July 08, 2009

Tenth Circuit Holds Collateral Source Rule Inapplicable to CERCLA 113 Actions

Posted on July 8, 2009 by Delmar Ehrich

Friedland v. Indus. Co, No. 08-1042, 2009 U.S. App. LEXIS 11660 (10th Cir. May 29, 2009). 

The United States Court of Appeals for the Tenth Circuit has held that the collateral source rule is inapplicable in CERCLA actions, affirming the district court’s grant of summary judgment to defendants on the ground that Mr. Friedland already recouped all of his recoverable costs from other persons and therefore had no damages to recover. 

The plaintiff, Mr. Friedland, is the former director and president of the Summitville Consolidated Mining Company, Inc. (“SCMCI”). SCMCI operated a gold mine from 1984 to 1992. Defendants-appellees helped construct the mine and provided quality assurance regarding the heap leaching system – where cyanide solution was sprayed on gold-bearing ore to remove the gold. 

SCMCI declared bankruptcy and abandoned the mine in 1992. EPA thereafter undertook actions to address acid mine drainage and other conditions at the facility. In 1996, the United States and the State of Colorado sued Mr. Friedland under CERCLA § 107 to recover the costs of these measures. Mr. Friedland settled the governments’ claims against him for approximately $20 million, after incurring legal fees in excess of $28 million. 

Mr. Friedland brought several actions against contractors that had built the mining facility. He entered into a series of settlement agreements with these parties or their insurance companies pursuant to which he recovered in excess of the $20 million he agreed to pay to settle the cost-recovery claims by the State of Colorado and the United States. In the latest action, Friedland sued The Industrial Company and another defendant. The defendants moved for summary judgment on the ground that Mr. Friedland had no damages or right to contribution under CERCLA § 113(f) because he had recovered in an amount exceeding the payment made to the United States and State of Colorado. The district court granted summary judgment and Mr. Friedland appealed, arguing that: (1) the collateral source rule prohibits crediting the defendants in the amount of the settlement money he received from the insurance companies; and (2) the settlement money should be credited toward the $28 million in legal fees as opposed to the $20 million settlement amount. 

The Tenth Circuit upheld the district court’s ruling, holding that the collateral source rule does not apply to CERCLA contribution actions. The Tenth Circuit differentiated CERCLA contribution action which involves “two or more culpable tortfeasors” from personal injury actions where innocent plaintiffs seek to be made whole. The Tenth Circuit held that allowing a CERCLA contribution plaintiff to recover more than the response costs he paid out of pocket “flies in the face of CERCLA’s mandate to apportion those costs equitably among the parties” and would create a windfall for those responsible for the pollution. CERCLA § 9613(f)(1).

The Tenth Circuit also held that under Hess Oil Virgin Islands Corp. v. UOP, Inc., 861 F.2d 1197 (10th Cir. 1988) and Burlington Northern Railroad, 200 F.3d 679 (10th Cir. 1999), the defendant-appellees were entitled to a full credit in the amount of the settlements Mr. Friedland received if the damages he alleged against defendant-appellees were the same as those addressed the settlements. The settlements did not expressly allocate the settlement money between settling the underlying litigation or to legal defense. The Tenth Circuit held that Mr. Friedland’s failure to allocate the settlement monies between legal fees and response costs was fatal to his contention that the defendants-appellees were not entitled to a credit in the settlement amount. Therefore, the Tenth Circuit upheld the district court’s finding that there was no basis to allocate the settlement money between the clean-up costs and legal fees, and defendants-appellees were entitled to a full credit in the amount of the settlements.

Tags: Hazardous Materials

Hazardous Materials

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