Ninth Circuit Rejects CERCLA Settlement, Declines to Give Deference to State Agency

On August 1, 2014, a divided panel of the Ninth Circuit reversed a district court’s approval of a multi-party settlement at an Arizona waste site.  State of Arizona v. Ashton Company Incorporated Contractors and Engineers, et al., No. 12-15691 (9^th Cir. August 1, 2014).  The dissenting opinion noted that this is only the second time an appellate court has done so, with both decisions made by the Ninth Circuit.  The reasoning of the majority has to give pause to parties preparing to enter into CERCLA settlements at state-lead sites.

On appeal, the majority opinion held that the district court had not conducted the “comparative analysis” required in the approval of CERCLA settlements under the Circuit’s prior rulings, including US v. Montrose Chemical, 50 F.3d 741 (9^th Cir 1995).  In Montrose Chemical, the district court had expressly declined to examine the merits of the settlement and, without any discussion of the merits, relied upon the approval of the settlement terms by the Special Master appointed by the district court to oversee settlement negotiations.

In State of Arizona, the district court did review, but did not discuss, information from the State on the relative liability of the settling parties, instead relying on the judgment of the State agency as to whether the settlement served the public interest.  Because the State agency was making a judgment about the adequacy of a settlement under a federal statute, the majority would not give the same deference to the agency’s determination as it would have given to EPA. The lengthy dissent strongly took issue with the failure to grant deference to the State agency’s determination, and concluded that the record was adequate to support the settlements.

Interestingly, the State agency had provided the district court with information on the basis for the settlement, which included an estimate of total cost.  The court had also received the State environmental agency’s estimate of the relative liability of the settling parties, and its judgment that the settlement terms were in the public interest.  It is likely that both the agency and the district court concluded that more precision was not worth the candle – this was an early settlement and these were small parties at a multi-party site.  Whether one accepts the view that federal courts should give lesser deference to the judgments of state agencies enforcing a federal statute, even where, as with CERCLA, that statute provides the State with a significant enforcement role, the district court here would seem to be exercising the type of judicial discretion to which a reviewing court should give deference consistent with the reasoning in decisions cited by both the majority and the dissent.

As with Montrose Chemical, this settlement will be remanded to the district court for further proceedings.  One hopes that the proposed settlement will not meet the same fate as the settlement in Montrose on remand.  The settlement ultimately approved in Montrose contained the same substantive terms as the one reviewed and remanded by the Ninth Circuit, but only after years of delay while the litigation played out.  Such a delay for these de minimis parties would hardly serve the public’s interest or the objective of CERCLA to promote early settlement.