235 F.3d 817 (3rd Cir.

2000)

UNITED STATES OF AMERICA; COMMONWEALTH OF

PENNSYLVANIA, DEPARTMENT OF ENVIRONMENTAL
RESOURCES
v.
SOUTHEASTERN PENNSYLVANIA TRANSPORTATION
AUTHORITY ("SEPTA"), NATIONAL RAILROAD
PASSENGER CORPORATION ("AMTRAK"), and
CONSOLIDATED RAIL CORPORATION ("CONRAIL")
v.
CITY OF PHILADELPHIA; PENN CENTRAL
CORPORATION, Third-Party Defendants
Penn Central Corporation, now known as American Premier
Underwriters, Inc., Appellant
No. 99-1479

UNITED STATES COURT OF APPEALS FOR THE THIRD

CIRCUIT
Argued April 10, 2000
Filed December 26, 2000

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR

THE EASTERN DISTRICT OF PENNSYLVANIA (D.C. Civil No. 86cv-01094) District Judge: Honorable Robert F. Kelly[Copyrighted
Material Omitted]
James J. Capra, Jr., Esq. (ARGUED) Orrick, Herrington & Sutcliffe 666
Fifth Avenue New York, New York 10103, Counsel for Appellant
Joel M. Gross, Esq. (ARGUED) U. S. Department of Justice P. O. Box
7611, Ben Franklin Station Washington, D.C. 20026; Paul M. Schmidt,
Esq. (ARGUED) Commonwealth of Pennsylvania Department of
Environmental Protection Suite 6015, Lee Park 555 North Lane
Conshohocken, PA 19428-2233; Bonnie A. Barnett, Esq. (ARGUED)
Drinker, Biddle & Reath 1100 PNB Building Broad & Chestnut Streets
Philadelphia, PA 19107, Counsel for Appellees

Before: NYGAARD, ALITO, and GIBSON, * Circuit Judges.

OPINION OF THE COURT
JOHN R. GIBSON, Circuit Judge:

American Premier Underwriters, Inc.1 appeals the entry of a consent decree that
resolves the liability of Consolidated Rail Corporation (Conrail), National
Railroad Passenger Corporation (Amtrak), and Southeastern Pennsylvania
Transportation Authority (SEPTA) for environmental contamination at the
Paoli Rail Yard Site2 in Paoli, Pennsylvania. American Premier, a non-settling
defendant, argues that the decree unfairly allocates responsibility for cleanup at
the Site and that the contribution protection it provides to the settling parties is
not permitted under the relevant statute. We affirm.

Operations that involved the service, repair , and storage of rail cars were
conducted at Paoli Rail Yard from 1915 until the beginning of 1995. In the
1950s, electric rail cars that used dielectric fluid to cool their transformers were
first stored and maintained at the yard. Dielectric fluid contains polychlorinated
biphenyls (PCBs). PCBs, which pose substantial risks to human health and the
environment, are released during the servicing of train transformers and
volatilize if overheated during train operation. Operations at the yard allegedly
caused PCB contamination throughout the rail yard property. The
contamination eventually spread to other nearby properties through erosion.

From 1915 until 1976, American Premier and its predecessors owned and
operated the rail yard. Pursuant to the Regional Rail Reorganization Act of
1973, American Premier conveyed the yard to Conrail on April 1, 1976. That
same day, Conrail conveyed the yard to Amtrak. Amtrak still owns the
property. Conrail operated the yard from April 1, 1976 until the end of 1982.
SEPTA then took over the yard's operation, using it to maintain commuter
trains from 1983 until January 1995, when it moved its maintenance operations
to a different location. SEPT A gradually phased out the use of dielectric fluid
that contained PCBs, ending its use in 1986.

In 1985, EPA representatives observed that access to the rail yard was
unrestricted and that people walked through and children played in areas at and
near the rail yard. They also saw signs of erosion indicating water runoff from
the yard into nearby residential areas. Sampling revealed PCB contamination in
the rail yard and residential soils and in the fish in nearby creeks.

The following year, the United States brought this action against SEPTA,
Conrail, and Amtrak (collectively, the rail companies) pursuant to, inter alia,
sections 104, 106(a), and 107 of the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA), 42 U.S.C. SS 9604, 9606(a), and
9607. The government sought injunctive relief and reimbursement of response
costs in connection with the release of PCBs at the Site. The Commonwealth of
Pennsylvania intervened as a plaintiff later that year. 3

In June 1986, the United States, Conrail, and SEPT A petitioned the district
court that had overseen American Premier's bankruptcy reorganization to
establish their right to proceed against American Premier . See In re Penn Cent.
Transp. Co., 944 F.2d 164, 166 (3d Cir. 1991). American Premier's argument
that the earlier reorganization discharged the CERCLA claims was ultimately
unsuccessful. See id. at 168. In 1992, the United States filed a separate action
against American Premier, and the rail companies brought American Premier
into this action as a third-party defendant. American Premier then sought a
declaratory judgment that the government's claims were barred by a 1980
settlement agreement that resolved claims between American Premier and the
United States arising from the valuation of American Premier's rail assets
conveyed pursuant to the Regional Rail Reorganization Act. See Penn Cent.
Corp. v. United States, 862 F . Supp. 437, 448-58 (Regional Rail Reorg. Ct.
1994). The court granted summary judgment to the government on this issue.
See id. at 458.

Since the government initiated this action, it has entered into five partial
preliminary consent decrees with the rail companies under which they agreed to
per form a variety of remedies at the Site. In 1986, SEPTA agreed to construct
a combination fence that restricted access to the rail yard and limited further
PCB migration into the area surrounding the yard. Later that year, all three rail
companies agreed to conduct an engineering study addressing erosion and PCB
migration from the rail yard and identifying possible remedies to limit the
spread of PCBs. A dispute arose between the United States and the rail
companies over the work necessary to implement the study, and EPA ended up
constructing sedimentation basins and erosion control systems and removing
and disposing of contaminated soil from several residential properties. Under
the third partial preliminary consent decree, the rail companies conducted a
remedial investigation to determine the extent of PCB contamination at the Site
and a feasibility study of various remedial alternatives. As part of this decree,
SEPTA entered into a stipulation that addressed worker protection at the rail
yard and decontamination of the car shop, a building in which rail cars had been
repaired since 1915. Under the fourth partial preliminary consent decree, the
rail companies agreed to conduct a soil sampling program to determine the

extent of PCB contamination in the residential areas and the surface water
channels north of the rail yard. Finally, under the last partial decree, the rail
companies excavated approximately 3500 cubic yards of contaminated soils
from the residential area north of the yard. All told, the rail companies spent
approximately $12 million on remedial action related to the Site before entering
into the consent decree that is the subject of this appeal.
8

EPA placed the Paoli Rail Yard Site on the National Priorities List in 1990. In
July 1992, EPA issued a Record of Decision that reviewed remedial
alternatives and their projected costs and selected remedies for the Site. As
modified, the Record of Decision requires: (1) excavation and on-site treatment
of contaminated rail yard soils (estimated cost: $19,507,375), (2) groundwater
treatment and fuel oil recovery (estimated cost: $1,131,120), (3)
decontamination and demolition of rail yard buildings and structures (estimated
cost: $1,471,905), (4) excavation of contaminated residential soils (estimated
cost: $1,196,000), and (5) excavation of contaminated stream sediments
(estimated cost: $5,701,720).

In 1995, EPA proposed a consent decree that would require all four defendants
to clean up the rail yard by carrying out the first three remedies from the
Record of Decision, while leaving American Premier responsible for cleaning
up the watershed by carrying out the last two remedies.

10

In February 1996, American Premier offered to pay 20% of past and future
remediation costs at the Site as part of a global settlement. American Premier
told the rail companies not to view the proposal as a typical "opening bid," thus
intimating that it would not be willing to increase its settlement offer. The rail
companies responded that they were disappointed with the offer and that they
believed that American Premier had "sorely misjudged" the probable outcome
if the parties were to litigate. The United States was similarly unsatisfied with
the offer.

11

On September 30, 1996, EPA issued a unilateral administrative order requiring

American Premier to implement the remedies from the Record of Decision
related to the watershed portion of the Site. Under this order, American Premier
is responsible for the excavation of residential soils and stream sediments.
Together, these remedies are estimated to cost $6,897,720.

12

On July 28, 1997, the United States filed a Praecipe to Lodge Consent Decree,
with the proposed decree resolving the rail companies' liability to the United
States and the Commonwealth for contamination at the Site. The consent

decree contends "that the degree of involvement by American Premier . . . in

the disposal of hazardous substances and the operation at the Site is at least
equal to or maybe greater than the degree of involvement by all the Settling
parties combined." It requires the rail companies to excavate and contain the
rail yard soils, per form the groundwater treatment and fuel oil recovery, and
decontaminate and demolish rail yard buildings and structures. Together, these
remedies are estimated to cost $22,110,400. The decree also requires several
payments by the rail companies: $500,000 to the EPA Hazardous Substance
Superfund to reimburse past response costs, $100,000 to the Commonwealth to
reimburse past response costs, and $850,000 for natural resource damages.
13

The decree gives contribution protection to the rail companies for the past,
interim, and future response costs of the United States and the Commonwealth
and for natural resource damages. It also gives them protection for all remedial
actions they have performed or will perform at the Site, as well as for the work
that American Premier is to perform under the administrative order.

14

American Premier objected to the proposed settlement by submitting comments

both to EPA and to the Commonwealth. On July 30, 1998, the United States
moved for entry of the consent decree. American Premier opposed the motion.
The district court granted the motion after finding the consent decree
procedurally and substantively fair, reasonable, and consistent with CERCLA's
goals. This appeal followed.

15

American Premier challenges the entry of the consent decree on two related
grounds. First, it argues that CERCLA does not authorize the contribution
protection provided to the rail companies by the decree. Second, it argues that
the district court erred by approving the consent decree because the decree is
substantively unfair.
I.

16

We review a district court's decision to grant a motion for entry of a consent

decree for abuse of discretion. See, e.g., United States v. Cannons Eng'g Corp.,
899 F .2d 79, 84 (1st Cir. 1990); United States v. Montrose Chem. Corp., 50
F.3d 741, 746 (9th Cir. 1995). "We approach our task mindful that, on appeal, a
district court's approval of a consent decree in CERCLA litigation is encased in
a double layer of swaddling." Cannons, 899 F.2d at 84. The first layer is the
deference the district court owes to EPA's expertise and to the law's policy of
encouraging settlement; the second layer is the deference we owe to the district
court's discretion. See id. Thus, American Premier is faced with a "heavy

burden" in its attempt to persuade us that the district court abused its discretion
by approving the consent decree. See id.
17

American Premier's argument that CERCLA does not authorize the type of
contribution protection granted by the consent decree raises an issue of law, and
we exercise plenary review of the district court's decision on this issue. See
New Castle County v. Halliburton NUS Corp., 111 F.3d 1116, 1120 (3d Cir.
1997).
II.

18

The district court held that the contribution protection provided by the consent
decree is permissible under CERCLA. Under 42 U.S.C. S 9613(f)(2), "[a]
person who has resolved its liability to the United States or a State in an
administrative or judicially approved settlement shall not be liable for claims
for contribution regarding matters addressed in the settlement."

19

Here, the consent decree defines "matters addressed" as

20

all claims asserted by the United States and the Commonwealth in their
respective complaints and all claims of the United States and the
Commonwealth against the Settling Defendants for recovery of "Past Response
Costs", "Interim Response Costs", "Future Response Costs," and "Natural
Resource Damages" as those terms are defined in this Consent Decree, and all
claims of the United States and the Commonwealth for all the costs of all past
response actions per formed by the Settling Defendants, the costs of, or
performance of, the "Work" as that term is defined in this Consent Decree, and
the cost or performance of all Work to implement that portion of the ROD
[Record of Decision] which Settling Defendants are not being required to
implement under this Consent Decree excluding those items covered under the
reservation of rights and reopener provisions of Section XXII.

21

American Premier claims that CERCLA does not authorize the contribution
protection provided by the decree. The problem, according to American
Premier, is that the decree gives the rail companies contribution protection for
the remedies that they will perform under the decree (which are matters
addressed in the settlement) and for the remedies that American Premier will
perform under the administrative order (which are not matters addressed in the
settlement). In its view, this is a partial settlement, and the rail companies are
only entitled to contribution protection for the remedies they are undertaking
under the consent decree.

22

We reject American Premier's view. While legislative history indicates that

"Congress contemplated that there would be partial settlements which would
leave settling parties liable for matters not addressed in the agreement," United
States v. Charter Int'l Oil Co., 83 F .3d 510, 515 (1st Cir. 1996), this is not a
partial settlement. The Paoli Site does contain two distinct areas: the rail yard
and the watershed. Under the settlement, the rail companies are responsible for
cleaning up the rail yard. CERCLA does not require, however, that the matters
addressed in the decree be limited to the rail yard.

23

The decree states that the United States and the rail companies "wish to finally
conclude . . . all claims and causes of action set forth" in this litigation. This
litigation relates to contamination of the entire Paoli Site. The rail companies
agreed to take on the remedies necessary to clean up the rail yard in order to
resolve their liability for contamination throughout the Site. Reading this
settlement as a whole, it would be reasonable to conclude that the matters it
addresses are matters r elated to the entire Site, even without an explicit
definition of matters addressed. See John M. Hyson, CERCLA Settlements,
Contribution Protection and Fairness to Non-Settling Responsible Parties, 10
Vill. Envtl. L.J. 277, 320 (1999) ("[I]n light of Congress's intent to induce
settlements, all settlement[s] should be presumed to afford to the settlors
protection against claims for contribution regarding an entire site, unless there
is an explicit provision to the contrary."); see also Akzo Coatings, Inc. v.
Aigner Corp., 30 F.3d 761, 771-74 (7th Cir. 1994) (Easterbrook, J., dissenting).

24

Furthermore, including a definition of matters addressed in the decree will

foreclose future arguments over the scope of the contribution protection.4 See
Charter Int'l, 83 F.3d at 517 n.9; Akzo Coatings, 30 F.3d at 768 & n.14. The
definition of matters addressed in this decree clarifies the extent of the
contribution protection that the rail companies are receiving in exchange for
their agreement to clean up the rail yard property, reimburse the United States
and the Commonwealth for part of their response costs, and pay for a portion of
natural resource damages. The district court did not err by holding the
contribution protection provided by the decree permissible under CERCLA.
III.

25

American Premier's second argument is that the district court should not have
granted the motion to enter the consent decree because the decree is
substantively unfair. A court should approve a proposed consent decree if it is
fair, reasonable, and consistent with CERCLA's goals. See United States v.
Cannons Eng'g Corp., 899 F .2d 79, 85 (1st Cir. 1990). The terms of a decree
are substantively fair if they are based on comparative fault and if liability is

apportioned according to rational estimates of the harm each party has caused.
See id. at 87.
26

According to American Premier, the court erred in three different ways: (1) by
adopting a method of allocating responsibility based on years of ownership and
operation, (2) by approving a decree that sets a minimum amount of liability for
American Premier while setting a maximum amount of liability for the rail
companies, prior to an allocation proceeding, and (3) by approving a decree that
immunizes the rail companies from sharing liability for uncertain future costs.
A.

27

As long as the measure of comparative fault on which the settlement terms are
based is not "arbitrary, capricious, and devoid of a rational basis," the district
court should uphold it. Cannons, 899 F.2d at 87. According to the decree,
American Premier's responsibility for contamination at the Site is at least equal
to and possibly greater than the responsibility of the rail companies combined.
The district court accepted as fair the decree's apportionment of liability based
on years of ownership of the Paoli Rail Yard and the likelihood of
contamination during those years.

28

PCBs were used at the rail yard for at least twenty-five years while American
Premier owned and operated the yard. Amtrak owned the yard for ten years
while PCBs were used. During that ten-year period, first Conrail and then
SEPTA operated the yard. Therefore, American Premier owned and operated
the rail yard more than 70% of the time while PCBs were used.

29

American Premier argues that the district court "wholly disregarded" its
settlement proposal, which was based on factors other than years of ownership,
to assume 20% of the past and future costs of remediation at the Site. But the
district court was not required to accept American Premier's methodology for
apportioning liability. Once it found that the decree was based on a rational
determination of comparative fault, its task was complete, whether or not it
would have employed the same method of apportionment. See id. at 88. The
district court did not abuse its discretion by accepting years of ownership and
operation as a plausible method on which to judge the fairness of the consent
decree.
B.

30

American Premier contends that the decree is unfair because it sets a minimum

level of responsibility for American Premier by foreclosing it from receiving

contribution from the rail companies for its costs, while setting a maximum
level of responsibility for the rail companies by leaving them free to bring a
contribution action against American Premier. This disparity does not establish
that the decree is substantively unfair or that the district court abused its
discretion by entering it.
31

Taking into account American Premier's share of Site remediation and

assuming that it will have to reimburse the United States and the
Commonwealth for the remainder of their past response costs and pay natural
resource damages, American Premier will be responsible for costs that exceed
$17 million. Eventually, the total amount expended on Site remediation and
damages, including the $12 million already spent by the rail companies, will
likely exceed $53 million. Because of the contribution protection provided to
the rail companies, American Premier's minimum share of these costs is 33%.
Its share may increase if the rail companies bring a successful contribution
action against it.

32

American Premier's offer to assume responsibility for 20% of the costs was
unacceptable to EPA and the rail companies, so they chose to settle without
American Premier. The settlement reduces the rail companies' maximum share
of liability from 100% to 67% in exchange for their agreement to clean up the
rail yard and pay part of past response costs and natural resource damages:

33

In most instances, settlement requires compromise. Thus, it makes sense for the
government, when negotiating, to give a PRP [potentially responsible party] a
discount on its maximum potential liability as an incentive to settle. Indeed, the
statutory scheme contemplates that those who are slow to settle ought to bear
the risk of paying more . . . .United States v. DiBiase, 45 F.3d 541, 546 (1st
Cir. 1995). The rail companies' share of liability may decrease if they bring a
successful contribution action against American Premier.

34

We recently pointed out that the "intended effect" of protecting settling parties
from contribution claims "is that `non-settling defendants may bear
disproportionate liability for their acts.' " United States v. Occidental Chem.
Corp., 200 F.3d 143, 150 n.8 (3d Cir. 1999) (quoting B. F. Goodrich v.
Betkoski, 99 F.3d 505, 527 (2d Cir . 1996)). In Occidental Chemical, EPA had
already settled with one potentially responsible party when it issued an
administrative order to Occidental, requiring it to participate in the cleanup. See
id. at 145. Occidental pointed out that, because the other party obtained
contribution protection for matters addressed in the settlement, Occidental
could end up paying more than its fair share. See id. at 150 n.8. We responded,

"While this is true, it is the result of a deliberate policy choice made by

Congress in order to encourage settlements." Id.
35

It is highly unlikely that this consent decree will result in a final allocation of
responsibility for contamination at the Paoli Site. The rail companies will be
able to bring a contribution action against American Premier and will be able to
offer more specific evidence regarding the relative fault of the parties. The
district court will then be able to determine whether American Premier is liable
for a portion of the rail companies' costs. If the court chooses to do so, it will be
able to take into account the costs incurred by American Premier which are not
recoverable through contribution. See 42 U.S.C. S 9613(f)(1) (in a contribution
action, "the court may allocate response costs among liable parties using such
equitable factors as the court determines are appropriate").

36

This consent decree does set a floor for American Premier's liability while
setting a ceiling for the rail companies' liability. That is part of the scheme
enacted by Congress, and the district court did not abuse its discretion by
rejecting the argument that this result made the decree unfair.
C.

37

Finally, American Premier argues that the consent decree is unfair because it
alone will be responsible for "highly speculative" future costs: those related to
its share of Site remediation, natural resource damages, and future response
costs of the United States and the Commonwealth. This, too, is an argument
based on the contribution protection provided to the rail companies.

38

In every case where remedial measures have yet to be performed, the future
costs are uncertain. But that uncertainty should not be used to hinder settlement.
EPA used standard methodologies to estimate the costs of cleaning up the Site,
and neither we nor the district court are in a position to second-guess these
estimates. See Cannons, 899 F.2d at 90 ("If the figures relied upon derive in a
sensible way from a plausible interpretation of the record, the court should
normally defer to the agency's expertise."). The natural resource damages
estimate was based on detailed assessments, and if these damages turn out to be
"significantly greater" than the $5.3 million estimate, the consent decree does
not pr event EPA from pursuing the rail companies for the excess. Finally, we
doubt that the United States and the Commonwealth will incur much in the way
of future response costs since the consent decree, along with the administrative
order, will result in a complete remedy at the Paoli Rail Yard Site.

39

Whenever a non-settling party is barred from bringing a contribution action and

work remains to be done, its future liability may exceed present estimates. The
district court determined that this possibility did not render the consent decree
unfair, and we see no abuse of discretion in that determination.

40

***

41

We affirm the entry of the consent decree.

Notes:
*

The Honorable John R. Gibson, United States Court of Appeals for the Eighth
Circuit, sitting by designation.

American Premier Underwriters, Inc. was previously called The Penn Central
Corporation. The Penn Central Corporation arose out of the reorganization of
Penn Central Transportation Company. For convenience, we will refer to all
three entities as American Premier.

The Site includes the 28-acre rail yard property and the surrounding 400-acre
watershed.

In 1979, Pennsylvania's Department of Environmental Resources determined

that portions of the Site were contaminated. The Commonwealth issued an
administrative order to the rail companies, requiring them to implement
immediate stop-gap measures, assess the contamination, and begin cleanup.
The rail companies appealed this order to the Pennsylvania Environmental
Hearing Board. The appeal was stayed and eventually transferred to the district
court (via a 1990 stipulation) as part of this litigation.

While it is possible that the breadth of a matters addressed provision could

render a consent decree unfair, that is not this case. See infra, Section III.