In Santa Clarita Valley Water Agency v. Whittaker Corporation, the U.S. Court of Appeals for the 9th Circuit in April “clarified that [the Comprehensive Environmental Response, Compensation, and Liability Act’s (CERCLA)] prohibition on double recovery does not preclude a finding of liability under CERCLA, [if] the relief ultimately granted does not allow recovery of double compensation,” according to Farella Braun + Martel LLP. “The Court went on to hold that defendant Whittaker Corporation is entitled to declaratory relief under CERCLA for future response costs, regardless of whether those future response costs are speculative or even affirmatively unlikely, or ultimately not recovered by the plaintiff due to the prohibition on double recovery.”
The court’s opinion seems to state it welcomed the chance to address CERCLA’s double recovery provision.
“We have not had an opportunity to clarify whether a finding of liability for incurred response costs under CERCLA is precluded by § 9614(b)’s bar on double recovery,” the 9th Circuit’s opinion says. “We do so now and hold that § 9614(b) does not bar a finding of liability as long as the district court fashions the relief such that the plaintiff will not recover double compensation.”
The decision clarifies that the prohibition only applies to actual money recovered.
Background
Santa Clarita Valley Water Agency (SCVWA) is a public water agency in northern Los Angeles County that supplies water to its customers primarily through a combination of local groundwater pumped from wells and surface water purchased from the State Water Project (which moves water from Northern to Southern California by way of aqueducts). The agency pumps groundwater from two aquifers: a shallow aquifer called the Alluvium and a deeper, larger aquifer underlying the Alluvium called the Saugus Formation.
In 1943, Whittaker’s predecessor landowner, Bermite Powder Company, began producing munitions and explosives on a 996-acre site in Santa Clarita, California. Bermite operated the site until 1967, when Whittaker acquired the property and continued producing munitions and explosives until 1987.
The manufacturing operations of both companies required the extensive use of a variety of toxic chemicals and solvents. The chemicals included perchlorate and the volatile organic compounds (VOCs) perchloroethylene (PCE) and trichloroethylene (TCE), which are all hazardous substances. Large volumes of these substances were improperly disposed of at the site, which included both dumping and burying the chemicals. These hazardous substances have migrated underground into the Saugus Formation and traveled off-site through groundwater pathways.
“Perchlorate and VOCs have important differences that characterize their migratory pathways through groundwater,” states the 9th Circuit opinion. “Perchlorate is an anion, which means that it dissolves in water. Plumes of perchlorate will migrate through groundwater at roughly the same speed as the water itself. VOCs, on the other hand, are hydrophobic, meaning that they tend to stick to organic matter such as soil rather than dissolve in water. This results in plumes of VOCs migrating through groundwater at much slower speeds than perchlorate. Because of these characteristics, to date, perchlorate has migrated much further and faster through the Saugus Formation than VOCs.”
The VOC contamination was discovered around 1997 in two specific wells drawing water from the Saugus Foundation by the SCVWA’s predecessor agency. Although the wells were initially closed, once VOC treatment facilities were installed, the California Division of Drinking Water allowed the wells to reopen.
“In addition to the treatment facilities, however, the SCVWA was required to blend the treated water with contaminant-free water at the point in the treatment process at which VOCs were non-detect,” reports Lowenstein Sandler. “Pursuant to an agreement later negotiated between the SCVWA and Whittaker, Whittaker was to cover the cost of that treatment and pay for any necessary replacement water.”
In 2010, VOC contamination was found at another well, which resulted in a new agreement between Whittaker and the SCVWA in which Whittaker agreed to install an additional treatment facility.
“As of the date of the Court of Appeals’ opinion, that well had not yet been restored for use as a source of potable water,” Lowenstein Sandler adds. “It is instead used as a containment and treatment well. To meet its water supply needs for that well, the SCVWA has been required to purchase water for blending. Whittaker apparently covered the cost of that water from 2012 to 2017, but from 2017 to the date of the opinion, the cost was covered by the SCVWA.”
In 2012, more VOC contamination was found at yet another well. At that time, those VOC levels were below the existing maximum contaminant levels (MCLs), although the discovery still resulted in the discontinuation of the use of that well. Since that time, the SCVWA has had to purchase water to meet its obligations to its customers.
“In 2018, the VOC contamination at this additional well was discovered to have risen above the applicable MCLs,” Lowenstein Sandler continues. “The discovery of those exceedances triggered the SCVWA to commence litigation against Whittaker.”
In the SCVWA’s suit, it alleged multiple state and federal law violations and sought injunctive relief in addition to compensatory and punitive damages. The SCVWA’s claims under CERCLA and the federal Resource Conservation and Recovery Act (RCRA) included:
- Common-law negligence
- Trespass
- Public nuisance
- Private nuisance
- Cost recovery
- Contribution
In that trial, under common-law principles, the jury awarded the SCVWA damages for restoration costs and past harms.
“However, the damages were offset by the jury’s determination that the SCVWA and other third parties were also negligent and that the SCVWA had failed to mitigate damages,” Lowenstein Sandler notes. “The trial court denied the SCVWA’s RCRA claim because the risk of harm from the migration of VOCs was not ‘imminent and substantial’ as a result of prior remediation and existing containment, monitoring and government oversight. As to CERCLA, the trial court held that the SCVWA had incurred $675,000 for investigation, permitting, and design, and it allocated the majority of those costs to Whittaker consistent with the jury’s apportionment of fault. But the trial court held that the SCVWA could not establish CERCLA liability against Whittaker for the costs it incurred for water blending and replacement water because recovery of such costs would be duplicative of the jury award and thus precluded by CERCLA … (barring double recovery of damages). The trial court also held that the SCVWA was not entitled to a finding of CERCLA liability because it had shown that the replacement water costs were consistent with the National Contingency Plan (NCP). The trial court made a number of other ancillary findings related to, among other things, prejudgment interest, and entered a final judgment in the SCVWA’s favor. Both Whittaker and the SCVWA appealed several of the trial court’s findings.”
Evaluation
In its appeal, Whittaker asserted three grounds:
- It challenged the district court’s decision to allow the SCVWA to assert restoration costs as part of its theory of damages after the close of discovery.
- It challenged the jury’s use of the original condition of the property to establish damages and said that it instead relied upon groundwater treatment facilities as the basis of the measure of damages.
- Finally, it challenged the amount of the restoration costs assessed by the jury.
All of Whittaker’s grounds were denied by the appellate court.
“The Court of Appeals upheld the trial court’s ruling on RCRA injunctive relief because ‘any threat posed by Whittaker’s contamination is not imminent and substantial’ as a result of the extensive cleanup performed by Whittaker under governmental oversight,” according to Lowenstein Sandler. “As to CERCLA, after reviewing the statute’s general principles and noting that the majority of the elements of CERCLA liability are not contested, the Court of Appeals addressed the double recovery bar. [T]he trial court concluded that an additional finding of CERCLA liability would be a double recovery. Yet the Court of Appeals noted that while the trial court was correct that CERCLA bars a party from ‘receiving compensation for the same costs,’ it had misconstrued the SCVWA’s request for a CERCLA liability finding. According to the Court of Appeals, the SCVWA had not sought an award of damages under CERCLA but rather sought a holding that Whittaker was liable under CERCLA.
“The Court of Appeals also noted the potential importance of a CERCLA liability finding, even if there is no immediate recovery of damages. Such a holding ‘ensures that a party can recover [past response costs] if the damage award otherwise remains unsatisfied. … ’ It also ‘provides a party access to other remedies under CERCLA that it may be entitled to in the future,’ such as a mandatory declaratory judgment on liability for any future costs.”
The appellate court first held that the costs of the blended water the SCVWA purchased satisfied the NCP element under CERCLA liability. However, it also ruled that the replacement water costs were eligible under the NCP element. In its ruling, the appellate court reversed the lower court’s decision denying CERCLA liability for the costs of blended water and remanded the case for further proceedings.
Takeaway
There are important distinctions in receiving a liability verdict and actually collecting damages.
“Regardless of whether damages are ever collected, a finding by a court that a party is liable can have significant long-term implications,” advises Lowenstein Sandler. “That is particularly so with CERCLA, where … a liability finding can … drastically reduce the time and effort needed to secure compensation for future costs that are related to the same contaminated site. As a result, even where damages might be collected under a different theory of liability, or potentially where damages may not be recovered at all, plaintiffs should carefully consider whether pursuing CERCLA liability is a sensible strategic maneuver.”