Lockheed's Superfund Win Treats U.S. as Any Other Party

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By Peter Hayes

Aug. 22 — The federal government will be treated just like any other liable party in Superfund litigation, a professor of environmental law told Bloomberg BNA.

That was clarified in a recent ruling allowing Lockheed Martin's claims despite the government's agreement to pick up the company's cleanup costs ( Lockheed Martin Corp. v. United States, 2016 BL 269266, D.C. Cir., No. 14-5302, 8/19/16 ).

“This case is significant because it indicates that courts will take the liability of the United States government under CERCLA seriously and will treat the government as a liable party the same way any other potentially responsible party will be treated, whether that treatment is in a CERCLA direct action against it under Section 107 or in contribution,” Professor Alfred Light at St. Thomas University School of Law in Miami Gardens, Fla., told Bloomberg BNA.

Government's Own Choice

“As this court held in this case, `The reason the government will end up paying far more than its own 19 to 29 percent share of future costs is that it voluntarily agreed to let Lockheed pass through its share, too,' ” Light said.

“In other words, the contract dealt with Lockheed’s ultimate equitable share of the liability, not the government’s equitable share under CERCLA,” he said.

Light said the ruling is consistent with the text of the Superfund indemnification provision, Section 107(e)(1).

“They will not reduce the government’s equitable share through contractual arrangements the government makes with another liable party. This should be obvious from a plain reading of Section 107(e)(1),” he said.

The court rejected the government's arguments that the suit was precluded by the Superfund provision barring double recoveries, and that its contractual payments fulfilled its Superfund obligation.

Picking Up the Tab

The government willingly contracted to pick up Lockheed's cleanup costs, the D.C. Circuit said.

It declined to reduce the government's liability to its proportionate share.

The court affirmed a ruling imposing no past costs on the government, but assessing 19 to 29 percent of post-judgment response costs.

The ruling exposes the government to an additional $36 million in addition to the $208 million it has already reimbursed Lockheed for cleanup costs.

But “the district court's CERCLA judgment did not create any double recovery,” the appeals court said.

Instead, “the government agreed to that consequence by entering a settlement that allowed Lockheed in its new contracts to charge the government for the company's own CERCLA liability at the discontinued sites,” it said.

“The extent of the government's payment thus results from the government's own choice. Even after the government pays its percentage of the future remediation bills, it will still be left paying the vast majority of Lockheed's proportionate share in addition to its own,” the court said.

The dispute stems from the cleanup of three California sites where Lockheed manufactured rockets for the Department of Defense.

The operations at the sites allowed hazardous substances, including trichloroethylene, to migrate into the groundwater.

The government entered into an agreement with Lockheed allowing the company to pay its cleanup costs at these and other sites and then receive reimbursement by allocating cleanup costs over time as indirect contract costs charged to the government.

No Double Recovery

After incurring substantial cleanup costs, Lockheed filed a Superfund cost recovery claim against the federal government.

In response, the government invoked the Superfund law's double-recovery bar, CERCLA Section 114(b).

The trial court ruled in favor of Lockheed, finding a Superfund judgment against the government wouldn't be a double recovery “in the traditional sense,” because the company would be obliged to credit any duplicate recovery back.

The appeals court affirmed.

Finding no double recovery in this case, the D.C. Circuit declined “to evaluate the interplay of federal contracting law and Section 114(b), an issue of first impression in the courts of appeals. We need not pass on that question here.”

Counsel for amici the National Defense Industrial Association and the Aerospace Industries Association of America applauded the ruling.

“The Court rightly rejected the government’s arguments and affirmed that government contractors are not precluded from seeking to hold the government responsible under CERCLA where those contractors have included environmental remediation as indirect costs under their government contracts,” Jessica Ring Amunson with Jenner & Block LLP told Bloomberg BNA.

The Justice Department did not respond to a request for comment.

Judge Cornelia T.L. Pillard wrote the opinion, joined by Judge Harry T. Edwards. Judge Merrick B. Garland was on the panel when the case was argued but didn't participate in the opinion.

Mayer Brown LLP and Gibson, Dunn & Crutcher LLP represent Lockheed.

To contact the reporter on this story: Peter Hayes at phayes@bna.com

To contact the editors responsible for this story: Steven Patrick at spatrick@bna.com and Jeffrey D. Koelemay at jkoelemay@bna.com

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