Opinion ID: 2737139
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Heading: Cost Recovery or Contribution

Text: We begin with NCR’s assertion that it should not be required to proceed by way of a contribution action under section 113(f) at all, but instead should be able to sue the defendant mills under the more plaintiff-friendly provision for cost recovery found at CERCLA § 107(a), 42 U.S.C. § 9607(a). We review this question of statutory interpretation de novo. Storie v. Randy’s Auto Sales, LLC, 589 F.3d 873, 876 (7th Cir. 2009).
Defining the relation between cost-recovery suits under section 107 and contribution actions under section 113 has proven vexing for courts. Section 107(a) is meant to support a claim for parties to recover costs incurred during a selfinitiated environmental cleanup, while section 113(f) creates a right to contribution for parties already subject to liability in either a section 107 action or an action by the government under CERCLA § 106, 42 U.S.C. § 9606. See United States v. Atlantic Research Corp., 551 U.S. 128, 138–39 (2007). Proceeding by way of section 107(a) holds advantages for a plaintiff insofar as it can recover “any … necessary costs of response incurred,” and defendants can assert only the statutory defenses enumerated in section 107(b), such as acts of God, acts 10 Nos. 13-2447 et al. of war, and third-party omissions. See 42 U.S.C. § 9607(a)(4)(B). See also California v. Neville Chem. Co., 358 F.3d 661, 672 (9th Cir. 2004). Equity plays no role in a section 107(a) action, in contrast to a section 113(f) action, where the entire allocation of costs is equitable, and even a defendant who concedes statutory liability may argue that it should bear none of the costs of response. The defendant in a section 107(a) action can always bring a section 113(f) counterclaim if the plaintiff is a PRP, but the burden of proof would then be on the counterclaiming defendant to demonstrate an entitlement to contribution. See Atl. Research Corp., 551 U.S. at 140 (explaining availability of 113(f) counterclaim); Goodrich Corp. v. Town of Middlebury, 311 F.3d 154, 168 (2d Cir. 2002) (discussing burden of proof). Whether a party must proceed under section 107(a) or 113(f) depends on the procedural posture of the claim. Atl. Research Corp., 551 U.S. at 139–40 (citing Consol. Edison Co. of N.Y. v. UGI Utils., Inc., 423 F.3d 90, 99 (2d Cir. 2005)). If a party already has been subjected to an action under section 106 or 107, or has “resolved its liability to the United States or a State for some or all of a response action or for some or all of the costs of such action in an administrative or judicially approved settlement,” it must proceed under section 113(f). 42 U.S.C. §§ 9613(f)(1), (f)(3)(B); see Bernstein v. Bankert, 733 F.3d 190, 201–02 (7th Cir. 2012). Conversely, a party that has not been subjected to an enforcement or liability action, and that is not party to a settlement, may proceed under section 107(a). See Cooper Indus., Inc. v. Aviall Servs., Inc., 543 U.S. 157, 166–68 (2004). Section 113(f) is closed to a litigant without a preexisting or pending liability determination against it even if it wants to proceed by that route, because that statute creates a right to contribution, and contriNos. 13-2447 et al. 11 bution exists only among joint tortfeasors liable for the same harm. See RESTATEMENT (SECOND) OF TORTS § 886A. See also Cooper Indus., 543 U.S. at 166–68 (unavailability of section 113(f)); Atl. Research Corp., 551 U.S. at 135–36 (availability of section 107(a)). Thus, although a strict reading of the phrase “necessary costs of response” in section 107(a) might suggest that parties who pay pursuant to an enforcement action might be able to sue under section 107(a), this court— like our sister circuits—restricts plaintiffs to section 113 contribution actions when they are available. Bernstein, 733 F.3d at 206. See also Hobart Corp. v. Waste Mgmt. of Ohio, Inc., Nos. 13-3273, 13-3276, 2014 WL 3397147 at  (6th Cir. July 14, 2014) (agreeing with Bernstein that sections 107(a) and 113(f) provide mutually exclusive remedies).
The question whether NCR may sue under section 107(a) is controlled by our decision in Bernstein. In that case we held that a settlement with the EPA “resolves” a party’s liability when the agreement, by its own terms, releases a party from CERCLA liability in an enforcement action. Bernstein, 733 F.3d at 204–15. We contrasted two Administrative Orders of Consent between the PRP and the EPA, both of which contained explicit language stating that the PRP would not be protected from suit by the EPA until after it had completed its cleanup obligations under the orders. The earlier order dealt with a project on which the PRP had completed work. The PRP was therefore limited to a contribution action under section 113(f) to recover its costs. The later order stipulated that “nothing in this Order constitutes a satisfaction or release from any claim or cause of action against the Respondents,” and that “[t]hese covenants [not 12 Nos. 13-2447 et al. to sue] are conditioned upon the complete and satisfactory performance by Respondents of their obligations under this Order.” Id. at 203, 207. The agreement memorialized in that order disclaimed any admission of liability by the PRP, Id. at 204, and the terms of the agreement gave the EPA the right to sue up until the point when the PRP completed its obligations. The PRP’s liability therefore could not be considered “resolved” by the order for CERCLA purposes. This meant that the order could form the basis of a section 107(a) suit because the PRP was still in the process of complying with it. NCR’s response costs at the River site arose under three orders: a consent decree following a 2001 suit by the EPA and WDNR, an Administrative Order of Consent for design work in 2004, and a Unilateral Administrative Order for remedial work in 2007. The company concedes that its costs under the 2001 consent decree must be recovered under section 113(f), if at all. It continues, however, to assert its ability to sue the recycling mills under section 107(a) for costs incurred pursuant to the 2004 and 2007 orders. Its argument with respect to the 2007 order is easily dispatched. The government filed a lawsuit to enforce that order in 2010. Under CERCLA’s express terms, a party may seek contribution from any other PRP “during or following any civil action under section 9606 [CERCLA § 106] of this title or under section 9607(a) [CERCLA § 107(a)] of this title.” CERCLA § 113(f)(1); 42 U.S.C. § 9613(f)(1) (emphasis added). Thus, a section 113(f) action is available to NCR for the costs incurred under the 2007 order. This means that section 107(a) is not available. See Bernstein, 733 F.3d at 206. We are unpersuaded by NCR’s contention that the costs it incurred under the order before the action was filed in October 2010 Nos. 13-2447 et al. 13 were “voluntary,” and thus not part of the costs recoverable under section 113(f). Such slicing and dicing of costs incurred under the same administrative order makes little sense when a party’s liability for all of those costs will ultimately be determined in the enforcement action. As for the 2004 Administrative Order of Consent, our analysis again is guided by Bernstein. The question whether NCR has resolved its liability to the government through the consent order—and thus is limited to section 113(f)—is a matter of contract interpretation. On that score, the consent order here diverges in every meaningful way from the one in Bernstein that left section 107(a) available. In Bernstein, the covenants not to sue were “conditioned upon the complete and satisfactory performance” of the PRP’s obligations. 733 F.3d at 203. In contrast, under the 2004 order here both the EPA and WDNR “covenant[ed] not to sue or to take administrative action against Respondents [under CERCLA or state law] for performance of the work.” It explicitly provided that “[t]hese covenants not to sue shall take effect upon the Effective Date” (emphasis added); in Bernstein, the covenants did not take effect until completion of the work. To be sure, the NCR order also has language conditioning the covenants on “satisfactory performance” of NCR’s obligations. But this means only that the federal or state government could sue NCR if it breaches the agreement—a standard arrangement that is consistent with the fact that neither the EPA nor Wisconsin could sue NCR if it complied with its obligations. The agreement resolved NCR’s liability, and so the district court correctly held that it limited NCR to proceeding under section 113(f). To hold otherwise would mean that no consent order could resolve a party’s liability 14 Nos. 13-2447 et al. until the work under it was complete. Such a rule would be contrary both to the analysis in Bernstein and to common sense.
Appvion finds itself in a materially different position from NCR when it comes to the choice between cost recovery and contribution. In fact, it appears to be in an unusual, possibly unique, position among parties incurring costs under CERCLA: it was initially identified as a PRP by the government and paid response costs in that capacity, but later it was held to fall outside of CERCLA’s statutory grounds for liability. It is now on the hook for response costs only as NCR’s indemnitor pursuant to an agreement signed when the companies split up. It is seeking the costs of response it paid directly while it was regarded as a PRP. To understand how Appvion ended up in this position, it is helpful to look at its corporate history. It started out as Appleton Coated Paper Company, one of the two mills that coated copy paper with NCR’s PCB-based emulsion and then sold the finished carbonless product back to NCR. In 1970, NCR acquired all of its stock, and it became NCR’s wholly owned subsidiary. It then merged with another NCR subsidiary and was renamed “Appleton Papers, Inc.,” which merged with NCR in 1973 and became an unincorporated division. NCR later sold the assets of that division to an outside corporation called Lentheric, which changed its name in 1978 to Appleton Papers Inc. (without a comma, unlike its previous iteration). It finally became Appvion after yet one more name change in 2013. Nos. 13-2447 et al. 15 The 2007 Unilateral Administrative Order identified Appvion as a PRP, and the government named it as a defendant in its 2010 enforcement action under section 106. In late 2011, however, the district court decided that Appvion had not assumed Appleton Coated Paper Company’s CERCLA liability when it was sold by NCR, and that the liability remained with NCR as a matter of contract. This ruling created a conceptual problem, because Appvion already had incurred costs of compliance under the 2007 order. The district court sidestepped the question— apparently of first impression—whether a party formerly identified as a PRP but later found not to have that status (and thus not to be liable under CERCLA) could recoup its costs under section 107(a), 113(f), neither, or both. Instead, the court found that Appvion had agreed to indemnify NCR for CERCLA costs as part of an earlier settlement agreement between the companies. (The existence of this agreement was the basis for Appvion’s successful argument that it was not directly liable in the government’s 2010 enforcement action.) The court held that whatever costs Appvion had incurred could not be traced to CERCLA; they were incurred instead pursuant to the indemnity agreement. The agreement provided, the court concluded, that Appvion’s “rights, limitations, and defenses” were the same as NCR’s. Appvion was subrogated to NCR’s contribution claim through CERCLA § 112(c), 42 U.S.C. § 9612(c)(2) (providing for subrogation), and could recover its costs exclusively through NCR and this subrogation arrangement. In the run-of-the-mill case, a rule that a CERCLA indemnitor (here, Appvion) is limited to proceeding through its indemnitee would be sound. The leading case in this area is 16 Nos. 13-2447 et al. Chubb Custom Ins. Co. v. Space Systems/Loral, Inc., 710 F.3d 946 (9th Cir. 2013). There, the Ninth Circuit held that an indemnitor insurance company had not incurred costs “under CERCLA” because the money it disbursed did not correspond to “costs of response,” but rather to independent contractual obligations based on the indemnified party’s costs of response. Id. at 952–53. If the rule were different, the court feared, insurers could exploit it to make an end-run around section 113(f): they could make payments directly to jointly liable parties instead of filtering the money through their indemnitees. They could then turn around and bring a section 107(a) action against those parties because the insurer (by hypothesis) was not a PRP. Chubb reflects the fact that an indemnitor normally is able to satisfy the full amount of any claim it would otherwise have brought under section 107(a) by standing in the shoes of its indemnitee in a section 113(f) action. Permitting it to operate outside section 113(f) would unjustly improve its litigating position. This case, however, does not fit the normal pattern. Appvion was not acting as an indemnitor when it paid the response costs it now seeks to recover; as of then, it was a PRP. Even if it were to stand in NCR’s place, it could not hope to recover for what it paid, because NCR would not be entitled to contribution for response costs that it did not bear. The indemnity agreement is a one-way street: it does not expand NCR’s costs of response and thus allow it to sue for contribution toward Appvion’s costs for paying at least part of NCR’s contribution share. It is conceivable that in some circumstances, an indemnitor-former PRP that incurs direct response costs and is later found not liable under CERCLA may wish to recover costs Nos. 13-2447 et al. 17 even from the party it is indemnifying. Imagine, for example, a hypothetical situation in which Appvion paid $20 million in response costs before it was found not to be a PRP, and later NCR was assigned to pay $5 million in contribution to its fellow PRPs in a section 113(f) action. Appvion would be on the hook to NCR for $5 million under the indemnity agreement (assuming it indemnifies at 100%). Even though in principle it starts out wanting to recover the $20 million it paid in response costs because it was not a liable party in the first place, in the end the sum needed to make it whole would be $25 million—its own response costs of $20 million plus the $5 million paid under the indemnity agreement. There is good reason to take the position that at least the $20 million should be allocated equitably among the PRPs, not irrevocably assigned to a party that was erroneously identified as a PRP and in that capacity complied with the EPA’s order while contesting its liability. Principles of contract should govern any rights between the parties under the indemnity agreement. It is not readily apparent which statutory mechanism is the proper one for reimbursing the erroneously imposed costs paid by the non-PRP. But it seems apparent that something should be available. This is true regardless of any independent indemnity agreement with another PRP, insofar as costs that fall outside the agreement are concerned. A section 113(f) action is a poor fit for this situation, because contribution exists only among joint tortfeasors. RESTATEMENT (SECOND) OF TORTS § 886A. A party such as Appvion that is no longer a PRP logically cannot be a joint tortfeasor for CERCLA purposes. 18 Nos. 13-2447 et al. That leaves us with section 107(a). It turns out to be a reasonably good fit, if one characterizes Appvion’s response payments as constructively voluntary. When it turned out that Appvion could not legally be bound to pay the response costs that it had already paid under the order, the nature of those payments had to be reconsidered. Had Appvion been properly characterized from the start, any payments it might have made would have been wholly voluntary. It makes sense, we think, to apply that lack of compulsion retroactively. Under Atlantic Research Corp., Appvion is therefore entitled to bring a section 107(a) action against the PRPs sharing liability for the Lower Fox River site. See 551 U.S. at 135–36. We stress that this action is available not because Appvion is NCR’s indemnitor, but precisely because it was not indemnifying NCR when it incurred these response costs. Section 107(a) is not available for the recovery of any costs that arise through Appvion’s indemnity agreement; we agree with the Ninth Circuit’s holding in Chubb that the company qua indemnitor is limited to its indemnitee’s CERCLA remedies. Maintaining the bright-line distinction between costs incurred as a former PRP and costs incurred as an indemnitor should prevent the undesirable scenario that would permit an indemnitor to exploit the use of direct CERCLA payments to enhance its litigating position, while safeguarding the rights of non-responsible parties not to have to contribute to the costs of clean-up. Because the district court held that Appvion could not sue under section 107(a), we must reverse its decision and remand for further proceedings.