Bell Petroleum Services, Inc., Matter of

Decision Date28 September 1993
Docket NumberNo. 91-8080,91-8080
Citation3 F.3d 889
Parties, 23 Envtl. L. Rep. 21,474 In the Matter of BELL PETROLEUM SERVICES, INC., Debtor. UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, Appellee, v. SEQUA CORPORATION and Chromalloy American Corp., Appellants. UNITED STATES of America, Plaintiff-Appellee, v. BELL PETROLEUM SERVICES, INC., Regal International, Inc. and John R. Leigh, Defendants, Sequa Corporation and Chromalloy American Corp., Defendants-Appellants.
CourtU.S. Court of Appeals — Fifth Circuit

James B. Harris, Scott D. Deatherage, Laurie Kratky Dore, Thompson & Knight, Dallas, TX, for Sequa Corp. and Chromalloy American Corp.

Albert M. Ferlo, Jr., Dirk D. Snel, U.S. Dept. of Justice, Appellate Section, Env. & Natural Resources Div., Washington, DC, for appellee.

W.B. Browder, Jr., Stubbemann, McRae, Sealy, Laughlin & Browder, Inc., Midland, TX, for Regal.

Michael T. Morgan, Morgan & Wald, Midland, TX, for Leigh.

Eugene B. Labay, Kevin M. Beiter, Cox & Smith, San Antonio, TX, for Bell.

Appeals from the United States District Court for the Western District of Texas.

Before JOLLY and DUHE, Circuit Judges, and PARKER *, District Judge.

E. GRADY JOLLY, Circuit Judge:

The Environmental Protection Agency (EPA) seeks to recover its response costs under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) because of a discharge of chromium waste that contaminated a local water supply. Sequa Corporation appeals from the imposition of joint and several liability, challenges the EPA's decision to provide an alternate water supply system to the area in which the groundwater was contaminated by the chromium discharge, and contests the calculation of prejudgment interest and the application of the proceeds of the EPA's settlement with its co-defendants. We REVERSE the portion of the judgment imposing joint and several liability, and REMAND for further proceedings. Our review of the administrative record has convinced us that the EPA's decision to provide an alternate water supply was arbitrary and capricious; accordingly, we REVERSE the portion of the district court's judgment allowing the EPA to recover the costs of designing and constructing that system, and REMAND for deletion of those amounts and recalculating prejudgment interest. 1

I

In 1978, a citizen in the Odessa, Texas area complained about discolored drinking water. The Texas Water Commission conducted an investigation. It ultimately focused on a chrome-plating shop that was operated successively from 1971 through 1977 by John Leigh, Western Pollution Control Corporation (hereinafter referred to as Bell), and Woolley Tool Division of Chromalloy American Corporation (which later merged with Sequa), at 4318 Brazos Street, just outside the city limits of Odessa. The investigation showed that during the chrome-plating process, finished parts were rinsed, and the rinse water was pumped out of the building onto the ground.

In 1984, the EPA designated a 24-block area north of the Brazos Street facility as a Superfund site--"Odessa Chromium I." It authorized a response action pursuant to its authority under CERCLA Sec. 104, 42 U.S.C. Sec. 9604, and entered into a cooperative agreement with the State of Texas. The State was to perform a remedial investigation, feasibility study, and remedial design work for the site, with the EPA reimbursing the State for ninety percent of the costs. The remedial investigation revealed that the Trinity Aquifer, the only source of groundwater in the area, contained elevated concentrations of chromium. 2

A "focused" feasibility study (FFS) was undertaken to evaluate the need to provide an alternative water supply pending completion of the remaining portion of the feasibility study and implementation of final remedial action. 3 The FFS concluded that the City of Odessa's water system should be extended to provide service in the Odessa Chromium I area. On September 8, 1986, the EPA Regional Administrator issued a Record of Decision (ROD), finding that city water service should be extended to the site. Pursuant to the cooperative agreement, the State, through its contractor, designed and constructed the system, which was completed in 1988.

II

In December 1988, the EPA filed a CERCLA cost-recovery action against Bell, Sequa, and John Leigh, which was consolidated with an adversary proceeding the EPA had filed against Bell in Bell's bankruptcy case. The EPA sought to recover direct and indirect costs it incurred in studying, designing, and constructing the alternate water supply system.

In July 1989, the district court entered a case management order providing that the case would be decided in three phases: Phase I--liability, Phase II--recoverability of the EPA's response costs, and Phase III--"responsibility." In September 1989, the district court granted in part, and denied in part, the EPA's motion for summary judgment as to liability. In its memorandum opinion, it stated that the relative culpability of the parties and the "divisibility of liability" issues would be decided during Phase III. Although the district court ruled that CERCLA did not require the EPA to prove causation, it held an evidentiary hearing and made alternative findings and conclusions addressing causation, holding that "Leigh, Bell and Sequa caused the contamination." 4 In March 1990, the district court granted the EPA's motion for clarification of the September 1989 summary judgment, holding that its previous opinion had provided that the defendants were jointly and severally liable. It also entered a declaratory judgment as to the defendants' liability for future response costs.

The Phase II proceeding on recoverability of response costs was handled through cross-motions for summary judgment. 734 F.Supp. 771. The district court held that the defendants had not met their burden of proving that the EPA's decision to implement an alternate water supply was arbitrary and capricious, and held that they were liable for the EPA's direct and indirect response costs, plus prejudgment interest from the date such costs were incurred.

On March 2, 1990, the EPA sought approval of a proposed consent decree, in which it settled its claims against Bell for all costs, past and future, for $1,000,000. Sequa objected to the settlement, contending that Bell was not being required to pay its fair share. The district court granted Sequa's request for a hearing on the fairness of the proposed consent decree, and entered an order providing that a Phase III hearing regarding apportionment of liability was to be conducted before it ruled on the motion for entry of the consent decree. In response to the EPA's motion for clarification of the scope of the hearing, the court ruled that the hearing would be limited to determining the relative contributions of Bell, Sequa, and Leigh to the contamination. After the Phase III hearing in June 1990, Sequa filed a motion for reconsideration on the issue of joint and several liability. On July 24, the district court denied that motion, and approved the consent decree. It held that the evidence at the Phase I and Phase III hearings demonstrated that there was no method of dividing the liability among the defendants which would rise to any level above mere speculation, because each of the proposed apportionment methods involved a significant assumption factor, inasmuch as records had been lost, and because each of the apportionment methods differed significantly. In the alternative, it concluded that, based on equitable factors, responsibility should be divided as follows: Bell--35%; Sequa--35%; and Leigh--30%.

In December 1990, the district court entered an order approving another consent decree, pursuant to which the EPA settled its claims against Leigh for past and future costs--for $100,000.

In sum, the district court held that Sequa is jointly and severally liable for $1,866,904.19, including the costs of studying, designing, and constructing the alternate water supply system. In addition, Sequa is jointly and severally liable for all future costs incurred by the EPA in studying, designing, and implementing a permanent remedy. 5

III

Statutory Background

CERCLA was enacted in 1980, and amended in 1986 by the Superfund Amendments and Reauthorization Act (SARA). Its purpose is to facilitate the prompt clean-up of hazardous waste sites. See, e.g., United States v. R.W. Meyer, Inc., 889 F.2d 1497, 1500 (6th Cir.1989). CERCLA Sec. 104, 42 U.S.C. Sec. 9604, authorizes the President (who has delegated most of his authority under CERCLA to the EPA) to use Superfund money to respond to any threatened or actual release of any hazardous substance that may pose an imminent and substantial public health threat. CERCLA Sec. 107, 42 U.S.C. Sec. 9607, provides for the recovery of response costs from all persons responsible for the release of a hazardous substance. Response actions include both "remedial" and "removal" actions. Removal actions generally are immediate or interim responses, and remedial actions generally are permanent responses. See Voluntary Purchasing, Inc. v. Reilly, 889 F.2d 1380, 1382 n. 4 (5th Cir.1989).

The National Contingency Plan ("NCP"), 40 C.F.R. Part 300, promulgated by the EPA as mandated by CERCLA Sec. 105, 42 U.S.C. Sec. 9605, guides federal and state response activities. The NCP identifies methods for investigating the environmental and health problems resulting from a release or threatened release and criteria for determining the appropriate extent of response activities. See Daigle v. Shell Oil Co., 972 F.2d 1527, 1533 n. 4 (10th Cir.1992); United States v. R.W. Meyer, Inc., 889 F.2d at 1500.

IV

Joint and Several Liability

Since CERCLA's enactment, the federal courts have struggled to resolve the complicated, often confusing, questions posed by the concept of joint and several liability, and its application under a statute whose provisions are silent with...

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