In the upper reaches of New York state, seven miles up the river from Niagara Falls, a large plot of land dotted with empty buildings sits behind a large fence. These 39 acres were to have been the site of an industrial park. They have become, instead, the graveyard of John Syms' dreams.
Syms' company, the Somerset Group, purchased the land in 1970. After two years of costly renovations, the firm opened the Lew-Port Industrial Park. In April 1972, New York health authorities discovered that toxic materials had contaminated the land: The U.S. Department of Defense had used the property in the 1940s to dispose of waste from the Manhattan Project along with toxic waste from the Army's chemical warfare service.
Syms quickly shut down the industrial park and, with the Defense Department's help, began a cleanup process that took years. Meanwhile, the property remained contaminated--and unusable. Syms' finances slowly fell apart, and his company declared bankruptcy in 1980.
In August 2003, Syms filed suit against the Defense Department and others who allegedly polluted the property. He didn't seek compensation for the lost use of the land. Rather, Syms wanted the defendants to repay him for the costs he incurred trying to clean up the toxic mess.
A federal district court dismissed Syms' suit, ruling that he couldn't recover anything under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (more commonly known as CERCLA or Superfund). Syms appealed to the 2nd Circuit, and while a three-judge panel was considering the matter, the U.S. Supreme Court handed down a startling ruling.
In Cooper Industries v. Aviall Services, the High Court held that anyone who voluntarily attempts to clean up contaminated property cannot seek contribution from those who polluted it under Sec. 113 of CERCLA. The court said landowners can recover costs under that provision only in so far as these costs arose after the government sued them under the Act. The Court's ruling seemed to force landowners such as Syms--who voluntarily clean up their property--to pay the full costs of these cleanups, even if they weren't the polluter. A superfund cleanup often costs tens of millions of dollars, so the Court's December 2004 ruling created "a real disincentive for [landowners] to clean up their property voluntarily," says Clifford Case, an environmental law expert at Carter Ledyard & Milburn.
However, the 2nd Circuit may have found a way to help Syms and other landowners hold polluting companies liable for these huge cleanup costs.
Sharing The Costs
Syms sought contribution under Sec. 113, so Cooper Industries seemed to kill his suit. However, the 2nd Circuit gave him another chance on May 18. The court suggested an alternative way for plaintiffs, such as Syms, to recover their costs for voluntary cleanups: by suing under Sec. 107 of CERCLA.
The decision has huge ramifications for owners of superfund sites, companies that allegedly polluted such sites, and communities that want to clean up superfund sites quickly.
"It is massively important for [owners of superfund sites] to be able to seek contribution," says Daniel Krainin, an environmental law expert at Beveridge & Diamond.
Until the Supreme Court's ruling in Cooper Industries, owners of contaminated sites and other potentially responsible parties (PRPs)--those that may have contributed to the pollution--could always seek contribution from polluters for the costs of voluntary cleanups.
The courts initially allowed such suits under Sec. 107 of the statute. But after Congress added Sec. 113 to CERCLA in 1986, the federal appellate courts decided PRPs must sue under that provision. Courts reinterpreted Sec. 107 to allow suits by innocent parties only--such as government agencies engaged in cleanup actions. The 2nd Circuit adopted this interpretation in a 1998 ruling, Bedford Affiliates v. Sills.
Cooper Industries completely overturns this settled interpretation of CERCLA. Companies, environmental attorneys and the courts are scrambling to determine if there is another way good corporate citizens can be partially repaid for their voluntary cleanup efforts.
The 2nd Circuit is the first appellate court to weigh in on this matter. The three judge panel, in its Syms ruling, seriously questioned whether "Bedford Affiliates remains viable after Cooper Industries." The court noted that "[t]he combination of Cooper Industries and Bedford Affiliates, if the latter remains unaltered" could "discourage PRPs from voluntarily initiating clean-up, contrary to CERCLA's stated purpose of 'induc[ing] such persons voluntarily to pursue appropriate environmental response actions with respect to inactive hazardous waste sites.'"
The court called this a "perverse incentive for PRPs," but declined to overturn Bedford Affiliates because the parties in this case had not had the opportunity to argue this issue. The 2nd Circuit then remanded this issue to the district court.
It thus remains unclear whether PRPs or landowners such as Syms can recover any costs of voluntary cleanups under Sec. 107. Some believe that will be the outcome of this case.
"The 2nd Circuit did seem to invite the lower court to overturn the Bedford Affiliates precedent," Krainin says.
Not Guilty
If the district court overturns Bedford Affiliates, PRPs again would be able to sue under Sec. 107 to recover the costs of their voluntary cleanups. This is cause for concern for any corporation that might be sued for contribution.
Under Sec. 113, the cleanup costs are allocated among all the PRPs, based on the extent to which they contributed to the pollution; in Sec. 107 actions, however, each defendant faces joint and several liability. Thus, under Sec. 107, a company that is only partly responsible for the contamination could be held responsible for the entire cost of the cleanup.
Moreover, a plaintiff that is partially responsible for the pollution could wind up foisting all of the cleanup costs onto the defendants.
"Section 107 doesn't really work in cases where plaintiffs have contributed to the pollution, since these plaintiffs can recover 100 percent of their cleanup costs," says Michael Davis, an environmental attorney at Carter Ledyard & Milburn. "A [guilty] party shouldn't be allowed to pass along all the costs, just because it sued first."
The best solution, Davis says, is for Congress to amend CERCLA so PRPs can bring Sec. 113 contribution actions regardless of whether they've been sued--effectively reversing Cooper Industries. However, there is no indication that Congress is poised to enact such legislation soon. This means that companies, environmental attorneys and the courts will probably be thrashing out this issue for quite some time.
"There will be a lot of litigation and decisions," Krainin says. "We're in the midst of an evolution in the law, and it is not going to end anytime soon."
As for Syms' suit, it now goes back down to the district court, where the parties are expected to argue for months about
Sec. 107 and recoverable costs. Whatever ruling the district court eventually makes, all sides expect the decision to be appealed back to the 2nd Circuit.
While the suit drags on, Syms' land remains vacant and locked up behind an iron fence. "The site still hasn't been cleaned up to our satisfaction," says Alan Knauf, one of Syms' attorneys. "It just doesn't make sense to say companies have to clean up polluted sites and then prevent them from seeking reimbursement from other responsible parties unless the government sues."