Tenth Circuit Rules Bankruptcy Settlement Not a Bar to CERCLA Contribution Action

Manko Gold Katcher & Fox LLP
Diana A. Silva

January 9, 2017

Last week, the United States Court of Appeals for the Tenth Circuit ruled that a PRP’s bankruptcy settlement of its CERCLA liability did not bar that PRP from later seeking contribution for a share of the settlement – despite the bankruptcy court’s determination that the settlement represented the PRP’s “fair share” of CERCLA liability.

The case – Asarco, LLC v. Noranda Mining, Inc., Dkt. No. 16-4045 (10th Cir. Jan. 3, 2017) – involves the Lower Silver Creek / Richardson Flat Site located near Park City, Utah, which had been used as a lead and silver ore mine since the 1870s. In August 2005, Asarco, a mining, smelting, and refining company, filed for Chapter 11 reorganization bankruptcy, which included approximately $6.5 billion environmental claims for 52 sites in 19 states. To approve Asarco’s settlement of these environmental claims, the bankruptcy court was required to determine that the settlement was “fair” and “reasonable,” under both bankruptcy law and CERCLA. Because parties that settle their CERCLA liability with the federal government receive protection from third-party contribution claims, to satisfy the “fair and reasonable” standard, the settlement must be “roughly correlated with some acceptable measure of comparative fault” for the settling party. To support its argument that the settlement for the various sites was “fair and reasonable,” Asarco’s former director of environmental services submitted a declaration with the bankruptcy court stating that the settlement was roughly equal to Asarco’s share of liability at the various sites, including the Lower Silver Creek / Richardson Flat Site.

In June 2013, after emerging from bankruptcy, Asarco filed a CERCLA contribution action against another PRP at the Lower Silver Creek / Richardson Flat Site, Noranda Mining, Inc. Asarco sought a share of the cleanup costs that it paid in the bankruptcy action to settle the CERCLA claims for the site. Asarco argued that the $8.7 million it paid at the site was more than its fair share of the cleanup costs at the site, and that Noranda should reimburse Asarco for its share of the remediation costs.

Noranda filed a motion for summary judgment, arguing, among other things, that Asarco was judicially estopped from seeking contribution because it told the bankruptcy court that it was paying its fair share of liability at the site, which was why Asarco’s settlement in the bankruptcy was fair and reasonable. The United States District Court for the District of Utah agreed, and held that Asarco was judicially estopped from asserting a CERCLA contribution claim based on the representations it made in its bankruptcy, and also that Asarco could not establish that it paid more than its fair share of costs, a prerequisite for a CERCLA contribution claim.

The Tenth Circuit disagreed and reversed, holding that “CERCLA allows a party to settle for an inexact amount and later seek contribution from other PRPs for any amounts it overpaid. If this were not the case, no party would settle with the government before going through a “mini trial” to determine the party’s exact share of liability at a site. And if such a mini-trial was held, there would never be a need for a contribution action, since that settling party’s exact amount of liability would have been established. Asarco’s contribution claim against Noranda could therefore move forward as Asarco’s claim was not barred by its statements in the bankruptcy action. Ultimately, to be successful in its contribution claim, Asarco will need to prove its share of liability at the site more precisely and establish that it “overpaid” when it settled for $8.7 million.

This article is being provided for informational purposes only and not for the purposes of providing legal advice or creating an attorney-client relationship. You should contact an attorney to obtain advice with respect to any particular issue or problem you may have. In addition, the opinions expressed herein are the opinions of Ms. Silva and may not reflect the opinions of Synergy Environmental, Inc., Manko Gold Katcher & Fox LLP or either of those firms’ clients.

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