Second Circuit Confronts CERCLA Issues In New York Clean-Up Case
The Second Circuit affirmed a New York federal district court’s finding that the successor of a subsidiary’s former parent company could be held liable for a portion of pollution clean-up costs under the Comprehensive Environmental Response Compensation and Liability Act of 1980 (“CERCLA”). In the underlying suit, a power company sued its former parent’s successor for costs incurred while cleaning up coal tar contamination at various gas plant sites.
Although the Second Circuit ultimately affirmed liability for costs under a veil piercing theory, it also made a number of CERCLA-specific rulings. First, the court affirmed that the parent company (and, by implication, the successor) could not be held liable as a direct operator of the facilities under CERCLA. The court explained that while the company had presented general allegations of control by the parent company, there was no evidence that the parent corporation had “managed, directed, or operated” the functions at the facilities that related specifically to pollution. The court explained that the activities that had been presented, i.e., dual directorships and arrangements of service agreements, were consistent with acceptable practices of a parent corporation and, without something more, were not indicative of direct operator liability.
The court also evaluated the statute of limitations with respect to removal and remedial actions under CERCLA. The successor corporation had argued that the statute of limitations for seeking costs had run at a number of facilities in question. Of note, in evaluating the statute of limitations for remedial actions, i.e., an action designed to permanently remediate hazardous waste, the court adopted the majority view and found that under CERCLA there can be only one remedial action per site. Thus, where a remedial action is commenced at one point in time and then later additional clean-up is required, the additional clean-up would still be considered part of the whole remedial action for purposes of calculating the statute of limitations (which runs six years after the “initiation of physical on-site construction of the remedial action”).
Additionally, the court also affirmed the district court’s ruling that the parent company’s costs could be reduced by the award of an insurance settlement. The circuit court agreed that the collateral source rule does not apply to CERCLA actions. Rather, only general equitable principles apply. In this case, the circuit court found that the district court’s reduction by the award was both equitable and reasonable and should not be overturned.
Lastly, the circuit court also reviewed the district court’s finding that the current owner of one of the sites in question could also be held liable for clean-up costs. The current owner had argued that it was entitled to a third-party defense under CERCLA by which it would not be liable for costs if it could establish that the “release … of [the coal tar] and the damages resulting therefrom were cause[d] solely by … an act or omission of a third party.” The court found that the current owner failed to establish this defense, noting that when the company became aware of the need to remediate the pollution, it attempted to buy back a portion of the current owner’s site so that it could perform clean-up work. The court explained that the negotiation tactics of the current owner during that process actually delayed the sale and the eventual clean-up. As such, the current owner could also be held liable for a portion of the clean-up costs as it had contributed to the delay.
