Allocating Fault in Settlements – Complications in Unusual Circumstances

I  am departing a bit from my usual fields of practice into environmental law to expand upon a recent article regarding how to allocate payments between more than one person responsible for a loss. As I previously noted, in most circumstances in Oregon and Washington, the law requires that each responsible person pay according to the percentage of his or her fault. <https://danielreitman.wordpress.com/2015/03/23/indemnity-for-active-negligence-fades-away/>. A recent case from the federal appeals court covering most of the Western states, however, discusses the effect of federal law on some of these rules, and, in particular, the complicated rules applying to environmental cleanup.

Under the Superfund law, any person who owns or operates a property that contaminates soil or water is responsible for the cleanup. They may, however, get compensation from other people responsible for the damage, such as other polluters and prior or subsequent owners, for at least part of the cost to respond to the pollution. The law does not, however, explain how to divide the costs when the dispute involves only private parties.

In the case in question, at least seven companies had potential responsibility for damage to two properties and groundwater in Sacramento. The most significant polluter was V, which ran an industrial dry cleaning operation on the property, and allowed chemicals to pollute the soil. V’s original parent company was P. P eventually sold V to T, which agreed to pay V’s liabilities, and merged with V. Meanwhile, the property was sold to A. The pollution reached the property line, and contaminated land owned by F and wells owned by CW. Another business in the area, CC, also allowed pollution from its land to extend onto the V property.

When A discovered the pollution in 1997, it began additional monitoring and testing, as ordered by the State of California, and began cleanup in 2002. The cleanup has not been completed. A sued P, V, CC, and T for their share of the cleanup costs, and settled with P for $2.75 million and CC for $500,000.  Meanwhile, F and CW sued A, and it settled with them for a total of $10.25 million.

That left A’s claims against V and T, which would be paid by T. The court had to decide three major questions: How much were the cleanup costs at stake, how was the cost to be allocated between A and T, and how did the settlements affect the result?

The trial judge found the total cost to clean up the V site was slightly more than $15.5 million. He applied the entire settlements paid to F and CW, and deducted the $3.25 received from P and CC. Unfortunately, there appears to be a mistake in the calculation, because the appellate court’s opinion then states that the net figure was the $15.5 million, which he divided equally between A and T. T appealed.

The Court of Appeals decided that the trial judge hadn’t made a sufficient inquiry into the reasons for its decision, and sent the case back for a more detailed ruling. The court looked at the two most common ways of handling settlements when more than one person is responsible, and decided neither of them should apply in all cases under the Superfund law.

When applying other federal laws, most of the time federal courts simply weigh the percentage of fault to divide responsibility. The problem with this approach is that if a settlement turns out to be for less than one responsible person’s share of the loss, then some of the loss may be uncompensated. On the other hand, when applying the Superfund law to cases involving the federal or state governments, the law requires that settlements be credited in full and the balance divided among anyone who does not settle. The problem with this approach is that someone could get stuck having to pay more than his or her fair share, particularly if one of the early settlements is deliberately low.

The Court of Appeals decided that the Superfund law does not require using a pure proportionate share approach, which T wanted, but it also ruled that a total reduction approach was not required. Instead, it left the matter in the hands of the trial judge. When applying the Superfund law, judges will have to decide what would be the fairest way to allocate responsibility, and decide whether settlements should be applied in whole or in part, and to make the decision on a case by case basis. In this case, trial judge was told to look again at his ruling and show why he ruled as he did.

If you’re in a dispute involving more than one person who may be responsible, you should talk to a lawyer about the potential range for which each person may be found responsible and how settlements may be applied against the total potential damages. A good lawyer will be able to assess the potential damages, the potential settlements in light of questions of fault, and the potential distribution of payments. Also, if the situation is the rare one that calls for a deviation from the proportionate fault rule, such as a Superfund claim, you should be ready to take these factors into account when deciding whether to accept settlement offers.

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