Case 3:14-cv-08165-DGC Document 187 Filed 03/07/19 Page 1 ... · El Paso Natural Gas Company, LLC...

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El Paso Natural Gas Company’s Memorandum of Law Addressing CERCLA Liability, CERCLA Section 107(n), and CERCLA Allocation

El Paso Natural Gas Company, LLC v. United States, No. 3:14-cv-08165-DGC

GREENBERG TRAURIG, LLP ATTORNEYS AT LAW

SUITE 700

2375 EAST CAMELBACK ROAD

PHOENIX, ARIZONA 85016

(602) 445-8000

Pamela M. Overton, SBN 009062 ([email protected]) Daniel J. Schnee [email protected] Colorado Bar No. 38446, (admitted pro hac vice) EL PASO NATURAL GAS COMPANY, L.L.C. Two North Nevada Colorado Springs, CO 80903 719.520.4337 (Telephone) 303.984.3307 (Facsimile) John Voorhees, [email protected] Colorado Bar No. 21730, (admitted pro hac vice) Christopher J. Neumann, [email protected] Colorado Bar No. 29831, (admitted pro hac vice) Gregory R. Tan, [email protected] Colorado Bar No. 38770, (admitted pro hac vice) GREENBERG TRAURIG, LLP The Tabor Center 1200 Seventeenth Street Twenty-Fourth Floor Denver, CO 80202 303.572.6500 (Telephone) 303.572.6540 (Facsimile) Attorneys for El Paso Natural Gas Company, L.L.C.

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

El Paso Natural Gas Company, L.L.C.,

Plaintiff and Counterclaim-Defendant,

v. United States of America; et al.

Defendants and Counter-Claimants.

NO. 3:14-cv-08165-DGC EL PASO NATURAL GAS COMPANY’S MEMORANDUM OF LAW ADDRESSING CERCLA LIABILITY, CERCLA SECTION 107(n), AND CERCLA ALLOCATION

Case 3:14-cv-08165-DGC Document 187 Filed 03/07/19 of 23

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El Paso submits this Memorandum of Law addressing the court’s request for

briefing on the United States’ operator and arranger liability, CERCLA § 107(n), and

liability allocation. El Paso also addresses certain questions raised at the close of trial;

specifically, ownership of mining waste and protore piles and the effect on government

liability; the manner of accounting for excavations made during mining outside mine pits;

how to appropriately consider potential benefits of reclamation from pushing waste piles

into mine pits; and how to appropriately consider Cold War benefits to the United States.

I. Ninth Circuit Standards for CERCLA Operator and Arranger Liability

A. Operator Liability

El Paso has conceded its operator liability, and the government’s operator liability

must therefore be determined. The Ninth Circuit applies the “authority to control”

standard to determine CERCLA “operator” liability. The leading case is Kaiser

Aluminum & Chem. Co. v. Catellus Dev. Corp., 976 F.2d 1338 (9th Cir. 1992), in which

the court reiterated the “well settled rule that operator liability under [CERCLA] section

9607(a)(2) only attaches if the defendant had authority to control the cause of the

contamination at the time the hazardous substances were released into the environment.”

The Ninth Circuit’s “authority to control” standard is in harmony with the Supreme

Court’s decision in U.S. v. Bestfoods, 524 U.S. 51, 67 (1998), where the Court declared

CERCLA operator liability applies to a party who “manages, directs, or conducts

operations having to do with leakage or disposal of hazardous waste.” See City of Los

Angeles v. San Pedro Boat Works. 635 F.3d 440, 451 (9th Cir. 2011) (acknowledging,

post-Bestfoods, the “permissive ‘authority to control’ standard for operator liability

adopted” in Kaiser Aluminum remains the law of the Circuit); Cf. BGN Fremont Square

Ltd. v. Chung, CV 10-09749, 2013 WL 12128797, at *9 (C.D. Cal. Sept. 4, 2013) (“Some

Ninth Circuit authority has been erroneously perceived as in tension with Kaiser. In Long

Beach Unified School District v. Dorothy B. Godwin Trust, 32 F.3d 1364 (9th Cir. 1994),


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the Ninth Circuit stated that an operator ‘must play an active role in running the facility,

typically involving hands-on, day-to-day participation in the facility’s management.’ But

the facts demonstrate that no new rule was articulated or contemplated.”).

The Bestfoods standard employs broad language that does not require a party to

exercise specific, intentional control over the time, manner, and method of waste disposal

to be found a CERCLA operator. See MRP Props., LLC v. U.S., 308 F. Supp. 3d 916, 933

(E.D. Mich. 2018) (citing Litgo New Jersey Inc. v. Comm’r New Jersey Dep’t of Envtl.

Prot., 725 F.3d 369, 382 (3d Cir. 2013)). The Supreme Court explained that CERCLA

does not require the “mechanical activation of pumps and valves and must be read to

contemplate ‘operation’ as including the exercise of direction over the facility’s

activities.” Bestfoods, 524 U.S. at 71. This is consistent with the “authority to control”

standard which eschews any requirement of direct, physical action and, instead, focuses

on a party’s authority to control the cause of contamination and the exercise of that

authority. See Nu-West Min. Inc. v. U.S., 768 F. Supp. 2d 1082, 1089 (D. Idaho 2011).

B. Arranger Liability

CERCLA declares liable “any person who by contract, agreement, or otherwise

arranged for disposal or treatment … of hazardous substances owned or possessed by

such person, by any other party or entity, at any facility … owned or operated by another

party or entity and containing such hazardous substances.” 42 U.S.C. § 9607(a)(3).

The Ninth Circuit recognizes two theories of arranger liability. First, “traditional”

or “direct arranger” liability applies to persons who arrange transactions in which the

central purpose is disposal of hazardous substances. See U.S. v. Shell Oil Co., 294 F.3d

1045, 1054-55 (9th Cir. 2002). Second, “broader” arranger liability applies to transactions

that contemplate disposal as part of, but not the focus of, the transaction. See California

Dep’t of Toxic Substances Control v. Alco Pacific, Inc., 508 F.3d 930, 934 (9th Cir. 2007).

The Ninth Circuit’s “broader” arranger standard aligns with the Supreme Court’s


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teachings on arranger liability. See Burlington N. & Santa Fe Ry. v. U.S., 556 U.S. 599,

602 (2009) (“BNSF”). In BNSF, the Court’s discussion of “less clear” arrangements

paralleled the concept of “broader” arranger liability. Id. at 612. (“Less clear is the

liability attaching to the many permutations of ‘arrangements’ that fall between these two

extremes—cases in which the seller has some knowledge of the buyers’ planned disposal

or whose motives for ‘sale’ of a hazardous substance are less clear.”).

As to the determination of whether a party is liable under the “broader” arranger

standard, there is no bright-line test, either in the statute or in the case law, for a broad

theory of arranger liability, Shell Oil, 294 F.3d at 1055, and the determination of arranger

liability in such situations “requires a fact-intensive inquiry,” BNSF, 556 U.S. at 609-10.

II. The United States’ Operator and Arranger Liability

A. The United States’ Liability During Exploration

During the exploration phase, the evidence at trial established that the AEC

planned and performed bulldozer rim stripping at a number of Mine Sites itself or through

its primary contractor, Walker-Lybarger, which resulted in the disposal of hazardous

substances.1 Tr. 349:9-359:7, 362:3-363:7, 366:21-368:19 (rim stripping), 772:17-20

(disposal); Exs. 87, 91, 119, 129. See Ticor Title Ins. v. Florida, 937 F.2d 447, 450 (9th

Cir. 1991) (“[C]ircumstantial evidence can stand alone in proof of any fact”).

1. U.S. Operator Liability During Exploration

The government had authority and was in control of rim stripping at the Mine Sites

because it was the owner of the land and directed, managed, or conducted the work. Upon

these facts, the United States is liable as a CERCLA operator. See Kaiser Aluminum, 976

F.2d at 1341-42 (finding operator liability based on excavation of contaminated soil where

contractor had no knowledge of the contamination).

1 If the court finds El Paso liable as an owner of equipment, the United States is also liable under the same theory as owner of equipment used to perform rim stripping.


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2. U.S. Arranger Liability During Exploration

The AEC’s rim stripping at the Mine Sites also gives rise to arranger liability

inasmuch as the AEC arranged for its primary contractor to perform the work. See Coeur

D’Alene, 280 F.Supp.2d 1094, 1133 (D. Idaho 2003) (finding United States liable as

arranger where it paid 92% of construction road costs resulting in contamination,

exercised ultimate approval authority over construction work, and conducted audits, but

State of Idaho had day-to-day supervision of the construction).

B. United States’ Liability During Exploitation

1. U.S. Operator Liability During Exploitation

During mine exploitation, the United States was a CERCLA operator based on its

control over mining operations through administration of El Paso’s mining leases. The

United States authored and specified the terms of the permits and leases, and it possessed

authority over the Mine Sites through the permits, leases, and regulations to prevent the

contamination that occurred during mining operations. Tr. 115:23-117:14, 120, 154:7-

155:15, 157:5-17, 159:6-166:7; 211:5-16; Exs. 12.0002, 75, 136, 294A, 294B.

Mr. Dempsey will elaborate on El Paso’s mining permits and leases reserving authority to

the Secretary of the Interior when he testifies on March 15, 2019.

The Newmont decision is particularly relevant here because it involved many

parallel facts. The United States administered the same BIA mining leases, and the mine

also operated under the AEC’s Domestic Uranium Procurement Program (“DUPP”) on

Tribal land. The Newmont court found that the United States “authored and specified

terms of the leases and its authority over these lands allowed it to prevent the very

contamination that underlies the claims in this case.” Newmont, 2008 WL 4621566 at

*44. Also, throughout the terms of the leases, the United States “exercised authority over

operations at the Mine granted by the lease, and by statute and regulation.” Id.

At the end of trial, one of the court’s questions suggested that BIA’s role was


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limited to approving leases and permits “like the BIA does otherwise” in other contexts.

Tr. 1511:21-25. However, the evidence demonstrates that the roles of BIA and DOI went

beyond approving permits and leases. BIA and USGS took an active role in assisting

AEC to access uranium resources on the Navajo Reservation. These agencies worked to

influence Navajo mining regulations in favor of allowing greater access to non-Navajos,

administered mining leases, and ensured that leases and mining regulations were followed

at the time of lease termination. Tr. 149:6-16, 120:4-23, 154:7-19; Exs. 55, 56.003-004,

31.0009. With regard to USGS, it actively assisted the AEC’s exploration activities

throughout the Colorado Plateau and the Cameron area. Exs. 32.0009, 44.0016, 56.0003-

0004, 62.0001-0003. Mr. Dempsey will provide further detail on the involvement of

USGS during his testimony on March 15, 2019. See Tr. 217:22-218:2, 220:3-9, 222:1-5.

The Newmont court’s findings with respect to the United States’ authority and

control over mining operations and the resulting contamination, under facts that closely

parallel this case, support a finding by this court that the United States is liable as a

CERCLA “operator” under the Ninth Circuit’s “authority to control” liability standard.2

The AEC’s DUPP provides further basis for the government’s operator liability

during mine exploitation. The evidence at trial established that the AEC created the

domestic market for uranium ore, exercised authority over the possession, transport, and

delivery of source material, was the sole purchaser of uranium ore, controlled profitability

of ore by controlling price, bonuses, and allowances, and set the minimum grade eligible

to receive payment, i.e., the “ore cut-off grade.” Tr. 91, 100:4-101:8, 109:15-19, 176:22-

177:3, 190:20-23, 211:2-4, 889:15-16, 906:9-907:3, 960:2-961:7, 965:15-966:6; Ex.

2 That the Newmont court did not explicitly make an “operator” liability finding does not lessen its value here. Given the Newmont court’s prior holding that the United States was liable as a CERCLA “owner,” the issue of the United States’ “operator” liability was not before the court. Nonetheless, its findings regarding the government’s control via lease administration are equally relevant here.


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74.0015 [AEA § 5(b)]; Chenoweth Dep. 175:18-177:11, Apr. 24, 2014.

Mr. Dempsey will provide detailed testimony on these issues, as described in the

proffer of his testimony. Tr. 282-289. For example, he will testify to his experience with

the DUPP when he attempted to blend uranium-bearing material up to AEC’s ore grade

cut-off but was turned away at the ore buying station because the ore fell just below.

These factors inevitably controlled and dictated mine operators’ decisions having

to do with waste disposal, i.e., sorting ore, protore, and waste to determine what could be

delivered to AEC for payment, and amounted to AEC’s management and direction of

practices and decisions affecting waste disposal at the Mine Sites.

Even if the AEC’s control over waste disposal decisions at the Mine Sites is

considered passive or unintentional, a recent district court decision clarified that such

control falls within the scope of operator liability. See MRP Props., 308 F. Supp. 3d at

916. The MRP court found that liability as an “operator” of a facility where there is a

“disposal” of hazardous substances does not require intentional control over decisions

concerning waste disposal, because this would “reward the Government for deliberate

indifference or ambivalence to waste remediation matters.” Id. at 933. Observing that the

statutory definition of “disposal” contains active and passive elements, and the Supreme

Court in Bestfoods referred to “leakage” (passive) and “disposal” (active) in connection

with operator liability, the MRP court found “operator” liability does not require intent

and that it may be found where the government exercises unintentional or passive control

over operations having to do with waste generation, leakage, and disposal. Id. at 932-34.

2. U.S. Arranger Liability During Exploitation

The AEC’s DUPP also gives rise to the government’s arranger liability. Under the

AEC’s program, miners extracted uranium-bearing material but had to sort it and deliver

only ore that was economic based on prices set by AEC and which met AEC’s ore grade

cut-off. The evidence demonstrates that AEC’s ore pricing decisions and ore cut-off


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grade were deliberate, were based on the AEC’s own experience operating uranium mines

in Slick Rock, Colorado, and that AEC intended that mine operators, including El Paso,

would separate and leave behind low-grade uranium-bearing materials, protore, source

material, and waste that could not profitably be delivered to the AEC. Tr. 486:1-7,

1467:17-19; Exs. 83.0002, 1062, 1063, 50.0004, 78, 113, 107, 115, 125, 131, 54, 43, 98,

79, 31.0007, 69.0009; Chenoweth Dep. 175:2-17, Apr. 24, 2014.

Mr. Dempsey’s testimony will buttress these facts, as he will testify to the

following: (1) The United States was not a typical mineral buyer; (2) AEC operated a

uranium mine in Slick Rock, Colorado to determine the cost of mining, and it used this

information to set uranium ore prices; (3) Factors established by the United States

determined the ability of companies to profit and determined the quantities and disposition

of waste material at the mine sites; (4) Low-grade uranium ore could have been processed

into yellowcake; and (5) The United States was aware that low-grade uranium was left at

mines sites and perceived this material as having potential future value. Tr. 282-289.

AEC’s Circulars contained a liquidated damages provision to discourage miners

from delivering material below the ore grade cut-off, further indicating that disposal of

uranium-bearing materials was a known and intended consequence of AEC’s program and

the United States’ arrangement for disposal of hazardous substances. Ex. 1062.

There is precedent for finding arranger liability under analogous facts. For

example, in Jones-Hamilton Co., v. Beazer Materials & Serv., 973 F.2d 688, 695 (9th Cir.

1992), the Ninth Circuit found that a company arranged for disposal where it anticipated

disposal as part of the transaction and reflected it in a contract that contemplated 2%

disposal of material; see also FMC Corp. v. U.S. Dep’t of Commerce, 29 F.3d 833, 837-38

(3d Cir. 1994) (affirming finding of arranger liability based, in part, on the government’s

rejection of material not adhering strictly to production specifications, resulting in an

increase in the amount of waste disposed); U.S. v. Shell Oil Co., 13 F. Supp. 2d 1018,


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1027-28 (C.D. Cal. 1998) (finding an arrangement for disposal where the United States

would not allow its aviation gas producers to use railroad tank cars to transport waste

material for proper disposal, leaving them no choice but to dispose of it on the ground);

Sea Lion, Inc. v. Wall Chemical Corp., 974 F. Supp. 589, 595 (S.D. Tex. 1996) (finding

arranger liability where party refused to take delivery of chemical mixture, leaving

plaintiff with “no choice but to dispose” the material) (“FCC as a matter of law intended

to arrange for disposal when it refused to take delivery of the off-spec material.”); Cf. U.S.

v. TIC Investment Corp., 68 F.3d 1082, 1090 (8th Cir. 1996) (finding arranger liability

where corporate executive so tightly controlled budget “that he left employees no other

choice but to continue” improper disposal of hazardous waste).

Importantly, while some courts consider the ownership of the disposed hazardous

substances when evaluating arranger liability, the Ninth Circuit does not require

ownership of the waste to find arranger liability: “liability is not limited to those who own

the hazardous substances, who actually dispose of or treat such substances, or who control

the disposal or treatment process” because the statutory language explicitly extends

liability to persons “otherwise arranging” for disposal of hazardous substances “whether

owned by the arranger or ‘by any other party or entity.’” Cadillac Fairview/California,

Inc. v. U.S., 41 F.3d 562, 566 (9th Cir. 1994).

During the last day of trial, the court inquired as to the ownership of waste, protore,

and ore at the time of disposal. Tr. 1485-89. The Ninth Circuit’s position on ownership

of waste material eliminates the need for this determination to find the government liable

as an arranger. Nonetheless, El Paso addresses the court’s question here.

As the court pointed out, the materials at issue are overburden (waste), protore, and

ore. It is important to recognize two classes of protore encountered during mine

exploitation: that which had the potential to be blended with higher-grade ore to be

profitable, and that which was too low in grade for blending and was therefore disposed.


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Miners continuously estimated the uranium content of the material being extracted from

the ore body to determine if it could be profitable and segregated it accordingly.3 The

controlling law determines the ownership of excavated material based on the miner’s

intent. Disposed overburden and protore too low in grade for blending was not considered

potentially economic and therefore remained the real property of the United States.

Moving overburden or low-grade ore out of the way to access a valuable deposit

does not transform these non-economic materials into personal property. When “the

owner’s purpose and intention in extracting [low-grade ore or protore] from the ground

and placing it on the dump was not to sever the ore from the realty, but to remove a part of

the realty from the workings underground to the surface, then such removal had no effect

to change the character of the ore removed. It remains realty.” Steinfeld v. Omega

Copper Co., 141 P. 847, 848 (Ariz. 1914); see also Waskey v. McNaught, 163 F. 929, 936-

37 (9th Cir. 1908) (“we are of the opinion that the removal of this sand and gravel from

one part of the mine to another is not such a severance from the realty as to make it

personalty. The gold contained in the sand and gravel is still to be separated therefrom by

rocking and sluicing.”).

Under the applicable law, the United States as landowner retained ownership of

overburden and protore that was too low grade to be considered for blending and was

therefore disposed at the Mine Sites. El Paso acquired ownership of protore segregated

for potential blending and the uranium ore that was delivered to buying stations. Protore

that was blended with higher grade material would have been removed from the sites and

delivered for payment. Protore that remained on site would have reverted to the real

property of the United States upon ultimate abandonment of the mines. Hayes v. Alaska

Juneau Forest Indus., Inc., 748 P.2d 332, 335-36 (Alaska 1988) (Material stockpiled with

3 Mr. Dempsey will provide testimony on this topic on March 15, 2019. See Tr. 287:5-23.


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intention of being personal property reverts to real property upon abandonment).

Some courts have also considered whether constructive ownership or possession of

the hazardous substance suffices for the purpose of arranger liability. See, e.g., Chevron

Mining, Inc. v. U.S., 863 F.3d 1261 (10th Cir. 2018) (observing Chevron alleged the U.S.

constructively owned or possessed the waste but presented no evidence on the matter);

GenCorp, Inc. v. Olin Corp., 390 F.3d 433 (6th Cir. 2004) (holding that control over

hazardous waste suffices as constructive ownership or possession for arranger liability).

Here, in addition to owning uranium-bearing waste materials and protore under

Steinfeld, the United States also held constructive ownership over protore and other

“source materials,” as AEC regulations required a license to possess or transport source

material, restricted the manner in which it could be disposed, and prohibited its sale to

anyone but the AEC or its agents. Thus, even if the court considers ownership of waste in

determining the United States’ arranger liability, it should find that the United States

arranged for the disposal of waste materials that it owned and constructively owned.

C. United States’ Liability During Reclamation

The evidence at trial established that federal agencies led by USEPA and including

DOI coordinated with Navajo agencies to plan and determine the joint strategy for

addressing abandoned Navajo uranium mine sites, including the Mine Sites. The federal

and Navajo agencies held regular meetings on this subject, considered approaches,

including under CERCLA, and developed the ultimate strategy of proceeding with

reclamations through SMCRA grants. Tr. 463:9-466:23; Exs. 195, 220; Martinez Dep.

52:20-53:1. Once this strategy was in place, OSM reviewed and approved SMCRA grant

applications; reviewed and approved reclamation plans; oversaw reclamation work to

ensure compliance with reclamation plans and SMCRA requirements; and approved the

commingling of wastes from different third party mines and the importation of off-site

uranium-bearing material as cover. Tr. 473:5-475:21; 482:2-24; 516:23-517:12; Exs. 207,


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213, 224; Martinez Dep. 24:1-8, 34:22-35:22, 41:25-43:5, 67:19-70:23, 71:6-73:2, 78:17-

80:2; Sassaman Dep. 18:9-24, 23:12-24:11, 26:14-27:12, 33:11-37:6, 37:24-38:9, 63:7-15,

78:12-81:12, 85:5-87:13, 88:4-89:9, 91:21-93:18, 101:24-102:15, 106:4-20, 117:3-16,

130:10-132:10, 133:16-24. As the landowner, the United States owned all the waste piles

and any other waste material at the Mine Sites that were subject to the reclamation.

1. U.S. Operator Liability During Reclamation

OSM had the authority to control the Mine Site reclamations that resulted in the

disposal of hazardous substances. OSM possessed and exercised authority to review,

comment, and approve the NAML reclamation plans, issue SMCRA grant funds, oversee

the reclamation work to ensure compliance with reclamation plans and SMCRA

requirements, approve comingling of waste from mines operated by third parties and the

importation of off-site borrow, and direct reclamation practices. Id. The authority and

actions of OSM give rise to CERCLA operator liability under the Ninth Circuit’s

authority to control standard. See Kaiser Aluminum, 976 F.2d at 1341-42.

The decision in California DTSC v. Dobbas provides a useful factual comparison.

Denying the government’s motion to dismiss a CERCLA operator claim, the district court

determined that government review and approval of remedial action plans “could

plausibly constitute management or direction of operations.” California Dep’t of Toxic

Substances Control v. Jim Dobbas, Inc., Civ. No. 2:14-595, 2014 WL 4627248, at *3

(E.D. Cal. Sept. 16, 2014). The court found even though the government agencies “did

not actually perform the Remedial Action, this does not preclude” a CERCLA operator

liability claim. “Bestfoods does not require an operator to play an active role. It requires

only that an entity ‘manage, direct, or conduct . . . operations having to do with the

leakage or disposal of hazardous waste.” Id. at *4. As applicable here, OSM’s approval

of reclamation grant applications; approval of reclamation plans; and oversight and

approval of reclamation work amounted to management or direction of the Navajo AML’s


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reclamations, which resulted in the leakage and disposal of uranium-bearing material at

the Mine Sites, particularly considering it occurred on land owned by the United States.

2. U.S. Arranger Liability During Reclamation

The evidence at trial showed that federal agencies took a lead role in establishing

the strategy for addressing the Navajo abandoned uranium mines through SMCRA, and

reviewed and approved grant applications, reclamation plans, and the comingling of waste

from mines operated by third parties and the importation of off-site materials as cover.

See supra Section II.C. The actions taken by the federal government leading up to the

reclamations and throughout the performance of the reclamations were intentional steps to

arrange for the disposal of hazardous substances, which resulted from the dispersal of

waste piles, the disturbance of native uranium-bearing material, and the import of

uranium-bearing material to the Mine Sites. See Nu-West, 768 F. Supp. 2d at 1088

(holding the United States liable as an arranger where it approved plans for mining, waste

disposal, and reclamation and required lessees to cover the outer surface of waste dumps

with a layer of middle waste shale containing elevated selenium).

III. CERCLA 107(n) Does Not Apply

The government’s liability under CERCLA is not limited under Section 107(n) for

several reasons. First, the government has failed to meet its burden of proof to establish

that the exception to the liability of a trustee presented in Section 107(n) applies under the

facts of this case. Section 107(n) presents an exception to the general rule of liability

established under another section of the statute, Section 107(a) of CERCLA. 42 U.S.C.

§§ 9607(a) & (n)(1). Therefore, the government bears the burden of proof in establishing

this exception applies, including establishing the amount and extent of “assets held in the

fiduciary capacity” to which its liability could theoretically be limited. McKelvey v. U.S.,

260 U.S. 353, 356-57 (1922). In its decision on the government’s owner liability, this

Court denied the government’s argument that its liability was limited under Section


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107(n), explaining: “The United States has not shown that the trust is limited to the land

itself or that any costs allocated to the United States could not be covered by trust assets.”

EPNG v. U.S., No. CV-14-08165, 2017 WL 3492993, *6 (D. Ariz. Aug. 15, 2017).

However, the government elected not to present any evidence at trial on the amount or

extent of “assets held in the fiduciary capacity.” Instead, in its Proposed Findings of Fact

and Conclusions of Law, the government acknowledges the trust assets include more than

just real estate, including “trust lands, natural resources, and other assets such as revenues

. . . .” Dkt. No. 157, ¶ 82, at 85 (citing 25 C.F.R. § 115.002). It then argues that because

the real estate assets in the trust are not alienable, “trust assets are unavailable to satisfy a

CERCLA judgment against the United States.” Id. ¶ 83, at 85. Because the government

failed to follow this Court’s direction to present evidence on the amount or extent of

“assets held in the fiduciary capacity,” it has not met its burden of proof and is not entitled

to any exception or limitation of liability under Section 107(n).

Second, for the reasons set forth above, El Paso has demonstrated by a

preponderance that the government is liable as an operator4 and arranger during

exploration, exploitation and reclamation. This liability triggers Section 107(n)(2), which

provides the liability limits in Section 107(n)(1) do not apply “to the extent that a person

is liable under this chapter independently of the person’s ownership of a vessel or facility

as a fiduciary or actions taken in a fiduciary capacity.” 42 U.S.C. § 9607(n)(2).

Third, El Paso has established the AEC acted in a capacity other than a fiduciary

during its mining activities at the Mine Sites, and benefitted from the uranium produced

under permits and leases approved by BIA by receiving uranium ore needed to win the

Cold War. See Tr. 904:18-905:6 (United States wore “two entirely distinct hats with

respect to the uranium mines.”). For this reason, the limitation in Section 107(n)(1) does

4 Section 107(n) would also not apply if the court finds the government liable as an owner of equipment in connection with its rim stripping activities during exploration.


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not apply. 42 U.S.C. § 9607(n)(7)(A) (providing liability limitation of Section 107(n)(1)

does not apply where trustee acts in a capacity other than that of fiduciary and benefits).

Fourth, the disposal of mining waste did not occur before creation of the trust, but

rather as a result of mining leases signed, approved and managed by BIA. For this reason,

the protections of Section 107(n)(1) do not apply. There is no “safe harbor” for

administering a facility contaminated after the trust relationship began. 42 U.S.C. §

9607(n)(4)(H). Instead, because BIA had the power to control the use of the trust

property and knowingly entered uranium mining leases, the United States is liable as the

former owner to the same extent it would be if it held the property free of trust.

IV. CERCLA Allocation

The allocation framework presented by El Paso ’s expert, Mr. Batson, provides a

rational approach to allocating liability between the parties. The government’s allocation

expert stated in his Rule 26 report that Mr. Batson’s framework was sound, even if he

retreated from that statement at trial. The government’s position that this is a “traditional

case” that “lends itself to an analysis of standard equitable factors” ignores the uniqueness

of the situation. Tr. 1343:11-14.

While an analysis of equitable factors is important to determining the ultimate

liability allocation in this case, El Paso’s proposed allocation approach appropriately

acknowledges that hazardous substance disposals at the Mine Sites occurred over a span

of over forty years, involved three distinct types of activities by different parties, and

included the import of non-Mine Site-related contaminated material. Considering relevant

time periods in an allocation is neither uncommon nor too complicated for courts to apply.

See, e.g., Exxon Mobil Corp. v. U.S., 355 F. Supp. 3d 889, 941-45 (S.D. Tex. 2019)

(adopting allocation approach based on time periods).

In any event, El Paso’s allocation framework does utilize equitable allocation

factors, and the court has wide discretion to consider any equitable factors it deems


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relevant to reach an allocation. The following factors are particularly relevant here.

National Defense Benefits. As the court acknowledged at the end of the trial, the

United States obtained a significant Cold War benefit from vital defense materials it

acquired through the DUPP, which included uranium ore from the Mine Sites. The

United States’ expert acknowledged this at trial. Tr. 1351:7-15 (Low). This important

benefit to the nation should weigh heavily in the court’s allocation as it was the primary

motivation for Congress’ passage of the Atomic Energy Act and the creation of the AEC

and its DUPP. It is the ultimate “but for” cause of the contamination.

Courts within and outside the Ninth Circuit have considered national defense

efforts as an important CERCLA allocation factor. See Newmont, 2008 WL 4621566, at

*59-61 (recognizing “the Midnite Mine’s uranium production provided the United States

with a vital national security benefit by supplying uranium for the nation’s nuclear

weapon and energy needs during the Cold War.”); Cadillac Fairview, 299 F.3d at 1026

(allocating 100% of response costs for cleanup of former World War II rubber production

facility); Shell Oil, 294 F.3d at 1060 (allocating 100% of response costs to the United

States for WWII production of avgas as “properly seen as part of the war effort for which

the American public as a whole should pay”); FMC, 29 F.3d at 846 (“Furthermore, we

point out that at bottom our result simply places a cost of the war on the United States,

and thus on society as a whole, a result which is neither untoward nor inconsistent with

the policy underlying CERCLA.”).

The government’s benefits far outweigh any monetary benefit El Paso obtained

from its participation in the DUPP. “Fairness suggests that parties deriving greater benefit

from disposal of hazardous waste should bear a greater portion of the responsibility for

mitigating its adverse effects.” U.S. v. Davis, 31 F.Supp.2d 45, 63 (D.R.I. 1998).

In a related matter, the court asked El Paso at the end of trial whether it will enjoy a

cost savings or otherwise benefit from the SMCRA reclamation because waste piles


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resulting from mining were placed into mine pits. Tr. 1501-03. The evidence at trial, in

particular the testimony of Mr. Werth, demonstrated that the Mine Site reclamations

overall were not necessarily beneficial. The reclamations added large volumes of material

that increased the footprint of the sites, which are now being investigated under the

USEPA removal action. Tr. 620:1-621:4. The additional volume of material resulted in

unnatural mounds over the sites that are eroding. The eroded material is subject to

investigation and will likely need to be re-graded as party of any remedy. Tr. 621:7-

622:3, 641:19-644:23. From this perspective, absent the reclamation, the task today to

address the Mine Sites would be smaller in scale.

If the court does conclude that the placement of waste piles into the mine pits

during the reclamation resulted in a benefit, the court must apply any such benefit to both

parties because both El Paso and the United States bear responsibility for the creation of

the waste piles during the mining phase. El Paso’s framework puts its share at 19%.

Thus, as the government values the Mine Site reclamations at $2.4 million, El Paso’s

benefit would be $456,000, assuming the full amount was earthwork.

Another issue raised by the court at the end of trial was whether El Paso made any

excavations outside the footprint of the mine pits that were not accounted for by

Mr. Beahm. Tr. 1497:16-1501:2. El Paso explained that Navajo AML identified all pits

and rim strips and noted them on its technical documents. Tr. 1498:2-9, 1499:6-14.

Mr. Beahm counted these volumes and attributed them to the mining phase. Thus,

excavations of any significance that occurred during mine exploitation have been

appropriately accounted for. El Paso also notes that Mr. Beahm did not include in his

calculations the non-Mine Site-related material imported to the sites during reclamation.

Knowledge/Acquiescence. As the owner and lessor of the Mine Sites, and the

sole architect of the DUPP, and based on its own experience mining uranium at the Slick

Rock mines, the United States was fully aware of the mining practices of the industry, the


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disposal that would occur from participating in the DUPP, and the condition in which the

mines would be left at the end of mining. See Tr. 1365:7-19 (U.S. expert Low). The

United States not only acquiesced in those conditions but affirmatively encouraged it and

approved of the condition of the Mine Sites when it released El Paso’s reclamation bonds.

Knowledge and acquiescence of contamination by the landowner has been given

considerable weight by the courts. See Lockheed Martin Corp. v. U.S., 35 F. Supp. 3d 92,

150 (D.C. Cir. 2014) (allocating significant percentages of liability to United States based

on acquiescence in waste disposal); Newmont, 2008 WL 4621566, at *60-61.

Degree of involvement with hazardous waste. The United States was the party

predominantly involved in the generation of waste during the exploration phase and was

the only party involved in the reclamation phase. The United States also had a high

degree of involvement in the exploitation phase as the party that created and controlled the

DUPP, including the factors leading to the disposal of source material at the Mine Sites.

As recognized by the Newmont court, “without the direct involvement and encouragement

of the United States, the Mine would not have been developed at the time it did.

Newmont, 2008 WL 4621566, at *61. While El Paso has conceded liability as the

operator, at least one court has found that the involvement of a party should be given less

weight when it occurred as a result of the other party’s creation of the waste site and that

party’s representation that the site was appropriate for waste disposal. U.S. v. J. B.

Stringfellow, No. CV-83-2501-JMI, 1993 WL 565393, at *126 (C.D. Cal. Nov. 30, 1993).

Degree of control and care exercised with respect to the hazardous substance.

The United States was the owner and lessor of the Mine Sites, it was the regulatory

authority over uranium, and was its sole purchaser or uranium ore and yellowcake. As

such, the United States had the responsibility and authority to control the disposal of

hazardous substances at the Mine Sites, and it exercised no care with respect to such

disposals throughout exploration, exploitation, and reclamation at the Mine Sites. Of


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particular importance is the United States’ inaction during the approximately thirty years

from the time El Paso’s mining leases were released to the time of the reclamations,

during which leakage and releases of hazardous substances occurred, uncontrolled, at the

Mine Sites. Ex. 189.0012. On the other hand, El Paso operated the mines according to

common industry standards and left them in a condition that complied with its leases and

was consistent with standard industry practices at the time, as conclusively established by

the United States’ approval of the condition of the Mine Sites and its release of El Paso’s

surety bonds. See Newmont, 2008 WL 4621566, at *60-61 (“Both the action and inaction

of the United States pursuant to its responsibilities under the leases directly impacted the

operation and extent of reclamation efforts at the Mine.”).

Degree of cooperation. “More than any other factor, cooperation touches directly

upon CERCLA’s objective of prompt cleanup at the expense of responsible parties.”

ASARCO LLC v. Atlantic Richfield Co., CV 12-53-H-DLC, 2018 WL 3122340, at *30 (D.

Mont. Jun. 26, 2018) (internal citation omitted). El Paso’s cooperation with USEPA is in

evidence through the testimony of Mr. Werth and is in stark contrast to the government

defendants who have refused to participate with the USEPA response action despite

requests by El Paso to do so; have not contributed any funds to it; and have continued to

deny liability in connection with the Mine Sites. Tr. 610:3-614:9. El Paso’s demonstrated

cooperation with respect to addressing the Mine Sites entitles it to the “benefit of the

doubt as to the equitable factors and factual uncertainty in allocating” responsibility for

cleanup costs. Goodrich Corp. v. Middlebury, 311 F.3d 154, 166 (2d Cir. 2002).

The government’s arguments that it is entitled to an allocation credit for its

purported “cooperation” in issuing the SMCRA reclamation grants and for DOE’s cleanup

of the Tuba City Mill, and El Paso’s purported benefit from avoided liability for same, do

not provide any basis for allocation consideration by the court.

The SMCRA abandoned mine reclamation program requires the government to


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issue grant funds to qualifying reclamation programs such as the Navajo AML program.

30 U.S.C. § 1231(c)(8) (1988, 1994); 30 C.F.R. § 872.11(a)(3) (1993). The grant funds

that paid for the Mine Site reclamations came from the Abandoned Mine Reclamation

Fund established by SMCRA, and the revenue within the Abandoned Mine Reclamation

Fund came from a fee on coal mine operators for each ton of coal produced, not the

taxpayers. 30 U.S.C. § 1231(b) & 1232(a); 30 C.F.R. § 872.11(a)(1). OSM’s issuance of

SMCRA reclamation grants does not represent cooperation by the government defendants.

The Department of Energy performed a remediation at the Tuba City Mill pursuant

to the Uranium Mill Tailings Radiation Control Act enacted by Congress in 1978. 42

U.S.C. § 7901 (1978) (“UMTRCA”). Congress designated the Tuba City Mill and 21

other former uranium processing mills for cleanup by DOE in Title I of the statute. Id. §

7912. The federal government was responsible for 100% of the costs for the Tuba City

Mill and other mills on Indian reservations. Id. § 7917(b). Congress enacted CERCLA in

1980 and explicitly carved out from liability the 22 Title I facilities. 42 U.S.C. §

9601(22). Consequently, there can be no CERCLA liability associated with the Tuba City

Mill, and the purported “benefit” to El Paso based on hypothetical CERCLA liability is

baseless. Even assuming the government’s hypothetical, the United States would be liable

under CERCLA based upon its ownership and operation of the Tuba City Mill, rendering

the government’s hypothetical useless to the court for that reason as well.

Additionally, the doctrine of equitas sequitur legem (equity follows the law)

prevents the court from considering the government’s proposal. Under this doctrine,

whenever the rights of parties are clearly defined by law, equity has no power to change

those rights. The SMCRA grants required the government to determine that no other

party had a continuing reclamation obligation before issuing the grants, 30 C.F.R. §

875.12(c) (1993), and the statute provides no cost recovery mechanism against later-found

potentially liable parties. Under UMTRCA and CERCLA, Congress determined that the


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United States is 100% responsible for the Tuba City Mill cleanup.5

The government is asking the court to disregard Congress’ explicit determinations

of the parties’ respective rights/liabilities. This, the law does not allow. See Tohono

O’odham Nation v. Ducey, 130 F. Supp. 3d 1301, 1316 (D. Ariz. 2015).

Finally, Section 114(b) of CERCLA prohibits double recovery of response costs.

42 U.S.C. § 9614(b). Allowing a credit to the government for its SMCRA or UMTRCA

costs would allow double recovery since those costs have already been paid by others.

Contracts. Contract clauses that define the relationship between the parties are an

appropriate consideration when performing its equitable allocation. See Cadillac

Fairview, 299 F.3d at 1028. The Mine Site leases were contracts between El Paso and the

United States and could only be terminated by El Paso applying to the BIA for

termination authority, paying and satisfying all obligations under the leases, and making a

showing satisfactory to the Secretary of the Interior that full provision was made for the

conservation and protection of the property. When the United States terminated El Paso’s

leases and released its bonds, it assumed the risk of future liabilities. For this reason, the

bargain negotiated between the parties—which did not require reclamation and did require

the stockpiling and preservation of the waste piles at issue in this case—should be

honored and considered by the court to allocate a significant portion of response costs to

the government. Id. at 1028 (“[T]he district court considered the inequity of allowing the

government to impose part of the harm for the pollution when it had promised not to do

so. The court was well within its discretion in considering that promise as a factor in

equitable allocation. It is hard to see how it could be equitable to disregard it.”).

5 The court asked whether Congress should be considered part of the United States under this scenario. The defendants are agencies of the Executive Branch of the United States Government, and Congress comprises a separate branch of the Government, just as the federal judiciary. The court should therefore consider the Executive agency defendants separately from Congress for its allocation analysis.


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Respectfully submitted this 7th day of March, 2019.

By: /s/ Pamela M. Overton Pamela M. Overton GREENBERG TRAURIG, LLP 2375 Camelback Road, Suite 700 Phoenix, AZ 85016 602.445.8000 (Telephone) 602.445.8100 (Facsimile)

Daniel J. Schnee (admitted pro hac vice) KINDER MORGAN, INC. Two North Nevada Colorado Springs, CO 80903 719.520.4337 (Telephone) 303.984.3307 (Facsimile) John Voorhees (admitted pro hac vice) Christopher J. Neumann, (admitted pro hac vice) Gregory R. Tan (admitted pro hac vice) GREENBERG TRAURIG, LLP The Tabor Center 1200 Seventeenth Street Twenty-Fourth Floor Denver, CO 80202 303.572.6500 (Telephone) 303.572.6540 (Facsimile)

Attorneys for El Paso Natural Gas Company


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CERTIFICATE OF SERVICE

I hereby certify that on March 7, 2019, in accordance with the electronic service agreement between the parties, I emailed the attached document to the following:

Michael C. Augustini Michael C. Martinez Samara M. Spence

UNITED STATES DEPARTMENT OF JUSTICE Environment and Natural Resources Division

P.O. Box 7611 Washington, D.C. 20044

[email protected] [email protected]

[email protected] /s/ Kevin Collins


Case 3:14-cv-08165-DGC Document 187 Filed 03/07/19 Page 1 ... · El Paso Natural Gas Company, LLC...

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Transcript of Case 3:14-cv-08165-DGC Document 187 Filed 03/07/19 Page 1 ... · El Paso Natural Gas Company, LLC...