Appleton II-The Saga Continues

by The Session Law Firm on April 4th, 2011

We all remember the widely reported (and discussed) United States District Court for the Eastern District of Wisconsin  opinion rendered in Appleton Papers Inc. v. George A. Whiting Paper Co., No. 2:08-cv-16-WCG (E.D. Wis. Dec. 16, 2009) (hereinafter “Appleton I”). The case involved the summary disposition of a CERCLA §113 contribution claim involving what the District Court proclaimed to be the “largest [cleanup] of its kind ever undertaken anywhere in the world,” (Id. at 2) the cost of which was projected to approach at least one billion dollars (Id. at 3).

The 2009 Appleton I litigation and its outcome was unique because rather than considering  the usual so-called “equitable factors” to determine proportionate financial responsibility such as waste-in volume or  relative contaminant toxicity, the District Court focused entirely on a single marker of relative culpability i.e., the Plaintiff’s knowledge that their actions might cause environmental harm.  

The Plaintiffs in Appleton I (NCR and Appleton Papers Inc. who were found liable as successors to their respective predecessors in interest i.e., Appleton Coated Paper Company, hereinafter collectively the “Appleton I Plaintiffs”) generated and disposed of a PCB-laden waste stream associated with an emulsion used to manufacture carbonless copy paper.  The Appleton I Plaintiffs were aware that the production of carbonless copy paper, the generated PCB contaminated waste and the sale of the waste product from the paper’s production (a product known in the industry as “bloke”) to the defendant, George A Whiting (“Whiting”) would potentially cause environmental harm.  

Faced with an evidentiary record leaving little doubt about the Appleton I Plaintiff’s knowledge regarding the hazardous nature of the waste materials involved, the District Court determined that a largest percentage release of PCB contaminated material into the environment occurred at the time that the Appleton I Plaintiffs had actual knowledge that a release of the waste material could cause environmental harm.  Therefore, the District Court held that the Appleton I Plaintiffs were not entitled to contribution from Whiting because the Appleton I Plaintiffs knowingly released PCB contaminated materials with the full understanding that the releases would likely result in long-lasting harmful environmental consequences.

In February of 2011, the District Court issued an equally intriguing opinion in Appleton Papers Inc., v. Whiting Paper Co., No. 08-C-16, 41 ELR 2011 (E.D. Wis. Feb. 28, 2011) (hereinafter “Appleton II”).   Relying in large measure on the District Court’s 2009 decision, multiple defendants including Whiting Paper Co., and others (hereinafter the “OU2-OU5 Defendants”) and WTM I Company and the P.H. Glatfelter Company WTMI Co., (hereinafter “OUI Defendants”)  argued that the response costs already contributed to cleanup effort should be borne by NCR Corp. and Appleton Papers Inc., (hereinafter Appleton II Plaintiffs).  All of the Defendant’s arguments highlighted the same equitable factor that barred the Appleton I plaintiffs from obtaining contribution it, e.g., knowledge.

After reviewing the totality of the circumstances, the District Court determined that that the OU2-OU5 Defendants were entitled to full contribution from the Appleton II Plaintiffs for four of the five “operable units” situated along the Lower Fox River but, that the Appleton II Plaintiffs were not liable for the cost of cleaning up the contamination at Operable Unit I (“OU1”), and therefore were not liable to the OU1 Defendants for response costs approaching $110 million.

In reaching this conclusion, the District Court noted that the question of “site divisibility” is not properly a part of a contribution action under CERCLA §113 and that in a CERCLA §113 contribution action among PRPs, “. . . the divisibility defense has no relevance as a ‘defense’” Appleton Papers Inc., v. Whiting Paper Co., No. 08-C-16, 41 ELR 2011, 10 (E.D. Wis. Feb. 28, 2011). [1]    Instead, the District Court determined that the fact that the Appleton II Plaintiffs did not physically release toxins into OUI was an equitable factor that fit within the framework of a CERCLA §113 analysis.  The District Court further explained that it did not agree with the OUI Defendant’s contention that the CERCLA §113 proceeding was not the proper forum to address the Appleton II Plaintiff’s liability, and that the OUI Defendants had not provided “. . . any authority upon which [the District Court] could base a contribution award when none of the CERCLA §107 types of liability applied in this case” (Id. at 12).    The District Court explained that unless the OUI Defendants could later provide evidence that the Appleton II Plaintiffs were arrangers under CERCLA §107; as the District Court determined that whether the Appleton II Plaintiffs were arrangers was a question that could not be answered at that stage of the proceeding, that the Appleton II Plaintiffs were not liable for costs associated with OUI (Id. at 2).

Further, the District Court also examined the location of the site, explaining, that, “. . . no one would argue that [the Appleton II Plaintiffs] could be liable for contribution at far-distant sites for which they had no § 107 liability, and thus it is difficult to see how they could be liable merely because OU1 happens to be attached to the rest of the Lower Fox River Site” (Id. at 12).     

The Appleton cases are important to practitioners as they express the ultimate objective of the CERCLA liability scheme i.e., that the polluter pays the costs of resolving the pollution it causes.  Based on the outcomes of these two cases, it seems that a court, sitting in equity, can utilize whatever reasonable factors it has available in order to ensure that the party that caused the pollution is the party that will pay to clean up the pollution.   In doing so the court may ignore artificial constraints such as government imposed geographic contaminant zone descriptions or the identity of contaminant sources.  In 2009, the District Court utilized the equitable factor of knowledge of ultimate harm to assign liability to the Appleton I Plaintiffs  and in 2011; the Court relied upon the absence of geographic proximity of release locations to establish an  “equitable factor” to limit the reach of CERCLA §113 liability for the Appleton II Plaintiffs.  In short, if a court believes that a defendant in a contribution case has no demonstrable causal responsibility for the harm triggering the response cost claim, there can be no contribution recovery.  The fact based focus of inquiry and proof may well be the undoing of efforts to rely upon supposed technical and legal attributes of relative responsibility rather than what should be the essential inquiry at the root of the CERCLA legislative cost recovery scheme e.g., the polluter should pay for the pollution it caused to occur. 

[1] “While the ‘divisibility’ defense to joint and several liability is frequently invoked in cost recovery actions brought under § 107(a), it is not a defense to a contribution action under § 113(f).” Redwing Carriers, Inc. v.Saraland Apartments, 94 F.3d 1489, 1513 (11th Cir. 1996).

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