The CERCLA sleeping giant awakens? Natural resource damage claims in the wake of Yakama Tribe v. United States
September, 2007
Sometimes called the "sleeping giant" of the Superfund law, relatively few natural resource damage ("NRD") cases have been litigated by natural resource trustees, in part because of the enormous up-front cost of performing an injury assessment to prove damages. But a ground-breaking decision by a federal district court in Washington allows trustees to recover in a declaratory judgment action the costs of injury assessment as they are incurred, even before a trustee has established its damages. The September 4, 2007, decision in Confederated Tribes and Bands of the Yakama Nation v. United States, 2007 WL 2570437 (E.D. Wash. 2007), allows trustees – federal and state resource agencies and tribes – to recover their reasonable assessment costs as soon as they establish the liability of one or more responsible parties, even well before establishing the amount of natural resource damages owed.
Overview: CERCLA Natural Resource Damage Claims
Under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §§9601 – 9675 (CERCLA) and the Oil Pollution Act of 1990, 33 U.S.C. §§2701 – 2761 (OPA), natural resource trustees can recover for damages caused to natural resources as a result of the release of hazardous substances. CERCLA §107(F)(1), 42 U.S.C. §9607(f)(1).
Section 107 of CERCLA provides, in pertinent part, that those persons responsible for the release of hazardous substances that caused the incurrence of response costs shall be liable for "all costs of removal or remedial action ... [and] damages for injury to, destruction of, or loss of natural resources, including the reasonable cost of assessing such injury, destruction or loss resulting from such a release." Section 1006 of OPA is nearly identical. 33 U.S.C. §2706.
What are Natural Resources?
CERCLA broadly defines natural resources as including virtually any identifiable aspect of the natural environment. "Natural resources" are defined as:
[L]and, fish, wildlife biota, air, water, ground water, drinking water supplies, and other such resources belonging to, managed by, held in trust by, appertaining to, or otherwise controlled by the United States ..., any State or local government, any foreign government, any Indian tribe, or, if such resources are subject to a trust restriction on alienation, any member of an Indian tribe.
CERCLA §101(16), 42 U.S.C. §9701(16).
Who are Natural Resource Trustees?
Natural resource trustees are the federal and state agencies, and tribal governments who own, manage or otherwise control resources injured by a discharge of hazardous substances or oil. They include federal and state land management and resource agencies, such as the Department of Defense, the Department of Interior (acting through its bureaus, including the Bureau of Indian affairs, the Bureau of Land Management, the Bureau of Reclamation, the Fish and Wildlife Service, and the National Park Service), the Department of Agriculture (acting through the Forest Service), the Department of Commerce (acting through the National Oceanic and Atmospheric Administration), and the Department of Energy. 40 C.F.R. §300.600(b); Executive Order 12580 § 1(c) (1987). Under the Superfund Amendments and Reauthorization Act, Pub. L. 99-499 (1986) (SARA), Indian tribes were granted authority to act as trustees. 42 U.S.C. § 107(f).
Cities can only serve as trustees if authorized by the governor of the state. 42 U.S.C. § 107(f)(2)(B); see, e.g., City of Indianapolis v. Union Carbide, 2003 WL 22327832 (S.D. Ind. 2003). Private parties cannot be trustees, with the exception of a limited right to a claim for damages under OPA for loss of subsistence use of natural resources, recoverable by any party who used the injured or lost resources, without regard to ownership or management of the resource. 33 U.S.C. § 2702(b)(2)(C).
The Environmental Protection Agency (EPA) is not a natural resource trustee agency and does not directly participate in natural resource damage assessment and restoration activities, or become a party in a natural resource damage lawsuit. That is not to say, however, that EPA does not have a role, albeit a very limited one, in the process of assessing natural resource damages. "EPA's policy is to encourage participation by all affected Trustees at every stage in the CERCLA or OPA response and enforcement process. Coordination with Natural Resource Trustees will ensure that environmental impacts are fully addressed and will facilitate timely settlement of any, and all, liabilities." See EPA's Notification and Coordination Activities, available at http://www.epa.gov/superfund/programs/nrd/n_and_c.htm.
CERCLA requires EPA to "promptly notify the appropriate Federal and State natural resource trustees of potential damages to natural resources resulting from releases under investigation" under its response authority and to "seek to coordinate the assessments, investigations, and planning" of response actions with such Federal and State trustees. 42 U.S.C. § 104(b)(2). The CERCLA natural resource damage assessment regulations provide for coordination and consultation with EPA at various steps throughout the CERCLA response process. 43 C.F.R. § 11.20; OSWER Directive No. 9200.4-22A (July 31, 1997); OSWER Directive No. 9295.0-02 (April 1992). EPA may also play a role in the resolution of natural resource damages as part of a global settlement of a responsible party's liabilities through the entry of a consent decree. 42 U.S.C. § 9622(j).
Trustee agencies can recover damages for injury to only those resources "owned, controlled, or managed by" that trustee; and, in the case of states and Indian tribes, "appertaining to such" state or tribe, or "held in trust for the benefit of such tribe. 42 U.S.C. § 9607(f)(1). In the Bunker Hill NRD case in Idaho, Coeur d'Alene Tribe v. Asarco Inc., 280 F. Supp.2d 1094 (D. Idaho 2003), a federal district court held that federal and tribal trustees could not recover for injury to resources owned or controlled by the state of Idaho, with whom defendants had already settled. 280 F. Supp.2d at 1119. The court placed the burden on the trustees remaining in the case to prove in the damages phase of the trial that they, in fact, are the stewards of the injured resources for which they are seeking damages. 280 F.Supp.2d at 1117.
However, two years later, in a surprising turn of events (albeit in an unpublished order), the court sua sponte modified its published order as to the scope (and overlap) of trusteeship, finding that co-trusteeship of resources is the rule, not the exception, and that the plain language of the statute mandates that a co-trustee, acting individually or collectively with the other co-trustees may seek recovery from responsible parties for the full amount of the damage to resources under its trusteeship (shared or otherwise), less any money that already has been paid as a result of settlement to another trustee by a responsible party. If there is later disagreement between the co-trustees, the court opined, that disagreement will have to be resolved by successive litigation between the trustees, without affecting the liability of the responsible parties. United States v. Asarco, Case 3:96-cv-00122-EJL, Document 1529 Filed 08/09/2005, at 7-9, 2005 WL 1630516.
What is the Measure of Damages?
An NRD claim usually seeks to recover for residual harm to natural resources, assessed after any remedial action which the EPA, or another authorized agency with cleanup authority, has selected and completed, or after the likely effects of the remedial action on natural resources has been taken into account:
[C]ustomarily, natural resource damages are viewed as the difference between the natural resource in its pristine condition and the natural resource after the cleanup, together with the lost use value and the costs of assessment. As a residue of the cleanup action, in effect, [damages] are thus not generally settled prior to the cleanup.
In re Acushnet River & New Bedford Harbor: Proceedings re: Alleged PCB Pollution, 712 F. Supp. 1019, 1035 (D. Mass. 1989).
The measure of damages is the cost of restoration, rehabilitation, replacement and/or acquisition of the equivalent of the injured natural resources and the services those resources provide. Damages may also include, at the discretion of the trustee, the compensable value of all or a portion of the services lost to the public for the time period from the discharge or release until the attainment of the restoration, rehabilitation, replacement and/or acquisition of the equivalent of the resources and the return of those services to baseline levels (pre-spill or pre-release). 43 C.F.R. §11.80(b).
The damages available under CERCLA's NRD provision are intended to be compensatory, not punitive. The public is to be made whole and the responsible party is required to pay only for the damages it caused.
The Assessment and Restoration Process
In a CERCLA cost recovery or contribution claim, plaintiffs are seeking "response" costs - the costs of investigating and remediating a hazardous substance release. In an NRD claim, by contrast, the trustees are seeking the costs of restoring (to their baseline condition) natural resources injured or destroyed by a release caused by the defendant. As described below, the trustees typically conduct a natural resource damage assessment in order to quantify the injury, following the DOI or NOAA regulations. Based on the assessment, the trustees typically seek to recover damages for: (1) the cost of the assessment, (2) the interim loss (diminution in value) of the resource between the time of the injury and the time the resource is restored to its baseline condition, and (3) the actual cost of physically restoring the injured resource. If the injured resource cannot be restored (as often is the case), the trustees may seek the cost of acquiring resources having an equivalent value.
Quantification of damages is a two-step process. First, biologists and other scientists attempt to determine what type of lethal and sub-lethal (e.g. reproductive) injury resulted from a release. This is exceedingly difficult, especially where there are multiple defendants and non-chemical factors (such as development or weather) that may have contributed to the injury observed. Once the scientists are done with their work, natural resource economists attempt to assign an economic value to the injury. This requires answering questions like, "what is a salmon worth?" and "what is a higher risk of reproductive failure in a peregrine falcon worth?" There is no generally accepted way to answer these questions. Instead, natural resource economists have developed a number of "surrogate" damage formulas with names like "hedonic pricing," "contingent valuation," and "travel cost pricing." The fact that there is no single generally accepted economic model for valuing natural resource damages adds uncertainties to both sides in natural resource damage litigation.
Regulations for assessing NRD injuries have been promulgated by two key federal trustee agencies: DOI and NOAA. If natural resources have been injured by a discharge or release of oil, the NOAA regulations apply. 15 C.F.R. § 990.11. Where natural resources have been injured by the release of a hazardous substance under CERCLA or the CWA, the DOI regulations are used. 43 C.F.R. § 11.10. The DOI regulations originally applied to natural resource damages resulting from oil discharges as well as hazardous substance releases, but the portions dealing with oil discharges were superseded by the regulations promulgated under OPA. 15 C.F.R. § 990.20(a).
DOI's regulations provide a framework and standards for natural resource damage assessment and restoration in coastal and marine environments, and the Great Lakes (Type A) and other environments (Type B). The Type A process involves the use of a computer model to assess damages, in a standard and simplified manner. The more widely-used Type B process is used in situations that require an individual approach. Both Type A and Type B regulations require a four-stage assessment process, 43 C.F.R. § 11.13, described below:
Phase 1: Pre-Assessment Screen. A pre-assessment screen is conducted to determine whether additional action is warranted. Trustees must determine whether an injury has occurred and a pathway of exposure exists. The pre-assessment screen is a prerequisite to conducting a formal Natural Resource Damage Assessment. 43 C.F.R. § 11.23.
Phase 2: Assessment Plan. Trustees must confirm the exposure of trust resources to the release of a hazardous substance, and identify how the potential damages will be evaluated. Type A Assessment Plans document that the conditions for the use of Type A procedures are met, provide the site-specific data inputs the trustees will use to run the computer model, and provide the results of a preliminary application of the model. Type B Assessment Plans identify the site-specific studies the trustees will conduct and the quality control/assurance procedures that will be used. Draft Assessment Plans under both Type A and Type B procedures must be available for public review and comment. 43 C.F.R. § 11.32(c).
Phase 3: Assessment Implementation. During this phase, trustees gather the data necessary to quantify the injuries to natural resources and determine damages, through three steps: (1) injury determination; (2) quantification; and (3) damage determination. Under Type A assessments, these steps are performed using the computer model. Under Type B assessments, theses steps are performed through laboratory and field studies. Injuries are quantified by identifying the function or services provided by the resource, determining the baseline level of such services, and quantifying the reduction in service levels that result from the harm to the resource. 43 C.F.R. § 11 Subparts D and E.
Phase 4: Post Assessment. Trustees prepare a Report of Assessment detailing the results of the Assessment Implementation phase and proposing several restoration alternatives. Type A assessments will produce a printed output of the final model application, which is included in the Report. A preferred alternative is selected based on several factors, including technical feasibility, relationship of costs to benefits, and consistency with response actions. 43 C.F.R. § 11.93.
In addition to the four phases described above, the DOI regulations also require that trustees coordinate assessment efforts, including the pre-assessment screen, with the lead response agency in any situation where response action is planned or underway at the site. 43 C.F.R. § 11.23(f).
The cost of performing an NRD assessment can be enormous. At some site, some federal trustees (and Indian tribes through the Bureau of Indian Affairs), may receive funding for assessment costs from the DOI's Natural Resource Damage Assessment and Restoration Fund, but such funds are limited and, as one may expect, competition for the funds is fierce. At other sites, trustees enter into "pay to play" agreements with potentially responsible parties (PRPs), under which the trustees receive some level of funding of assessment costs in exchange for allowing the PRPs to participate in the assessment and restoration planning process. Nonetheless, prior to the decision in Yakama, NRD assessment costs are costs that generally are borne by the trustees alone, subject to reimbursement later following litigation or a settlement with the PRPs.
The Hanford Nuclear Reservation NRD Litigation
The Hanford Nuclear Reservation ("Hanford"), a former Department of Energy ("DOE") production site for nuclear materials, is divided into six areas: the 100 Area, the 200 Area, the 300 Area, the 400 Area, the 600 Area, and the 1100 Area. In 1989 the EPA proposed to list four of the six Areas as sites on the National Priorities List ("NPL"). 54 Fed.Reg. 41,015. EPA further divided the four listed Areas, for investigation and remediation purposes, into dozens of Operable Units ("OUs"). EPA has selected remedial actions for all OUs in two Areas and some, but not all, OUs in two other Areas.
The Trustees' Claims for Declaratory Relief
The Yakama Tribe filed suit against the United States, the DOE, and the United States Department of Defense (collectively, the "United States") in September 2002. The complaint, in its current amended form, seeks past and future response costs, a declaratory judgment of liability for NRD assessment costs, natural resource damages, and an order compelling the United States to comply with risk assessment standards that will adequately assess the risk posed to Yakama tribal members and others, and to the environment. In March 2006 the state of Washington and the Nez Perce Tribe intervened in the Yakama Tribe's lawsuit, followed in July 2006 by the state of Oregon and the Umatilla Tribe. The intervening Trustees sought only declaratory judgment of liability for NRD assessment costs.
The United States' Motion to Dismiss: NRD as the "Residue" of a Cleanup Action?
On October 2, 2006 the United States moved to dismiss the Hanford Trustees' claims for declaratory judgment of liability for assessment costs, and the Yakama Tribe's claim for natural resource damages, for Areas where a final remedy has not been selected. The United States argued that claims for natural resource damages may not be brought until the final remedy is selected at federal facilities or NPL sites as long as EPA is diligently proceeding with a Remedial Investigation/Feasibility Study ("RI/FS"). CERCLA § 113(g)(1)(B), 42 U.S.C. § 9613(g)(1)(B). Because EPA had not selected the final remedy at each of the OUs in the Areas at issue, the United States argued, the Hanford Trustees' claims for assessment costs - which are a component of natural resource damages - and the Yakama Tribe's claims for natural resource damages, are premature.
Further, the United States argued, under CERCLA's statutory framework, natural resource damage claims are a "residue of the cleanup action," based on the condition of the natural resource after the cleanup, and therefore cannot properly be assessed until the remedial action has been selected and the likely effects of the remedy on the resource have been taken into account.
The Hanford Trustees argued, in opposing the United States' motion to dismiss, that the plain language of CERCLA § 113(g)(2) creates a cause of action for declaratory judgment and the recovery of natural resource injury assessment costs as they accrue. At the heart of the Trustees' argument is the premise that Congress intended injury assessment costs to be recoverable in the same manner, and to the same extent, as response costs, and that all the policy reasons that support permitting the recovery of response costs as they accrue also support allowing injury assessment costs to be recovered as they accrue. See CERCLA §§ 107(a)(4)(B), 113(g)(2).
In response to the United States' argument that a selected remedy has to be final in order for a claim under CERCLA section 113(g)(1), the Hanford Trustees argued that the plain language of CERCLA does not support such a construction. Pointing to other sections of CERCLA where Congress distinguished between "remedies" and "final remedies," the Trustees argued that if Congress had intended to modify "remedial action" in section 113(g)(1) with "final" it certainly knew how to do so. Absent such Congressional intent, an interim remedial action will suffice to trigger a claim under section 113. Finally, the Trustees argued that sound policy considerations warrant allowing costs incurred assessing natural resource damages to be recovered in an ongoing basis in order to facilitate the integration of natural resource damage assessment and restoration ("NRDA") activities with response and remediation activities.
The Court's Decision
The court, based on a plain reading of the statute, held that the section of the statute relied on by the United States applied only to "damages" and not to "costs."
Simply put, "costs" are intended to reimburse a party for certain expenses incurred by it, whereas "damages" are intended to compensate a party for an injury or a loss. In the context of §9607(a)(4)(C), this means that injury assessment costs reimburse a party for costs incurred in determining the extent of an injury (a damages assessment), whereas damages compensate for the injury (the loss) itself in order to make the party whole. This plain meaning is evident from the plain language of §9607(a)(4)(C), as well as the plain language of (a)(4)(A), (B), (C), and (D), all of which refer to categories of costs.
2007 WL 2570437 at *3.
Actions for the recovery of costs, the court concluded, need not await the selection of a remedial action before they may be commenced. Id. at *5. The court went even further, however, finding that the limitations period contained in §113(g)(2) – the section requiring actions for the "recovery of costs referred to in §107" for removal or remedial actions – did not apply to the recovery of natural resource damage assessment costs. Specifically, it held that the prohibition applied only to "response costs" specified in §§107(a)(4)(A) and (B), and not to the costs of assessing natural resource injury under §107(a)(4)(C) or the costs of a health assessment carried out under §107(i). Id. at *4.
In reaching this result, the court pointed to the last half of §113(g)(2), which provides that "[a] subsequent action to recover further response costs … may be maintained at any time during the response action, but must be completed no later than 3 years after the date of completion of all response action. Except as otherwise provided in this paragraph, an action may be commenced under section 9607 of this title for recovery of costs at any time after such costs have been incurred."
Seizing on the difference between "response costs" specified in §§107(a)(4)(A) and (B) and "assessment costs" incurred under §107(a)(4)(C), the court concluded that the three year statute of limitations in §113(g)(2) applied only to response costs, and that "assessment costs" could be recovered at any time after such costs have been incurred. Id. at *5. The court's decision essentially reads any statute of limitations for recovering assessment costs out of the statute. The court did not have before it the question as to whether the United States is a PRP at the Hanford Reservation, and therefore responsible for assessment costs. But, the court noted in dicta, if the Trustees subsequently prove that the United States is a PRP, then the United States will be liable for the costs the Trustees have already incurred, and for their future assessment costs, provided that they are "reasonable." Id. at *5 - *6. Assessment costs are deemed to be reasonable under the DOI regulations when, assuming the procedural requirements of an assessment have been satisfied, the cost of the assessment is expected to be less than the anticipated damages. 43 C.F.R. §11.14(ee).
Implications of Yakama Tribe v. United States
The integration of NRDA activities with response and remediation activities is not a new proposition. What is novel is the proposition that a natural resource trustee may secure a declaratory judgment of liability for injury assessment costs after the first assessment dollar has been spent, and thereafter periodically recover costs incurred as the assessment proceeds. Trustees – especially tribal and state trustees – often lack the resources to perform a natural resource damage assessment. For that reason, trustees may not have brought certain claims, and/or may have sought to have the PRPs fund or perform the assessment. If the decision at the Hanford site is followed, trustees will have gained a distinct tactical advantage in NRD litigation, by being in a position to obtain a declaratory judgment allowing them to recover their assessment costs "as they go," putting them in a better financial position to prosecute those claims.
While significant, the decision is unlikely to open the floodgates of NRD litigation. Certainly, there are some sites where trustees have significant unreimbursed assessment costs, and they may be encouraged by this decision to seek to recover those costs. But trustees will still have to prove the liability of the PRPs, and there remain substantial areas of controversy in this area of law. This decision will more likely cause parties in NRD litigation to reconsider the way NRD claims are prosecuted and defended. The battle lines will likely be drawn earlier, at the liability phase, because, under this decision, both trustees and PRPs benefit from an early liability determination. From the trustees' perspective, if the government (federal, state, or tribal) has a limited amount of money to spend, it may want to spend it establishing who is liable for assessment costs, and then shift those costs, and the damages, to the PRPs.