[*PG123]SUPER SETTLEMENTS FOR SUPERFUND: A NEW PARADIGM FOR VOLUNTARY SETTLEMENT?
Despite some recent improvements, cleanup of hazardous waste sites across the United States remains slow and very expensive, especially in terms of legal costs. In response to the continuing gridlock, those involved in settlement negotiations at various cleanup sites, including the Environmental Protection Agency, other federal and state government agencies, and private potentially responsible parties (PRPs), are exploring new arrangements of liability and cleanup responsibility under the existing legal and regulatory framework. One emerging response is the “Super Settlement” concept. Under a Super Settlement, a single entity agrees with all, or at least a sufficient preponderance, of the PRPs at a given cleanup site to assume all of their cleanup–related liability in exchange for a fixed and permanent cash–out amount. The Comment examines the Super Settlement concept in light of the current status of federal and state cleanup–related law. The Comment also identifies the trends that have made the concept possible and the issues that remain to be addressed. Finally, the Comment concludes by predicting that the Super Settlement concept will be put into widespread use across the United States as its advantages become better known.
The second generation of litigation and cleanup under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA or Superfund)1 is drawing to a close. Despite some progress, the pace of actual Superfund site remediation remains [*PG124]painfully slow.2 CERCLA has been widely criticized for many things, including (1) the high cost of cleanups under its control;3 (2) the continuance of an allegedly overly-Draconian, strict joint and several liability scheme, which some say actually contributes to foot-dragging by potentially responsible parties (PRPs);4 and (3) the continuing difficulty and inflated legal cost of managing multi-party negotiations to develop site specific remediation plans.5 Since the expiration of CERCLA’s dedicated taxes at the close of 1994, those parties who are potentially responsible for cleanup under Superfund have focused substantial attention on the much anticipated, but long delayed, reauthorization of CERCLA to provide the needed impetus for real improvement at the federal level.6 Despite the widely-recognized drawbacks of CERCLA and the emphasis many participants have placed on the subject, the prospects for a productive reauthorization remain dim. Even without the extraordinary political distractions of recent months,7 there is little agreement between Congress and the [*PG125]Clinton Administration regarding how and to what extent the law should be overhauled.8
In response to the continuing gridlock, those involved in Superfund settlement negotiations, including the United States Environmental Protection Agency (EPA), other federal and state government agencies, and private PRPs, are exploring new arrangements of liability and cleanup responsibility under the existing legal and regulatory framework.9 One response that has emerged in the last eighteen months is the “Global” or “Super” Settlement concept,10 which possesses significant potential for mitigating some of the more problematic aspects of CERCLA.11 Under a Super Settlement, a single entity, presumably an environmental cleanup company (Superfund Entity), contracts with all, or at least a significant number, of the PRPs at a given Superfund site to assume all of their cleanup-related liability12 in exchange for a fixed and permanent cash-out amount.13
[*PG126] As part of this process, the Superfund Entity enters into a contractual relationship with the relevant government agencies¾state and/or federal (depending on the context)¾and agrees, first, to be the solitary PRP, and, second, to pay any outstanding claims for response costs, carry out any remaining assessment activities, and construct and maintain/operate a stipulated cleanup at the site.14 The Superfund Entity must, by necessity, be backed by a major insurance company willing to provide it with an ironclad policy (preferably naming the former PRPs, and the appropriate state agency and/or EPA as co-insureds) guaranteeing that if cleanup costs exceed the initial estimate, the insurance company will make up the difference (usually within some capped overage amount).15 One of the first attempts to craft a Super Settlement is currently approaching consummation between a major environmental cleanup company teamed with a multinational insurance provider, the PRP Site Steering Committee representing the named PRPs, and the Maine Department of Environmental Protection (Maine DEP), for a state-administered abandoned hazardous waste site in Wells, Maine.16
This Comment examines the Super Settlement concept in light of the current status of federal and state Superfund-related law. It also highlights the legal and non-legal trends and issues that have made it possible to use such a model in promoting faster, more efficient settlement of Superfund cases. Section I provides background on CERCLA, an illustrative state Superfund law¾Maine’s Uncontrolled Hazardous Substance Sites Law (Maine Superfund Law)17¾and the concept of informal federalism under which CERCLA has generally been operated by EPA. Section II outlines and analyzes the primary technological trends and legal issues leading to the advent of Super Settlements. Section III lays out the key elements and major players in the nearly-concluded Super Settlement at the Wells, Maine state Superfund site, which is now bidding to become the first successful use of the Super Settlement concept, and provides an initial critique of the concept in action.
Section IV discusses four potentially critical legal issues surrounding Super Settlements. First, are regulatory agencies and the courts likely to approve of the Super Settlement concept, considering the clear for-profit motive of the concept, under the current legal frame[*PG127]work for Superfund, at both the federal and state levels? Second, what happens if the cleanup estimate agreed to by the Superfund Entity is drastically low, leading it to run through the insurance coverage amount and then declare bankruptcy? Must the public then bear the cost of cleanup, or may the responsible government agencies turn to the original PRPs for redress? Third, considering the much larger universe of state-administered hazardous waste sites compared to EPA-administered sites, how should EPA be involved in Super Settlements at such state-administered sites? Fourth, and finally, are there other areas of environmental law in which the concept of for-profit liability assumption underlying Super Settlements can be applied?
The Comment concludes by predicting that the Super Settlement concept will be put into widespread use across the United States as its advantages become better known. Clearly, the Super Settlement concept is still in its infancy; it has some potential drawbacks, and some issues remain to be ironed out. Still, it seems likely that the concept’s potential to dramatically reduce the long-term costs of the settlement process for all of the involved parties, including society at large, will make it a more powerful and successful tool in streamlining and facilitating the cleanup of more hazardous waste sites than other settlement methods.
This section begins with a description of the typical remediation process under CERCLA, with special emphasis on the central importance of negotiated settlements. It then outlines the prevailing informal federal-state relationship which exists under current hazardous waste site cleanup law, and highlights areas of similarity and difference between CERCLA and Maine’s own hazardous waste site cleanup law.
The initial version of CERCLA was passed by a lame-duck Congress and signed into law by a lame-duck President in the waning days of 1980 as Ronald Reagan and the Republican Party stood poised to usher in a more conservative political era and a more industry-friendly EPA.18 In short, CERCLA was a somewhat rushed and ad hoc, [*PG128]but significant, response to public outcry over a series of highly publicized hazardous waste contamination incidents.19 Most of the essential elements of CERCLA were present in the first iteration of the law: identification of the “polluter-pays” principle as the first priority of the cleanup,20 the imposition of liability on a wide range of identified contributors to abandoned hazardous waste sites,21 and the creation of a “Superfund” from taxes on the oil and chemical industries to provide for cleanup of sites where financially solvent and liable polluters could not be identified.22 Still, it took a second legislative initiative in 1986, the Superfund Amendments and Reauthorization Act (SARA),23 to take the first legislative steps toward addressing the obstacles to achieving workable and truly defensible settlements between the federal government and PRPs.24
As it is now codified, the primary provisions of CERCLA constitute a fairly straightforward investigation and remediation statute.25 A broad range of hazardous materials is covered under CERCLA, although petroleum is specifically excluded.26 EPA can be made aware of the release or threatened release of hazardous substances through a variety of mechanisms, including investigation by state and local officials or by EPA itself,27 self-reporting by a responsible party,28 [*PG129]and/or private party/citizen petition to EPA to conduct an investigation.29
Once such a site has been identified, EPA is initially responsible for conducting a preliminary site assessment and inspection to gauge the level and seriousness of contamination and the potential threat to human health and the natural environment through a variety of pathways (air, land, groundwater, etc.).30 Depending on the seriousness and immediacy of the threat to the public and the environment, EPA may either choose to conduct a full removal evaluation31 if the threat is immediate, or a full remedial evaluation32 if the threat is anticipated to develop more slowly or a longer-term solution is required.33 The latter cases, in which long-term, permanent site cleanup is undertaken, constitute the heart of the Superfund response regime.34
If a remedial assessment is deemed appropriate, EPA will normally go through the formal steps required to assign the site a score in the Hazard Ranking System (HRS).35 If EPA scores the risk from the site at a sufficiently high level on the HRS, the site is then proposed for listing on the National Priorities List (NPL).36
From this point forward, the crucial consideration in any site remediation process is whether EPA will be forced to draw from the Superfund itself to finance the cleanup at the front end and pursue cost recovery from PRPs sometime later.37 If PRPs can be identified through a variety of means,38 and those PRPs possess the resources [*PG130]needed to carry out the anticipated cleanup steps, EPA is instructed by CERCLA to force cleanup by those PRPs and thereby preserve the Superfund for truly orphaned sites.39 PRPs are defined broadly under CERCLA as owners and operators of hazardous waste facilities (past and present, depending on the circumstances), those who arranged for disposal of hazardous substances at those facilities (generators), and other arrangers and transporters of hazardous substances to those facilities.40 PRPs are made responsible not only for past and future response and remediation costs (i.e., the cost of assessing the site’s risk to public health, selecting an alternative, and conducting and maintaining a cleanup),41 but also for damages to natural resources42 and for the costs of health assessments related to the site.43
EPA has two options it can pursue to secure PRP funding and execution of cleanup.44 On one hand, if the release presents a sufficiently imminent threat, EPA may use either the U.S. Attorney General and the federal courts or its own independent power to issue judicial or administrative orders to compel PRPs to perform site cleanup.45 On the other hand, EPA may attempt to negotiate a settlement with the PRPs in which the PRPs agree to perform or fund all (or substantially all) remaining site cleanup activities in exchange for a release46 from further liability to the federal government, and generally the applicable state, under CERCLA and state law, and protection from future contribution actions by other PRPs.47
Once a site has been listed on the NPL, the remaining steps in the remediation process are fairly well established.48 The lead agency, whether EPA or the appropriate state agency, or the PRPs themselves, will conduct the Remedial Investigation and Feasibility Study (RI/FS) to determine the precise extent of contamination, the nature of the hazardous wastes involved, the required level of cleanup, and the potential remedial actions that can be taken.49 Next, EPA or the lead [*PG131]agency formally selects the final remedial alternative through a formal Record of Decision (ROD) after consulting with the appropriate federal and state agencies and the PRPs.50 Once the ROD is finalized, these same parties then settle on a Remedial Design and a plan for carrying out that design, known as the Remedial Action (RA).51 EPA, the lead agency, or the PRPs then carry out or construct the planned RA.52 Finally, once the RA is completed, EPA usually moves to remove, or delist, the site from the NPL while still requiring proof of the continuing operation and maintenance of the RA.53
Although issuing a judicial or administrative order requiring a strict set of cleanup actions from all of the identified PRPs at a given site may seem like a relatively simple, clear-cut way of approaching site cleanup, a voluntary settlement including a consent order54 lodged with and reviewed by the appropriate federal district court has been viewed as the optimal method of operation since CERCLA’s inception, an approach statutorily endorsed and reinforced by SARA in 1986.55 As laid out at section 122, the primary purpose of encouraging settlements is to “expedite effective remedial actions and minimize litigation.”56 The key innovations provided in section 122 included: (1) expanded capacity for EPA and other lead agencies to mix funding between the Superfund and PRPs at individual sites;57 (2) formalization of the already-existing consent decree process;58 (3) encour[*PG132]agement for EPA and other lead agencies to notify PRPs promptly of their potential liability and the benefits of settlement, including a mandatory 120-day moratorium on further lead agency response actions after settlement negotiations are initiated;59 (4) authorization for EPA to issue non-binding preliminary allocations of responsibility among PRPs;60 (5) ability to provide settling PRPs with covenants not to sue;61 and (6) authorization to permanently settle all claims (including contribution claims from other PRPs) against any PRP, but especially against so-called “de minimis” PRPs.62 Although the improved and clarified settlement provisions of section 122 have been in place since 1986, the cleanup has continued to be slow and very costly, with some estimates putting the total time from site identification to de-listing at twelve years, and the average total cost per NPL site cleanup at nearly $17 million.63
Much has been written about the continuing impediments to voluntary settlements, especially under the federal Superfund law.64 Many critics have pointed to the imposition of strict joint and several liability by CERCLA and the federal courts as a strong disincentive to settle despite the promise of contribution protection because doing so amounts to an almost perpetual acceptance of the inevitably high costs of that liability scheme.65 Even when PRPs appear eager to settle, they may be deterred by the perceived unfairness of the distribution of the cleanup costs among the settling PRPs, and the existence of non-settling or recalcitrant PRPs whose shares must be funded by the settling PRPs along with any orphan shares.66 Although EPA has [*PG133]shown an increasing willingness to address the problem of orphan shares through reimbursement from the Superfund, the lack of a specific statutory mandate to do so, and the uncertainty of year-on-year funding for this practice continue to provide a disincentive to settlement.67 However, given the underlying “polluter-pays” philosophy of CERCLA and the obvious inadequacies of the Superfund itself, most observers agree that negotiated settlements will continue to be EPA’s method of choice for resolving site cleanup responsibility.68
Unlike its approach with similar national environmental programs including the Clean Water Act69 and the Clean Air Act,70 Congress has never officially permitted EPA to delegate independent enforcement responsibility for CERCLA to the states.71 Instead, EPA and its state counterparts have worked in a relatively informal fashion regarding the cleanup of hazardous waste sites across the country.72
Despite the informality in the working relationship, CERCLA does include specific language regarding the role of states in enforcing its statutory scheme.73 Two of the most important and wide-[*PG134]ranging state-related CERCLA provisions are found at sections 104(c) and (d).74 Section 104(c) mandates that any remedial action at a CERCLA site (in practice, a site that is formally listed on the NPL) must be cooperatively agreed-upon by EPA and the state and political subdivision in which the site is located.75 Under section 104(d), states are authorized to act as the principally responsible or “lead” agency in selected CERCLA cleanups.76 In these cases, EPA and the state work out site-specific agreements outlining the specific responsibilities of the relevant agencies and guaranteeing that the state has the requisite intention and resources required to see the cleanups through.77
State laws parallel to CERCLA, often referred to as “State Superfund” laws, are designed to go after smaller and theoretically less complicated or immediately threatening sites than CERCLA.78 As a result, few states have included a significant commitment of funding in their hazardous waste cleanup laws.79 Instead, the states have focused on crafting liability schemes similar to CERCLA’s strict joint and several liability structure.80 In the early 1990s, many states, recognizing some of the drawbacks of their own State Superfund schemes, began to seek new ways to encourage voluntary settlement and cleanup of sites.81
[*PG135] In response to this trend, EPA began to rethink its approach and attempted to rationalize and streamline its relationship with the various State Superfund programs.82 Rather than wait for Congress’s anticipated reauthorization of CERCLA to bring about the change, EPA issued its Final Draft Guidance for Development of Superfund Memoranda of Agreement Concerning State Voluntary Cleanup Programs (Final Voluntary Program Guidance).83 While the Final Voluntary Program Guidance contained more stringent participation requirements than earlier versions, it also finally promised the possibility of a single Superfund-related agreement for each state, thereby delegating most of EPA’s enforcement power under CERCLA to the state agencies administering their individual hazardous waste cleanup programs.84 In response to widespread protest from state environmental agencies regarding the strictness of the Final Voluntary Program Guidance’s approval requirements, EPA officially withdrew the Final Voluntary Program Guidance and returned to its case-by-case approach under CERCLA, although a handful of states have managed to come to terms with EPA and sign statewide Memoranda of Agreement.85
The bottom line is that the vast majority of states do not have statewide Memoranda of Agreement and therefore their relationships with EPA regarding CERCLA enforcement remain informal.86 In practice, this means that the precise legal effect of exclusive state agency approval of a cleanup in most cases remains clouded by the possibility (albeit remote in most cases) that EPA will revisit the cleanup and make its own independent determination of liability under CERCLA.87 Although the likelihood of EPA “overfiling” or revisiting an apparently closed state-supervised cleanup action can be gauged reasonably well by perceptive PRPs, even a relatively low level [*PG136]of uncertainty over EPA’s potential course of action in the future can scare away most PRPs, including even the most risk-tolerant.88
Adopted in 1983, Maine’s Uncontrolled Hazardous Substance Sites Act89 was modeled closely on CERCLA.90 In most respects, the Maine Superfund Act parallels and even exceeds CERCLA’s liability scheme.91 In addition, a wider range of hazardous substances is covered by the Maine Superfund Act, including some petroleum byproducts.92 In other instances, however, the Maine Superfund Act is arguably less stringent than CERCLA, including a more permissive third-party action defense to the imposition of strict liability.93 Even though a revolving state cleanup fund is provided for in the Maine Superfund Act, it is relatively small in comparison to the magnitude of the state’s hazardous waste site cleanup needs.94 Maine DEP, charged with administering the Maine Superfund Act, therefore strives to arrange for voluntary, negotiated settlements in nearly all cases, rather than expend scarce state funds directly on cleanup.95
[*PG137] In seeking voluntary private-party cleanups, Maine DEP is guided by its Voluntary Response Action Program (VRAP), adopted ten years after the initial passage of the Maine Superfund Act.96 Modeled on similar programs in a number of other states,97 the VRAP operates in roughly the same fashion as section 122 of CERCLA:98 PRPs who agree to fund and perform qualifying cleanup activities themselves are given liability protection from the state and contribution protection from non-settling PRPs.99 In addition to providing the same protection that EPA can offer at federal Superfund sites, the VRAP also provides for partial cleanup, which ties the remaining level of post-remediation contamination to the site’s future use,100 and statutorily extends liability protection to subsequent purchasers of such property.101
In this section, four policy/industry and legal trends that have come together to make Super Settlements possible are examined: (1) future use-based cleanup standards; (2) the increasing size and sophistication of the environmental cleanup industry; (3) the emergence of a new environmental insurance market with suddenly eager providers and more sophisticated consumers; and (4) continued and growing dissatisfaction with current settlement models.
One of the harshest and most enduring criticisms of the hazardous waste cleanup process at both the federal and state levels has been the use of allegedly overprotective and needlessly expensive cleanup standards by regulators, particularly at the federal level.102 Even putting aside expense and overzealousness, cleanup standards were also long derided as too confusing, especially those related to CERCLA sites.103 In response, federal and state regulatory agencies have begun [*PG138]to loosen up the strict cleanup standards of the 1980s and are making more use of risk or future-use based cleanup approaches.104
State regulators took the first steps toward more flexible standards in the early 1990s by revising their own State Superfund laws to permit cleanup standards that matched the level of hazardous waste-related risk remaining at a given property to its anticipated future reuse.105 By the mid-1990s, EPA began to get into the act, but only haltingly, allowing for streamlined, pre-packaged “presumptive remedies” for a limited number of site types.106 In 1997, however, EPA went further and issued a directive of its own allowing the consideration of a site’s future use in deciding on cleanup standards for NPL sites.107 In short, there is now no appreciable difference in the objective cleanup standards that will be applied to a site, whether it is under EPA or state supervision pursuant to either CERCLA or a State Superfund law, and those standards are now noticeably more flexible and less expensive than earlier, more one-size-fits-all standards from the viewpoint of the parties attempting to remediate a given site.108
The introduction of more flexible, risk-based cleanup standards is regarded as having important implications for the success of site cleanups generally and the Super Settlement concept particularly.109 Tying remediation to future use of a site can significantly lower the cost to remediate that site.110 In addition, risk-based cleanup standards can be more easily structured into definite and easily understood guidelines on cleanup than the more amorphous standards of the past.111
According to a recent report by industry consultants, the on- and off-site hazardous waste management market in the United States now exceeds $15 billion in gross revenue.112 The phenomenal growth in the industry since the inception of CERCLA in 1980 has been accompanied by an increasing level of proficiency and sophistication in dealing with hazardous waste site cleanup.113 Gone are the days of uncertainty and resistance to the introduction of advanced cleanup technologies that led to the frustrating shuffling of waste from one site to another through most of the 1980s.114 Further, as experience has grown with various technologies and cleanup methods, state and federal regulators have begun to achieve a higher comfort level when answering the question of “How clean is clean?”115 In some states, the level of comfort has become so great that the entire remedial process has been privatized through the use of licensed site professionals or other regulatory stand-ins who supervise cleanup and take the place of government regulators at most State Superfund sites.116
The implications of this increased sophistication and comfort level for the prospects of the Super Settlement concept are two-fold.117 First, the environmental cleanup industry has arguably advanced to the point where many of the more established and capable firms can safely forecast the most likely remedial alternative at a given site much earlier in the process than has previously been acknowledged. This means that negotiated settlements can occur even before formal selection of that alternative, and, in some cases, even before an [*PG140]RI/FS is completed.118 The costs to the PRPs resulting from the site can therefore be considerably lessened simply by reducing the amount of time for which they must confront the situation.119 Second, the greater size and stability of the firms now doing business in the environmental cleanup industry has, on its own, begun to garner the industry a higher level of respect.120 When major environmental cleanup firms come forward with an innovative idea like the Super Settlement concept, federal and state regulators are increasingly willing to hear them out and explore their recommendations instead of dismissing them out of hand.121
At the same time that the environmental cleanup industry has begun to acquire greater sophistication and respect, the insurance industry has been slowly reemerging as an interested player in helping environmental cleanup firms and PRPs at federal and state sites to better manage hazardous waste-related risk and potential liability.122 Early experiences among PRPs and their insurers during the early years of CERCLA-related litigation were certainly not pleasant.123 As courts began to interpret the terms of CERCLA’s strict liability structure and to frequently apply the judicial gloss of joint and several liability, insurers became increasingly unwilling to honor claims related to cleanup costs for hazardous waste contamination. As a consequence, insurers began writing complete pollution exclusions into their new corporate insurance policies.124
Although relations have gradually improved in the 1990s, PRPs and their insurers continue to have a somewhat uneasy relationship.125 Despite the lingering skepticism, however, environmental cleanup firms and large insurers have begun to strike deals for spe[*PG141]cialized environmental liability insurance.126 Some observers have pointed to the growing use of such insurance in the straightforward cleanup contracting sector of the industry, where a cleanup firm backed with an environmental insurance policy is hired by EPA, a state regulatory agency, or by a group of settling PRPs to provide specific site remediation services, as evidence indicating that the insurers’ existing role in that context can be transferred to the Super Settlement concept.127
The presence of specialized insurance, tailored to the environmental cleanup context, and offered by major, multinational insurance providers, is widely viewed as a crucial piece in promoting the use of Super Settlements; with sufficient insurance coverage, almost any risk, even hazardous waste-related risk, can be accurately priced and addressed.128 In the last four years, several large insurance companies have shown themselves increasingly eager to enter the environmental insurance market.129 In fact, the environmental insurance market area is one of the very few sectors of the overall insurance industry that is growing at a healthy clip.130 One of the concerns cited by regulators at both the state and federal levels has been the relatively limited loss experience of insurers in this area.131 However, as claims are filed over time, and are honored, these concerns can be expected to diminish.132
There are significant problems with the way settlements are currently reached at both the state and federal levels.133 Settlements are generally criticized most harshly for their very high transaction costs and the excessive duration of the negotiation period.134
The most commonly used settlement paradigm has been the bifurcated small PRP/large PRP cash-out settlement.135 Under this settlement model, very large and heavily responsible PRPs at a multi-party site settle with EPA or the lead agency after the smaller (or “de minimis”) PRPs do so.136 The cash-out for the de minimis parties usually occurs fairly early on in the remediation process, allowing them to escape the net that the more heavily involved PRPs realize they cannot.137 However, as part of the cash-out deals, the smaller PRPs are expected to pay premiums over and above their estimated proportional share in the site’s contamination.138 The premiums from the smaller PRPs are intentionally required in order to lighten the load on the larger PRPs, who must assume a much more open-ended cleanup-related liability in order to obtain their ultimate release.139 Although non-settling parties have occasionally attempted to challenge the fairness of these premium-required large party/small party deals, they have been a well settled part of the Superfund landscape since the late 1980s, following the adoption of SARA and a series of favorable court decisions.140
[*PG143] While the large PRP/small PRP settlement has been the most common settlement method used in recent years, other methods, including the use of prospective purchaser agreements and growing use of the Superfund by EPA to account for large orphan shares in some settlements, have been given increasing emphasis.141 Despite this slowly widening settlement universe, few of the parties involved appear satisfied with the progress.142 Smaller PRPs often feel pushed around and extorted by both the government regulators and the larger PRPs, the larger PRPs must deal with a continuing, open-ended cleanup responsibility, and government regulatory agencies must manage a public and unwieldy negotiation process.143 Further, even after these negotiations are concluded, they remain open to judicial review, despite the clear unwillingness of the federal courts of appeals to overturn such public, complicated, and delicate agreements.144
Proponents of the Super Settlement concept claim that such agreements hold out the promise of terminating all cleanup-related liability for all PRPs, large as well as small, in the present, instead of projecting it into a long-range future.145 Of course, for each PRP, the value of settling in the near-term instead of holding out for the longer-term depends on several individual factors.146 These factors can include a PRP’s level of involvement and responsibility, its ability to pay now or later, and its overall understanding of the potential total cost for dealing with its cleanup-related liability.147
This section presents the nearly completed settlement at a State Superfund site in Wells, Maine, as the prototype Super Settlement. A general background subsection is followed by a more detailed subsec[*PG144]tion describing the key parties and, to the extent currently available, the details of the proposed agreement. Finally, a concluding subsection critiques the progress of the Super Settlement concept as it has worked thus far at the Wells site.
Operated by Portland Bangor Waste Oil (Portland Bangor) as an industrial waste oil facility from the early 1950s until 1980,148 when the firm went bankrupt, the Wells, Maine, state hazardous waste site has been involved in full-blown multi-party negotiations and litigation since 1995.149 Given the wide range of contaminants at the site, including lead and industrial solvents in addition to various waste oil components,150 EPA and Maine DEP took several years to decide whether to list the site on the NPL pursuant to CERCLA or to use the Maine Superfund Law.151 Maine DEP has estimated that there are between 2500 and 3000 PRPs related to the site, although it has notified and brought into the process only the 400 or so parties who top the list.152
Although the identified PRPs initially showed some reluctance to come forward and clean up the site voluntarily, they eventually formed a PRP Site Steering Committee for that purpose in 1997.153 The Site Steering Committee has been responsible for working on behalf of the identified PRPs with Maine DEP officials and the Superfund Entity to bring the Wells site through the negotiation process [*PG145]and arrive at an equitable settlement agreement among all the parties under the Maine Superfund Law.154
Complicating factors related to the Wells site have included both contamination-related and organization-related difficulties.155 At this point in the cleanup process, the migration of contamination from the site into groundwater and thereby to nearby residential wells has emerged as a significant issue.156 It is unclear how the final settlement agreement will address the concern over groundwater, although it now looks as if expensive pumping and treatment will not be required given the relatively sparse settlement area affected and the limited impact of the contamination.157
Regarding organization-related complications, the listing of the Town of Wells and several other governmental entities, who sent some quantity of their waste oil to the facility prior to its closure, as well as the United States Department of Defense (DOD), as identified PRPs has posed some difficulty throughout the negotiation process.158 The site has bedeviled the Town since its closure; when Portland Bangor went bankrupt and stopped paying taxes, the Town voted to legally excuse itself from foreclosing and assuming further liability as the owner of the site.159 DOD’s involvement reportedly increased the amount of bureaucratic delay inherent in any Superfund-related negotiation process in at least two ways: (1) simply through the added difficulty of dealing with a massive federal agency with several layers of [*PG146]bureaucracy;160 and (2) as the Super Settlement concept arose, contracting issues became more complicated as some Steering Committee members expressed concern over whether DOD could legally participate in the streamlined selection process that produced the eventual selection of the Superfund Entity to carry out the cleanup.161 Finally, although some PRPs could clearly be identified as deep pockets and be made to bear a larger share of the remedial burden, Maine DEP’s information indicated that the level of responsibility for contamination among all of the parties was relatively low. In short, there was no single, solvent large PRP or small group of such PRPs who could obviously be made to bear the brunt of the burden for cleanup because of their much higher level of responsibility.162
As the negotiations wore on into mid-1997 and an agreement continued to elude Maine DEP and the Site Steering Committee, a relatively new local environmental cleanup and consulting firm made a proposal to wrap up the process for the existing PRPs in an innovative way.163 The proposal was for a “Super” Settlement to the site’s ongoing negotiations.164 In capsule form, the deal was as follows: the consulting firm, Emsource, Inc., would sign a binding agreement with Maine DEP and as many as possible of the approximately 400 identified PRPs that would release them from further cleanup-related liability under the Maine Superfund Law, thereby making itself the sole PRP responsible for remediating the site, in exchange for an up-front cash payment for the total estimated cleanup cost and some premium.165 In order to provide the greatest level of security to the PRPs and the regulators at Maine DEP, Emsource was also prepared to purchase environmental cleanup insurance from a major insurance [*PG147]company and to enter into a simultaneous consent decree with the State of Maine identifying the selected cleanup and a timetable for completion.166 Although Maine DEP and the Site Steering Committee were receptive to the idea in the abstract, they were not entirely receptive to Emsource.167 In the spring of 1998, they entertained competing bids from Emsource and another environmental cleanup firm, TRC Companies (TRC) of Windsor, Connecticut, and selected TRC, apparently because of its lower up-front price, greater size, established reputation, and its backing by multinational insurance giant American International Group (AIG).168
At the center of the Super Settlement is the Superfund Entity, which in the Wells case is TRC.170 TRC is known as a nationally established, reputable firm that has the experience and resources needed to perform the selected remedy.171 In exchange for payment from the settling PRPs, TRC will fully assume their past and present cleanup liability related to the site and indemnify them against all further costs.172 At the same time, TRC itself will become the sole PRP related to the site, through its new status as the site’s operator under the Maine Superfund Law, and become the recipient of all settling PRPs’ rights to contribution from non-settling PRPs.173 In addition, TRC will purchase an environmental cleanup insurance policy from AIG, most likely a “cost-cap” policy, that will probably name the site’s PRPs and the State of Maine as co-insureds along with TRC.174
[*PG148] Crucial to the success of the Wells Super Settlement as a whole is the active and enthusiastic cooperation of Maine DEP.175 Simultaneous with the contractual indemnification agreement between TRC and the settling PRPs, Maine DEP must provide the settling PRPs with liability releases,176 and agree not to pursue them in the future for cleanup costs related to the site borne by the State of Maine, as well as all claims for natural resources damages under the Maine Superfund Law.177 Maine DEP’s provision of releases to the PRPs will most likely be accomplished through a multi-party, court-supervised consent decree.178 Observers and participants view this piece as crucial for the PRPs; without the liability protection of such a decree or order, the value of the Super Settlement would be greatly reduced.179 The incentive for Maine DEP is seen as inhering primarily in the reduction of the total PRP universe for the Wells site from nearly 400 to just one: TRC.180 Included with the consent decree will be a separate settlement agreement between TRC and Maine DEP outlining the selected remedy and specifying the steps that will be taken to construct and maintain the selected remedy.181
A large portion of the identified PRPs must agree to the Super Settlement in order for it to be truly attractive as a profit-making venture to TRC.182 Observers believe that the incentive for the PRPs to [*PG149]participate in the Super Settlement will be strong in most such cases,183 and is certainly very strong in the Wells case; with the cooperation of Maine DEP, the Super Settlement promises to permanently and comprehensively terminate the liability of all participating PRPs.184 Liability related to all past and future cleanup costs, as well as natural resource damages, will be completely transferred from the PRPs to TRC.185 To put it bluntly, the anticipated attraction for the PRPs is that they are able to walk away from the site and never look back, except under extreme circumstances.186
The insurer, AIG, is another important player whose role in the Super Settlement must not be overlooked.187 By providing the guarantee to fund potential cleanup cost overruns, AIG will allow the state and the PRPs to conclude the deal with TRC and not feel as if the entire agreement rests on the shoulders of a single company, which may go bankrupt or become less cooperative if the initial cost estimate proves inaccurate.188 Further, AIG will oversee all funds (including TRC’s fee/premium) made available to TRC by the PRPs. Such funds will be held in trust for use solely in cleaning up the site until the selected remedy has been certified by Maine DEP.189
One player not explicitly mentioned yet is EPA. In exclusively state-administered hazardous waste site cleanup cases, EPA’s role is generally quite limited.190 Although it is unclear at this point what exactly EPA’s involvement in the Wells Super Settlement will be,191 its [*PG150]participation in some way is still important.192 The ramifications for the wider settlement should EPA fail to be involved at all are discussed in the next section.193
The promise of the Super Settlement concept has apparently become clear to all of the participants in the Wells site negotiations, including, most importantly, the Site Steering Committee and Maine DEP.194 Nonetheless, the participants already have begun to critique the process as it is developing.195
The primary critique emerging at this point is that, even putting the concept’s newness aside, the complexity of the concept requires greater sophistication and patience than the standard settlement process.196 Indeed, it has been observed that while the concept was supposed to bring the pain and expense of settlement negotiations to a quick and happy ending for the settling PRPs, it has now been discussed and analyzed for over a year and a half without producing a final agreement among the parties at the Wells site.197 Is this really the relief everyone caught in the Superfund liability web has been hoping for?
This section provides an analysis of four legal issues surrounding the Super Settlement concept. First, are regulatory agencies and the courts likely to approve of the Super Settlement concept, considering its obvious for-profit motivation, under the current legal framework [*PG151]for Superfund? Second, can sufficient safeguards be built into the cluster of agreements at the heart of the Super Settlement concept to protect the public interest in seeing cost-efficient and protective cleanup despite the potential recalcitrance or bankruptcy of one of the principal remaining private parties (i.e., the Superfund Entity or the insurer)? Third, what role can and/or should EPA play in making Super Settlements happen at the state level? Fourth, and finally, are there other areas of environmental liability where something like the Super Settlement concept can be employed productively?
As noted at Section II.D of this Comment, the underlying posture of courts reviewing settlement agreements through the consent decree process has generally been one of deference.198 The standard applied has been based primarily on the First Circuit’s opinion in United States v. Cannons Engineering Corp., which held that settlements must be reasonable, fair, and faithful to the governing statute, in this case CERCLA (or the appropriate state Superfund law).199 This approach reflects not only the traditional deference of reviewing courts to agency action, but also the clear intent of section 122 of CERCLA that cleanups be implemented quickly and therefore settlements be encouraged, unless the results are manifestly unfair or arbitrary.200 As a consequence, the kind of reasonableness and fairness sought by courts when reviewing consent decrees under CERCLA is more in line with concerns over the inclusion of fair procedural steps; a rough allocation of responsibility for bearing the costs of cleanup is all that is required for substantive fairness.201
[*PG152] Given this relatively permissive standard of judicial review, the first-cut propriety of the Super Settlement concept comes into focus. The incentives for EPA and state environmental protection agencies to be enthusiastic about the Super Settlement concept have already been mentioned.202 The use of Super Settlements can accelerate and ultimately simplify the oversight process for responsible state agencies and EPA, helping them to achieve the goals of their governing cleanup statutes while allowing them to shift active assessment and cleanup responsibilities to private parties at the earliest possible point in time. If Maine DEP’s obvious enthusiasm for the concept is any indication, it appears that these anticipated advantages for state agencies will be quickly recognized and Super Settlements will be routinely entered into.
Ultimately, the PRPs bear the responsibility for deciding how to allocate liability among themselves, and neither the courts nor the responsible agencies have shown themselves to be interested in disturbing private agreements that produce sufficient public benefits in the form of fast and efficient cleanup of hazardous waste sites. This attitude, which borders on a kind of benign neglect, is well reflected by First Circuit Judge Selya’s observation in United States v. Charles George Trucking, Inc. that:
[t]here is little need for a court to police the substantive fairness of a settlement as among settling parties of a particular class. Sophisticated actors know how to protect their own interests, and they are well equipped to evaluate risks and rewards.203
In the end, despite its for-profit motivation, the Super Settlement concept is likely to be viewed as merely an innovative and potentially very useful twist on the settlement process that is different only in degree and not kind from the traditional multi-party settlement described in Section II.D. The only difference is that a single private party, the Superfund Entity, is acquiring the premium associated with early cash-out, and not the state agency or EPA. At the same time, the Superfund Entity is assuming a heavy risk that would otherwise have to be borne either by the settling PRPs or the government.
Although Super Settlements ultimately promise to simplify the negotiation and settlement process under CERCLA and State Superfund laws, the interlocking web of contracts required to make Super Settlements happen must necessarily become fairly complicated.204 A number of separate, but nearly simultaneous, deals must be struck between several parties.205 The lead agency, whether state or federal, must agree to a consent decree with the Superfund Entity, through which a series of cleanup actions and financial obligations are specified.206 At the same time, the lead agency must provide releases, or no action assurances, to the settling PRPs at the site, effectively allowing them to walk away from their liability regarding the cleanup.207 Finally, the insurance company must agree to provide the necessary cleanup insurance policy to the Superfund Entity, and, most likely, agree to allow the lead agency and the settling PRPs to be named as co-insureds on the policy.208 Any one or several of these mutually supporting agreements could, under enough pressure, begin to unravel.209
Addressing the potential for dysfunction in the Super Settlement concept requires careful and prudent drafting by the legal advisors to the various parties.210 In addition, those who craft the interlocking agreements must pay special attention to the applicable law in two areas: the relationship between PRP bankruptcy and hazardous waste-related liability, and the true scope and durability of private Superfund response action cost apportionment agreements.211
Under EPA’s Revised Model RD/RA Consent Decree (Revised Consent Decree),212 the primary mechanism for dealing with the potential for bankruptcy or financial uncertainty on the part of the PRPs who are parties to the settlement is contained in Part XIII: “Assurance of Ability to Complete Work.”213 Before the private parties to a CERCLA consent decree in this context are allowed to commence any remedial [*PG154]action under its provisions, the Revised Consent Decree requires that the settling parties “establish and maintain financial security” in some amount by one of five primary mechanisms: (1) a surety bond; (2) an irrevocable letter of credit equal to the total estimated cost of the work; (3) a trust fund; (4) a guarantee to perform the work by a third party; or (5) proof that at least one of the settling parties meets the same requirements that are demanded of parties attempting to close a Resource Conservation and Recovery Act facility.214 Although the majority of the applicable case law is generally in EPA’s favor on this issue, EPA still seeks, in essence, to virtually bulletproof its settlement arrangements through the Revised Consent Decree’s assurance requirements.215
Under the proposed Wells Super Settlement, the issue of assurance would appear to be more than adequately covered by the presence of multinational insurance giant AIG and its multi-million dollar environmental cleanup insurance policy.216 In addition, AIG’s role as trustee for the contributions and fees transferred from the settling PRPs to the Superfund Entity, TRC, provides even further assurance that the cleanup will happen as agreed to by the several parties.217 Finally, because CERCLA-related liability cannot be legally transferred, but only apportioned and indemnified, Maine DEP has retained the ability to directly incorporate a special reopener clause in its no action assurances with the settling PRPs such that if TRC and AIG somehow become too recalcitrant or entirely insolvent, and thereby unable to complete the cleanup, the initial PRPs can be hauled back in and made responsible for the cleanup without needing to affect the indemnity agreements between the private parties.218 While current in[*PG155]formation suggests that Maine DEP is foregoing this option in exchange for other considerations from TRC and the settling PRPs, this does not preclude the use of such reopeners in the future.219
Although there are specific provisions mandating state participation in various aspects of enforcement and settlement negotiations under CERCLA, there are virtually no such complementary requirements that EPA be involved in exclusively state-administered hazardous waste sites.220 As a result, EPA has retained wide discretion in deciding whether to join itself as a party to a state-administered settlement agreement.221 Instead of doing so, EPA nearly always has elected only to issue comfort letters to parties involved in state-administered settlements.222 Such documents are aptly named because they provide a kind of prediction on the part of EPA that it does not see, at the present time, any need to take any action under CERCLA223 because of the apparently adequate oversight of the state agency administering the site.224 It is important to note what EPA does not do through its comfort letters; it does not provide any kind of [*PG156]binding promise that it will refrain from taking action under CERCLA on the site in question.225
The question for those involved in Super Settlements is therefore two-fold. First, given the promise and novelty of the Super Settlement concept, would it be possible to persuade EPA that something more than a comfort letter makes sense when dealing with exclusively state-administered sites, primarily to remove the potential for a chilling effect on otherwise cooperative PRPs? Second, if that is not possible, what is the likelihood of EPA returning to such an innovative agreement that has been struck under state law and unraveling it through a separate enforcement action under CERCLA?
EPA appears to want to move toward a more complete delegation of CERCLA enforcement power to the states, despite the widespread criticism of the Final Voluntary Program Guidance and its supposedly too-strict delegation criteria, as described supra.226 Although an EPA provision of a full release from CERCLA liability under a covenant not to sue would appear to be unattainable under the current statutory scheme, it is possible that EPA could be more willing than it has been in the past to issue its own “no action assurance” letters that would be more restrictive of EPA enforcement discretion than standard comfort letters.227 Absent such a beefed-up indication of EPA’s intention regarding a particular site, the settling PRPs in any instance, but particularly those involved in a new and relatively untried settlement model like the Super Settlement concept, must make their own best estimate on the value of the standard comfort letter and the probability that EPA may return to the site later, for whatever reason.228
[*PG157] Technically, there are no statutory barriers to prevent EPA from seeking to enforce the provisions of CERCLA on top of an ongoing, or even a concluded, State Superfund enforcement action. Given the informal relationship between the states and the federal government under CERCLA, it would not even technically be defined as “overfiling.”229 Still, courts may be unwilling to permit EPA to reopen a closed state enforcement action based on something like the prudential doctrine of res judicata, as seen recently in Harmon Industries, Inc. v. Browner,230 a case which confronted a similar context under the Resource Conservation and Recovery Act (RCRA).
The court in Harmon found that EPA’s civil enforcement action against the plaintiff corporation, which had admittedly violated RCRA but had settled with the state’s environmental agency, was not permitted under RCRA because EPA had authorized the state agency to carry out the statute with the same “force and effect” as EPA.231 The court further found that EPA was prohibited from attempting to assess civil penalties by res judicata as well.232 The sticking point for a res judicata analysis here is primarily the privity requirement, which the court in Harmon decided to find in EPA’s authorization of the Missouri agency to enforce RCRA.233 Putting aside the exact legal and statutory structure of the federal-state relationship in this context, the court also noted that “EPA does not and should not have the authority to impose its own separate penalties after Plaintiff [Harmon] negotiates a settlement with an authorized state agency and that settlement is approved by an appropriate state judicial authority.”234 Ultimately, the implication of Harmon may be that the federal courts have clear public policy concerns about EPA overfiling when it is done with an apparent disregard for the true nature of state action in the particular case. As the Harmon court noted in its opinion:
[*PG158]In argument and in its brief, EPA urges the Court to believe that MDNR [the state agency] was inappropriately lenient to Harmon because of some undefined self-interest. The EPA vaguely hints that Missouri may have sought to avoid appearing hostile to the interests of business and industry in general. . . . The position taken by EPA in this proceeding is puzzling.235
Although one obviously should not place too much emphasis on the language of the district court in Harmon, the fact remains that EPA faces significant practical and political obstacles whenever it actually attempts to second-guess finalized state enforcement actions.236 In this sense, settling PRPs in a Super Settlement dealing only with a state agency may be able to take some comfort in the final result, if not the exact context, of Harmon.237
Environmental contamination-related liability extends to many contexts in the United States, from federal liability related to failure to adhere to point-source emission permits under the Clean Water Act, to exceedances of Clean Water Act effluent limitations under the National Pollutant Discharge Elimination System (NPDES), as well as the proper handling of solid and hazardous waste under RCRA.238 Super Settlements represent a new, relatively sophisticated method for dealing with environmental contamination-related liability.239 The potential for widespread efficiencies can be quite high in such contexts. For instance, instead of being left with parties who have neither the expertise nor interest in confronting their environmental contamination-related liabilities (it is normally not at all their primary business), government regulatory agencies would be able to deal with a single, technically-sophisticated player whose sole business goal is to comply with applicable regulations and thereby produce profit for its investors.240
[*PG159] Although numerous examples of potential contexts for such liability transfers could be provided, two seem to be most promising at first glance. The first entails the transfer of CERCLA-related liability (federal or state) at the time of a commercial transaction between two corporations that includes the transfer of essential, but environmentally contaminated real property.241 How to accomplish a transfer of liability under such circumstances in such a way that it will withstand scrutiny from the court system has been a difficult question, but has largely been resolved in favor of allowing such transfers when the language is sufficiently broad or exact.242 While the initial prevailing wisdom on the Super Settlement concept sees Super Settlements as limited primarily to the negotiation phase of identified multi-party hazardous waste sites, it is entirely possible that an enterprising Superfund Entity could insert itself earlier in the process, providing indemnification to the parties in such a commercial transaction, and simultaneously arranging an agency release for the original parties in exchange for up-front compensation.243
A second ready-made context for the transfer of environmental contamination-related liability is found under the National Pollutant Discharge Elimination System (NPDES) program of the Clean Water Act.244 The current arrangement in such cases usually entails an industrial firm directly applying for a NPDES permit and being forced to constantly monitor and maintain the applicable control technology to stay within its effluent limitations.245 Using the Super Settlement concept, a Superfund Entity could insert itself between the industrial firm and the regulatory agency responsible for administering the applicable NPDES permit by taking on the liability related to the control technology and entering into a consent decree or other contractual arrangement that would transfer the liability for exceedances of the permit to the Superfund Entity.246 One can immediately see the advantages of such an arrangement: the Superfund Entity would be able to bring its superior technological capability to bear, and its sole re[*PG160]sponsibility would be to maintain the effluent discharged from the point source at the amount specified in the NPDES permit.247
It is likely that the Super Settlement concept will be put into widespread use across the United States as its advantages become better known. While CERCLA reauthorization unfortunately remains little more than a faint hope for the foreseeable future, Super Settlements may provide the best response to the most significant drawbacks of the current voluntary settlement paradigm. From the very inception of Superfund in 1980, parties caught within its liability web have sought an efficient and timely way to extricate themselves, while regulatory agencies, particularly EPA, have been concerned about the slow pace of progress toward cleanup.
Although Super Settlements are still in their infancy and crucial issues remain to be ironed out, it seems likely that their potential to drastically simplify and reduce the long-run costs of the settlement process for all of the involved parties—from federal and state government agencies to private PRPs to the Superfund Entity to society at large—will make them a powerful tool in streamlining and facilitating the cleanup of more hazardous waste sites than would be possible under other settlement paradigms.