This article was originally published in the Outside Perspectives section of CCM -The American Lawyer's Corporate Counsel Magazine, November 1999 issue, and appears here with the permission of American Lawyer Media, L.P.
A new judicial ruling critical of the Environmental Protection Agency's (EPA) recent policy on settlements with generators of municipal solid waste (MSW) could signal an important shift in the ongoing battle between industry and municipalities in funding cleanups at Superfund sites. Finding that EPA had improperly applied its "model" guidance for MSW generators at a site located in Sidney, New York, the U.S. District Court for the Northern District of New York recently invalidated as "unfair" a consent decree that the agency entered into with local municipalities under which they were required to pay less than $64,000 of a $10 million cleanup at the site. Depending on the extent of its acceptance by other courts, the ruling could represent a significant setback for municipalities' efforts to minimize their liability at Superfund sites at the expense of other potentially responsible parties (PRPs).
Industry representatives and municipalities have long been at odds over the issue of municipal environmental liability under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, or Superfund), with their ongoing debate leaving its mark in court rulings, federal legislative initiatives and administrative policy-making. At stake are potentially millions of dollars in Superfund cleanup costs, which private corporations designated as PRPs at Superfund sites have sought to recover through contribution actions against municipalities that used the sites to dispose of their MSW. Corporations typically have alleged in Superfund cases involving these so-called "co-disposal" sites that because the MSW disposed of by the municipalities contains "hazardous substances," these municipalities should bear their fair share of costs incurred to clean up these sites. Industry representatives also argue that because the high cost of Superfund cleanups is often driven by the large volumes of MSW at a site, municipalities' share of liability should be weighted according to the comparatively greater volume of waste they contributed.
Municipalities, on the other hand, have claimed that the potential environmental liabilities at Superfund sites could bankrupt many towns. Thus, they have argued that the exemption for household waste under the federal Resource Conservation and Recovery Act (RCRA) should also exempt household waste from regulation as a "hazardous substance" under CERCLA. However, CERCLA, unlike RCRA, does not address the question of whether household waste should be considered a "hazardous substance." So far, neither EPA nor the few courts which have addressed the issue have agreed with the municipalities that either MSW or household waste is exempt form CERCLA.
High Stakes Debate
The stakes in this ongoing controversy are quite high. EPA has indicated that approximately 20 percent of the approximately 1,100 sites on the National Priorities List (NPL), the national list of Superfund sites, are municipal landfills and that approximately 25 percent of all NPL sites appear to have received MSW. According to EPA, the average cost of cleaning up a single Superfund site is currently about $25-30 million.
Given the high-stakes battle, the debate regarding the allocation of liability for MSW at Superfund sites has been waged at both EPA and the Congress. In addressing this issue in prior sessions of Congress, bills introduced in the Senate and the House would have capped the liability of municipalities with populations of fewer than 100,000 at 10 percent of the overall cleanup costs at the site and municipalities with populations of 100,000 or more at 20 percent.
On the administrative front, EPA recently adopted its "Policy for Municipality and Municipal Solid Waste CERCLA Settlements at National Priorities List Co-Disposal Sites." As part of this policy, the agency has proposed using a standard formula requiring municipalities to pay $5.30 in remedial costs for every ton of solid waste that they disposed of at a particular Superfund site. EPA based the $5.30 per ton cost on its estimate of the cost per unit for the closure of a typical solid waste landfill.
In its recent ruling striking down EPA's use of the new MSW policy, the court in United States v. AlliedSignal, Inc. held that the application of EPA's policy in this case resulted in an "unfair" settlement because EPA's assumptions in adopting the policy about the cost of performing a solid waste landfill closure did not apply in the present case. Based on evidence submitted by industry PRPs at the site, the court said that the actual costs of closing a solid waste landfill in New York are much more expensive than EPA's estimate due to the more stringent closure requirements applicable in the state. Consequently, the court found that EPA's generalized model did not fairly represent the costs associated with closing a landfill in New York and the settlement was therefore unfair.
In fact, contrary to EPA's estimates, the court noted that the municipalities' cost to close the landfill in this case even without the other PRPs' contribution of hazardous substances could run as high as $9.8 million - nearly the cost of the Superfund cleanup at the site. The court said that while it was not its role to parse out the relative shares of liability of the various parties, it noted that in order to satisfy fairness concerns, any potential consent decree must take into consideration the actual conditions of the site and "must attempt to reasonably apportion liability according to the parties' relative fault." Moreover, the court added that where the projected cleanup costs for a site are known at the time the parties negotiates the Consent Decree, there is not need to use a model to set the per unit cost of the cleanup and any attempt by EPA to do so may be "capricious."
At this stage, given Congress's heavy schedule and the upcoming elections, the prospects for passage of any Superfund legislation are uncertain if not unlikely. Thus, it seems most likely that the issue of whether municipalities may be held liable at Superfund sites and, if so, what share of liability should be allocated to them based on the volume of MSW sent to a particular site will be determined by the courts on a case-by-case basis. As these cases progress, the court's recent ruling in AlliedSignal will no doubt prove to be an important source of precedent for industry PRPs, providing a strong basis from which to challenge EPA settlements with municipalities that are based on a "blind" application of the MSW policy rather than a rational analysis of the parties' respective shares of liability. Companies that have been named as PRPs at Superfund sites involving MSW should therefore carefully review any settlements with municipalities in light of AlliedSignal in order to determine whether there may be a basis for challenging the fairness of the settlement based on site-specific factors.
* Daniel M Steinway is the chairman of Kelley Drye & Warren LLP's Environmental Practice Group and specializes in all aspects of environmental practice, including regulatory counseling, litigation/enforcement proceedings and business transactions.