United States v. Federal Resources Corp.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA, No. 12-36065

Plaintiff-Appellee,

D.C. No.

FEDERAL RESOURCES CORPORATION, 2:11-cv-00633-

Intervenor-Appellant, EJL

v.

OPINION

THE COEUR D’ALENES COMPANY,

Defendant-Appellee.

Appeal from the United States District Court

for the District of Idaho

Edward J. Lodge, District Judge, Presiding

Argued and Submitted

July 10, 2014—Seattle, Washington

Filed September 16, 2014

Before: A. Wallace Tashima and Mary H. Murguia,

Circuit Judges, and Cormac J. Carney, District Judge.*

Opinion by Judge Murguia

*

The Honorable Cormac J. Carney, United States District Judge for the

Central District of California, sitting by designation.

2 UNITED STATES V. FRC

SUMMARY**

CERCLA

The panel affirmed the district court’s order granting the

United States’ motion to enter a consent decree concerning

payment of the costs of hazardous waste clean-up efforts at

the Conjecture Mine Site in Bonner County, Idaho.

The consent decree was made pursuant to the terms of the

Comprehensive Environmental Response, Compensation, and

Liability Act (“CERCLA”), which authorizes the United

States to settle with a potentially responsible party for an

amount less than that potentially responsible party’s

proportionate share of the cost to clean up a polluted site if it

has a limited ability to pay. The Coeur d’Alenes Company

entered into such a settlement with the government, and the

district court approved it over the objections of intervenor

Federal Resources Corporation. The district court concluded

that the consent decree was procedurally and substantively

fair, reasonable, and consistent with CERCLA.

The panel held that the intervenor failed to establish that

the district court abused its discretion by forgoing a

comparative fault analysis that it deemed irrelevant to the

specific, permissible factors underlying the terms of the

consent decree. The panel further held that the district court’s

conclusion - that the record showed that the United States

appropriately considered the financial health of the Coeur

d’Alene Company when concluding that the proposed

**

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

UNITED STATES V. FRC 3

settlement represented the maximum amount of money it

could contribute to the cleanup costs - was well supported.

COUNSEL

Katherine Lynn Felton (argued), and James P. Murphy,

Murphy Armstrong, & Felton, Seattle, Washington; Stanley

J. Tharp, Eberle, Berlin, Kading, Turnbow & McKlveen,

Chartered, Boise, Idaho, for Intervenor-Appellant.

Peter Krzywicki (argued) and Paul Gormley, United States

Department of Justice, Environmental and Natural Resources

Division, Washington, D.C., for Plaintiff-Appellee.

W. Christopher Pooser (argued), and Kevin J. Beaton, Stoel

Rives, Boise, Idaho, for Defendant-Appellee.

OPINION

MURGUIA, Circuit Judge:

This case concerns the district court’s obligations in

reviewing a settlement made pursuant to the provisions of the

Comprehensive Environmental Response, Compensation, and

Liability Act (“CERCLA”), 42 U.S.C. §§ 9601–75, that

authorize the United States to settle with a potentially

responsible party (“PRP”) for an amount less than that PRP’s

proportionate share of the cost to clean up a polluted site if it

has a limited ability to pay. See 42 U.S.C. §§ 9622(e)(3)(A),

(f)(6)(B). The Coeur d’Alenes Company (“CDA”) entered

into such a settlement with the government, and the district

court approved it over the objections of intervenor Federal

4 UNITED STATES V. FRC

Resources Corporation (“FRC”) that the district court was

required to conduct a comparative fault analysis and to

scrutinize more closely the government’s assessment of

CDA’s ability to pay. We affirm.

I

In 2011, the United States filed lawsuits against FRC and

CDA, among other PRPs, in the District of Idaho to recover

the cost of hazardous waste clean-up efforts at the Conjecture

Mine Site in Bonner County, Idaho (the “Site”). The

government proceeded against both parties under CERCLA,

which “imposes strict liability on certain classes of parties

who are potentially responsible for a site’s contamination.”

Arizona v. City of Tucson, No. 12-15691, 2014 WL 3765569,

at *3 (9th Cir. Aug. 1, 2014) (citing Burlington N. & Santa Fe

Ry. Co. v. United States, 556 U.S. 599, 615 (2009); Anderson

Bros. v. St. Paul Fire & Marine Ins. Co., 729 F.3d 923, 929

(9th Cir. 2013)). “CERCLA liability is generally joint and

several,” although a party held liable under CERCLA may

usually seek contribution from other PRPs held liable for the

cost to remediate the same site. Id.; see also 42 U.S.C.

§ 9613.

“Congress sought through CERCLA . . . to

encourage settlements that would reduce the

inefficient expenditure of public funds on

lengthy litigation.” Chubb Custom Ins. Co. v.

Space Sys./Loral, Inc., 710 F.3d 946, 971 (9th

Cir. 2013). Consistent with this objective,

Section 113(f)(2) [of CERCLA] provides that

a party who has resolved its CERCLA

liability through a judicially approved consent

decree “shall not be liable [to other

UNITED STATES V. FRC 5

responsible parties] for claims for contribution

regarding matters addressed in the

settlement.” 42 U.S.C. § 9613(f)(2). This

statutory framework contemplates that

potentially responsible parties who do not

enter into early settlement agreements may

ultimately bear a disproportionate share of the

CERCLA liability. For this reason, potentially

responsible parties who do not enter into such

agreements have standing to intervene in

CERCLA actions to oppose the entry of

CERCLA consent decrees. United States v.

Aerojet Gen. Corp., 606 F.3d 1142, 1150–53

(9th Cir. 2010).

City of Tucson, 2014 WL 3765569, at *4 (second alteration

in original).

In March 2011, the United States sued FRC to recover

costs associated with cleaning up the Site. In December of

that year, after more than a year of negotiation, the United

States also brought an action against CDA to recover costs

associated with the clean-up of the Site. However,

simultaneous with its complaint against CDA, the

government lodged a proposed consent decree (the “Consent

Decree”), notice of which was published in the Federal

Register one week later. See 76 Fed. Reg. 79,710 (Dec. 22,

2011).

Under the terms of the Consent Decree, CDA would be

obligated to pay a total of $350,000, plus interest. The

government did not arrive at this figure by taking the total

estimated cost of cleaning up the Site and multiplying that by

the fraction of liability reasonably attributable to CDA;

6 UNITED STATES V. FRC

rather, $350,000 was the amount the government believed

CDA would be able to pay without risking the company’s

ongoing viability. The government had arrived at the figure

with the assistance of a financial analyst, who conducted a

review of CDA’s records in accordance with the

Environmental Protection Agency’s General Policy on

Superfund Ability to Pay Determinations.

The limitation of CERCLA liability based on a party’s

ability to pay is contemplated by the statute. See 42 U.S.C.

§ 9622(e)(3)(A) (“[G]uidelines for preparing nonbinding

preliminary allocations of responsibility . . . may include . . .

ability to pay.”). Courts have routinely recognized the

important policy considerations served by so-called “ability

to pay” settlements. For example, in United States v. Bay

Area Battery, the district court observed that

[w]hile certain PRPs have deep pockets and

can afford to shoulder their full share of

liability for a site’s cleanup, other PRPs

simply do not have the resources to pay their

share. . . .

When negotiating with PRPs who are

small businesses or individuals of modest

means, the Government seeks to avoid

settlements that will force the businesses and

individuals into bankruptcy or require them to

sell off major assets. Instead, the Government

requires such PRPs to pay an amount that will

allow businesses to continue operating and

will not jeopardize the modest lifestyles of

individual parties. In this fashion, the

UNITED STATES V. FRC 7

Government will recover some of its past

costs while the PRPs are spared financial ruin.

895 F. Supp. 1524, 1529–30 (N.D. Fla. 1995); see also

United States v. Weiss, No. 11-CV-02244-RM-MJW, 2013

WL 5937912, at *3–4 (D. Colo. Nov. 6, 2013); United States

v. Hecla Ltd., No. 96-0122-N-EJL, 2011 WL 3962227, at *3

(D. Idaho Sept. 8, 2011); United States v. Brook Vill. Assocs.,

No. CIV.A. 05-195, 2006 WL 3227769, at *6–7 (D.R.I. Nov.

6, 2006).

On February 2, 2012, during the comment period for the

Consent Decree, FRC objected on the basis that the amount

of CDA’s liability was based on its ability to pay rather than

on its degree of fault relative to other PRPs for the pollution

at the Site; FRC also questioned the thoroughness of the

government’s investigation into CDA’s financial situation.

FRC’s desire to object is understandable: because CERCLA

liability is generally joint and several, see 42 U.S.C.

§ 9607(a), and because settlors like CDA are immune to

contribution claims brought by fellow PRPs, see id.

§ 9613(f)(2), a reduction in CDA’s liability could have the

direct effect of increasing FRC’s own liability.

After the government moved for entry of the Consent

Decree, the district court permitted FRC to intervene in the

action against CDA. On October 25, 2012, FRC filed an

objection to the Consent Decree on largely the same grounds

as its objections during the comment period. However,

CDA’s objection as an intervenor went into greater detail in

alleging that the government failed to investigate the extent

of CDA’s financial resources. Specifically, FRC claimed that

CDA had liability insurance coverage relevant to the Site

8 UNITED STATES V. FRC

clean-up and that the government had failed to take this

coverage into account when assessing CDA’s ability to pay.

Rejecting FRC’s objections, on November 28, 2012, the

district court granted the United States’ motion to enter the

Consent Decree after concluding that it was procedurally and

substantively fair, reasonable, and consistent with CERCLA.

In its capacity as an intervenor, FRC appeals from the district

court’s order.

II

To approve a consent decree under CERCLA, a district

court must conclude that the agreement is procedurally and

substantively “fair, reasonable, and consistent with

CERCLA’s objectives.” United States v. Montrose Chem.

Corp. of Cal., 50 F.3d 741, 748 (9th Cir. 1995). When, as

here, the proposed consent decree is the result of negotiations

with the United States, “the approval of a CERCLA consent

decree ‘reaches the appellate level encased in a double layer

of swaddling.’” City of Tucson, 2014 WL 3765569, at * 5

(quoting Montrose, 50 F.3d at 746).

The first layer of swaddling requires the

district court to “refrain from second-guessing

the Executive” and to defer to the EPA’s

expertise. Montrose, 50 F.3d at 746. This is

so, because “considerable weight [is]

accorded to [a federal] executive department’s

construction of a statutory scheme it is

entrusted to administer. . . .” United States v.

Mead Corp., 533 U.S. 218, 227–28 (2001).

We then defer to the district court’s judgment

and review its approval of the proposed

UNITED STATES V. FRC 9

agreement for abuse of discretion. Montrose,

50 F.3d at 746.

Id. (some alterations in original).

FRC’s two arguments on appeal essentially track its

objections to the Consent Decree in the district court. First,

FRC argues that the district court abused its discretion by

failing to conduct a comparative fault analysis before

approving the Consent Decree, notwithstanding the fact that

the amount of CDA’s liability was based on its ability to pay,

rather than on its purported share of the fault for polluting the

Site. Second, FRC argues that the district court abused its

discretion by approving the Consent Decree in spite of

evidence that purportedly demonstrated that CDA had

relevant insurance coverage that the government had failed to

take into account in calculating CDA’s ability to pay. Neither

argument is persuasive.

III

FRC argues that the district court was required to analyze

the comparative fault of the parties in order to determine

whether the Consent Decree was substantively fair. It is true

that we require a district court to review a proposed consent

decree for the purpose of determining whether it is fair—not

only procedurally, but also substantively. See City of Tucson,

2014 WL 3765569, at *4. It is also true that, in cases where

a PRP’s liability has not been established based on the PRP’s

limited ability to pay, we have recognized that a finding of

substantive fairness ordinarily requires a district court to

find that the agreement is “based upon, and

roughly correlated with, some acceptable

10 UNITED STATES V. FRC

measure of comparative fault, apportioning

liability among the settling parties according

to rational (if necessarily imprecise) estimates

of how much harm each [potentially

responsible party] has done.”

Id. (quoting United States v. Charter Int’l Oil Co., 83 F.3d

510, 521 (1st Cir. 1996)).

Nevertheless, because the Consent Decree was based on

CDA’s ability to pay—and not on the entity’s actual share of

fault—it is unclear what effect, if any, a comparative fault

analysis would have had on the district court’s determination

that the settlement was substantively fair. We certainly see

no need to mandate that a district court conduct the analysis,

particularly given the considerable deference afforded to a

district court order approving a consent decree under

CERCLA. See Montrose, 50 F.3d at 746–47. CERCLA

expressly permits the government to take ability to pay into

account when fashioning a settlement with a PRP, see

42 U.S.C. §§ 9622(e)(3)(A), (f)(6)(B), and FRC has failed to

establish that the district court abused its discretion by

forgoing a comparative fault analysis that it deemed

irrelevant to the specific, permissible factors underlying the

terms of the Consent Decree. We do not foreclose the

possibility that a district court might conduct a comparative

fault analysis when evaluating a settlement that has been

proffered as having been reached on the basis of ability to

pay. However, we decline to cabin the district court’s

discretion to determine how best to evaluate the fairness of a

settlement in light of the specific circumstances at issue.

We understand FRC’s concern that it may be forced to

shoulder a greater portion of the cost to clean up the Site than

UNITED STATES V. FRC 11

it would have had the United States and CDA not entered into

a settlement based on CDA’s limited ability to pay. Indeed,

we recognize that FRC being held disproportionately liable is

a very likely outcome. However, such an outcome would not

be inconsistent with CERCLA, nor would it merely be an

unintended consequence of the statute. Rather, the potential

for disproportionate liability is an integral and purposeful

component of CERCLA. As the First Circuit has observed:

Congress explicitly created a statutory

framework that left nonsettlors at risk of

bearing a disproportionate amount of liability.

The statute immunizes settling parties from

liability for contribution and provides that

only the amount of the settlement—not the

pro rata share attributable to the settling

party—shall be subtracted from the liability of

the nonsettlors. This can prove to be a

substantial benefit to settling PRPs—and a

corresponding detriment to their more

recalcitrant counterparts.

Although such immunity creates a

palpable risk of disproportionate liability, that

is not to say that the device is forbidden. To

the exact contrary, Congress has made its will

explicit and the courts must defer.

Disproportionate liability, a technique which

promotes early settlements and deters

litigation for litigation’s sake, is an integral

part of the statutory plan.

United States v. Cannons Eng’g Corp., 899 F.2d 79, 91–92

(1st Cir. 1990).

12 UNITED STATES V. FRC

There is nothing remarkable about the prospect of FRC

being held disproportionately liable, and, absent another

reason that actually has some grounding in the statutory

provision at issue here, there is no reason for the district court

to spend its time quantifying precisely how disproportionately

FRC may be held liable.

IV

FRC also argues that the district court erred by failing to

consider the “substantial evidence” submitted by FRC

“indicating the existence of liability insurance.” FRC argues

that a predecessor entity of CDA had purchased liability

coverage that was in effect at the time the Site was polluted;

according to FRC, this insurance coverage increases CDA’s

effective ability to pay. FRC claims that it was “severely

prejudiced” by the district court’s refusal to take into account

the purported insurance coverage when considering whether

the Consent Decree was fairly based on CDA’s ability to pay.

We reject FRC’s speculative argument, as we see no

reason to reject the district court’s determination that “the

record shows that the Government appropriately considered

the financial health of the CDA Company and concluded that

the proposed settlement represents the maximum amount of

money it could contribute to the cleanup costs.” The district

court’s conclusion is well supported. The government

retained an expert financial analyst to evaluate CDA’s ability

to pay. That analyst reviewed numerous records in

accordance with EPA procedures for determining ability to

pay, and she explicitly stated that the information she

received “provided [her] with a sufficient basis to evaluate

[CDA’s] ability to pay.” CDA also retained an expert to

investigate the existence of any possible insurance that CDA

UNITED STATES V. FRC 13

might have but not know about. The expert did not find

evidence of any coverage, and CDA turned the results of the

investigation over to the government.

It is also not lost on us that, in the Consent Decree, CDA

certified to the district court that it had “fully disclosed any

information regarding the existence of any insurance policies

or indemnity agreements that may cover claims relating to

cleanup of the Site.” By the terms of the Consent Decree, if

CDA’s financial representations are subsequently determined

by the EPA to be false, CDA will lose its statutory protection

from contribution claims by other PRPs, including FRC.

Thus CDA had nothing apparent to gain by making any

misrepresentations about the availability of insurance

coverage.

The evidence FRC has offered in the record does not

appear conclusively to demonstrate the existence of relevant

insurance coverage. Rather, it suggests the possibility of

coverage based on a chain of association between CDA and

its predecessor entities; whether any coverage actually was

transferred to CDA is disputed. Further, while FRC points to

several documents from CDA’s predecessor that include a

line item expense for “liability insurance,” the government

argues in response that the record demonstrates that the

“liability insurance” at issue is actually workman

compensation insurance, and, moreover, that the relationship

between CDA and its predecessor did not pass liability

between the two entities – and, thus, did not pass any relevant

insurance coverage to CDA either.

For our purposes, FRC does not challenge CDA’s ability

to pay so much as it challenges the sufficiency of the

government’s investigation and of the district court’s review

14 UNITED STATES V. FRC

of the thoroughness of that investigation. For FRC to have

any success on its claim, it would have to demonstrate that

the district court abused its discretion by accepting the

sufficiency of an investigation conducted by the government

in accordance with its own established procedures, and it

would bear an extraordinarily high burden in demonstrating

such an abuse in light of the tremendous deference the district

court rightfully pays to the government’s determination that

a consent decree is fair and proper. See Montrose, 50 F.3d at

746–47.

“[A] district court abuses its discretion ‘when it makes an

error of law, when it rests its decision on clearly erroneous

findings of fact, or when we are left with a definite and firm

conviction that the district court committed a clear error of

judgment.’” Johnson v. Uribe, 700 F.3d 413, 424 (9th Cir.

2012) (quoting United States v. Ressam, 679 F.3d 1069, 1086

(9th Cir. 2012)). In light of the evidence the government

presented demonstrating that it adequately investigated

CDA’s ability to pay – including through insurance coverage

– and the double deference we pay to the district court’s order

approving the Consent Decree, we cannot conclude that the

district court’s acceptance of the government’s assessment of

CDA’s ability to pay amounts to a clear error of fact or of

judgment.

V

Because the district court did not abuse its discretion by

approving the Consent Decree, we AFFIRM.