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Despite problems Superfund still is best hope.

As Congress prepares for the 1994 reauthorization of the Superfund law, it is clear that the Superfund liability standard will be the most contentious issue. The oil, chemical, and insurance industries have declared war on the joint and several liability scheme and they are seeking, by means fair and foul, to bring cities and small business on their side.

The Superfund Liability Standard

The Superfund law imposes strict, joint and several liability for cleanup costs on those persons who cause the release of hazardous substances. This liability standard is not new with Superfund. It had been the standard of liability for spills of oil and hazardous substances under the Clean Water Act prior to enactment of Superfund.

Strict liability holds a party liable for damages whether or not fault (negligence or malfeasance) can be shown. Strict liability has long been the common law standard where hazardous substances are present.

Joint and several liability applies where more than one party contributed to the release and provides that any one of individual parties contributing to the release can be held liable for the entire cleanup cost even if the one party did not cause all of the events leading up to the release. In the case of Superfund, contribution to the release at a site has been held to be any action that resulted in a hazardous substance being present at the site.

The Importance of Joint and Several Liability

in Superfund

At sites where there are many parties, and a substantial number of Superfund sites are of this type, the most difficult Superfund problem is allocating the cleanup costs among the parties that contributed to the release. Allocating costs among potentially responsible parties, or PRPs in Superfund jargon, is at some sites more difficult than selecting the appropriate cleanup strategy and even more difficult than carrying it out.

If EPA had to determine exactly how much each party contributed and how much each party should pay at the very large, complex landfill sites, EPA's enforcement job would be almost insurmountable. Data on who contributed how much waste at each site many years ago is often not complete enough to build an airtight legal case. Each potentially responsible party (PRP) could go to court and challenge EPA's proposed cost allocation scheme and threaten to tie the Agency up in litigation. At some point the EPA would no longer be able to justify the expense of defending their proposed allocation of responsibility in light of the actual cleanup costs they could recover.

Joint and several liability dramatically changes the picture for EPA as it tries to recover cleanup costs. The joint and several liability standard authorizes the EPA to select any one of the PRPs, to take just that PRP to court, and to recover the whole cost of the cleanup from that one PRP. It is then up to that PRP to commence subsequent court action to recover shares from other PRPs who may have contributed to the pollution.

This right to recover from others in contribution suits is a necessary element of the joint and several liability scheme. Without the right to contribution suits, joint and several liability would be an extremely unfair standard.

In practice, EPA does not start litigation against individual PRPs until all the PRPs have a chance to work out a cost allocation scheme among themselves. EPa does not start by suing one party at a complex site for all of the cleanup costs. Rather it encourages the PRPs to come up with their own aloocation scheme and gives them time to work it out. This is where the litigation and other transaction costs have become so substantial. Without government even present, the lawyers representing the private PRPs have imposed huge costs on their clients as they have struggled to find acceptable schemes to allocate costs at particular sites.

In some cases EPA has determined that the PRPs are unlikely to come up with an allocation scheme and has selected a sub-set of the largest PRPs and filed action for cost recovery against them. EPA generally takes the position that the proper that PRP to court, and to recover the whole cost of the cleanup from that one PRP. It is then up to that PRP to commence subsequent court action to recover shares from other PRPs who may have contributed to the pollution.

This right to recover from others in contribution suits is a necessary element of the joint and several liability scheme. Without the right to contribution suits, joint and several liability would be an extremely unfair standard.

In practice, EPA does not start litigation against individual PRPs until all the PRPs have a chance to work out a cost allocation scheme among themselves. EPA does not start by suing one party at a complex site for all of the cleanup costs. Rather it encourages the PRPs to come up with their own allocation scheme and gives them time to work it out. This is where the litigation and other transaction costs have become so substantial. Without the government even present, the lawyers representing the private PRPs have imposed huge costs on their clients as they have struggled to find acceptable schemes to allocate costs at particular sites.

In some cases EPA has determined that the PRPs are unlikely to come up with an allocation scheme and has selected a subset of the largest PRPs and filed action for cost recovery against them. EPA generally takes the position that the proper allocation of shares will be determined by the court during the litigation and doesn't put forward an allocation of its own. In some of these cases the large PRPs have responded by filing contribution suits or threatening cities and small businesses with contribution suits where these other parties also used the same landfill sites to dispose of their wastes.

The purpose of these contribution suits is not so much to recover actual dollars (because in a multi-party suit the court will assign liability proportionately), but rather to make the litigation so cumbersome that the large PRPs will have further time to negotiate allocation schemes that are advantageous from their view. They may also hope that complaints from small towns and small businesses will bring pressure on EPA to settle because of the cost of litigation on the government side.

The outcry against these contribution suits has also undermined the whole Superfund program in the Congress. The costs now being incurred by local government and small business to defend against contribution suits has raised a second fairness issue. Should a small town or business be forced to spend amounts far exceeding any liability for actual cleanup costs to defend itself against the aggressive legal strategy being waged by the large polluters.

One Proposed Solution:

Proportional Liability

There is no doubt that Superfund has a problem. Huge amounts of money are being wasted on disputes between lawyers representing private parties about who is going to pay for Superfund cleanups. This problems must be solved, if public support for the Superfund program is to be maintained.

The more moderate leaders in the chemical and oil industries want to repeal joint and several liability and replace it with a scheme they call "proportional" liability. Under this scheme each party could only be held liable for the cost of cleaning up just that amount of waste that it has contributed to a site. It would be up to EPA to determine how much waste each party contributed and how much each party should pay.

A shift to proportional liability would cripple the Superfund program. It would mean that EPA would have to prove not only that a party contributed waste to a site but exactly the amount, including the volume and the toxicity, of the material contributed by each of the sometimes hundreds of parties who sent material to sites many decades ago.

Proportional liability would not reduce transaction costs at all, would merely shift them to the government side of the ledger. And since EPA could not deploy a legal corps anywhere approaching the numbers arrayed on the PRP side of any case, far fewer polluters would be made to pay for the damages they have caused. Only the clearest cases of contribution would be prosecuted. Unless the government were willing to finance much more of the cleanup burden, fewer sites would be cleaned up and to a lesser extent at each site.

Another Proposed Solution:

No Fault

Another group with a substantial stake in the Superfund liability scheme are the property and casualty insurance companies that issued policies for pollution damages in the years before the Superfund law was enacted. Some in the insurance industry want to repeal liability for actions carried out before 1980 altogether. One insurance company has proposed a scheme that would replace the "polluter pays" structure of Superfund with a no fault public works program. Under this proposal, a tax would be imposed on current and future property and casualty insurance premiums (a tax paid by the same businesses who previously paid premiums to insure themselves against these risks) and revenues from the tax would be used to cleanup sites. Costs would not be recovered from those responsible.

This proposal would reduce the costs of litigation now experienced in the private sector as PRPs and insurance companies sue each other. A recent study found that transaction costs were as much as 90 percent of total expenditures at Superfund sites where large insurance companies have interest. But it would greatly increase the costs of the program in the public sector. Today, about half the cleanup dollars being spent come from the public Superfund and half come from private PRPs. Total cleanup spending approaches $3 billion per year. The public sector program would need to at least double size to assure equal speed at achieving cleanup.

At a minimum, it would be wise to determine whether there is any enthusiasm for a new business tax to support a much larger no-fault, public works program, before declaring the end of joint and several liability regime. When Congress last reauthorized the Superfund program it expanded taxes supporting the program from $300 million to $1.5 billion per year, but only over significant opposition from the business community Whether another tax increase is possible is a proposition that remains to be tested.

Yet Another Proposed Solution:

De Minimis Settlements

The problem of large transaction costs was apparent when Congress reauthorized the Superfund statue in 1986. Congress added "de minimis" settlement authority to the law to address some portion of the problem. Under the de minimis authority, EPA can identify those parties who contributed only very small (de minimis) amounts to a site, it can make them a settlement offer that requires only minimal payments, and it can give them protection from contribution suits by other parties (the large PRPs) when the small parties sign the settlement.

If aggressively implemented, the de minimis policy would substantially answer the unfairness charge that has been levelled at the Superfund program by small towns and businesses. But EPA has used the authority only sparingly. The number of de minimis settlements since 1986 can be counted on one hand. Until recently their was no headquarters guidance encouraging use of this tool and there was no reward system in the Superfund program for the site managers who might use de minimis settlements to reduce political fallout at their sites.

Conclusion

The transaction cost problem is, under the current standard of joint and several liability, largely in the private sector. Huge transaction costs result from the aggressive legal strategies pursued by the lawyers of the PRPs. Transaction cost are disagreements between usually large business concerns, and sometimes their insurers, about which of them is going to pay the costs of cleaning up sites. Joint and several liability for a mammoth landfill is, no doubt, a terrifying prospect. So a company with potential responsibility hires the best law firm it can find to reduce its exposure to the greatest degree possible. And the lawyers, who are paid by how long they argue, argue interminably.

If the polluters took a different approach - like hiring an arbitrator - to come to a quick and fair apportionment of liability, transaction costs might be greatly reduced. And if industry can be convinced that Congress has no intention of repealing joint and several liability, maybe industry will look for a more satisfactory approach to resolving disputes between the large PRPs at Superfund sites.

Industry would like the public to believe that the problem lies in the structure of the law and that once again, government is somehow the problem. They have terrified small parties with contribution litigation both to give themselves more leverage with the government in individual cases and to generally undermine the Superfund liability regime in the court of public opinion. Unfortunately, their strategy to undermine Superfund with press accounts of huge transaction costs and suits against small towns and main street small business is tipping the balance against the program.

Aggressive use of de minimis settlements to protect small parties from unfair contribution suits and a determined defense of joint and several liability is the best medicine for the Superfund program right now. Surely the genius of the private sector can find a way to fairly allocate Superfund cleanup costs without resorting to the expensive legal strategies in play today.

But the polluters need to be convinced that it is their problem to solve. Let's get EPA to use its current authority to protect small parties, both governments and businesses, from unfair contribution suits. And let us make clear our resolve to keep the Superfund standard of strict, joint and several liability. It remains the best long-term public policy to assign the responsibility for cleanup to the polluters.
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Title Annotation:Special Report
Author:Durenberger, David
Publication:Nation's Cities Weekly
Date:Oct 5, 1992
Words:2299
Previous Article:Debate on Superfund reauthorization continues; don't overlook the progress under Superfund.
Next Article:Friend to cities, Sen. Jake Garn, sets sights beyond Congress.
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