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Clarifying CERCLA Allocation For Gov't Contractors Clarifying CERCLA Allocation For Gov't Contractors

Clarifying CERCLA Allocation For Gov't Contractors

American manufacturing companies performed an essential function through the fulfillment of government contracts during wartime and national emergencies. By frequently conforming their manufacturing practices to government-mandated protocols, these companies helped preserve the national defense and win the war by providing products, parts or materials to the United States military in times of need. However, wartime production associated with World War I, World War II and the Cold War accounts for significant pollution found at various manufacturing sites throughout the country.
The Comprehensive Environmental Response, Compensation and Liability Act, known as CERCLA or Superfund, was enacted by Congress in 1980 for the purpose of remediating historically contaminated hazardous waste sites. Through this program, the federal government may require the owners and operators of a manufacturing facility to pay their fair share of cleanup costs. Several CERCLA actions have been brought by government authorities against current and former government contractors or others whose property and equipment was used to support wartime production. Litigation surrounding these cases often focuses on whether the federal government should bear a portion of the cleanup costs, especially where the government owned the pollution sources or exercised significant control over the method of production and waste handling at a particular site.
Last month, the Ninth Circuit reversed a decision that allocated 100 percent of remediation costs at a manufacturing facility to the company, TDY Holdings.[1] During World War II, TDY (formerly the Ryan Aeronautical Company) manufactured aircraft and aircraft parts for the war effort. While TDY operated the facility, the United States owned some of the manufacturing equipment, including drilling machines, an electrical substation, vapor degreasers and transformers. In some cases, the United States also required TDY to use certain hazardous substances in the fulfillment of military manufacturing contracts. In more recent years, TDY maintained a relationship with the United States military through manufacture of aeronautical products, including drones, Apache helicopter components and avionics systems. Throughout the facility’s operation from 1939 to 1999, it derived 90 to 99 percent of its business from military contracts.
As a result of facility operations, three hazardous substances were released into the soil and groundwater. These substances can be directly traced to work performed by TDY at the government’s behest. Before the government became aware of environmental and health hazards presented by chromium compounds and chlorinated solvents, military specifications in TDY’s contracts required it to use these substances in the manufacturing process. The Ninth Circuit’s opinion requiring that some share of the costs be paid by the federal government provides support to future plaintiffs seeking CERCLA contribution from the United States. Government contractors and others whose property and equipment was used to support wartime production should be aware of several factors that could mean the difference between obtaining significant CERCLA contribution from the federal government or not.
Gore Factors
Under CERCLA, a district court may allocate cleanup costs using “equitable factors,” subject only to the deferential “abuse of discretion” standard applied by the appellate courts. While the act does not provide a list of equitable factors, several courts use the “gore factors”[2] to guide the allocation analysis.[3] In TDY Holdings, the district court emphasized three factors that relate to the contribution and involvement of each party in the discharge, release, treatment, storage or disposal of hazardous material and the care exercised by the parties with respect to the materials concerned. While the Ninth Circuit rejected TDY’s argument that the district court erroneously considered the above factors, it reversed the district court’s decision to allocate 100 percent of remedial costs to TDY, thereby giving the United States a free pass. The Ninth Circuit held that previous cases, U.S. v. Shell Oil Co.[4] and Cadillac Fairview,[5] both of which consider how CERCLA cleanup costs are allocated between military contractors and the United States government, control how the gore factors should have been applied in TDY Holdings.
In Shell Oil, the Ninth Circuit allocated 100 percent of cleanup costs at a Superfund site to the federal government, finding the government exercised significant control over the means of production at an aviation fuel refinery during World War II. In its opinion, the court emphasized that cleanup costs associated with waste generated in the production of aviation fuel was “properly seen as part of the war effort for which the American public as a whole should pay.” A similar sentiment was expressed by the court in Cadillac Fairview, where 100 percent of cleanup costs at a synthetic rubber plant built and operated during World War II were allocated to the United States. In that case, the government owned the manufacturing site and materials, had knowledge of the contractor’s everyday routine, and exercised unfettered control and approval over the contractor.
While the government may not have exercised the same amount of control over TDY, based on these decisions, the Ninth Circuit held that “encumbering a military contractor with 100 percent of CERCLA cleanup costs that were largely incurred during war-effort production was a 180 degree departure” from prior case law. Going forward, TDY Holdings stands for the proposition that in cases involving a government contractor, the six gore factors should be analyzed with an understanding that the government (and the public it represents) has a responsibility to pitch in for cleanup of hazardous waste generated for the nation’s benefit in wartime production.
“Control” Over the Manufacturing Site
Notably, in TDY Holdings the Ninth Circuit affirmed the district court’s emphasis on the government’s role as an owner, not an operator, in determining the level of government control exercised over TDY. In CERCLA cases, four categories of potentially responsible parties (PRPs) are liable for cleanup costs: (1) past owners or operators of a facility; (2) current owners or operators; (3) arrangers of waste disposal; or (4) transporters for waste treatment or disposal. The district court was persuaded to allocate 100 percent of cleanup costs to TDY on the basis that the government was merely an owner, rather than an operator, of the TDY facility, and therefore, exerted less control over production than in previous Ninth Circuit cases. The Ninth Circuit found no error in the district court’s emphasis on the distinction between an owner and an operator, as it informs the gore factors concerning the degree of involvement of each party in the discharge, release or disposal of hazardous material.
Thus, government contractors seeking contribution from the United States under CERCLA should be sensitive as to whether the government is characterized as an “owner,” “operator” or “arranger” of a Superfund site. “Ownership” is usually demonstrated by a party’s possession of title to hazardous waste, land or equipment associated with the pollution requiring cleanup. An “operator,” on the other hand, must “manage, direct or conduct operations specifically related to the pollution” at issue.[6] And, an “arranger” must take intentional steps to have hazardous substances disposed or treated (or transported for disposal or treatment).[7] The district court found TDY voluntarily sought the contracting work and exclusively controlled the use, storage and disposal of the contaminants at issue, which weighed against classifying the government as an “operator.” TDY Holdings demonstrates that allocation in CERCLA cases is materially affected by whether a contractor can show the government exercised control over waste disposal at the manufacturing site. Under established precedent, a contractor whose production was managed, approved and controlled by the government has a better argument for obtaining significant contribution.
The importance of establishing government control to obtaining significant government contribution is echoed in the concurring opinion to the Ninth Circuit’s decision. Judge Paul Watford cautions that while TDY should not have been allocated 100 percent of cleanup costs, evidence in the case supports something close to that. According to Judge Watford, TDY was solely responsible for its employees’ failures to clean up drips and spills of the contaminants at issue. It also developed and managed storage practices for hazardous waste at the site that allowed chemicals to seep into the soil and groundwater beneath the plant. Additionally, TDY continued to operate its facility for 20 years in the absence of government involvement. In these details, TDY Holdings differs from Cadillac Fairview and Shell Oil. While the Ninth Circuit held that the government must pay some share of cleanup costs associated with wartime production, Judge Watford indicates the Ninth Circuit’s holding “does not mean that [the government’s] share must be substantial.”
On remand, the district court must revisit its conclusion in light of the Ninth Circuit’s guidance. Factors, such as whether releases of the substances at issue stopped entirely or decreased after wartime, may justify a higher allocation to the government, whereas the existence of facts demonstrating weak government control over the TDY site will weigh in the government’s favor. In either case, TDY Holdings should be considered and understood by former contractors seeking to build a case for contribution by the United States.

Thomas W. Dimond is a partner in Ice Miller’s environmental practice group and Kelsey N. Weyhing is an associate in Ice Miller’s litigation practice group in Chicago. They have represented clients asserting claims against the United States for remediation of contamination caused by wartime activities.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances. 
[1] TDY Holdings LLC v. United States, 872 F.3d 1004 (9th Cir. 2017).
[2] These 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; (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 wastes; and (6) the degree of cooperation by the parties with Federal, State or local officials to prevent any harm to the public health or environment.
[3] The “gore factors” are not exclusive. There is another set of commonly cited factors called the “Torres Factors.” See Lockheed Martin Corp. v. U.S., 35 F. Supp. 3d 92 (D.D.C. 2014).
[4] U.S. v. Shell Oil Co., 294 F.3d 1045 (9th Cir. 2002).
[5] Cadillac Fairview/California Inc. v. Dow Chemical Co., 299 F.3d 1019 (9th Cir. 2002).
[6] United States v. Bestfoods, 524 U.S. 51 (1998).
[7] Burlington Northern & Santa Fe Rwy. Co. v. United States, 556 U.S. 599 (2009).
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