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Please Sue Me Cooper Industries Inc. v. Aviall Services Inc.

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As all loyal readers of Toxins-Are-Us know, this column is devoted to discussing the often-difficult blending of bankruptcy and environmental law. In this installment of Toxins however, we will discuss the most important Supreme Court decision on environmental law in the last several years: Cooper Industries Inc. v. Aviall Services Inc.,2 which addresses the ability of "potentially responsible parties" (PRP)3 to sue for contribution under §113 (f)(1) of the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA) as supplemented by the Superfund Amendments and Reauthorization Act of 1986 (SARA).

I'm Contaminated by a Jet Plane: The Background of Cooper

This case began in 1981 with the sale by Cooper Industries of four aircraft engine maintenance sites in Texas to Aviall Services Inc. At the time of the sale, the sites were contaminated by petroleum and other chemicals leaking into the groundwater and by leaks from underground storage tanks and chemical spills. The contamination continued while Aviall operated the sites.

A few years after Aviall purchased the sites, it discovered and informed the Texas Natural Resource Conservation Commission of the environmental problems. Texas informed Aviall that it was in violation of Texas state environmental law and that if it did not clean up the sites, Texas probably would take action against Aviall. The Environmental Protection Agency (EPA) apparently never took any action against Aviall or threatened any action against Aviall.

In 1984, Aviall began a decade-long voluntary cleanup of the sites. In 1995, Aviall first contacted Cooper about a claim for reimbursement for the clean up. In 1997, Aviall filed suit against Cooper on a number of theories,4 including for contribution under §113(f)(1) of CERCLA and for cost recovery under §107 of CERCLA. Section 107 was ultimately merged into a §113(f)(1) claim under then applicable Fifth Circuit law.


[I]n the already mucky swamp of the interplay between bankruptcy and environmental law, Cooper does little to clean up the liability issues in bankruptcy proceedings.

In 2000, the District Court for the Northern District of Texas, 2000 WL 31730, granted summary judgment for Cooper, and Aviall appealed. The Fifth Circuit affirmed the district court's decision, 263 F.3d 134 (5th Cir.). However a rehearing en banc was granted, and the Fifth Circuit, 312 F.2d 677 (5th Cir.), reversed and remanded the district court judgment. Certiorari was then granted by the U.S. Supreme Court.

Plain Meaning Rules the Day: Cooper's Holding

In Cooper, the Supreme Court considered the issue of whether a PRP could
seek contribution under §113(f)(1)5 of CERCLA where the PRP had not had a civil action filed against it under either §106 or 107 of CERCLA. The Supreme Court, overruling the vast majority of court decisions,6 held that:

Section 113(f)(1) does not authorize Aviall's suit. The first sentence, the enabling clause that establishes the right of contribution, provides: "Any person may seek contribution...during or following any civil action under §9606 of this title or under §9607(a) [§107] of this title," 42 U.S.C. §9613(f)(1) (emphasis added). The natural meaning of this sentence is that contribution may only be sought subject to the specified conditions, namely, "during or following" a specified civil action.7

The Supreme Court also rejected Aviall's argument that the last sentence of §113(f)(1) provides:

Nothing in this subsection shall diminish the right of any person to bring an action for contribution in the absence of a civil action under §9606 [§106] of this title or §9607 [§107] of this title.

Although this permits the contribution claim holding that the sentence does not authorize a contribution action under §113(f)(1) of CERCLA, it merely preserves a plaintiff's right (if any) under other applicable law.8

Finally, the Supreme Court also refused in Cooper to discuss Aviall's alternative theory of recovery, i.e., that under §107(a)(4)(B) of CERCLA it would have a right to recover clean-up costs from Cooper.9 The Supreme Court's refusal to consider this issue (which was the basis of the dissenting opinion) was due to the failure of the lower courts in Cooper to fully address this issue.10

And the Million Dollar Baby—uh, Bankruptcy Impact of Cooper—Is?

While the environmental law impact of Cooper is just being analyzed,11 it is still not too early to speculate on Cooper's potential impact in bankruptcy cases.

What About Hemingway, et al.? 11 U.S.C. §502(e)(1)(B) and Cooper

As longtime readers of the column know, the issue of PRPs being able to assert contribution claims against debtors in bankruptcy in light of 11 U.S.C. §502(e) has been frequently discussed.12 In several cases, bankruptcy courts have worked hard to ensure that PRPs are not prohibited by 11 U.S.C. §502(e)(1)(B) from asserting contribution claims against debtors. See Norpak v. Eagle-Picher Industries Inc., 131 F.3d 1185 (6th Cir. 1997); In re Hemingway Transport Inc., 993 F.2d 915 (1st Cir. 1993). However, one of the main potential remedies to suggest to prevent claims from being disallowed under 11 U.S.C. §502(e), that of paying the underlying liability and fixing the claim under 11 U.S.C. §502(e)(2),13 becomes more risky after Cooper unless suit or another action was taken against the creditor PRP under either §106 or 107 of CERCLA. The overall impact of Cooper in connection with 11 U.S.C. §502(e) will probably decrease the number of allowable PRP claims against debtors.

Bar Date and Cooper: I Would Rather Be Hit with a Crowbar

A second potential problem facing PRPs that assert claims against debtors after Cooper involves the bar date. Unless a PRP creditor has already been sued by the time a bankruptcy has been filed, it will be difficult, if not impossible, to get a CERCLA suit filed against the potential PRP creditor given the typical length of bar dates in bankruptcy proceedings of anywhere between six to nine months after filing. Further, in cases where there is the possibility of large PRP claims and a chance for a distribution to unsecured creditors without the allowance of the large PRP claims, it is highly likely that all other creditors will push for a short bar date to prevent dilution of any potential distribution by timely filed PRP claims. Therefore, the Cooper decision, when coupled with bar dates, will pose a significant problem to PRPs attempting to assert claims against the debtor.

The Automatic Stay Did What!: Debtor PRP Claims Against Third Parties after Cooper

A further, and perhaps unexpected, issue is what constitutes "any civil action under §9606 [§106 of CERCLA] of this title or under §9607(a) of this title [§107(a) of CERCLA]." As we all know, the filing of a bankruptcy prevents the filing of further lawsuits against a debtor. If a debtor is performing voluntary cleanup without the required suit being filed against it, the automatic stay could prevent the debtor from meeting the statutory requirements under §113(f) of CERCLA. At the present time, no case directly addresses whether the filing of a proof of claim by an appropriate party fulfills the requirements of §113(f)(1) for the filing of a civil action, although, due to the pro-environmental creditor positions taken by bankruptcy courts, most likely a proof of claim would constitute a civil action for purposes of §113(f)(1).14 However, until the law is further clarified, a debtor may wish to "grant" stay relief to a plaintiff who could bring a §106 or 107 action in order to fulfill the statutory requirements of §113(f)(1) of CERCLA.

Conclusion? Or the First Shoe Falling?

The Cooper decision, while a critically important decision in the area of environmental law, should not be looked at as an ending, but rather as the start of a likely lengthy process of defining PRP's rights against other PRPs under CERCLA. Indeed, the Supreme Court virtually acknowledges another opinion on the matter by its refusal to address a PRP's rights under §107 of CERCLA.

Further, while the most direct impact of Cooper is to limit a PRP's ability to recover from other PRPs under CERCLA, nothing in Cooper prevents PRPs from asserting other causes of action under state and other federal laws against other PRPs.

Finally, however, in the already mucky swamp of the interplay between bankruptcy and environmental law, Cooper does little to clean up the liability issues in bankruptcy proceedings. Therefore, wherever possible, practitioners should strictly adhere to Cooper and follow its core holding, at least until more judicial "remediation" from the Supreme Court occurs to remedy the current uncertainties.


Footnotes

1 Board Certified in Business Bankruptcy Law by the American Board of Certification. Return to article

2 __ U.S.__, 125 S.Ct. 577 (2004). Return to article

3 A party is potentially responsible under CERCLA for costs associated with a toxic spill at a site if (1) the site is a "facility," (2) a release or threatened release of a "hazardous substance" from the site has occurred, (3) the release or threatened release has caused the plaintiff to incur response costs and (4) the defendant falls within at least one of the four classes of responsible persons described of the four classes of responsible persons described in §9607(a) of CERCLA. 42 U.S.C. §9607(a); U.S. v. Alcan Aluminum Corp., 315 F.3d 179, 180 (2d Cir.2003). The four classes of responsible parties are (1) the current owner and operator of the facility, (2) the owner or operator of the facility, (2) the owner or operator of the facility a the time hazardous substances were disposed there, (3) any person who generated or arranged for the treatment or disposal of a hazardous substance at the facility and (4) any person who transported hazardous substances to the facility. 42 U.S.C. §9607(a)(1)-(4); B.F. Goodrich Co. v. Murtha, 958 F.2d 1192, 1198 (2d Cir.1992). Potentially responsible persons are held strictly liable for cleanup costs incurred by any other person. B.F. Goodrich v. Betkoski, 99 F.3d 505, 514 (2d Cir.1996); New York v. Shore Realty Corp., 759 F.2d 1032, 1042 (2d Cir. 1985). Return to article

4 (1) breach of contract, (2) breach of express warranty, (3) contractual indemnification, (4) declaratory judgment, (5) contribution under CERCLA §113(f)(1), (6) contribution under §361.344(a) of the Texas Solid Waste Disposal Act, Tex. Health & Safety Code Ann. §361.344(a) (West 1992 & Supp.2000), (7) contribution under §26.3513(j) of the Texas Water Code, Tex. Water Code Ann. §26.3513(j) (West 1998 & Supp. 2000), (8) quantum meruit and (9) attorney's fees. Return to article

5 42 U.S.C. §9613(f)(1) [CERCLA §113(f)(1)] provides: Any person may seek contribution from any other person who is liable or potentially liable under §9607(a) of this title, during or following any civil action under §9606 [§106] of this title or under §9607(a) [§107] of this title. Such claims shall be brought in accordance with this section and the Federal Rules of Civil Procedure, and shall be governed by federal law. In resolving contribution claims, the court may allocate response costs among liable parties using such equitable factors as the court determines are appropriate. Nothing in this subsection shall diminish the right of any person to bring an action for contribution in the absence of a civil action under §9606 or 9607 of this title. Return to article

6 Bedford Affiliates v. Sills, 156 F.3d 416 (2d Cir. 1998); Crofton Ventures Ltd. Partnership v. G&H Partnership, 258 F.3d 292, 294 (4th Cir. 2001); Amoco Oil Co. v. Borden Inc., 889 F.2d 664 (5th Cir. 1989); Kalamazoo River Study Group v. Rockwell Int'l. Corp., 274 F.3d 1043, 1046 (6th Cir. 2001); PMC Inc. v. Sherwin-Williams Co., 151 F.3d 610, 613 (7th Cir. 1998), cert. denied, 119 S.Ct. 871, (1998); Control Data Corp. v. S.C.S.C. Corp., 53 F.3d 930, 932-33, 935 (8th Cir. 1995); Cadillac Fairview/California Inc. v. Dow Chem. Co., 299 F.3d 1019, 1024 (9th Cir. 2002); Morrison Ents. v. McShares Inc., 302 F.3d 1127 (10th Cir. 2002). Return to article

7 125 S.Ct. at 583. Return to article

8 125 S.Ct. at 583-84. Return to article

9 There is a serious question as to whether an express or implied right to recover costs exists under §107 of CERCLA. Compare Key Tronic Corp v. U.S., 511 U.S. 809 (1994) (indicating such a right exists) with Bedford Affiliates v. Sills, 156 F.3d 416, 423-424 (2d Cir. 1998); Centerior Serv. Co. v. Acme Scrap Iron & Metal Corp., 153 F.3d 344, 349-356 (6th Cir. 1998); Pneumo Abex Corp. v. High Point, T. & D.R. Co., 142 F.3d 769, 776 (4th Cir. 1998), cert. denied, 119 S.Ct. 407, Pinal Creek Group v. Newmont Mining Corp., 118 F.3d 1298, 1301-1306, (9th Cir. 1997) (which question the availability of such rights). Return to article

10 "We ordinarily do not decide, in the first instance, issues not decided below." 125 S.Ct. at 585, citing Adarand Contractors Inc. v. Mineta, 534 U.S. 103 (2001). Return to article

11 For some excellent discussion of the impact of Cooper on contribution claims under CERCLA, see Elements Chemicals Inc. v. TH Agriculture and Nutrition LLC, 2005 WL 236488 (S.D.N.Y. Jan. 31, 2005); AMW Materials Testing Inc., 348 F.Supp. 2d 4 (E.D.N.Y. 2004); Robb & Waldmann, "Supreme Court Limits Potentially Responsible Parties Right to Bring Contribution Lawsuits under CERCLA §113," 36 Environmental Reporter 145 (Jan. 21, 2005). Return to article

12 See Bowles, "A Tale of Two Cities," 18 ABI Journal 10 (1999); Ames and Bowles, "Norpak v. Eagle-Picher Industries: Rewriting or Summarizing Hemingway Transport?," 17 ABI Journal 8 (1995); Bowles and McAnulty, "The Old Toxic Waste Pit and the Wetlands," 12 ABI Journal 31 (1993). Return to article

13 See, generally, In re Eagle Picher Industries Inc., 164 B.R. 265, 272 (S.D. Ohio 1994). Return to article

14 See footnote 11 and cases discussed therein. Return to article

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Friday, April 1, 2005

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