Type: Law Bulletins
Date: 11/27/2017

9th Circuit Holds Government Must Share in Cleanup Costs for Defense Contractor’s Site

In TDY Holdings, LLC v. United States, 872 F.3d 1004, 1005 (9th Cir. 2017), the 9th Circuit reversed a district court’s decision to allocate no share of CERCLA cleanup costs for a defense contractor's manufacturing site to the government, finding the decision to be a “sharp deviation from our prior case law.” The defense contractor, TDY Holdings, LLC (“TDY”), manufactured aircraft and aircraft parts for the government near the San Diego airport from 1939 until 1999, when the plant was shut down. TDY’s site is contaminated with chromium, PCBs and chlorinated solvents. Some of the government contracts required TDY to use chromium and chlorinated solvents.

When TDY incurred CERCLA liability to the San Diego Unified Port District, TDY sued the government for contribution under 42 U.S.C. § 9613(f). TDY stipulated that it was a potentially responsible party (“PRP”), and the district court granted partial summary judgment to TDY finding that the government was also a PRP. The district court then held a 12-day bench trial on allocation and concluded that 100% of the cleanup costs should be allocated to TDY because the contamination was caused by TDY’s storage, maintenance and repair practices.

The 9th Circuit reversed, placing great weight on the fact that the government had required TDY to use two of the contaminants polluting the site. Under those circumstances, and based on prior precedent, United States v. Shell Oil Co., 294 F.3d 1045 (9th Cir. 2002), and Cadillac Fairview/California, Inc. v. Dow Chemical Co., 299 F.3d 1019 (9th Cir. 2002), the United States must be allocated some of the cleanup costs. The court also noted a prior course of dealing between the government and TDY where the government had picked up a share of TDY’s CERCLA liability for the site. Judge Watford wrote separately to emphasize that although equity demanded the government share some cost because it required TDY to use the contaminants, equity did not demand that the government’s share be substantial. Judge Watford felt that because the district court found the government was largely innocent in causing the contamination, “the court remains free on remand to allocate the lion’s share of liability to TDY.” TDY Holdings, 872 F.3d at 1009 (Watford, J., concurring).

The good news for TDY is that the government will now have to pick up some of the tab. The bad news is that the district court will likely assign the government a minuscule share.

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