Ninth Circuit Expands Judicial Scrutiny of CERCLA Settlement

The Ninth Circuit recently issued an opinion that emphasizes the obligation of district courts to independently review the adequacy of proposed consent decrees under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”).  In Arizona v. City of Tucson, —F.3d— (9th Cir. 2014), 2014 WL 3765569, eighteen proposed consent decrees between the State of Arizona and de minimis settling parties were remanded because the district court did not compare each party’s estimated liability with its settlement amount or explain why the settlements were fair, reasonable, and consistent with CERCLA’s objectives.  According to the Ninth Circuit, the district court afforded undue deference to the Arizona Department of Environmental Quality’s conclusions and methodology rather than conducting its own in-depth review of the evidence.  In a 2-1 decision, the majority held that state agencies with environmental expertise are entitled to “some deference” regarding the environmental issues underlying a consent decree.  However, the state agency’s interpretation of CERCLA’s mandate is not entitled to deference because the state agency is not charged with enforcing CERCLA.

In a dissent, Judge Consuelo Callahan stated that the majority ignores “the critical role that Congress envisioned for the states under CERCLA and expands the level of scrutiny required for state-sponsored CERCLA settlements…. The decision will ultimately make it more difficult for states to…remediat[e] the numerous polluted sites that blight our nation.”  Judge Callahan asserted that state environmental agencies, like U.S. EPA, should be entitled to significant deference in light of the agencies’ expertise, CERCLA’s policy encouraging settlements, and a recognition that settlements are generally negotiated at arms-length by a party acting in the public interest.

The majority therefore established a standard of review for district court consent decree approval.  A district court must “explain in a reasoned disposition why the evidence indicates that the consent decrees are procedurally and substantively ‘fair, reasonable, and consistent with CERCLA’s objectives.'”  To fulfill this responsibility, the district court must, inter alia, engage in a comparative analysis of the proposed settlement amounts and find that liability is properly apportioned among the settling parties based upon an acceptable measure of comparative fault.  Failure to perform this comparative analysis is an abuse of discretion.

The question now becomes whether expanding the level of judicial scrutiny for CERCLA consent decrees will discourage early settlement, especially in the case of de minimis parties.  If other parties oppose entry of the consent decree, it may be challenging for plaintiff state agencies and settling parties to efficiently and economically meet the Ninth Circuit’s standard.