Tdy Holdings, LLC v. United States
| Decision Date | 04 October 2017 |
| Docket Number | No. 15-56483.,15-56483. |
| Parties | TDY HOLDINGS, LLC; TDY Industries, LLC, Plaintiffs–Appellants, v. UNITED STATES of America; United States Department of Defense; Ashton B. Carter, in his official capacity as Secretary of Defense, Defendants–Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Randall M. Levine (argued), Douglas A. Hastings, and Bryan M. Killian, Morgan Lewis & Bockius LLP, Washington, D.C.; James J. Dragna, Morgan Lewis Bockius LLP, Los Angeles, California; for Plaintiffs–Appellants.
Rachel E. Heron (argued), Dustin J. Maghamfar, Mark A. Rigau, Lewis M. Barr, Ellen J. Durkee, and Aaron P. Avila, Environment and Natural Resources Division, United States Department of Justice, Washington, D.C., for Defendants–Appellees.
Eric B. Wolff, Alexander M. Fenner, and Mark W. Schneider, Perkins Coie LLP, Seattle, Washington; Shane R. Swindle, Perkins Coie LLP, Phoenix, Arizona; for Amicus Curiae National Defense Industrial Association.
Before: J. Clifford Wallace, Morgan Christen, and Paul J. Watford, Circuit Judges.
OPINION
Plaintiffs–Appellants TDY Holdings, LLC, TDY Industries, LLC, and its predecessor, the Ryan Aeronautical Company (collectively, TDY), operated a forty-four-acre aeronautical manufacturing plant located in San Diego, California, from 1939 to 1999. TDY derived between 90 and 99 percent of its business from military contracts with the U.S. government. Over time, certain chemical substances used in the course of manufacturing operations were released, contaminating the soil and groundwater in and around the plant and requiring TDY to incur substantial remediation expenses. In 2007, TDY filed a complaint under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA), seeking contribution from the government for its equitable share of the cleanup costs. After a twelve-day bench trial, the district court granted judgment in favor of the United States, allocating 100 percent of past and future CERCLA costs to TDY and zero percent to the government. TDY appeals from the district court's judgment.
We have jurisdiction under 28 U.S.C. § 1291. Because we conclude the facts of this case do not justify the district court's sharp deviation from our previous case law, we reverse and remand.
The Ryan Aeronautical Company, later known as TDY, opened a manufacturing plant near the San Diego Airport in 1939. During World War II, it manufactured aircraft and aircraft parts for the war effort. More recently, it manufactured aeronautical products including drones, Apache helicopter components, and avionics systems for the U.S. military. The site closed in 1999 after Northrop Grumman purchased TDY's Ryan assets and moved the site's operations elsewhere.
During the sixty years in which TDY operated the manufacturing plant, the United States was TDY's primary customer; 99 percent of the work conducted at the site between 1942 and 1945, and 90 percent of the work in the following years, was done under contract with the U.S. military. From 1939 to 1979, the United States also owned some of the equipment at the site pursuant to government programs intended to finance and oversee the construction and outfitting of government-owned industrial facilities leased to private companies. This equipment included drilling machines, an electrical substation, vapor degreasers, and transformers.
Three hazardous substances were released during the course of manufacturing operations, contaminating the soil and the groundwater in and around the site. These substances were: (1) chromium compounds used to impart corrosion resistance on aluminum aircraft parts; (2) chlorinated solvents used to degrease parts and tools; and (3) polychlorinated biphenyls (PCBs) used to provide plasticity and durability to certain materials. In some cases, military specifications in the government's contracts with TDY required the use of chromium compounds and chlorinated solvents to ensure a proper quality product. Following the passage of the Clean Water Act and other environmental laws in the 1970s, these substances were listed as "hazardous substances" requiring remediation under CERCLA. Between the early 1970s and 1999, TDY billed the government for the "indirect costs" of environmental remediation and compliance with federal and state environmental laws, including costs incurred cleaning up storm drains at the plant and PCB contamination of nearby Convair Lagoon. The government paid these costs. After more stringent standards were instituted, the California Regional Water Quality Control Board issued a new cleanup order requiring TDY to assess and remediate waste discharges at the site. To comply with the order and other state directives issued after operations at the plant ceased in 1999, TDY incurred over $11 million in response costs.
The San Diego Unified Port District brought CERCLA claims against TDY in June 2004. The United States was not a party to that litigation. In March 2007, TDY and the Port District entered into a settlement agreement providing, in part, that TDY would respond to the release of hazardous substances at the site. On April 30, 2007, TDY filed a complaint against the United States, the United States Department of Defense, and the Secretary of Defense, seeking contribution under 42 U.S.C. § 9613(f)(1) from the government for past and future response costs incurred by TDY in remediating hazardous waste released from the site. The complaint also sought declaratory relief establishing that the government was wholly liable for remediation costs. The government counterclaimed for contribution from TDY. TDY filed a motion for partial summary judgment seeking a declaration that the United States was liable as a "past owner" of facilities, one of four categories of potentially responsible parties (PRPs) under CERCLA. The district court granted TDY's motion on July 15, 2011. TDY stipulated to its own liability as a PRP, and the case was transferred and set for trial on TDY's allocation claim.
The district court held a twelve-day bench trial on equitable allocation in April 2012. It heard testimony from twenty-seven witnesses and admitted over 1800 exhibits. The district court held that: (1) TDY was liable as an owner of facilities and the operator of the site because it managed, directed, and conducted operations resulting in the release or disposal of hazardous waste, and implemented decisions regarding compliance with environmental regulations; and (2) the introduction of the three contaminants at issue was attributable not to the government but instead to TDY's storage, maintenance, and repair practices, as well as spills and drips that occurred in the manufacturing process.
After reviewing the totality of the circumstances, including the "Gore Factors" that courts sometimes refer to when considering equitable allocation of costs,1 the district court concluded that the most important factors for equitable allocation in this case were "the contribution and involvement of each party in the discharge, release or disposal of hazardous material and ... the care exercised by the parties with respect to the materials concerned." The court "consider[ed] the respective roles of the parties as defined by CERCLA, and then how[,] in the context of these roles[,] each party contributed to the contamination." The court concluded that, "[g]iven the nature of the contamination, ... TDY's role as the Site operator, responsible for the handling, storage and disposal of the contaminants at issue in this case, is the most relevant factor in allocating costs." The district court allocated 100 percent of past and future response costs for the remediation of chromium, chlorinated solvents, and PCBs to TDY.
We review for an abuse of discretion the equitable factors that a district court considers in allocating CERCLA costs and review for clear error the allocation according to the selected factors. Boeing Co. v. Cascade Corp. , 207 F.3d 1177, 1187–88 (9th Cir. 2000) ; see Cadillac Fairview/California, Inc. v. Dow Chem. Co. , 299 F.3d 1019, 1025 (9th Cir. 2002) ; see also NCR Corp. v. George A. Whiting Paper Co. , 768 F.3d 682, 702 (7th Cir. 2014) ().
"Congress enacted CERCLA in 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 (SARA), Pub. L. No. 99–499, 100 Stat. 1613, ‘in response to the serious environmental and health risks posed by industrial pollution.’ " Chubb Custom Ins. Co. v. Space Sys./Loral, Inc. , 710 F.3d 946, 956 (9th Cir. 2013) (quoting Burlington N. & Santa Fe Ry. Co. v. United States , 556 U.S. 599, 602, 129 S.Ct. 1870, 173 L.Ed.2d 812 (2009) ). CERCLA "imposes strict liability on four categories of potentially responsible parties (PRPs), for the cleanup costs of an environmental hazard, even if the person did not contribute to the contamination." Id. at 956–57 (footnote omitted). The four categories of PRPs are: (1) a past owner or operator of a facility; (2) an owner or operator of a facility; (3) an arranger of waste disposal; or (4) an entity that accepts waste for treatment or disposal. United States v. Shell Oil Co. , 294 F.3d 1045, 1053 (9th Cir. 2002) ; see 42 U.S.C. § 9607(a). Once a PRP is found liable, it may sue other PRPs for contribution to remediation costs under 42 U.S.C. § 9613(...
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