FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

TDY HOLDINGS, LLC; TDY

INDUSTRIES, LLC,

Plaintiffs-Appellants,

v.

UNITED STATES OF AMERICA;

UNITED STATES DEPARTMENT OF

DEFENSE; ASHTON B. CARTER, in his

official capacity as Secretary of

Defense,

Defendants-Appellees.

No. 15-56483

D.C. No.

3:07-cv-00787-

CAB-BGS

OPINION

Appeal from the United States District Court

for the Southern District of California

Cathy Ann Bencivengo, District Judge, Presiding

Argued and Submitted May 8, 2017

Pasadena, California

Filed October 4, 2017

Before: J. Clifford Wallace, Morgan Christen,

and Paul J. Watford, Circuit Judges.

Opinion by Judge Christen;

Concurrence by Judge Watford
2 TDY HOLDINGS V. UNITED STATES

SUMMARY*

CERCLA

The panel reversed the district court’s judgment in favor

of the United States in an action brought by a plaintiff

military contractor under the Comprehensive Environmental

Response Compensation and Liability Act (“CERCLA”),

seeking contribution from the government for its equitable

share of the cleanup costs of plaintiff’s aeronautical

manufacturing plant located in San Diego, California.

CERCLA imposes strict liability on potentially

responsible parties (“PRP”) for the cleanup costs of an

environmental hazard. Plaintiff and the federal government

were PRPs for the cleanup at issue, and plaintiff argued that

the district court abused its discretion when it allocated all of

the cleanup costs to plaintiff.

The panel rejected plaintiff’s suggestion that the district

court erred by misconstruing the concept of “fault,” or

misunderstandingCERCLA’s strict liabilitystatutoryscheme. 

The panel further held the district court did err, however, in

its analysis and application of the two most on-point

decisions – United States v. Shell Oil Co., 294 F.3d 1045

(9th Cir. 2002), and Cadillac Fairview/California, Inc. v.

Dow Chem. Co., 299 F.3d 1019 (9th Cir. 2002) – that

considered how CERCLA cleanup costs should be allocated

between military contractors and the federal government. 

The panel held that the district court erred in concluding that

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

been prepared by court staff for the convenience of the reader.
TDY HOLDINGS V. UNITED STATES 3

Shell Oil and Cadillac Fairview were not comparable, and in

allocating zero percent of clean-up costs to the government,

particularly in light of the parties’ prior course of dealings

and the government’s requirement that plaintiff use two of

the hazardous chemicals at issue. The panel remanded for

additional proceedings.

Judge Watford concurred. He agreed that the record did

not support allocating 100% of the clean-up costs to plaintiff,

but in his view the record did support something close to that.

COUNSEL

Randall M. Levine (argued), Douglas A. Hastings, and Bryan

M. Killian, Morgan Lewis & Bockius LLP, Washington,

D.C.; James J. Dragna, Morgan Lewis Bockius LLP, Los

Angeles, California; for Plaintiffs-Appellants.

Rachel E. Heron (argued), Dustin J. Maghamfar, Mark A.

Rigau, Lewis M. Barr, Ellen J. Durkee, and Aaron P. Avila, 

Environment and Natural Resources Division, United States

Department of Justice, Washington, D.C., for DefendantsAppellees.

Eric B. Wolff, Alexander M. Fenner, and Mark W. Schneider,

Perkins Coie LLP, Seattle, Washington; Shane R. Swindle,

Perkins Coie LLP, Phoenix, Arizona; for Amicus Curiae

National Defense Industrial Association.
4 TDY HOLDINGS V. UNITED STATES

OPINION

CHRISTEN, Circuit Judge:

Plaintiffs-Appellants TDY Holdings, LLC, TDY

Industries, LLC, and its predecessor, the Ryan Aeronautical

Company (collectively, TDY), operated a forty-four-acre

aeronautical manufacturing plant located in San Diego,

California, from 1939 to 1999. TDY derived between 90 and

99 percent of its business from military contracts with the

U.S. government. Over time, certain chemical substances

used in the course of manufacturing operations were released,

contaminating the soil and groundwater in and around the

plant and requiring TDY to incur substantial remediation

expenses. In 2007, TDY filed a complaint under the

Comprehensive Environmental Response Compensation and

Liability Act (CERCLA), seeking contribution from the

government for its equitable share of the cleanup costs. After

a twelve-day bench trial, the district court granted judgment

in favor of the United States, allocating 100 percent of past

and future CERCLA costs to TDY and zero percent to the

government. TDY appeals from the district court’s judgment.

We have jurisdiction under 28 U.S.C. § 1291. Because

we conclude the facts of this case do not justify the district

court’s sharp deviation from our previous case law, we

reverse and remand.

I. BACKGROUND

A. Factual History

The Ryan Aeronautical Company, later known as TDY,

opened a manufacturing plant near the San Diego Airport in
TDY HOLDINGS V. UNITED STATES 5

1939. During World War II, it manufactured aircraft and

aircraft parts for the war effort. More recently, it

manufactured aeronautical productsincluding drones,Apache

helicopter components, and avionics systems for the U.S.

military. The site closed in 1999 after Northrop Grumman

purchased TDY’s Ryan assets and moved the site’s

operations elsewhere.

During the sixty years in which TDY operated the

manufacturing plant, the United States was TDY’s primary

customer; 99 percent of the work conducted at the site

between 1942 and 1945, and 90 percent of the work in the

following years, was done under contract with the U.S.

military. From 1939 to 1979, the United States also owned

some of the equipment at the site pursuant to government

programs intended to finance and oversee the construction

and outfitting of government-owned industrial facilities

leased to private companies. This equipment included

drilling machines, an electrical substation, vapor degreasers,

and transformers.

Three hazardous substances were released during the

course of manufacturing operations, contaminating the soil

and the groundwater in and around the site. These substances

were: (1) chromium compounds used to impart corrosion

resistance on aluminum aircraft parts; (2) chlorinated solvents

used to degrease parts and tools; and (3) polychlorinated

biphenyls (PCBs) used to provide plasticity and durability to

certain materials. In some cases, military specifications in the

government’s contracts with TDY required the use of

chromium compounds and chlorinated solvents to ensure a

proper quality product. Following the passage of the Clean

Water Act and other environmental laws in the 1970s, these

substances were listed as “hazardous substances” requiring
6 TDY HOLDINGS V. UNITED STATES

remediation under CERCLA. Between the early 1970s and

1999, TDY billed the government for the “indirect costs” of

environmental remediation and compliance with federal and

state environmental laws, including costs incurred cleaning

up storm drains at the plant and PCB contamination of nearby

Convair Lagoon. The government paid these costs. After

more stringent standards were instituted, the California

Regional Water Quality Control Board issued a new cleanup

order requiring TDY to assess and remediate waste

discharges at the site. To comply with the order and other

state directives issued after operations at the plant ceased in

1999, TDY incurred over $11 million in response costs.

B. Procedural History

The San Diego Unified Port District brought CERCLA

claims against TDY in June 2004. The United States was not

a party to that litigation. In March 2007, TDY and the Port

District entered into a settlement agreement providing, in

part, that TDY would respond to the release of hazardous

substances at the site. On April 30, 2007, TDY filed a

complaint against the United States, the United States

Department of Defense, and the Secretary of Defense,

seeking contribution under 42 U.S.C. § 9613(f)(1) from the

government for past and future response costs incurred by

TDY in remediating hazardous waste released from the site. 

The complaint also sought declaratory relief establishing that

the government was wholly liable for remediation costs. The

government counterclaimed for contribution from TDY. 

TDY filed a motion for partial summary judgment seeking a

declaration that the United States was liable as a “past owner”

of facilities, one of four categories of potentially responsible

parties (PRPs) under CERCLA. The district court granted

TDY’s motion on July 15, 2011. TDY stipulated to its own
TDY HOLDINGS V. UNITED STATES 7

liability as a PRP, and the case was transferred and set for

trial on TDY’s allocation claim.

The district court held a twelve-day bench trial on

equitable allocation in April 2012. It heard testimony from

twenty-seven witnesses and admitted over 1800 exhibits. The

district court held that: (1) TDY was liable as an owner of

facilities and the operator of the site because it managed,

directed, and conducted operations resulting in the release or

disposal of hazardous waste, and implemented decisions

regarding compliance with environmental regulations; and

(2) the introduction of the three contaminants at issue was

attributable not to the government but instead to TDY’s

storage, maintenance, and repair practices, as well as spills

and drips that occurred in the manufacturing process.

After reviewing the totality of the circumstances,

including the “Gore Factors” that courts sometimes refer to

when considering equitable allocation of costs,1the district

court concluded that the most important factors for equitable

allocation in this case were “the contribution and involvement

of each party in the discharge, release or disposal of

1 The Gore Factors are: “(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 ofsuch

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.” Kerr-McGee Chem. Corp. v. Lefton Iron & Metal

Co., 14 F.3d 321, 326 n.4 (7th Cir. 1994).
8 TDY HOLDINGS V. UNITED STATES

hazardous material and . . . the care exercised by the parties

with respect to the materials concerned.” The court

“consider[ed] the respective roles of the parties as defined by

CERCLA, and then how[,] in the context of these roles[,]

each party contributed to the contamination.” The court

concluded that, “[g]iven the nature of the contamination, . . .

TDY’s role as the Site operator, responsible for the handling,

storage and disposal of the contaminants at issue in this case,

is the most relevant factor in allocating costs.” The district

court allocated 100 percent of past and future response costs

for the remediation of chromium, chlorinated solvents, and

PCBs to TDY.

II. DISCUSSION

A. Standard of Review

We review for an abuse of discretion the equitable factors

that a district court considers in allocating CERCLA costs

and review for clear error the allocation according to the

selected factors. Boeing Co. v. Cascade Corp., 207 F.3d

1177, 1187–88 (9th Cir. 2000); see Cadillac

Fairview/California, Inc. v. Dow Chem. Co., 299 F.3d 1019,

1025 (9th Cir. 2002) (“Under section 113 of CERCLA, the

district court ‘may allocate response costs among liable

parties using such equitable factors as the court determines

are appropriate.’” (quoting 42 U.S.C. § 9613(f)(1))); see also

NCR Corp. v. George A. Whiting Paper Co., 768 F.3d 682,

702 (7th Cir. 2014) (“[T]he district court must decide what is

relevant based on the record as a whole; an allocation based

on otherwise permissible factors will not be rescued if it does

not explain why the court has chosen to disregard other

apparently relevant information.”).
TDY HOLDINGS V. UNITED STATES 9

B. CERCLA Cost Allocation Claim

“Congress enacted CERCLA in 1980, as amended by the

Superfund Amendments and Reauthorization Act of 1986

(SARA), Pub. L. No. 99-499, 100 Stat. 1613, ‘in response to

the serious environmental and health risks posed by industrial

pollution.’” Chubb Custom Ins. Co. v. Space Sys./Loral, Inc.,

710 F.3d 946, 956 (9th Cir. 2013) (quoting Burlington N. &

Santa Fe Ry. Co. v. United States, 556 U.S. 599, 602 (2009)). 

CERCLA “imposes strict liability on four categories of

potentially responsible parties (PRPs), for the cleanup costs

of an environmental hazard, even if the person did not

contribute to the contamination.” Id. at 956–57 (footnote

omitted). The four categories of PRPs are: (1) a past owner

or operator of a facility; (2) an owner or operator of a facility;

(3) an arranger of waste disposal; or (4) an entity that accepts

waste for treatment or disposal. United States v. Shell Oil

Co., 294 F.3d 1045, 1053 (9th Cir. 2002); see 42 U.S.C.

§ 9607(a). Once a PRP is found liable, it may sue other PRPs

for contribution to remediation costs under 42 U.S.C.

§ 9613(f). Earlier proceedings established that both TDY and

the government are PRPs, and those determinations are not on

appeal. Instead, TDY argues that the district court abused its

discretion when it allocated all of the cleanup costs to TDY. 

TDY’s principal arguments are that: (1) the district court

failed to appreciate that CERCLA is a strict liability statute

and instead allocated liability according to relative “fault”;

(2) the government’s role as an “owner” rather than an

“operator” should not have been a dispositive factor in the

court’s cost allocation; and (3) the government should bear a

greater share of response costs because it specifically

required that TDY use the hazardous substances that

necessitated remediation before the hazardous nature of the

substances was known.
10 TDY HOLDINGS V. UNITED STATES

At the outset, we reject TDY’s suggestion that the district

court erred by misconstruing the concept of “fault,” or

misunderstandingCERCLA’sstrict liabilitystatutoryscheme. 

The district court’s use of the word “fault” was in the context

of its application of the Gore Factors, specifically factors (3)

and (5), which respectively concern the degree of the parties’

involvement in the generation or disposal of hazardous waste

and the degree of care that the parties took with respect to the

waste. The district court’s consideration of these factors was

appropriate, particularly in light of its finding, supported by

the record, of the evolving awareness of the hazardous nature

of the chemicals at issue, and TDY’s adaptation to more

stringent environmental standards over time. Nor did the

district court abuse its discretion by considering the

significance of the government’s role as “owner” rather than

“operator” in its analysis of the Gore Factors. The court

expressly recognized that an earlier proceeding established

the government’s liability under CERCLA as an owner of

equipment at the site, see TDY Holdings, LLC v. United

States, 122 F. Supp. 3d 998, 1015 (S.D. Cal. 2015), but held

the government’s total absence from the site during the last

twenty years of its operation relevant to the parties’

differential contribution to the release of hazardous waste

under the first Gore Factor. We hold there was no error in

this.

The district court did err, however, in its analysis and

application of the two most on-point decisions from our

court: Shell Oil and Cadillac Fairview. The government

characterizes these cases as “outliers,” but they are binding

circuit authority. Both cases considered how CERCLA

cleanup costs should be allocated between military

contractors and the U.S. government. Shell Oil Co. and Dow

Chemical Co. incurred liability while producing products
TDY HOLDINGS V. UNITED STATES 11

essential to the military’s efforts in World War II. See Shell

Oil Co., 294 F.3d at 1049; Cadillac Fairview, 299 F.3d at

1022. TDY also served the military during World War II and

in subsequent conflicts. Like Shell Oil Co. and Dow

Chemical Co., TDY’s work involved the use or generation of

hazardous substances known by the government—at least by

the 1970s—to be environmental contaminants. See Shell Oil

Co., 294 F.3d at 1051; Cadillac Fairview, 299 F.3d at

1022–23; see also 1972 Clean Water Act, 33 U.S.C.

§§ 1251–1387; 1976 Toxic Substances Control Act,

15 U.S.C. §§ 2601–2692. Significantly, in all three cases the

government either required the use of the hazardous

substances to ensure the final product met quality standards,

or mandated that production proceed in a certain manner to

increase output, resulting in the generation of hazardous

waste. See Shell Oil Co., 294 F.3d at 1050; Cadillac

Fairview, 299 F.3d at 1022–23. In Shell Oil and Cadillac

Fairview, we affirmed district court judgments allocating 100

percent of cleanup costs to the government and emphasized

that the contractors’ costs were “properly seen as part of the

war effort for which the American public as a whole should

pay.” Shell Oil, 294 F.3d at 1060; see also Cadillac

Fairview, 299 F.3d at 1029.

Despite the similarities between this case, Shell Oil, and

Cadillac Fairview, the district court concluded that Shell Oil

and Cadillac Fairview were not comparable and allocated

zero percent of clean-up costs to the government. We agree

that some deviation from the allocation affirmed in Shell Oil

and Cadillac Fairview was warranted by distinguishing facts. 

First, as the district court recognized, the government exerted

more control over day-to-day operations in Shell Oil and

Cadillac Fairview than it did here, and in Cadillac Fairview

the government contractually agreed to indemnify its
12 TDY HOLDINGS V. UNITED STATES

contractor for its cleanup costs. 299 F.3d at 1026. The

district court’s findings that the government was not an

“operator” of TDY’s site in San Diego; that governmentowned equipment had been removed or sold to TDY twenty

years before TDY ceased operations at the site; and that

TDY’s own repair and maintenance practices caused the

contamination, justify the district court’s ruling that TDY

should bear some of the cleanup costs. Nor did the district

court err by determining that industrial operations undertaken

for the purpose of national defense, standing alone, did not

justify allocating all costs to the government.

Nevertheless, 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 our prior case law, and the out-of-circuit

authority that the district court relied upon does not warrant

such a sharp deviation. This is particularly true because, as

TDY correctly argues, the government’s contracts with TDY

required the use of two of the three chemicals at issue

beginning in the 1940s, when the hazardous nature of the

substances and the need to take precautionary steps to

minimize their release were unknown. The district court

found that TDY complied with prevailing environmental

standards at that time, and responded to new regulations in

the 1970s by modifying its operational practices to reduce

environmental contamination. The court’s acknowledgment

of the evolving understanding of environmental

contamination caused by these chemicals, and TDY’s prompt

adoption of practices to reduce the release of hazardous

chemicals into the environment once the hazards became

known, further undercuts the decision to allocate 100 percent

of the costs to TDY.
TDY HOLDINGS V. UNITED STATES 13

In addition, the district court did not consider adequately

the parties’ lengthy course of dealings in which the

government repeatedly agreed to share in TDY’s

environmental cleanup costs from this site. In contracts from

the 1970s to 1999, the government paid between 90 and

100 percent of the CERCLA cleanup costs that arose from

TDY’s San Diego plant. Despite this history, the district

court reasoned that a shift away from our prior case law was

warranted because “[m]any industries incur expenses as a

result of environmental compliance obligations and pass

those costs on to their customers. . . . [but a] consumer who

pays a business’s recycling fee as part of the invoice for his

car’s oil change is not acknowledging responsibility for

remediation expenses if that company discharges oil or other

pollutants into the environment.” We agree with the district

court that a customer’s willingness to pay disposal costs

incorporated as cost overhead cannot be equated with a

willingness to foot the bill for a company’s unlawful

discharge of oil or other pollutants. But the cleanup expenses

largely paid by the government prior to 1999 cannot be fairly

described as ongoing contract overhead, nor as costs incurred

in implementing preventive measures to comply with

heightened environmental standards. Indeed, TDY may have

continued to enter into contracts with the government in

reliance on its expectation, based on its decades-long course

of dealings with the government, that its CERCLA cleanup

costs would be reimbursed, or at least shared. The parties’

prior course of dealings concerning CERCLA cleanup costs

from the same site constitutes a relevant factor in the

allocation analysis. See NCR Corp. v. George A. Whiting

Paper Co., 768 F.3d 682, 702 (7th Cir. 2014).

We are mindful that this appeal comes to us under an

abuse of discretion standard, and that the district court has
14 TDY HOLDINGS V. UNITED STATES

broad discretion in allocating costs among PRPs. See Boeing

Co., 207 F.3d at 1187. We further acknowledge that

important distinctions exist between the present case and

Shell Oil and Cadillac Fairview, where the government

exercised more control over production than it did here. See,

e.g., 299 F.3d at 1026 (finding that the government exercised

“unfettered control” over the contracting company’s

operations). But the analogy relied upon by the district court

cannot bear the weight of such an extreme departure from our

prior case law, particularly in light of the parties’ prior course

of dealings and the government’s requirement that TDY use

two of the hazardous chemicals at issue. Accordingly, we

reverse the district court’s judgment and remand for

additional proceedings consistent with this decision.

REVERSED and REMANDED

WATFORD, Circuit Judge, concurring:

I agree with my colleagues that the record does not

support allocating 100% of the clean-up costs to TDY. In my

view, though, the record does support something close to that.

The district court found that TDY was solely responsible

for the acts that led to the environmental contamination at

issue here. Those acts consisted primarily of TDY’s

employees’ failure to clean up drips and spills of chromium,

chlorinated solvents, and PCBs, along with the employees’

careless storage and disposal practices, all of which allowed

the chemicals to seep into the soil and groundwater beneath

the plant. The district court found that these aspects of the

plant’s day-to-day operations were solely under TDY’s
TDY HOLDINGS V. UNITED STATES 15

control; they were not controlled or directed by the

government.

TDY doesn’t challenge these factual findings on appeal. 

Its sole contention is that, despite these findings, the

government should still bear all or most of the liability for

cleaning up the site because the contamination occurred while

TDY was performing government defense contracts. TDY is

right that the government must be required to foot at least a

portion of the bill. But I agree with TDY on that score only

because, as the court notes, the government required TDY to

use two of the three chemicals (chromium and chlorinated

solvents) at a time when neither TDY nor the government had

any reason to know that these chemicals were hazardous. Of

course, because the government did not know of the hazards

posed by the chemicals, it can’t be faulted for failing to warn

TDY. But equity demands that the government bear at least

some responsibility for having required an unsuspecting

contractor to use chromium and chlorinated solvents in the

first place. As far as the record discloses, those are chemicals

TDY might have chosen not to use if left to its own devices. 

(I see no reason to disturb the district court’s allocation of

clean-up costs with respect to contamination caused byPCBs,

since the government did not require TDY to use PCBs.)

That the government must, as a matter of equity, be

allocated some share of the clean-up costs does not mean that

its share must be substantial. TDY suggested at oral

argument that the district court would abuse its discretion on

remand if it failed to allocate at least 50% of the clean-up

costs to the government. I don’t think that’s right, given the

district court’s unchallenged factual findings. The court

found that the government was innocent in requiring use of

chromium and chlorinated solvents, and that the actions of
16 TDY HOLDINGS V. UNITED STATES

TDY’s employees caused the contamination as part of plant

operations solely under TDY’s control. In light of those

findings, the court remains free on remand to allocate the

lion’s share of liability to TDY. It just has to allocate some

portion of the clean-up costs to the government to reflect the

government’s role in mandating the use of chromium and

chlorinated solvents. As long as the court does that, it retains

the discretion, within a fairly wide band, to arrive at an

equitable cost allocation.