CERCLA contribution claims and the collateral source rule.

• Author: Stewart, Russell O.

THE QUESTIONS of whether and how the collateral source rule might apply in CERCLA cost recovery actions have been issues of interest to potentially responsible parties ("PRPs") under the Comprehensive Environmental Response, Compensation, and Liability Act (1) ("CERCLA) (e.g. owners, operators, arrangers, and transporters who select disposal locations) and their insurers. Over the past several years, four federal district court opinions discussed the possible application of the collateral source rule (2) to CERCLA cost recovery and contribution actions: Vine Street, LLC v. Keeling (3); Raytheon Aircraft Co. v. United States (4); Friedland v. TIC, Inc. (5) and Basic Management Inc. v. United States. (6) In 2008, the issue was squarely presented for the first time to a federal court of appeals in merits and amicus briefs filed in the Tenth Circuit in Friedland v. TIC. (7)

On May 29, 2009, the Tenth Circuit affirmed the district court's grant of summary judgement in favor of the defendants in Friedland v. TIC, Inc. holding that the collateral source rule does not apply in CERCLA contribution actions, and for the first time applying the specific allocation rule (8) in a CERCLA proceeding. This article reviews the case history of Friedland v. TIC, articulates the arguments made by the parties at trial and on appeal, and analyzes the bases for the Tenth Circuit's landmark decision and the impact of the decision on PRPs contemplating CERCLA cost recovery or contribution actions.

Robert Friedland and the Summitville Mine

The Summitville Mine sits high in the San Juan mountains of southern Colorado, 25 miles south of Del Norte, Colorado. The location has been the site of known mining activity since at least 1870, and likely was explored by and known to the first Spanish explorers. More recently, Summitville gained notoriety as the highest profile environmental calamity to hit the modern American mining industry.

In the mid-1980s, the Summitville Consolidated Mining Company ("SCMCI"), a subsidiary of Galactic Resources, Ltd., designed and constructed the 550 acre Summitville Mine, a heap-leach gold mine facility. The heap-leach process employed at the Mine involved spraying a cyanide solution on mined ore in a heap-leach pond to precipitate gold. Robert Friedland, an officer and director of Galactic, at certain times served as President and Director of SCMCI.

In 1991, the State of Colorado served SCMCI with a cease and desist order based on evidence of elevated metal levels in nearby water supply. In 1992, SCMCI filed bankruptcy and announced that it would abandon Summitville. The Environmental Protection Agency ("EPA") commenced an emergency removal action to prevent contaminated water in the heap-leach pad at the mine from flowing over the heap-leach pad containment dike. (9)

The Summitville Cleanup

As a result of SCMCI's bankruptcy and the acid mine drainage and release of cyanide into the environment from the Summitville mine heap-leach pad and related storage facilities, the federal government ultimately has paid more than $200 million to remediate Summitville. (10)

CERCLA allows parties to recoup costs associated with hazardous waste cleanup through two types of legal proceedings: (1) cost recovery actions under [section] 107(a); (11) and (2) contribution actions under [section] 113(f). (12) In a contribution action, potentially responsible parties ("PRPs") "who have contributed to the waste at a site may recover from other PRPs that portion of their cleanup costs which exceeds their pro rata share." (13)

Section 113(f) provides that "[a]ny person may seek contribution from any other person who is liable or potentially liable under [[section] 107(a)], during or following any civil action under [[section] 106] ... or under [[section]107(a)]." (14) PRPs under CERCLA are defined to "broadly include current and former owners and operators of a facility or vessel involved in hazardous substance disposal and persons who arranged for or accepted hazardous substances for disposal or transportation." (15) The EPA commissioned an investigation of Summitville's operations to identify PRPs in anticipation of a cost-recovery action. The EPA's final report named several dozen PRPs.

The Government's Cost Recovery Aetion and Friedland's Third-Party Claims

In 1996, the United States and the State of Colorado filed a cost-recovery action against Friedland under CERCLA [section][section] 107 and 113(g), seeking to recover the cost of responding to and cleaning up contamination at Summitville. Friedland filed third-party contribution claims against twelve entities, including: Bechtel; Columbia GeoSystems, Ltd.; Burnett Construction Company; Conveyor Engineers, Inc.; and Industrial Constructors Corp. ("ICC").

In 2000, Friedland entered into a consent decree and paid State of Colorado and the United States approximately $20.7 million for costs incurred in responding to the Summitville site. Friedland settled his [section] 113 contribution claims against the third-party defendants for cash and other consideration.

As part of his settlement with ICC, Friedland received an assignment of all of ICC's claims against ICC's insurer, USF&G. Friedland later sued USF&G in Montana state district court and received a cash settlement. ICC subsequently filed bankruptcy and was liquidated.

Friedland initiated a second action in Colorado state court against The Travelers Indemnity Company ("Travelers"), which issued SCMCI's employer's liability insurance policy. That action was also settled by payment of cash to Friedland.

By 2004, Friedland had recovered more dollars from the third-party defendants USF&G and Travelers combined, than the $20.7 million he had paid to the government under the consent decree.

Friedland's Claims Against TIC and GeoSyntec

In 2004, Friedland filed a civil action in the United States District Court for the District of Colorado seeking CERCLA contribution under [section] 113 from TIC and GeoSyntec to recover some or all of the $20.7 million Friedland paid the government for response costs under the consent decree. Neither TIC nor GeoSyntec had been named as PRPs by the EPA. Neither TIC nor Geosyntec had been named as a third-party defendant in the cost-recovery action.

After discovery was completed, TIC and GeoSyntec moved for summary judgment on the grounds that Friedland had no compensable damages because, by 2004, he had already recovered from USF&G, Travelers, and others more than he had paid to settle the cost-recovery action. The defendants argued that under these undisputed facts, Friedland could not establish an essential element of a contribution claim--that he had paid "more than his fair...