Type: Law Bulletins
Date: 08/10/2010

Do EPA's Form Tolling Agreements Automatically Preserve Statutes of Limitation Defenses to CERCLA and Other Claims?

Parties potentially responsible for contaminating land or water, “PRPs,” frequently enter into “tolling agreements” with the United States Environmental Protection Agency (EPA) when EPA is not ready to file a CERCLA cost-recovery action, and EPA believes that the applicable statutes of limitation may run. A tolling agreement is intended to serve as a “standstill agreement” so that the time covered by the tolling agreement (usually 3-12 months) does not count towards expiration of any statutes of limitation. Tolling agreements have been used by EPA since the 1980 passage of CERCLA to allow EPA and the PRPs time to negotiate without fear of that the statute of limitations will expire. In many occasions, the tolling agreements are extended by mutual written consent. Until recently, it was assumed that the tolling agreement was mutually beneficial to both EPA and PRPs: any claims of EPA would not be prejudiced by the time spent during negotiations, and PRPs would not be prejudiced to the extent the PRPs held a defense, prior to execution of the tolling agreement, that EPA had missed the applicable statutes of limitation.

A recent U.S. District Court case, U.S. v. Halliburton, has shaken this concept and advised that this mutual understanding, challenged in that case by the U.S. Department of Justice, is not accurate. The court in Halliburton suggests that unless the tolling agreement expressly preserves a PRP’s preexisting statutes of limitation defenses, the defenses are waived. EPA commenced the lawsuit to recover remediation costs against several entities, including QSA Global and NL Industries, responsible for contaminating hazardous waste sites in Texas. The dispute centered on whether the statute of limitations under CERCLA had expired, which would bar EPA’s claim for response costs.

EPA and NL agreed that the cleanup process at the sites was completed at some point in 2001 and that EPA did not file its lawsuit until 2007. Therefore, NL claimed that the three-year statue of limitations period for removal actions prescribed in CERCLA had expired, and that EPA could not recover any cleanup costs. NL also asserted that: (1) the statute of limitations under CERCLA is a jurisdictional prerequisite to filing suit; (2) the tolling periods in the tolling agreement had expired; and (3) that the tolling agreements were unenforceable since the agreements were signed after the statute of limitations expired.

In rejecting NL’s assertion that it could assert a statute of limitations defense existing on the day prior to signing the tolling agreement, the court looked at CERCLA’s “structure, underlying policies, [and] legislative history” and determined that “the time requirement [in CERCLA] is a statue of limitations subject to extension by tolling agreements between parties.” The court also noted that “contaminated sites can have long and complex histories,” that tolling agreements aid EPA in the time intensive process of pinpointing responsible parties and investigating the sites, and that the tolling agreements facilitate settlements with PRP’s, which is a goal of CERCLA. The court ruled that the defenses were waived because the tolling agreement did not provide for an express preservation by the parties of preexisting statutes of limitations defenses.

Many do not agree with court’s ruling. Nonetheless, the Halliburton case now requires PRPs and their counsel to take a different and more cautious approach with EPA regarding the terms of tolling agreements to avoid waiving CERCLA’s statute of limitations defenses. EPA has shown a willingness to modify its “form” tolling agreement to preserve preexisting statutes of limitation defenses. The Taft Environmental Practice Group has been assisting clients in negotiating this change to EPA’s tolling agreement in order to address the concerns raised by the Halliburton court.

For more insights on negotiating tolling agreements with EPA, please contact Kim Burke or any member of Taft’s Environmental Practice Group.

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