The Honorable Patrick A. Conmy, United States District Judge for the District 1 of North Dakota, sitting by designation. United States Court of Appeals FOR THE EIGHTH CIRCUIT

_____________ No. 97-2254

_____________ United States of America, * * Appellee, * * Appeal from the United States
v. * District Court for the * Southern District of Iowa. Dico, Incorporated, * * Appellant. *

_____________ Submitted: November 20, 1997 Filed: February 12, 1998

_____________ Before BOWMAN and MURPHY, Circuit Judges, and CONMY, District Judge. 1

_____________ BOWMAN, Circuit Judge. Dico, Inc., appeals from the District Court's decision to gr ant summary judgment to th e United States on the government's claim to recover from Dico response cost s incurred in asso ciation with the environmental cleanup of groundwater determined by the Environmental Protection Agency (EPA) to be contaminated. Dicoalso appeals the order dismissing its counterclaim, in which the company sought reimbursement ofThe President has delegated much of his authority in these matters to th e 2 Administr ator

of the Environmental Protection Agency (EPA). See Dico, Inc. v

. Diamond , 35 F.3d 348, 349 n.1 (8th Cir. 1994).
-2- amounts it expended cleaning up the site. We affirm in part and vacate and remand in part.

I.

This case arises under the Comprehensive Environmental Response , Compensation, and Liabil ity Act (CERCLA), 42 U.S.C. § 9601-9675, as amended by the Superfund Amendments and Reauthorization Act of 1986 (SARA), Pub. L. No. 99- 499, 100 Stat. 1613. Under CERCLA, the EPA has broad "auth ority to direct clean-up operations prior to a final judicial determination of the rights and liabilities of th e part ies affected." Solid State Circuits, Inc.v. United States EPA , 812 F.2d 383, 38 7 (8th Cir. 1987) . The penalties can be harsh for those who refuse to comply with a n administrative cleanup order if they later are determined to be liabl e for the cleanup and to have resisted the order with out sufficient cause. See id. at 388. In the 1986 SARA amendment s, Congress provided procedures by which a party who pays for cleanu p pur suant to an order from the EPA but does not believe it is liable may petition th e President to recover its response costs from the Hazardous Substance Response Trust Fund (Superfund) established by CERCLA, and may bring the same claim in federal court if it re ceives an adverse ruling from the President. See 42 U.S.C. § 9606(b)(2) 2 (1 994). This is the basis for Dico's counterclaim. By the same token, CERCL A provides that the EPA may bring an action in district court to recover from responsible part ies the removal and remediation costs the government has incurred in association with the cleanup of a hazardous waste site. See i d. § 9607(a) (1994). This is the basis of the EPA's claim.-3-

This is not the first time this litigation has been before our Court. See Dico, Inc. v. Diamond , 35 F.3d 348 (8th Cir. 1994). The case has its roots in the discovery in the mid-1970s of contamination in the D es Moines, Iowa, public water supply. EPA tests determin ed that the Des Moines Water Works (DMWW) was contaminated b y trichlorethylene (TCE) and other substances designated as hazardous by the EPA. The EPA identified the land area determined to be the source of the contamination, the Des Moines TCE Site, and in 1983 thi s site was placed on the EPA's National Priority List (NPL). Dico's property was included in the site. Over the years, Dico and its corporate predecessors had used TCE in industrial degreasing operations and other activities, and other busi nesses in the vicinity apparently had used the compound on their properties

as well. In 1986, the EPA ordered Dico, as a potentially responsible party (PRP), to capture and treat the contaminated groundwater in Operable Unit 1 (OU-1), one of four operable units that the EPA defined for purposes of cleaning up the site and the only one at issue here. The remedial system Dico constructed began operating in December 1987.

The fol lowing summer, in July 1988, Dico sought from the Superfun d reimbursement for co sts the company had incurred, and would continue to incur, with respect to its remediation efforts at the site. The EPA denied the petition, holding that th e 1986 SARA amendment that permitted such reimbursement did not appl y retroactively to the EPA's cleanup order issued to Dico before the effective date of the
ame ndment. The Environmental Appeals Board (EAB) sustained the EPA after a n admini strative hearing. Dico then brought suit in the district court, but the court granted summary judgment for the EPA, deferring to the agency's interpretation of the statute. Dico appealed. We reversed and remanded to the district court with instru ctions to remand for further proceedings. Our opinion was filed in Septembe r 1994. On April 21, 1995, with Dico's administrative claim for reimbursement pending before the EAB, the United States filed this action in the District Court seekin g recovery from Dico --and only Dico--of costs that the EPA had incurred in connection with cleanup of the groundwater at t he Des Moines site. Dico filed a counterclaim for-4-

reimbur sement

of its costs, and also moved the EAB to stay the administrativ e proceeding s on the ground that the claim pending before the EAB was the same a s Dico's counterclaim filed in federal court. The EAB granted the motion.
On September 13, 1996, the District Court granted the EPA's motion to dismiss Dico's counterclaim for failure to exhaust administrative remedies. On April 1, 1997, the court granted summary judgment to the EPA on its claim for response costs , incl uding indirect and oversight costs, in the amount of $4,378,110.66. See Unite d States v. Dico, Inc. , 979 F. Supp. 1255 (S.D . Iowa 1997). On April 25, 1997, the EPA moved the EAB to deny Dico's administrative action for reimbursement without a hearing, arguing that it was barred by res judicata. C ounsel for Dico represented to this Court at oral argument that the motion has been granted. Dico appeals the orders of the District Court.

II.

We first address Dico's c laim that the court erred in dismissing its counterclaim. The District Court held that Dico failed to exhaust its administrative remedies. In the absence of exhaustion, when exhaustion is required, the court does not have subjec t matter jurisdiction. We review this question of law de novo.
In its counterclaim, Dico sought recoupment of its remediati on costs, arguing that its operatio ns did not cause TCE contamination of the groundwater at the site. Dic o says it seeks only an offset of the EPA's claim for response costs, which are less than Dico's costs, and no affirmative recovery--notwithstanding its claim that it is liable for

no cleanup costs whatsoever, a theme that runs throughout its brief. Dico does no t contend tha

t there is no exhaustion requirement, but makes various arguments that the requirement should be "waived" in these circumstances, that so mehow Dico did exhaust its administrative remedies, or that Dico was "excused" from exhausting. We-5-

are not persuaded by any of these arguments, as the law is very clear on this issue i n circumstances such as these.

"The doctrine of exhaustion of administrative remedies is one among relate d doctrines--including abstention, finality, and ripen ess--that govern the timing of federalco urt decisionmaking." McCarthy v. Madigan , 503 U.S. 140, 144 (1992). Suc h exhaustion "is required where Congress imposes an exhaustion requirement by statute." Coit Independence Joint Venture v. FSLIC , 489 U.S. 561, 579 (1989). The government argues that Congress did so with CERCLA, and we agree.

No later than sixty days after completing the response and remedial actio n requir ed by an administrative order, a party may "petition the President fo r reimbursement from the Fund for the reasonable c osts of such action, plus interest." 42 U. S.C. § 9606(b)(2)(A). Then, "[i]f the President refuses to grant all or part of a petition made under this paragraph, the petitioner may . . . file an action against th e President in the appropriate United States district court seeking reimbursement from the Fun d." Id. § 9606(b)(2)(B). Using such language, Congress fully intended that petitioners seeking reimbursement of costs expended complying with an administrative cleanup order should not ha ve a cause of action in the courts until they have exhausted the adminis trative remedies set forth in the statute. See United States v. M/V Sant a Clara I , 819 F. Supp. 507, 51 2 (D.S.C. 1993); Employers Ins. of Wausau v. Bush , 791 F. Sup p. 1314, 1322 (N.D. Ill. 1992). On behalf of the United States, Congress ha s consented to s uit in federal court, but that consent is not and need not be absolute

. Here, Congress has restricted the right to sue by, among other things, insuring that the executive branch has the initial opportunity to dispense justice. The court did not have subject matter jurisdiction over Dico's counterclaim.

Dico's claim that the requirement should be "waived" is without merit. It is true that "whe re Congress has not clearly required exhaustion, sound judicial discretio n governs." McCarthy , 503 U.S. at 144. But in CERCLA, Congress "clearly required-6-

exhaustion," so we need not evaluate the factors a court would consider in exercising its discretion. But even assuming arguendo that Congress had not spoken clearly, and that the co urt did have discretion to waive exhaustion requirements, we would find no abuse of that discretion.

To the extent an exhau stion requirement is judicially imposed, it can be waived. The waiver decision should "be guided by the policies underlying" the doctrine o f exhaustion of administrative remedies. Bowen v. City of New York , 476 U.S. 467, 484 (1986). The exhaustion requirement is designed to "[protect] administrative agenc y authority and [promote] ju dicial efficiency," McCarthy , 503 U.S. at 145, and those are the policies a court must

keep in mind in making the waiver decision. The rationale of the doctrine is that an administrative agency should have the opportunity to apply it s expertise, exercise the discretion delegated to it by Congress, and correct its ow n allegederrors in the first instance, with the possibility of avoiding resort to the courts altogether. The exhausti on requirement also improves the possibility that there will be produced a fully-developed factual r ecord, facilitating judicial review should it become
necess ary and promoting judicial efficiency by aiding the court in its evaluation an d analysis of often technical matters. See McKart v. Unite d States , 395 U.S. 185, 193-95 (1969); Peters v. Union Pac. R.R. , 80 F.3d 257, 263 n.3 (8th Cir. 1996); Sharps v

. United States Forest Serv. , 28 F.3d 851, 854 (8th Cir. 1994).

This ca se has little to commend it for waiver. Here, a fully-developed factua l record drawing upon agency expertise likely would be most helpful to the court. Cf

. Bowen , 476 U.S. at 485 (allowing waiv er of administrative remedies where, inter alia, the administ rative policy at issue did not depend on facts before the court, but wa s illegal on its face). Waiv er may be appropriate when "an agency . . . may be unable to consider whether to grant relief bec ause it lacks institutional competence to resolve the particular type of issue presented, such as the con stitutionality of a statute." McCarthy , 503 U.S. at 147-48. In such a case, it may make sense to bypass the administrativ e action. Presumably Dico has raised no constitutional issues in the administrative-7-

proceeding and there certainly are none in the counterclaim, which Di co has represented to be identical to its administrative claim. No other issues incapab le of resolution by the ag ency have been suggested. Thus institutional incompetence is not a ground fo r waive r. On the record before us, we conclude that, even if the District Court wer e permi ttedto exercise discretion in determining if Dico was required to exhaust it s administrative remedies before bringing the same claim in court, Dico has demonstrated insufficient reason that such discretion should be exercised in favor of waiver.
Dico also argues that it exhausted its administrative remedies because it filed its administrative petition for reimbursement before the EPA filed its lawsuit in the District Court. The company makes this argument notwithstanding the fact that Dico, and not the government, sought to st ay the administrative proceedings. Although Dico already had filed its administrative claim when the United States filed suit in federal court, the proceedings were not completed. The administrative remedies required by statute were not exhausted absent a final administrative decision.

Dico con tends that it should be "excused" from exhausting its administrativ e
rem edies because it otherwise loses all recourse to the courts on its claim fo r reimbursement. "To be weighed against the interests in exhaustion is the harsh impact of the doctrine w hen it is invoked to bar any judicial review of a [petitioner's] claims." McGee v. United State s , 402 U.S. 479, 484 (1971). The company was excused, Dico conten ds, because it would be a violation of public policy if Dico's failure to exhaus t would result in the EPA availing itself of the jurisdiction of the f ederal court, while Dico could not resort to the same forum. Dico asserts (and the government appears to agree) that its counterclaim is compulsory because it "arises out of the transaction o r
occ urrence that is the subject matter of the opposing party's claim," Fed. R. Civ. P

. 13(a), and therefore will be lost if not asserted in its responsive pleading to the EPA's claim. The cases Dico cites in support of its argument that it should be excused from the exhaustion requirement, however, analyze claims under the Federal Tort Claims-8-

Act, w hich specifically exempts counterclaims from exhaustion requirements. See 28 U.S.C. § 2675(a). It is our conclusion, in any case, that the "excuse" is not necessary, as Dico' s counterclaim is not compulsory and therefore is not lost if it is dismissed for failure to exhaust administrative remedies.

Under Federal Rule of Civil Procedure 13(a), a compulsory counterclaim must be asse rted in responsive pleadings or it is "thereafter barred." Baker v. Gold Sea l Liquors, Inc. , 417 U.S. 467, 469 n.1 (1974). There are exceptions to the rule, one of which relieve s a party from stating the counterclaim if "at the time the action wa s commenced the claim was the subject of another pending action." Fed. R. Civ. P

. 13(a)(1). Th at is the case here. Dico filed its administrative claim in 1988. Although the claim w as denied in 1992, it was remanded for further proceedings in 1994
. So at the time Dico's answer was required to b e filed, there was "another pending action" the subject of which was Dico's claim for reimbursement of its cleanup costs . The rule does
no t require that the action be pending before another court, to the exclusion of a n administ rative tribunal of competent jurisdiction. We conclude that Dico' s administrative claim before the EAB, required by statute to be resol ved before filing suit in court , is "another pending action" within the meaning of Rule 13(a)(1). Se e Bethlehem Steel Co. v. Lykes Bros. Steamship Co. , 35 F.R.D. 344, 346 (D.D.C. 1964) (holding that counterclaim was the "subject of another pending action" before th e Marit imeBoard and therefore was not compulsory). Perhaps Dico miscalculated i n seeking a s tay of the administrative proceeding instead of moving to stay the EPA' s court pr oceeding, but the claim before the EAB was only stayed and not denied, an d therefore was pending at the time the counterclaim was filed.
In sum, the District Court properly dismissed Dico 's counterclaim. The court did not have subject matter jurisdiction because Dico failed to exhaust the administrative
re medies provided by CERCLA before filing its counterclaim. But the counterclai m was not compulsory and therefore should have been dismissed without prejudice.There is a fourth element that must be proved as well: "that the costs [sought 3 to be recovered by the EPA] were necessary and consistent with the nationa l contingency plan." Control Data Corp. v. S.C.S.C. Corp. , 53 F.3d 930, 934 (8th Cir. 1995). This is not an issue that needs to be addressed in this appeal.
-9- We now consider the District Court's decision to grant summary judgment to the United States on the merits of its claim.

III.

Dic o presents a series of questions raising the issue whether, and if so to wha t extent, Dico was liable for the gro undwater contamination for which the administrative cleanup o rder was issued. The District Court, in granting summary judgment for th e United States on its claim for reimbursement of costs associated with cleanup of OU-1, concluded t

hat Dico raised no genuine issues of material fact in response to the EPA's motion. We review de novo , viewing the evidence in the light most favorable to Dico, and we will affirm only if we agree there are no genuine issues of material fact and that the United States is entitled to judgment as a matter of law.

Dico first argues that the EPA has not proved that the company should be held strictly liable for the EPA's cost s of cleaning up OU-1 under 42 U.S.C. § 9607(a). See Control Data Corp. v. S.C.S.C. Corp. , 53 F.3d 930, 934 (8th Cir. 1995) (setting forth elements that must be shown to prove liability under § 9607(a)). The District Court held that Dico was (1) an owner or operator (2) at a time when TCE was released, see 42 U.S.C. § 9607(a), propositions with which Dico does not quarrel. But there is a third req uirement

before strict liability attaches: notwithstanding a release, the "plaintif f 3

mus t establish a causal nexus between that release and the incurrence of respons e costs ," although "the degree of connection" required is open to some debate. Control Data Corp. , 53 F.3d at 935 n.8. The District Court made short w ork of Dico's argument that the necessary connection cannot be made. The court held that "Dico does no t dispute the United States incurred some response costs as a result of the TCE-10-

contamina tionat issue" and therefore concluded that Dico was strictly liable for th e costs at issue. United States v. Dico, Inc. , 979 F. Supp. at 1259. The District Court erred.
Although Dico may have conceded that its operations over the years could have caused soil contamination at the site, we see nothing in the record to support th e proposition that Dico admitted that any such soil contami nation caused the groundwater contamination at OU-1 , which i n turn caused the EPA to incur response costs. In fact,
as we read the record, Dico consistently has denied responsibility for groundwate r contaminatio n

at OU-1, even while conceding the possibility that it is liable for soi l contamination within the site. As the United States acknowledges,
Operable Unit 1 ("OU-1"), which is the focus of this litigation, wa s se parately delineated to deal with the groundwater contamination, an d Operable Unit 2 ("OU- 2"), also known as the South Area Source Control Op erable Unit, was designated to address releases to the groundwate r from the soil at Dico's property --which comprises a portion of the Site.
Brief of Appellee at 6 (emphasis added). The government fre ely admits that "[t]he EPA in this lawsuit is seeking only to recove r its expenses regarding OU-1 , and not OU-2." Id. at 6 n.7 (emphasis added). Any response costs the EPA might have incurred i n relati onto OU-2 or any other operable unit within the site, and therefore evidence o f Dico's alleged admissions regarding soil contamination within the site, are of n o consequence.

It remains to be determined whether Dico has raised a genuine issue of material fact on t he question of whether the TCE disposal for which Dico is potentiall y responsib le, soil contamination within the site, is the source of the groundwate r contaminat ionat OU-1. Because the District Court determined that Dico admitte d liability for some of the EPA's OU-1 response costs (which we now hold was error),-11-

the court did not address the question. After reviewing the record before us, w e conclude that Dico has carried its burden and that summary j udgment was inappropriate in this case.

There is some evidence in the record that the highest concentrations of TC E grou ndwater

contamination are directly beneath Dico's property. This certainly i s circumstantial evidence that it was Dico's actions that caused the contamination a t OU-1. But Dico submitted evidence that none of the EPA 's numerous soil borings from the area establishes a continuous line of contamination from the soil surface, through fill and native soils, to the groundwater. Further, Dico asserts and has submitted evidence in support of the assertion that, to the extent the record may be said to include evidence of continuous borings that do show a direct line from Dico property to the water table, the methodology employed in the sampling and the testing of those borings is open to
se rious challenge. The EPA answers that there are other ways for the TC E contamination to have migrated to the groundwater other than straight down through the soil. But the EPA's hypothesis that this mayb e what happened at the Des Moines TCE Site is unsupported by record evidence, and therefo re does not resolve the fact question of wheth er that is what actually happened at the site in the years before groundwate r contamination was discovered.
Granted, the witnesses whose testimony arguably establishes genuine issues of material fact have self-ser

ving reasons for testifying as they have. But that also can be said of the EPA's witnesses. Assessing the credibility of witnesses and evaluating the weight to assign to their testimony is the job of the fact-finder, and is not a function for the court on a motion for summary judgment. See Oldham v. West , 47 F.3d 985, 988- 89 (8th Cir. 1995). Therefore, where there are witnesses whose testimony raise s genuine issues of material fact, summary judgment is inappropriate.

We conclude that the United States, as plaintiff seeking a monetary recovery of considerable magnitude, should be put to its proof on its claim that Dico's disposal of-12-

hazardous materials caused groundwater contamination that led to the response costs that the EPA incurred in connection with OU-1. Dico's evidence raises a genuine issue of material fact for resolution at trial.
Finally, Dico contends that it w as entitled to the statutory defense set forth in 42 U.S.C. § 9607(b)(3) (1994) because the release of hazardous substances at issue and the resultant damages "were caused solely by . . . an act or omission of a third party" not connected with Dico. The company argues that, with regard to costs related to the so-called north plume of contamination at the site, located north o f and up-gradient from Dico's property, "Dico is an innocent third party" because that "contamination wa s caused solely by sources other than Dico." Brief of Appellant at 29. Dico reiterate s that it is not responsible for the groundwater contamination " at all ." Id. But even if it is, Dico claims, "the North Plume is a separate and distinct plume whose harm i s capable of reasonabledivisibility and apportionment," id. at 31, and as a matter of law Dico sh ould not be responsible for that part of the EPA's response costs that are no t attributable to Dico releases.

Because we have held that the case should be remanded for trial on the question of Dic o's liability, we need not and do not address this fact-dependent argument. I t should be resolved at trial.

IV.
For its final issue on appeal, Dico insists that th e indirect and oversight costs that the EPA supposedly incurred in connection with OU-1 were not recoverable. Th e Distr ict Court held that they were, although the court did not indicate what part of the $4.3 mill ion award was attributable to the disputed costs (and counsel for th e government could not definitively break it down for us at oral argument). D ico contends that such expenses arenot "costs of removal or remedial action incurred by the United States Government," 42 U.S.C. § 9607(a)(4)(A), within the meaning ofAs we mentioned early in the opinion, after the District Court granted summary 4 judgment to the United States in thi s case, the EPA moved the EAB for denial without
a hearing of

Dico's petition for reimbursement on grounds of res judicata. Dico' s counsel told the Court at oral argument that the motion has been granted. Although we do not k now the grounds on which the EAB's decision was made, and we therefor e express no opinion on the merits thereof, we do point out that it is Dico's counterclaim, not the government's claim, that is sai d to be identical to the administrative petition for reimburs ement. It should be remembered that the counterclaim was dismissed o n jurisdictional grounds, and there was no full and fair adjudication on the merits

. Moreover, given our dispo sition of the present appeal, there is no final judgment from the District Court on t

he government's claim. See W.A. Lang Co. v. Anderberg-Lund Printing Co. ( In re Anderberg-Lund Printing Co. ), 109 F.3d 1343, 1346 (8th Cir. 1997) (discussing elements of the rule of res judicata).
-13- CERCLA. Because we are vacating the judgment entered for the United States an d
re manding for trial, the money judgment is necessarily set aside in its entirety

. Resoluti onof the issue of whether costs that the EPA may recover pursuant to 4 2 U.S .C. § 9607(a) include indirect and oversight costs is reserved for another day, and quite possibly another case.

V.

The District Court's decision to dismiss Dico's counterclaim on the ground that Dico has not exhausted its administrative remedies is affirmed, with instructions that the court make it clear that the dismissal is without prejudice. The judgment entered for 4 the United States is vacated and the money judgment is set aside. The case is remanded to the District Court for further proceedings consistent with this opinion.-14-

A true copy.

Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.