Duped Subcontractor Can’t Recover From Landowner Payments Owed by General Contractor Under CERCLA


On March 18, 2014, the U.S. Court of Appeals for the Second Circuit resolved a dispute of apparent first impression regarding the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).  The court held that, where the defendant landowner had paid a general contractor for costs associated with the cleanup of a contaminated parcel of land and where the general contractor failed to remit those payments to the plaintiff subcontractor who had performed work on the site, the subcontractor could not recover those payments from the landowner under CERCLA.  Price Trucking Corp. v. Norampac Industries, Inc., No. 11-2917-cv, slip op. at 1 (2d Cir. Mar. 18, 2014).

The facts underlying this dispute are as follows:  Defendant Norampac Industries, Inc. owned a parcel of land in Erie County, N.Y., that was designated a “Brownfield site” due to the presence of lead and other contaminants in the soil that exceeded maximums set by the New York State Department of Environmental Conservation (DEC).  Norampac entered into a Cleanup Agreement with DEC and hired AAA Environmental, Inc. (AAA) to perform the remedial work, including the excavation and removal of contaminated soil.  AAA subcontracted with Price Trucking Corp. to transport from the site and dispose of the contaminated soil.  AAA paid Price for this service for approximately 10 months, but thereafter refused to pay Price’s outstanding invoices.  Price stopped work until an independent agreement was reached with Norampac for direct payment.  Price was unable to recover the balance of the payments made during the interim between when AAA ceased payments and when Price executed a direct contract with Norampac (by way of explanation, Norampac asserted that AAA was out of business).  Price thereafter instituted this suit seeking to recover payments owed under CERCLA.

CERCLA is a cost recovery statute.  As the Second Circuit explained, its “primary purposes” are “(1) to encourage the timely cleanup of hazardous wastes sites; and (2) to place the cost of that cleanup on those responsible for creating or maintaining the hazardous conditions.”  Id. at 9.  To fulfill its stated intent, CERCLA imposes strict liability on responsible parties for “any . . . necessary costs of response incurred by any . . . person consistent with the national contingency plan.”  Id. at 10.

In the matter at hand, there was no “serious question” as to Norampac’s status as a “responsible party,” that Price had incurred costs in relation to the cleanup effort, and that the cost of removing contaminated soil constituted “response costs” within the meaning of CERCLA.  Id. at 11–12.  Rather, the Second Circuit narrowly focused on the issue of “when and how liability for such costs is discharged by the owner of the site in question.”  Id. at 12.  On the one hand, Norampac contended that its CERCLA liability was satisfied when the response is complete and when the landowner has made its payments pursuant to the applicable contracts entered into to effect the cleanup.  On the other hand, Price contended that liability on the part of the landowner persists until all parties who contributed to a cleanup operation are made whole for all costs of their work.

The Second Circuit dug beyond the plain language of CERCLA and determined that the statute is designed to “encourage private parties to assume the financial responsibility of cleanup by allow them to see recovery from others.”  Id. at 17.  But, the court found, while CERCLA is “obviously designed to facilitate cost recovery, . . . it does not provide for cost recovery in all cases and in all circumstances.”  Id.  In light of these principles, the court determined that “Norampac has already borne the cost of its actions” and that “treat[ing] Norampac as though it was a surety to [Price’s] subcontract with AAA Environmental . . . pushes the terms of CERCLA beyond their intended assignment of responsibilities.”  Id. at 18.  With a broad sweeping conclusion, the Second Circuit held:

CERCLA’s purposes are served when landowners and others who profit from hazardous activities are made to bear the costs of accidents on their land.  [Citations omitted].  They do so by paying the costs of cleanup out of their own pockets.  Once these payments are made, and their cleanup is complete, their liability under the statute is discharged.  There is no need—and CERCLA is not designed—to hold the responsible party perpetually liable as a security in any dispute relating to the cleanup between or among contractors, subcontractors, employees, or suppliers.  [Footnote omitted].  Id. at 18–19.

This matter presents unique factual circumstances that are unlikely to be replicated in many other CERCLA cases.  However, a relevant “take-away” from this opinion is that the Second Circuit was willing to look beyond the plain language of the statute and restrict the otherwise sweeping imposition of strict liability on parties responsible for the contamination.

Topics:  CERCLA, Environmental Policies, Fraud, General Contractors, Subcontractors, Trucking Industry

Published In: Civil Remedies Updates, General Business Updates, Construction Updates, Environmental Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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