Opinion ID: 779912
Heading Depth: 2
Heading Rank: 2

Heading: Objections to Response Costs and Offsets

Text: 72 As we stated earlier, CERCLA § 113(f) provides: Any person may seek contribution from any other person who is liable or potentially liable under § 9607(a).... In resolving contribution claims, the court may allocate response costs among liable parties using such equitable factors as the court determines are appropriate. 42 U.S.C. § 9613(f)(1). In turn, under CERCLA § 107(a)(4)(B), a plaintiff may recover any ... necessary costs of response incurred ... consistent with the national contingency plan. 42 U.S.C. § 9607(a)(4)(B); 40 C.F.R. § 300.700(c)(2).
73 The district court deducted $8,768,387.00 from LPC's total response costs to arrive at the net recoverable response costs against which the Municipal Defendants' percentage contribution shares were assessed. The LPC contends that the court should have excluded $3,592,258.12 — the amount the LPC expended in litigation costs settling those claims — from the total settlement proceeds to accurately reflect the amounts available to be expended on remediation. The district court rejected this argument as a back-door attempt to recover attorneys' fees, which are generally not recoverable under § 113(f). We agree. 74 Neither CERCLA § 107, the liabilities and defenses provision, nor § 113, which authorizes contribution claims, expressly mentions the recovery of attorney's fees. Key Tronic Corp. v. United States, 511 U.S. 809, 815, 114 S.Ct. 1960, 128 L.Ed.2d 797 (1994). Thus, expenses incurred solely in preparation for litigation cannot be recovered as response costs unless they `significantly benefitted the entire cleanup effort and served a statutory purpose apart from the reallocation of costs.' Gussack Realty Co. v. Xerox Corp., 224 F.3d 85, 91-92 (2d Cir.2000) (quoting id. at 820, 114 S.Ct. 1960). The LPC does not argue that the attorneys' fees it incurred significantly benefitted the cleanup effort. Rather, it claims Key Tronic only precludes an award of litigation expenses, and should not apply where a party seeks to decrease an offset to its recoverable response costs. We fail to see any distinction. As the district court reasoned, if the litigation costs are not excluded from LPC's total response cost, the Municipal Defendants will wind up footing part of the bill-which would be akin to an award of fees. Accordingly, we affirm the district court on this issue. 18
75 The Municipal Defendants claim the district court erred by failing to articulate its finding on the BHC's response costs. In its First Ruling, the court held that the BHC incurred recoverable response costs totaling $40,664,785.77, despite the BHC's claim to have spent more cleaning up the landfill. The court did not set forth a detailed list of each response cost it found to be recoverable; rather, it addressed only certain response costs, regarding the remaining costs as uncontested. 76 The Municipal Defendants moved for reconsideration of the First Ruling, seeking an articulation of the court's findings as to each recoverable response cost. In response to the Municipal Defendants' motion, the BHC alerted the court that the $40,664,785.77 figure overstated the court's actual allowance of the BHC's response costs. Accordingly, the BHC set forth a two-column table illustrating in one column each cost it claimed in its proposed findings of fact and, in the second column, the deductions, if any, to each cost as per the First Ruling. Using this table, the BHC calculated its recoverable response costs as $39,818,648.26. 77 In its Second Ruling, the court adopted this revised figure, specifically referring the parties to the table provided by the BHC. Additionally, the court appended an unannotated adding tape, intended to reflect the court's correction of its mathematical error. While we agree with the Municipal Defendants that the district court's adding tape was not particularly illuminating, we hold that its findings were sufficiently articulated to put the Municipal Defendants on notice of the response costs allowed. 78 We also note that, except as discussed below, the Municipal Defendants failed to identify on appeal any BHC response cost erroneously allowed by the district court. Instead, the Municipal Defendants invite us to ferret out their objections by sifting through their submissions to the district court. We decline their invitation. 79 Finally, the Municipal Defendants claim, and the BHC concedes, that the district court erred by awarding BHC a lump-sum payment of $4,314,485.00, allocated among the various Municipal Defendants, representing the future discounted contingent operations and maintenance costs for the Beacon Heights site. In Gussack Realty Co. v. Xerox Corp., we held the proper remedy for future response costs is not a present lump-sum payment of anticipated expenses but instead a declaratory judgment award dividing future response costs among responsible parties. 224 F.3d 85, 92 (2d Cir.2000) ( per curiam ); see also 42 U.S.C. § 9613(g)(2) ([T]he court shall enter a declaratory judgment on liability for [future] response costs or damages....). Here, as in Gussack Realty, the district court provided a remedy not available under CERCLA. Gussack Realty, 224 F.3d at 92. Accordingly, we remand the case to the district court for entry of a declaratory judgment consistent with § 9613(g)(2). 80
81 Naugatuck Treatment Company (NTC) — a wholly-owned subsidiary of BHC member Uniroyal — is one of the many third-party defendants who settled with the BHC prior to trial. NTC — in exchange for a complete release from any further liability — paid the BHC $325,000.00 in 1993. 82 Five years later, during the proceedings before the Master, the Borough of Naugatuck produced evidence showing that the $325,000.00 NTC gave to the BHC for the release was taken from a reserve fund held by NTC in escrow for the benefit of the Borough. The Borough's witness explained that the reserve fund was earmarked for major capital improvements at the Borough's treatment facility, not for paying down NTC's CERCLA liability. 83 After the hearings before the Master concluded, the Municipal Defendants argued in their papers that any contribution share attributable to the Borough for the BHC's response costs should be reduced by the NTC settlement. The Municipal Defendants claimed that NTC used the Borough's funds without any approval from the Borough's governing body, its Mayor and Borough Burgesses.... Because the Master did not allocate any contribution share to the Borough, he saw no need to render any findings on the circumstances of NTC's settlement. 84 In its First Ruling, the district court rejected the Master's recommendation as to the Borough's liability for contribution. Instead, the court allocated the Borough a 1.1% share of responsibility for BHC's response costs, resulting in liability amounting to $361,862.92 minus $325,000 that involved [NTC], a net of $46,465.05. 19 The district court offered no explanation for the offset. 85 Undeterred, the BHC asked the court to reconsider its ruling, contending that certain Borough officials knew, prior to NTC's settlement with BHC, that the reserve fund would be tapped to pay the settlement. Yet they did nothing to stop the payment. The district court upheld the offset, explaining [w]hether payment was made with knowledge of [Borough] officials does not resolve BHC's argument. The question is not the propriety of the payment ... but rather whose money was used. As BHC has not shown to the contrary, [Borough] funds are found to have been used. Thus the credit is proper. 86 BHC now appeals the court's decision, urging us to hold as a matter of law that § 113(f)'s equitable factors are limited to those factors directly related to the harm to the environment, the parties' causal relationship to that harm, and the parties' ability to contribute to ... remediation.... As we held in Bedford Affiliates, however, Section 113(f) does not limit courts to any particular list of factors. 156 F.3d at 429. Instead, [t]he statute's expansive language ... affords a district court broad discretion to balance the equities in the interests of justice. Id.; see also Envtl. Transp. Sys., Inc. v. ENSCO, Inc., 969 F.2d 503, 509 (7th Cir.1992) (declining to limit equitable factors); United States v. R.W. Meyer, Inc., 932 F.2d 568, 572 (6th Cir.1991) ([T]he court may consider the state of mind of the parties, their economic status, any contracts between them bearing on the subject, any traditional equitable defenses as mitigating factors and any other factors deemed appropriate to balance the equities in the totality of the circumstances. ) (footnote omitted) (emphasis added). Accordingly, we reject the BHC's invitation to curb the district court's discretion to consider any equitable factors it deems appropriate. 87 The BHC also contends that the district court abused its discretion because the equities favor the BHC, not the Borough. As already noted, the BHC claims that certain Borough officials in charge of overseeing the Borough's operating agreement with NTC knew about NTC's planned use of the reserve fund but did nothing to stop it. It follows, BHC argues, that the Borough should not be rewarded for sitting on its rights. 88 Admittedly, the evidence before the Master suggests that members of the Naugatuck Water Pollution Control Board (the WPCB) — i.e., the board that oversaw the operating agreement — did indeed know of NTC's planned use of the reserve fund before the settlement. However, the evidence also showed that the WPCB was controlled at the time by Uniroyal employees. Thus, it is hardly shocking that the WPCB did nothing to stop the transaction, which enriched Uniroyal at the Borough's taxpayers' expense and permitted Uniroyal's wholly-owned subsidiary to escape liability for any cleanup costs. 89 In short, we believe the district court acted within its discretion by applying the credit, notwithstanding the WPCB's knowledge of NTC's planned use of the fund. Accordingly, we affirm the district court's decision to offset NTC's settlement amount against the Borough's allocated share of the BHC's response costs. 90