Cost Recovery in the United States

Cost Recovery in Environmental Law

A lawsuit brought by the government, and in some cases, a private party who has incurred expenses to respond to a release or threatened release of hazardous substances. The defendants in such lawsuits are parties who are potentially responsible for the problem. See Comprehensive Environmental Response, Compensation, and Liability Act; potentially responsible parties.

The section of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) that authorizes cost recovery is Section 107. The plaintiff must prove (1) that a release occurred or is likely to occur (2) from a facility or vessel, (3) that a hazardous substance was involved, (4) that the defendant or defendants are potentially responsible, (5) that the costs of responding were incurred as a result, and (6) that the actions of the plaintiff were either consistent with the National Contingency Plan or not inconsistent with it, depending on whether the plaintiff is a private party or the government.

Although the statute provides for joint and several liability courts are beginning to allow defendants to offer evidence concerning apportioning the liability In United States v. Alcan Aluminum Corp., the Third Circuit Court of Appeals stated that in appropriate circumstances, the defendants should be allowed to prove the harm is divisible and the damages can, therefore, be allotted. In re Bell Petroleum Services, Inc., took an even stronger position, stating the government cannot ignore such evidence if it is provided.

Cost recovery lawsuits are the most commonly brought suits under CERCLA. Defenses are limited: an act of God, act of war, or an act of a third party without any connection to the person named as a potentially responsible party. Thus, in a cost recovery suit, a corporation that bought a company after it disposed of a hazardous substance might be responsible for the actions of the predecessor. The corporate officers could be potentially responsible for the acts of the corporation, and a lender could be responsible for a site contaminated by the borrower. Also, almost any type of interest in real estate, e.g. ownership, lease, or use permit, could result in liability if the property is discovered to be a hazardous waste site.

Costs that can be obtained through this process include investigative, removal, administrative, cleanup, and enforcement. When the government is involved, the costs can be recovered even if they appear unwise, as long as they are not arbitrary and capricious, a difficult standard to meet.

Whatever response was taken, it must also comply with the National Contingency Plan. However, the government’s actions cannot be inconsistent with the Plan, while the private individual’s actions must be consistent with it. The difference is this: if the government is the plaintiff, the court will assume the actions are consistent and the defendant has the burden of proof, but if a private party is the plaintiff, the burden of proving consistency is on that party.

Claims against the Superfund

The Comprehensive Environmental Response, Compensation, and Liability Act allows any person who has spent money during a response action to make a claim against the Superfund for reimbursement. As a practical matter, this provision has not been useful to private parties, but the EPA has established regulations to streamline the process.

Generally, the government will not entertain a claim made by a potentially responsible party unless the party has already started negotiating a settlement. Since the Superfund is designed to fund cleanups for which emergency action is necessary or potentially responsible parties are not available, the EPA has been reluctant to use the Superfund to reimburse persons who are legally responsible for cleanup.

However, a private party may be ordered to do a cleanup and later prove it was not a potentially responsible party, or it may be acting out of public interest. In order to qualify for payment from the fund, private parties must first get preauthorization to respond. The EPA will issue a document with terms and conditions in it, and the private party must follow them. Documentation of actions and costs can then be submitted to the EPA as a claim. It will be approved only if the site had sufficient priority to consider using the Superfund to clean it up.

Legal Issues

Basic legal conflicts continue to surround the cost recovery provision of CERCLA. Because most cases settle, many of the issues raised have not been resolved.

Although other provisions of CERCLA require a release of a specified amount of a hazardous substance before it must be reported, the cost recovery provision does not state a threshold amount. It would be conceivable for a penny, which contains copper, a hazardous substance, to trigger liability for an entire cleanup. Some courts have dismissed without a qualm arguments concerning the amount of a hazardous substance contributed, but the Fifth Circuit Court of Appeals indicated in Amoco Oil Co. v. Borden that the plaintiff should be able to justify why the response costs were incurred.

A threshold issue in cost recovery actions as in actions to require the abatement or remediation of a hazardous waste site is identification of the potentially responsible parties. The government has been successful in catching almost everyone with any connection to the hazardous substance, but the biggest battles involve liability dependent upon relationships. For example, heirs to contaminated property, parent corporations to the target company, lenders that foreclose on contaminated property, owners of property previously contaminated, and successor corporations that acquire a company after the problem was created may all be listed as potentially responsible parties.

Another issue arises primarily in cost recovery actions brought by private parties. Since the statute requires responses to be consistent with the National Contingency Plan, private parties have a difficult burden to bear. The National Contingency Plan was revised in 1990 to indicate that substantial compliance is necessary and that the actions must result in a CERCLA quality cleanup.

Another issue arises primarily in cost recovery actions brought by private parties. Since the statute requires responses to be consistent with the National Contingency Plan, private parties have a difficult burden to bear. The National Contingency Plan was revised in 1990 to indicate that substantial compliance is necessary and that the actions must result in a CERCLA quality cleanup.

For private parties, then, the activities should include worker protection, documentation, obtaining permits, evaluation of the site and study of feasible methods of cleanup, release reporting, identification of the applicable or relevant and appropriate requirements, remedial design and implementation, and selection of remedy. The imperative parts of the actions are these: (1) the cleanup must protect human health and the environment, (2) it must utilize permanent and alternative technologies to the extent possible, (3), it must attain the applicable or relevant and appropriate standards, (4) it must be cost effective, and (5) meaningful public participation must occur.
Based on “Environment and the Law. A Dictionary”.

Cost Recovery in the context of Real Estate

Resurces

See Also

• Depreciation (2)