An Empirical Analysis of Cost Recovery in Superfund Cases: Implications for Brownfields and Joint and Several Liability

• Date: 01 September 2014
• Author: Hilary Sigman,Howard F. Chang
• DOI: http://doi.org/10.1111/jels.12047
• Published date: 01 September 2014

An Empirical Analysis of Cost Recovery

in Superfund Cases: Implications for

Brownfields and Joint and Several Liability

Howard F. Chang and Hilary Sigman*

Economic theory developed in the prior literature indicates that under the joint and several

liability imposed by the federal Superfund statute, the government should recover more of

its costs of cleaning up contaminated sites than it would under nonjoint liability, and the

amount recovered should increase with the number of defendants and with the independ-

ence among defendants in trial outcomes. We test these predictions empirically using data

on outcomes in federal Superfund cases. Theory also suggests that this increase in the

amount recovered may discourage the sale and redevelopment of potentially contami-

nated sites (or “brownfields”). We find the increase to be substantial, which suggests that this

implicit tax on sales may be an important deterrent for parties contemplating brownfields

redevelopment.

The Comprehensive Environmental Response, Compensation, and Liability Act

(CERCLA),1also known as the Superfund law, makes certain parties liable for the costs of

cleaning up a contaminated site. These potentially responsible parties (PRPs) may include

the current owners and operators of such a site, certain prior owners and operators of the

site, and generators and transporters of hazardous waste.2As courts have interpreted the

statute, CERCLA imposes joint and several liability on these PRPs for any indivisible harm

*Address correspondence to Howard F. Chang, Earl Hepburn Professor of Law, University of Pennsylvania Law

School, 3501 Sansom St., Philadelphia, PA 19104-6204; email: hchang@law.upenn.edu. Sigman is Professor of

Economics, Rutgers University; Research Associate, National Bureau of Economic Research and Nonresident Fellow,

Resources for the Future.

We wish to thank Soumyanetra Munshi for research assistance and J. J. Prescott, Jessica Reyes, Wendy Wagner,

Michael Ward, and participants at the Conference on Empirical Legal Studies, at the World Congress of Environ-

mental and Resource Economists, and at the meetings of the NBER Law and Economics Program, the American Law

and Economics Association, the Society for Environmental Law and Economics, the Association for Public Policy

Analysis and Management, and the Latin American and Caribbean Law and Economics Association, and at workshops

at the University of Pennsylvania and the University of Arizona for helpful comments. We developed this article under

STAR Research Assistance Agreement No. R831777, awarded by the U.S. Environmental Protection Agency (EPA),

but the EPA has not formally reviewed this article. The views expressed in this article are those of the authors, and the

EPA does not endorse any products or commercial services mentioned in this article.

142 U.S.C. §§ 9601–9675 (2006).

2See id., § 9607(a).

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Journal of Empirical Legal Studies

Volume 11, Issue 3, 477–504, September 2014

477

caused by hazardous substances at the site.3This joint and several liability permits the

government to recover the full amount it has spent on cleanup at the site from any PRP,

regardless of that PRP’s equitable share of the liability.

This liability regime allows the government to recover the full costs of cleanup even

if some of the PRPs are judgment-proof, because the other PRPs remain liable for the full

amount. Advocates for joint and several liability argue that shifting these costs from the

government to PRPs improves the incentives for those PRPs to avoid contamination of the

property in question (Segerson 1994:266). Advocates urge the use of joint and several

liability to prevent PRPs from deriving any advantage from having contracted with “fly-by-

night” owners willing to offer waste disposal at low prices because they expect to be

judgment-proof later (Segerson 1994:266 n18). Similarly, the breadth of the class of parties

defined to be PRPs increases the number of liable parties and thereby reduces the prob-

ability that judgment-proof PRPs will limit the government’s ability to recover its clean-up

costs.

Joint and several liability under the Superfund law, however, has been controversial.

Critics have advanced various proposals to limit the scope of this liability (Kornhauser &

Revesz 1995:115). The U.S. Supreme Court limited the scope of this liability in 2009 by

adopting a relatively narrow view of both the circumstances justifying joint and several

liability and the parties subject to this liability.4One influential objection to Superfund

liability is the claim that the threat of this liability deters the acquisition of potentially

contaminated sites for redevelopment (Sigman 2010). This claim has generated widespread

concerns about the proliferation of “brownfield” sites, defined by CERCLA as “real prop-

erty, the expansion, redevelopment, or reuse of which may be complicated by the presence

or potential presence of a hazardous substance, pollutant, or contaminant.”5

In this study, we explore the effects of joint and several liability on the government’s

recovery of its costs at Superfund sites, using data on cases through April 2009. The data

show substantially greater recovery at sites subject to joint and several liability than at sites

with a single liable party, consistent with the theoretical literature on the effects of joint and

several liability. We also find evidence that increasing the number of liable parties increases

recovery, and we quantify this implicit tax imposed on sales of contaminated sites that

increase the number of PRPs. The magnitudes of our results support concerns about the

brownfields problem and about barriers to efficient transactions under joint and several

liability in other contexts as well. Consistent with the theoretical literature on joint and

several liability, we find that recovery is both increasing and concave in the number of liable

parties and decreasing in the degree of positive correlation among defendants in outcomes

at trial.

3See, e.g., United States v. Alcan Aluminum Corp., 964 F.2d 252, 268–69 (3d Cir. 1992); O’Neil v. Picillo, 883 F.2d 176,

178–79 (1st Cir. 1989), cert. denied, 493 U.S. 1071 (1990); United States v. Monsanto Co., 858 F.2d 160, 171–73 (4th

Cir. 1988), cert. denied, 490 U.S. 1106 (1989).

4See Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599 (2009).

542 U.S.C. § 9601(39)(A) (2006). For a more extended discussion of the brownfields problem and joint and several

liability, see Chang and Sigman (2007).

478 Chang and Sigman