1 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

__________________________________________ ) LOCKHEED MARTIN CORPORATION, ) ) Plaintiff, ) ) v. ) Civil Action No. 08-1160 (ESH) ) UNDER SEAL UNITED STATES, ) ) Defendant. ) _______________________________________)

MEMORANDUM OPINION Lockheed Martin Corporation brings this action against the United States under the Comprehensive Environmental Response, Comp ensation, and Liability Act (“CERCLA”), 42 U.S.C. § 9601 et seq. , for recovery of past and future response costs to remediate the environmental contamination caused by its corpor ate predecessor’s operation of three rocket motor-production facilities – Redlands, Potrero Canyon, and LaBorde Canyon – in California from 1954 to 1975. Both parties admit to being liabl e as potentially responsible parties (“PRPs”)

for the contamination at the three facilities unde r CERCLA § 107(a). The Court held a twelveday bench trial from February 10 to March 14, 2014, to determine the equitable allocation of response costs between the parties. Having consid ered the evidence, the controlling law, and all relevant equitable factors, the Court has determined that an e quitable allocation for the past response costs for all three facilities is 0% liab ility to the United States and 100% liability to Lockheed. In contrast, the Court will equitably allocate future response costs between the parties differently for each facility: 29% to the United States and 71% to Lockheed for the Redlands facility; 24% to the United Stat es and 76% to Lockheed for the Potrero Canyon facility; and 19% to the United States and 81% to Lo ckheed for the LaBorde Canyon facility.2 TABLE OF CONTENTS

BACKGROUND .................................................................................................................... .........3 I. History of the Sites...................................................................................................3 A. Government contracts for solid propellant rockets at the Sites ...................3 B. Solid propellant rocket operations at the Sites .............................................7 C. General waste disposal practices at the Sites .............................................14 II. Cleanup of the Sites ...............................................................................................15 A. Redlands facility ........................................................................................15 1. Trichloroethylene ...........................................................................16 2. Perchlorate .....................................................................................18 B. Potrero Canyon facility ..............................................................................19 C. LaBorde Canyon facility ............................................................................21 III. Lockheed’s indirect recovery of response costs through U.S.-government contracts .................................................................................................................22 A. The Federal Acquisition Regulations .........................................................23 B. The Discontinued Operations Settlement Agreement (“DOSA”) .............25 C. Lockheed’s treatment of res ponse costs for the Sites under the DOSA ....27 IV. Procedural history ..................................................................................................29 A. Related actions while the CERCLA statute of limitations was tolled .......29 B. The government’s partial motion for summary judgment .........................33 C. Trial on equitable allocation ......................................................................36 LEGAL FRAMEWORK ............................................................................................................... 40 FINDINGS OF FACTS AND CONCLUSIONS OF LAW ..........................................................46 I. Sources of contamination at the Sites ....................................................................47 A. Redlands facility ........................................................................................47 1. Perchlorate .....................................................................................47 2. Trichloroethylene ...........................................................................52 B. Potrero Canyon facility ..............................................................................56 C. LaBorde Canyon facility ............................................................................58 II. Traditional equitable allocation .............................................................................59 A. Limited value of certain equitable factors .................................................59 1. Waste attributable to each party .....................................................59 2. Parties’ relative benefits from waste disposal activities ................60 3. Degree of cooperation ....................................................................60 4. The government’s ownership of waste ..........................................62 5. The government’s ow nership of facilities ......................................64 6. Knowledge of risk of pollution from AP and TCE ........................65 7. Violation of California water quality laws .....................................68 8. Ability to pay .................................................................................74 9. Indemnification provisions ............................................................74 B. LPC exercised significantly more control than the government over the day-to-day hazardous waste dispos al operations at the Sites. ....................79 C. The government acquiesced in many of LPC’s disposal operations at the Sites ............................................................................................................883 D. Some of LPC’s disposals at the Sites violated internal LPC rules or government requirements. ..........................................................................90 E. Conclusion under tradit ional equitable allocation .....................................93 III. Effect of indirect rec overies on equitable allocation .............................................93 A. Lockheed’s recovery of past response costs would unfairly burden the taxpayer. .....................................................................................................94 B. Lockheed’s recovery of future response costs would not unfairly burden the taxpayer. .............................................................................................106 CONCLUSION .................................................................................................................... ........107

BACKGROUND 1

I. HISTORY OF THE SITES

The environmental contamination that underlie s this action arose fr om the operation of solid propellant rocket pr oduction facilities by Lockheed Propulsion Company (“LPC”) 2 at three locations in Redlands and Beaumont, Californi a – the Redlands facility, the Potrero Canyon facility, and the LaBorde Canyon facility (col lectively the “Sites”) – between 1954 and 1975. A. Government contracts for solid propellant rockets at the Sites LPC researched, developed, and manufactured state-of-the-art solid propellant rocket technologies at the Sites in support of military and scientific programs critical to the United States’ Cold War efforts. (Roman Decl. ¶¶ 21, 2 3.) Government interestin the development of solid propellant rocket technologi es grew significantly in the 1950s following the Soviet Union’s successful nuclear tests in 1949 and the Sputnik launches in 1957. ( Id. ¶¶ 19, 24-25.) Rocket motors using solid propellants offered, at a lowe r cost, several benefits over their liquid-based counterparts – greater safety, operati onal readiness, a nd reliability. ( Id. ¶ 24, 27.) The

1 What follows in this section, although labele d “Background” and generally undisputed by the parties, constitutes findings of fact in accordance with Fed. R. Civ. P. 52.

2 Grand Central Rocket operated the Sites from 1954 to 1963, when LPC purchased the company. (USX88.0044.) For simplicity’s sake, the Court will refer to GCR and Lockheed Propulsion Company as “LPC.” During its existence, LPC was an operating divi sion of Lockheed Aircraft Corporation, which, in 1977, became the Lockheed Corporation. The Lockheed Corporation merged with the Martin Marietta Corporation in 1995 to form the Lockheed Martin Corporation.4 Eisenhower administration’s decision to initia te the development of several large missile programs and to prioritize the research and deve lopment of solid propellants created the market for a private solid prop ellant industry. ( Id. ¶ 33.) As the only purchaser of advanced solid propellant rockets at the time, the United Stat es held monopsonistic control over the solid propellant industry. (Trial Tr. 65- 66 (Roman); Roman Decl. ¶¶ 5, 34.) LPC was one of the largest participants in th at industry, and as a c ontractor, it developed or manufactured rockets for eight major Cold Wa r programs: the Vanguard artificial satellite, the Explorer artificial satellite , the Nike-Zeus anti-ballistic miss ile system, Project Mercury, the Apollo Program, the Large Solid PropellantMotor Program, the TAGBOARD reconnaissance drone, and the Short Range Attack Missile (“ SRAM”) program. (Roman Decl. ¶¶ 7, 35.) President Eisenhower designated four of these programs – Vanguard, Nike-Zeus, Mercury, and Apollo – as of the “highe st national priority.” ( Id. ¶¶ 7, 23.) As described by three aeronaut ics scholars, “[t]he brief li fe of the Lockheed Propulsion Company was marked by rather modest, but notable historical and technical achievements in solid rocket development.” (PX0088 at 14.) LP C contributed to four major Cold War space programs both as a developer and manufacturer of solid propellant rocket motors. In the 1950s, LPC developed and manufactured the third-stag e motor for the Vanguard satellite program and loaded solid propellants into motors for the E xplorer satellite program. Following the first of many successful launches into orbit in 1958, both Vanguard and Explorer were foundational space race programs. (Roman Decl

. ¶¶ 8, 36-37.) LPC later developed and manufactured launch escape motors for Projec t Mercury, the United States’ firs t manned space program. The escape motors – critical for the safety of the astronaut in the event of an emergency during a launch – had a 100% reliability rate over numerous tests and missions. ( Id. ¶¶ 10, 40-41.)5 Finally, LPC developed and manu factured the launch escape and pitch control motors for the Apollo manned lunar exploration program. The mo tors were part of the space capsule for eight Apollo lunar missions, including Apollo 8, the first manned orb it of the moon in December 1968, and Apollo 11, the first manned lunar landing in July 1969. ( Id. ¶¶ 11, 42-43.) From 1958 to 1974, LPC also researched, deve loped, and tested large solid propellant motors for NASA and the Department of Defense (“DOD”). Large solid propellant motors were necessary to generate enough thru st to lift large vehicles into space. Under the Large Solid Propellant Motor Program, LPC designed, fabricat ed, and tested the first 120-inch and 156-inch solid propellant motors and contributed to numer ous technological advanc es later incorporated by competitors in the Space Shuttle and ballistic mi ssile programs. For instance, the “Lockseal” device developed by LPC as a solution to solid pr opellant rocket thrust vector control became a mainstay in the solid propellant rocket industry. ( Id. ¶¶ 12-13, 44-45.)

LPC also contributed as a de veloper and manufacturer to the conventional Cold War arms race. LPC developed the second-stage moto r for the Nike-Zeus missile, a surface-to-air missile designed to destroy incoming nuclearwarheads. The Nike-Zeus missiles were successfully tested in 1958 and 1959. ( Id. ¶¶ 38-39.) LPC also developed and produced fortyfive motors for the then-highly classified T AGBOARD reconnaissance drone program in the late 1960s. LPC designed motors capable of allowing the unmanned drone to reach an altitude and speed that would ignite the drone’s ramjet. Once the ramjet ignited, the drone could reach speeds in excess of Mach 3 and photograph an ar ea sixty miles wide and 3000 miles long in a single flight. The government ultimately di scontinued TAGBOARD in 1971 for technical and political reasons. ( Id. ¶¶ 49-50; see also PX0088 at 13.)6 LPC’s largest contracts, however, were for the SRAM program. The SRAM was a

nuclear-armed air-to -ground missile designed for use on the aeri al front lines in the case of an

American invasion into Soviet territory. (Roman Decl. ¶ 51.) LPC developed and manufactured a revolutionary two-pulse solid pr opellant rocket motor, which en abled an individual SRAM to shut down and then restart mid-flight. This i nnovation created the possibility for three distinct flight profiles and an “omni-directional” striking capability for each missile. ( Id. ¶¶ 51, 54, 70- 71; see also Trial Tr. at 68 (Roman).) The Air Force developed the technical requir ements for the SRAM program in the spring of 1964. (Roman Decl. ¶ 53) The Air Force Ro cket Propulsion Lab (“AFRPL”) initiated SRAM research and development contracts with LPC, as well as several of its competitors, that same year. (Trial Tr. at 1340-41 (Dull) .) LPC was the only contractor to successfully demonstrate the feasibility of a two-pulse motor during its resear ch and development contracts. (Roman Decl. ¶ 54.) In 1966, Boeing won the development contr act for the SRAM program (Trial Tr. at 1339, 1341 (Dull)) and awarded the subcontract for th e development of the propulsion system – i.e. , the solid propellant rocket motor – to LPC. (Roman Decl. ¶ 55.)

Numerous technical difficultie s and rocket failures plague d the SRAM program. (Trial Tr. at 1341 (Dull); Roman Decl. ¶¶ 56-60.) The Se ptember 1969 initial qualification tests for the

SRAM motor were unsuccessful. (Roman Decl. ¶ 61.) Shortly th ereafter, Boeing and LPC filed a $54.2 million claim against the Air Force a sserting that the SRAM propulsion system requirements were “unattainable” and “grossly impracticable.” Th e Air Force settled the claim for $20 million before it could be adjudicated. ( Id. ¶ 63.) Setbacks notwithstanding, the Air Force deem ed the SRAM motor fit for production in 1971. The Air Force awarded Boeing the first production contract, and Boeing awarded LPC a7 one-year production subcontra ct worth $27.6 million. ( Id. ¶ 64.) The Air Force awarded Boeing four more production contracts, and Boeing and LPC entered into four additional production subcontracts between 1972 and 1975. During that period, LPC produced 1500 SRAM solid propellant rocket motors and completed 107 consecuti ve successful test fire s. (Trial Tr. at 1395- 96 (Dull); Roman Decl. ¶ 68.) Each SRAM was 150 inches long, nearly 18 inches in diameter (s ee Trial Tr. at 1337 (Dull)), and carried a therm onuclear weapon with a yield of approximately 170 kilotons, roughly ten times the yield of th e atomic bomb the United States dropped over Hiroshima during World War II. (Roman Decl. ¶ 69.) Thus, a B-52 bomber with the capacity to carry 20 SRAMs had a destructive power e quivalent to 200 Hiroshima bombs. ( Id .) In light of decreased government focus on so lid propellant rocketry for defense and space exploration purposes, LPC ceased its operations in the summer of 1975 at the end of its fifth SRAM subcontract. ( Id. ¶ 68.) Nonetheless, SRAMs – all of which contained solid propellant motors produced by LPC – remained a mainstay in the United States’ arsenal through the 1980s

and were considered critical to the deterrent eff ect of the United States’ strategic bomber force. ( Id. ¶¶ 70-72.) Even twenty years after the firs t successful SRAM test firing, the Soviet Union had not developed an air defense system capable of neutralizing the omni-directional capabilities of SRAMs provided by LPC’s tw o-pulse rocket system. ( Id. ¶ 71.) B. Solid propellant rocket operations at the Sites While the parties dispute what happened on a day-to-day basis with respect to operations at the Sites, particularly relating to the dis posal of the hazardous substances, many of the background facts are undisputed. LPC began its rocket motor production opera tions at the nearly 500-acre Redlands facility in 1954 when it leased the facil ity from the City of Redlands. (USX15; see also8 USX11.0020-21.) Between 1958 and 1962, LPC acqui red the parcels comprising the muchlarger 9,100-acre Potrero Canyon and 2,500-acre LaBorde Canyon facilities located near Beaumont, California. (USX12.0044.) 3 Lockheed researched and manufactured solid propellant

rockets at the Redlands faci lity from 1954 to 1975. (USX11.0018-20.) LPC used the Potrero Canyon facility for manufacturing solid propellant rockets, testing rocket motors, and washing

out defective rocket motors for re-use from 1958 to 1974. (Sterrett Decl. ¶ 213; USX12.0046.) LPC used the LaBorde Canyon facility for asse mbling small rocket motors, testing rocket motors, and washing out defective motors for reuse from 1958 to 1974. (Sterrett Decl. ¶ 214; USX13.0011-12.) The design, testing, and production processes for LPC’s contracts followed a general protocol. The government provided requirement s regarding the performance, dimensions, and interface points of the solid propellant rocket moto r. (Trial Tr. at 78 (Oppliger).) From those specifications, LPC’s engineering analysts manipu lated the composition of the propellant and the physical design of the propellant grain within the rocket casing to ach ieve desired rocket performance. ( Id. at 78-79.) LPC engineers then de signed the rocket casing and casing

insulation based on the characteristics of the propellant grain design. ( Id. at 80.) From there, LPC began the iterative process of testing subscale (a nd eventually to-scale ) rockets against the government-provided specifications. ( See id. at 80-83.) Although LPC’s applications of solid propellan t rocket technology we re state-of-the-art, solid propellant rocket motors themselves are “simple units” with “no moving parts.” (PX91 at

3 Today, the San Bernardino Valley Water Conser vation District owns the majority of the Redlands facility and uses portions of it for water sp reading to recharge groundwater. Operators of an industrial park own the remaining sixty-six acres of the Redlands facility. (USX11.0021.) California owns and manages as a wildlife area all but nearly 600 acres of the Potrero Canyon facility. Lockheed owns the remaining acreage under a conservation easem ent. (USX12.0047.) The County of Riverside has owned the LaBorde Canyon facility since 2006. (USX13.0011.)9 934.) A solid propellant rocket “motor consis ts of an encased energy supply, which is a combustible mixture of all of the elements requi red for the generation of propulsive energy” – it is self-contained and ready to fi re when it leaves the factory. ( Id. ) A solid propellant is composed of three ba sic components – an oxidizer and two fuels, a “rubber-like binder” and powdered aluminum. ( Id. at 935.) Because solid propellant

combustion occurs in the closed environment of a rocket’s core, a solid propellant requires much more oxidizer than fuel. ( Id. at 955.) The oxidizer used by LP C consisted of precise proportions of ground and unground ammonium perchlorate (“AP”). LPC used several grinders at the Sites to grind raw AP down from 200 microns in diamet er (unground) to precise sizes of less than eight microns in diameter. ( Id. ) LPC combined the ground and unground oxidizer with a fuel slurry in a large mixing machine to produce a homogenous fluid propellant. ( Id. at 958.) LPC then “cast” the fluid propellant into th e rocket motor case under vacuum conditions, and “cured” the rocket by heating the cast for near ly a week to “stiffen[] it into a rubbery, shaperetaining mass.” ( Id. at 935, 961.) LPC produced these so lid propellant motors in short, cylindrical segments that could be joined to complete the rocket motor. ( Id. at 940.) Once the nozzle and igniter were added, the rockets were ready for either testing or shipment. ( Id. at 938.) Aside from providing the initial specifications for a particular solid propellant rocket motor, the government played several additional roles in the design, test ing, and production of a

rocket. 4 First, as a government contractor or subc ontractor, LPC had to comply with any military and federal specifications incorporated in a particular contract. (PX1057 ¶¶ 13-14 (Speer Decl.).) Deviation from government specificatio ns required government review and approval. ( Id. ¶ 14.) Second, LPC’s contracts often inco rporated by reference specific safety and

4 Because of the lack of contracts and documents from the LPC’s earlier years, this section focuses primarily on LPC’s later – and biggest – subcontracts under the SRAM program.10 production manuals. ( See Trial Tr. at 941 (Nagle); see also, e.g. , PX0001-0003, 0005, 0007, 0009.) The manuals provided guidance for best practices regarding sa fety and production processes. Although LPC was not required to comply with all aspects of the referenced and applicable manuals, LPC was required to comply wit h, or to seek a waiver or deviation from, any

directives in the manuals that used the words “shall” or “must.” ( See Trial Tr. at 439 (Delaney);

id. at 941 (Nagle); PX0007 § 102). Waivers or de viations, however, were commonly sought and granted. (Trial Tr. at 941 (Nagle); see, e.g. , PX400.) Specifications aside, the government had limite d input into LPC’s te chnical development of solid propellant rock et motors under government contracts. In the mid-1960s, the government adopted the so-called Total Sy stem Performance Responsibility (“TSPR”) for the SRAM contracts, meaning that the prime contractor – Boeing – and its subcontractor –LPC – had “total system responsibility to build th[e SRAM] wit hout any more direction from the Air Force.” (Trial Tr. at 1338 (Dull); see USX222.0003.) “The Air Force provide[d] a statement of work, what [it] want[ed] to be built, and a system spec that goes into technical details” regarding performance, but it did not “dictate the desi gn” of the rocket. (Trial Tr. at 1338 (Dull)

. ) Given the technical complexity of the SR AM program, LPC held daily early morning meetings to discuss pertinent program details. ( See Trial Tr. at 86 (Oppliger).) Government representatives from the Air Force Systems Program Office (“SPO”) 5 and the AFRPL attended these meetings, as well as other technical in terchange meetings scheduled by Boeing, only on invitation by Boeing. ( Id. at 1341, 1345-47 (Dull).) Although th e frequency of these meetings increased over time due to the repeated rock et motor failures that plagued SRAM, government representatives at the meetings were instructed not to provide direction, but to only “observe,

5 The SPO, located at Wright-Patterson Air For ce Base near Dayton, Ohio, was the Air Force division responsible for procuring weapons systems, including SRAM. (Trial Tr. at 1335-36 (Dull).)11 take notes, and report back to . . . supervisors.” ( Id. at 1347-48.) Even at SRAM’s preliminary design review, which included high-ranking offici als from LPC, Boeing, and the Air Force, the Air Force representatives attended only “as observe rs to witness the progress at [LPC] at that time.” ( Id. at 1349.) Waste disposal practices were notdiscussed at these technical meetings. ( Id. at 1352.) At the beginning of its SRAM development subcontract, LPC formed the SRAM Propulsion Program Review Co mmittee to provide LPC monthly guidance on meeting the SRAM program’s technical and schedule objecti ves. (PX0571 at 443.) The Committee was initially comprised of Lockheed Aircraft Corpor ation employees who did not generally work for LPC at the Sites. ( Id. ) In early 1968, pending the commence ment of SRAM rocket motor test firing, LPC , with the permission of Boeing, expa nded the Committee to include several outside experts, including Boeing engineer s, scholars, and Donald Ross, “Mr. Solid Rocket,” from the AFRPL. ( Id. at 444, 446; see Trial Tr. at 1369-70 (Dull).) Although Mr. Ross was generally an “observer” under the TSPR (Trial Tr. at 1370 (Du ll)), he provided some technical input to LPC through the Committee. ( See PX0571 at 0439.) LPC promptly implemented many of the improvements recommended by the expanded Committee. ( See Roman Decl. ¶ 60.) In 1970, at the request of the SPO, the AFRP L reviewed the design of the SRAM rocket motor, the test firing results, and LPC’s tool ing and manufacturing pr ocesses and internal procedures, to ensure that LPC “w[as] ready for production” and to “document the things that needed to be completed” before SRAM rocket motor production could be gin. (Trial Tr. at 101, 104-05 (Oppliger); see also Trial Tr. at 1356 (Dull); PX0577 at 110.) Pursuant to this review, the AFRPL provided eight recommendations to Boeing regarding LPC’s readiness for SRAM rocket motor production. ( See PX0577 at 115-18.) These re commendations ranged from the12 procedural – recommending that Boeing conduct a First Article Contract ual Inspection following the eight test motor firings – to the prudent – suggesting that LPC’s engineering work force could be reduced by fifty percent once de velopment ended and production began. ( Id. at 116, 118.) Although the government recommendations di d not bind either Boeing or LPC (Trial Tr. at 1376-77 (Dull)), LPC ultimately adopted many of them. ( Id. at 106 (Oppliger).) The government’s quality assurance presence at the Sites was much larger than its technical development presence described above. Although LPC had its own safety and quality control inspectors ( id. at 128), both Boeing (as prime cont ractor for SRAM) and the Defense

Contract Administration Service (“DCAS”) had offices at the Redlands facility and had the “right[]” to “roam the production floor and see a nything they wanted to see and watch anything they wanted to watch.” ( Id. at 90-92, 94, 110-11.) DCAS offici als, Boeing officials, and LPC engineers reviewed the process specifications and manufacturing proc ess standards before production could begin and inspecte d the processes once underway. ( Id. at 90.) 6 DCAS officials determined which steps in the production proces s they wanted to inspect and, in theory, a production process could not proceed beyond a dedi cated inspection point until a DCAS official had inspected and “stamped off” the process. ( Id. at 90-92.) During the SRAM development and production contracts, DCAS had between four and five full-time representatives and Boeing had around twenty full- time employees stationed at the Redlands facility. (Trial Tr. at 111 (Oppliger); id. at 1346, 1357 (Dull).) By comparison, LPC

6 “Process specifications” identified the applicable government specifications for a contract and provided a high-level description of the production process. ( See PX1057 ¶¶ 16-17 (Speer Decl.); see, e.g. , PX328.) Manufacturing process standards, on the other hand, were “how -to” documents that provided step-by-step instructions for the completi on of certain processes in compliance with the process specifications. (PX1057 ¶ 22; see, e.g. , PX913.) That is, “[m]anufacturing process standards were used to tell the operators how to do or how to use a certain piece of equipment or how to do a certain thing.” (Trial Tr. at 117 (Oppliger).)13 had around four hundred employees at the Redlands facility. (Trial Tr. at 139 (Oppliger); PX1202 at 133.) The frequency and quality of inspections at th e Sites varied over time. “The amount and kind of inspection to be performed by the Gove rnment [wa]s at the discretion of DCAS.” (USX270.) In its 1970 review of the SRAM Rock et Motor, the AFRPL criticized all three parties – LPC, Boeing, and DCAS – for practicing a laissez-faire “‘call us and we’ll come and inspect’” approach to in specting production processe s. (PX577 at 117, 151-52; cf. PX576 at 48- 49, 81.) The AFRPL therefore concluded that that the SRAM program had “not been receiving the on-station witnessing of work that the progr am has and continues to deserve” (PX577 at 151- 52) and suggested that SPO recommend to Boeing and DCAS to “re-evaluate their inspection philosophy and inspection operation s with a view to substantia lly increasing their on-station witness of work operations besides work results.” ( Id. at 117; see also Trial Tr. at 1375-76 (Dull).) After this review, bot h inspection points and the freque ncy of inspections increased at the Sites as the first SRAM production contract got underway. (Trial Tr. at 138 (Oppliger).) Nonetheless, DCAS continued to “lean[] on Boeing for engin eering judgment and decisions essential to the quality as surance function.” (USX221.0004.) In addition to their daily quality assuran ce inspections, DCAS re presentatives also occasionally undertook safety inspections at the Sites. ( See, e.g. , PX476-77, 482-84.) 7 However, these inspections were limited to safety risks involving fires and explosions inherent in the production, testing, and disposal of propellants and did not a ddress safety risks regarding environmental pollution. ( See, e.g. , Trial Tr. at 87 (Oppliger).)

7 Prior to the creation of DCAS in 1964, the Los Angeles Ordnance District undertook safety inspections. (Trial Tr. at 960-61, 1013-14 (Nagle).)14 C. General waste disposal practices at the Sites Solid propellant rocket motor research, de sign, testing, and producti on processes produce myriad and voluminous waste streams including wa ste propellant (used, unused, and defective), waste solvents containing prope llants, and scrap motors. ( See PX457 at 801.) As a result, disposal of waste was “regarded as an integral part of solid propellant rocket operations.” (PX0009 § 7-1.1.) During its operations of the Sites, LPC used several organic solvents – including trichloroethylene (“TCE”) and 1,1,1- trichloroethane (“TCA”) – to clean the equipment used to produce the solid propellant rocket motors. At the Redlands facility, AP and propellant-laden wastewaters, AP and propellant-laden solvents, and solvents in general, were first piped, pumped, or transported via drums to “evaporation p its.” (Trial Tr. at 669 (Feenstra); Feenstra Decl. ¶¶ 50-51.) These shallow, concrete-lined basins allowed th e organic solvents and water to evaporate, leaving behind a residual sludge containing large amounts of AP. ( See Trial Tr. at 700 (Feenstra).) LPC ultimately disposed of most of its propellant wastes – including sludge taken from evaporation pits – by burning them in earthen “burn pits” at the Redlands and Potrero Canyon facilities. (Feenstra Decl. ¶¶ 51, 156.) In some instances, propellant wastes were disposed of off-site at Camp Irwin – a military facility in the Mojave Desert (now Fort Irwin). ( See id. ¶ 42; PX431; PX440.) An exception to disposal-by-burning existe d, however, for defective rocket motor casings. Rather than burning the entire rocket motor – and ruining the expensive metal casing – LPC often attempted to reuse the motor casing by removing the propellant with water. In the 1950s, LPC did this by “soaking out” the scrapped rocket motors in evaporation pits at the15 Redlands facility. (Feenstra Decl. ¶¶ 47, 152; see also PX429.) Later, LPC began “hogging out”

defective rocket motors at the Potrero Canyon facility using high-pr essure water jets to remove the propellant from the motor casing. ( See Trial Tr. at 393 (Delaney); USX49.0068.) II. CLEANUP OF THE SITES As of the beginning of the trial, Lockheed had incurred environmental response costs for the Sites totaling nearly $287 million. Lockheed estimates it will incur another $124 million in future response costs for the Sites. ( See Meyer Decl. ¶ 50 fig. 29.) Because each facility has a distinct operational and cleanup history, the Court considers them separately below. A. Redlands facility

TCE 8 and perchlorate 9 are the principal contaminants dr iving the cleanup co sts relating to the Redlands facility. Due to a combinati on of hydrogeologic factors around Redlands, the majority of the TCE and AP disposed of duri ng LPC’s operations is no longer located at the facility. (Sterrett Decl. ¶ 44.) Rather, the substances percolatedthrough the soil and into the groundwater and have travelled downgradie nt to form the “Redlands plumes,” 10 approximately four miles away. ( See generally id. ¶¶ 29-45; see also Trial Tr. at 286-87 (Blackman).) Because

8 TCE is now recognized as a probable carcinogen for humans (PX1621 at 263) and the ingestion of TCE-contaminated water has been associated w ith a wide variety of other health problems. (USX826.0023, 0067-0111.)

9 During the trial, at the Court’s direction, th e parties and witnesses did not distinguish between “AP” and “perchlorate.” However, the Court must distinguish between the two in this Memorandum Opinion: while AP is the oxidizer LPC used and dispo sed of at the Sites, perchlorate is the component of AP that contaminates the soil and groundwater at the Sites. AP is an inorganic salt that “dissociates” in water into its constituent cation and anion: ammonium (NH 4 + ) and perchlorate (ClO 4 - ), respectfully. ( See PX1224 at 1; PX1685 ¶ 3.) Perchlorate is highly soluble and mobile in water and chemically st able. As a result, perchlorate forms persistent contaminant plumes when it is released into surface or groundwaters. (PX1224 at 1.) Perchlorate is harmful to human health because, ev en in the low μg/L range, it can in terfere with iodide uptake by the thyroid gland, thereby resulting in decreased thyr oid hormone production. (PX1224 at 4, 35-36.)

10 Although substantially overlapping, the perchl orate and TCE plumes are distinct. (Sterrett Decl. ¶ 46.)16 the plumes are “detached” from the Redlands facil ity, environmental investigation of the facility

cannot demonstrate a “direct connection” be tween specific locations (and thus production activities) at the f acility and the plumes. (Sterrett Decl. ¶ 52.) That is, simply by looking at the plumes and the facility, one cannot reliably discer n where in the facility the TCE or perchlorate originated. 1. Trichloroethylene The California Department of Health Servi ces first discovered the Redlands TCE plume in 1980. (PX1677 ¶ 1.) Throughout the 1980s, severa l municipal wells were shut down after testing revealed TCE concentrations above the California drinking water maximum contaminant level of 5 μg/L. ( Id. ¶ 3.) 11 Lockheed began investigating th e plume in the early-to-mid 1980s, concluding in 1985 that a local ai rport, and not LPC’s activities at the Redlands site, was the “most likely source” for the TCE. ( Id. ¶ 12.) Notwithstanding that conclusion, the Santa Ana Regional Water Quality Control Board instructed Lo ckheed to conduct further investigations into its operations at the Redlands site. ( Id. ) Lockheed and the Board continued investigating the Redlands facility as a potential source for the TCE plume into the early 1990s. ( Id. ¶¶ 13-32.) By October 1992, Lockheed argued that conti nued investigations into the Redlands facility would be fruitless because whatever TCE might have been disposed of at the facility had either volatized or dispersed through the porous soil and formed the detached Redlands TCE plume. ( Id. ¶ 33.) In November, the Board inform ed Lockheed that it had concluded the Redlands facility was the source of the Redlands TCE plume and that it w ould order Lockheed to investigate and cleanup the plume. ( Id. ¶ 34.) Lockheed replied th at it would consider proposing

11 As of 2008, the maximum TCE concentrations in the plume are in the mid-20 μg/L range. (USX11.0032.)17 to the Board a remediation plan that would negate the need for any order and thereafter undertook a detailed study of th e Redlands TCE plume. ( Id. ¶¶ 34-35.) On May 6, 1993, Lockheed denied responsibility for the plume, informing the Board that “it was [its] position that there was not substantial evidence to indicate that Lockheed was the source of the TCE contamination in the [Redlands plume], and that Lockheed, therefore, was not in a position where they could justifiably utili ze stockholders’ funds in conducting any additional work.” ( Id. ¶ 36.) 12 The Board responded on January 28, 1994, by issuing its first Cleanup and

Abatement Order for the Redlands TCE plume. The Order required, inter alia , that Lockheed submit a workplan for using groundwater monito ring wells to define the plume and based on data gathered from those wells, submit and implem ent plans to first contain and then remediate the plume. ( Id. at 10-11; see also Trial Tr. at 286-87 (Blackman).) On that same day, the Board also issued an “investigative order” requiring Lockheed to conduct groundwater and subsurface soil investigations at the Redl ands facility. (PX1678 at 10; see also Trial Tr. at 285 (Blackman).) On April 22, 1994, after discussions with Lockhee d, the Board modified its initial Cleanup and Abatement Order by removing the requirement that Lockheed implement any remedial actions for the plume while investigations were still ongoing. (PX1679 at 10-11; see also Trial Tr. at 295-96 (Blackman).) Lockheed continued to de ny responsibility for the Redlands TCE plume ( see USX653 (January 1994 letter from Lockheed to Board)), but otherwise complied with the 1994 Orders and worked with the Board to develop an acceptable remediation plan. (Trial Tr. at 296-99 (Blackman).)

12 Mr. Blackman explained that Lockheed initia lly was unconvinced that the Redlands TCE plume originated from LPC’s operations at the Redla nds facility because testing of groundwater at the facility had not revealed the presence of TCE. (Trial Tr. at 288 (Blackman).) That is, Lockheed was unconvinced of its liability because the plum e was “detached from” the facility. ( See id. )18 2 . Perchlorate In late April 1997, following a breakthrough in testing methodologies for perchlorate ( see Trial Tr. at 301-03 (Blackman)), the Californi a Department of Health Services discovered perchlorate levels in several wells within the Redlands TCE plume that exceeded California’s provisional drinking wa ter standard of 18 μg/L. (PX1685 ¶¶ 3-4.) 13 The Board connected LPC’s use of AP at the Redlands facility – and in particular the waste disposal practices – with the Redlands perchlorate plume. ( Id. ¶¶ 3, 5.) The Board accordingly issued a Cleanup and Abatement Order requiring Lockheed to investig ate and then develop and implement a remedial action plan for the Redlands perchlorate plume. ( Id. at 2.) Lockheed appealed the Order, but complied during the appellate process. (Trial Tr. at 337 (Blackman).) Because the Redlands facility was “the only source of [AP] in the” watershed, Lo ckheed eventually accepted responsibility for the Redlands perchlorate plume. ( See id. at 307.) Further, after the discovery of the perchlorate plume, Lockheed “began to re alize that the TCE, which was fully enveloped in the perchlorate plume, must have also come from the” Redlands f acility as well. ( Id. at 308.) Since that time Lockheed has complied w ith all orders of the Board regarding investigation, containment, and remediation of the Redlands plumes, including working with water purveyors ( e.g. , surrounding municipalities) to reduce TCE and perc hlorate concentrations to acceptable levels and to drill new wells for drinking water supplies. ( Id. at 314-17; USX11.0023-26.) Among other remedi al steps, Lockheed treated from select wells TCE-laden

13 As of 2008, maximum perchlorate levels in the plume ranged from 60 to 90 μg/L. (USX11.0031.)19 groundwater with granular activated carbon and AP-laden groundwater with an ion exchange resin. ( See Trial Tr. at 319-20 (Blackman); USX11.0041-42.) 14 Although Lockheed has removed large amount s of TCE and perchlorate from the Redlands plumes, concentrations re main at levels that will requi re continued treatment that may “go on for many decades.” (Trial Tr. at 321 (Bl ackman).) As of 2011, Lockheed had incurred over $231 million in response cost s for the Redlands plumes. 15 ( See Meyer Decl. ¶ 50 fig. 29.) Response costs for the Redlands plumes also ma ke up the lion’s share of the more than $25 million in response costs at the Sites from January 1, 2012 to February 10, 2014, and are expected to comprise the majority of the proj ected $125 million in future costs for the Sites. (Trial Tr. at 1188 (Lockheed counsel); cf. Meyer Decl. ¶ 50 fig. 29.) B. Potrero Canyon facility Although TCE, TCA-related compounds, 16 and polychlorinated biphenyls have been found in the soil and groundwater at the Potrer o Canyon facility, perchlorate is the principal contaminant of concern at the facility. (Sterrett Decl. ¶¶ 22.) Unlike at the Redlands facility, the contamination at the Potrero Canyon facility is no t detached, so the perchlorate contamination is traceable to specific locations at the facility. (Feenstra Decl . ¶ 155; Sterrett Decl. ¶ 216.)

14 Granular-activated carbon is a less costly tec hnology than ion exchange, which was developed specifically for perchlorate contamination. (Trial Tr. at 322 (Blackman).) While response costs for the Redlands plume in the 1990s were primarily from th e cleanup of TCE, the recent, current, and future costs are perchlorate-driven. ( Id. at 1188 (Lockheed counsel).)

15 Facility-specific data are unavailable for response costs incurred after 2011. ( See Meyer Decl. ¶ 50 fig. 29; see also USX378; USX401-402.)

16 These compounds include 1,4-dioxane and 1,1-DC E. 1,4-dioxane is a chemical used to “inhibit” – or stabilize – TCA. (Feenstra Decl. ¶ 155.) Similarly, TCA – once “uninhibited” by the preferential removal of 1,4-dioxane in water – degrad es in the presence of powdered aluminum (a fuel in rocket propellant) to 1,1-DCE. (Trial Tr. at 674- 75 (Feenstra).) Thus, the presence of 1,4-dioxane and 1,1-DCE can indicate the prior disposal of TCA.20 The primary sources of perchlorate soil contamination at the Potrero Canyon facility are the Large Motor Washout Area and th e Burn Pit Area (S terrett ¶¶ 220-21), 17 with perchlorate levels as high as 302,000 μg/kg and 171,000 μg/kg, respectively. (USX12.0229-30.) The

former Rocket Motor Production Area is a second ary source area, covering a much larger portion of the facility but with lower perchlor ate soil concentrati ons (20,400 μg/kg). ( Id. at 0229, 0244- 45.) The Sanitary Landfill is also identified as a secondary source area, with soil perchlorate levels as high as 67,300 μg/kg. (Sterrett Decl. ¶ 222; USX12.0233.) The Burn Pit Area is the primary source of perchlorate groundwater contamination at the facility. (Feenstra Decl. ¶ 155; Sterrett Decl. ¶¶ 226-27; USX 12.0237-38.) Secondary sources at the facility include the Rocket Motor Production Area and, to a lesser extent, the Large Motor Washout Area. (Feenstra Decl. ¶ 165; USX12.0237-38.) In 1986, Lockheed conducted a historical study of the Potrero Canyon facility (along with the LaBorde Canyon facility) to better plan la ter investigations into environmental contamination. ( See USX49.0011.) Following that study an d a 1989 Consent Order from the California Department of Health Services, Lockheed has undertaken further remedial investigations and some remedial actions at th e facility, the most recen t and relevant beginning in 2002. ( See USX12.0064-90.) As of 2011, Lockheed had incurred nearly $21 million in response costs for the Potrero Canyon facility. ( See Meyer Decl. ¶ 50 fig. 29.) Further re medial actions are presently under evaluation. (Feenstra Decl. ¶ 154; see generally USX699.144-300.) As of 2012, the preferred remedial alternative for perchlorate-impacted soils at the facility is excavation and off-site removal. The preferred remedial alternative for perchlorate-contamin ated groundwater at the

17 The TCE-contaminated soils identified at the facility – located in the Burn Pit Area – were remediated in the 1990s. (Sterrett ¶ 224; USX12.0233-35.)21 facility hydraulic containment through the installation of a pump-and-treat system involving ex situ treatment of the groundwater, w ith the discharge of remediatedwater back into the ground or into local waterways. (USX699.0299-300.) C. LaBorde Canyon facility The soil and groundwater at the LaBorde Ca nyon facility are also contaminated with perchlorate and, to a lesser extent , TCE. (Sterrett Decl. ¶¶ 25, 238.) As at the Potrero Canyon facility, groundwater contamin ation at LaBorde Canyon is not detached and is therefore traceable to specific loca tions of historic operati ons at the facility. ( Id. ¶ 235.) The primary sources of perchlorate at the f acility are the Test Bay Canyons and the Waste Discharge Area. (Feenstra Decl. ¶ 167; Sterrett Decl. ¶ 239.) Perchlorate ha s been detectedin soil at concentrations exceeding 100,000 μg/kg and in groundwater at concentrations exceeding 100,000 μg/L. (USX13.0236-38, .0241.) As was the case at Potrero Canyon, Loc kheed undertook a historical study of the LaBorde Canyon facility in 1986. ( See USX49.0011.) The California Department of Health Services issued a Consent Order requiring clean up of contamination at the facility in 1989. (USX13.0012.) Lockheed completed remedial inve stigations and removal actions from 1990 to 1993, after which the California Department of T oxic Substances Control issued a “Report of Completion of Removal Action” stating that no further remedi al action was necessary. ( Id. ; USX700.0037-38.) Groundwater perchl orate contamination was first de tected at the facility in the early 1990s. (Feenstra Decl . ¶ 174.) However, the Cali fornia Department of Toxic Substances Control did not reopen the facility for further assessment until 2003. (USX13.0012.) Since then, Lockheed has engaged in nearly te n years of remedial i nvestigations. (USX13.0027- 31.)22 As of 2011, Lockheed had incurred over $10 million in response costs for the LaBorde Canyon facility. ( See Meyer Decl. ¶ 50 fig. 29.) Further re medial actions are currently under evaluation. (USX700.0148-206.) As of 2012, the preferred remedial alternative for the facility is limited shallow soil removal, plume c ontainment, and institutional controls. ( Id. at 0191, 0215.) III. LOCKHEED’S INDIRECT RECOVE RY OF RESPONSE COSTS THROUGH U.S.-GOVERNMENT CONTRACTS

Lockheed has recovered and continues to re cover its response costs for the Sites (and others sites like them) from its customers by a llocating its cleanup expenses to its contracts as indirect costs. Because the U.S. government is by far Lockheed’s largest customer, to date Lockheed has indirectly recovered 18 $208 million – over 72% of its to tal past response costs for the Sites – through indirect costs charged to U.S.-government (primarily DOD) contracts. 19 Because the U.S.-government share of Lockheed’s bus iness is larger than it was in the past, the percentage of total response costs for the Si tes that Lockheed has recovered through U.S.- government contracts is expect ed to rise in the future. This cost-recovery system has its foundati on in the byzantine federal contracting regulations and was formalized, as to envir onmental response costs in particular, by the Discontinued Operations Settlement Agreement (“DOSA”) signed by Lockheed and the U.S.

18 In its public filings, Lockheed refers to its formalized recoupment of environmental response costs through its contracts with the U.S. government as a “recovery.” ( See USX397.0069 (Lockheed 2012 Annual Report).)

19 The vast majority of Lockheed’s U.S.-g overnment contracts are with the DOD. ( See PX397.0017.) However, Lockheed also has contract s with NASA, the Federal Aviation Administration, the Social Security Administration, the Departme nt of Treasury, the Department of Justice, the Department of Health and Human Services, the Envi ronmental Protection Agency, and the U.S. Postal Service. (Trial Tr. at 1654 (Gatchel); USX397.0016.)23 Defense Contract Management Agency (“DCMA”) 20 in 2000. As a result of these regulations and the DOSA, the Court must decide, in determining the equitable allo cation of response costs between the parties under CERCLA, what weight, if any, should be given to the fact that a government contractor (1) has already formall y, though indirectly, “recovered” from the U.S. government a significant portion of its respons e costs through the pr icing of its goods and services and (2) now seeks to directly recove r from the U.S. government those same response

costs under CERCLA. As the parties agree, this is an issue of first impression. 21 But before the Court can address that question, it must explain the relevant re gulations and the DOSA, both of which complicate the resolution of this case. A. The Federal Acquisition Regulations Lockheed’s cost-recovery system has an established basis in the complex Federal Acquisition Regulations (“FAR”) th at govern government contracting. Pursuant to the FAR, the government pays contractors both th eir “direct” and “indirect” costs, plus a profit. (Wright Decl. ¶ 84.) Direct costs are those cost s related to a specific contract , such as materials and labor. See 48 C.F.R. § 31.202. Indirect costs are those cost s not associated with a specific contract – essentially overhead. See id. § 31.203. Profit factors are determined on a contract-by-contract

20 The DCMA is the component of the DOD that engages directly with defense contractors on issues of contract compliance.

21 Although an issue of first impression, it is far from sui generis . Counsel for the parties identified at least two other cases involving Lockheed and the government where the same issue will need to be addressed. (Trial Tr. at 999-1000.) See Lockheed Martin Corp. v. United States , 06-cv-1032-RSL (W.D. Wash. filed July 21, 2006) (“Seattle Shipyards”); Lockheed Martin v. United States , 06-cv-1438- RJL (D.D.C. filed Aug. 15, 2006) (“Great Neck”). The issue was also raised in Raytheon Aircraft Co. v. United States , 2007 WL 4300221 (D. Kan. Dec. 8, 20 07), but that case settled before trial. Because environmental contamination at defense contracting f acilities is pervasive, the issue likely looms large in any case where a major government contractor can su e the government for recovery of environmental response costs under CERCLA

. ( Cf. Trial Tr. at 1996 (government closing).)24 basis. ( See Trial Tr. at 600-01 (Wright); id. at 1660-61 (Gatchel).) Ac ross all contracts in 2013, Lockheed’s operating margin ( i.e. , pre-tax profit) was over 9.9%. 22 The government will only reimburse a contract or for “allowable” indirect costs. An

indirect cost is “allowabl e” if it is “reasonable,” i.e. , “it does not exceed that which would be incurred by a prudent person in the conduct of competitive business,” 48 C.F.R. § 31.201-3(a), is “allocable,” complies applicable accounting st andards, and is not otherwise disallowed by regulation or contract. See id. §§ 31.201-2, -4. Although not spec ifically allowable under the FAR, see generally id. § 31.205, environmental costs “are nor mal costs of doing business and are generally allowable costs if reasonable and a llocable.” (PX1862 § 7-2120.1 (Defense Contract Audit Agency Contract Audit Manual).) 23 Environmental cleanup cost s at facilities no longer in operation are generally allocable as indirect costs. ( Id. ¶ 7-7120.7.) Attorneys’ fees and legal

22 See Press Release, Lockheed Martin Corp., LockheedMartin Reports Fourth Quarter and Full Year 2013 Results (Jan. 23, 2014), available athttp://www.lockheedmartin.com/us/news/pressreleases/2014/ january/0123hq-earnings.html.

23 There was a movement in the late 1980s to ma ke environmental cleanup costs, except for those at government-owned, contractor-operated facilities, unallowable; however, the proposal was ultimately withdrawn in the face of industry resistance. See Cpt. Gerald P. Kohns et. al., A Primer on Contractor Environmental Remediation and Compliance Costs , A RMY L AW ., Nov. 1993, at 22, 28. In 1991, a revised draft environmental cost principle – proposed FAR § 31.205-9 – was approved by Defense Acquisition Regulation Council and by the Civilian Ag ency Acquisition Council. Cpt. Joshua H. Van Eaton, A Not-So Equitable Allocation: The Need for an Environmental Cost Principle , 14 M O

. E NVTL

. L. & P OL ’ Y R EV . 441, 459 (2007). The proposed principle w ould have disallowed environmental cleanup costs except where the contractor could show that it was performing a government contract at the time of the disposal that required cleanup and that performanceof the government contract caused the disposal. Id. at 460. Even in those instances, however, th e contractor would also have to demonstrate reasonableness of costs, due diligen ce, compliance with environmental standards of care and laws at the time of disposal, and the exhaustion of le gal remedies to defray cleanup costs. Id. at 473-74. The regulation was never finalized, presumably because of th e moratorium on new regulations in effect at the time. Id. at 460. Even so, the U.S. Government Accountability Office continued to press for the development of an environmental cost principle to address what it considered to be inconsistent – and ultimately detrimental to the government – treatme nt of environmental costs by contractors. Id. at 461- 63. In 1997, after years of industry resistance, th e DOD ultimately abandoned its efforts to develop an environmental cost principle. Id. at 463-64.25 costs incurred while pursuing a CERCLA action ma y also be treated as indirect costs. See 48

C.F.R

. § 31.205-47. For a fixed-price contract, cont ractors attempt to predict the incurrence of indirect costs

that will be allocated to that contract over its term. Because the price of the contract is fixed, the contractor benefits from a relatively higher retu rn on its contract if it overestimates the total indirect costs; on the other hand, if the contractor underestimates th e total indirect costs, it will receive a relatively lower profit on th at contract. In contrast, in cost-reimbursement contracts the contractor is paid for all allowable direct and indirect costs allo cated to the contract. Thus, overor under-estimating indirect costs with regard to a cost-reimburse ment contract does not pose the same potential for increased or reduced returns. ( Cf. Trial Tr. at 1660, 1679 (Gatchel).)

Even after the contractor has allocated indir ect costs to specific contracts and has been paid for those costs pursuant to those contracts, the contract or must credit back to the government “either as a cost re duction or by cash refund” any “applicable portion of any income, rebate, allowance, or other cred it relating to” those indirect cost s “received by or accruing to the contractor.” 48 U.S.C. § 31.201-5. For environmen tal cleanup costs in particular, this provision requires a contractor to credit back to its indirect environmen tal cost pool any recoveries for cleanup costs from insurance policies or other PRPs. (Wright Decl. ¶ 50.) B. The Discontinued Operations Settlement Agreement (“DOSA”) Lockheed and the DCMA recognized the allowability and appropriate accounting treatment of environmental remediation expenses as indirect costs wh en they signed the DOSA on September 6, 2000. (USX1033 at 10.) The DOSA formally allowed as indirect costs, inter

alia , environmental response costs incurred for “disc ontinued operations,” site s, or facilities that26 Lockheed closed, abandoned, or sold prior to January 1, 2000, including all th ree Sites at issue in this case. ( Id. ¶¶ 1.7-.8.) Under the DOSA, Lockheed collects its envi ronmental response costs for discontinued sites in an accounting pool at the corporate level – the Settle d Discontinued Operations Pool (“DiscOps Pool”). 24 ( Id. ¶ 2.4.) Environmental response costs in the DiscOps Pool are not charged to contracts immediately upon incurren ce; instead, the costs for a given year are amortized over a five-year period. (USX407 at 5; Ma teer Decl. ¶ 8.) Both parties benefit from amortization because it smoothes costs over time, th ereby increasing predictability in multi-year contract prices and promoting uniformity and co mparability in the measurements of contract costs. (Mateer Decl. ¶ 9; see generally PX1859 at 3-4.)

Lockheed “flows down” the allocable costs for a given year from the DiscOps Pool to its business units using a three-fact or formula typically used in government contracting. (USX1033 ¶ 2.8; Wright Decl. ¶ 45.) It is the business units that then devel op indirect rates, based partially on the DiscOps Pool, to use when bidding on and b illing government contracts. (Wright Decl. ¶ 45; Mateer Decl. ¶¶ 10-12.) Th e percentage of Lockheed’s i ndirect costs passed on to U.S.- government contracts roughly corr elates with the U.S. government’s share of Lockheed’s business for a given year. (Wright Decl. ¶ 74.) Thus, under DOSA, if Lockheed spent $10 million on environmental response costs at discontinued operations in the year 2005, it would am ortize those costs over the next five years, and $2 million per year would flow down to its business units from 2006 to 2010. Assuming that U.S.-government contracts make up 80% of Loc kheed’s business, Lockheed would recover $1.6

24 The DOSA also settled disputes between the parti es as to the allowability of past response costs allocated as indirect costs through the DiscOps Pool from 1991 onward. ( See USX1033 ¶¶ 2.9-.11.) Importantly, the DOSA merely formalized past practi ce and did not materially affect how Lockheed had treated or would continue to treat the re covery of response costs for the Sites.27 million per year – or $8 million total – of the res ponse costs through its government contracts. In addition, Lockheed would recover the remaining $400,000 per year – or $2 million total – in an identical manner from non-U.S. government contracts. 25 The DOSA also provides that Lockheed “sha ll not realize a double re covery with regard to any Settled Discontinued Operations Costs,” a nd to the extent that it does, it “will reimburse the United States for any such double recovery . . . under government contracts.” (USX1033 ¶ 4.7.) Pursuant to this provision, and as required under 48 C.F.R. § 31.201-5, Lockheed credits to the DiscOps Pool any direct payment it receives for environmental remediation costs at its discontinued operations, whether in the form of insurance proceeds, settlements, or other recoveries. (Wright Decl. ¶ 50; Ma teer Decl. ¶ 14.) Credits are tr eated the same as costs and are amortized over the five years following receipt of the payment. (Wright Decl. ¶ 51.) Therefore, credits represent a bottom line reduction to the DiscOps Pool, lowering the total indirect costs passed on to Lockheed’s clients. Thus, again assuming that U.S.-govern ment contracts make up 80% of Lockheed’s business, the U.S. governme nt would receive 80% of the benefit of any credits allocated to the DiscOps Pool in the form of reduced contract costs. ( See Wright ¶ 73-74; USX1009 at 154-55 (Reese Dep.).) C. Lockheed’s treatment of respons e costs for the Si tes under the DOSA To date, the DOSA and DiscOps Pool have functioned as intended. As to the three discontinued Sites in this case, Lockheed has incurred environmental response costs related to those Sites, allocated them to the DiscOps Pool, amortized them over five years, and passed them down to its business units for bidding and billin g purposes. Because once individual costs enter the DiscOps Pool, they are not “tracked” or “f ollowed” (as individual costs) down through the

25 Beyond the U.S. government, Lockheed provid es goods and services to other governmental and some commercial entities, including foreign governme nts, state governments, municipalities, institutions of higher education, and the United Parcel Service. (Trial Tr. at 1653-56 (Gatchel).)28 business unit or specific contract s, it is impossible to identify or trace response costs for the Sites to any particular government contract. ( See Mateer Decl. ¶ 13.) Noneth eless, it is clear that Lockheed has indirectly recovere d, and continues to indirectly recover, response costs for the Sites from the U.S. government through the indirectcosts charged to U.S.-government contracts. (Wright Decl. ¶ 57-59; USX407 at 4-5.) Indeed, Lo ckheed boasts that its “underlying tenet in pricing [its] contracts with the U.S. government” is its “ability to recover [its] costs . . . regardless of the type of c ontract.” (USX407 at 4-5.) As of December 31, 2013, Lockheed had i ndirectly recovered through its U.S.- government contracts more than $208 million – or72% – of its estimated $287 million in total nominal response costs at the Site s. (Meyer Decl. ¶ 29 & fig. 5.) 26 In the future, this “effective government share” of response costs at the site is expected to rise because U.S.-government contracts will make up an even hi gher percentage of Lockheed’s business than in the past. ( See Trial Tr. 581 (Wright); Meyer Decl. ¶ 82 & fi g. 30; USX 402.0002.) Ind eed, in the past few years, Lockheed’s recovery ra te through U.S.-government contra cts has been approximately 87% (Wright Decl. ¶ 66), and it is predicted that this recovery rate will continue to fluctuate around that percentage in the near future. ( See Trial Tr. 591-93 (Wright); USX 402.0002.) Accounting for the increase in Lockheed’s U.S.-government contract base, and considering the projected future cleanup costs for the Sites, the governme nt’s expert economist estimates that Lockheed will ultimately indirectly recove r through U.S.-government contracts nearly 83% of its total nominal response costs at the Sites. (Meyer Decl. ¶ 30 & fig. 6.)

26 Lockheed also earned, and continues to earn, a profit factor on every dollar of response costs passed through to its contracts, U.S.-government or otherwise. ( See Meyer Decl. ¶ 39; Wright Decl. ¶¶ 77, 83.) Thus, the higher the indirect costs charged to the DiscOps Pool, the more profit Lockheed earns from its clients. ( See Wright Decl. ¶ 84.)29 Aside from its indirect recovery of over 72% of its response costs for the Sites through U.S.-government contracts to date, Lockheed ha s also allocated as an indirect cost and subsequently recovered (though not through the DiscOps Pool) a s ubstantial portion of its legal fees and costs associated with bringing th is action. The government’s expert economist

estimates that Lockheed indir ectly recovered through government contracts, in nominal dollars, over 85% of the $7.35 million in le gal fees and costs it incurre d between 2007 and 2012. (Meyer Decl. ¶¶ 163-75.) Lockheed incurred an additional $3.2 million in legal fees and costs through November 2013 (Gov’t Closing Presentation [D kt. No. 144] at 245), and undoubtedly, it has incurred several million dollars more in fees and costs for the extensive pretrial preparation and trial briefing since December 2013, the expert f ees for the six experts who provided testimony at trial, and the fees and costs asso ciated with the five counsel w ho attended a twelve-day trial. According to the government’s expert economist, Lockheed will indirectly recover over 85% of its total legal fees and costs (presumably at least $10 million) through U.S.-government contracts. ( See Meyer Decl. ¶ 172.) IV. PROCEDURAL HISTORY

A. Related actions while the CERCLA statute of limitations was tolled Lockheed did not bring this action for r ecovery of response costs under CERCLA until 2008, fourteen years after it began remediation effo rts at the Redlands facility. The parties, through Lockheed’s in-house counsel and attorn eys within the Envir onmental and Natural Resources Division of the Department of Justice, agreed to a tolling of the CERCLA statute of limitations, see 42 U.S.C. § 9613(g)(2), beginning in 1997. ( See PX1788, 1823, 1838, 1849, 2078.) These tolling agreements, sp ecifically for the Redlands site, were in effect from January 27, 1997 to November 1, 2003. (PX 1788, 2078.) The parties renegotiated the agreements on a30 semi-annual basis during this time period, incl uding negotiating a one-year extension of the tolling agreement on July 10, 2000 (PX1849), less th an two months before Lockheed and the DCMA entered into the DOSA on September 6, 2000. (USX1033 at 10.) Although the DOSA addressed environmental cl eanup costs, it did no t purport to settle

CERCLA liabilities between Lockheed and the government. To the contrary, the DOSA explicitly provides that it “ does not settle any claims, if any, arising under CERCLA.” ( Id. ¶ 4.18.) Indeed, the DOSA implicitly recognized the potential coexistence of direct recoveries from the government under CERCLA and indirect recoveries from the government through costs charged to U.S.-government contract s. In particular, the parties de voted an entire section of the DOSA to the treatment of the January 20, 2000 Consent Decree signed by Lockheed and the Department of Justice in the Burbank CERCLA litigation. 27 (USX1033 ¶¶ 3.1-.5.) In the

Burbank Consent Decree, the United St ates agreed to pay Lockheed directly for over forty-four percent of past response costs and for fifty percent of most future response costs for the site. (PX1844 ¶¶ 3.1-.6, 4.1-.3.) While the Burbank Consent Decree acknowledged that Lockheed was already allocating “certain environmental reme diation costs” to its discontinued operations pool, it did not purport to “resolve[]” the “allowa bility and allo cability of these costs.” ( Id. ¶ 2.14.) Nonetheless, the Consent Decree did spec ify that under no circumstance could the United States determine that the agreed-upon past cost s were “not properly subj ect to payment under the terms of the Decree because the costs were pr eviously reimbursed by the United States or

27 The Burbank case arose when, in 1991, the United Stat es sued Lockheed, among others, under CERCLA § 107(a) for the recovery of response costs associated with the cleanup of TCE at a former Lockheed aircraft and aeronautic production facility in Burbank, California. (PX1844 ¶¶ 2.1, 2.5.) The parties signed an initial consent decree in 1992 requi ring Lockheed to operate a groundwater treatment plant at the Burbank facility and to reimburse the government for response costs it had incurred. ( Id. ¶ 2.5.) In 1997, Lockheed filed a counterclaim against the government under CERCLA § 113(f), seeking contribution for its past and future response costs at the Burbank facility. ( Id. ¶ 2.9.) The 2000 Burbank Consent Decree settled Loc kheed’s counterclaim against the United States.31 another party through an overhead pool” li ke the discontinued operations pool. ( Id. ¶ 3.16.) To counterbalance that provision, the Consent Decr ee required that “Lockhe ed Martin shall not realize a double recovery with regard to any” response costs and “shall credit its continued operations pool with amounts received from th e United States pursuant to this Decree in accordance with an agreement of LockheedMartin and the United States.” ( Id. ¶ 3.25.) The “agreement” encompassed the DOSA, wherein th e parties agreed to disallow $80.6 million in

costs related to the Burbank site and disallow $29 million in credits paid to Lockheed by the United States pursuant to the Burbank Consent Decree. (USX1033 ¶¶ 3.1-.3.) During the tolling period, Lockheed was involve d in several related matters. In 1993, a group of insurers sued Lockheed in state court in California, seeking a decl aration that they were not required to defend or indemnify Lockheed for the costs of environmental remediation at multiple sites, including the Redlands facility. Procter v. Lockheed Corp. , Case No. 731752, Complaint (Cal. Sup. Ct. May 27, 1993) (PX2070). The trial court ruled for the insurers, holding, inter alia , that Lockheed’s indirect recovery of response costs through government contracts triggered the “government reimbursement exclusion” contained in the policies, and thus, the insurers were not requiredto defend or indemnify Lockheed. Procter v. Lockheed Corp. , Case No. 731752, Statement of Decision Re: Phase II at 65-79 (Cal. Sup. Ct. Oct. 27, 2003) (PX2073). Prior to the entry of judgment, Lockheed sought declaratory relief in federal court to enjoin the state court’s preliminary ruling. In that action, the government filed an application to intervene in support of Lockheed ’s position that indirect payments for response costs through government contr acts does not reduce or eliminat e insurance coverage under the government reimbursement exclusion. (PX2069 ¶¶ 25- 26 (Porterfield Decl.).) The federal court dismissed Lockheed’s action for lack of subjectmatter jurisdiction, and the state court entered32 final judgment on October 22, 2003. ( Id. ¶¶ 27-28.) Lockheed im mediately appealed, and on November 22, 2005, the California Court of App eal affirmed the trial court’s decision. See Lockheed Corp. v. Cont’l Ins. Co. , 35 Cal. Rptr. 3d 799 (Cal. Ct. App. 2005). The Supreme Court of California denied Lockheed’s petiti on for review on March 22, 2006, and the parties subsequently entered into a confidential settlement agreement where by the insurers “bought back” the disputed policies. (Trial Tr. at 479 (Lockheed counsel); PX2069 ¶ 31 (Porterfield Decl.); PX2075-76.) The proceeds from that agr eement were credited to the DiscOps Pool. (Trial Tr. at 1455-56 (L ockheed counsel).) In 1995, Lockheed sued Seven W Enterprises, which at the time operated a manufacturing facility on a portion of the Redl ands facility, for reco very of response costs incurred for the Redlands TCE plume. See Lockheed Martin Corp. v. Seven W Enterprises , 95- cv-6153, Complaint (C.D. Cal. Sept. 14, 1995). Purs uant to a confidential settlement in late 1996, Lockheed indemnified Seven W from future liab ility in exchange for a lump sum payment.

Lockheed credited the amount recovered under this confidential agreement to the DiscOps Pool. (Trial Tr. at 476-77 (Lockheed counsel).) That same year, a group of plaintiffs filed a toxic tort class action suit against Lockheed seeking medical monitoring costs and punitive damages based on the contamination of drinking water from the Redlands TCE plume. See Lockheed Martin Corp. v. Superior Court , 63 P.3d 913, 916 (2003). The California Court of Appeal reve rsed the trial court’s class certification and, in 2003, the Supreme Court of California affirmed. Id. at 922. The case settled some ten years later, while the second bellwether gr oup of plaintiffs was seeking cla ss certification. (Trial Tr. at 372-73 (Lockheed counsel).) U nder the DOSA, Lockheed’s payments pursuant to its33 confidential settlement of the toxic tort action ar e specifically allowable as indirect costs charged to the DiscOps Pool. (USX1033 ¶1.8.) Finally, in 2004, Lockheed – sponsored by The Boeing Company – pursued an appeal under the Contracts Dispute Act, 41 U.S.C. § 7101 et seq. , to the Armed Services Board of Contract Appeals (“ASBCA”) seeking indemnifi cation from the government for response costs

and toxic tort liabilities at the Sites arising out of LPC’s performance of SRAM production

contracts from 1971 to 1975. See generally In re Boeing Co. , ASBCA No. 54853, 06-1 BCA ¶ 33,270 (Apr. 12, 2006). 28 Lockheed sought indemnificati on under provisions in its SRAM production subcontracts that provi ded for government indemnificat ion for certain claims or losses resulting from “unusua lly hazardous” risks. See id. After several rulings on crossmotions for partial summary judgment, see, e.g. , Appeal of the Boeing Co. , ASBCA No. 54853, 11-2 B.C.A. ¶ 34,813 (July 28, 2011), the parties filed summary judgment briefs on whether environmental response costs aris ing out of LPC’s solid propellant rocket motor production were “unusually hazardous risks.” (Trial Tr. at 374-75 (government counsel).) On April 15, 2013,

after the toxic tort settlement and before the ASBCA could rule on those motions, Lockheed (through Boeing) voluntarily dismissed its appeal with prejudice. (USX74.) B. The government’s partial motion for summary judgment Meanwhile, after over fourteen years of cleanup actions at th e Redlands facility, on July 1, 2008, Lockheed brought this act ion against the United States under CERCLA § 107(a). The government filed a counterclaim against Lockhe ed under CERCLA § 113(f) seeking, to the extent it was a PRP, equitabl e allocation of response cost s between the parties.

28 Boeing sponsored LPC’s claim because Boeing was the prime contractor for the SRAM production contracts. (Trial Tr. at 371 (Lockheed counsel).)34 Several months later, the government move d for a partial summary judgment on the ground that Lockheed could not recover under CERCLA § 107(a) those response costs for the Sites that it had already recove red through indirect costs char ged to the DiscOps and passed through to government contracts. (Mot. for Partial Summ. J., Jan. 9, 2009 [Dkt. No. 25-2] at 10.) The government contended that Lockheed’s r ecovery of costs under CERCLA, for which the government-as-client (primarily the DOD) had al ready indirectly paid pursuant to the DOSA, would result in a double recovery – a violation of both the DOSA and CERCLA. See 42 U.S.C. § 9614(b). On September 29, 2009, Judge Robertson reject ed the government’s legal arguments on several grounds. See Lockheed Martin Corp. v. United States , 664 F. Supp. 2d 14 (D.D.C. 2009). Judge Robertson first di stinguished the bar on double r ecovery in CERCLA § 114(b) from the present case. Section 114(b) states that “[a]ny person who receives compensation for removal costs or damages or claims pursuant to a ny other Federal or State law shall be precluded from receiving compensation for the same removal costs or damages or claims as provided in [CERCLA].” 42 U.S.C. § 9614(b) . Judge Robertson faulted the government’s argument for failing appreciate the distinction between the “government-as-client” and the “government-asPRP.” To Judge Robertson, the government- as-client’s indirect cost payments under government contracts were not “compensation” for the government’s liability in the same manner as direct payments from an insu rer, private PRP, or government PRP. Lockheed Martin Corp. , 664 F. Supp. 2d at 19. Judge Robertson furt her noted that the DOSA “explicitly states

that it ‘does not settle claims, if any, arising under CERCLA.’” Id. Judge Robertson also distinguished the doubl e recovery cases cited by the government. In those cases, plaintiffs sought to recover resp onse costs which they had already recovered from35 other PRPs (through settlement or state-law versions of CERCLA ) or response costs which their insurers had paid for directly. Id. The courts in those cases applied CERCLA section 114(b) in order to prevent plaintiffs from receiving “a windfall from its environmental cleanup.” Id. Judge Robertson concluded that there would be “ no windfall” in this cas e because Lockheed was required under both the DOSA a nd the FAR to credit any CERCLA recovery from the government to the DiscOps Pool. Id. at 19-20. Thus, “any CERCLA recovery from the government would lead to a commensurate reducti on in the [DiscOps Pool] that Lockheed could charge as indirect costs on its government contracts. From a monetary standpoint, Lockheed

would be back where it started.” Id. at 19. Judge Robertson also emphasized the “im portant implications for both parties” – Lockheed would “improve its competitive position” and the government-as-client would benefit from decreased contract prices. Id. at 20. Accordingly, Judg e Robertson concluded: If Lockheed is only partially liable for th e response costs it is incurring at the Site, it should not have to include all its response costs in the [DiscOps] Pool. The ruling on the instant motions ensures thatLockheed may recover separately under CERCLA from the government-as-PRP (i f the suit ends with a recovery), burdened in its dealings with the gover nment-as-client only by those costs for which it is actually liable. Id. On October 22, 2009, the government moved for reconsideration, inter alia , on the grounds that Judge Robertson improperly importe d requirements, such as the potential for “windfall,” into the language of CERCLA § 11 4(b) and failed to address the argument that Lockheed’s indirect recovery of response costs through gove rnment contracts could be considered as an equitable factor during allo cation of response costs under CERCLA § 113(f)(1). (Mot. for Reconsideration, Oct. 22, 2009 [Dkt. No. 39] at 2-3.)36 Judge Robertson denied the motion on Fe bruary 18, 2010. (Mem. Order, Feb. 18, 2010 [Dkt. No. 43] at 2-3.) While remaining steadfast in his deni al of summary judgment, Judge Robertson acknowledged that some of the govern ment’s positions, “including those about the equitable considerations under S ection 113(f)(1) and bur den to taxpayers, may be relevant to allocation determinations that might lie ahead in this litigation.” ( Id. at 3.) 29 Judge Robertson therefore left open the door to the equitable double re covery and taxpayer bur den arguments that

are now at the center of the allocation phase of the case. 30 C. Trial on equitable allocation The parties engaged in extensiv e factual and expert discovery over the next four years. On September 26, 2013, the Court bifurcated the pendi ng trial into two phases : (1) the parties’ liability as PRPs under CERCLA § 107(a) and th e equitable allocation of response costs under CERCLA § 113(f); and (2) the “accurate accounti ng” of response costs. (Order, Sept. 26, 2013 [Dkt. No. 97] at 2.) The Court scheduled a two-week bench trial for Phase I to begin on February 10, 2014. ( Id. ) Leading up to the trial, the parties stipulated that they were both PRPs liable under CERCLA § 107(a) for the response costs that Loc kheed had incurred at th e Sites and that the Court should allocate liability for the respons e costs between them according to equitable principles under CERCLA § 113(f)(1). (Stipula tion on Liability, Dec. 2 0, 2013 [Dkt. No. 103] at 2-3.) The parties also stipulated that, as required under CERCLA, Lockheed had incurred at least one dollar of “necessary costs of response” at the Sites in a manner “consistent with the

29 In Raytheon (cited supra n. 21), the government raised an affirmative defense analogous to that rejected by Judge Robertson in this case. 2007 WL 4300221, at *2-3. As Judge Robertson did, the judge in Raytheon concluded that Raytheon’s indirect recovery of response costs through U.S.-government contracts could be considered as an equitable matter. Id. at *3. However, as noted, the Raytheon case settled before the issue of allocation was reached.

30 Following Judge Robertson’s retirement, the case was reassigned to this Court on June 3, 2010.37 National Contingency Plan.” (Stipulation on Re sponse Costs, Dec. 20, 2013 [Dkt. No. 104] at 1- 2 (quoting 42 U.S.C. § 9607(a)(4)(B)).) Given the stipulations on liability, the Phase I bench tria l concerned only the equitable allocation of liability under CE RCLA § 113(f)(1). The Court pres ided over the Phase I bench trial over twelve days beginning February 10 and ending on March 14, 2014. Through no fault of the parties or their counsel, the evidence at the trial was both voluminous and inconclusive in many significant respects. Arguably, the most useful testimony came from the only two witnesses who had been on the ground during LPC’ s operations at the Sites, but even those witnesses had limited recollections. ( See, e.g. , Trial Tr. at 95 (Oppliger); id. at 1374 (Dull).) Otherwise, the record suffered from the ma ny shortcomings inherent in CERCLA actions: hundreds of missing contracts 31 and significant gaps in the documents; a lack of contemporaneous accounts of waste disposal operat ions at the Sites; almost no fact witnesses, thus requiring extensive reliance on “historic” depositions, themselves taken some twenty to thirty years after operations at th e Sites; and contamination that, atleast at the Redlands facility, had migrated miles from the location of original disposals. In view of these evidentiary constraints, the parties understa ndably relied almost exclusively on experts. The experts, who provided direct testimony by declar ation and were subject to cro ss examination and redirect at trial, predictably presented diametrically oppos ed opinions regarding al most every important subject, often relying on assumptions that were not sufficien tly provable for the Court to draw any reliable conclusions.

31 Out of the estimated hundreds or thousands of c ontracts relevant to this action, Lockheed’s contracting expert had reviewed “perhaps three” and could not confirm th at any contract he had reviewed was actually complete. (Trial Tr. at 148-49 (Johnson). ) Without contracts themselves, the experts had to rely on Master Project Orders and documentation of contract revisions to attempt to piece together the “very limited database” of contracts available in this case. ( Id. at 149.)38 The testimony and evidence presented at tr ial addressed five somewhat-overlapping issues, and as could be expected, on each issue save one, the Court had a batt le of the experts. First, Dr. Peter Roman, Lockheed’s expert hist orian, provided a mostly undisputed account of the history of the solid rocket propellant industry and LPC’s gove rnment contracts. Second, the parties presented evidence of th e degree of government activity at and control over the Sites with respect to government specifications, safety manu als, project reviews, and safety inspections. Each party also called a fact witness to describe the government’s presence at the Sites. Mr. Gerald Oppliger testified about his experiences working as an engineering analyst for LPC designing rockets for several government contract s, including SRAM, from 1962 to 1971. (Trial Tr. at 74-77 (Oppliger).) Mr. Peter Dull testified about his work on SRAM as a propulsion engineer for the SPO from the program’s inception to Lockheed’s delivery of the rockets. ( Id. at 1337-38 (Dull).) Third, the par ties put on dueling experts relating to the subject of government contracting – Mr. Richard Johnson (for Lockheed) and Mr. James Nagel (for the government) – who provided opinions on whether and to what extent the government, through contracting regulations, owned the TCE and AP at the Sites. Fourth, the parties spent an excessively la rge amount of trial tim e on the issues of contamination and, in particular, which of LPC’s activities caused it. Lockheed called Thomas Blackman to provide foundational testimony regardi ng the contamination a nd response actions at the Redlands facility. Both parties then put on multiple experts. Lockheed’s primary expert, Dr. Stanley Feenstra, a hydrogeologist , opined on the probable sources of TCE (vapor degreaser) and perchlorate contamination (burn pi ts) at the Sites and the level of care with which LPC handled its solvent and propellant wast es. Dr. Tod Delaney, an environmental engineer, provided a rebuttal opinion to the government expert opinion from Thomas Cain, a chemical and process39 engineer, regarding the sources of perchlorate contamination fr om the southern half of the Redlands facility. The government’s primar y expert, Dr. Robert St errett, a hydrogeologist, opined primarily on probable sources of TCE (employee dumping) and perchlorate contamination (burn pits and grinder part wash ing) at the Sites, wh ile Mr. David Bauer, a chemist, opined on the level of care with which LPC handled its solvent and propellant wastes. The government also called Ms. Mary Sitton as an aerial photography expert who analyzed historical aerial photographs of the Sites for ev idence of sources of po llution. Of the myriad, though incomplete, sources available to them, th e experts relied primarily on LPC’s process specifications, engineering diagrams of buildings and equipment, and the historic deposition testimony of dozens of former LPC workers. The experts also relied on their own personal experiences and general industrial and military practices at the tim e. Nonetheless, the ultimate expert opinions often amounted to no more than exercises in reasoned speculation. Finally, the parties spent a significant amount of trial on the accounting and economic issues that make this case unique. Lockheed calle d Mr. Robert Gatchel, Lockheed’s current vice president of government finance, to describe the implementation of the DOSA and Lockheed’s government contracting procedures. Each party also called two experts to address the DOSA, double recovery, and Lockheed’s ec onomic benefit from a CERCLA recovery in this case. For the government, Mr. Wiley Wright opined on the general function of DOSA, and Dr. Joan Meyer presented an economic model demonstrating th e benefit to Lockheed from various CERCLA recovery scenarios. Lockheed’s experts, Mr. Mark Kiefer and Mr. Rodne y Mateer, criticized the assumptions and methodologies of the government experts, but provided no competing economic model to substantiate their pos ition that Lockheed would not economically benefit from a CERCLA recovery in this case.40 The difficulty of an incomplete record and heavy reliance on expert testimony was compounded by the lack of analogous CERCLA cases. 32 While many CERCLA actions have been brought by government contract ors against the U.S. government, only a few appear to have reached the allocation stage. A nd none of those address the key issue in this case: whether the fact that the government contractor has been indirectly recovering it s response costs from the U.S. government-as-client through U.S.-govern ment contracts should, as an equitable consideration, reduce its rec overy from the U.S. government-as-PRP under CERCLA.

LEGAL FRAMEWORK Congress enacted CERCLA “in response to the serious environmental and health risks posed by industrial pollution.” United States v. Bestfoods , 524 U.S. 51, 55 (1998). The statute “was designed to promote the timely cleanup of hazardous waste sites and to ensure that the costs of such cleanup efforts were borne by those responsible for the contamination.” Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 602 (2009) (internal quotation marks omitted). By requiring responsible parties to pay for cleanup efforts, CERCLA also ensures that “the taxpayers [are] not require d to shoulder the financial bur den of a nationwide cleanup.” B.F. Goodrich Co. v. Murtha , 958 F.2d 1192, 1198 (2d Cir. 1992). In furtherance of these goals, CERCLA allows private parties to recover the costs of cleaning up hazardous wastes from several broad categories of PRPs. 42 U.S.C. § 9607(a)(1)- (4). 33 Liability under these provisions is stri ct and, by default, joint and several. PCS Nitrogen

32 At the Court’s request, the parties filed seve ral helpful memoranda on legal issues, including operator and arranger liability, equ itable indemnification, double re covery, and prejudgment interest.

33 A private-party plaintiff establishes a prima facie case for cost recovery under CERCLA by establishing that (1) the defendant is a PRP; (2) th e site constitutes a “facility”; (3) a “release” or a threatened release of hazardous substances exists at the “facility”; (4) the plaintiff has incurred costs responding to the release or threatened release of ha zardous substances (“response costs”); and (5) the response costs conform to the National Contingency Plan. PCS Nitrogen Inc. v. Ashley II of Charleston41 Inc. v. Ashley II of Charleston LLC , 714 F.3d 161, 168 (4th Cir. 2013). Relevant to this action, PRPs include any past “owner” or “operator” and any “arranger.” See 42 U.S.C. § 9607(a)(2)- (3). 34 Under CERCLA, a person is liable as a past “o wner” or “operator” if he “at the time of disposal of any hazardous substance owned or ope rated any facility at which such hazardous substances were disposed of.” Id. § 9607(a)(2). The phrase “owner or operator” is unhelpfully defined “only by tautology . . . as ‘any person owning or operating’ a facility.” Bestfoods , 524 U.S. at 56 (quoting 42 U.S.C. § 9601(20)(A)(ii)). Courts consider “owner” and “operator” liabilities in the disjunctive. Commander Oil Corp. v. Barlo Equip. Corp. , 215 F.3d 321, 328 (2d Cir. 2000); cf. Bestfoods , 524 U.S. at 64. In this regard, past owner liability is fairly simple, and premised on the ownership, whether de facto or de jure , of a “‘facility’ at th e time of the disposal

of a hazardous substance.” PCS Nitrogen , 714 F.3d at 172 (citing 42 U.S.C. § 9607(a)(2)); see Commander Oil , 215 F.3d at 331-32. 35 Notably, the ownership of the hazardous substances disposed of at a given facility is irrelevant to ownership liability. See 42 U.S.C. § 9607(a)(2).

LLC , 714 F.3d 161, 167-68 (4th Cir. 2013); see also 42 U.S.C. §§ 9601(9), (22), 9607(a). Each of these requirements is stipulated to or otherwise undisputed in this case. ( See Stipulation on Liability, Dec. 20, 2013 [Dkt. No. 103]; Stipulation on Response Costs, Dec. 20, 2013 [Dkt. No. 104].)

34 Because both parties have stipulated to liability under CERCLA § 107(a), the Court need not determine under which provision(s) each party falls . Nonetheless, the Court does find it useful to consider the breadth (and limits) of types of PR P liability when balancing the equities under CERCLA § 113(f).

35 Under CERCLA, the term “facility” has two mean ings. First, the term “facility” serves as a catch-all for almost any original source from which a disposal might have occurred. See 42 U.S.C. § 9601(9)(A) (defining “facility” as “any building, struct ure, installation, equipment, pipe or pipeline (including any pipe into a sewer or publicly ow ned treatment works), well, pit, pond, lagoon, impoundment, ditch, landfill, storage container, motor ve hicle, rolling stock, or aircraft”). Second, the term “facility” includes “any site or area where a hazardous substance has been deposited, stored, disposed of, or placed, or otherwise come to be located.” Id. § 9601(9)(B). Courts have interpreted this second meaning to cover, at a minimum, “‘the bounds of the contamination.’” See PCS Nitrogen , 714 F.3d at 178 (quoting United States v. Twp. of Brighton , 153 F.3d 307, 313 (6th Cir. 1998)). Thus, “[t]here may be several ‘facilities’ at a site for purposes of CERCLA, including separately owned ‘equipment’42 Operator liability is more nuanced, butBestfoods provides some helpful guidance. There, the Supreme Court clarified that when defini ng “operator” liability under CERCLA, Congress “obviously meant something more than mere me chanical activation of pumps and valves” and intended liability to extend to thos e who “exercise . . . direction ove r the facility’s activities.” 524 U.S. at 71. On this basis, the Court c oncluded that an oper ator under CERCLA must “manage, direct, or conduct operations specificall y related to pollution, thatis, operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations.” Id. at 66-67. The definition of “operator” in Bestfoods “clearly requires actual participation, not merely the potential to do so.” City of Wichita, Kansas v. Trustees of APCO Oil Corp. Liquidating Trust , 306 F. Supp. 2d 1040, 1054 (D. Kan. 2003); see also United States v. Twp. of Brighton , 153 F.3d 307, 314 (6th Cir. 1998) (describing Bestfoods as “highlight[ing] the importance of establishi ng some actual control by a putative operator”). Although “actual participation” in this sense “does not require a finding that the [defendant] directly participated in the day-to -day activities” at the facility, see United States v. Kayser-Roth Corp. , 103 F. Supp. 2d 74, 82 (D.R.I. 2000), Bestfoods requires that an operator “make the relevant decisions” regarding the disposal of hazardous wastes “ on a frequent, typically day-today basis.” City of Wichita , 306 F. Supp. 2d at 1055 (collecting cases). Arranger liability gene rally “prevents owners of hazardous waste from avoiding liability under CERCLA by transferring ownership of the wa ste to another party for the purposes of disposal.” Wilson Rd. Dev. Corp. v. Fronabarger Concreters, Inc. , -- F. Supp. 2d. ---, 2013 WL 4875071, at *6 (E.D. Mo. Sept. 11, 2013). CERCLA defines “arranger” as “any person who by

within a larger facility,” Am. Int’l Specialty Lines Ins. Co. v. United States , 2010 WL 2635768, at *21 (C.D. Cal. June 30, 2010), as well as the location where the contamination has migrated over time. In this regard, the “facilities” in this case include not only any historic sources of contamination at the Redlands, Potrero Canyon, and LaBorde Canyon properties, but also the area of the Redlands TCE and perchlorate plumes.43 contract, agreement, or otherw ise arranged for disposal or tr eatment, or arranged with a transporter for transport for disposal or treatm ent, of hazardous substances owned or possessed by such person, by any other party or entity, at any facility or incine ration vessel owned or operated by another party or ent ity and containing such hazardous substances.” 42 U.S.C. § 9607(a)(3). Arranger liability requires ow nership or possession of hazardous substances, but “cannot be imposed on that basis alone.” Morton Int’l, Inc. v. A.E. Staley Mfg. Co. , 343 F.3d 669, 679 (3d Cir. 2003). 36 Instead, as the Supr eme Court clarified in Burlington Northern , “whether an entity is an arranger requires a fact-intensive inquir y that looks beyond the parties’

characterization of the transacti on as a ‘disposal’ or a ‘sale’ a nd seeks to discern whether the arrangement was one Congress intended to fall within the scope of CE RCLA’s strict-liability provisions.” 556 U.S. at 610. Under the plai n language of the statute, a person is only an arranger if he “plans for” or “takes intenti onal steps to dispose of a hazardous substance” he owned or possessed. Id. at 611. Accordingly, although knowle dge that a hazardous substance will be disposed of “may provide evidence of th e entity’s intent to dispose of its hazardous wastes, knowledge alone is insufficient to prove that an entity ‘planned for’ the disposal, particularly when the disposal o ccurs as a peripheral result of a legitimate” transaction, such as the sale of a useful product. Id. at 612. Courts oftentimes consider – as with operator liability – a party’s exercise of control over the disposal of hazardous substances as “a crucial element of the [fact-specific] determination of whether a party is an arranger.” See United States v. Shell

Oil Co. , 294 F.3d 1045, 1055 (9th Cir. 2002).

36 But see United States v. Iron Mountain Mines, Inc. , 881 F. Supp. 1432, 1451 (E.D. Cal. 1995) (collecting cases where courts “impose[d] arranger liability on parties who did not literally own or physically possess hazardous wastes,” but noting th at “in each of these cases the party either was the source of the pollution or managed its disposal by the arranger.”).44 A plaintiff who is also a PRP theoretica lly may avoid CERCLA liability altogether by imposing joint and several liability on a PRP- defendant under CERCLA § 107(a). However, the PRP-defendant can “blunt any inequitable distri bution of costs by filing a § 113(f) counterclaim” against the PRP-plaintiff. United States v. Atl. Research Corp. , 551 U.S. 128, 140 (2007). In

such instances – as here – a court must determin e the allocation of liabili ties between the PRPs pursuant to CERCLA § 113(f)(1). CERCLA § 113(f)(1) states th at “[i]n resolving contribu tion claims, the court may allocate response costs among liable parties using such equitable fa ctors as the court determines are appropriate.” 42 U.S.C. § 9613(f)(1). Cour ts have universally he ld that “[t]his plain language grants a court significant discretion to choose which factor s to consider in determining equitable allocation of liability.” PCS Nitrogen Inc. , 714 F.3d at 186; see also Boeing Co. v. Cascade Corp. , 207 F.3d 1177, 1187 (9th Cir. 2000). “[I]n any given case, a court may consider several factors, a few factors, or only one determining factor . . . depending on the totality of circumstances presented to the court.” Envtl. Transp. Sys., Inc. v. ENSCO, Inc. , 969 F.2d 503, 509 (7th Cir. 1992). “Courts generally trot out two lists of factors when considering allocation under

CERCLA.” Yankee Gas Servs. Co. v. UGI Utilities, Inc. , 852 F. Supp. 2d 229, 247 (D. Conn. 2012). The first, the so-called “Gore Factors,” find their source in the legislative history (and unsuccessful amendment) of CERCLA by then-Representative Al Gore. See Boeing , 207 F.3d at

1187. The “Gore 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;45 [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 charac teristics of such 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. Envtl. Transp. Sys. , 969 F.2d at 508 (quoting United States v. A & F Materials Co. , 578 F. Supp. 1249, 1256 (S.D. Ill. 1984)).

Courts also often invoke the so-called “Torres Factors,” name d after the “critical factors” enumerated by then-Judge Torres: 1. The extent to which cleanup costs are at tributable to wastes for which a party is responsible. 2. The party’s level of culpability. 3. The degree to which the party benefitted from disposal of the waste. 4. The party’s ability to pay its share of the cost. United States v. Davis, 31 F.Supp.2d 45, 63 (D.R.I. 1998). 37 Given the broad discretion granted in CERC LA § 113(f)(1), courts also look beyond the Gore and Torres factors when equ itably allocating response costs. See, e.g. , Am. Int’l Specialty

Lines Ins. Co. v. United States ( AISLIC II ), 2013 WL 135405, at *9 (C.D. Cal. Jan. 9, 2013). Of relevance to this case, courts have also c onsidered the following factors under CERCLA § 113(f)(1):

37 Some scholars have argued that while “[t]he Go re factors are most relevant in academic and theoretical analysis of the way Superfund liabilities should be allocated. . . . in the real world Judge Torres’ list of four critical factors often provides th e basis upon which Superfund allocations are made.” Robert P. Dahlquist, Making Sense of Superfund Allocation Decisions: The Rough Justice of Negotiated and Litigated Allocations, 31 E NVTL

. L. R EP . 11098, 11099 (2001) (emphasis added); see also Yankee Gas , 852 F. Supp. 2d at 247.46 1. The “knowledge and/or acquiescence of the parties in the contaminating activities.” Weyerhaeuser Co. v. Koppers Co., 771 F.Supp. 1420, 1426 (D. Md. 1991).

2. The value of the contamination- causing activities to furthering the government’s national defense efforts. Cadillac Fairview/Cal., Inc. v. Dow Chemical Co., 299 F.3d 1019, 1026 (9th Cir. 2002); Shell Oil, 294 F.3d at 1060. 3. The existence of an indemnification agreement demonstrating “the parties’ parties’ intent to allocate liability among themselves.” Halliburton Energy Servs., Inc. v. NL Indus. , 648 F. Supp. 2d 840, 863 (S.D. Tex. 2009); see also Beazer E., Inc. v. Mead Corp. , 412 F.3d 429, 447 (3d Cir. 2005). 4. “The financial benefit that a party ma y gain from remediation of a site.” Litgo New Jersey, Inc. v. Martin , 2011 WL 65933, at *9 (D.N.J. Jan. 7, 2011); see also City of Wichita , 306 F. Supp. 2d at 1101. 5. The potential for windfall “doubl e recoveries” by a plaintiff. See, e.g. , Litgo N.J. Inc. v. Comm’r N.J. Dep’t of Envtl. Prot. , 725 F.3d 369, 391 (3d Cir. 2013); Friedland v. TIC-The Indus. Co. , 566 F.3d 1203, 1207 (10th Cir. 2009). 6. The potential that a plaintiff might “m ake a profit on the contamination” at the expense of another PRP. See Vine St., LLC v. Keeling ex rel. Estate of Keeling , 460 F. Supp. 2d 728, 765 (E.D. Tex. 2006). 7. CERCLA’s intent that “‘responsible parties, rather than taxpayers, bear the costs’” of cleanup. Yankee Gas , 852 F. Supp. 2d at 256 (quoting Marsh v. Rosenbloom , 499 F.3d 165, 182 (2d Cir. 2007) (emphasis added)). With these factors in mind, the Court now turns to the ultimate question before it: the equitable allocation between Lockheed and the government of past and future respons e costs at the Sites. FINDINGS OF FACT AND CONCLUSIONS OF LAW To reach an equitable allocation for the Sites, th e Court proceeds in three steps. First, the Court determines, to the extent pos sible, the sources of contamination at the Sites. From there, the Court bifurcates its equitable allocation anal ysis to consider (1) the familiar exercise of allocating response costs among parties and (2) th e novel issue of whether Lockheed’s indirect47 recovery of those response co sts through U.S-government contract s should affect the otherwiseequitable allocation. I. SOURCES OF CONTAMINATION AT THE SITES Although in many cases courts can find that a pa rticular facility, part y, or disposal action was responsible for a specific proportion of contamination at a site, see, e.g. , AlliedSignal, Inc. v. Amcast Int’l Corp. , 177 F. Supp. 2d 713, 724 (S.D. Ohio 2001), the Court is unable to do so here given the gaping holes in the record. Instead, the Court must limit itself to determining the probable sources of perchlorate and TC E contamination at the three Sites. A. Redlands facility

1. Perchlorate The parties agree that a si gnificant proportion of the perchl orate contamination in the Redlands perchlorate plume originated from the bur ning of propellant wastes in the burn pits in the northern portion of the Redla nds facility. (Feenstra Decl . ¶¶ 123, 127; Sterrett Decl. ¶¶ 17, 136-41.) As described by Dr. Sterrett, the “burn pits were essentially trenches dug in the bare ground.” (Sterrett Decl. ¶ 136.) LPC employees bur ned propellant wastes, containing waste AP in liquid and solid form, on a daily basis. (USX963.0086 (Speer Decl.).) The operation of the burn pits contributed pe rchlorate to the Redla nds perchlorate plume because, unbeknownst to anyone at the time, the AP disposed of in the pits was not completely destroyed by burning. (Trial Tr. at 730 (Feenstra); see PX1224 at 10.) Any AP residue remaining in the pits after burni ng could dissolve in a solvent (including water) and infiltrate through the porous soil down into the groundwater. ( See Feenstra Decl. ¶ 126; PX1224 at 10). Dissolution of residue AP occurred during rainfall events (Feenstra Decl. ¶ 126) and when LPC48 operators “thoroughly soaked with water” the burn pits when used multiple times in a day. ( See PX0007 § 1505(d) (1968 DOD Safety Manual).) The presence of perchlorate in groundwater we lls in the southern portion of the Redlands facility also suggests the exis tence of perchlorate sources una ssociated with the burn pits. (Feenstra Decl. ¶¶ 122, 148, 153.) The parties vigor ously dispute the southern source of the perchlorate at the facility. The Court finds that there were three probable sources. 38 First, beginning as early as November 1958, liquid solvent and AP wastes drained onto the ground outside of Building 52, where LPC mixed propellants. 39 (Sterrett Decl. ¶¶ 146-47.) At that time, a pipe intended to connect Bu ilding 52 to Evaporation Pit 61 only “drained toward” the pit, even though LPC recognizedthat it “should be piped ri ght into [the] pit.” (USX43.0002 (emphasis in original).) An October 16, 1959 aerial photograph showed staining and liquid

38 Contrary to Dr. Feenstra’s opinion (Feenstra Decl. ¶¶ 148-49), neither fugitive dust from AP handling and processing nor leakage from evaporation p its were probable sources of perchlorate in the Redlands plume. While some fugitive dust inevitabl y escaped the grinding buildings at the Redlands facility – particularly in the 1950s ( see USX1160.0006, .0012-14) prior to the installation of advanced baghouse technologies ( see USX1117) – prevailing winds would have spread the light, small AP dust particles far and wide before they settled onto the grou nd. (Cain Decl. ¶¶ 45-47.) Spread so far, it is unlikely the AP dust, once settled and dissolved by ra infall, could develop a wetted pathway necessary to migrate through the soil to the groundwater. Similarly, there is no evidence that the evaporation pits at the Redlands facility ever leaked (Feenstra Decl. ¶ 150; see also Trial Tr. at 1252-53 (Sterrett)), nor any evidence that AP-laden wastewater from the “soaking out” of rocket moto rs in the evaporation pits was disposed of on the ground. ( See Feenstra Decl

. ¶ 152.) Nor, contrary to Dr. Sterrett and Mr. Cain’s opinion (Sterrett Decl. ¶¶ 142-44; Cain Decl. ¶¶ 108- 15), was Building 114’s settling basin a probable source of perchlorate in the Redlands plume. LPC used Building 114 as a propellant research laboratory from wh ich it discharged approximately 2500 gallons of wastewater into a dedicated settling basin. (U SX781.0001.) Each week during dry weather, LPC pumped the water out of the settling basin “to an u nderground drain (storm sewer) catch basin” that “traverse[d] . . . into an open swale.” ( Id. ) From that point, the water ran “on open ground” and infiltrated “due to the great percolation ability of the soil.” ( Id. ) Although LPC’s research laboratory used AP (Trial Tr. at 1282-83 (Cain)), the effluent pumped from the settling basin was actually lower in total dissolved solids (which would include AP) than the average groundwater in the area. ( See id. at 1256-58, 1261 (Sterrett).) Based on this conflicting ev idence, the Court cannot conclude that Building 114 was a probable source of perchlorate for the Redlands plume.

39 Because LPC used cyclohexane, and not TCE, as a solvent in Building 52 in the late 1950s (USX43.0002), there is no evidence that this unconnect ed pipe was a source of the Redlands TCE plume.49 within a drainage channel consiste nt with drainage from Building 52 toward rather than into Evaporation Pit 61. (Sitton Decl. ¶ 34; USX670.) Although it is unclear precisely when LPC addressed the problem it firs t recognized in late 1958, 40 aerial photography confirms by at least April 1963 a pipe did connect Build ing 52 to Evaporation Pit 61. ( See Trial Tr. at 1434 (Sitton).) Second, AP-laden wastewater percolated in to the ground outside of several buildings when LPC employees washed down the interiors of those buildings with hoses and failed to

collect the water or otherwise di rect it to evaporation pits. (Sterrett Decl. ¶¶ 148- 53; Cain Decl. ¶ 102; see Feenstra Decl. ¶ 151.) LPC employees washed down the interiors of grinding buildings at the Redlands fac ility on a weekly basis. ( See USX808.0022 (Building 77 Process Specification); USX873 at 126-27 (Caldwell Dep. ); USX973 at 157-58 (Spencer Dep.).) LPC employees also washed down the interiors of the mixing buildings, although with less frequency. (USX895 at 103-05 (Eastman Dep.).) For the porti ons of those buildings that did not have drains, the AP-laden wastewater “ran out of the building” ( id. at 101) and onto the ground (USX994 at 115-16 (White Dep.), where it percol ated into the soil a nd ultimately into the groundwater. (Sterrett Decl. ¶ 153.) The final – and most signifi cant – source of perchlorate from the southern portion of the Redlands facility was the washing of AP off of grinder parts and dust collection bags into the south sump outside of Building 77. LPC operated Building 77 as an AP grinding facility. In 1962, LPC issued a manufacturing process standa rd – Standard 00COO5 – addressing cleanup procedures for oxidizer grinding operations at Building 77. (U SX32.) The Process Standard instructed LPC employees after eachgrind to “flush[] with water” certain parts of the grinder “to remove contamination.” ( Id. at .0003.) The standard further specified that “[t]he flushing will

40 A July 11, 1960 letter from LPC to the Los Angeles Ordnance District suggests that the unconnected pipe probably was addressed by that point. ( See PX1046 at 2.)50 be performed at the faucet and sump outside the lower level of Bldg. 77. Do not use water inside the building .” ( Id. (emphasis in original).) The same process was mandated for the washing of the AP dust collection bags. ( Id. ; see also USX807.0031-33.) Based on this process standard, both parties agree that after 1962, LPC washed AP dust off of the grinder parts and bags outside of Building 77. However, the parties dispute into which of the sumps on the west side of Building 77 th e AP-contaminated washwater flowed. Mr. Cain opined that LPC employees washed the grinder parts and bags on the concrete slab outside of Building 77 and the washwater flowed naturally into the south sump, where it then percolated into the ground through a drain or was pumped to the south to drain natu rally on the bare ground downhill and away from Building 77. (Cain Decl. ¶¶ 50-59, 79; see also Sterrett Decl. ¶¶ 125- 35.) In rebuttal, Mr. Delaney, Lockheed’s expert, opined that LPC employees washed the parts directly over and into the north sump, which pumped the washwater to an evaporation pit. (Delaney Decl. ¶¶ 38-50; see also Feenstra Decl. ¶¶ 109-21.) The Court credits Mr. Cain’s opinion that th e washwater from cleaning the grinder parts and bags flowed to the south sump and ultimately percolated into the soil and migrated to the groundwater. LPC’s process standards provi ded no clear instructions on precisely how to wash the grinder parts and bags at the “at the faucet and sump” outside of Building 77 ( see USX32 § 1.3), 41 and the record lacks any evidence on how th e workers actually performed the task. Mr. Delaney opined that LPC employees must have wa shed the parts and bags directly over the 3- foot by 3-foot north sump because they would ha ve known that washing the parts over concrete would have presented a fire and explosion hazard if the AP recrystallized before reaching the south sump. (Delaney Decl. ¶¶ 28, 43-44.) Although Mr. Delaney’s con cern has a scientific

41 Generally, wastewater containing AP was to be treated the same as waste propellant. ( See, e.g. , PX1023 § 6.31.1; PX1043 §100.6.5.)51 basis ( cf. Cain Decl. ¶ 49), he vastly overstates the safety consciousness of LPC’s employees. Former employee Donald Eastman stated in a deposition that, when the workers washed APladen wastewater out of grinding buildings, there was no effort to contain the water because “it wasn’t considered a problem.” (USX895 at 101 (E astman Dep.).) Likewise, the numerous other instances of employees ignoring LP C-established safety protocols ( see infra I.A.2) undermine Mr. Delaney’s suggestion that those same employees would de velop at Building 77 their own, more burdensome, cleaning protocols in the name of safety. Ultimately, ther e is little evidence to support the conclusion that th e workers would on a near-daily ba sis spend the time and effort to remove the heavy lid over the north sump and wa sh the parts and bags directly over that sump when they had available the much easier process of washing the parts and bags over the concrete pad and allowing the wastewater to flow naturally into the south sump. ( See Trial Tr. at 1298-99 (Cain).) 42 Moreover, two pieces of evidence support Mr. Cain’s opinion that washwater from cleaning the grinder parts and bags flowed into the south sump. First, George Nelson White, a maintenance mechanic at LPC from 1961 to 1975, stated that when the south sump reached capacity, “it pumped the water up to the top of the dike out into the rocks. They’re all oxidizers there.” (USX994 at 116 (White Dep.).) Second, and perhaps most persuasively, an April 16, 1966 aerial photograph shows an area of staining or standing liquid at the end of the drainage channel down-gradient from th e south sump fallout. ( See Trial Tr. at 1412-13 (Sitton); Sitton

42 When Building 77 and its sumps were constr ucted, the washing of grinder parts occurred inside the building. Because the top floor had an internal drain to the north sump and, ultimately, to an evaporation pit, releases of AP-laden washwater ont o the ground were minimal in the early years. ( See Trial Tr. at 1301 (Cain).) It was not until 1962, wh en, due to humidity concerns, LPC changed its process specification to disallow washing inside Building 77. (Trial Tr. at 1300 (Cain); see also USX32 § 1.3).)52 Decl. ¶ 41; USX672.) 43 Because there had been no precipitation in the fifteen days prior to the photograph (Sitton Decl. ¶ 42), the south sump w ould have only filled up and pumped water to the outfall if LPC employees were washing grin der parts and bags into the south sump. Based on this evidence, the Court finds that AP-laden washwater from LPC employees’ regular washing of grinder parts and bags outside of a Building 77 flowed into the south sump and contributed significantly to the Redlands perchlorate plume. 44 2. Trichloroethylene The parties disagree vehemently as to the identity of the source of the Redlands TCE plume. The government argues that the TCE originated primarily from LPC employees’ intentional dumping of solvents onto the bare ground at vari ous locations at the Redlands facility. (Trial Tr. at 897- 98 (gov’t opening); Sterre tt Decl. ¶¶ 54-75.) In contrast, Lockheed asserts that the TCE primarily originated fr om discharges from a solvent-water separator attached to the vapor degreaser in Building 91. (Trial Tr. at 42-43 (Lockh eed opening); Feenstra Decl. ¶¶ 63-95.) 45 Having considered the evidence on these sources, the Court finds that both probably contributed substantiall y to the Redlands TCE plume.

43 Lockheed suggested, based on an engineering dr awing of Building 77 (PX837), that the water from the south sump flowed northeast , rather than southwest , and thus the staining or standing liquid Ms. Sitton identified could not have originated in the south sump. ( See Trial Tr. at 1410 (Sitton).) However, close inspection of the engineering drawing reveals that the “existing drainage” flowing to the northeast had been “close[d] off” by the construction of a d yke. (PX837.) With the “existing drainage” to the northeast closed off, the “sump drains over [the] dyke” ( id. ) to the southwest, consistent with Ms. Sitton’s analysis of the aerial photography and the ge neral topography at the Redlands facility.

44 Mr. Cain estimated that up to 20,000 pounds of the between 40,000 and 60,000 pounds of perchlorate in the Redlands plume may have originat ed from the washing of AP dust collection bags at Building 77. (Cain Decl. ¶ 92; see Sterrett Decl. ¶ 51.) The Court finds it unnecessary to decide on the validity of his estimations; it suffices to say that the w ashing of grinder parts and bags outside of Building 77 contributed significantly to the Redlands perchlor ate plume and thus cleanup costs at the Redlands facility.

45 Although in his declaration Dr. Sterrett opined that TCE could have leaked into the ground through cracks in the evaporation pits (Sterrett Decl. ¶ 78), he admitted on cross-examination that he had53 First, the Court finds ample evidence th at LPC employees poured TCE on the bare ground and that those actions were a probabl e source of the Redlands TCE plume. ( See Sterrett Decl. ¶ 54.) Repeated pouring of small amounts of a liquid onto a porous and permeable soil can create a “wetted pathway” by which a liquid’s chan ce of evaporation in the soil strata decreases and newly dumped liquids move quickly and easily to groundwater. (Trial Tr. at 829 (Feenstra); Sterrett Decl. ¶ 60.) The record is replete with credible historic depositions from LPC employees admitting to frequently pouring TCE and other so lvents on the bare ground in contravention of company policy. ( See PX961.) For example, Earl Wessman, a maintenance mechanic at the Redlands facility from 1963 to 1975, testified th at he dumped a quart to two gallons of TCE daily at the same “very porous” bed of gravel north of Building 119, where the TCE would “sink right in.” (USX989 at 188-90 (Wessman Dep.); USX990 at 419-420 (Wessman Dep.); see also USX987 at 15-17 (Wessman Test.).) Likewise, Ch ristian Mulder, a night shift operator at the Redlands facility from 1956 to 1965, testified th at he and his colleagues dumped one to two gallons of TCE on the ground outside Buildings 8 and 12 “just about ever y night.” (USX941 at 34-35, 46-47 (Mulder Dep.).) Although Mulder and his colleagues knew of th e availability of a nearby evaporation pit for solvent disposal, they refused to walk there at night for fear of the “rattlesnakes and tarantulas.” Instead, they poured the waste TCE on the ground. ( Id. at 86-87.)

no evidence that cracks existed in the evaporation pits at the Redlands facility. ( See Trial Tr. at 1252-53 (Sterrett).) The parties’ experts also dispute whether burn pits were a minor source for the Redlands TCE plume. ( Compare Feenstra Decl. ¶¶ 40-46, with Sterrett Decl. ¶¶ 70-73

. ) Although LPC employees poured small amounts of TCE directly into the burn pit at the Redlands facility ( see USX944A.0002 (Nunes Decl.)), there is no evidence of TCE in the soil gas surrounding the burn pits. ( See USX818.) Thus, the Court credits Dr. Feenstra’s conclusion that the burn pits at the Redlands facility were not a probable source of any sizable amount of TCE in the Redlands plume.54 Several other LPC employees also admitted to in termittent pouring of TCE on the bare ground at Redlands. ( See Sterrett Decl. ¶¶ 68-72; USX944A.0002 (Nunes Decl.).) 46 However, recognizing that some of th e TCE poured onto the ground would have evaporated before it could percolate into the soil (Trial Tr. at 820 (Feenstra)) and that LPC shifted from using TCE to TCA as its pref erred solvent in the mid-1960s (USX847 at 246-49 (Borgelt Dep.)), the Court concludes that it is improbable that LPC employee’s pouring of TCE on the ground could account for the entirety of the Redlands TCE plume. Instead, some portion of the TCE in the Redl ands plume probably originated in the vapor degreaser in Building 91. Vapordegreasers are used to clean grease and oil off of metal instruments. Heating elements in the bottom of a vapor degreaser boil a “solvent liquid to produce a zone of hot solvent vapor.” (Feenstra Decl. ¶ 64.) When de greaser operators place cold metal parts into the vapor zone, either in a basket or on a chain, the vaporized solvent condenses on and cleans the part. The “soiled” liquid solvent drips back down into the degreaser sump, where it is reheated into a vapor. ( Id. ¶ 65.) Solvent vapors that do not condense on the metal parts are condensed by cooling coils on the perimeter of the degreaser tank. This condensed liquid collects and is directed to a solvent-water separato r. When functioning properly, the solvent-water separator separates wa ter that had condensed with the solvent from

the solvent and directs the solvent back into the main degreaser tank to revaporize. ( Id. ¶¶ 64, 81.) Any condensed water will floa t and, once it reaches a certain le vel, it is released via a drain onto the floor. (Trial Tr. at 833 (Feenstra).)

46 Dr. Feenstra questioned whether the employees could recall which solvent they had poured on the ground decades before, or if, at the time of dis posal, they could have dis tinguished between TCE and TCA. ( See Feenstra Decl. ¶ 32.) The Court finds Dr. Feenstra’s opinion in tension with Mr. Oppliger’s testimony that LPC was a “very unique company” with a “lot of highly educated” and “attentive [and] detail-oriented type people” (Trial Tr. at 85-86 (O ppliger)), and therefore, it credits the LPC employees’ identification of the solvents they dumped on the bare ground. ( See Sterrett ¶¶ 58, 66.)55 LPC operated the vapor degreaser in Building 91 to degrease rocket motor casings and other large components. ( See Feenstra Decl. ¶ 23.) Dr. Feenstra opined that the solvent-water separator in the degreaser functioned improperl y and released one-to-two gallons of watereddowned or even pure TCE per day onto the floor of Building 91, which then flowed through a drain directly into the subsurface soils. ( Id. ¶¶ 76, 85-87; Trial Tr . at 817 (Feenstra); PX841 (diagram showing drain be low vapor degreaser).). The Court credits Dr. Feenstra’s theory. Vapor degreasers (and their solvent-water separators) are common sources of solvent contam ination at industrial and dry cleaning sites and can release pure solvent in to the environment. (Feenstra Decl . ¶ 84.) That there is no evidence that any LPC employees noticed releases of small amounts of TCE fr om the solvent-water separator is not surprising, cons idering the substantial TCE odor a ssociated with the operation of the degreaser, which was capable of boiling 120 ga llons of TCE at a time, and the fact that solvent-water separators release water onto the floor when functioning properly. (Trial Tr. at 685 (Feenstra).) However, there is little evidence to suppor t Dr. Feenstra’s opinion that the vapor degreaser was the sole source of TCE in the Redlands plume. First, Dr. Feenstra’s opinion that the solvent-water separator released exclusively pure TCE throughout LPC’s operations at the Redlands facility lacks convinci ng support in the record. (Trial Tr. at 1185 (Ste rrett); Sterrett Decl. ¶ 109.) Second, the evidence indicates that LPC did not operate the vapor degreaser every day or “with any great frequency.” (USX 951 at 61 (Rodgers Dep.); USX995 at 117 (White Dep.).) And finally, contrary to Dr. Feenstra’s opinion and Lockheed’s arguments, the Court finds, based on Lockheed’s sworn statements in prior legal and administrative actions, that LPC56 switched from using TCE to TCA in the vapor degreaser “about late 1966 or early 1967.” 47 (USX22.0012-13 (Lockheed interrogatory responses in Seven W litigation); see also USX120.0007-09 (response to request for informa tion from California Department of Toxic Substances Control).) Thus, while the Court cred its Dr. Feenstra’s opinion that the solvent-water separator on the vapor degreaser in Building 91 is a probable source of a significant portion of the Redlands TCE plume, it is improbable that, as Dr. Feenstra opines, the vapor degreaser was the only source. ( See Feenstra Decl. ¶ 92.) 48 B. Potrero Canyon facility As described above, the sources of perchlor ate contamination in the soil and groundwater at the Potrero Canyon facil ity are undisputed. ( See Trial Tr. at 1238-39 (Lockheed and government counsel).) A primary source of cont amination for both soil and groundwater is the Burn Pit Area. (Sterrett ¶¶ 220-21, 226-27.) So me of the perchlorate contamination at the Potrero Canyon Burn Pit Area, like at the Redlands facility, resulted from the fact that a burn event would not completely destroy all of the AP, and some of the remaining AP residue

47 Lockheed attempted to disassociate itself from its prior sworn representations by arguing that the representations were made “very early in [its] fact development.” (Trial Tr. at 1731-32 (Lockheed closing).) The Court rejects Lockheed’s attempt to play fast-and-loose with its prior and at-the-timeadvantageous sworn representations regarding th e switch from TCE to TCA in the vapor degreaser, especially since Lockheed’s past position is corroboratedby Larry Borgelt, who was a safety engineer for LPC from 1966 to 1974. ( See USX841 at 251-52 (Borgelt Dep.).)

48 The Court also concludes that the contribution, if any, of TCE from the Norton Air Force Base TCE plume into the Redlands TCE plume is of no con sequence. The map relied on by Dr. Feenstra that showed the Norton and Redlands TCE plumes overlapping ( see PX1972) demarcated the plumes using TCE concentrations of 0.5 μg/L, ten times lower th an California’s current maximum contaminant level for TCE of 5 μg/L. (Sterrett Decl. ¶¶ 165, 209; see also Trial Tr. at 648-50 (Feenstra).) The two plumes do not currently overlap at TCE concentration levels requiring cleanup, and to the extent that they overlap, the commingling will not cause the TCE concen tration in the Redlands TCE plume to increase above the maximum contaminant level. (Trial Tr. at653-54 (Feenstra).) Moreover, Lockheed failed to demonstrate that contributions from the Norton Air Force Base TCE plume has caused in the past or would cause in the future increased respon se costs for the Redlands TCE plume. ( Id. at 655-56; Sterrett Decl. ¶¶ 20-21, 209-10.)57 dissolved in the rain and percolated into the soil and eventually the groundwater. ( Cf. Trial Tr. at 730 (Feenstra); Sterrett Decl. ¶ 141; PX1224 at 10.) However, the Court also finds that some of the perchlorate contamination at the Burn Pit Area probably originated pre -burn. LPC operated the Burn Pit Area at Potrero Canyon much differently than its burn pits at the Redlands f acility. Rather than burning propellant wastes on a daily basis, mere minutes after putting the wastes into the pit ( see USX910 at 183-84 (Heeseman Dep.); USX963 at 86 (Speer Dep.)), at the Po trero Canyon facility LPC accumulated wastes (propellant, solvent, etc.) over months a nd burned them only a few times per year. ( See USX49.0074-75; USX53.) 49 The pits were deeper than thos e at Redlands and the burns much larger – each containing up to 250,000 pounds of wastes. (USX49.0074-76.) Larry Borgelt, a safety engineer at LPC from 1966 to 1974, explicitly contrasted the Redlands and Potrero Canyon burn pits (USX842 at432-33 (Borgelt Dep.)), referring to the latter as a “disposal area.” (U SX841 at 318 (Borgelt Dep.).) In anticipation of a burn event, LPC

stored some wastes in drums on a concrete pad (USX49.0077), but also accumulated wastes directly in the burn pits. ( See Sterrett Decl. ¶ 228.) Some of the barrels accumulated in the pits were leaking and some were emptied directly onto the gr ound. (USX841 at 318-19 (Borgelt Dep.); USX842 at 432 (Borgelt Dep.).) These pr e-burn event practices contributed to the perchlorate contamination associated with the Burn Pit Area. Liquid wastes containing AP, either poured directly into the burn pit or leak ing out of barrels, percol ated into the soil and groundwater. Likewise, solid AP dumped into the burn pit weeks or months before a burn would

dissolve in the rain and infiltrate into the soil and groundwater. (Sterrett Decl. ¶ 230.)

49 This was only the case following the termination of the Large Solid Propellant Motor Program in 1966. Prior to 1966, LPC burned materials on a daily or weekly basis. (Feenstra Decl. ¶ 156; USX49.0076.)58 LPC’s “hog out” procedures caused the perc hlorate soil and groundw ater contamination associated with the Large Motor Washout Area a nd the Rocket Motor Pro duction Area. (Sterrett Decl. ¶¶ 220-21.) As described above, LPC wash ed propellant out of defective rocket motors using high-pressure water jets to allow the reuse of the expensive me tal rocket casings. (Feenstra Decl. ¶ 164; USX49.0068; USX12.0050, .0055-56.) The propellant was hogged out onto the bare ground where the AP leached out of the prope llant, dissolved in the water, and percolated into the soil and groundwater. (Sterrett ¶ 221; USX49.0068; cf. PX1067 at 4.) Today, hog out procedures are a recognized source of perchl orate groundwater and soil contamination. ( See PX1224 at 10.) As Mr. Bauer testified, “if they hogged out on the ground, then it’s a source.” (Trial Tr. at 1160 (Bauer).) C. LaBorde Canyon facility As with the Potrero Canyon fac ility, the parties do not disput e the sources of perchlorate contamination at the LaBorde Canyon facility. ( See Trial Tr. at 1238-39 (Lockheed and government counsel).) Perchlorate contamina tion associated with the Test Bay Canyons originated, as the name suggests, from rocket motor testing and firing operations. (Feenstra Decl. ¶ 169; Sterrett Decl. ¶ 240.) Although it is unclear precisely by what mechanism AP from the test-fired rocket motors ended up on the gr ound, the levels of perc hlorate contamination associated with the Test Bay Canyon indicate that the ground surface was “flood[ed]” with “perchlorate-bearing water.” (Feenstra Decl. ¶ 169; see also Sterrett Decl. ¶ 240.) Dr. Feenstra hypothesized that LPC may have “hogged-out” de fective motors at the Test Bay Canyon. (Feenstra Decl. ¶ 169.)

Perchlorate contamination associated with th e Waste Discharge Area was caused, at least in part, by LPC’s disposal of prope llant wastes from its burn pits. (Feenstra Decl. ¶ 170; Sterrett59 Decl. ¶ 241.) In 1962, the Santa Ana Regiona l Water Pollution Control Board issued a Resolution to LPC to direct its opera tion of the Waste Discharge Area. ( See PX1116.) Under that Resolution, LPC was allowed to dispose of approximately 5000 gallons per year of propellant waste that remained after burning in a burn pit. (PX1116 at 1-2.) As described above, burning did not completely destroy all of the AP in propellant wastes. Thus, some of the AP residue remaining in the wastes disposed of at the Waste Discharge Area dissolved in rainwater and percolated into the soil and groundwater. ( See Trial Tr. at 730 (Feenstra); Feenstra Decl. ¶ 171; PX1224 at 10.) II. TRADITIONAL EQUITABLE ALLOCATION Because the parties have stipul ated to liability, and substant ially all of LPC’s operations at the Sites were in performance of government contracts or subcontracts, the Court begins its analysis by invoking the per capita approach: a fifty-fifty split between Lockheed and the government. Cf. Davis , 31 F. Supp. 2d at 63-64 (describing the proper and improper times to begin with a per capita approach). ( See also Trial Tr. at 29-30 (Lockheed counsel advocating a per capita approach); id. at 1931, 1941 (Lockheed closing).) From there, the Court adjusts the equitable allocation based on its findings, keeping in mind that “[m]athematical precision in this process is not realistically achievable or desirable.” United States v. Consolidation Coal Co. , 184 F. Supp. 2d 723, 744 (S.D. Ohio 2002).

A. Limited value of cer tain equitable factors

1. Waste attributabl e to each party In many cases, “the dominant factor in de termining each party’s equitable share of liability is the extent to which the response costs are attributable to waste for which that party is directly responsible.” Davis , 31 F. Supp. 2d at 64. This consider ation, reflected in the first three60 Gore Factors and the first Torres factor, is inappl icable here, for all of the perchlorate and TCE contamination originated from LP C’s operation of the Sites in th e performance of its government contracts. It is therefore impo ssible to attribute even rough quan tities of the perchlorate and TCE contamination between the parties without delvin g into issues regardi ng the extent of the government’s involvement in and control over waste disposal practices at the Sites. ( See infra Section II.B.-C.) 2. Parties’ relative benefits from waste disposal activities “Fairness suggests that partie s deriving greater benefit from disposal of hazardous waste should bear a greater portion of the responsib ility for mitigating its adverse effects.” Davis , 31 F. Supp. 2d at 66; see also Weyerhaeuser , 771 F. Supp. at 1426. The economic benefits to the parties from LPC’s operations at the Sites were “roughly equal.” See AISLIC II , 2013 WL 135405, at *9. The government benefitted from LP C’s research and development and received rockets supporting eight major Cold War-era pr ograms, and LPC received payments for these services and products. See id. Although LPC may not have reap ed large profits from its contracts with the government, it helped its pare nt corporation LockheedAircraft Corporation

establish a foothold in the rocket propulsion field, a position that Lockheed retains to this day. 50 3. Degree of cooperation.

The sixth and final Gore factor considers “t he degree of cooperati on by the parties with Federal, State or local officials to prevent any harm to the public healthor the environment.” Envtl. Transp. Sys. , 969 F.2d at 508. Because non-cooperating parties can undermine CERCLA’s goal of promoting quick and efficient cleanups, see Consolidation Coal , 184 F. Supp. 2d at 751, “[t]he degree of cooperation with government officials to prevent any harm to

50 See Lockheed’s Memo. on the Benefit Received by Lockheed Propulsion Company, Feb. 20, 2014 [Dkt. No. 124] at 3-6; U.S. Memo. on the Bene fit Received by Lockheed Propulsion Company, Feb. 23, 2014 [Dkt. No. 134] at 1-2.61 the public health or the environment is very important in the contribution analysis.” Cent. Maine Power, Co. v. F.J. O’Connor Co. , 838 F. Supp. 641, 646 (D. Me. 1993). Lockheed argues that because it has cooperated with California cleanup authorities since before remediation efforts began, and the government did not admit liability until the eve of this trial, the “cooperation”

factor should favor Lockheed and disfavor th e government. (Trial Tr. at 1939 (Lockheed closing).) However, Lockheed proceeds on a somewhat distorted view of the facts. Although Lockheed has cooperated with the state authorit ies regarding cleanup at the Sites, it cooperation can hardly be considered voluntarily. Lockheed denied liability for the Redlands TCE plume for years (PX1677 ¶¶ 12, 36; Trial Tr. at 332 (B lackman)) and initiated cleanup efforts only after ordered to do so by the Santa Ana Regional Wate r Quality Control Board. (Trial Tr. at 331-32 (Blackman).) For the government’s part, there is no evidence that any California state agency ever asked the government to undertake response efforts, and neither Lockheed nor any other party sought reimbursement from the government under CERCLA until this suit was filed in 2008. And while the government has not directly paid for any response costs yet, see Consolidation Coal , 184 F. Supp. 2d at 751 (finding that a failure to pay for response costs or actions prior to CERCLA suit relevant to whether the PRP meaningfully cooperated), its protests against doing so are grounded primarily on the fact that it has already indirectly paid for the majority of Lockheed’s res ponse costs at the Sites. ( See Meyer Decl. ¶ 29 fig. 5.). In short, Lockheed was forced by clea nup and abatement orders to undertake its remediation efforts, and the government has (a lbeit indirectly) footed most of the bill. 51 On these

51 The fact that Lockheed has indirectly recove red through government contracts over 72% of its past response costs for the Sites distinguishes this case from AISLIC II, in which that court concluded the plaintiff’s cooperation with state regulatory authoriti es over a twenty-year period, without assistance from62 facts, the Court cannot conclude that the government has been meaningfully uncooperative such that it should receive an upward adjustment in its equitable allocation for the Sites.

4. The government’s ownership of waste Pursuant to the government property clauses in its contracts with LPC, the government owned an unknown, but undoubtedly sizab le, amount of the AP and TCE that was disposed of at the Sites. Under government contracting provisions , title will vest in the government for certain property – including chemicals and other raw mate rials – purchased and used by a government contractor. When title vests in the government generally depends on the type of contract and whether contractor charges the proper ty as a direct or indirect cost. Under LPC’s cost-reimbursement contracts, su ch as the Apollo subcontract (PX104), title vested in the government for property charged as a direct cost as s oon as the property was delivered to LPC, and title vested for property charged as indirect costs at the earliest of three events, including LPC’s use of property in perf ormance of the contract or the government’s reimbursement of the cost to LPC. (Johnson Decl . ¶ 8.) For LPC’s fixed-price contracts with progress payments, such as the SRAM production subcontracts, title vested in the government for property charged as both direct and indirect costs upon the issuance of a progress payment to LPC. However, title reverted back to LP C at the termination of the contract. ( Id. ¶ 9; Nagle Decl. ¶¶ 98, 103-105.) 52

the federal government, necessitated a 5% increa se in the government’s equitable share. See AISLIC II, 2013 WL 135405, at *5-6.

52 Government regulations did not require fi xed-price contracts without a progress payment clause ( e.g. , USX188) to include a government property clause. (Nagle Decl. ¶ 100-01.) Thus, LPC owned and retained ownership of all AP and TCE used in its performance of those contracts. ( See id. ¶ 102.) Due to the limited record in this case ( see supra n. 31), it is impossible to determine what percentage of LPC’s contracts were fixed-price without a progress payment clause or what percentage of AP and TCE wastes those contracts represented. ( See Trial Tr. at 151-52, 156-57 (Johnson).)63 LPC most likely charged most, if not all, AP as a direct costand TCE as an indirect cost to government contracts. (Johnson Decl. ¶ 20; Na gle Decl. ¶ 135.) Thus , title vested in the government for both materials during some pointin the manufacturing processes and, depending on the contract type, remained vested in the go vernment indefinitely (cost-reimbursement) or until the end of the contract (fixed-price with progress payments). In either event, the government retained title over at least some of th e AP and TCE at the time of their disposal at

the Sites. 53 Lockheed argues that the government’s ownership of the AP and TCE ultimately disposed of at the Site should result in a hi gher equitable allocation for the government. ( E.g. , Trial Tr. at 33 (Lockheed opening).) Merely owning the hazardous substances th at caused response costs is, however, insufficient for liability under CERCLA. See Morton Int’l , 343 F.3d at 679. Instead, a nondisposing owner of a hazardous substance is genera lly liable only if he ar ranges for its disposal or treatment by a third party. 42 U.S.C. § 9607(a)(3); see also Burlington N. , 556 U.S. at 610-

11. The Court considers this distinction to be an important signal that, in passing CERCLA, Congress was more interested in holdi ng liable, where dist inguishable, those who disposed of

and controlled the disposal of hazardous substances rather than those who owned them. In its exercise of equitable disc retion, the Court applies this di stinction here. It is unclear how much of the AP or TCE used (and disposed of) at the Sites the government actually owned. While the government ownership was lik ely significant in absolute terms ( e.g. , pounds of AP or

53 Mr. Nagle, the government’s contracting expert , opined that “any title to materials acquired by the government pursuant to a title vesting clause[] woul d not survive the consumption of the material in the manufacturing process and, therefore, the govern ment did not ‘retain’ title to waste generated by [LPC] during contract performance.” (Nagle Decl. ¶ 143.) The Court is sympathetic to Mr. Nagle’s pragmatic opinion that the title vesting clauses we re not meant to extend to waste and shares his reluctance to engage in a debate over the metaphysical question of who owns waste at the molecular level. ( See Trial Tr. at 1058 (Nagle).) However, from a te xtual standpoint, the contract clauses do not provide automatic title reversion or automatic government abandonment for “waste” property. Thus, the Court concludes that the government’s title in AP and TCE survives even after each becomes “waste.”64 gallons of TCE), Lockheed’s government contract s expert could not conc lude with a reasonable degree of certainty that the government owned more than fifty percent of either AP or TCE used at the Sites. (Trial Tr. at 157 (Johnson).) Mo reover, regardless of the government’s ownership, Lockheed possessed the waste at all times up to and including the time of disposal. And, for fixed price contracts with progre ss payments (like SRAM), the waste – even if already disposed of – reverted back to Lockheed upon the termination of the contracts. See AISLIC II, 2013 WL 135405, at *8. Thus, while ownership of the TCE and AP ma y be an important f actor in establishing arranger liability under CERCLA § 107( a)(3), this is not the issue befo re the Court. Rather, as to the allocation analysis, the Court finds the ownership of the substa nces to be of limited value. Cf. AISLIC II, 2013 WL 135405, at *8. The cri tical issue is not ownershi p in the first instance, but rather the parties’ respectiv e control over the disposal of TCE and AP at the Sites. ( See infra Section II.B.-C.) 5. The government’s owne rship of facilities Owning a facility at the time hazardous substances were disposed of at that facility results in liability under CERCLA. See 42 U.S.C. § 9607(a)(2). From this statutory hook, courts frequently allocate an “owner’s share” of liabi lity to parties “simply by virtue of being the landowner,” United States v. R.W. Meyer, Inc. , 932 F.2d 568, 571 (6th Cir. 1991), or owning the leaking or faulty equipment at a site. E.g. , AISLIC II, 2013 WL 135405, at *4-5. Both parties owned equipment at the Sites. ( See, e.g. , USX26.0018-28; USX27; USX28.0025-27.) Indeed, the government stipulat ed to its liability under CERCLA because it owned and furnished some of the major pieces of equipment for LPC’s operations. ( See Trial Tr. at 899 (government counsel).) Lockheed argues that government ownership of this equipment –65 including the vapor degreaser in Building 91 and the hogged-out ro cket casings at the Potrero and LaBorde Canyon facilities – should weigh inLockheed’s equitable favor because those pieces of equipment were sources of TCE and perchlorate contamination ( i.e. , “facilities”) at the Sites. ( E.g. , Trial Tr. at 33 (Lockheed opening); id. at 1946 (Lockheed closing.)

Lockheed is correct that both the government-owned vapor degreaser and hogged-out rocket casings ar e “facilities” under CERCLA § 101(9). See Am. Int’l Specialty Lines Ins. Co. v.

United States ( AISLIC I ), 2010 WL 2635768, at *23-24 (C.D. Ca l. June 30, 2010). The Court, however, does not consider the government’s mere ownership of certain pieces of equipment to have much importance in determining an equitable allocation. Instead, just as with the ownership of the waste, the Court considers “[f]actor s additional to the simple fact of ownership” of facilities – in particular the parties’ respective controlover the disposal operations – to be the paramount equitable consideration. See Yankee Gas , 852 F. Supp. 2d at 248. Thus, the Court does not adjust the per capita equitable allocation on account of either party’s ownership of equipment or facilities at the Sites. 6. Knowledge of risk of pollution from AP and TCE

The fifth Gore Factor consider s “the degree of care exercise d by the parties with respect

to the hazardous waste concerned.” Envtl. Transp. Sys. , 969 F.2d at 508. As the Court concluded above, the contamina tion at the Sites originated, inter alia , from pouring TCE and AP wastewaters, and burning solid propellant wast es, on the bare ground. Mr. Bauer, a government expert, opined these disposal prac tices violated the standard of care in existence at the time of LPC’s operations. (Trial Tr. at 1086-87 (Bau er); Bauer Decl. ¶¶ 11(b), 11(e), 138(b).) The Court does not credit Mr. Bauer’s testimony for two reasons.66 First, although LPC knew that the Sites were located in areas with sensitive groundwater supplies ( see, e.g. ,USX15.0002-03; USX43.0002; USX50.0002; USX970 at 140-41 (Speer Dep.); USX977 at 35-36, 43 (Stickney Dep.)), neither TCE nor perchlorate were known groundwater contaminants at the time LPC opera ted the Sites. “[T]here was generally no recognition that TCE posed a danger to the environment until the mid 1970’s.” Bolinder Real Estate, L.L.C. v. United States , 2002 WL 732155, at *8 (D. Utah Apr. 24, 2002). Indeed, TCE groundwater contamination was first discovered in California only in 1979 (PX1537 at 12), and the EPA did not regulate TCE as a drinking water contaminant until 1989. (PX2060 at 18.) Similarly, according to the U.S. Government A ccountability Office, perchlorate “was initially identified by EPA as a potential [groundwat er] contaminant in 1995” (PX1229 at 3), and, according to the DOD, did not “emerge[] as an envi ronmental issue of nati onal interest [until] 1997,” when new testing processe s decreased the dete ction threshold from 400 to 4 μg/L. (PX1223 at 5; see also PX1229 at 3-4.) 54 Although LPC knew when it operated the Sites that AP was a dangerous material, their safety concerns were limited to fires and explosions and did not extend to environmental contamination. ( See, e.g. , Trial Tr. at 87, 94-95 (Oppliger).) Second, both pouring TCE and AP wastewaters and burning solid propellant wastes on bare ground were entirely consistentwith the general standards of car e in existence at that time. For TCE, the Court need look no further than the government’s position in a prior case:

54 Accordingly, the Court does not credit Mr. Bauer’s testimony that members of scientific community knew that pouring TCE or AP wastewater s or burning propellants on the bare ground would cause groundwater contamination. (Trial Tr. at 108 1-87 (Bauer).) Mr. Bauer’s reliance on “personal experience and knowledge and chemical research” ( id. at 1083), as well as a single, ambiguous scholarly article from 1953 that concluded “[s]olvents and solu ble chemicals contained in industrial wastes . . . remain in solution in the liquid phase . . . and percolate downward to the underlying groundwater” (USX810.0006) is countered by the vast weight of the evidence that neither TCE nor perchlorate were considered groundwater pollutants at the time LPC operated the Sites. ( See Feenstra Decl. ¶¶ 96-102 (TCE), 175-91 (AP/perchlorate); PX2020-2024 (summa ry tables of historic published literature on groundwater contamination re: TC E); PX2025-2028 (summary tables of historic published literature on groundwater contamination re: AP/perchlorate).)67 It is undisputed that the plaintiff’s allegations of negligence, in particular, ‘pouring the solvents onto the ground . . . ,’ even if true, could not have violated any standard of care in existence prior to, or during . . . the early 1970s. Snyder et al. v. United States , 04-cv-627, Gov’t Memo. in Support of Mot. for Summ. J. at 3-4, (Feb. 22, 2006 S.D. Miss.) (PX2060). In Snyder , the government adopted its expert’s opinion that the disposal of TCE on the bare ground a nd “‘letting it evaporat e’ was common practice throughout the period from 1940 until 1973, followed manufacturer’s recommendations, and was

not at variance with state or federal regulations.” ( Id. at 19; see also PX1948 (summary table of historic manufacturer disposal recommendations fo r TCE).) This was so because the prevailing understanding at the time was that TCE poured on bare ground would evaporate or be absorbed

in the surface or subsurface soils and “would not contaminate or alter the intended use of underground water supplies.” (PX2060 at 19

. ) For perchlorate, the Court does not credit Mr. Bauer’s opinion that LPC should have burned AP and propellant wastes at the Redla nds and Potrero Canyon facilities in burn pans rather than on the bare ground in burn pits. (B auer Decl. ¶¶ 11(e), 133-36, 138(c).) LPC’s burning of propellant wastes on the bare ground wa s consistent with both military and industry practice during LPC’s operations at the Sites. Military manuals appl icable to the LPC’s operations explicitly recommended the burni ng of explosive wastes on bare ground. ( See, e.g. , PX0002 at 316; PX0003 § 125(b)(1), (c); PX0005 §§ 3-6, 4-11, 4-12; PX0007 § 1505; PX0009 § 7-2(c).) And the United States military itself bur ned propellant wastes on the bare ground and in burn pits at its facili ties (Trial Tr. at 1380 (Dull)), including at Camp Irwin, where the government occasionally disposed of wastes from the Redlands facility. ( See USX852 at 168 (Borgelt Dep.).) Indeed, the government failed to identify any government facilities where burn pans were used for propellant wastes prior to th e 1980s. It is no surprise, then, that the rampant68 perchlorate groundwater contamin ation at historic DOD and NASA facilities was caused by the same activities for which the government now seek s to fault LPC: “disposing of perchlorate wastes in open pits, open burning and detonati on of perchlorate, and using water to remove perchlorate residue from rocket engines.” ( See PX1229 at 26.) 55 Indeed, in 2010, the GAO identified, in California alone, seven government facilities with perchlorate-contaminated groundwater that were listed on the Superfund Nati onal Priorities List and eleven DOD facilities with perchlorate groundwater levels exceeding 15 μg/L. ( Id. at 42, 44.) On these facts, the Court cannot agree with the government’s position that LPC breached any generally recognized standard of care by pouring TCE and AP wastewaters and burning solid propellant wastes on the bare ground at the Sites. 56 7. Violation of California water quality laws A party’s violation of an environmental law in force at the time of its disposal of hazardous wastes can be an important equitable factor relevant to a PRP’s degree of care,

55 The Court also concludes that LPC’s hog out pr ocedures did not violate any a standard of care in existence at the time. In the 1970s, “hogging out” was widely used by solid propellant rocket motor manufacturers as a cost-saving tactic that allowed the reuse of expensive metal rocket casings. ( See PX0457 at 5-10 to 5-11; see also PX1229 at 26.) Indeed, as late as 1975 DOD contracted with companies to hog out rocket motors. See AISLIC I, 2010 WL 2635768, at *11-12.

56 Mr. Bauer appeared to adopt the so-called “precau tionary principle” as the relevant standard of care in a CERCLA allocation action. ( See, e.g. , Trial Tr. at 1087, 1141 (Baue r).) An amorphous pillar of contemporary environmental theory, the precautionary pr inciple “requires that in the light of scientific uncertainty, when credible evidence is put forth that a risk exists, action should be taken to minimize that risk or eliminate it even though absolute proof h as not been obtained which quantifies the risk.” New Mexico v. Gen. Elec. Co. , 335 F. Supp. 2d 1185, 1221 (D.N.M. 2004); see also O XFORD D ICTIONARY OF E NVIRONMENT AND C ONSERVATION 353 (2008); Thomas O. McGarity, MTBE: A Precautionary Tale , 28 H ARV

. E NVTL

. L. R EV . 281, 334-35 (2004). While the precau tionary principle may be equitably applicable in other CERCLA cases, it is of little valu e here. For applying the precautionary principle as a standard of care requires, at a minimum, a demonstration that some factual basis for the exercise of precaution – i.e. , knowledge of the potential environmental risk – existed at the time of the relevant disposals. There is no such factual basis here, fo r scant evidence exists that anyone (the government included) was exercising precaution, or had any inkling to do so, with regard to the disposal of TCE or AP between 1954 and 1975. Hindsight, however perfect , is an insufficient basis for imposing a standard of care as demanding as the precautionary principle.69 culpability, and cooperation with government aut horities. Environmental violations are most relevant to the extent that (1) the law is not coterminous with CERCLA liability ( i.e. , strict liability for disposal of hazardous substances); (2) the party’s actio ns clearly violated the law as

established at the time of the dis posals; (3) those violations were either knowing or reckless; and (4) compliance with the law would have reduced the total contamina tion or response costs. The government argues that LPC’s equitable share should be increased because it failed to submit reports of various waste discharges atthe Sites as required under the Dickey Act, 1949 Cal. Stat. ch. 1549. (Trial Tr. at 874, 901-02 (gov’t opening).) 57 Passed in 1949, California’s Dickey Act established regional water quality co ntrol boards and a stat e water quality control board “to co-ordinate state activities with rega rd to water pollution and nuisance by sewage and

industrial waste.” See Note, California’s Water Pollution Problem , 3 S TAN

. L. R EV . 649, 652 (1951). Dickey Act § 13054 required “[a]ny person proposing to discharge sewage or industrial waste within any region, ot her than into a community sewer sy stem, [to] file with the regional board of that region a report of such proposed discharge.” (USX122.0007.) 58 Once a discharger filed a report, the regional board was to “presc ribe requirements as to the nature of such discharge with relation to the c onditions existing from time to time in the disposal area or receiving waters upon or into which the discharge is proposed and notify the person proposing the discharge of its action.” ( Id. ) The discharger was required to “provide adequate facilities to meet any such requirements” prescribed by the regional board. ( Id. )

57 The government did not dispute Lockheed’s asser tion that LPC complied with California’s air pollution laws by obtaining the necessary permits when operating the evaporation and burn pits at the Sites. (Trial Tr. at 1751 (Lockheed closing); Feenstra Decl. ¶¶ 40, 49-50.)

58 Dickey Act § 13005 defined “industrial waste” broadly as “any and all liquid or solid waste substance, not sewage, from any producing, manufactur ing or processing operation of whatever nature.” (USX122.0002.)70 According to the California Attorney General’s interpretation of the Dickey Act, the disposal of industrial waste “ on land with a possible subsequent movement by evaporation or percolation into . . . underground waters” was cons idered an “indirect” discharge. 48 Op. Cal. Att’y Gen. 85, 86 (1966) (USX1175). The government asserts that LPC repeatedly violated the Dickey Act by disposing li quid industrial wastes – e.g. , TCE and AP wastewaters – on the bare ground at various locations at th e Sites without filing notices of proposed indirect discharges with the Santa Ana Regional Water Quality Control Board. ( E.g. , Trial Tr. at 900-03 (gov’t opening); Bauer Decl. at ¶ 168.) 59 Mr. Bauer opined that LPC was aware of the Dickey Act because it submitted a notice of proposed waste di scharge in 1962 for the Waste Discharge Area at the LaBorde Canyon facility and subsequent ly received a Resolution from the Board approving the proposed discharge. (Bauer Decl. ¶ 168.) 60 Mr. Bauer further opined that had LPC submitted notices of proposed waste discharges for its various indirect discharges across the Sites, the Board would have investigated and likely placed requirements on the discharges to limit groundwater pollution. ( Id. ¶ 166.) Lockheed’s expert, Mr. Delaney, testified in response that LPC had no responsibility under the Dickey Act to file not ices of proposed waste discha rges with the Board for the

59 In particular, Mr. Bauer opined that LPC violated the Dickey Act by failing to notify the Board of most of its disposal activities, including, but not limited to, LPC’s use of burn pits at the Redlands and Potrero Canyon facilities, the washout from grindi ng and mixing buildings and the discharges from Building 77’s south sump at the Redlands facility , the hog out procedures at the Potrero Canyon and LaBorde Canyon facilities, and the waste disposal ar eas at the Potrero Canyon and LaBorde Canyon facilities. ( See, e.g. , Bauer Decl. ¶¶ 104, 117, 122, 137, 168.)

60 Mr. Bauer also opined that LPC violated its Dickey Act Resolution for the Waste Discharge Area at the LaBorde Canyon facility – Resolution 62-24 – by constructing too many ponds and by discharging perchlorate and other compounds not listed in the resolution. (Bauer Decl. ¶¶ 205-06.) However, under that Resolution, the Board was allo wed to and did “[p]eriodically” inspect the Waste Discharge Area to ensure compliance with the R esolution. (PX1116 at 3; PX1121; PX 1130.) Further, as noted above, no one at the time knew that the burn pi t residues disposed of at the Waste Discharge Area would still contain perchlorates. ( See Trial Tr. at 730 (Feenstra); Feenstra Decl. ¶ 171; PX1224 at 10.) Based on these facts, the Court cannot agree that LPC violated Resolution 62-24 when operating the Waste Discharge Area at the LaBorde Canyon facility.71 disposals of TCE and propellants on the bare gro und at the Sites. (Delaney Decl. ¶ 13.) In particular, Mr. Delaney opined thatneither the Dickey Act nor its successor, the Porter Cologne Water Quality Act of 1969, 1969 Cal. Stat. ch. 4 82, prohibited “intermittent or accidental wastewater [indirect] discharges” su ch as those that occurred at th e Sites. (Delaney Decl. ¶ 13;

see also Trial Tr. at 419-20 (Delaney).) Instea d, according to Mr. Delaney, the notification provisions of the Dickey Act only covered “large -scale, purposeful” disp osals of industrial wastes directly or indire ctly into surface or groundwaters. (T rial Tr. at 419 (Delaney); Delaney Decl. ¶ 13.) Although the parties dedicated a significant amount of time to the issue of whether LPC violated the Dickey Act, the C ourt is unable to resolve this de bate for purposes of determining Lockheed’s equitable share. Fi rst, it is unclear whether LPC ha d the duty to report to the Board its disposal of TCE and propell ant wastes on the bare ground at the Sites. Contrary to Mr. Delaney’s opinion, the Dickey Act does not provide an exception for de minimis or intermittent discharges. Instead, the plai n language of the statute requi red a notice of proposed waste discharge for any discharge of industrial waste. (U SX122.0007.) Further, that TCE and AP were not known groundwater pollutants at the time ( supra Section II.A.6) seems irrelevant under the Dickey Act’s broad defin ition of “industrial waste.” (USX122.0002.) On the other hand, the Board periodically inspected each of the Sites ( see PX1121; PX1130), and no evidence exists

that the Board ever instructed LPC to file a notice of proposed waste di scharge for any of its disposal activities. ( Cf. PX1130 (“No written instructions or regulations from [the Board] has been received.”).) Indeed, in 1967, the Board considered “the amountof industrial waste discharged by LPC into the water draina ge basin . . . to be negligible.” ( Id. ) This arguable

conflict between the statute a nd the Board’s on-the-ground enforcement of the Dickey Act72 suggests that the Board and LPC’s contemporan eous understanding of the Act was that it did not apply to LPC’s disposal activities. 61 Second, even assuming arguendo that the Dickey Act applied to LPC’s disposal activities, the Court cannot agree with Mr. Bauer’s speculation had LPC complied with the law, the Board would have imposed requirement s that would have reduced groundwater contamination or response costs at the Sites. Under the Dickey Act, the Board lacked the power

to prohibit indirect discharges. 48 Op. Cal. Att’y Gen. at 86. 62 Further, although the Board

could set limits on the concentrations of c ontaminants in discharged industrial waste ( see Trial Tr. at 1129-31), the statute “prohibited [the Boar d] from specifying the design, location, type of construction or particular manner in which compliance may be had.” Ronald R. Robie, Water Pollution: An Affirmative Response by the California Legislature , 1 P AC

. L. J. 2, 19-20 (1970). Considering the Board’s seeming lack of con cern regarding LPC’s industrial waste disposal practices ( see PX1130), the fact that neither TCE nor perchlorate were recognized groundwater contaminants at the time, 63 and that LPC generally operated consistent with the recognized standards of care for TCE and AP waste disposal ( see supra Section II.A.6), the Court is unable

to conclude that if LPC had re ported its waste discharges, the Bo ard would have required LPC to

61 The government provided no evidence that other solid rocket motor manufacturers filed notices of proposed waste discharges for the common disposal methods, i.e. , burn pits and hogging out, that are at issue here. Indeed, with the exception of the Aero jet General Corporation’s notice of proposed waste discharge (which, as discussed infra n. 64, is not comparable to Loc kheed’s activities at the Sites), the government provided no evidence that any manufacturers at the time filed notices of proposed waste discharges related to TCE or perchlorate.

62 Although the Porter-Cologne Wa ter Quality Control Act was passed in 1969, it was not until 1975 that the California Attorney General interpre ted the statute as providing regional boards with the authority to prohibit indirect discharges. 58 Op. Cal. Att’y Gen. 531, 531 (1975) (USX1176).

63 Indeed, as the Los Angeles Regional Water Quality Control Board stated in 1980 , “TCE and other volatile organics now listed on EPA priority pollut ant lists were not known or believed to have been posing [a] pollution threat to groundwaters because of their high volatility and loss to evaporation at the time of use” in the 1950s throug h the 1970s. (PX1532 at 128.)73 undertake preventative actions to reduce the TCE or perchlorate c oncentrations in its industrial wastes before disposal. 64 The government’s suggestions that the Board could have set discharge limits that required burn pans orother preventative measures (Trial Tr. at 881, 903-04 (gov’t opening); id. at 1140 (Bauer); Bauer Decl. ¶ 35) are al so speculative and lack support in the

record. In sum, the Court cannot conclude that LPC violated the Dickey Act as it was understood or applied at that time or that LPC’s “comp liance” with the Act would have led to Board regulation of its discharges and thus reduced cont amination and response costs at the Sites today. Accordingly, the Court gives no equitable weight to the issue of LPC’s compliance (or lack thereof) with the Dickey Act.

64 To argue otherwise, the government points to the regulation, under the Dickey Act, of the Aerojet General Corporation’s solid rocket motor production site in Rancho Cordova, California. ( See, e.g. , Trial Tr. at 883-84, 900-01 (gov’t opening); Bauer Decl. ¶ 34.) Aerojet submitted a notice of proposed waste discharge to the Central Valley Regi onal Water Pollution Control Board in the early 1950s and the Board adopted a Resolution prohibiting the discharge of wastes containing, inter alia , TCE and AP “in a manner which will permit their entry in to either the groundwater or the waters of the American River.” (USX128.0002.) The Board modifi ed the Resolution in 1962 to impose stricter discharge limits. (USX132.) The government argues that Aerojet’s filing of a notice of proposed waste discharge and the Board’s issuance of Resolutions re garding those discharges demonstrates both that LPC violated the Dickey Act and that, had LPC filed a notice of proposed waste discharge, its regional board would have regulated its disposals as indirect discharges. However, Aerojet’s operations are too distinct from LPC’s to credit the government’s argument. First, Aerojet’s discharge methods were specifically designed to allow its industrial wastes to percolate into the ground. ( See Trial Tr. at 413-14 (Delaney); id. 802-03 (Feenstra).) LPC’s only directly comparable disposal processes at the Sites were the “p ercolation pits” in the Waste Discharge Area at the LaBorde Canyon facility, for which LPC did file a notice of proposed waste discharge. ( See id. at 802-03 (Feenstra).) Second, Aerojet’s disposals were volum inous – up to 1000 gallons per day – and contained a much higher quantity of AP than at LPC’s Sites – up to 270 pounds per day. (PX1112 at 1; Trial Tr. at 1154 (Bauer).) Even so, the Board’s concern with Aerojet’s discharges was t oxicity to plant life. (PX1112 at 3.) And finally, the Aerojet and LPC operations fell under the jurisdiction of different regional water quality control boards – Central Valley a nd Santa Ana, respectfully – such that the Court cannot automatically infer that the Santa Ana Board w ould have taken the same actions for LPC that the Central Valley Board took at the Aerojet facility. A ccordingly, the Court finds that Aerojet’s regulation under the Dickey Act is of limited relevance to this case.74 8. Ability to Pay “[T]he principal reason for considering ability to pay is to ensure that the party seeking contribution will not bear sole responsibility for any portion of the joint liability otherwise

attributable to defendants from whom recovery is unlikely.” Davis , 31 F. Supp. 2d at 66. This factor is not an open invitation fo r courts to increase or decrease a party’s equitable share based solely on net worth, but is instead meant to reco gnize “that a PRP’s share of liability should not

be established at a level that exceeds its resources ,” lest the plaintiff be left to shoulder that PRP’s equitable share. Id. 65 In this case, the parties’ abili ties to pay have no real importance because both Lockheed and the federal government are capable of shoulde ring the entirety of the cleanup costs for the Sites. The Court notes, how ever, that in the recen t years of increased government austerity and serious fiscal shortfalls, Lockheedhas – primarily through U.S.- government contracts – seen “record . . . earni ngs, and profit margin as well as strong cash generation.” ( See Press Release, supra n.22.) 66 9. Indemnification provisions Both parties claim that certai n indemnification clauses in th e contracts argue in favor of lowering their share. Indemnification merely shifts, but does not negate, CERCLA liability. See 42 U.S.C. § 9607(e)(1). To determine whethe r pre-CERCLA indemnifi cation clauses cover

65 In this regard, the “ability to pay” consideration is an ex ante protection against so-called “orphaned” shares – “those shares of ‘liability attributab le to a party who is insolvent, cannot be located, or cannot be identified.’” PCS Nitrogen , 714 F.3d at 168 (quoting Lyondell Chem. Co. v. Occidental Chem. Corp. , 608 F.3d 284, 303 (5th Cir. 2010)).

66 Since 1994, Lockheed’s stock price has soared from around $20 per share to around $160 per share today, more than doubling the performance of the S&P 500 and the Dow Jones Industrial Average during that time period. See Lockheed Martin Corporation , Y AHOO ! F INANCE , http://finance.yahoo.com/ echarts?s=LMT+Interactive#symbol=LMT;range= (last vi sited April 22, 2014) (compare with “DJI” and “GSPC” from January 3, 1994 to April 1, 2014). A lthough Lockheed’s net sales were down in the first quarter of 2014, its profits were up by over 22% ($17 2 million) compared to the first quarter of 2013. Press Release, Lockheed Martin Corp., Lockheed Martin Reports First Quarter 2014 Earnings Results (April 22, 2014), available at http://www.lockheedmartin.com/us/ news/press-releases/2014/april/0422hqearnings.html.75 CERCLA liabilities, “courts have uniformly held that the clause must be either ‘[1] specific enough to include CERCLA liability or [2] genera l enough to include any and all environmental liability which would, naturally, incl ude subsequent CERCLA claims.’” Elf Atochem N. Am. v.

United States , 866 F. Supp. 868, 870 (E.D. Pa. 1994) (quoting Beazer E., Inc. v. Mead Corp. , 34 F.3d 206, 211 (3d Cir. 1994)). Neither the indemn ification provisions in the government-owned facilities contracts (w hich favor the government) nor the ultra-hazar dous activities indemnification provisions in the SRAM producti on subcontracts (which favor Lockheed) satisfy

this test. 67 The government asserts that indemnification pr ovisions in its facili ties contracts support imposing a higher equitable allocation on Lockheed. During LPC’s operations at the Sites, the government and Lockheed entered into facilities contracts that provid ed (often rent-free) government-furnished equipment – e.g. , the vapor degreaser in Build ing 91 – to LPC for its use in performance of its contracts. (USX 228.0004 (28 C.F.R. §13.101-8 (1955).) Facilities contracts were required to ha ve government indemnification cl auses. (Trial Tr. at 952-53 (Nagle); Nagle Decl. ¶ 109.) Under one example of a govern ment indemnification provision, LPC agreed to indemnify and hold the Government harmless against claims for injury to persons or damage to property of the contractor or others arising from the Contractor’s possession or use of the Facilities. Howe ver, the provisions of the Contractor’s related procurement contracts shall g overn the Government’s assumption of liability for such claims aris ing out of or related to the performance of each such related procurement contract and involvi ng the possession or use of the Facilities. (USX84.0029; USX 113.0020.)

67 At least two abandonment contracts, throughwhich the United States abandoned governmentowned equipment or raw materials, contained indemn ification provisions that clearly shifted liability arising from the disposal of those equipment and raw materials (including AP) to LPC. ( E.g. , PX461; PX1073.) Because those contracts are so few, and lim ited to relatively small amounts of hazardous substances, they are insufficient to shift the equities in this case.76 The language in this provision is typical “o f the type of language used to indemnify a transferor against a tort, nuisance or trespass claim” – environmental liabilities are nowhere

mentioned. See Mobay Corp. v. Allied-Signal, Inc. , 761 F. Supp. 345, 358 (D.N.J. 1991). Without more, the Court may not infer any in tent to cover CERCLA response costs. Id. Moreover, the provision is expressly limited by any contrary liability-shifting provisions in the related procurement contract. (USX84.0029.) Thus, even assuming the facilities indemnification provision did cover CERCLA response costs, it is impossible to determine whether the provision applies to any given instance of dispos al without reference to the procurement contract – the vast majority of whic h are not available. In any event, the Court’s

conclusion that the ownership of facilities has little probative value in determining allocation as compared to the operation of those facilities ( see supra Section II.B.5) means that the facilities indemnification provisions are of little importan ce. Accordingly, the Court gives no weight to the government indemnification provis ions in the fac ilities contracts. For its part, Lockheed asserts that inde mnification provisions in the 1971-75 SRAM production subcontracts – LPC’s larg est contracts at the Sites – support an equitable adjustment in its favor. (Trial Tr. at1848-51 (Lockheed closing).) Through these indemnification provisions, the government agreed to “hol d harmless and indemnify” LPC against, inter alia , [c]laims (including reasonable expenses of litigation or settlement) by third persons . . . for death, bodily injury (including sickness or disease), or loss of, damage to, or loss of use of property; [l ]oss of or damage to property of [LPC], and loss of use of such property, but excluding loss of profit; . . . to the extent that such a claim, loss or damage arises out of the direct performan ce of this contract; is not compensated by insurance or otherwise; and results from a risk defined in this contract to be unusually hazardous

. (PX0560 § 5.4.2.1 (emphasis added).) The contracts defined as “unusually hazardous”: all risks resulting from or in connecti on with (i) the explosion, detonation, combustion, or surface impact of a miss ile, simulated missile or component77 thereof utilizing the material delivered orservices rendered u nder this contract; (ii) the use of materials c ontaining radioactive, toxic, explosive or other hazardous properties of chemicals or energy sources . . . regardless of whether the harm occurs before or after delivery to the Government of equipment or materials under this contract, or within or outside the United States. ( Id. § 5.4.1.1.) The broad definition of “unusually hazardous” ri sks arguably covers the use and disposal of AP and TCE, as “explosive” and “toxic” ch emicals, respectfully. However, assuming arguendo that the SRAM indemnification provi sions are broad enough to cover CERCLA response costs, 68 the Court finds that they are not useful in making an allocation determination for two reasons. First, Lockheed voluntarily dismissed with prejudice its contract action before the Armed Services Board of Contract Appeal s, in which it sought from the United States indemnification under these precise provision s in its SRAM production subcontracts. (USX83.) 69

68 The Court questions whether the provision’s rele vant limitation to “damage to property” is too narrow to unambiguously cover CERCLA response costs. Because CERCLA is not a tort statute, it “does not provide compensation to a private party for damages resulting from contamination.” Gussack Realty Co. v. Xerox Corp. , 224 F.3d 85, 91 (2d Cir. 2000). And, although a majority of courts hold that, in the insurance context, response costs incurred unde r CERCLA are considered “property damages,” see, e.g. , Indep. Petrochemical Corp. v. Aetna Cas. & Sur. Co. , 944 F.2d 940, 945-46 (D.C. Cir. 1991) (applying Missouri law); AIU Ins. Co. v. Superior Court , 799 P.2d 1253, 1270-71 (Cal. 1990); Carol A. Crocca, Annotation, Liability Insurance Coverage for Vi olations of Antipollution Laws , 87 A.L.R. 444 (1991), “[v]iewed outside the insurance context, the term ‘damages’ is ambiguous: it is reasonably open to different constructions.” Cont’l Ins. Companies v. Ne. Pharm. & Chem. Co. , 842 F.2d 977, 985 (8th Cir. 1988); see also New Castle Cnty. v. Hartford Acc. & Indem. Co. , 933 F.2d 1162, 1188 (3d Cir. 1991). The case law distinguishes between “ordinary” meaning of “damages,” which would encompass traditionally equitable recoveries, and the “legal” mean ing, which differentiates legal damages (like in a tort action) and equitable remedies (like a recovery under CERCLA). See New Castle Cnty ., 933 F.2d at 1187-88. Considering this ambiguity in the term “damages”, it is at least questionable whether the plain language of the SRAM indemnification provisions encompassed environmental cleanup costs, or was instead simply a run-of-the-mill tort provision narrowl y targeted to certain “unusually hazardous” risks. Cf. Mobay Corp. , 761 F. Supp. at 358.

69 Even had Lockheed dismissed its claims before the ASBCA without prejudice , under the Tucker Act this Court would lack subject-matter jurisdiction over any legal claims for indemnification under the SRAM production subcontracts because those cl aims would be based entirely in contract and78 Second, and more importantly, the predominant concern in equity is the intent of the parties, not whether the plain language of the indemnification provision would bind either party

in law. See Beazer E., Inc. v. Mead Corp. , 412 F.3d 429, 447 (3d Cir. 2005) (taking into account intent of parties even though th e court had previously concluded that, as a matter of law, the agreement did not provide indemnification for CERCLA response costs); Halliburton , 648 F. Supp. 2d at 880-81, 884 (“[T]he issue is not whether the indemnity provisions apply to this case or are enforceable, but what the parties inte nded as to allocation.” ) Beyond the arguably ambiguous text of the indemnification provisions, there is no evidence th at the parties intended the government to indemnify LPC for environmen tal contamination caused by routine disposals of TCE and propellant wastes. The SRAM inde mnification provisions we re added to the SRAM subcontracts pursuant to Public Law 85-804. (Trial Tr. at 21 7-18 (Johnson).) According to Lockheed’s contracting expert, Mr. Johnson, Public Law 85-804 was a “special statute” enacted “to handle catastrophic risks that in surance cannot possibly cover” ( id. at 217) – namely a “missile going astray and causi ng civilian casualties.” ( Id. at 254.) Indeed, as described by the Senate Report accompanying the law: The need for indemnity clauses in most cas es arises from the advent of nuclear power and the use of highly volatile fuels in the missile program. The magnitude of the risk involved under pr ocurement contracts in th ese areas have rendered commercial insurance either unava ilable or limited in coverage. S. R EP

. N O

. 2281, 85th Cong., 2d Sess., at 3, reprinted in 1958 U.S.C.C.A.N. 4043, 4045. 70 The pollution here, while tragic, is by no means “catas trophic” in the sense envi sioned by drafters of

seek relief greater than $10,000. 28 U.S.C. §§ 1346(a)(2), 1491(a)(1); see also Franklin-Mason v. Mabus , 742 F.3d 1051, 1054-55 (D.C. Cir. 2014).

70 Further, Boeing first requested indemnif ication under Public Law 85-804 for its SRAM contracts in 1966 “on the basis that performance unde r the contract will involve unusually hazardous risks in the event of an incident of catastrophic proportion resulting from explosion, malfunction or ground/flight accident precipitating a nuclear incident.” (PX506 at 1.)79 Public Law 85-804 and could have b een insured against at the time. 71 Accordingly, the Court gives no equitable weight to the indemnif ication provisions in LPC’s SRAM production

subcontracts. B. LPC exercised significantly more cont rol than the government over the dayto-day hazardous waste disposal operations at the Sites. As noted, the paramount equitable factor in th is case is the compar ative level of control the parties exercised over disposal practices at th e Sites, a variation on the fourth Gore factor’s focus on “the degree of involvement by the parties in the generation . . . [and] disposal of the

hazardous wastes.” Envtl. Transp. Sys. , 969 F.2d at 508. The Court analyzes this equitable factor through the operator liab ility framework set forth in Bestfoods and its progeny. Of course, because the parties have stipulatedto liability, the Court is not required to determine whether either party was an operator at the Sites. However, the Supreme Court’s definition of operator liability in Bestfoods is helpful in delineating the types of control over which CERCLA extends and thus which party should be more responsible as an equitable

matter. Bestfoods limited operator liability under CERCLA to those parties who “manage, direct, or conduct operations specifically related to po llution, that is, operations having to do with the leakage or disposal of hazardous waste, or decisions about complian ce with environmental regulations.” 524 U.S. at 66-67. LPC clearly meets the Bestfoods standard. LPC employees planned, managed, and performed the day-to-day opera tions that resulted in disposals of AP and

TCE at the Sites.

71 In addition, Lockheed’s argument that the SR AM indemnification provisions were intended to cover routine environmental spills flies in the face of one of Lockheed’s central theses of the cases – that no one knew that releases of TCE and propellant wastes onto the ground would cause environmental harms. Having accepted Lockheed’s position ( see supra Section II.A.6), the Court is not inclined to view TCE and perchlorate pollution as posing “unusually hazardous” risks.80 Lockheed argues that the governme nt is also an operator under Bestfoods because (1) LPC’s contracts incorporated government safety manuals, which included di sposal practices; (2) DCAS approved process specifications, which included disposal procedures; (3) DCAS inspectors observed production processes a nd occasionally undertook facility-wide safety inspections; and (4) the government provided technical advi ce to LPC. (Trial Tr. at 31-32 (Lockheed opening); see also Lockheed’s Response to the U. S. Memo. on Operator Liability, Feb. 25, 2014 [Dkt. No. 136] at 2-4.) Even considering the height of government pr esence and influence at the Sites during the SRAM production years, the Court disagrees. Although the government had a significant presence and role at the Sites, there is no evid ence that the government used its influence to manage or control the day-to-day dis posal of hazardous wastes there. See City of Wichita , 306 F. Supp. 2d at 1055. First, “courts have consistently held that contract provisions, specifications, and even mandates similar to those expressed in the [manuals at issue] are insuffici ent to show ‘direction’ or ‘control’ over waste disposal for purpos es of establishing operator liability.” Steadfast Ins.

Co. v. United States , 2009 WL 3785565, at *7 (C.D. Cal. Nov. 10, 2009) (collecting cases); see also City of Moses Lake v. United States , 458 F. Supp. 2d 1198, 1227 (E.D. Wash. 2006) (where Lockheed, as a defendant, successfully argued that “specifications that govern the operation of

missile maintenance facilities ar e relevant only insofar as they show that Lockheed managed or directed not just any ‘operations ,’ but operations having to do w ith the leakage and disposal of hazardous waste.”). The many manu als and specifications at issu e in this case are no exception. The manuals permitted – but did not mandate – some of the common disposal operations LPC used at the Sites, including the use of burn pits for propellant wastes. ( See, e.g. , PX0007 §§81 1504-07 (allowing disposal of propellant waste by burning on bare ground, dumping at sea, or destruction by detonation). 72 And even assuming arguendo that the manuals guided LPC’s decision to, for instance, use burn pits, this does rise to the level of daily controlover waste disposal operations at the Site s by the government. Indeed, Lockheed was free to seek waivers from even mandatory provisions of manuals a nd such waivers were commonly granted if they would have no effect on design or perfor mance. (Trial Tr. at 941 (Nagle); cf. USX221.0002.) 73 Likewise, the government is not an opera tor at the Sites simply because DCAS representatives approved process standards that included disposal processes, observed certain production processes, and conducted periodic sa fety inspections. DC AS’ approval, without more, of process standards does not constitute th e degree of “direct[ion]” necessary to establish operator liability. Cf. United States v. Dart Indus., Inc., 847 F.2d 144, 145-46 (4th Cir.1988) (a state regulatory body was not an operator for mere ly approving and inspec ting disposal practices at private site). No manufacturing process standard existed for the ultimate disposal of wastes, either at the burn pits at the Re dlands or Potrero Canyon facilities or at the waste disposal area at the LaBorde Canyon facility. Thus, the record do es not support Lockheed’s argument that the United States “‘made, approved or ratified all si gnificant operating decisi ons’ at the sites.” (Lockheed Operator Br. at 5 (quoting Cadillac Fairview , 299 F.3d at 1022). Indeed, even the process standards that did exist, although genera lly detailed, were vague as to what specific

72 However, the manuals did not direct or recommend the other disposal methods LPC used, including the pouring of TCE or release of AP-contam inated wastewaters on the bare ground at Redlands.

73 Lockheed urges that the distinction between “recommendation” and “requirement” in this case is a false one, citing Nu-W. Min. Inc. v. United States , 768 F. Supp. 2d 1082, 1090-91 (D. Idaho 2011). (Lockheed Operator Liability Br. at 4-5.) Nu-West is distinguishable because in that case the government was “actively involved in the design and location of the waste dumps, and in ensuring that the waste dumps complied with the mining plans and environmental rules.” 786 F. Supp. 2d at 1091. Here, there is no such evidence of specific, let alone pervasive, gove rnment direction as to the placement, design, or operation of the burn pits, evaporation pits, sumps, or other waste disposal facilities or processes.82 disposal practices should be followed. ( See, e.g. , USX32 § 1.3 (stating that the washing of grinder parts “will be performed at the faucet and sump outside the lower level of Bldg. 77” without specifying into which sump the water wa s to flow.) DCAS’ approval of such vague process standards cannot signal a ny meaningful degree of governme nt direction or control over LPC’s waste disposal practices. Further, DCAS’ day-to-day role at the Sites was limited to ensuring LPC’s compliance with contract specifications for quality assura nce purposes. (Nagle De cl. ¶¶ 40-41.) DCAS was not contractually obligated to pe rform inspections at the Sites. The government had the right, but not the duty, to inspect. ( Id. ¶¶ 42-46; see also USX242.0003.) At least until 1970, the record indicates that DCAS’ quality assurance insp ections were insufficient both in quantity and quality. ( See PX577 at 117; see also USX221.0004.) In fact, the AFRPL criticized DCAS – along with Boeing and LPC – for inadequa te quality assurance procedures. ( See PX577 at 117.). Most importantly, there is no evidence that any of the DCAS quality a ssurance inspection points, even at the height of DCAS ove rsight during the later SRAM year s, included disposal – rather than production – processes. ( See generally USX264 (listing “mandatory production certification inspection characteri stics,” none of which concerned disposal of wastes).) See Miami-Dade Cnty. v. United States , 345 F. Supp. 2d 1319, 1343 (S.D. Fla. 2004) (government was not liable as an operator where Air Force inspectors had “no objective, duty, or responsibility other than to enforce the . . . contra ct provisions by ensuring the delivery of quality products.”). DCAS’s sporadic (prior to 1970) and pe riodic (after 1970) safety inspections 74 present a closer issue, yet still do not s upport a finding that the government was an operator. Wastes and

74 There is evidence of one site-wide safety inspection by DCAS or its predecessor prior to 1969. ( See, e.g. , PX321; PX471-472; PX1046.) Under SRAM, safety surveys were more common, but by no83 waste (particularly propellant) disposal implicat ed worker safety, rather than environmental contamination. ( See Trial Tr. at 87 (Oppliger); see also PX0009 § 7-1.1.) As a result, some DCAS safety inspections briefly touched on issues of waste. ( See, e.g. , PX471 at 1 (1960 – questioning the efficacy of a drain from Building 52 to Evaporation Pit 61); PX0372 at 2 (1970 – out of over fifty safety-related observations, no ting broken grating over sump pump at Building 77); PX0484 at 3 (1972 – out of nineteen items of concern, noting improper handling and storage of propellant trimmings)). However, these safe ty inspections – to the limited extent they

concerned wastes at all – did not make recommen dations regarding the ulti mate disposal of the waste; rather, they were limited to the safe handl ing, storage, or transpor tation of waste prior to the disposal processes that LPC chose to use. Moreover, LPC could – and on occasion did – reject DCAS’s waste-related recommendations arising out of its safety inspections. ( See PX484 at 3 (rejecting DCAS’s recommendation to use me tal containers, rather than hamburger cartons and water, when handling propellant trimmings); see also Trial Tr. at 1023-24 (Nagle).) Ultimately, the sporadic nature of DCAS’s in spections, combined with their limited focus on waste disposal activities per se , fails to demonstrate the level of frequent control over hazardous waste disposal activities requi red for operator liability under Bestfoods The same can be said for the government’s tech nical involvement at the Sites. During the SRAM period, government representatives at the S ites from the SPO were primarily “observers” pursuant to the TSPR initiative. ( See, e.g. , Trial Tr. at 1338-40 (Dull).) To the extent SPO or AFRPL representatives gave techni cal direction to Boeing or LPC, the guidance related solely to product development and performance, not issues such as safety or, more specifically, waste disposal. ( See, e.g. , id. at 1353.) Inspections and guidance un related to waste disposal, no matter

means frequent. ( See, e.g. , PX474 (1969); PX372-373 (April 1970 ); PX476-477 (June 1970); PX398, 484-485 (November 1972).)84 how pervasive, are not indicative of operator liability under CERCLA. See, e.g. , Miami-Dade Cnty. , 345 F. Supp. 2d at 1343; State of Wash. v. United States , 930 F. Supp. 474, 485 (W.D. Wash. 1996) (finding no operator li ability when “[g]overnment in spectors and accountants had no responsibility for directing activities that le d to the deposit of the wastes. The primary concern of the inspectors and accountants was efficiency and cost control.”). 75

75 The evidence of actual “direction” regarding th e disposal of any wastes is limited to a few instances where the government abandoned property a nd instructed LPC – with LPC’s consent – to destroy it by burning in the Potrero Canyon burn pits. ( See PX0461; PX1073 at 1 (“Dispose [AP] by pit burning at your Portereo [sic] plant.”).) Th ese “occasional” instances of “direction,” involving a miniscule percentage of the total wastes burned at th e Sites, are insufficient to demonstrate the level of “frequent” direction or control required for operator liability. See City of Wichita , 306 F. Supp. 2d at 1055. These documents do, however, demonstrate th e government’s liability as an arranger under CERCLA § 107(a)(3) for the Potrero Canyon facility. Lo ckheed attempts to go a step further by arguing that the government is liable as an arranger for all of the Sites based on its ownership of some of the TCE and AP wastes and its benefits under contracts with LPC, pursuant to which the wastes were disposed. (Lockheed’s Memo. on Arranger Liabilty, Feb. 12, 2014 [Dkt. No. 121] at 3-5.) AISLIC I ’s contrary holding notwithstanding, see 2010 WL 2635768, at *30, the Court has serious doubts that arranger liability – with its focus on whether the party “pla nned for” the disposal – attaches to the government based solely on the existence of output contracts a nd government title over wastes due to idiosyncratic federal procurement regulations. See Burlington N. , 556 U.S. at 612. A party “may not be held liable as an arranger under CERCLA unless the plaintiff proves that the [party] entered into the relevant transaction with the specific purpose of disposing of a hazardous substance.” Team Enterprises, LLC v. W. Inv. Real Estate Trust , 647 F.3d 901, 909 (9th Cir. 2011). “Disposal of hazardous wastes must be a purpose of the transaction, not merely a foreseeable byproduct of the transaction.” Pakootas v. Teck Cominco Metals, Ltd. , 832 F. Supp. 2d 1268, 1274 (E.D. Wash. 2011) (holding that Washington state was not liable as an arranger for contamination that occurred as a foreseeable result of allowing mining companies to operate mines on state lands.) Thus, where, as here, disposals of hazardous wastes occur as a foreseeable but incidental result of a productio n process, arranger liability does not presumptively attach. See Shell Oil , 294 F.3d at 1059; Pakootas , 832 F. Supp. 2d at 1274. Instead, arranger liability attaches only if the government exercised direction and control over waste disposal activities related to its contracts with LPC. See Shell Oil , 294 F.3d at 1055-56 (considering government’s control over waste disposal at the site); Gen. Elec. Co. v. AAMCO Transmissions, Inc. , 962 F.2d 281, 286 (2d Cir. 1992) (same); Pakootas , 832 F. Supp. 2d at 1275 (same); AISLIC I, 2010 WL 2635768, at *30 (same). For this reason, the Court’s analysis regarding control an d direction for the purposes of operator liability necessarily leads the Court to declin e to adjust the government’s a llocation as an equitable matter for being an arranger at any facility other than Potrero Canyon. The Court will, however, minimally adjust its equ itable allocation for the government based on its status as an arranger at the Potrero Canyon facility. The indemnification provisions that favor the government for those arranged disposals ( see PX0461 at 2; PX1073 at 1) and the fact that the arranged disposals were limited to relatively small amounts of hazardous substances ( see supra n.67), renders the government’s arranger liability for the Potrer o Canyon facility of limited importance.85 Perhaps recognizing the insufficiency of the government’s safety manuals and inspector presence at the Sites, Lockheed argues that the government exercised such significant control over the Sites by virtue of its monopsony over the so lid rocket propellant i ndustry as to establish operator liability. (Trial Tr. at 31 (Lockheed opening); Lockheed Oper ator Br. at 1-2, 5-8.) In so arguing, Lockheed clings to a pre- Bestfoods Third Circuit decision where the government was found to be an operator for a cont ractor’s facility based on its pervasive authority over both the site and the industry. (Lockheed Operator Br. at 1-2, 5-8 (citing FMC Corp. v. U.S. Dep’t of

Commerce , 29 F.3d 833 (3d Cir. 1994) (en banc).) In FMC , the en banc majority affirmed the district court’s application of the “substantial control” test to hold the government was an operator of a high tenacity rayon production facility owned and operated by American Viscose during World War II. 29 F.3d at 843-45. 76 Even assuming that FMC remains good law in the wake of Bestfoods , 77 this case does not present the pervasive levels of control exhibited in FMC and other World War II cases. See, e.g. ,

76 The FMC en banc majority concluded that the government exercised significant day-to-day control over the American Viscose facility because American Viscose would not have been making high tenacity rayon if not at the government’s direction. To obtain the commercial product it needed, the government diverted American Viscose from its previous commercial endeavors. Thus, every day American Viscose did what the government ordered it to do. Second, although the government officials and employees personally did not take over the plant, the government maintained a significant degree of control over the production process through regulations, on-site inspectors, and the possibility of seizure. Third, the government built or had built plants supplyin g raw materials to American Viscose, controlled these plants, arranged for an incr eased labor force, and supervised employee conduct, at least to the extent of helping American Viscose deal with labor disputes and worker absenteeism. Fourth, the government supplied machinery and equipment for use in the manufacturing process. Fifth, the gove rnment controlled product marketing and price. 29 F.3d at 844.

77 The government argues that Bestfoods effectively abrogated FMC ’s “substantial control” test. (Trial Tr. at 1809 (gov’t closing).) Although the “substantial control” test is in tension with Bestfoods ’s focus on a party’s particularized control over hazardous waste disposal processes, see Miami-Dade Cnty. , 345 F. Supp. 2d at 1342, the Court need not decide if FMC ’s remains good law.86 Cadillac Fairview , 299 F.3d at 1022; Shell Oil , 294 F.3d at 1049-50. 78 The government’s monopsony over the solid propellant rocket indus try does not alone make the government an operator of the Sites. See E. Bay Mun. Util. Dist. v. U.S. Dep't of Commerce , 142 F.3d 479, 486 (D.C. Cir. 1998) (an output contract that “refle cted the monopsonistic wartime market” did not make the government an operato r). Indeed, important under FMC was not only the fact that the government created and held a monopsony over the high tenacity rayon market but also that it forced American Viscose to participate in that market under the threat of takeover

. FMC , 29 F.3d at 844. There is no comparable evidence he re. LPC voluntarily – and repeatedly – bid on, won, and completed significant gover nment contracts and subcontracts

. 79 See E. Bay Mun. Util.

Dist. , 142 F.3d at 486-87 (concluding that the r ecord lacked evidence that the government coerced plaintiff to operate mine).

78 In Cadillac Fairview , “[t]he government owned the land; the government owned the plant; the government owned the raw materials; the governme nt owned the byproducts and wastes; and the government owned the [product –] rubber.” 299 F.3d at 1022. The government also had unrestricted control over its contractor’s operations of the s ite, required monthly reports regarding hazardous waste disposal, and agreed to indemnify the contractor for all costs. Id. at 1022, 1026.

79 Lockheed also cites the government’s provi sion of government-owned equipment and raw materials, as well as putative control over personnel at the Sites, as evidence of the government’s “pervasive” control. (Lockheed Operator Br. at 6- 7.) The provision of government-owned equipment is of limited importance to operator liability when, as in this case, the government does not operate, no less control, that equipment. The same can be said for raw materials. Although the government’s provision or aid in procuring the raw materials, such as AP, may be instructive for arranger liability, it is of limited importance in determining who directed waste disposal operations at the Site Similarly, Lockheed’s evidence that the govern ment “exerted contro l over LPC’s personnel” (Lockheed Operator Br. at 7) is unconvincing. In FMC , the government obtained draft deferrals for personnel, directed workers from other industries to the American Viscose plants, provided housing for the additional workers, resolved labor disputes, and ha d a full-time worker at the plant dealing with labor issues. 29 F.3d at 837. In this case, there is evid ence that on two occasions over a span of twenty years the government made recommendations to LPC re garding personnel issues. (PX388 (recommending removal of an LPC employee who reworked a nozzle design without informing superiors); PX577 at 118 (recommending SPO negotiation of LPC’s engineering workforce down by at least fifty percent upon commencement of SRAM production).) And there is no evidence that either recommendation was ever followed. ( See Trial Tr. at 1377 (Dull) (noting the nego tiations in PX0577 never took place).) Based on this limited evidence, the Court cannot conclude that the government exerted any , let alone pervasive, control over LPC’s personnel.87 Relatedly, while Lockheed’s argument that the government determined “‘what product the facility would produce, the level of production, the price of the product, and to whom the product would be sold’” (Lockheed Operator Br. at 8 (quoting FMC , 29 F.3d at 843)), is technically correct, it is ultimately irrelevant without evidence of government coercion. For LPC’s argument, taken to its logical conclusi on, would render the govern ment an operator for practically any military output contract . Such a conclusion is inconsistent with Bestfoods ’s requirement that operator liability is concerned first and foremostwith control over “operations having to do with the leakage or disposal of hazardous waste,” 524 U.S. at 66-67, and is expressly foreclosed by Circuit precedent. See E. Bay Mun. Util. Dist. , 142 F.3d at 486 (“[E]ntering into an output contract does not make the government an ope rator.”). Thus, without evidence that the government coercedLPC to enter into its solid pr opellant rocket contracts, the general terms – e.g. , product, quantity, and price – of those contracts cannot form the basis of a finding of operator liability. See Rospatch Jessco Corp. v. Chrysler Corp. , 962 F. Supp. 998, 1005-06 (W.D. Mich. 1995) (the government was not an operator where it did not “twist [the] arm” of contractor to produce wartime material s, and the government’s control over site was limited to process specifications and inspections). Accordingly, considering the totality of th e circumstances, the Court concludes that the government was not an operator of the Sites. To be sure, all of LPC’s operations at the Sites were in performance of govern ment contracts or subcontra cts and the government had a pervasive influence over general activities at the Sites, whethe r through process specifications, safety manuals, inspections, or technical dire ction. However, the government did not manage, direct, or otherwise control on a frequent basis the day-to-day hazardous waste disposal activities

at the Sites. See Coeur D’Alene Tribe v. Asarco Inc. , 280 F. Supp. 2d 1094, 1127-30 (D. Idaho88 2003) (government is not liable as an operator in case with “pervasive involvement of federal government” including knowledge of “how the waste material was disposed of and that it was done in accordance with the customary and usual practices of the time” because the “federal government did not make the day-to-day deci sions regarding operati ons of [disposal]”); United States v. Iron Mountain Mines, Inc. , 987 F. Supp. 1277, 1287-88 (E.D. Cal. 1997) (same). Because LPC was the sole operator of the Sites under Bestfoods , the Court concludes that Lockheed should shoulder a large proportion of th e liability for response costs at the Sites. C. The government acquiesced in many of LPC’s disposal operations at the Sites. That the government was not an operator of the Sites under Bestfoods does not , however, shift the entire equita ble allocation to Lockheed. Alt hough evidence that a party knew of another’s disposal practices is insufficient to impose either operator or arranger liability, see,

e.g. , Burlington N. , 556 U.S. at 610 (arranger); Coeur D’Alene Tribe , 280 F. Supp. 2d at 1127-30 (operator), courts often consider the “acquiescence of the parties in the contaminating activities” as a factor in equitable allocation. See, e.g. , Weyerhaeuser , 771 F. Supp. at 1426; see also

Cadillac Fairview , 299 F.3d at 1025. Even though the government did not direct orcontrol LPC’s day-to-day hazardous waste disposal activities at the Sites, it was aware of and acquiesced in many of them. The government contracted with LPC (and Boeing) with the knowledge that “[d]ispos al . . . should be regarded as an integral part of solid propellant rocket operations” (PX0009 § 7-1.1 (1973 Air Force Manual);

see also PX431 (“[LPC] will generate under normal operations approximately 10,000 pounds of waste materials per month.”), and wrote the manua ls that provided general recommendations for waste propellant disposal procedures. ( See, e.g. , PX0007; PX0009.) It would be inequitable for the Court to allocate to Lockheed full responsib ility for the response costs at the Sites when the89 government could have anticipated, and in some instances knew, how LPC disposed of the TCE and propellant wastes created during the pe rformance of its government contracts. See Weyerhaeuser , 771 F. Supp. at 1424-26. Thus, the Court will allocate the government an equitable share based on its acquiescence. That said, the level of government acquiescen ce varied among the Sites. Government presence and acquiescence was at its greatest at the Redlands facility. The full-time DCAS representatives were located there, the majority of DCAS inspection point s were located there, and the inspections (safety and otherw ise) focused on operations there. ( See Trial Tr. at 1357;

e.g. , PX476 at 109.) Even though the government’s technical observers and DCAS inspectors

were not focused on the ultimate acts of disposal at Redlands – e.g. , evaporation pits and burn pits – it is improbable that the government re presentatives were unaware of how Lockheed managed its wastes. Indeed, there is direct ev idence that government representatives at least knew of both LPC’s use of evaporation pits ( e.g. , PX471 at 1) and burn pits at Redlands. ( E.g. , Trial Tr. at 1380 (Dull); PX453.) Government presence was lower, but still si gnificant, at the Potr ero Canyon facility. While DCAS inspections focused on the Redlands facility, they also covered some of the production operations at th e Potrero Canyon facility. ( See, e.g. , PX474; PX476 at 109; PX0479 at 304.) The government also knew of LPC’s burn pit operations at the Potr ero Canyon facility

and on several occasions it instructed LPC to burn abandoned government property there. ( See PX0461; PX1073 at 1; see also supra n. 75.) Further, although ther e is no evidence that the government directed LPC to hog out defective ro cket motors, the government was aware that LPC was using this procedure. ( See Trial Tr. at 1352 (Dull); PX 326 at 3; PX550 at 46.).)90 The government had the least involvement with the LaBorde Canyon facility. The government knew of and probably observed a sign ificant number of rocket motor tests in the Test Bay Canyons. The government also knew, to the extent it occurred at the LaBorde Canyon facility, that LPC hogged outdefective rocket motors to reuse the casings. ( See Trial Tr. at 1352 (Dull); PX326 at 3; PX550 at 46.).) However, ther e is little evidence of government inspections – safety or otherwise – at LaBorde Canyon fac ility. There is also no evidence that the government had any oversight ov er the Waste Disposal Area. D. Some of LPC’s disposals at the Si tes violated internal LPC rules or government requirements Of course, the government did not know of and acquiesce in all of LPC’s disposal practices, including many that are so urces of the contamination at th e Sites. Indeed, in several

instances LPC violated its own inte rnal rules or a rare government requirement with regard to the handling and disposal of waste solvents and propellants. The Court focuses only on three

violations that best de monstrate LPC’s lack of due care at the Sites. Whether a result of inadequate training, poor oversight , or sloppy practices in genera l, these instances favor an upward adjustment to Lockheed’s equitable al locations for the Redlands and Potrero Canyon

facilities. 80 The disposal of TCE on the bare gr ound at the Redlands facility ( see supra Section I.A.2) is the most prominent example of LPC employees violating LPC’s rules. As the Court has

80 This consideration falls within the fifth Gore factor – “the degree of care exercised by the parties with respect to the hazardous waste concerned.” Envtl. Transp. Sys. , 969 F.2d at 508. Under that same factor, the Court has previously concluded that LPC did not violate any generally recognized standard of care by pouring liquid TCE or propellant wastes, or burning propellant wastes, on the bare ground. ( See supra Section II.A.6.) Here, the Court asks the different question of whether LPC failed to live up to its own rules or shirked any government requirements. Just as the government should have been able to rely on LPC to operate according to generally recognized standards of care, the government should have been able to rely on LPC to follow its own rules and any relevant government requirements.91 concluded, pouring TCE and other solvents on the bare ground did not violate any standard of care generally recognized in the 1950s through mid-1970s. ( See supra Section II.A.6.) Nonetheless, recognizing the safety risks of pouring AP-contaminated solvents on the bare ground, LPC constructed evaporation p its for the disposal of solven t wastes. (Trial Tr. at 95, 99 (Oppliger); USX977 at 48-49 (Stickney Dep.).) 81 LPC memorialized its policy for the collection of solvents and disposal in eva poration pits in its Standard Op erating Procedure 11 (“SOP-11”). ( See PX961.) SOP-11 stated, inter alia , that “[a]t no time are solvents to be poured on the ground or in the water [settling] basin south of Bldg. 114.” ( Id. at 2.) Several witnesses testified that SOP-11 was more than hortatory. Mr. O ppliger testified that, even though he did not manage waste disposal processes, he would have “definitely” stopped LPC employees from dumping solvent on the bare ground because such disposals were “dangerous” and “would not be allowed.” (Trial Tr. at 95, 99, 108-10 (Oppliger). ) Similarly, Mr. Donald Eastman, who worked as a process operator and late r as foreman at LPC from 1956 to 1974, testified that he was “indoctrinated” to “not dump chemicals in the ground.” (USX895 at 5-9, 106-07 (Eastman Dep.).) Nonetheless, whether as a result of inadequate training ( E.g. , USX987 at 21 (Wessman Dep.), poor oversight ( e.g. , id. at 26), or sloppy practices, seve ral LPC employees testified to routinely violating SOP-11. Had LPC better enforced SOP-11, some portion of the TCE contamination in the Redlands plume pr obably could have be en prevented. Second, LPC’s washing of grinder parts and bags into Building 77’s south sump at the Redlands facility ( see supra Section I.A.1) also violated the company’s internal protocols. As Mr. Delaney opined, LPC’s process specifications treated “AP-contaminated wastewater . . . no differently than dry AP.” (Delaney Decl. ¶ 24.) Although the process sp ecifications for washing

81 After the mid-1960s, LPC no longer used evapora tion pits for solvent wastes, but instead it sent contaminated solvents directly to burn pits. ( See Trial Tr. at 808-09 (Feenstra).)92 grinder parts and bags did not specify how to treat AP-contamin ated wastewater from grinder part and bag washing ( see USX32 § 1.3), manufacturing process standards pertaining to Building 77 specifically stated that AP-contaminated “water is to be discarded as waste propellant.” (PX1023 § 6.31.1; see also PX1043 §100.6.5 (“Label and treat the drum of [contaminated] water as waste propellant.”).) Under LPC’s safety standard for prope llant wastes, waste propellant was

to be collected in drums and tr ansported to the burn pits. ( See PX1061 at 885-87.) As Mr. Oppliger testified, disposal of AP-contaminated wastewaters ont o the bare ground “would not be allowed.” (Trial Tr. at 95 (Oppliger).) Had th is admonition been followed, a substantial portion of the perchlorate contamination in the Redla nds plume probably could have been prevented. 82 Third, LPC’s burial of propellant wastes cons tituted a clear viola tion of a government requirement. 83 While the government did not mandate any specific method for LPC’s disposal of propellant wastes ( see supra Section II.B), it did explicitly proscribe the disposal of solid propellant wastes by burial. ( See USX47 § 2704 (1951 Army Safety Ordnance Manual) (“Collected explosive wastes must not be disposed of by being buried . . . .” (emphasis added)).) At some point prior to 1963, LPC violated this government proscription by burying propellant

wastes at the Potrer o Canyon facility. ( See USX55.) 84 The record provide s no indication where

82 The foregoing conclusion also applies to the LPC employees’ release of AP-contaminated wastewaters onto the bare ground after wash ing down the interiors of buildings. ( See supra Section Section I.A.1.) However, it does not apply to LPC’s hog out operations. Although hogging out defective rocket motors onto the bare ground did violate LPC’s general protocol regarding the disposal of APcontaminated wastewaters, the Court does not consid er this violation to be of significance because the government was aware of the process. ( See supra Section II.C.)

83 Additional violations of LPC protocols and government recommendations regarding AP wastes included pouring of propellant scraps and wastewater di rectly into burn pits rather than burning them in drums ( compare USX1002A.0001 (Wright Decl.), with PX0009 § 7-2, 7-3 (recommending propellant cuttings in water to be burned in drums); PX961 (SOP- 11)), and the failure for several years to connect the pipe between Building 52 to Evaporation Pit 61. ( See supra Section I.A.1.)

84 Lockheed claims that LPC buried “inert propellants” at the Potrero Canyon facility. However, the fact that in 1963 LPC was concerned about the presence of the buried propellants “in the watershed”93 LPC buried these wastes, how much was buried, whether the wastes were ever removed, or whether the wastes contributed to the perc hlorate contamination at the facility. ( See Sterrett Decl. ¶ 223.) Nonetheless, LPC’s flagrant viol ation of the Safety Ordnance Manual necessitates a slight upward adjustment in Lockheed’s equ itable allocation for the Potrero Canyon facility. E. Conclusion under traditional equitable allocation Based on these above findings of facts and conc lusions of law, were the Court to end its equitable analysis here, it would allocate liability for response costs (pasts and future) at the Sites as follows: at the Redlands facility, a 30% shar e of liability for the government and a 70% share of liability for Lockheed; at the Potrero Ca nyon facility, a 25% share of liability for the government and a 75% share of liability for Lockheed; and at the LaBorde Canyon facility, a 20% share of liability for the government a nd an 80% share of liability for Lockheed.

III. EFFECT OF INDIRECT RECO VERIES ON EQUITABLE ALLOCATION However, no analysis can be complete withou t consideration of the novel issue of what effect, if any, Lockheed’s indirect recovery of significan t percentages of its re sponse costs for the Sites through U.S.-government c ontracts should have on the Court’ s equitable allocation of those same response costs between the Lockheed and the government. Lockheed urges that its indirect recoveries from the government should have no effect on its ability to reco ver directly from the government under CERCLA. In contrast, the g overnment argues that allocating it a CERCLA share would amount to impermissible “double rec overy.” Because of the significant economic and legal distinctions between past and future response cost s, the Court considers their allocations separately.

and considered it necessary to “mark[] with some type of pole or flag” the location of the propellants in preparation for construction leads the Court to conclude that not all of the buried propellants were inert. (USX55.)94 A. Lockheed’s recovery of past response costs would unfairly burden the taxpayer. Lockheed has indirectly recovered from th e government through higher contract prices over 72% of its past response costs for the Site s. (Meyer Decl. ¶ 29 & fig. 5.) Thus, the government’s “effective share” is already well over two times highe r than its equitable share for

the Sites as determined in Section II.E. More over, based on the most recent data on the U.S.- government share of Lockheed’s business, U.S.- government contracts would receive the benefit of only 87% of any CERCLA payment made by the government for past response costs. 85 (Wright Decl. ¶ 74; see Trial Tr. at 1677-78 (Gatchel).) Thus, any allocation payment made by

the United States would cause th eir effective share to rise ev en further beyond their equitable share. This, the government argues, is double recovery. ( E.g. , Trial Tr. at 1891 (government closing).) “CERCLA expressly prohibits double recovery for response costs.” Boeing Co. v. Cascade Corp. , 920 F. Supp. 1121, 1133 (D. Or. 1996). However, this prohibition is fairly narrow, in that it only applies to bar CERCLA recovery for costs already compensated “under any other Federal or State law.” 42 U.S.C. § 9614(b). Because of the narrowness of the statutory bar on double recovery, co urts have developed a broader equitable double recovery theory based on the principle that “permitting a CERCLA contribution-action plaintiff to recoup more than the response costs he paid out of poc ket flies in the face of CERCLA’s mandate to apportion those costs equitabl y among liable parties.” Friedland , 566 F.3d at 1207. The theory

85 Under the DiscOps Pool, the government benefits from the same percentage of credits in a given year as it incurs costs – a feature Lockheed refers to as the “mirror image” principle. ( See Trial Tr. at 1679 (Gatchel).) Thus, if Lockheed recovered $69 million of its past response costs for the Redlands facility from the government pursuant to this action (30% of Lockheed’s $23 1 million in total past response costs for the facility), under the current Lo ckheed contract mix, only 87% ($60 million) would pass through as credits to benefit U.S.-government contracts. The remaining 13% ($9 million) would pass through as credits to the benefit non-U.S. government contracts. (Wright Decl. ¶ 74; see Trial Tr. at 1678 (Gatchel).)95 also comports with the concept th at “the environment is the injured party, not the plaintiff.” United Alloys, Inc. v. Baker , 797 F. Supp. 2d 974, 1002 (C.D. Cal. 2011). “In other words, Plaintiffs have not been damaged and are not ‘entitled’ to money as a damaged party; but rather, Plaintiffs can only receive reimbursement for the costs they expended beyond their share of actual responsibility for the environmental damage .” Basic Mgmt. Inc. v. United States , 569 F. Supp. 2d 1106, 1124 (D. Nev. 2008) (emphasis added). Plaintiffs “cannot make a profit on the

contamination.” Vine St. , 460 F. Supp. 2d at 765. The effect of an equitable bar on double recovery is simple: if a party has recovered from a collateral source, the amount of that recovery

is subtracted from the tota l pool of allocable costs. Courts have applied equitable principles to bar double recovery in circumstances where plaintiff-PRPs have recei ved payouts from insurers, see, e.g. , Yankee Gas , 852 F. Supp. 2d at 255-56; Basic Mgmt. , 569 F. Supp. 2d at 1125; formal settlements with other PRPs, see, e.g. , K.C.1986 Ltd. P’ship v. Reade Mfg. , 472 F.3d 1009, 1017 (8th Cir. 2007); and informal payments from other PRPs. See, e.g. , Vine St. , 460 F. Supp. 2d at 766 (so holding even though, under the agreement, plaintiff had promised to pay back the PRPs for all reimbursements received). However, as Judge Robertson corre ctly observed, those cas es are distinguishable from this case because they all considered direct payments to the plaintiff that, if not taken into account, could amount to a windfall for the plaintiff. Lockheed Martin Corp. , 664 F. Supp. 2d at

19. In that vein, Lockheed argues that this case is more analogous to the utility rate recovery

cases where courts have conc luded that double recovery is not an equitable concern. See Yankee

Gas , 852 F. Supp. 2d at 256; N.Y. State Elec. & Gas Corp. v. FirstEnergy Corp. , 808 F. Supp. 2d 417, 528-29 (N.D.N.Y. 2011). In those cases, plainti ff-utilities formally re covered their response96 costs through increased rates charge d to ratepayers. The defendants in both cases argued that the recovery of response costs from ratepayers shou ld equitably bar plaintiffs’ recovery of those response costs under CERCLA, lest the plaintiffs receive a windfall. See Yankee Gas , 852 F. Supp. 2d at 256; FirstEnergy , 808 F. Supp. 2d at 528. Both courts disagreed, concluding that the plaintiffs’ recoveries from defendants posed no large risk of double recovery or windfall.

Yankee Gas , 852 F. Supp. 2d at 256; FirstEnergy , 808 F. Supp. 2d at 529. As the Yankee Gas court explained: Money recovered from [defendant] will allow DPUC to reduce the amount it allows Yankee Gas to collect from its utility customers during future rate cycles. Thus, money contributed by UGI is money th at will not have to be paid by utility customers in Connecticut. The “windfall,” if that is the word, goes to the rate payer, not Yankee Gas. This is in keep ing with “CERCLA’s goals of cleaning up environmental contamination and maki ng sure that responsible parties, rather than taxpayers, bear the costs.” 852 F. Supp. 2d at 256 (quoting Marsh , 499 F.3d at 182) (emphasis in original). This case, however, is distinguishable from Yankee Gas and FirstEnergy . Here, the principal “ratepayer” and the defendant-PRP are one and the same –the U.S. government. In such circumstances, careful consid eration of the recovery crediting scheme is necessary to ensure that the plaintiff does not benefit from double recovery at the expense of the taxpayer. See R.W. Meyer , 932 F.2d at 572 (“‘The hallmark of a court of equity is its ability to frame its decree to effect a balancing of all the equiti es and to protect the interest of all affected by it, including the public.’” (quoting Kay v. Mills , 490 F. Supp. 844, 855 (E.D. Ky. 1980)). The DiscOps Pool’s crediting mechanism attemp ts to prevent “double recovery,” at least as traditionally unde rstood. Lockheed must allocate its CERCLA respons e cost recovery to the DiscOps Pool ( see USX1033 ¶ 4.7), and credits in the DiscOps Pool are passed through Lockheed’s contracts in the same way as costs. (Trial Tr. at 1678 (Gatchel).) As in the utility rate recovery cases, one hundred percent of a ny CERCLA recovery ultimately flows to the97 ratepayers ( i.e. , the U.S.-government and Lockheed’s other clients) and not Lockheed. Thus, there is no “double recovery” in the traditional sense because Lockheed cannot recover more in

response costs than it initially paid, and th ere is little potential for a windfall to the plaintiff from the crediting system. ( Cf. id. at 594-95 (Wright).) To be sure, under any scenario where the government is allocated an equitable share of past response costs, it will be worse off and shou lder a larger “effectiv e share” of Lockheed’s response costs than it does now. 86 (Meyer Decl. ¶ 33.) But an increase in the government’s

“effective share” does not alone amount to a “do uble recovery.” For “double recovery” focuses on the projected post-recovery econo mic position of the plaintiff, not the defendant. See

Friedland , 566 F.3d at 1207 (framing the issue as whether the plaintiff “rec oup[s] more than the response costs he paid out of pocket”). Moreover, the government has been complicit in designing the very system about which it so bitterly complains. The FAR allows indire ct costs to be charged to government contracts and the DCAA has taken the position that envi ronmental cleanup costs at discontinued sites generally constitute indirect costs. ( See PX1862 ¶ 7-2120.7.) More importantly, in 2000, the government negotiated with Lockheed and signe d the DOSA, which blessed the DiscOps Pool and its cost allocation and crediting scheme and explicitly stated that it did not settle any claims arising under CERCLA. (USX1033 ¶ 4.18.) The DOSA also recognized the coexistence of

indirect contract and direct CE RCLA recoveries by disallowing certain costs and credits from – rather than nullifying wholesale – the Burbank Consent Decree. ( Id. ¶¶ 3.1-.3.) All the while, the government agreed, both pre- and post-DOSA, to toll the CERCLA statute of limitations for the

86 In nominal terms, and without accounting for tax es levied on Lockheed profits, the detriment to the government of a CERCLA allocation for past costs can be expressed as: Detriment = (1 – recovery rate from U.S. government) x Equitable Allocation x Past Response Costs.98 Redlands facility, while allowing Lockheed to indirectly recove r response costs through U.S.- government contracts. Under these facts, the government cannot fairly assert, as it seems to here, that it was blindsided by Lockheed’s decision to file a CE RCLA claim for the Sites or that DOJ should not be bound by DOD’s decisions regarding gove rnment procurement contracting. 87 Nor will the Court in equity save the government from the natural and probable consequences of its own conduct. Thus, the Court finds that there is no “d ouble recovery” in this cas e and that – all other things being equal – it would notbe inequitable for the governme nt’s effective share of past response costs to increase as a result of Lockheed’s recove ry of response costs from the government under CERCLA. Double recovery aside, the Court is nonetheless concerned about the economic benefit to Lockheed and the economic detriment to the taxp ayers from any CERCLA re covery of past costs in this case. Framing the issue as one of economi c benefit rather than dou ble recovery serves the important purpose of preventing Lockheed from profiting from CE RCLA – beyond the mere recovery of response costs – at the expense of the taxpayer. 88

87 Importantly, Burbank Consent Decree – signed by DOJ –exp licitly recognized the possibility of an agreement like the DOSA, which was signed onl y months later by Lockheed and DCAS. ( See PX1844 ¶ 3.25; USX1033.) The DOJ also signed the CERCLA tolling agreements applicable to the Redlands facility, including one agreement that was executed l ess than two months before the DOSA was signed. ( See PX1849.)

88 In its closing rebuttal argument, Lockheed cited TRW, Inc. v. United States , 28 Fed. Cl. 155 (Fed. Cl. 1993), in support of its position that the government cannot avoid its obligation to make direct payments under the law on the basis that it had already made indirect payments through government contracts regarding the same contractor costs. (Trial Tr. at 1966-68 (Lockheed closing.) In TRW , a contractor sought to recover from the government $2.9 million in bid and proposal (“B & P”) costs associated with preparing a bid proposal for an IRS request for proposals on the ground that the IRS did not consider the proposal “fairly and honestly.” 28 Fed. Cl. at 156-57. The government argued that the contractor had indirectly recovered $2.1 million of those B & P costs through advance agreements with the DOD. Id. at 157. The court denied the government’s motion for summary judgment because, under the advance agreement accounting system, the contractor would have received the same total in payments whether or not it had bid on the IRS proposal. Id. at 160. In essence, the government failed to99 In this regard, the Court cr edits Dr. Meyer’s opinion thateconomic benefit should be analyzed from the status quo – i.e. , the parties current, pre-al location positions based on the response costs incurred and indirect recoveries made over the past twenty years. (Meyer Decl. ¶¶ 54-57, 138-39.) 89 Aside from having already indi rectly recovered far more of its response costs through U.S.-government contracts than the government’s equitable allocation for the Sites, Lockheed has also benefitted significantly by charging th e government a profit factor on those response

demonstrate that it had indirectly paid the contractor $2.1 million dollars for the relevant B & P costs. Id. at 162. This case is inapposite here. First, it is undi sputed that Lockheed has indirectly recovered from the government over $200 million in response costs associated with the Sites, thus undermining the accounting basis for the TRW decision. It is not clear what would have happened in TRW had the government proven that the contractor had indirectly recovered $2.1 million of the relevant B & P costs through advance agreements with the DOD. Second, and more importantly, the TRW court was not considering how to equitably allocate lia bility between two responsible parties.

89 Mr. Kiefer criticized Dr. Meyer’s definition of the status quo as the baseline for economic benefit analysis and seemed to suggest that the pr oper analysis would compare Lockheed’s comparative economic benefit under a CERCLA recovery with the hypothetical baseline assuming the government had directly reimbursed Lockheed for its equita ble share as the costs were incurred. ( Cf. Trial Tr. at 1580 (Kiefer); Kiefer Decl. ¶¶ 3-4.) The Court rejects Mr . Kiefer’s proposed baseline for several reasons. First, it is common practice in an economic benefit analysis to use a status quo baseline. This is so because economic benefit analyses addressing hypothetical futures are most usef ul when compared to real, present-day conditions rather than hypothetical past occurrences. ( See Trial Tr. at 1512 (Meyer); Meyer Decl. ¶ 138.) Indeed, as a practical matter, Mr . Kiefer’s baseline would have required, as early as 1994, the government to have known and directly reim bursed Lockheed for its equitable share of costs – the very issue before this C ourt some twenty years later. Second, Mr. Kiefer provides no quantitative analysis to defend his “conceptual” opinion that, when compared to his proposed baseline, Lockh eed would not receive an economic benefit from a CERCLA recovery. (Trial Tr. at 1573-75 (Kiefer).) Although Mr. Kiefer testified that he “believe[d] it would be possible” to perform a quantitative analysis supporting his conceptual opinion, Lockheed did not ask him “to make an affirmative calculation of economic impact.” (Id. at 1574.) Finally, Dr. Meyer’s analysis, even though using a status quo baseline, does take into account what has happened in the past: that Lockheed incurred costs and recovered them (plus a profit) on an amortized basis. (Trial Tr. at 1512- 13 (Meyer).) Because it neither ignores the past nor relies on unrealistic hypotheticals, the Court concludes that Dr. Meyer’s status quo baseline provides the most equitable framework for determining how much a CERCLA recovery benefits Lockheed.100 costs. 90 Mr. Wright estimated this pre-tax profit fact or to be six percent. (Wright Decl. ¶ 85; see also Meyer Decl. ¶ 101 n.52.) Lockheed’s public f ilings, however, reveal significantly higher pre-tax profit margins over the years. ( See USX383.0030 (9.0% for 1998, 8.2% for 1996, 8.5% for 1996); USX397.0030 (9.4% for 2012, 8.6% for 2011, 9.0% for 2010, 10.2% for 2009, 11.7% for 2008).) Even assuming Mr. Wright’s cons ervative six-percent profit markup, Lockheed effectively recovered at the expense of the ta xpayers six cents on every dollar of its response costs passed on to U.S.-government contracts. ( See Wright Decl. ¶ 84.) All told, these pre-tax profits amounted to approximately $11.8 million in nominal dollars ( see USX433A.0007-08), or adjusting for the time value of money, appr oximately $17.2 million in net present value terms. ( Id. at 0012-13.) Mr. Kiefer opined, without conducting any quant itative analysis, that any recovery from the government in this case would cancel out past profits because credits reduce profits in the same way that costs create profits. ( See Kiefer Decl. ¶¶ 32-33; cf. Meyer Decl. ¶¶ 42, 160 (“[T]he credit associated with the CERCLA payment results in lower profits for [Lockheed] (from lower costs passed through to contracts with the United States).”). However, as Lockheed admits (Trial Tr. at 1966 (Lockheed closing)), this argument ignores an important component – the significant time value of money benefits (over $5 million pre-tax) that accrued to Lockheed from its past profits on indirectrecoveries from the government. Mr. Kiefer faulted the government for not di rectly paying its share of response costs all along and opined that the government’s unwillingne ss to pay directly for response costs in the past harmed Lockheed. ( E.g. , Kiefer Decl. ¶¶ 3-4; Trial Tr. at 1579-83 (Kiefer).) The facts do not support Mr. Kiefer’s conclusion. Lockheed’s historical rate of indirect recoveries from the

90 Lockheed identifies as its “underlying tenet in pricing [its] contracts with the U.S. government” as its “ability to recover [its] costs plus profit , regardless of the type of contract.” (USX407 at 4-5 (emphasis added).)101 government – which again is many times higher than the government’s equitable allocations for

the Sites – and the time value of the substantia l profits that Lockheed has realized on these indirect recoveries, make it diffi cult, if not impossible, to conc lude that Lockheed has been injured by the government’s lack of direct payments over the last tw enty years. Quite the opposite, in fact. Lockheed has benefitted greatly by recovering more money related to response costs (due to its profit factor) than it has spent. 91 Of course, profiting off of the cleanup of hazardous wastes is not per se undesirable or improper. CERCLA’s bona fide prospective purchaser exemption, 42 U.S.C. § 9607(r)(1), makes clear that, in some inst ances, cleanup of hazardous wastes should be a profitable enterprise, lest no one voluntarily undertake the important task. See Small Business Liability

Relief and Brownfields Revitalization Ac t, Pub. L. No. 107–118, 115 Stat. 2356 (2002) (providing an array of CERCLA amendments in tended “to promote the cleanup and reuse of brownfields”). However, courts have consistently c onsidered as an equitable factor the “economic benefits realized by a party as a result of remediation efforts.” City of Wichita , 306 F. Supp. 2d at 1101 (collecting cases); see also FirstEnergy , 808 F. Supp. 2d at 533; Litgo , 2011 WL 65933, at * 9. And CERCLA provides no indication that responsible parties should profit from the cleanup process at the expense of other responsible parties

. Cf. Vine St. , 460 F. Supp.

2d at 765.

91 Lockheed attempts to rebut this conclusion by suggesting, through the testimony of Mr. Gatchel, that it lost contracts due to “overall cost,” including environmental response costs. (Trial Tr. at 1674 (Gatchel).) However, Mr. Gatchel did not identi fy any specific contract that Lockheed lost because of environmental response costs at the Sites. Without such evidence, the Court will not credit Lockheed’s argument that response costs for the Sites – even to taling tens of millions of dollars annually – caused Lockheed to lose any government contracts, especi ally given Lockheed’s annual net sales of over $45 billion in each of the past five years. ( See Press Release, supra n.22 (2013); USX397.0002 (2012); USX396.0002 (2011); USX395.0002 (2010); USX394.0002 (2009).)102 Were the economic benefit to Lockheed limited to the time value of the profits it has already earned on indirect recoveries through its U.S.-government contracts, the Court might not be inclined to exempt the government from payi ng an equitable share of the past response costs at the Sites. For as Lockheed contends, it merely seeks to recover as much of its past response costs as possible under CERCLA to reduce costs for its clients and improve its own competitive position. ( See Trial Tr. at 1667-68 (Gatchel).) Ho wever, even accepting these motives, Lockheed will receive three significant windfalls – all at the expense of the taxpayers – if the Court allocates the governme nt an equitable share of past response costs. First, as the parties agree, CERCLA § 107(a) mandates the award of prejudgment

interest. 92 42 U.S.C. 9607(a)(4)(D); see K.C.1986 Ltd. P’ship , 472 F.3d at 1018. This statutory requirement applies with equal force when – as here – a plaintiff has sued under § 107(a) and the defendant counterclaims under § 113(f). See Litgo , 725 F.3d at 392; Bancamerica Commercial Corp. v. Mosher Steel of Kansas, Inc. , 100 F.3d 792, 799-801 (10th Cir. 1996). The purpose for awarding prejudgment interest was clearly explained by the Tenth Circuit: Failure to grant prejudgment interest on contribution awards may . . . result in inequitable apportionment, because parties awar ded contribution will still have lost the time value of the money they sp ent on behalf of other liable persons, and those persons will have gained an equal amount. Further, refusal to grant prejudgment interest is a di sincentive for private partie s to voluntarily undertake cleanup actions because they will lose th e time value of the money they spend on behalf of other persons. Indeed, it would create a perverse incentive for responsible parties to delay involvement in cleanups, because as they delay, they gain the time value of the funds they should be investing in the cleanup. Bancamerica Commercial Corp. , 100 F.3d at 801. This case, however, implicates none of these policy concerns. There is no loss based on the time value of money because Lockheed indirectly recovered from the government much

92 See Lockheed Memo. on the Availability of Prejudgm ent Interest, Feb. 20, 2014 [Dkt. No. 128] at 1-3; Trial Tr. at 1454 (government counsel).103 more than the government’s equitable share of th e response costs for th e Sites through U.S.- government contracts as it incurred the costs

. 93 Nor would the lack of prejudgment interest in

this case have disincentivized cl eanup efforts. Lockheed was or dered to clean up the Sites by the California environmental authorities and, in any ev ent, it was able to indirectly recover its response costs (plus a healthy prof it) from the U.S. government and its other clients as it incurred them. Indeed, as the Court has al ready explained, Lockheed actually benefitted from its cleanup efforts through the profits it gained on the re sponse costs that flowed down to its U.S.- government contracts. For these reasons, the pu rposes of prejudgment interest are inapplicable to this equitable allocation case. A rough calculation of the amount of prejudgment interest potentially available in this case only further underscores the Court’s conclusion. Assuming a demand date in 2000, 94 and that all of Lockheed’s past responses costs qua lify for recovery under CERCLA, the potentially available prejudgment interest in this case totals over $61 million dol lars – over 20% of Lockheed’s total past re sponse costs for the Sites. 95 Applying the Court’s above-determined

93 Of course, Lockheed’s amortization of response costs over five years has time value of money implications. Both parties lament, in their own wa y, the “interest free loans” they provided each other during the respective cost and credit amortization peri ods in the DiscOps Pool. (Kiefer Decl. ¶¶ 25-26; Meyer Decl. ¶ 60.) However, because both parties benefit from amortization – through cost smoothing, increased predictability in multi-year contracts, and increased contractual unifo rmity and comparability – the Court considers the issue of amortization to be a wash. ( See Mateer Decl. ¶ 9; PX1859 at 3-4.)

94 Prejudgment interest accrues under CERCLA “from the later of (i) the date payment of a specified amount is demanded in writing, or (ii) th e date of the expenditure concerned.” 42 U.S.C. § 9607(a)(4). Lockheed represented in its memora ndum on prejudgment interest that it sent a CERCLA demand letter to the government in December 2000. (Lockheed Memo. on Prejudgment Interest at 2 & n.1; cf. PX2063 (draft of demand letter).)

95 The Court calculated the potentially availa ble prejudgment interest (assuming a 100% allocation to the government) for a given year using that year’s response costs for the Sites ( see Meyer Decl. ¶ 50 fig. 29) and compounding interest from that year through 2013 using the variable Superfund interest rates. ( See USX427.) (Costs prior to 2000 were a ggregated and treated as all having been incurred during 2000.) The Court then summed the pot entially available prejudgment interest for each year’s response costs to reach an estimated total potentially available prejudgment interest of over $61104 equitable allocations for the Sites ( supra Section II.E), the government would owe Lockheed over $18 million in prejudgment interest. 96 Critically, there is no evidence – and Lockheed has expressly declined to provide any assurance – th at this $18 million in prej udgment interest would be allocated to the DiscOps Pool and thus pa rtially (87%) credited back to U.S.-government contracts. (Trial Tr. at1455 (Lockheed counsel); id. at 1878 (Lockheed closing).) Instead, the $18 million in prejudgment interest woul d amount to a bonanza for Lockheed. Lockheed would additionally benefit from a recovery of past response costs because between 40 and 50% of Lockheed’s existing governmen t contracts are fixed-price. (Trial Tr. at 1661 (Gatchel).) These pre-judgm ent fixed-price contracts are of varying terms and were negotiated without the expectation of a large lump sum CERCLA recovery for past costs. ( Id. at 1661, 1680.) Although Lockheed’s business units will flow credits from any recovery down to existing fixed-cost contracts, th ese credits will reduce Lockheed’s indirect costs on the contracts but will not reduce the price Lockheed realiz es from the U.S. government-as-client. ( Id. at 1679.) Thus, the credit does not functionally accr ue to the government, but instead amounts to additional profit for Lockheed. ( Id. at 601-04 (Wright); id. at 1679-80 (Gatchel).) Of course, fixed-price contracts entered into after an allocation of past costs to the government in this case presumably would account for upcoming amortized credits from the DiscOps Pool, and many pre-judgment fixed price contracts would terminat e during the five-year

million. This methodology is consistent with Dr. Meyer’s methodology that calculated a total potentially available prejudgment interest of just over $66 milli on, except that she used a demand date of 1994, which is inconsistent with CERCLA § 107(a)(4)(D). ( See Trial Tr. at 1518 (Meyer); Meyer Decl. ¶ 144.)

96 The Court conservatively calculated the government’s exposure by calculating prejudgment interest available by facility (using facility-speci fic response costs up through 2011) according to the procedure described above ( supra n. 95) and multiplying each facility’s potentially available prejudgment interest by the government’s equitable alloca tion for that facility’s response costs. ( See supra Section II.E.) The Court then summed the results for each facility to estimate the government’s total prejudgment interest exposure under the Court’s traditional equitable allocation.105 amortization period following a CERCLA recovery of past costs. However, Mr. Gatchel estimated that over ten percent of pre-judgment fi xed-price contracts would remain in effect over the entire five-year amortization period. ( Id. at 1680-81 (Gatchel).) Th e record before the Court is insufficient to establish with any precisi on how much Lockheed would benefit from a CERCLA recovery of past costs due to this incompatibility betw een the DiscOps Pool crediting scheme, unanticipated credits, and fixed-price contracts. Noneth eless, the available evidence

makes clear that the benefits for Lockheed w ould be substantial and at the expense of the taxpayer. Third, the Court is swayed by the fact that the taxpayers have already underwritten a substantial portion of Lockheed’s suit by indi rectly paying for over 85% of Lockheed’s more than $10 million in expert and legal fees and other costs. ( See Meyer Decl. ¶ 172.) This result

flies in the face of CERC LA’s prohibition against “the award of private litigants’ attorney’s fees associated with bringing a cost recovery action.” See Key Tronic Corp. v. United States , 511 U.S. 809, 819 (1994). While FAR § 31.205-47 may allo w Lockheed to recover its legal fees and costs through government contract s, that outcome is contrary to both CERCLA and the interests of the taxpayer. Thus, although it is beyond both the Court’s jurisdiction and the scope of this case to disallow Lockheed’s legal fees and cost s associated with bringi ng this action, the Court considers it equitably important that the taxpa yers are on the hook for over 85% of Lockheed’s

costs incurred in this action wh ich, as concluded above, would resu lt in further substantial costs to the taxpayers and accrue to the benefit of Lockheed. Accordingly, considering the totality of th e circumstances, the Court concludes that it would be inequitable to alloca te any liability for past response costs for the Sites to the government under CERCLA § 113(f)(1). Lockheed indirectly recovered through U.S.-106 government contracts the lion’s share of its past response costs at th e Sites, plus a profit. And Lockheed has indirectly recovered through the same U.S.-government contracts almost all of its extraordinarily high attorneys’ fees and costs that it has incurred to sue the government. From this baseline, it would be inequitable for Loc kheed to then receive the additional economic benefits – at the taxpayer’s e xpense – of substantial prejudgmen t interest and windfall profits from fixed-price contracts that would accompany a ny CERCLA recovery of past response costs. Accordingly, the Court equitably reduces the gov ernment’s share for past response costs at each of the Sites to 0%. B. Lockheed’s recovery of future response costs would not unfairly burden the taxpayer. The Court does not come to the same conclusi on with regard to fu ture response costs. CERCLA allocation and the DOSA pose no bigger th reat of “double recove ry” for future costs than for past costs. 97 And it bears emphasis, once more, that the DOSA clearly anticipated (if not intended) the coexistence of Lockheed’s indi rect recoveries from the government through government contracts and direct recove ries from the government under CERCLA. Further, most of the equitable considerations that motivated the Court to eliminate any further recovery from the government fo r past response costs do not apply to future response costs. For, pursuant to a declaratory judgmen t in this case, the government should reimburse Lockheed for its future response as those costs ar e incurred. Indeed, in nominal terms Lockheed is worse off following a direct CERCLA recovery from the government because it loses profits

97 Indeed, Lockheed would probably credit any direct payments from the government pursuant to a CERLCA allocation to the DOSA before the associated indirect response costs were flowed down to government contracts. Because the CERCLA allocati on payment for a given year’s response costs would predate Lockheed’s indirect recovery for those costs through government contracts, the DOSA – and not the CERCLA allocation for future costs – is the source of the government’s rub.107 that it would otherwise earn if those indirect costs were allocatedto contracts (U.S.-government and otherwise) through the DOSA. 98 Nonetheless, the Court must make a small e quitable adjustment to Lockheed’s recovery of future response costs at the Sites to account for the – albeit temporary – issue of pre-judgment fixed-price contracts. As de scribed above, fixed-price contra cts currently make up over forty percent of Lockheed’s contract base, and Lockhe ed – rather than the government – will benefit from all credits passed on down to pre-judgment fixed-price contracts. (Trial Tr. at 601-04 (Wright); id. at 1679-80 (Gatchel).) Further, over ten percent of these contracts will be in existence in five years. ( Id. at 1680-81 (Gatchel).) However, Lockheed will continue incurring response costs for the Sites far into the future and all post-judgment fixe d-price contracts will price in the predictable government CERCLA allocation (and credit s) pursuant to this action. With these counterbalancing factors in mind, th e Court considers it equitable to decrease modestly the government’s equitable allocati on for future costs at each facility by 1%. CONCLUSION For these foregoing reasons, the Court will a llocate a 0% share of liability to the United States for past response costs at the Sites. Howeve r, Lockheed is entitled to and will be granted a declaratory judgment that: 1. Twenty-nine percent of its future nece ssary response costs at or for the Redlands facility that are consistent with the National Contingency Plan will be allocated to the United States and shall be paid by the United States;

98 Of course, when taken to net present value, an up-front and direct CERCLA payment by the government is likely more valuable to Lockheed than the costs recovered and profits earned through government and non-government contracts over five years.108 2. Twenty-four percent of its future necessary response costs at or for the Potrero Canyon facility that are consistent with the Natio nal Contingency Plan will be allocated to the United States and shall be paid by the United States; and 3. Nineteen percent of its fu ture necessary response costs at or for the LaBorde Canyon facility that are consistent with the National Contingency Plan will be allocated to the United States and shall be paid by the United States.

An Order consistent with this Memorandum Opinion will also be entered on this date.

/s/ ELLEN SEGAL HUVELLE United States District Judge

Date: April 22, 2014