Sixth Circuit Follows Suit on CERCLA Contribution/Cost Recovery Claims, Underscores the Importance of Settlement Language

On July 14, the Sixth Circuit joined five other Circuits in holding that parties who have settled their Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) claims with the government are foreclosed from seeking cost recovery from other potentially responsible parties (PRPs) under CERCLA § 107.  In Hobart Corp. v. Waste Management of Ohio, Inc., the Sixth Circuit found that plaintiffs’ settlement with the government restricted their claims against other PRPs to contribution actions under CERCLA § 113.    This ruling was fatal to the plaintiffs in Hobart because they failed to timely bring their CERCLA § 113 claims within three years of the settlement date.

In reaching its decision, the Sixth Circuit highlighted the importance of settlement language in determining which agreements qualify as an “administratively or judicially approved settlement” for purposes of CERCLA § 113 applicability.  The settlement at issue in Hobart explicitly resolved liability under CERCLA § 113, making it a clear-cut case for the Sixth Circuit.  The Court’s analysis, however, serves as a reminder to parties negotiating settlements to be cognizant of the following:  (1) state law contract interpretation principles; (2) the degree to which resolution of liability is explicit; (3) the breadth of any covenant not to sue; (4) reservation of rights and withdrawal provisions; and (5) effective dates.

A settlement agreement that fails to clearly and finally resolve the government’s claims against a party may defeat a PRP’s right to protection from contribution under CERCLA § 113 but preserve its rights to cost recovery under CERCLA § 107.   Conversely, clear agreements with explicit releases of liability and narrow withdrawal provisions are more likely to afford CERCLA § 113 protection from other PRPs, while foreclosing a right of action under CERCLA § 107.  In addition, the effective date of a valid CERCLA § 113 settlement will start the statute of limitations clock, and with it an ever-narrowing window of time in which to identify other PRPs.

Hobart is just the latest in a long line of cases to uphold the exclusivity of CERCLA §§ 107 and 113.  In the process of further cementing this interpretation among the federal courts, Hobart also serves to remind all parties of the larger consequences negotiated settlement terms may have on CERCLA contribution and cost recovery options.