Tenth Circuit rejects New Mexico’s $5 billion natural resource damage claims
November, 2006
The Tenth Circuit recently concluded in New Mexico v. General Electric, et al.[i] that the state of New Mexico could not prosecute claims seeking unrestricted money damages under state law for groundwater contamination at the South Valley Superfund Site in Albuquerque. In affirming the dismissal of New Mexico's state common law claims for natural resource damages ("NRDs"), the Tenth Circuit focused on the remedy sought by the state -- money damages that were not limited to use for the repair, replacement or acquisition of the equivalent of the injured resource -- and held that it was inconsistent with CERCLA's NRD scheme, and therefore preempted.
The potential precedential value of the case had drawn the attention of thirteen other states[ii] which appeared as amici curiae in support of New Mexico, as well as a cadre of ten industry and trade associations[iii] that supported the defendants General Electric ("GE") and ACF Industries, Inc. ("ACF").
Background
The South Valley Superfund Site (the "Site") is a former nuclear weapons components production and aircraft engine parts manufacturing facility located in a largely industrial area east of the Rio Grande River. The detection of petroleum hydrocarbons and volatile organic compounds including PCE, TCE and vinyl chloride[iv] in the City of Albuquerque's municipal water supply led to the 1981 decommissioning of a well that provided potable water for thousands of residents and played a key role in providing sufficient fire protection for the South Valley. New Mexico identified the Site as its highest priority site under 42 U.S.C. § 9605(a)(8)(B),[v] and in 1983 the EPA placed the Site on the National Priorities List and began its remedial investigation and feasibility study.
EPA identified GE, ACF, the United States Air Force ("USAF") and the United States Department of Energy ("USDOE") as potentially responsible parties ("PRPs") in 1988. Between 1989 and 1996 GE conducted remediation at the Site under a series of EPA- issued Unilateral Administrative Orders ("UAOs"). EPA's 2005 five-year review report noted that "the groundwater remedial systems at the [Site] have been very effective in recovering and treating approximately 4.5 billion gallons of water since the remedial systems went on-line. Almost the entire amount of . . . water has been returned to the aquifer . . . allowing the groundwater to be returned back to its beneficial use."[vi]
In 1999, bypassing the New Mexico Department of the Environment and its state Natural Resource Trustee ("NRT"), the New Mexico Attorney General retained outside counsel[vii] and filed companion NRD lawsuits in federal and state court, seeking nearly $5 billion in damages.
The federal lawsuit, which named the state NRT as an "involuntary plaintiff,"[viii] alleged NRD claims under CERCLA and named as defendants, among others, the PRPs previously identified by EPA. The complaint alleged harm arising from "the presence, migration, and threat of further migration of hazardous chemical wastes and other substances from" the Site.
The state lawsuit alleged various state statutory and common law claims for NRDs, including trespass, public nuisance, and negligence. The named defendants included GE and ACF, but omitted the federal defendants. The complaint alleged exactly the same harm as the complaint in the federal lawsuit. GE and ACF removed the state lawsuit to federal court and the court, on its own motion, consolidated it with the federal lawsuit.[ix]
Between April and June, 2004, the district court issued three opinions that defined and narrowed New Mexico's claims,[x] excluded the damages testimony of several of the state's expert witnesses,[xi] and ultimately granted the defendants' motion for summary judgment, concluding that New Mexico had failed to prove the existence of groundwater contamination that would not be remediated by EPA's selected remedy.[xii]
The Tenth Circuit Decision
On appeal, the Tenth Circuit largely affirmed the district court's dismissal of New Mexico's claims. The court concluded that "[a]t most, then, this is a case of conflict pre-emption. . ." and the question presented was whether any portion of New Mexico's NRD claim "stands as an obstacle to the accomplishment of congressional objectives as encompassed in CERCLA."
The court then focused on the remedy New Mexico sought, rather than the nature of its causes of action, in rejecting the state's claims. Because New Mexico sought an award of unrestricted money damages that the state could use for purposes other than restoration, such as for attorney's fees,[xiii] the court reasoned that the state's claims "would seriously disrupt CERCLA's principle aim of cleaning up hazardous waste,"[xiv] and were therefore preempted.[xv]
The court concluded that CERCLA's comprehensive NRD scheme preempts any state remedy designed to achieve something other than the restoration, replacement or acquisition of the equivalent of an injured resource,[xvi] notwithstanding CERCLA's saving clauses,[xvii] which "undoubtedly preserve a quantum of state legislative and common law actions and remedies related to the release and cleanup of hazardous waste."[xviii] The court raised, but left unanswered, the question whether the potential interference of state law NRD claims like those asserted by New Mexico with CERCLA's "obvious preference for claim settlement" was an additional basis for preemption.[xix]
The court also rejected New Mexico's argument that EPA's selected remedy would not address all of the contamination and restore the groundwater to beneficial use, its NRD claim for "injury residual to a CERCLA remedy," as nothing more than a challenge to an EPA-ordered remediation, which is barred from judicial review prior to the completion of the remedy, under 42 U.S.C. § 9613(h).[xx] The court, finding that the effectiveness of the remedy and the precise extent of "residual injury" cannot be determined until the remedy has been completed, dismissed the state's claim for want of jurisdiction, subject to renewal of those claims, if appropriate, following the completion of the remedy.[xxi]
Finally, the court held that New Mexico was not entitled to interim loss-of-use damages for the loss of the right to appropriate groundwater for beneficial use from the time of release until restoration. The state had argued that, absent the contamination, additional groundwater would be available for appropriation and it was entitled to damages for the deprivation of that right in its capacity as the trustee of the state's groundwaters. The court found that New Mexico failed to prove that groundwater would be available for appropriation in the absence of contamination,[xxii] or that any beneficial user of groundwater had actually been denied the use of groundwater as a consequence of the contamination. In the absence of proof of an actual lost use, the court concluded, New Mexico was not entitled to loss-of-use damages.[xxiii]
Reaction
Industry groups view the New Mexico v. GE case as a significant victory, endorsing industry arguments that common law NRD claims are largely preempted by CERCLA, and potentially forestalling future lawsuits brought by states hoping to achieve the same successes as those enjoyed by the state of New Jersey. State sources counter that the decision confirms states' rights to recover loss-of-use damages, even if New Mexico failed to produce evidence in this case to demonstrate lost use.[xxiv] New Mexico has not commented on the decision, other than to note that the Attorney General is reviewing it.[xxv]
Conclusion
The Tenth Circuit focused on the remedy sought by the New Mexico and determined that the state's claims were preempted because the remedy (unrestricted money damages) was inconsistent with CERCLA's comprehensive scheme for achieving the restoration, replacement or acquisition of the equivalent of an injured resource. New Mexico v. GE is a case of first impression, and it remains to be seen whether other circuits, faced with similar claims, will find the Tenth Circuit's holding persuasive. In the meantime, though, in light of the court's concerns that damages not be used for anything other than restoration costs, the decision may force states to reconsider the wisdom of retaining outside counsel to prosecute NRD claims on a contingent fee basis. And, it seems likely that the decision will be helpful for responsible parties seeking an advantage in settlement discussions with natural resource trustees.
For more information, contact Connie Sue Martin.
[ii] Colorado, Kentucky, Maine, Montana, Nevada, New Jersey Ohio, Oklahoma, Oregon, South Carolina, Utah, Wisconsin and Wyoming.
[iii] American Chemistry Counsel, American Petroleum Institute, National Mining Association, Chamber of Commerce of the United States, National Association of Manufacturers, United States Council for International Business, Independent Petroleum Association of America, National Petrochemical & Refiners Association, Rubber Manufacturers Association, and American Gas Association.
[iv] 2006 WL 3072590 at *4, fn 15.
[v] This section of CERCLA allowed each state the single opportunity to by-pass the listing process and identify its highest-priority site for inclusion in the initial list of 100 sites on the National Priority List ("NPL"). See, also, 40 C.F.R. § 300.425(c)(2).
[vi] Throughout the process, New Mexico, acting through the New Mexico Department of Environment ("NMED") and its predecessor agency, was an active participant in the CERCLA mandated removal and response plan for the Site. Consistent with CERCLA, the New Mexico Legislature enacted the Natural Resources Trustee Act ("NRTA") in 1993, which created the Office of Natural Resources Trustee ("NRT") within NMED. See N.M. Stat. Ann. §§ 75-7-1 through 75-7-5.
[vii] New Mexico is not the only state which has made use of private lawyers to prosecute NRD claims. In September, 2003 the state of New Jersey embarked on a large-scale effort to address more than 4000 potential NRD claims under New Jersey state law, also using outside counsel.
[viii] Fed. R. Civ. P. 19(a) permits the court to order the joinder of a necessary party. If the party should be joined as a plaintiff but refuses, the court may join the party as a defendant or, in a proper case, an involuntary plaintiff.
[ix] 335 F. Supp.2d 1157, 1162 (Dist. N.M. 2003).
[x] 335 F. Supp.2d 1185 (Dist. N.M. 2004) (4/6/06).
[xi] 335 F. Supp.2d 1266 (Dist. N.M. 2004) (5/7/04).
[xii] 322 F. Supp.2d 1237 (Dist. N.M. 2004) (6/19/04)
[xiii] "[A]n unrestricted award of money damages does not restore or replace contaminated natural resources. When trust resources. . . are contaminated . . . the trustee as fiduciary should restore or replace the corpus of the trust. . . Consistent with this objective, we hold CERCLA's comprehensive NRD scheme preempts any state remedy designed to achieve something other than the restoration, replacement, or acquisition of the equivalent of a contaminated resource." Id.
[xv] The court was clearly troubled by the fact that New Mexico contended that it would have no obligation to use the nearly $5 billion it sought to restore, replace, or acquire the equivalent of the injured resources; and that it had retained outside counsel to help it recover those funds on a contingency fee basis. The court noted that the legislative history of CERCLA's 1986 amendments makes it "abundantly clear" that the measure and use of damages arising from the release of hazardous waste is restricted to accomplishing CERCLA's essential goals of restoration or replacement, and that the sums recovered by trustees are "not intended to compensate public treasuries" nor are they "to be diverted for general purposes." *35, fn 32, 33. "Clearly, permitting the State to use an NRD recovery . . . for some purpose other than to ‘restore, replace, or acquire the equivalent of' the injured groundwater would undercut Congress's policy objectives in enacting 42 U.S.C. § 9607(f)(1)." *17.
[xvii] 42 U.S.C. §§ 9614(a), 9652(d).
[xviii] 2006 WL 3072590 at *15. "We reach this conclusion notwithstanding CERCLA's saving clauses because we do not believe Congress intended to undermine CERCLA's carefully crafted NRD scheme through these saving clauses." Id at 16.
[xx] "The obvious meaning of § 9613(h) is that when a remedy is selected, no challenge to the cleanup may occur prior to the completion of the remedy." *18, quoting Schalk v. Reilly, 900 F.2d 1091, 1095 (7th Cir. 1990).
[xxi] 2006 WL 3072590 at *19.
[xxii] The South Valley lies in the Middle Rio Grande Underground Water Basin. The surface waters of the Rio Grande have long been fully appropriated. The groundwater underneath the South Valley contributes substantially to the flow of the Rio Grande, and further groundwater appropriations are prohibited absent an offset of existing water rights. Thus, the court concluded, the groundwater is unavailable for further appropriation for reasons unrelated to the contamination. Id.
[xxiii] Id at 19-20 and fn 39.
[xxiv] Suzanne Yohannan, "Impact of Key Resource Damages Suit May be Limited, Despite Trustee Loss." (11/7/06), www.InsideEPA.com.