In Citizens Development Corporation, Inc. v. County of San Diego, et al., No. 12-CV-334-GPC-KSC, 2022 WL 4374957 (S.D. Cal. Sept. 21, 2022), the Honorable Gonzalo P. Curiel of the United States District Court for the Southern District of California granted three Motions for Good Faith Settlement Determination in an action under Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) related to alleged contamination of surface water and groundwater in and around Lake San Marcos and San Marcos Creek located in San Marcos, California.  One day later, in Maxim I Properties v. A.M. Bud Krohn, et al., No. 12-cv-00449-DMR, 2022 WL 4390433 (N.D. Cal. Sept. 22, 2022), the Honorable Donna M. Ryu of the United States District Court for the Northern District of California issued an order denying a Motion for Good Faith Settlement filed by Maxim I Properties (“Maxim”) and defendant Moyer Products (“Moyer”) in a matter concerning contamination at a property in San Jose, California.  As such settlements can provide contribution protection to parties potentially liable for clean up, these two cases provide good insight into the factors courts will consider in determining whether to approve them.     

Citizens Development Corp.

In 2011, the San Diego Regional Water Quality Control Board issued an Investigative Order alleging that Citizen Development Corporation, Inc. (“CDC”) had released pollutants into Lake San Marcos.  CDC then brought an action against other potential dischargers of hazardous substances into the Lake, including the County of San Diego (“County”), the City of San Marcos (“San Marcos”), the City of Escondido (“Escondido”), Hollandia Dairy, Inc. (“Hollandia”) and the Vallecitos Water District (“Vallecitos”), for recovery under the CERCLA, as well as other state and federal claims.  In response, the various parties filed counterclaims and crossclaims for, among other things, contribution under CERCLA. Following mediation, discovery, and settlement negotiations, the Court had previously determined that settlements were made in good faith between CDC and Hollandia and Vallecitos such that all claims against them were dismissed and all claims for contribution and indemnification were barred. 

The instant motion addressed Motions for Good Faith Settlement Determination related to settlements by CDC with San Marcos, Escondido, and the County.  Under the terms of the three settlement agreements, San Marcos, Escondido, and the County agreed to pay into a remediation trust certain sums toward remediation, investigation and regulatory oversight costs.  In exchange, the settlement agreements provided for the dismissal with prejudice of claims by and against each party and was conditioned on the Court entering an order barring claims for contribution and indemnity relating to the site.  In addition, under Escondido’s settlement agreement, CDC agreed to make a one-time payment into the remediation trust. 

Judge Curiel evaluated whether the agreements were procedurally and substantively “fair, reasonable, and consistent with CERCLA’s objectives.”  Citizens Development Corporation, Inc., at *3 (citing United States v. Coeur d’Alenes Co., 767 F.3d 873, 876 (9th Cir. 2014)).  Recognizing the different approaches taken by courts to determine whether the settlement of CERCLA claims is fair and reasonable, Judge Curiel evaluated the three settlement agreements considering the six factors established in Tech-Bilt Inc. v. Woodward-Clyde & Assoc., 38 Cal. 3d 488, 499 (1985), to determine whether a settlement is reached in good faith under California Code of Civil Procedure Sections 877 and 877.6 dealing with settlements among joint tortfeasors:  (1) “a rough approximation of the plaintiffs’ total recovery and a settlor’s proportionate liability”; (2) “the amount paid in settlement”; (3) “a recognition that a settlor should pay less in settlement than if found liable after a trial”; (4) “the allocation of settlement proceeds among plaintiffs”; (5) “the financial conditions and insurance policy limits of settling defendants”; and (6) whether there is evidence of “collusion, fraud, or tortious conduct aimed to injure the interests of nonsettling defendants.”  Citizens Development Corporation, Inc., at *3.   

First, Judge Curiel analyzed whether the terms reflected a good faith approximation of the parties’ percentage of responsibility for the total anticipated costs.  The Court acknowledged that the evaluation of a settlement did not require a mini-trial on liability or result in a definitive determination of the remedial costs.  Id. at *5.  Thus, despite the fact that the parties presented competing expert testimony as to the proportional shares of liability of each party and had differing views as to what portion of the remedial costs the settlements would cover, Judge Curiel found that the settlement payments were within the reasonable range of the parties’ proportional share of comparative liability and were not “so far ‘out of the ballpark’… that the settlement[s] would be inequitable.”  Id. at *7 - *8.  While none of the parties raised issues relating to the other Tech-Bilt factors, Judge Curiel also performed an independent review and found that the settlements were mainly allocated to remedial actions at the site, were the result of arm’s length negotiations, and that there was no evidence of collusion, fraud, or other tortious conduct.  Id. at *8.

Next, Judge Curiel analyzed whether the settlements were fair, reasonable and consistent with the purposes of CERCLA.  Judge Curiel found that the settlements were fair and reasonable because they were arrived at after years of litigation and mediation, and sufficient formal discovery and independent investigation so as to allow the parties the ability to approximate each defendant’s proportional share of liability.  In addition, Judge Curiel found the settlements consistent with one of the core purposes of CERCLA, to foster settlement through its system of incentives and without unnecessarily further complicating already complicated litigation.  Id. at *8 - *9.   Finally, in light of the approval of the settlements and the attendant contribution bars, the Court did not need to address whether the settlements were to be applied pro tanto or pro rata at trial.  Id. at *9.

Maxim I Properties

Maxim I focused on property in San Jose, California, that was originally owned by Moyer to store, blend, package and distribute pesticides and fertilizers and subsequently used as a hazardous waste transfer facility and an auto body shop.  Maxim purportedly purchased the property without knowledge of its historic uses and only became aware of contamination once it received notice from the California Department of Toxic Substances Control (“DTSC”).  Maxim then filed a state court action and was permitted to rescind the property sale.  Following the conclusion of that litigation, Maxim became a lessee of the property, conducted an environmental investigation and provided its findings to DTSC.  Based on the investigation, DTSC initiated an enforcement action against some 60 parties, including Maxim, prior owners and operators, and generators that transported hazardous waste to the property. 

Maxim filed a complaint for injunctive relief and damages against a number of potentially responsible entities, including Moyer, alleging violations or CERCLA and RCRA, among other things.  Moyer filed counterclaims and cross-claims for contribution against the other defendants under CERCLA and California law.  At the time of the hearing, however, only Moyer remained as a defendant, and only one party, Renesas Electronics America (“Renesas”), had an active contribution counterclaim against Moyer. 

Following mediation, discovery, and settlement negotiations, Moyer and Maxim filed a Motion for Good Faith Settlement Determination requesting the Court’s approval of a settlement whereby Moyer would pay money to Maxim as reimbursement for damages and costs in responding to DTSC’s action and for attorneys’ fees incurred in the state court action for recission and in exchange, Maxim would not object to the remediation proposals made by Moyer or third parties in connection with DTSC’s action.  As part of the settlement agreement, both Maxim and Moyer agreed to dismiss all claims, crossclaims, and counterclaims against one another and all cross-defendants and release all past, present and future claims.  The Motion for Determination was opposed by a number of parties against whom Moyer asserted cross-claims and who were defendants in DTSC’s enforcement action.    

Similar to Judge Curiel’s analysis in Citizens Development Corporation, Inc., Judge Ryu evaluated whether the settlement agreement was a good faith settlement of claims under Sections 877 and 877.6 and whether the agreements were procedurally and substantively “fair, reasonable, and consistent with CERCLA’s objectives.”  In analyzing the first issue, Judge Ryu found that the agreement failed to satisfy the good faith standard under Tech-Bilt because the parties had not adequately shown that Maxim’s recovery under the agreement was reasonably proportional to Moyer’s liability.  Maxim, at *8.  Specifically, Judge Ryu expressed concern that none of the settlement funds would go toward remediating the property but instead would go directly to Maxim and yet Moyer would be protected from Renesas’ contribution claim.  Id.  In that regard, Judge Ryu noted that the majority of the settlement payment was attributable to legal costs, including costs in the earlier state court litigation, none of which would be recoverable under CERCLA.  Id. (citing Key Tronic Corp. v. US, 511 U.S. 809, 819 (1994)). 

More fundamentally, Judge Ryu was concerned that neither side had provided sufficient information to evaluate the settlement.  That is, there was no attempt made to determine the overall costs of the future remediation, or the proportionate liability of any party, including Moyer.  Nor did the settling parties provide the Court with any law for it to refer to in apportioning liability or evaluating the potential exposure.  Maxim, at *9.  Therefore, it was unclear to Judge Ryu whether the agreement would resolve Moyer’s potential liability for contamination of the property or just Maxim’s claims in the case.  That is, there was no clarity as to whether Moyer would be protected from contribution claims arising out of the enforcement action brought by DTSC.  Finally, it wsa unknown whether Moyer had funds or insurance proceeds to further contribute to any clean up once payment was made to Maxim.  Id. at *12.

Finally, Judge Ryu also found that the agreement did not fulfill CERCLA’s statutory purpose, as it did not advance the cleanup of the property.  Id. at *14.  Judge Ryu analyzed the evidence submitted by Moyer and Maxim in support of the Motion that suggested that Moyer’s proposed solution for the contamination would bea limited “cap and monitor” remediation that would allow contamination to remain in place, as opposed to a more expensive cleanup plan to remove the contamination from the property.  Id.  Because, as part of the settlement agreement, Maxim would agree not to object to Moyer’s remediation proposals, Judge Ryu found that the proposed remediation plan would not promote prompt and effective cleanup of the site.  Id.  Thus, for all of these reasons, Judge Ryu denied the Motion for Determination.

Share | Email| Print| Comments|  Topics: California, CERCLA, Cleanup, Contribution, Cost Recovery, Good Faith Settlement, Potentially Responsible Parties, Superfund