Court Approves CERCLA Consent Decree For Ott/Story/Cordova Site
The Ott/Story/Cordova Chemical Company site in Muskegon County, Michigan is one of the oldest, most litigated, and possibly most expensive Superfund sites in Michigan. Court cases relating to this site have established important legal precedents, including a ruling by the United State Supreme Court that defines the circumstances under which a parent corporation may be held liable under CERCLA, and a ruling by the Michigan Court of Appeals holding that the State of Michigan must honor promises it made to protect the purchaser and redeveloper of contaminated property against liability for cleanup costs. A recent district court decision approving a consent decree among the United States, the State of Michigan, and Aerojet-General Corporation ("Aerojet") moved this nineteen-year old saga one important step closer to its final chapter.
A number of companies manufactured chemicals at the site for over 40 years. From 1957 to 1972, the Ott Chemical Company ("Ott"), now defunct, owned and operated the site. In 1965, a subsidiary of CPC International, Inc. ("CPC") owned and operated the site. (CPC later changed its name to Best Foods, Inc.) From 1972 to 1977, Story Chemical Co. ("Story") owned and operated the site. Story filed for bankruptcy in 1976. From 1977 to the present, the site has been owned and operated by Cordova Chemical Company of California and Cordova Chemical Company of Michigan (collectively, "Cordova"), both of which are subsidiaries of Aerojet. To induce Aerojet and Cordova to take over operation of the site after Story Chemical filed for bankruptcy, the State of Michigan entered into an agreement under which Aerojet agreed to perform certain limited cleanup actions, and the State of Michigan agreed to operate purge wells to treat groundwater contamination, and to indemnify Aerojet against any further cleanup that might be required at the site.
The United States Environmental Protection Agency ("USEPA") listed the site on the Superfund National Priorities List in 1983.
In previous trials, the district court found that the primary source of contamination at the site was a number of unlined lagoons that had been used for chemical waste disposal from 1959 through at least 1968, while the site was owned by the now defunct Ott and by a subsidiary of CPC. Additional substantial contamination also resulted from a number of chemical spills and the burial of chemical wastes during that time period. The court found that Story and Cordova did not dispose of any wastes in the lagoons, or bury any waste on the property, although some spills did occur while Story and Cordova owned the property.
In 1991, the district court held that both Aerojet and CPC were jointly and severally liable to the United States and to the State of Michigan for all response costs related to the site. Both Aerojet and CPC appealed. The United States Court of Appeals for the Sixth Circuit reversed, holding that CPC and Aerojet, as parent corporations, could be held liable under CERCLA for the actions of their subsidiaries only if the United States and Michigan could prove that they were guilty of fraud or injustice as required under Michigan state law to pierce the corporate veil. The Sixth Circuit also held that Aerojet and its subsidiaries were entitled to a new trial to determine whether they qualified for the third-party defense under 42 U.S.C. § 9607(b)(3). The United States and Michigan appealed to the United States Supreme Court on the issue of whether Aerojet and CPC could be held liable as parent corporations, arguing that the Sixth Circuit had taken too narrow a view of this issue. The Supreme Court held that there are limited circumstances under which a parent corporation might be held liable under CERCLA for operating a facility owned by a subsidiary corporation, and remanded the case to the district court for further action.
Meanwhile, Aerojet's subsidiary, Cordova, successfully argued before the Michigan Court of Appeals that the State of Michigan has a binding obligation to protect Aerojet and its subsidiaries from any environmental liabilities at the site, and the Michigan Supreme Court declined to review the court of appeals decision.
PROPOSED CONSENT DECREE
After the Supreme Court decision, the United States, the State of Michigan, and Aerojet negotiated a consent decree which: 1) acknowledged that Aerojet had spent about $2.6 million dollars remediating contaminated soil on two cleanup projects at the site; and 2) obligated Aerojet to pay approximately $5.5 million dollars on a third cleanup project, for a total of approximately $8.1 million dollars. EPA estimated that the total cleanup costs at the site would be about $100 million dollars. Therefore, the total amount of Aerojet's responsibilities under the proposed consent decree was approximately 8%. However, the court noted that Aerojet would, in all likelihood, never have to pay any of the $5.5 million dollars, because the Michigan Court of Appeals had held that the state had to fulfill its contractual obligation to protect Aerojet from these costs. The consent decree also gave Aerojet a complete release from all further liability to the United States and the State, protected it against any contribution claims by CPC, and preserved Aerojet's right to seek contribution from CPC or other parties for Aerojet's cleanup costs.
CPC objected to the proposed consent decree, apparently out of concern that approval of a consent decree would leave CPC as the only financially viable party from which the United States and the State could seek the remaining 92% of response costs. The district court held that in making its decision to approve or disapprove the consent decree, its only role was to decide whether the agreement was fair, reasonable, and consistent with the purposes of CERCLA, and stated that, in doing so, it would give deference to the recommendations of the United States. The court found that the terms of the consent decree were fair because the 8% responsibility assigned to Aerojet was roughly comparable to the amount of environmental harm that Aerojet and its subsidiaries may have caused, considering they had engaged in no active dumping or burial of wastes. The district court noted that although there was a failure by either Aerojet or the State of Michigan to operate groundwater purge wells, a recent decision by the United States Court of Appeals for the Sixth Circuit had held that CERCLA liability does not result from the passive migration of previously disposed hazardous substances, thus casting some doubt on whether failure by Aerojet or the State of Michigan to operate the purge wells could result in CERCLA liability. The district court also noted that another recent court of appeals decision had improved the chances that Aerojet might prevail on its innocent landowner defense. The court noted that the enhanced possibilities that Aerojet might prevail on the passive migration defense, and the innocent landowner defense, were legitimate litigation risks that justified approval of a consent decree that imposed only 8% liability on Aerojet. CPC argued that the United States had agreed to settle its claims against Aerojet for only 8% in order to protect the State, which was contractually obligated to indemnify Aerojet. The court rejected this argument because CPC had no evidence of collusion between the United States and the State, and because it believed that 8% was a rational estimate of the costs attributable to Aerojet. The court therefore approved the consent decree.
The approval of the consent decree effectively takes Aerojet and its subsidiaries out of the case, and should open the final chapter of this saga, which will probably be a settlement or a trial to determine how much of the remaining $92 million dollars of cleanup costs CPC will have to pay.
Best Foods, Inc. v. Aerojet-General Corporation, 2000 W.L. 1238910 (W.D. Mich. Aug. 24, 2000).
This article was prepared by Christopher J. Dunsky, a partner in our Environmental Department, and previously appeared in the December, 2000 edition of the Michigan Environmental Compliance Update, a monthly newsletter prepared by the Environmental Department and published by M. Lee Smith Publishers.