at the Sites and the level of care with which LPC handled

its solvent and propellant wastes. Dr. Tod Delaney, an environmental engineer, provided a

rebuttal opinion to the government expert opinion from Thomas Cain, a chemical and process

38

engineer, regarding the sources of perchlorate contamination from the southern half of the

Redlands facility. The government’s primary expert, Dr. Robert Sterrett, a hydrogeologist,

opined primarily on probable sources of TCE (employee dumping) and perchlorate

contamination (burn pits and grinder part washing) at the Sites, while Mr. David Bauer, a

chemist, opined on the level of care with which LPC handled its solvent and propellant wastes.

The government also called Ms. Mary Sitton as an aerial photography expert who analyzed

historical aerial photographs of the Sites for evidence of sources of pollution. Of the myriad,

though incomplete, sources available to them, the experts relied primarily on LPC’s process

specifications, engineering diagrams of buildings and equipment, and the historic deposition

testimony of dozens of former LPC workers. The experts also relied on their own personal

experiences and general industrial and military practices at the time. Nonetheless, the ultimate

expert opinions often amounted to no more than exercises in reasoned speculation.

Finally, the parties spent a significant amount of trial on the accounting and economic

issues that make this case unique. Lockheed called Mr. Robert Gatchel, Lockheed’s current vice

president of government finance, to describe the implementation of the DOSA and Lockheed’s

government contracting procedures. Each party also called two experts to address the DOSA,

double recovery, and Lockheed’s economic benefit from a CERCLA recovery in this case. For

the government, Mr. Wiley Wright opined on the general function of DOSA, and Dr. Joan Meyer

presented an economic model demonstrating the benefit to Lockheed from various CERCLA

recovery scenarios. Lockheed’s experts, Mr. Mark Kiefer and Mr. Rodney Mateer, criticized the

assumptions and methodologies of the government experts, but provided no competing economic

model to substantiate their position that Lockheed would not economically benefit from a

CERCLA recovery in this case.

39

The difficulty of an incomplete record and heavy reliance on expert testimony was

compounded by the lack of analogous CERCLA cases.32 While many CERCLA actions have

been brought by government contractors against the U.S. government, only a few appear to have

reached the allocation stage. And none of those address the key issue in this case: whether the

fact that the government contractor has been indirectly recovering its response costs from the

U.S. government-as-client through U.S.-government contracts should, as an equitable

consideration, reduce its recovery from the U.S. government-as-PRP under CERCLA.

LEGAL FRAMEWORK

Congress enacted CERCLA “in response to the serious environmental and health risks

posed by industrial pollution.” United States v. Bestfoods, 524 U.S. 51, 55 (1998). The statute

“was designed to promote the timely cleanup of hazardous waste sites and to ensure that the

costs of such cleanup efforts were borne by those responsible for the contamination.” Burlington

N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 602 (2009) (internal quotation marks

omitted). By requiring responsible parties to pay for cleanup efforts, CERCLA also ensures that

“the taxpayers [are] not required to shoulder the financial burden of a nationwide cleanup.” B.F.

Goodrich Co. v. Murtha, 958 F.2d 1192, 1198 (2d Cir. 1992).

In furtherance of these goals, CERCLA allows private parties to recover the costs of

cleaning up hazardous wastes from several broad categories of PRPs. 42 U.S.C. § 9607(a)(1)-

(4).33 Liability under these provisions is strict and, by default, joint and several. PCS Nitrogen

32

At the Court’s request, the parties filed several helpful memoranda on legal issues, including

operator and arranger liability, equitable indemnification, double recovery, and prejudgment interest.

33

A private-party plaintiff establishes a prima facie case for cost recovery under CERCLA by

establishing that (1) the defendant is a PRP; (2) the site constitutes a “facility”; (3) a “release” or a

threatened release of hazardous substances exists at the “facility”; (4) the plaintiff has incurred costs

responding to the release or threatened release of hazardous substances (“response costs”); and (5) the

response costs conform to the National Contingency Plan. PCS Nitrogen Inc. v. Ashley II of Charleston

40

Inc. v. Ashley II of Charleston LLC, 714 F.3d 161, 168 (4th Cir. 2013). Relevant to this action,

PRPs include any past “owner” or “operator” and any “arranger.” See 42 U.S.C. § 9607(a)(2)-

(3).34

Under CERCLA, a person is liable as a past “owner” or “operator” if he “at the time of

disposal of any hazardous substance owned or operated any facility at which such hazardous

substances were disposed of.” Id. § 9607(a)(2). The phrase “owner or operator” is unhelpfully

defined “only by tautology . . . as ‘any person owning or operating’ a facility.” Bestfoods, 524

U.S. at 56 (quoting 42 U.S.C. § 9601(20)(A)(ii)). Courts consider “owner” and “operator”

liabilities in the disjunctive. Commander Oil Corp. v. Barlo Equip. Corp., 215 F.3d 321, 328 (2d

Cir. 2000); cf. Bestfoods, 524 U.S. at 64. In this regard, past owner liability is fairly simple, and

premised on the ownership, whether de facto or de jure, of a “‘facility’ at the time of the disposal

of a hazardous substance.” PCS Nitrogen, 714 F.3d at 172 (citing 42 U.S.C. § 9607(a)(2)); see

Commander Oil, 215 F.3d at 331-32.35 Notably, the ownership of the hazardous substances

disposed of at a given facility is irrelevant to ownership liability. See 42 U.S.C. § 9607(a)(2).

LLC, 714 F.3d 161, 167-68 (4th Cir. 2013); see also 42 U.S.C. §§ 9601(9), (22), 9607(a). Each of these

requirements is stipulated to or otherwise undisputed in this case. (See Stipulation on Liability, Dec. 20,

2013 [Dkt. No. 103]; Stipulation on Response Costs, Dec. 20, 2013 [Dkt. No. 104].)

34

Because both parties have stipulated to liability under CERCLA § 107(a), the Court need not

determine under which provision(s) each party falls. Nonetheless, the Court does find it useful to

consider the breadth (and limits) of types of PRP liability when balancing the equities under CERCLA §

113(f).

35

Under CERCLA, the term “facility” has two meanings. First, the term “facility” serves as a

catch-all for almost any original source from which a disposal might have occurred. See 42 U.S.C. §

9601(9)(A) (defining “facility” as “any building, structure, installation, equipment, pipe or pipeline

(including any pipe into a sewer or publicly owned treatment works), well, pit, pond, lagoon,

impoundment, ditch, landfill, storage container, motor vehicle, rolling stock, or aircraft”). Second, the

term “facility” includes “any site or area where a hazardous substance has been deposited, stored,

disposed of, or placed, or otherwise come to be located.” Id. § 9601(9)(B). Courts have interpreted this

second meaning to cover, at a minimum, “‘the bounds of the contamination.’” See PCS Nitrogen, 714

F.3d at 178 (quoting United States v. Twp. of Brighton, 153 F.3d 307, 313 (6th Cir. 1998)). Thus, “[t]here

may be several ‘facilities’ at a site for purposes of CERCLA, including separately owned ‘equipment’

41

Operator liability is more nuanced, but Bestfoods provides some helpful guidance. There,

the Supreme Court clarified that when defining “operator” liability under CERCLA, Congress

“obviously meant something more than mere mechanical activation of pumps and valves” and

intended liability to extend to those who “exercise . . . direction over the facility’s activities.”

524 U.S. at 71. On this basis, the Court concluded that an operator under CERCLA must

“manage, direct, or conduct operations specifically related to pollution, that is, operations having

to do with the leakage or disposal of hazardous waste, or decisions about compliance with

environmental regulations.” Id. at 66-67. The definition of “operator” in Bestfoods “clearly

requires actual participation, not merely the potential to do so.” City of Wichita, Kansas v.

Trustees of APCO Oil Corp. Liquidating Trust, 306 F. Supp. 2d 1040, 1054 (D. Kan. 2003); see

also United States v. Twp. of Brighton, 153 F.3d 307, 314 (6th Cir. 1998) (describing Bestfoods

as “highlight[ing] the importance of establishing some actual control by a putative operator”).

Although “actual participation” in this sense “does not require a finding that the [defendant]

directly participated in the day-to-day activities” at the facility, see United States v. Kayser-Roth

Corp., 103 F. Supp. 2d 74, 82 (D.R.I. 2000), Bestfoods requires that an operator “make the

relevant decisions” regarding the disposal of hazardous wastes “on a frequent, typically day-to-

day basis.” City of Wichita, 306 F. Supp. 2d at 1055 (collecting cases).

Arranger liability generally “prevents owners of hazardous waste from avoiding liability

under CERCLA by transferring ownership of the waste to another party for the purposes of

disposal.” Wilson Rd. Dev. Corp. v. Fronabarger Concreters, Inc., -- F. Supp. 2d. ---, 2013 WL

4875071, at *6 (E.D. Mo. Sept. 11, 2013). CERCLA defines “arranger” as “any person who by

within a larger facility,” Am. Int’l Specialty Lines Ins. Co. v. United States, 2010 WL 2635768, at *21

(C.D. Cal. June 30, 2010), as well as the location where the contamination has migrated over time. In this

regard, the “facilities” in this case include not only any historic sources of contamination at the Redlands,

Potrero Canyon, and LaBorde Canyon properties, but also the area of the Redlands TCE and perchlorate

plumes.

42

contract, agreement, or otherwise arranged for disposal or treatment, or arranged with a

transporter for transport for disposal or treatment, of hazardous substances owned or possessed

by such person, by any other party or entity, at any facility or incineration vessel owned or

operated by another party or entity and containing such hazardous substances.” 42 U.S.C. §

9607(a)(3).

Arranger liability requires ownership or possession of hazardous substances, but “cannot

be imposed on that basis alone.” Morton Int’l, Inc. v. A.E. Staley Mfg. Co., 343 F.3d 669, 679

(3d Cir. 2003).36 Instead, as the Supreme Court clarified in Burlington Northern, “whether an

entity is an arranger requires a fact-intensive inquiry that looks beyond the parties’

characterization of the transaction as a ‘disposal’ or a ‘sale’ and seeks to discern whether the

arrangement was one Congress intended to fall within the scope of CERCLA’s strict-liability

provisions.” 556 U.S. at 610. Under the plain language of the statute, a person is only an

arranger if he “plans for” or “takes intentional steps to dispose of a hazardous substance” he

owned or possessed. Id. at 611. Accordingly, although knowledge that a hazardous substance

will be disposed of “may provide evidence of the entity’s intent to dispose of its hazardous

wastes, knowledge alone is insufficient to prove that an entity ‘planned for’ the disposal,

particularly when the disposal occurs as a peripheral result of a legitimate” transaction, such as

the sale of a useful product. Id. at 612. Courts oftentimes consider – as with operator liability –

a party’s exercise of control over the disposal of hazardous substances as “a crucial element of

the [fact-specific] determination of whether a party is an arranger.” See United States v. Shell

Oil Co., 294 F.3d 1045, 1055 (9th Cir. 2002).

36

But see United States v. Iron Mountain Mines, Inc., 881 F. Supp. 1432, 1451 (E.D. Cal. 1995)

(collecting cases where courts “impose[d] arranger liability on parties who did not literally own or

physically possess hazardous wastes,” but noting that “in each of these cases the party either was the

source of the pollution or managed its disposal by the arranger.”).

43

A plaintiff who is also a PRP theoretically may avoid CERCLA liability altogether by

imposing joint and several liability on a PRP-defendant under CERCLA § 107(a). However, the

PRP-defendant can “blunt any inequitable distribution of costs by filing a § 113(f) counterclaim”

against the PRP-plaintiff. United States v. Atl. Research Corp., 551 U.S. 128, 140 (2007). In

such instances – as here – a court must determine the allocation of liabilities between the PRPs

pursuant to CERCLA § 113(f)(1).

CERCLA § 113(f)(1) states that “[i]n resolving contribution claims, the court may

allocate response costs among liable parties using such equitable factors as the court determines

are appropriate.” 42 U.S.C. § 9613(f)(1). Courts have universally held that “[t]his plain

language grants a court significant discretion to choose which factors to consider in determining

equitable allocation of liability.” PCS Nitrogen Inc., 714 F.3d at 186; see also Boeing Co. v.

Cascade Corp., 207 F.3d 1177, 1187 (9th Cir. 2000). “[I]n any given case, a court may consider

several factors, a few factors, or only one determining factor . . . depending on the totality of

circumstances presented to the court.” Envtl. Transp. Sys., Inc. v. ENSCO, Inc., 969 F.2d 503,

509 (7th Cir. 1992).

“Courts generally trot out two lists of factors when considering allocation under

CERCLA.” Yankee Gas Servs. Co. v. UGI Utilities, Inc., 852 F. Supp. 2d 229, 247 (D. Conn.

2012). The first, the so-called “Gore Factors,” find their source in the legislative history (and

unsuccessful amendment) of CERCLA by then-Representative Al Gore. See Boeing, 207 F.3d at

1187. The “Gore Factors” include:

[1.] the ability of the parties to demonstrate that their contribution to a discharge, release

or disposal of a hazardous waste can be distinguished;

[2.] the amount of the hazardous waste involved;

[3.] the degree of toxicity of the hazardous waste involved;

44

[4.] the degree of involvement by the parties in the generation, transportation, treatment,

storage, or disposal of the hazardous waste;

[5.] the degree of care exercised by the parties with respect to the hazardous waste

concerned, taking into account the characteristics of such hazardous waste; and

[6.] the degree of cooperation by the parties with Federal, State or local officials to

prevent any harm to the public health or the environment.

Envtl. Transp. Sys., 969 F.2d at 508 (quoting United States v. A & F Materials Co., 578 F. Supp.

1249, 1256 (S.D. Ill. 1984)).

Courts also often invoke the so-called “Torres Factors,” named after the “critical factors”

enumerated by then-Judge Torres:

1. The extent to which cleanup costs are attributable to wastes for which a party

is responsible.

2. The party’s level of culpability.

3. The degree to which the party benefitted from disposal of the waste.

4. The party’s ability to pay its share of the cost.

United States v. Davis, 31 F.Supp.2d 45, 63 (D.R.I. 1998).37

Given the broad discretion granted in CERCLA § 113(f)(1), courts also look beyond the

Gore and Torres factors when equitably allocating response costs. See, e.g., Am. Int’l Specialty

Lines Ins. Co. v. United States (AISLIC II), 2013 WL 135405, at *9 (C.D. Cal. Jan. 9, 2013). Of

relevance to this case, courts have also considered the following factors under CERCLA §

113(f)(1):

37

Some scholars have argued that while “[t]he Gore factors are most relevant in academic and

theoretical analysis of the way Superfund liabilities should be allocated. . . . in the real world Judge

Torres’ list of four critical factors often provides the basis upon which Superfund allocations are made.”

Robert P. Dahlquist, Making Sense of Superfund Allocation Decisions: The Rough Justice of Negotiated

and Litigated Allocations, 31 ENVTL. L. REP. 11098, 11099 (2001) (emphasis added); see also Yankee

Gas, 852 F. Supp. 2d at 247.

45

1. The “knowledge and/or acquiescence of the parties in the contaminating

activities.” Weyerhaeuser Co. v. Koppers Co., 771 F.Supp. 1420, 1426 (D. Md.

1991).

2. The value of the contamination-causing activities to furthering the

government’s national defense efforts. Cadillac Fairview/Cal., Inc. v. Dow

Chemical Co., 299 F.3d 1019, 1026 (9th Cir. 2002); Shell Oil, 294 F.3d at 1060.

3. The existence of an indemnification agreement demonstrating “the parties’

parties’ intent to allocate liability among themselves.” Halliburton Energy Servs.,

Inc. v. NL Indus., 648 F. Supp. 2d 840, 863 (S.D. Tex. 2009); see also Beazer E.,

Inc. v. Mead Corp., 412 F.3d 429, 447 (3d Cir. 2005).

4. “The financial benefit that a party may gain from remediation of a site.” Litgo

New Jersey, Inc. v. Martin, 2011 WL 65933, at *9 (D.N.J. Jan. 7, 2011); see also

City of Wichita, 306 F. Supp. 2d at 1101.

5. The potential for windfall “double recoveries” by a plaintiff. See, e.g., Litgo

N.J. Inc. v. Comm’r N.J. Dep’t of Envtl. Prot., 725 F.3d 369, 391 (3d Cir. 2013);

Friedland v. TIC-The Indus. Co., 566 F.3d 1203, 1207 (10th Cir. 2009).

6. The potential that a plaintiff might “make a profit on the contamination” at the

expense of another PRP. See Vine St., LLC v. Keeling ex rel. Estate of Keeling,

460 F. Supp. 2d 728, 765 (E.D. Tex. 2006).

7. CERCLA’s intent that “‘responsible parties, rather than taxpayers, bear the

costs’” of cleanup. Yankee Gas, 852 F. Supp. 2d at 256 (quoting Marsh v.

Rosenbloom, 499 F.3d 165, 182 (2d Cir. 2007) (emphasis added)).

With these factors in mind, the Court now turns to the ultimate question before it: the equitable

allocation between Lockheed and the government of past and future response costs at the Sites.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

To reach an equitable allocation for the Sites, the Court proceeds in three steps. First, the

Court determines, to the extent possible, the sources of contamination at the Sites. From there,

the Court bifurcates its equitable allocation analysis to consider (1) the familiar exercise of

allocating response costs among parties and (2) the novel issue of whether Lockheed’s indirect

46

recovery of those response costs through U.S-government contracts should affect the otherwise-

equitable allocation.

I. SOURCES OF CONTAMINATION AT THE SITES

Although in many cases courts can find that a particular facility, party, or disposal action

was responsible for a specific proportion of contamination at a site, see, e.g., AlliedSignal, Inc. v.

Amcast Int’l Corp., 177 F. Supp. 2d 713, 724 (S.D. Ohio 2001), the Court is unable to do so here

given the gaping holes in the record. Instead, the Court must limit itself to determining the

probable sources of perchlorate and TCE contamination at the three Sites.

A. Redlands facility

1. Perchlorate

The parties agree that a significant proportion of the perchlorate contamination in the

Redlands perchlorate plume originated from the burning of propellant wastes in the burn pits in

the northern portion of the Redlands facility. (Feenstra Decl. ¶¶ 123, 127; Sterrett Decl. ¶¶ 17,

136-41.) As described by Dr. Sterrett, the “burn pits were essentially trenches dug in the bare

ground.” (Sterrett Decl. ¶ 136.) LPC employees burned propellant wastes, containing waste AP

in liquid and solid form, on a daily basis. (USX963.0086 (Speer Decl.).)

The operation of the burn pits contributed perchlorate to the Redlands perchlorate plume

because, unbeknownst to anyone at the time, the AP disposed of in the pits was not completely

destroyed by burning. (Trial Tr. at 730 (Feenstra); see PX1224 at 10.) Any AP residue

remaining in the pits after burning could dissolve in a solvent (including water) and infiltrate

through the porous soil down into the groundwater. (See Feenstra Decl. ¶ 126; PX1224 at 10).

Dissolution of residue AP occurred during rainfall events (Feenstra Decl. ¶ 126) and when LPC

47

operators “thoroughly soaked with water” the burn pits when used multiple times in a day. (See

PX0007 § 1505(d) (1968 DOD Safety Manual).)

The presence of perchlorate in groundwater wells in the southern portion of the Redlands

facility also suggests the existence of perchlorate sources unassociated with the burn pits.

(Feenstra Decl. ¶¶ 122, 148, 153.) The parties vigorously dispute the southern source of the

perchlorate at the facility. The Court finds that there were three probable sources.38

First, beginning as early as November 1958, liquid solvent and AP wastes drained onto

the ground outside of Building 52, where LPC mixed propellants.39 (Sterrett Decl. ¶¶ 146-47.)

At that time, a pipe intended to connect Building 52 to Evaporation Pit 61 only “drained toward”

the pit, even though LPC recognized that it “should be piped right into [the] pit.” (USX43.0002

(emphasis in original).) An October 16, 1959 aerial photograph showed staining and liquid

38

Contrary to Dr. Feenstra’s opinion (Feenstra Decl. ¶¶ 148-49), neither fugitive dust from AP

handling and processing nor leakage from evaporation pits were probable sources of perchlorate in the

Redlands plume. While some fugitive dust inevitably escaped the grinding buildings at the Redlands

facility – particularly in the 1950s (see USX1160.0006, .0012-14) prior to the installation of advanced

baghouse technologies (see USX1117) – prevailing winds would have spread the light, small AP dust

particles far and wide before they settled onto the ground. (Cain Decl. ¶¶ 45-47.) Spread so far, it is

unlikely the AP dust, once settled and dissolved by rainfall, could develop a wetted pathway necessary to

migrate through the soil to the groundwater. Similarly, there is no evidence that the evaporation pits at

the Redlands facility ever leaked (Feenstra Decl. ¶ 150; see also Trial Tr. at 1252-53 (Sterrett)), nor any

evidence that AP-laden wastewater from the “soaking out” of rocket motors in the evaporation pits was

disposed of on the ground. (See Feenstra Decl. ¶ 152.)

Nor, contrary to Dr. Sterrett and Mr. Cain’s opinion (Sterrett Decl. ¶¶ 142-44; Cain Decl. ¶¶ 108-

15), was Building 114’s settling basin a probable source of perchlorate in the Redlands plume. LPC used

Building 114 as a propellant research laboratory from which it discharged approximately 2500 gallons of

wastewater into a dedicated settling basin. (USX781.0001.) Each week during dry weather, LPC

pumped the water out of the settling basin “to an underground drain (storm sewer) catch basin” that

“traverse[d] . . . into an open swale.” (Id.) From that point, the water ran “on open ground” and

infiltrated “due to the great percolation ability of the soil.” (Id.) Although LPC’s research laboratory

used AP (Trial Tr. at 1282-83 (Cain)), the effluent pumped from the settling basin was actually lower in

total dissolved solids (which would include AP) than the average groundwater in the area. (See id. at

1256-58, 1261 (Sterrett).) Based on this conflicting evidence, the Court cannot conclude that Building

114 was a probable source of perchlorate for the Redlands plume.

39

Because LPC used cyclohexane, and not TCE, as a solvent in Building 52 in the late 1950s

(USX43.0002), there is no evidence that this unconnected pipe was a source of the Redlands TCE plume.

48

within a drainage channel consistent with drainage from Building 52 toward rather than into

Evaporation Pit 61. (Sitton Decl. ¶ 34; USX670.) Although it is unclear precisely when LPC

addressed the problem it first recognized in late 1958,40 aerial photography confirms by at least

April 1963 a pipe did connect Building 52 to Evaporation Pit 61. (See Trial Tr. at 1434 (Sitton).)

Second, AP-laden wastewater percolated into the ground outside of several buildings

when LPC employees washed down the interiors of those buildings with hoses and failed to

collect the water or otherwise direct it to evaporation pits. (Sterrett Decl. ¶¶ 148-53; Cain Decl.

¶ 102; see Feenstra Decl. ¶ 151.) LPC employees washed down the interiors of grinding

buildings at the Redlands facility on a weekly basis. (See USX808.0022 (Building 77 Process

Specification); USX873 at 126-27 (Caldwell Dep.); USX973 at 157-58 (Spencer Dep.).) LPC

employees also washed down the interiors of the mixing buildings, although with less frequency.

(USX895 at 103-05 (Eastman Dep.).) For the portions of those buildings that did not have

drains, the AP-laden wastewater “ran out of the building” (id. at 101) and onto the ground

(USX994 at 115-16 (White Dep.), where it percolated into the soil and ultimately into the

groundwater. (Sterrett Decl. ¶ 153.)

The final – and most significant – source of perchlorate from the southern portion of the

Redlands facility was the washing of AP off of grinder parts and dust collection bags into the

south sump outside of Building 77. LPC operated Building 77 as an AP grinding facility. In

1962, LPC issued a manufacturing process standard – Standard 00COO5 – addressing cleanup

procedures for oxidizer grinding operations at Building 77. (USX32.) The Process Standard

instructed LPC employees after each grind to “flush[] with water” certain parts of the grinder “to

remove contamination.” (Id. at .0003.) The standard further specified that “[t]he flushing will

40

A July 11, 1960 letter from LPC to the Los Angeles Ordnance District suggests that the

unconnected pipe probably was addressed by that point. (See PX1046 at 2.)

49

be performed at the faucet and sump outside the lower level of Bldg. 77. Do not use water inside

the building.” (Id. (emphasis in original).) The same process was mandated for the washing of

the AP dust collection bags. (Id.; see also USX807.0031-33.)

Based on this process standard, both parties agree that after 1962, LPC washed AP dust

off of the grinder parts and bags outside of Building 77. However, the parties dispute into which

of the sumps on the west side of Building 77 the AP-contaminated washwater flowed. Mr. Cain

opined that LPC employees washed the grinder parts and bags on the concrete slab outside of

Building 77 and the washwater flowed naturally into the south sump, where it then percolated

into the ground through a drain or was pumped to the south to drain naturally on the bare ground

downhill and away from Building 77. (Cain Decl. ¶¶ 50-59, 79; see also Sterrett Decl. ¶¶ 125-

35.) In rebuttal, Mr. Delaney, Lockheed’s expert, opined that LPC employees washed the parts

directly over and into the north sump, which pumped the washwater to an evaporation pit.

(Delaney Decl. ¶¶ 38-50; see also Feenstra Decl. ¶¶ 109-21.)

The Court credits Mr. Cain’s opinion that the washwater from cleaning the grinder parts

and bags flowed to the south sump and ultimately percolated into the soil and migrated to the

groundwater. LPC’s process standards provided no clear instructions on precisely how to wash

the grinder parts and bags at the “at the faucet and sump” outside of Building 77 (see USX32 §

1.3),41 and the record lacks any evidence on how the workers actually performed the task. Mr.

Delaney opined that LPC employees must have washed the parts and bags directly over the 3-

foot by 3-foot north sump because they would have known that washing the parts over concrete

would have presented a fire and explosion hazard if the AP recrystallized before reaching the

south sump. (Delaney Decl. ¶¶ 28, 43-44.) Although Mr. Delaney’s concern has a scientific

41

Generally, wastewater containing AP was to be treated the same as waste propellant. (See, e.g.,

PX1023 § 6.31.1; PX1043 §100.6.5.)

50

basis (cf. Cain Decl. ¶ 49), he vastly overstates the safety consciousness of LPC’s employees.

Former employee Donald Eastman stated in a deposition that, when the workers washed AP-

laden wastewater out of grinding buildings, there was no effort to contain the water because “it

wasn’t considered a problem.” (USX895 at 101 (Eastman Dep.).) Likewise, the numerous other

instances of employees ignoring LPC-established safety protocols (see infra I.A.2) undermine

Mr. Delaney’s suggestion that those same employees would develop at Building 77 their own,

more burdensome, cleaning protocols in the name of safety. Ultimately, there is little evidence

to support the conclusion that the workers would on a near-daily basis spend the time and effort

to remove the heavy lid over the north sump and wash the parts and bags directly over that sump

when they had available the much easier process of washing the parts and bags over the concrete

pad and allowing the wastewater to flow naturally into the south sump. (See Trial Tr. at 1298-99

(Cain).)42

Moreover, two pieces of evidence support Mr. Cain’s opinion that washwater from

cleaning the grinder parts and bags flowed into the south sump. First, George Nelson White, a

maintenance mechanic at LPC from 1961 to 1975, stated that when the south sump reached

capacity, “it pumped the water up to the top of the dike out into the rocks. They’re all oxidizers

there.” (USX994 at 116 (White Dep.).) Second, and perhaps most persuasively, an April 16,

1966 aerial photograph shows an area of staining or standing liquid at the end of the drainage

channel down-gradient from the south sump fallout. (See Trial Tr. at 1412-13 (Sitton); Sitton

42

When Building 77 and its sumps were constructed, the washing of grinder parts occurred inside

the building. Because the top floor had an internal drain to the north sump and, ultimately, to an

evaporation pit, releases of AP-laden washwater onto the ground were minimal in the early years. (See

Trial Tr. at 1301 (Cain).) It was not until 1962, when, due to humidity concerns, LPC changed its process

specification to disallow washing inside Building 77. (Trial Tr. at 1300 (Cain); see also USX32 § 1.3).)

51

Decl. ¶ 41; USX672.)43 Because there had been no precipitation in the fifteen days prior to the

photograph (Sitton Decl. ¶ 42), the south sump would have only filled up and pumped water to

the outfall if LPC employees were washing grinder parts and bags into the south sump.

Based on this evidence, the Court finds that AP-laden washwater from LPC employees’

regular washing of grinder parts and bags outside of a Building 77 flowed into the south sump

and contributed significantly to the Redlands perchlorate plume.44

2. Trichloroethylene

The parties disagree vehemently as to the identity of the source of the Redlands TCE

plume. The government argues that the TCE originated primarily from LPC employees’

intentional dumping of solvents onto the bare ground at various locations at the Redlands

facility. (Trial Tr. at 897-98 (gov’t opening); Sterrett Decl. ¶¶ 54-75.) In contrast, Lockheed

asserts that the TCE primarily originated from discharges from a solvent-water separator

attached to the vapor degreaser in Building 91. (Trial Tr. at 42-43 (Lockheed opening); Feenstra

Decl. ¶¶ 63-95.)45 Having considered the evidence on these sources, the Court finds that both

probably contributed substantially to the Redlands TCE plume.

43

Lockheed suggested, based on an engineering drawing of Building 77 (PX837), that the water

from the south sump flowed northeast, rather than southwest, and thus the staining or standing liquid Ms.

Sitton identified could not have originated in the south sump. (See Trial Tr. at 1410 (Sitton).) However,

close inspection of the engineering drawing reveals that the “existing drainage” flowing to the northeast

had been “close[d] off” by the construction of a dyke. (PX837.) With the “existing drainage” to the

northeast closed off, the “sump drains over [the] dyke” (id.) to the southwest, consistent with Ms. Sitton’s

analysis of the aerial photography and the general topography at the Redlands facility.

44

Mr. Cain estimated that up to 20,000 pounds of the between 40,000 and 60,000 pounds of

perchlorate in the Redlands plume may have originated from the washing of AP dust collection bags at

Building 77. (Cain Decl. ¶ 92; see Sterrett Decl. ¶ 51.) The Court finds it unnecessary to decide on the

validity of his estimations; it suffices to say that the washing of grinder parts and bags outside of Building

77 contributed significantly to the Redlands perchlorate plume and thus cleanup costs at the Redlands

facility.

45

Although in his declaration Dr. Sterrett opined that TCE could have leaked into the ground

through cracks in the evaporation pits (Sterrett Decl. ¶ 78), he admitted on cross-examination that he had

52

First, the Court finds ample evidence that LPC employees poured TCE on the bare

ground and that those actions were a probable source of the Redlands TCE plume. (See Sterrett

Decl. ¶ 54.) Repeated pouring of small amounts of a liquid onto a porous and permeable soil can

create a “wetted pathway” by which a liquid’s chance of evaporation in the soil strata decreases

and newly dumped liquids move quickly and easily to groundwater. (Trial Tr. at 829 (Feenstra);

Sterrett Decl. ¶ 60.) The record is replete with credible historic depositions from LPC employees

admitting to frequently pouring TCE and other solvents on the bare ground in contravention of

company policy. (See PX961.) For example, Earl Wessman, a maintenance mechanic at the

Redlands facility from 1963 to 1975, testified that he dumped a quart to two gallons of TCE

daily at the same “very porous” bed of gravel north of Building 119, where the TCE would “sink

right in.” (USX989 at 188-90 (Wessman Dep.); USX990 at 419-420 (Wessman Dep.); see also

USX987 at 15-17 (Wessman Test.).) Likewise, Christian Mulder, a night shift operator at the

Redlands facility from 1956 to 1965, testified that he and his colleagues dumped one to two

gallons of TCE on the ground outside Buildings 8 and 12 “just about every night.” (USX941 at

34-35, 46-47 (Mulder Dep.).) Although Mulder and his colleagues knew of the availability of a

nearby evaporation pit for solvent disposal, they refused to walk there at night for fear of the

“rattlesnakes and tarantulas.” Instead, they poured the waste TCE on the ground. (Id. at 86-87.)

no evidence that cracks existed in the evaporation pits at the Redlands facility. (See Trial Tr. at 1252-53

(Sterrett).)

The parties’ experts also dispute whether burn pits were a minor source for the Redlands TCE

plume. (Compare Feenstra Decl. ¶¶ 40-46, with Sterrett Decl. ¶¶ 70-73.) Although LPC employees

poured small amounts of TCE directly into the burn pit at the Redlands facility (see USX944A.0002

(Nunes Decl.)), there is no evidence of TCE in the soil gas surrounding the burn pits. (See USX818.)

Thus, the Court credits Dr. Feenstra’s conclusion that the burn pits at the Redlands facility were not a

probable source of any sizable amount of TCE in the Redlands plume.

53

Several other LPC employees also admitted to intermittent pouring of TCE on the bare ground at

Redlands. (See Sterrett Decl. ¶¶ 68-72; USX944A.0002 (Nunes Decl.).)46

However, recognizing that some of the TCE poured onto the ground would have

evaporated before it could percolate into the soil (Trial Tr. at 820 (Feenstra)) and that LPC

shifted from using TCE to TCA as its preferred solvent in the mid-1960s (USX847 at 246-49

(Borgelt Dep.)), the Court concludes that it is improbable that LPC employee’s pouring of TCE

on the ground could account for the entirety of the Redlands TCE plume.

Instead, some portion of the TCE in the Redlands plume probably originated in the vapor

degreaser in Building 91. Vapor degreasers are used to clean grease and oil off of metal

instruments. Heating elements in the bottom of a vapor degreaser boil a “solvent liquid to

produce a zone of hot solvent vapor.” (Feenstra Decl. ¶ 64.) When degreaser operators place

cold metal parts into the vapor zone, either in a basket or on a chain, the vaporized solvent

condenses on and cleans the part. The “soiled” liquid solvent drips back down into the degreaser

sump, where it is reheated into a vapor. (Id. ¶ 65.) Solvent vapors that do not condense on the

metal parts are condensed by cooling coils on the perimeter of the degreaser tank. This

condensed liquid collects and is directed to a solvent-water separator. When functioning

properly, the solvent-water separator separates water that had condensed with the solvent from

the solvent and directs the solvent back into the main degreaser tank to revaporize. (Id. ¶¶ 64,

81.) Any condensed water will float and, once it reaches a certain level, it is released via a drain

onto the floor. (Trial Tr. at 833 (Feenstra).)

46

Dr. Feenstra questioned whether the employees could recall which solvent they had poured on

the ground decades before, or if, at the time of disposal, they could have distinguished between TCE and

TCA. (See Feenstra Decl. ¶ 32.) The Court finds Dr. Feenstra’s opinion in tension with Mr. Oppliger’s

testimony that LPC was a “very unique company” with a “lot of highly educated” and “attentive [and]

detail-oriented type people” (Trial Tr. at 85-86 (Oppliger)), and therefore, it credits the LPC employees’

identification of the solvents they dumped on the bare ground. (See Sterrett ¶¶ 58, 66.)

54

LPC operated the vapor degreaser in Building 91 to degrease rocket motor casings and

other large components. (See Feenstra Decl. ¶ 23.) Dr. Feenstra opined that the solvent-water

separator in the degreaser functioned improperly and released one-to-two gallons of watered-

downed or even pure TCE per day onto the floor of Building 91, which then flowed through a

drain directly into the subsurface soils. (Id. ¶¶ 76, 85-87; Trial Tr. at 817 (Feenstra); PX841

(diagram showing drain below vapor degreaser).).

The Court credits Dr. Feenstra’s theory. Vapor degreasers (and their solvent-water

separators) are common sources of solvent contamination at industrial and dry cleaning sites and

can release pure solvent into the environment. (Feenstra Decl. ¶ 84.) That there is no evidence

that any LPC employees noticed releases of small amounts of TCE from the solvent-water

separator is not surprising, considering the substantial TCE odor associated with the operation of

the degreaser, which was capable of boiling 120 gallons of TCE at a time, and the fact that

solvent-water separators release water onto the floor when functioning properly. (Trial Tr. at

685 (Feenstra).)

However, there is little evidence to support Dr. Feenstra’s opinion that the vapor

degreaser was the sole source of TCE in the Redlands plume. First, Dr. Feenstra’s opinion that

the solvent-water separator released exclusively pure TCE throughout LPC’s operations at the

Redlands facility lacks convincing support in the record. (Trial Tr. at 1185 (Sterrett); Sterrett

Decl. ¶ 109.) Second, the evidence indicates that LPC did not operate the vapor degreaser every

day or “with any great frequency.” (USX951 at 61 (Rodgers Dep.); USX995 at 117 (White

Dep.).) And finally, contrary to Dr. Feenstra’s opinion and Lockheed’s arguments, the Court

finds, based on Lockheed’s sworn statements in prior legal and administrative actions, that LPC

55

switched from using TCE to TCA in the vapor degreaser “about late 1966 or early 1967.”47

(USX22.0012-13 (Lockheed interrogatory responses in Seven W litigation); see also

USX120.0007-09 (response to request for information from California Department of Toxic

Substances Control).) Thus, while the Court credits Dr. Feenstra’s opinion that the solvent-water

separator on the vapor degreaser in Building 91 is a probable source of a significant portion of

the Redlands TCE plume, it is improbable that, as Dr. Feenstra opines, the vapor degreaser was

the only source. (See Feenstra Decl. ¶ 92.)48

B. Potrero Canyon facility

As described above, the sources of perchlorate contamination in the soil and groundwater

at the Potrero Canyon facility are undisputed. (See Trial Tr. at 1238-39 (Lockheed and

government counsel).) A primary source of contamination for both soil and groundwater is the

Burn Pit Area. (Sterrett ¶¶ 220-21, 226-27.) Some of the perchlorate contamination at the

Potrero Canyon Burn Pit Area, like at the Redlands facility, resulted from the fact that a burn

event would not completely destroy all of the AP, and some of the remaining AP residue

47

Lockheed attempted to disassociate itself from its prior sworn representations by arguing that

the representations were made “very early in [its] fact development.” (Trial Tr. at 1731-32 (Lockheed

closing).) The Court rejects Lockheed’s attempt to play fast-and-loose with its prior and at-the-time-

advantageous sworn representations regarding the switch from TCE to TCA in the vapor degreaser,

especially since Lockheed’s past position is corroborated by Larry Borgelt, who was a safety engineer for

LPC from 1966 to 1974. (See USX841 at 251-52 (Borgelt Dep.).)

48

The Court also concludes that the contribution, if any, of TCE from the Norton Air Force Base

TCE plume into the Redlands TCE plume is of no consequence. The map relied on by Dr. Feenstra that

showed the Norton and Redlands TCE plumes overlapping (see PX1972) demarcated the plumes using

TCE concentrations of 0.5 µg/L, ten times lower than California’s current maximum contaminant level

for TCE of 5 µg/L. (Sterrett Decl. ¶¶ 165, 209; see also Trial Tr. at 648-50 (Feenstra).) The two plumes

do not currently overlap at TCE concentration levels requiring cleanup, and to the extent that they

overlap, the commingling will not cause the TCE concentration in the Redlands TCE plume to increase

above the maximum contaminant level. (Trial Tr. at 653-54 (Feenstra).) Moreover, Lockheed failed to

demonstrate that contributions from the Norton Air Force Base TCE plume has caused in the past or

would cause in the future increased response costs for the Redlands TCE plume. (Id. at 655-56; Sterrett

Decl. ¶¶ 20-21, 209-10.)

56

dissolved in the rain and percolated into the soil and eventually the groundwater. (Cf. Trial Tr. at

730 (Feenstra); Sterrett Decl. ¶ 141; PX1224 at 10.)

However, the Court also finds that some of the perchlorate contamination at the Burn Pit

Area probably originated pre-burn. LPC operated the Burn Pit Area at Potrero Canyon much

differently than its burn pits at the Redlands facility. Rather than burning propellant wastes on a

daily basis, mere minutes after putting the wastes into the pit (see USX910 at 183-84 (Heeseman

Dep.); USX963 at 86 (Speer Dep.)), at the Potrero Canyon facility LPC accumulated wastes

(propellant, solvent, etc.) over months and burned them only a few times per year. (See

USX49.0074-75; USX53.)49 The pits were deeper than those at Redlands and the burns much

larger – each containing up to 250,000 pounds of wastes. (USX49.0074-76.)

Larry Borgelt, a safety engineer at LPC from 1966 to 1974, explicitly contrasted the

Redlands and Potrero Canyon burn pits (USX842 at 432-33 (Borgelt Dep.)), referring to the

latter as a “disposal area.” (USX841 at 318 (Borgelt Dep.).) In anticipation of a burn event, LPC

stored some wastes in drums on a concrete pad (USX49.0077), but also accumulated wastes

directly in the burn pits. (See Sterrett Decl. ¶ 228.) Some of the barrels accumulated in the pits

were leaking and some were emptied directly onto the ground. (USX841 at 318-19 (Borgelt

Dep.); USX842 at 432 (Borgelt Dep.).) These pre-burn event practices contributed to the

perchlorate contamination associated with the Burn Pit Area. Liquid wastes containing AP,

either poured directly into the burn pit or leaking out of barrels, percolated into the soil and

groundwater. Likewise, solid AP dumped into the burn pit weeks or months before a burn would

dissolve in the rain and infiltrate into the soil and groundwater. (Sterrett Decl. ¶ 230.)

49

This was only the case following the termination of the Large Solid Propellant Motor Program

in 1966. Prior to 1966, LPC burned materials on a daily or weekly basis. (Feenstra Decl. ¶ 156;

USX49.0076.)

57

LPC’s “hog out” procedures caused the perchlorate soil and groundwater contamination

associated with the Large Motor Washout Area and the Rocket Motor Production Area. (Sterrett

Decl. ¶¶ 220-21.) As described above, LPC washed propellant out of defective rocket motors

using high-pressure water jets to allow the reuse of the expensive metal rocket casings. (Feenstra

Decl. ¶ 164; USX49.0068; USX12.0050, .0055-56.) The propellant was hogged out onto the

bare ground where the AP leached out of the propellant, dissolved in the water, and percolated

into the soil and groundwater. (Sterrett ¶ 221; USX49.0068; cf. PX1067 at 4.) Today, hog out

procedures are a recognized source of perchlorate groundwater and soil contamination. (See

PX1224 at 10.) As Mr. Bauer testified, “if they hogged out on the ground, then it’s a source.”

(Trial Tr. at 1160 (Bauer).)

C. LaBorde Canyon facility

As with the Potrero Canyon facility, the parties do not dispute the sources of perchlorate

contamination at the LaBorde Canyon facility. (See Trial Tr. at 1238-39 (Lockheed and

government counsel).) Perchlorate contamination associated with the Test Bay Canyons

originated, as the name suggests, from rocket motor testing and firing operations. (Feenstra

Decl. ¶ 169; Sterrett Decl. ¶ 240.) Although it is unclear precisely by what mechanism AP from

the test-fired rocket motors ended up on the ground, the levels of perchlorate contamination

associated with the Test Bay Canyon indicate that the ground surface was “flood[ed]” with

“perchlorate-bearing water.” (Feenstra Decl. ¶ 169; see also Sterrett Decl. ¶ 240.) Dr. Feenstra

hypothesized that LPC may have “hogged-out” defective motors at the Test Bay Canyon.

(Feenstra Decl. ¶ 169.)

Perchlorate contamination associated with the Waste Discharge Area was caused, at least

in part, by LPC’s disposal of propellant wastes from its burn pits. (Feenstra Decl. ¶ 170; Sterrett

58

Decl. ¶ 241.) In 1962, the Santa Ana Regional Water Pollution Control Board issued a

Resolution to LPC to direct its operation of the Waste Discharge Area. (See PX1116.) Under

that Resolution, LPC was allowed to dispose of approximately 5000 gallons per year of

propellant waste that remained after burning in a burn pit. (PX1116 at 1-2.) As described above,

burning did not completely destroy all of the AP in propellant wastes. Thus, some of the AP

residue remaining in the wastes disposed of at the Waste Discharge Area dissolved in rainwater

and percolated into the soil and groundwater. (See Trial Tr. at 730 (Feenstra); Feenstra Decl. ¶

171; PX1224 at 10.)

II. TRADITIONAL EQUITABLE ALLOCATION

Because the parties have stipulated to liability, and substantially all of LPC’s operations

at the Sites were in performance of government contracts or subcontracts, the Court begins its

analysis by invoking the per capita approach: a fifty-fifty split between Lockheed and the

government. Cf. Davis, 31 F. Supp. 2d at 63-64 (describing the proper and improper times to

begin with a per capita approach). (See also Trial Tr. at 29-30 (Lockheed counsel advocating a

per capita approach); id. at 1931, 1941 (Lockheed closing).) From there, the Court adjusts the

equitable allocation based on its findings, keeping in mind that “[m]athematical precision in this

process is not realistically achievable or desirable.” United States v. Consolidation Coal Co.,

184 F. Supp. 2d 723, 744 (S.D. Ohio 2002).

A. Limited value of certain equitable factors

1. Waste attributable to each party

In many cases, “the dominant factor in determining each party’s equitable share of

liability is the extent to which the response costs are attributable to waste for which that party is

directly responsible.” Davis, 31 F. Supp. 2d at 64. This consideration, reflected in the first three

59

Gore Factors and the first Torres factor, is inapplicable here, for all of the perchlorate and TCE

contamination originated from LPC’s operation of the Sites in the performance of its government

contracts. It is therefore impossible to attribute even rough quantities of the perchlorate and TCE

contamination between the parties without delving into issues regarding the extent of the

government’s involvement in and control over waste disposal practices at the Sites. (See infra

Section II.B.-C.)

2. Parties’ relative benefits from waste disposal activities

“Fairness suggests that parties deriving greater benefit from disposal of hazardous waste

should bear a greater portion of the responsibility for mitigating its adverse effects.” Davis, 31

F. Supp. 2d at 66; see also Weyerhaeuser, 771 F. Supp. at 1426. The economic benefits to the

parties from LPC’s operations at the Sites were “roughly equal.” See AISLIC II, 2013 WL

135405, at *9. The government benefitted from LPC’s research and development and received

rockets supporting eight major Cold War-era programs, and LPC received payments for these

services and products. See id. Although LPC may not have reaped large profits from its

contracts with the government, it helped its parent corporation Lockheed Aircraft Corporation

establish a foothold in the rocket propulsion field, a position that Lockheed retains to this day.50

3. Degree of cooperation.

The sixth and final Gore factor considers “the degree of cooperation by the parties with

Federal, State or local officials to prevent any harm to the public health or the environment.”

Envtl. Transp. Sys., 969 F.2d at 508. Because non-cooperating parties can undermine

CERCLA’s goal of promoting quick and efficient cleanups, see Consolidation Coal, 184 F.

Supp. 2d at 751, “[t]he degree of cooperation with government officials to prevent any harm to

50

See Lockheed’s Memo. on the Benefit Received by Lockheed Propulsion Company, Feb. 20,

2014 [Dkt. No. 124] at 3-6; U.S. Memo. on the Benefit Received by Lockheed Propulsion Company, Feb.

23, 2014 [Dkt. No. 134] at 1-2.

60

the public health or the environment is very important in the contribution analysis.” Cent. Maine

Power, Co. v. F.J. O’Connor Co., 838 F. Supp. 641, 646 (D. Me. 1993). Lockheed argues that

because it has cooperated with California cleanup authorities since before remediation efforts

began, and the government did not admit liability until the eve of this trial, the “cooperation”

factor should favor Lockheed and disfavor the government. (Trial Tr. at 1939 (Lockheed

closing).)

However, Lockheed proceeds on a somewhat distorted view of the facts. Although

Lockheed has cooperated with the state authorities regarding cleanup at the Sites, it cooperation

can hardly be considered voluntarily. Lockheed denied liability for the Redlands TCE plume for

years (PX1677 ¶¶ 12, 36; Trial Tr. at 332 (Blackman)) and initiated cleanup efforts only after

ordered to do so by the Santa Ana Regional Water Quality Control Board. (Trial Tr. at 331-32

(Blackman).) For the government’s part, there is no evidence that any California state agency

ever asked the government to undertake response efforts, and neither Lockheed nor any other

party sought reimbursement from the government under CERCLA until this suit was filed in

2008. And while the government has not directly paid for any response costs yet, see

Consolidation Coal, 184 F. Supp. 2d at 751 (finding that a failure to pay for response costs or

actions prior to CERCLA suit relevant to whether the PRP meaningfully cooperated), its protests

against doing so are grounded primarily on the fact that it has already indirectly paid for the

majority of Lockheed’s response costs at the Sites. (See Meyer Decl. ¶ 29 fig. 5.).

In short, Lockheed was forced by cleanup and abatement orders to undertake its

remediation efforts, and the government has (albeit indirectly) footed most of the bill.51 On these

51

The fact that Lockheed has indirectly recovered through government contracts over 72% of its

past response costs for the Sites distinguishes this case from AISLIC II, in which that court concluded the

plaintiff’s cooperation with state regulatory authorities over a twenty-year period, without assistance from

61

facts, the Court cannot conclude that the government has been meaningfully uncooperative such

that it should receive an upward adjustment in its equitable allocation for the Sites.

4. The government’s ownership of waste

Pursuant to the government property clauses in its contracts with LPC, the government

owned an unknown, but undoubtedly sizable, amount of the AP and TCE that was disposed of at

the Sites. Under government contracting provisions, title will vest in the government for certain

property – including chemicals and other raw materials – purchased and used by a government

contractor. When title vests in the government generally depends on the type of contract and

whether contractor charges the property as a direct or indirect cost.

Under LPC’s cost-reimbursement contracts, such as the Apollo subcontract (PX104), title

vested in the government for property charged as a direct cost as soon as the property was

delivered to LPC, and title vested for property charged as indirect costs at the earliest of three

events, including LPC’s use of property in performance of the contract or the government’s

reimbursement of the cost to LPC. (Johnson Decl. ¶ 8.) For LPC’s fixed-price contracts with

progress payments, such as the SRAM production subcontracts, title vested in the government

for property charged as both direct and indirect costs upon the issuance of a progress payment to

LPC. However, title reverted back to LPC at the termination of the contract. (Id. ¶ 9; Nagle

Decl. ¶¶ 98, 103-105.)52

the federal government, necessitated a 5% increase in the government’s equitable share. See AISLIC II,

2013 WL 135405, at *5-6.

52

Government regulations did not require fixed-price contracts without a progress payment

clause (e.g., USX188) to include a government property clause. (Nagle Decl. ¶ 100-01.) Thus, LPC

owned and retained ownership of all AP and TCE used in its performance of those contracts. (See id. ¶

102.) Due to the limited record in this case (see supra n. 31), it is impossible to determine what

percentage of LPC’s contracts were fixed-price without a progress payment clause or what percentage of

AP and TCE wastes those contracts represented. (See Trial Tr. at 151-52, 156-57 (Johnson).)

62

LPC most likely charged most, if not all, AP as a direct cost and TCE as an indirect cost

to government contracts. (Johnson Decl. ¶ 20; Nagle Decl. ¶ 135.) Thus, title vested in the

government for both materials during some point in the manufacturing processes and, depending

on the contract type, remained vested in the government indefinitely (cost-reimbursement) or

until the end of the contract (fixed-price with progress payments). In either event, the

government retained title over at least some of the AP and TCE at the time of their disposal at

the Sites.53 Lockheed argues that the government’s ownership of the AP and TCE ultimately

disposed of at the Site should result in a higher equitable allocation for the government. (E.g.,

Trial Tr. at 33 (Lockheed opening).)

Merely owning the hazardous substances that caused response costs is, however,

insufficient for liability under CERCLA. See Morton Int’l, 343 F.3d at 679. Instead, a non-

disposing owner of a hazardous substance is generally liable only if he arranges for its disposal

or treatment by a third party. 42 U.S.C. § 9607(a)(3); see also Burlington N., 556 U.S. at 610-

11. The Court considers this distinction to be an important signal that, in passing CERCLA,

Congress was more interested in holding liable, where distinguishable, those who disposed of

and controlled the disposal of hazardous substances rather than those who owned them.

In its exercise of equitable discretion, the Court applies this distinction here. It is unclear

how much of the AP or TCE used (and disposed of) at the Sites the government actually owned.

While the government ownership was likely significant in absolute terms (e.g., pounds of AP or

53

Mr. Nagle, the government’s contracting expert, opined that “any title to materials acquired by

the government pursuant to a title vesting clause[] would not survive the consumption of the material in

the manufacturing process and, therefore, the government did not ‘retain’ title to waste generated by

[LPC] during contract performance.” (Nagle Decl. ¶ 143.) The Court is sympathetic to Mr. Nagle’s

pragmatic opinion that the title vesting clauses were not meant to extend to waste and shares his

reluctance to engage in a debate over the metaphysical question of who owns waste at the molecular level.

(See Trial Tr. at 1058 (Nagle).) However, from a textual standpoint, the contract clauses do not provide

automatic title reversion or automatic government abandonment for “waste” property. Thus, the Court

concludes that the government’s title in AP and TCE survives even after each becomes “waste.”

63

gallons of TCE), Lockheed’s government contracts expert could not conclude with a reasonable

degree of certainty that the government owned more than fifty percent of either AP or TCE used

at the Sites. (Trial Tr. at 157 (Johnson).) Moreover, regardless of the government’s ownership,

Lockheed possessed the waste at all times up to and including the time of disposal. And, for

fixed price contracts with progress payments (like SRAM), the waste – even if already disposed

of – reverted back to Lockheed upon the termination of the contracts. See AISLIC II, 2013 WL

135405, at *8.

Thus, while ownership of the TCE and AP may be an important factor in establishing

arranger liability under CERCLA § 107(a)(3), this is not the issue before the Court. Rather, as to

the allocation analysis, the Court finds the ownership of the substances to be of limited value.

Cf. AISLIC II, 2013 WL 135405, at *8. The critical issue is not ownership in the first instance,

but rather the parties’ respective control over the disposal of TCE and AP at the Sites. (See infra

Section II.B.-C.)

5. The government’s ownership of facilities

Owning a facility at the time hazardous substances were disposed of at that facility results

in liability under CERCLA. See 42 U.S.C. § 9607(a)(2). From this statutory hook, courts

frequently allocate an “owner’s share” of liability to parties “simply by virtue of being the

landowner,” United States v. R.W. Meyer, Inc., 932 F.2d 568, 571 (6th Cir. 1991), or owning the

leaking or faulty equipment at a site. E.g., AISLIC II, 2013 WL 135405, at *4-5.

Both parties owned equipment at the Sites. (See, e.g., USX26.0018-28; USX27;

USX28.0025-27.) Indeed, the government stipulated to its liability under CERCLA because it

owned and furnished some of the major pieces of equipment for LPC’s operations. (See Trial Tr.

at 899 (government counsel).) Lockheed argues that government ownership of this equipment –

64

including the vapor degreaser in Building 91 and the hogged-out rocket casings at the Potrero

and LaBorde Canyon facilities – should weigh in Lockheed’s equitable favor because those

pieces of equipment were sources of TCE and perchlorate contamination (i.e., “facilities”) at the

Sites. (E.g., Trial Tr. at 33 (Lockheed opening); id. at 1946 (Lockheed closing.)

Lockheed is correct that both the government-owned vapor degreaser and hogged-out

rocket casings are “facilities” under CERCLA § 101(9). See Am. Int’l Specialty Lines Ins. Co. v.

United States (AISLIC I), 2010 WL 2635768, at *23-24 (C.D. Cal. June 30, 2010). The Court,

however, does not consider the government’s mere ownership of certain pieces of equipment to

have much importance in determining an equitable allocation. Instead, just as with the

ownership of the waste, the Court considers “[f]actors additional to the simple fact of ownership”

of facilities – in particular the parties’ respective control over the disposal operations – to be the

paramount equitable consideration. See Yankee Gas, 852 F. Supp. 2d at 248. Thus, the Court

does not adjust the per capita equitable allocation on account of either party’s ownership of

equipment or facilities at the Sites.

6. Knowledge of risk of pollution from AP and TCE

The fifth Gore Factor considers “the degree of care exercised by the parties with respect

to the hazardous waste concerned.” Envtl. Transp. Sys., 969 F.2d at 508. As the Court

concluded above, the contamination at the Sites originated, inter alia, from pouring TCE and AP

wastewaters, and burning solid propellant wastes, on the bare ground. Mr. Bauer, a government

expert, opined these disposal practices violated the standard of care in existence at the time of

LPC’s operations. (Trial Tr. at 1086-87 (Bauer); Bauer Decl. ¶¶ 11(b), 11(e), 138(b).) The

Court does not credit Mr. Bauer’s testimony for two reasons.

65

First, although LPC knew that the Sites were located in areas with sensitive groundwater

supplies (see, e.g.,USX15.0002-03; USX43.0002; USX50.0002; USX970 at 140-41 (Speer

Dep.); USX977 at 35-36, 43 (Stickney Dep.)), neither TCE nor perchlorate were known

groundwater contaminants at the time LPC operated the Sites. “[T]here was generally no

recognition that TCE posed a danger to the environment until the mid 1970’s.” Bolinder Real

Estate, L.L.C. v. United States, 2002 WL 732155, at *8 (D. Utah Apr. 24, 2002). Indeed, TCE

groundwater contamination was first discovered in California only in 1979 (PX1537 at 12), and

the EPA did not regulate TCE as a drinking water contaminant until 1989. (PX2060 at 18.)

Similarly, according to the U.S. Government Accountability Office, perchlorate “was initially

identified by EPA as a potential [groundwater] contaminant in 1995” (PX1229 at 3), and,

according to the DOD, did not “emerge[] as an environmental issue of national interest [until]

1997,” when new testing processes decreased the detection threshold from 400 to 4 µg/L.

(PX1223 at 5; see also PX1229 at 3-4.)54 Although LPC knew when it operated the Sites that

AP was a dangerous material, their safety concerns were limited to fires and explosions and did

not extend to environmental contamination. (See, e.g., Trial Tr. at 87, 94-95 (Oppliger).)

Second, both pouring TCE and AP wastewaters and burning solid propellant wastes on

bare ground were entirely consistent with the general standards of care in existence at that time.

For TCE, the Court need look no further than the government’s position in a prior case:

54

Accordingly, the Court does not credit Mr. Bauer’s testimony that members of scientific

community knew that pouring TCE or AP wastewaters or burning propellants on the bare ground would

cause groundwater contamination. (Trial Tr. at 1081-87 (Bauer).) Mr. Bauer’s reliance on “personal

experience and knowledge and chemical research” (id. at 1083), as well as a single, ambiguous scholarly

article from 1953 that concluded “[s]olvents and soluble chemicals contained in industrial wastes . . .

remain in solution in the liquid phase . . . and percolate downward to the underlying groundwater”

(USX810.0006) is countered by the vast weight of the evidence that neither TCE nor perchlorate were

considered groundwater pollutants at the time LPC operated the Sites. (See Feenstra Decl. ¶¶ 96-102

(TCE), 175-91 (AP/perchlorate); PX2020-2024 (summary tables of historic published literature on

groundwater contamination re: TCE); PX2025-2028 (summary tables of historic published literature on

groundwater contamination re: AP/perchlorate).)

66

It is undisputed that the plaintiff’s allegations of negligence, in particular,

‘pouring the solvents onto the ground . . . ,’ even if true, could not have violated

any standard of care in existence prior to, or during . . . the early 1970s.

Snyder et al. v. United States, 04-cv-627, Gov’t Memo. in Support of Mot. for Summ. J. at 3-4,

(Feb. 22, 2006 S.D. Miss.) (PX2060). In Snyder, the government adopted its expert’s opinion

that the disposal of TCE on the bare gro

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