Debtors Beware: Resolving Environmental Liabilities in a Judicially Approved Bankruptcy Settlement Triggers the Statute of Limitations on CERCLA Contribution Claims

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When an entity that has filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code resolves its environmental liability to a state or the United States via a settlement agreement, there are several steps involved in the process.  Typically, the debtor and the state or United States will first execute a written settlement agreement.  The parties will then submit that agreement for approval by the bankruptcy court.  If the bankruptcy court approves the settlement, it will issue a written approval.  The settlement is then incorporated into the plan of reorganization.  If the bankruptcy court approves the plan of reorganization, it will issue a written confirmation. 

Given the numerous steps involved in the process, the debtor entity may be uncertain as to which of the steps starts the clock on its statute of limitations for contribution claims under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) subsection 113(f).  The relevant statute of limitations provision is CERCLA section 113(g)(3)(B), which provides: “No action for contribution for any response costs or damages may be commenced more than 3 years after . . . entry of a judicially approved settlement with respect to such costs or damages.”  42 U.S.C. § 9613(g)(3)(B).  Recent decisions issued in federal district courts in Washington, Montana, Utah, New York, and Colorado confirm that the statute of limitations under CERCLA section 113(g)(3)(B) is triggered on the date that the bankruptcy court approves a settlement agreement between the debtor and the government, not on the date that the bankruptcy court approves a plan of reorganization or the date a plan of reorganization becomes effective. 

In ASARCO LLC v. HECLA Mining Company, 2012 WL 5929962 (E.D. Wash., November 27, 2012), defendant Callahan Mining Corporation (“Callahan”) filed a motion to dismiss a CERCLA contribution claim, arguing, in relevant part, that the bankruptcy court’s approval of Asarco LLC’s (“Asarco”) settlement with the State of Washington triggered the statute of limitations under CERCLA section 113(g)(3)(B).  Asarco argued that the statute of limitations did not begin to run until either the bankruptcy court approved the confirmed plan of reorganization or the plan of reorganization became effective.  Asarco further argued that even if its settlement with Washington triggered the statute of limitations, its complaint was still timely when the rules for computing time under Rule 6(a) of the Federal Rules of Civil Procedure are applied.  The district court denied Callahan’s motion to dismiss, stating that Rule 6(a) was relevant in determining the statute of limitations and thus impliedly holding that the triggering event for Asarco’s contribution claim was the judicial approval of the bankruptcy settlement, not the approval of the confirmed plan of reorganization or the effective date of the plan of reorganization.  2012 WL 5929962 at *5.  

In ASARCO LLC v. Atlantic Richfield Co., 2012 WL 5995662 (D. Mont. Nov. 30, 2012), defendant American Chemet Corporation (“American”) similarly moved to dismiss a CERCLA contribution claim on statute of limitations grounds, arguing that Asarco resolved its liabilities in settlement agreements with the United States Environmental Protection Agency (“EPA”) that were judicially approved in 1990 and 1998.  In response, Asarco argued that the statute did not begin to run until either the bankruptcy court approved the confirmed plan of reorganization or the plan of reorganization became effective.  The district court denied American’s motion to dismiss, but held that, “The plain language of § 9613(g)(3)(B) contradicts [Asarco’s] contention that the statute of limitations did not begin to run until its Reorganization Plan was either approved by the Bankruptcy Court or became effective.”  2012 WL 5995662 at *2.  The court held that the statute of limitations runs from the date of the entry of the settlement agreement, not the date that each provision of that settlement takes effect.  Id.

In a third case, ASARCO LLC v. Xstrata PLC, 2013 WL 2949046 (D. Utah, June 14, 2013), defendant Xstrata PLC (“Xstrata”) filed a motion to dismiss, arguing that Asarco’s CERCLA contribution complaint was filed outside the applicable statute of limitations under CERCLA section 113(g)(3)(B) because more than three years had passed since the bankruptcy court approved a private party settlement relating to Asarco’s environmental liabilities.  Asarco argued the entry of the order approving the private party bankruptcy settlement did not trigger the statute of limitations; it was triggered when Asarco’s plan of reorganization became effective because that is when the amount of liability under the private agreement was fixed.  The court rejected both parties’ arguments and denied the motion to dismiss, reasoning that under CERCLA section 113(g)(3)(B), the triggering date for the statute of limitations was the bankruptcy court’s June 5, 2009 approval of a settlement entered between Asarco and EPA, which gave rise to Asarco’s right to contribution under CERCLA section 113(f)(3)(B).  2013 WL 2949046 at *3-5.  Because Asarco filed its complaint on June 5, 2012, its complaint was timely.  Id. at *5. 

In a fourth case, Asarco LLC v. Goodwin, U.S. District Court, S.D.N.Y., Case No. 1:12-cv-03749, Docket Nos. 30-32, defendant trustees filed a motion to dismiss Asarco’s CERCLA contribution claim, arguing that the bankruptcy court’s approval of Asarco’s settlement of its environmental liabilities with the State of Washington more than three years prior to the date of Asarco’s original complaint triggered the statute of limitations under CERCLA section 113(g)(3)(B) and barred Asarco’s claim.  Asarco argued that its claims were timely because the statue of limitations was not triggered until the amount of its liability was fixed, which occurred when its plan of reorganization was confirmed.  Case No. 1:12-cv-03749, Docket No. 35.  The court rejected Asarco’s argument and granted the defendant trustees’ motion to dismiss on the basis that Asarco’s claims were time-barred, among other reasons.  Case No. 1:12-cv-03749, Docket No. 41 and transcript of hearing on motion to dismiss.     

Finally, in ASARCO LLC v. Union Pacific Railroad Company, 2013 WL 5291422 (D. Colo., September 19, 2013), the court adopted the recommendation of the magistrate judge and granted defendants’ Union Pacific Railroad Company (“Union Pacific”) and Pepsi-Cola’s (“Pepsi”) motions to dismiss.  Both Union Pacific and Pepsi argued that Asarco’s CERCLA contribution complaint was time barred under CERCLA section 113(g)(3)(B) because more than three years had elapsed since the date that the bankruptcy court approved a settlement between Asarco and EPA.  Asarco argued that the statute did not begin to run until the bankruptcy court approved the confirmed plan of reorganization and the plan of reorganization became effective.  The court held that “the date a settling party makes payment is irrelevant” and that the statute of limitations was triggered by the bankruptcy court’s entry of the settlement between Asarco and EPA.  2013 WL 5291422 at *5.  The court cited the Atlantic Richfield Co. and Xstrata opinions (supra) as persuasive authority. 

Based on these decisions, debtors who resolve their environmental liability to a state or the United States via settlement should be prepared to file any claims for contribution under CERCLA subsection 113(f) within three years of the date that the bankruptcy court issues its approval of the settlement agreement.