ELLEN SEGAL HUVELLE, United States District Judge
Lockheed Martin Corporation brings this action against the United States under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9601 et seq., for recovery of past and future response costs to remediate the environmental contamination caused by its corporate predecessor's operation of three rocket motor-production facilities — Redlands, Potrero Canyon, and LaBorde Canyon — in California from 1954 to 1975. Both parties admit to being liable as potentially responsible parties ("PRPs") for the contamination at the three facilities under CERCLA § 107(a). The Court held a twelve-day bench trial from February 10 to March 14, 2014, to determine the equitable allocation of response costs between the parties. Having considered the evidence, the controlling law, and all relevant equitable factors, the Court has determined that an equitable allocation for the past response costs for all three facilities is 0% liability to the United States and 100% liability to Lockheed. In contrast, the Court will equitably allocate future response costs between the parties differently for each facility: 29% to the United States and 71% to Lockheed for the Redlands facility; 24% to the United States and 76% to Lockheed for the Potrero Canyon facility; and 19% to the United States and 81% to Lockheed for the LaBorde Canyon facility.
BACKGROUND...98
I. History of the Sites ...98
A. Government contracts for solid propellant rockets at the Sites ...98
B. Solid propellant rocket operations at the Sites ...101
C. General waste disposal practices at the Sites ...104
II. Cleanup of the Sites ...105
A. Redlands facility ...105
1. Trichloroethylene . .106
2. Perchlorate ...107
B. Potrero Canyon facility...108
C. LaBorde Canyon facility...109
III. Lockheed's indirect recovery of response costs through U.S.government contracts ...109
A. The Federal Acquisition Regulations...110
B. The Discontinued Operations Settlement Agreement ("DOSA")...111
C. Lockheed's treatment of response costs for the Sites under the DOSA...113
IV. Procedural history...114
A. Related actions while the CERCLA statute of limitations was tolled ...114
B. The government's partial motion for summary judgment ...116
C. Trial on equitable allocation ...118 LEGAL FRAMEWORK...120
FINDINGS OF FACTS AND CONCLSIONS OF LAW ...124
I. Sources of contamination at the Sites ...124
A. Redlands facility...124
2. Trichloroethylene . .128
B. Potrero Canyon facility...130
C. LaBorde Canyon facility...131
II. Traditional equitable allocation...132
A. Limited value of certain equitable factors...132
1. Waste attributable to each party...132
2. Parties' relative benefits from waste disposal activities ...132
3. Degree of cooperation ...132
4. The government's ownership of waste ...133
5. The government's ownership of facilities...135
6. Knowledge of risk of pollution from AP and TCE ...135
7. Violation of California water quality laws ...137
8. Ability to pay ...141
9. Indemnification provisions ...141
B. LPC exercised significantly more control than the government over the day-today hazardous waste disposal operations at the Sites...144
C. The government acquiesced in many of LPC's disposal operations at the Sites.. .150
D. Some of LPC's disposals at the Sites violated internal LPC rules or government requirements ...151
E. Conclusion under traditional equitable allocation ...153
III. Effect of indirect recoveries on equitable allocation ...153
A. Lockheed's recovery of past response costs would unfairly burden the taxpayer...154
B. Lockheed's recovery of future response costs would not unfairly burden the taxpayer...161
CONCLUSION...162
The environmental contamination that underlies this action arose from the operation of solid propellant rocket production facilities by Lockheed Propulsion Company ("LPC")
LPC researched, developed, and manufactured state-of-the-art solid propellant rocket technologies at the Sites in support of military and scientific programs critical to the United States' Cold War efforts. (Roman Decl. ¶¶ 21, 23.) Government interest in the development of solid propellant rocket technologies grew significantly in the 1950s following the Soviet Union's successful nuclear tests in 1949 and the Sputnik launches in 1957. (Id. ¶¶ 19, 24-25.)
LPC was one of the largest participants in that industry, and as a contractor, it developed or manufactured rockets for eight major Cold War programs: the Vanguard artificial satellite, the Explorer artificial satellite, the Nike-Zeus anti-ballistic missile system, Project Mercury, the Apollo Program, the Large Solid Propellant Motor Program, the TAGBOARD reconnaissance drone, and the Short Range Attack Missile ("SRAM") program. (Roman Decl. ¶¶ 7, 35.) President Eisenhower designated four of these programs — Vanguard, Nike-Zeus, Mercury, and Apollo — as of the "highest national priority." (Id. ¶¶ 7, 23.)
As described by three aeronautics scholars, "[t]he brief life of the Lockheed Propulsion Company was marked by rather modest, but notable historical and technical achievements in solid rocket development." (PX0088 at 14.) LPC contributed to four major Cold War space programs both as a developer and manufacturer of solid propellant rocket motors. In the 1950s, LPC developed and manufactured the third-stage motor for the Vanguard satellite program and loaded solid propellants into motors for the Explorer satellite program. Following the first of many successful launches into orbit in 1958, both Vanguard and Explorer were foundational space race programs. (Roman Decl. ¶¶ 8, 36-37.) LPC later developed and manufactured launch escape motors for Project Mercury, the United States' first manned space program. The escape motors — critical for the safety of the astronaut in the event of an emergency during a launch — had a 100% reliability rate over numerous tests and missions. (Id. ¶¶ 10, 40-41.) Finally, LPC developed and manufactured the launch escape and pitch control motors for the Apollo manned lunar exploration program. The motors were part of the space capsule for eight Apollo lunar missions, including Apollo 8, the first manned orbit of the moon in December 1968, and Apollo 11, the first manned lunar landing in July 1969. (Id. ¶¶ 11, 42-43.)
From 1958 to 1974, LPC also researched, developed, and tested large solid propellant motors for NASA and the Department of Defense ("DOD"). Large solid propellant motors were necessary to generate enough thrust to lift large vehicles into space. Under the Large Solid Propellant Motor Program, LPC designed, fabricated, and tested the first 120-inch and 156-inch solid propellant motors and contributed to numerous technological advances later incorporated by competitors in the Space Shuttle and ballistic missile programs. For instance, the "Lockseal" device developed by LPC as a solution to solid propellant rocket thrust vector control became a mainstay in the solid propellant rocket industry. (Id. ¶¶ 12-13, 44-45.)
LPC also contributed as a developer and manufacturer to the conventional Cold War arms race. LPC developed the second-stage motor for the Nike-Zeus missile, a surface-to-air missile designed to destroy incoming nuclear warheads. The Nike-Zeus missiles were successfully tested in 1958 and 1959. (Id. ¶¶ 38-39.) LPC
LPC's largest contracts, however, were for the SRAM program. The SRAM was a nuclear-armed air-to-ground missile designed for use on the aerial front lines in the case of an American invasion into Soviet territory. (Roman Decl. ¶ 51.) LPC developed and manufactured a revolutionary two-pulse solid propellant rocket motor, which enabled an individual SRAM to shut down and then restart mid-flight. This innovation created the possibility for three distinct flight profiles and an "omni-directional" striking capability for each missile. (Id. ¶¶ 51, 54, 70-71; see also Trial Tr. at 68 (Roman).)
The Air Force developed the technical requirements for the SRAM program in the spring of 1964. (Roman Decl. ¶ 53) The Air Force Rocket Propulsion Lab ("AFRPL") initiated SRAM research and development contracts with LPC, as well as several of its competitors, that same year. (Trial Tr. at 1340-41 (Dull).) LPC was the only contractor to successfully demonstrate the feasibility of a two-pulse motor during its research and development contracts. (Roman Decl. ¶ 54.) In 1966, Boeing won the development contract for the SRAM program (Trial Tr. at 1339, 1341 (Dull)) and awarded the subcontract for the development of the propulsion system — i.e., the solid propellant rocket motor — to LPC. (Roman Decl. ¶ 55.)
Numerous technical difficulties and rocket failures plagued the SRAM program. (Trial Tr. at 1341 (Dull); Roman Decl. ¶¶ 56-60.) The September 1969 initial qualification tests for the SRAM motor were unsuccessful. (Roman Decl. ¶ 61.) Shortly thereafter, Boeing and LPC filed a $54.2 million claim against the Air Force asserting that the SRAM propulsion system requirements were "unattainable" and "grossly impracticable." The Air Force settled the claim for $20 million before it could be adjudicated. (Id. ¶ 63.)
Setbacks notwithstanding, the Air Force deemed the SRAM motor fit for production in 1971. The Air Force awarded Boeing the first production contract, and Boeing awarded LPC a one-year production subcontract worth $27.6 million. (Id. ¶ 64.) The Air Force awarded Boeing four more production contracts, and Boeing and LPC entered into four additional production subcontracts between 1972 and 1975. During that period, LPC produced 1500 SRAM solid propellant rocket motors and completed 107 consecutive successful test fires. (Trial Tr. at 1395-96 (Dull); Roman Decl. ¶ 68.) Each SRAM was 150 inches long, nearly 18 inches in diameter (see Trial Tr. at 1337 (Dull)), and carried a thermonuclear weapon with a yield of approximately 170 kilotons, roughly ten times the yield of the atomic bomb the United States dropped over Hiroshima during World War II. (Roman Decl. ¶ 69.) Thus, a B-52 bomber with the capacity to carry 20 SRAMs had a destructive power equivalent to 200 Hiroshima bombs. (Id.)
In light of decreased government focus on solid propellant rocketry for defense and space exploration purposes, LPC ceased its operations in the summer of 1975 at the end of its fifth SRAM subcontract. (Id. ¶ 68.) Nonetheless, SRAMs —
While the parties dispute what happened on a day-to-day basis with respect to operations at the Sites, particularly relating to the disposal of the hazardous substances, many of the background facts are undisputed.
LPC began its rocket motor production operations at the nearly 500-acre Redlands facility in 1954 when it leased the facility from the City of Redlands. (USX15; see also USX11.0020-21.) Between 1958 and 1962, LPC acquired the parcels comprising the much-larger 9,100-acre Potrero Canyon and 2,500-acre LaBorde Canyon facilities located near Beaumont, California. (USX12.0044.)
The design, testing, and production processes for LPC's contracts followed a general protocol. The government provided requirements regarding the performance, dimensions, and interface points of the solid propellant rocket motor. (Trial Tr. at 78 (Oppliger).) From those specifications, LPC's engineering analysts manipulated the composition of the propellant and the physical design of the propellant grain within the rocket casing to achieve desired rocket performance. (Id. at 78-79.) LPC engineers then designed the rocket casing and casing insulation based on the characteristics of the propellant grain design. (Id. at 80.) From there, LPC began the iterative process of testing subscale (and eventually to-scale) rockets against the government-provided specifications. (See id. at 80-83.)
Although LPC's applications of solid propellant rocket technology were state-of-the-art, solid propellant rocket motors themselves are "simple units" with "no moving parts." (PX91 at 934.) A solid propellant rocket "motor consists of an encased energy supply, which is a combustible mixture of all of the elements required for the generation of propulsive energy" — it is self-contained and ready to fire when it leaves the factory. (Id.)
A solid propellant is composed of three basic components — an oxidizer and two fuels, a "rubber-like binder" and powdered
LPC then "cast" the fluid propellant into the rocket motor case under vacuum conditions, and "cured" the rocket by heating the cast for nearly a week to "stiffen[] it into a rubbery, shape-retaining mass." (Id. at 935, 961.) LPC produced these solid propellant motors in short, cylindrical segments that could be joined to complete the rocket motor. (Id. at 940.) Once the nozzle and igniter were added, the rockets were ready for either testing or shipment. (Id. at 938.)
Aside from providing the initial specifications for a particular solid propellant rocket motor, the government played several additional roles in the design, testing, and production of a rocket.
Specifications aside, the government had limited input into LPC's technical development of solid propellant rocket motors under government contracts. In the mid-1960s, the government adopted the so-called Total System Performance Responsibility ("TSPR") for the SRAM contracts, meaning that the prime contractor — Boeing — and its subcontractor — LPC — had "total system responsibility to build th[e SRAM] without any more direction from the Air Force." (Trial Tr. at 1338 (Dull); see USX222.0003.) "The Air Force provide[d] a statement of work, what [it] want[ed] to be built, and a system spec that goes into technical details" regarding performance, but it did not "dictate the design" of the rocket. (Trial Tr. at 1338 (Dull).)
Given the technical complexity of the SRAM program, LPC held daily early morning meetings to discuss pertinent program details. (See Trial Tr. at 86 (Oppliger).) Government representatives from the Air Force Systems Program Office ("SPO")
At the beginning of its SRAM development subcontract, LPC formed the SRAM Propulsion Program Review Committee to provide LPC monthly guidance on meeting the SRAM program's technical and schedule objectives. (PX0571 at 443.) The Committee was initially comprised of Lockheed Aircraft Corporation employees who did not generally work for LPC at the Sites. (Id.) In early 1968, pending the commencement of SRAM rocket motor test firing, LPC, with the permission of Boeing, expanded the Committee to include several outside experts, including Boeing engineers, scholars, and Donald Ross, "Mr. Solid Rocket," from the AFRPL. (Id. at 444, 446; see Trial Tr. at 1369-70 (Dull).) Although Mr. Ross was generally an "observer" under the TSPR (Trial Tr. at 1370 (Dull)), he provided some technical input to LPC through the Committee. (See PX0571 at 0439.) LPC promptly implemented many of the improvements recommended by the expanded Committee. (See Roman Decl. ¶ 60.)
In 1970, at the request of the SPO, the AFRPL reviewed the design of the SRAM rocket motor, the test firing results, and LPC's tooling and manufacturing processes and internal procedures, to ensure that LPC "w[as] ready for production" and to "document the things that needed to be completed" before SRAM rocket motor production could begin. (Trial Tr. at 101, 104-05 (Oppliger); see also Trial Tr. at 1356 (Dull); PX0577 at 110.) Pursuant to this review, the AFRPL provided eight recommendations to Boeing regarding LPC's readiness for SRAM rocket motor production. (See PX0577 at 115-18.) These recommendations ranged from the procedural — recommending that Boeing conduct a First Article Contractual Inspection following the eight test motor firings — to the prudent — suggesting that LPC's engineering work force could be reduced by fifty percent once development ended and production began. (Id. at 116, 118.) Although the government recommendations did not bind either Boeing or LPC (Trial Tr. at 1376-77 (Dull)), LPC ultimately adopted many of them. (Id. at 106 (Oppliger).)
The government's quality assurance presence at the Sites was much larger than its technical development presence described above. Although LPC had its own safety and quality control inspectors (id. at 128), both Boeing (as prime contractor for SRAM) and the Defense Contract Administration Service ("DCAS") had offices at the Redlands facility and had the "right[]" to "roam the production floor and see anything they wanted to see and watch anything they wanted to watch." (Id. at 90-92, 94, 110-11.) DCAS officials, Boeing officials, and LPC engineers reviewed the process specifications and manufacturing process standards before production could begin and inspected the processes once underway. (Id. at
During the SRAM development and production contracts, DCAS had between four and five full-time representatives and Boeing had around twenty full-time employees stationed at the Redlands facility. (Trial Tr. at 111 (Oppliger); id. at 1346, 1357 (Dull).) By comparison, LPC had around four hundred employees at the Redlands facility. (Trial Tr. at 139 (Oppliger); PX1202 at 133.)
The frequency and quality of inspections at the Sites varied over time. "The amount and kind of inspection to be performed by the Government [wa]s at the discretion of DCAS." (USX270.) In its 1970 review of the SRAM Rocket Motor, the AFRPL criticized all three parties — LPC, Boeing, and DCAS — for practicing a laissez-faire "`call us and we'll come and inspect'" approach to inspecting production processes. (PX577 at 117, 151-52; cf. PX576 at 48-49, 81.) The AFRPL therefore concluded that that the SRAM program had "not been receiving the on-station witnessing of work that the program has and continues to deserve" (PX577 at 151-52) and suggested that SPO recommend to Boeing and DCAS to "re-evaluate their inspection philosophy and inspection operations with a view to substantially increasing their on-station witness of work operations besides work results." (Id. at 117; see also Trial Tr. at 1375-76 (Dull).) After this review, both inspection points and the frequency of inspections increased at the Sites as the first SRAM production contract got underway. (Trial Tr. at 138 (Oppliger).) Nonetheless, DCAS continued to "lean[] on Boeing for engineering judgment and decisions essential to the quality assurance function." (USX221.0004.)
In addition to their daily quality assurance inspections, DCAS representatives also occasionally undertook safety inspections at the Sites. (See, e.g., PX476-77, 482-84.)
Solid propellant rocket motor research, design, testing, and production processes produce myriad and voluminous waste streams including waste propellant (used, unused, and defective), waste solvents containing propellants, and scrap motors. (See PX457 at 801.) As a result, disposal of waste was "regarded as an integral part of solid propellant rocket operations." (PX0009 § 7-1.1.)
LPC ultimately disposed of most of its propellant wastes — including sludge taken from evaporation pits — by burning them in earthen "burn pits" at the Redlands and Potrero Canyon facilities. (Feenstra Decl. ¶¶ 51, 156.) In some instances, propellant wastes were disposed of off-site at Camp Irwin — a military facility in the Mojave Desert (now Fort Irwin). (See id. ¶ 42; PX431; PX440.)
An exception to disposal-by-burning existed, however, for defective rocket motor casings. Rather than burning the entire rocket motor — and ruining the expensive metal casing — LPC often attempted to reuse the motor casing by removing the propellant with water. In the 1950s, LPC did this by "soaking out" the scrapped rocket motors in evaporation pits at the Redlands facility. (Feenstra Decl. ¶¶ 47, 152; see also PX429.) Later, LPC began "hogging out" defective rocket motors at the Potrero Canyon facility using high-pressure water jets to remove the propellant from the motor casing. (See Trial Tr. at 393 (Delaney); USX49.0068.)
As of the beginning of the trial, Lockheed had incurred environmental response costs for the Sites totaling nearly $287 million. Lockheed estimates it will incur another $124 million in future response costs for the Sites. (See Meyer Decl. ¶ 50 fig. 29.) Because each facility has a distinct operational and cleanup history, the Court considers them separately below.
TCE
The California Department of Health Services first discovered the Redlands TCE plume in 1980. (PX1677 ¶ 1.) Throughout the 1980s, several municipal wells were shut down after testing revealed TCE concentrations above the California drinking water maximum contaminant level of 5 µg/L. (Id. ¶ 3.)
By October 1992, Lockheed argued that continued investigations into the Redlands facility would be fruitless because whatever TCE might have been disposed of at the facility had either volatized or dispersed through the porous soil and formed the detached Redlands TCE plume. (Id. ¶ 33.) In November, the Board informed Lockheed that it had concluded the Redlands facility was the source of the Redlands TCE plume and that it would order Lockheed to investigate and cleanup the plume. (Id. ¶ 34.) Lockheed replied that it would consider proposing to the Board a remediation plan that would negate the need for any order and thereafter undertook a detailed study of the Redlands TCE plume. (Id. ¶¶ 34-35.)
On May 6, 1993, Lockheed denied responsibility for the plume, informing the Board that "it was [its] position that there was not substantial evidence to indicate that Lockheed was the source of the TCE contamination in the [Redlands plume], and that Lockheed, therefore, was not in a position where they could justifiably utilize stockholders' funds in conducting any additional work." (Id. ¶ 36.)
In late April 1997, following a breakthrough in testing methodologies for perchlorate (see Trial Tr. at 301-03 (Blackman)), the California Department of Health Services discovered perchlorate levels in several wells within the Redlands TCE plume that exceeded California's provisional drinking water standard of 18 µg/L. (PX1685 ¶¶ 3-4.)
Since that time Lockheed has complied with all orders of the Board regarding investigation, containment, and remediation of the Redlands plumes, including working with water purveyors (e.g., surrounding municipalities) to reduce TCE and perchlorate concentrations to acceptable levels and to drill new wells for drinking water supplies. (Id. at 314-17; USX11.0023-26.) Among other remedial steps, Lockheed treated from select wells TCE-laden groundwater with granular activated carbon and AP-laden groundwater with an ion exchange resin. (See Trial Tr. at 319-20 (Blackman); USX11.0041-42.)
Although Lockheed has removed large amounts of TCE and perchlorate from the Redlands plumes, concentrations remain at levels that will require continued treatment that may "go on for many decades." (Trial Tr. at 321 (Blackman).) As of 2011, Lockheed had incurred over $231 million in response costs for the Redlands plumes.
Although TCE, TCA-related compounds,
The primary sources of perchlorate soil contamination at the Potrero Canyon facility are the Large Motor Washout Area and the Burn Pit Area (Sterrett ¶¶ 220-2 1),
The Burn Pit Area is the primary source of perchlorate groundwater contamination at the facility. (Feenstra Decl. ¶ 155; Sterrett Decl. ¶¶ 226-27; USX12.0237-38.) Secondary sources at the facility include the Rocket Motor Production Area and, to a lesser extent, the Large Motor Washout Area. (Feenstra Decl. ¶ 165; USX12.0237-38.)
In 1986, Lockheed conducted a historical study of the Potrero Canyon facility (along with the LaBorde Canyon facility) to better plan later investigations into environmental contamination. (See USX49.0011.) Following that study and a 1989 Consent Order from the California Department of Health Services, Lockheed has undertaken further remedial investigations and some remedial actions at the facility, the most recent and relevant beginning in 2002. (See USX12.0064-90.)
As of 2011, Lockheed had incurred nearly $21 million in response costs for the Potrero Canyon facility. (See Meyer Decl. ¶ 50 fig. 29.) Further remedial actions are presently under evaluation. (Feenstra Decl. ¶ 154; see generally USX699.144-300.) As of 2012, the preferred remedial alternative for perchlorate-impacted soils at the facility is excavation and off-site removal. The preferred remedial alternative for perchlorate-contaminated groundwater at the facility hydraulic containment through the installation of a pump-and-treat system involving ex situ treatment of the groundwater, with the discharge of remediated water back into the ground or into local waterways. (USX699.0299-300.)
The soil and groundwater at the LaBorde Canyon facility are also contaminated with perchlorate and, to a lesser extent, TCE. (Sterrett Decl. ¶¶ 25, 238.) As at the Potrero Canyon facility, groundwater contamination at LaBorde Canyon is not detached and is therefore traceable to specific locations of historic operations at the facility. (Id. ¶ 235.) The primary sources of perchlorate at the facility are the Test Bay Canyons and the Waste Discharge Area. (Feenstra Decl. ¶ 167; Sterrett Decl. ¶ 239.) Perchlorate has been detected in soil at concentrations exceeding 100,000 µg/kg and in groundwater at concentrations exceeding 100,000 µg/L. (USX13.0236-38, .0241.)
As was the case at Potrero Canyon, Lockheed undertook a historical study of the LaBorde Canyon facility in 1986. (See USX49.0011.) The California Department of Health Services issued a Consent Order requiring cleanup of contamination at the facility in 1989. (USX13.0012.) Lockheed completed remedial investigations and removal actions from 1990 to 1993, after which the California Department of Toxic Substances Control issued a "Report of Completion of Removal Action" stating that no further remedial action was necessary. (Id.; USX700.0037-38.) Groundwater perchlorate contamination was first detected at the facility in the early 1990s. (Feenstra Decl. ¶ 174.) However, the California Department of Toxic Substances Control did not reopen the facility for further assessment until 2003. (USX13.0012.) Since then, Lockheed has engaged in nearly ten years of remedial investigations. (USX13.0027-31.)
As of 2011, Lockheed had incurred over $10 million in response costs for the LaBorde Canyon facility. (See Meyer Decl. ¶ 50 fig. 29.) Further remedial actions are currently under evaluation. (USX700.0148-206.) As of 2012, the preferred remedial alternative for the facility is limited shallow soil removal, plume containment, and institutional controls. (Id. at 0191, 0215.)
Lockheed has recovered and continues to recover its response costs for the Sites (and others sites like them) from its customers by allocating its cleanup expenses to its contracts as indirect costs. Because the U.S. government is by far Lockheed's largest customer, to date Lockheed has indirectly recovered
This cost-recovery system has its foundation in the byzantine federal contracting
Lockheed's cost-recovery system has an established basis in the complex Federal Acquisition Regulations ("FAR") that govern government contracting. Pursuant to the FAR, the government pays contractors both their "direct" and "indirect" costs, plus a profit. (Wright Decl. ¶ 84.) Direct costs are those costs related to a specific contract, such as materials and labor. See 48 C.F.R. § 31.202. Indirect costs are those costs not associated with a specific contract — essentially overhead. See id. § 31.203. Profit factors are determined on a contract-by-contract basis. (See Trial Tr. at 600-01 (Wright); id. at 1660-61 (Gatchel).) Across all contracts in 2013, Lockheed's operating margin (i.e., pre-tax profit) was over 9.9%.
The government will only reimburse a contractor for "allowable" indirect costs. An indirect cost is "allowable" if it is "reasonable," i.e., "it does not exceed that which would be incurred by a prudent person in the conduct of competitive business," 48 C.F.R. § 31.201-3(a), is "allocable," complies applicable accounting standards, and is not otherwise disallowed by regulation or contract. See id. §§ 31.201-2, -4. Although not specifically allowable under the FAR, see generally id. § 31.205, environmental costs "are normal costs of doing business and are generally allowable costs if reasonable and allocable." (PX1862 § 7-2120.1 (Defense Contract Audit Agency Contract Audit Manual).)
For a fixed-price contract, contractors attempt to predict the incurrence of indirect costs that will be allocated to that contract over its term. Because the price of the contract is fixed, the contractor benefits from a relatively higher return on its contract if it overestimates the total indirect costs; on the other hand, if the contractor underestimates the total indirect costs, it will receive a relatively lower profit on that contract. In contrast, in cost-reimbursement contracts the contractor is paid for all allowable direct and indirect costs allocated to the contract. Thus, over- or under-estimating indirect costs with regard to a cost-reimbursement contract does not pose the same potential for increased or reduced returns. (Cf. Trial Tr. at 1660, 1679 (Gatchel).)
Even after the contractor has allocated indirect costs to specific contracts and has been paid for those costs pursuant to those contracts, the contractor must credit back to the government "either as a cost reduction or by cash refund" any "applicable portion of any income, rebate, allowance, or other credit relating to" those indirect costs "received by or accruing to the contractor." 48 U.S.C. § 31.201-5. For environmental cleanup costs in particular, this provision requires a contractor to credit back to its indirect environmental cost pool any recoveries for cleanup costs from insurance policies or other PRPs. (Wright Decl. ¶ 50.)
Lockheed and the DCMA recognized the allowability and appropriate accounting treatment of environmental remediation expenses as indirect costs when they signed the DOSA on September 6, 2000. (USX1033 at 10.) The DOSA formally allowed as indirect costs, inter alia, environmental response costs incurred for "discontinued operations," sites, or facilities that Lockheed closed, abandoned, or sold prior to January 1, 2000, including all three Sites at issue in this case. (Id. ¶¶ 1.7-.8.)
Lockheed "flows down" the allocable costs for a given year from the DiscOps Pool to its business units using a three-factor formula typically used in government contracting. (USX1033 ¶ 2.8; Wright Decl. ¶ 45.) It is the business units that then develop indirect rates, based partially on the DiscOps Pool, to use when bidding on and billing government contracts. (Wright Decl. ¶ 45; Mateer Decl. ¶¶ 10-12.) The percentage of Lockheed's indirect costs passed on to U.S.-government contracts roughly correlates with the U.S. government's share of Lockheed's business for a given year. (Wright Decl. ¶ 74.)
Thus, under DOSA, if Lockheed spent $10 million on environmental response costs at discontinued operations in the year 2005, it would amortize those costs over the next five years, and $2 million per year would flow down to its business units from 2006 to 2010. Assuming that U.S.-government contracts make up 80% of Lockheed's business, Lockheed would recover $1.6 million per year — or $8 million total — of the response costs through its government contracts. In addition, Lockheed would recover the remaining $400,000 per year — or $2 million total — in an identical manner from non-U.S. government contracts.
The DOSA also provides that Lockheed "shall not realize a double recovery with regard to any Settled Discontinued Operations Costs," and to the extent that it does, it "will reimburse the United States for any such double recovery ... under government contracts." (USX1033 ¶ 4.7.) Pursuant to this provision, and as required under 48 C.F.R. § 31.201-5, Lockheed credits to the DiscOps Pool any direct payment it receives for environmental remediation costs at its discontinued operations, whether in the form of insurance proceeds, settlements, or other recoveries. (Wright Decl. ¶ 50; Mateer Decl. ¶ 14.) Credits are treated the same as costs and are amortized over the five years following receipt of the payment. (Wright Decl. ¶ 51.) Therefore, credits represent a bottom line reduction to the DiscOps Pool, lowering the total indirect costs passed on to Lockheed's clients. Thus, again assuming that U.S.-government contracts make up 80% of Lockheed's business, the U.S. government would receive 80% of the benefit of any credits allocated to the DiscOps
To date, the DOSA and DiscOps Pool have functioned as intended. As to the three discontinued Sites in this case, Lockheed has incurred environmental response costs related to those Sites, allocated them to the DiscOps Pool, amortized them over five years, and passed them down to its business units for bidding and billing purposes. Because once individual costs enter the DiscOps Pool, they are not "tracked" or "followed" (as individual costs) down through the business unit or specific contracts, it is impossible to identify or trace response costs for the Sites to any particular government contract. (See Mateer Decl. ¶ 13.) Nonetheless, it is clear that Lockheed has indirectly recovered, and continues to indirectly recover, response costs for the Sites from the U.S. government through the indirect costs charged to U.S.-government contracts. (Wright Decl. ¶ 57-59; USX407 at 4-5.) Indeed, Lockheed boasts that its "underlying tenet in pricing [its] contracts with the U.S. government" is its "ability to recover [its] costs ... regardless of the type of contract." (USX407 at 4-5.)
As of December 31, 2013, Lockheed had indirectly recovered through its U.S.-government contracts more than $208 million — or 72% — of its estimated $287 million in total nominal response costs at the Sites. (Meyer Decl. ¶ 29 & fig. 5.)
Aside from its indirect recovery of over 72% of its response costs for the Sites through U.S.-government contracts to date, Lockheed has also allocated as an indirect cost and subsequently recovered (though not through the DiscOps Pool) a substantial portion of its legal fees and costs associated with bringing this action. The government's expert economist estimates that Lockheed indirectly recovered through government contracts, in nominal dollars, over 85% of the $7.35 million in legal fees and costs it incurred between 2007 and 2012. (Meyer Decl. ¶¶ 163-75.) Lockheed incurred an additional $3.2 million in legal fees and costs through November 2013 (Gov't Closing Presentation [Dkt. No. 144] at 245), and undoubtedly, it has incurred several million dollars more in fees and costs for the extensive pretrial preparation and trial briefing since December
Lockheed did not bring this action for recovery of response costs under CERCLA until 2008, fourteen years after it began remediation efforts at the Redlands facility. The parties, through Lockheed's in-house counsel and attorneys within the Environmental and Natural Resources Division of the Department of Justice, agreed to a tolling of the CERCLA statute of limitations, see 42 U.S.C. § 9613(g)(2), beginning in 1997. (See PX1788, 1823, 1838, 1849, 2078.) These tolling agreements, specifically for the Redlands site, were in effect from January 27, 1997 to November 1, 2003. (PX 1788, 2078.) The parties renegotiated the agreements on a semi-annual basis during this time period, including negotiating a one-year extension of the tolling agreement on July 10, 2000 (PX1849), less than two months before Lockheed and the DCMA entered into the DOSA on September 6, 2000. (USX1033 at 10.)
Although the DOSA addressed environmental cleanup costs, it did not purport to settle CERCLA liabilities between Lockheed and the government. To the contrary, the DOSA explicitly provides that it "does not settle any claims, if any, arising under CERCLA." (Id. ¶ 4.18.) Indeed, the DOSA implicitly recognized the potential coexistence of direct recoveries from the government under CERCLA and indirect recoveries from the government through costs charged to U.S.-government contracts. In particular, the parties devoted an entire section of the DOSA to the treatment of the January 20, 2000 Consent Decree signed by Lockheed and the Department of Justice in the Burbank CERCLA litigation.
During the tolling period, Lockheed was involved in several related matters. In 1993, a group of insurers sued Lockheed in state court in California, seeking a declaration that they were not required to defend or indemnify Lockheed for the costs of environmental remediation at multiple sites, including the Redlands facility. Procter v. Lockheed Corp., Case No. 731752, Complaint (Cal. Sup. Ct. May 27, 1993) (PX2070). The trial court ruled for the insurers, holding, inter alia, that Lockheed's indirect recovery of response costs through government contracts triggered the "government reimbursement exclusion" contained in the policies, and thus, the insurers were not required to defend or indemnify Lockheed. Procter v. Lockheed Corp., Case No. 731752, Statement of Decision Re: Phase II at 65-79 (Cal. Sup. Ct. Oct. 27, 2003) (PX2073). Prior to the entry of judgment, Lockheed sought declaratory relief in federal court to enjoin the state court's preliminary ruling. In that action, the government filed an application to intervene in support of Lockheed's position that indirect payments for response costs through government contracts does not reduce or eliminate insurance coverage under the government reimbursement exclusion. (PX2069 ¶¶ 25-26 (Porterfield Decl.).) The federal court dismissed Lockheed's action for lack of subject matter jurisdiction, and the state court entered final judgment on October 22, 2003. (Id. ¶¶ 27-28.) Lockheed immediately appealed, and on November 22, 2005, the California Court of Appeal affirmed the trial court's decision. See Lockheed Corp. v. Cont'l Ins. Co., 134 Cal.App.4th 187, 35 Cal.Rptr.3d 799 (2005). The Supreme Court of California denied Lockheed's petition for review on March 22, 2006, and the parties subsequently entered into a confidential settlement agreement whereby the insurers "bought back" the disputed policies. (Trial Tr. at 479 (Lockheed counsel); PX2069 ¶ 31 (Porterfield Decl.); PX2075-76.) The proceeds from that agreement were credited to the DiscOps Pool. (Trial Tr. at 1455-56 (Lockheed counsel).)
In 1995, Lockheed sued Seven W Enterprises, which at the time operated a manufacturing facility on a portion of the Redlands facility, for recovery of response costs incurred for the Redlands TCE plume. See Lockheed Martin Corp. v. Seven W Enterprises, 95-cv-6153, Complaint (C.D. Cal. Sept. 14, 1995). Pursuant to a confidential settlement in late 1996, Lockheed indemnified Seven W from future liability in exchange for a lump sum payment. Lockheed credited the amount recovered under this confidential agreement to the DiscOps Pool. (Trial Tr. at 476-77 (Lockheed counsel).)
That same year, a group of plaintiffs filed a toxic tort class action suit against Lockheed seeking medical monitoring costs and punitive damages based on the contamination of drinking water from the Redlands TCE plume. See Lockheed Martin Corp. v. Superior Court, 29 Cal.4th 1096, 131 Cal.Rptr.2d 1, 63 P.3d 913, 916 (2003). The California Court of Appeal
Finally, in 2004, Lockheed — sponsored by The Boeing Company — pursued an appeal under the Contracts Dispute Act, 41 U.S.C. § 7101 et seq., to the Armed Services Board of Contract Appeals ("ASBCA") seeking indemnification from the government for response costs and toxic tort liabilities at the Sites arising out of LPC's performance of SRAM production contracts from 1971 to 1975. See generally In re Boeing Co., ASBCA No. 54853, 06-1 BCA ¶ 33,270, 2006 WL 1064132 (Apr. 12, 2006).
Meanwhile, after over fourteen years of cleanup actions at the Redlands facility, on July 1, 2008, Lockheed brought this action against the United States under CERCLA § 107(a). The government filed a counterclaim against Lockheed under CERCLA § 113(f) seeking, to the extent it was a PRP, equitable allocation of response costs between the parties.
Several months later, the government moved for a partial summary judgment on the ground that Lockheed could not recover under CERCLA § 107(a) those response costs for the Sites that it had already recovered through indirect costs charged to the DiscOps and passed through to government contracts. (Mot. for Partial Summ. J., Jan. 9, 2009 [Dkt. No. 25-2] at 10.) The government contended that Lockheed's recovery of costs under CERCLA, for which the government-as-client (primarily the DOD) had already indirectly paid pursuant to the DOSA, would result in a double recovery — a violation of both the DOSA and CERCLA. See 42 U.S.C. § 9614(b).
On September 29, 2009, Judge Robertson rejected the government's legal arguments on several grounds. See Lockheed Martin Corp. v. United States, 664 F.Supp.2d 14 (D.D.C.2009). Judge Robertson first distinguished the bar on double recovery in CERCLA § 114(b) from the present case. Section 114(b) states that "[a]ny person who receives compensation for removal costs or damages or claims pursuant to any other Federal or State law shall be precluded from receiving compensation for the same removal
Judge Robertson also distinguished the double recovery cases cited by the government. In those cases, plaintiffs sought to recover response costs which they had already recovered from other PRPs (through settlement or state-law versions of CERCLA) or response costs which their insurers had paid for directly. Id. The courts in those cases applied CERCLA section 114(b) in order to prevent plaintiffs from receiving "a windfall from its environmental cleanup." Id. Judge Robertson concluded that there would be "no windfall" in this case because Lockheed was required under both the DOSA and the FAR to credit any CERCLA recovery from the government to the DiscOps Pool. Id. at 19-20. Thus, "any CERCLA recovery from the government would lead to a commensurate reduction in the [DiscOps Pool] that Lockheed could charge as indirect costs on its government contracts. From a monetary standpoint, Lockheed would be back where it started." Id. at 19.
Judge Robertson also emphasized the "important implications for both parties" — Lockheed would "improve its competitive position" and the government-as-client would benefit from decreased contract prices. Id. at 20. Accordingly, Judge Robertson concluded:
Id.
On October 22, 2009, the government moved for reconsideration, inter alia, on the grounds that Judge Robertson improperly imported requirements, such as the potential for "windfall," into the language of CERCLA § 114(b) and failed to address the argument that Lockheed's indirect recovery of response costs through government contracts could be considered as an equitable factor during allocation of response costs under CERCLA § 113(f)(1). (Mot. for Reconsideration, Oct. 22, 2009 [Dkt. No. 39] at 2-3.)
Judge Robertson denied the motion on February 18, 2010. (Mem. Order, Feb. 18, 2010 [Dkt. No. 43] at 2-3.) While remaining steadfast in his denial of summary judgment, Judge Robertson acknowledged that some of the government's positions, "including those about the equitable considerations under Section 113(f)(1) and burden to taxpayers, may be relevant to allocation determinations that might lie ahead in this litigation." (Id. at 3.)
The parties engaged in extensive factual and expert discovery over the next four years. On September 26, 2013, the Court bifurcated the pending trial into two phases: (1) the parties' liability as PRPs under CERCLA § 107(a) and the equitable allocation of response costs under CERCLA § 113(f); and (2) the "accurate accounting" of response costs. (Order, Sept. 26, 2013 [Dkt. No. 97] at 2.) The Court scheduled a two-week bench trial for Phase I to begin on February 10, 2014. (Id.)
Leading up to the trial, the parties stipulated that they were both PRPs liable under CERCLA § 107(a) for the response costs that Lockheed had incurred at the Sites and that the Court should allocate liability for the response costs between them according to equitable principles under CERCLA § 113(f)(1). (Stipulation on Liability, Dec. 20, 2013 [Dkt. No. 103] at 2-3.) The parties also stipulated that, as required under CERCLA, Lockheed had incurred at least one dollar of "necessary costs of response" at the Sites in a manner "consistent with the National Contingency Plan." (Stipulation on Response Costs, Dec. 20, 2013 [Dkt. No. 104] at 1-2 (quoting 42 U.S.C. § 9607(a)(4)(B)).)
Given the stipulations on liability, the Phase I bench trial concerned only the equitable allocation of liability under CERCLA § 113(f)(1). The Court presided over the Phase I bench trial over twelve days beginning February 10 and ending on March 14, 2014. Through no fault of the parties or their counsel, the evidence at the trial was both voluminous and inconclusive in many significant respects. Arguably, the most useful testimony came from the only two witnesses who had been on the ground during LPC's operations at the Sites, but even those witnesses had limited recollections. (See, e.g., Trial Tr. at 95 (Oppliger); id. at 1374 (Dull).) Otherwise, the record suffered from the many shortcomings inherent in CERCLA actions: hundreds of missing contracts
The testimony and evidence presented at trial addressed five somewhat-overlapping issues, and as could be expected, on each issue save one, the Court had a battle of the experts. First, Dr. Peter Roman, Lockheed's expert historian, provided a mostly undisputed account of the history of the solid rocket propellant industry and LPC's government contracts. Second, the parties presented evidence of the degree of government activity at and control over the Sites with respect to government specifications, safety manuals, project reviews, and safety inspections. Each party also called a fact witness to describe the government's presence at the Sites. Mr. Gerald Oppliger testified about his experiences working as an engineering analyst for LPC designing rockets for several government contracts, including SRAM, from 1962 to 1971. (Trial Tr. at 74-77 (Oppliger).) Mr. Peter Dull testified about his work on SRAM as a propulsion engineer for the SPO from the program's inception to Lockheed's delivery of the rockets. (Id. at 1337-38 (Dull).) Third, the parties put on dueling experts relating to the subject of government contracting — Mr. Richard Johnson (for Lockheed) and Mr. James Nagel (for the government) — who provided opinions on whether and to what extent the government, through contracting regulations, owned the TCE and AP at the Sites.
Fourth, the parties spent an excessively large amount of trial time on the issues of contamination and, in particular, which of LPC's activities caused it. Lockheed called Thomas Blackman to provide foundational testimony regarding the contamination and response actions at the Redlands facility. Both parties then put on multiple experts. Lockheed's primary expert, Dr. Stanley Feenstra, a hydrogeologist, opined on the probable sources of TCE (vapor degreaser) and perchlorate contamination (burn pits) at the Sites and the level of care with which LPC handled its solvent and propellant wastes. Dr. Tod Delaney, an environmental engineer, provided a rebuttal opinion to the government expert opinion from Thomas Cain, a chemical and process engineer, regarding the sources of perchlorate contamination from the southern half of the Redlands facility. The government's primary expert, Dr. Robert Sterrett, a hydrogeologist, opined primarily on probable sources of TCE (employee dumping) and perchlorate contamination (burn pits and grinder part washing) at the Sites, while Mr. David Bauer, a chemist, opined on the level of care with which LPC handled its solvent and propellant wastes. The government also called Ms. Mary Sitton as an aerial photography expert who analyzed historical aerial photographs of the Sites for evidence of sources of pollution. Of the myriad, though incomplete, sources available to them, the experts relied primarily on LPC's process specifications, engineering diagrams of buildings and equipment, and the historic deposition testimony of dozens of former LPC workers. The experts also relied on their own personal experiences and general industrial and military practices at the time. Nonetheless, the ultimate expert opinions often amounted to no more than exercises in reasoned speculation.
Finally, the parties spent a significant amount of trial on the accounting and economic issues that make this case unique. Lockheed called Mr. Robert Gatchel, Lockheed's current vice president of government finance, to describe the implementation of the DOSA and Lockheed's government contracting procedures. Each party also called two experts to address the DOSA, double recovery, and Lockheed's economic benefit from a CERCLA
The difficulty of an incomplete record and heavy reliance on expert testimony was compounded by the lack of analogous CERCLA cases.
Congress enacted CERCLA "in response to the serious environmental and health risks posed by industrial pollution." United States v. Bestfoods, 524 U.S. 51, 55, 118 S.Ct. 1876, 141 L.Ed.2d 43 (1998). The statute "was designed to promote the timely cleanup of hazardous waste sites and to ensure that the costs of such cleanup efforts were borne by those responsible for the contamination." Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 602, 129 S.Ct. 1870, 173 L.Ed.2d 812 (2009) (internal quotation marks omitted). By requiring responsible parties to pay for cleanup efforts, CERCLA also ensures that "the taxpayers [are] not required to shoulder the financial burden of a nationwide cleanup." B.F. Goodrich Co. v. Murtha, 958 F.2d 1192, 1198 (2d Cir. 1992).
In furtherance of these goals, CERCLA allows private parties to recover the costs of cleaning up hazardous wastes from several broad categories of PRPs. 42 U.S.C. § 9607(a)(1)-(4).
Under CERCLA, a person is liable as a past "owner" or "operator" if he
Operator liability is more nuanced, but Bestfoods provides some helpful guidance. There, the Supreme Court clarified that when defining "operator" liability under CERCLA, Congress "obviously meant something more than mere mechanical activation of pumps and valves" and intended liability to extend to those who "exercise... direction over the facility's activities." 524 U.S. at 71, 118 S.Ct. 1876. On this basis, the Court concluded that an operator under CERCLA must "manage, direct, or conduct operations specifically related to pollution, that is, operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations." Id. at 66-67, 118 S.Ct. 1876. The definition of "operator" in Bestfoods "clearly requires actual participation, not merely the potential to do so." City of Wichita, Kansas v. Trustees of APCO Oil Corp. Liquidating Trust, 306 F.Supp.2d 1040, 1054 (D.Kan. 2003); see also United States v. Twp. of Brighton, 153 F.3d 307, 314 (6th Cir.1998) (describing Bestfoods as "highlight[ing] the importance of establishing some actual control by a putative operator"). Although "actual participation" in this sense "does not require a finding that the [defendant] directly participated in the day-to-day activities" at the facility, see United States v. Kayser-Roth Corp., 103 F.Supp.2d 74, 82 (D.R.I.2000), Bestfoods requires that an operator "make the relevant decisions" regarding the disposal of hazardous wastes "on a frequent, typically day-to-day basis." City of Wichita, 306 F.Supp.2d at 1055 (collecting cases).
Arranger liability requires ownership or possession of hazardous substances, but "cannot be imposed on that basis alone." Morton Int'l, Inc. v. A.E. Staley Mfg. Co., 343 F.3d 669, 679 (3d Cir.2003).
A plaintiff who is also a PRP theoretically may avoid CERCLA liability altogether by imposing joint and several liability on a PRP-defendant under CERCLA § 107(a). However, the PRP-defendant can "blunt any inequitable distribution of costs by filing a § 113(f) counterclaim" against the PRP-plaintiff. United States v. Atl. Research Corp., 551 U.S. 128, 140, 127 S.Ct. 2331, 168 L.Ed.2d 28 (2007). In such instances — as here — a court must determine the allocation of liabilities between the PRPs pursuant to CERCLA § 113(f)(1).
CERCLA § 113(f)(1) states that "[i]n resolving contribution claims, the court may allocate response costs among liable parties using such equitable factors as the court determines are appropriate." 42 U.S.C. § 9613(f)(1). Courts have universally held that "[t]his plain language grants a court significant discretion to choose which factors to consider in determining equitable allocation of liability." PCS Nitrogen Inc., 714 F.3d at 186; see also Boeing Co. v. Cascade Corp., 207 F.3d 1177, 1187 (9th Cir.2000). "[I]n any given
"Courts generally trot out two lists of factors when considering allocation under CERCLA." Yankee Gas Servs. Co. v. UGI Utilities, Inc., 852 F.Supp.2d 229, 247 (D.Conn.2012). The first, the so-called "Gore Factors," find their source in the legislative history (and unsuccessful amendment) of CERCLA by then-Representative Al Gore. See Boeing, 207 F.3d at 1187. The "Gore Factors" include:
Envtl. Transp. Sys., 969 F.2d at 508 (quoting United States v. A & F Materials Co., 578 F.Supp. 1249, 1256 (S.D.Ill.1984)).
Courts also often invoke the so-called "Torres Factors," named after the "critical factors" enumerated by then-Judge Torres:
United States v. Davis, 31 F.Supp.2d 45, 63 (D.R.I.1998).
Given the broad discretion granted in CERCLA § 113(f)(1), courts also look beyond the Gore and Torres factors when equitably allocating response costs. See, e.g., Am. Int'l Specialty Lines Ins. Co. v. United States (AISLIC II), 2013 WL 135405, at *9 (C.D.Cal. Jan. 9, 2013). Of relevance to this case, courts have also considered the following factors under CERCLA § 113(f)(1):
With these factors in mind, the Court now turns to the ultimate question before it: the equitable allocation between Lockheed and the government of past and future response costs at the Sites.
To reach an equitable allocation for the Sites, the Court proceeds in three steps. First, the Court determines, to the extent possible, the sources of contamination at the Sites. From there, the Court bifurcates its equitable allocation analysis to consider (1) the familiar exercise of allocating response costs among parties and (2) the novel issue of whether Lockheed's indirect recovery of those response costs through U.S.-government contracts should affect the otherwise-equitable allocation.
Although in many cases courts can find that a particular facility, party, or disposal action was responsible for a specific proportion of contamination at a site, see, e.g., AlliedSignal, Inc. v. Amcast Int'l Corp., 177 F.Supp.2d 713, 724 (S.D.Ohio 2001), the Court is unable to do so here given the gaping holes in the record. Instead, the Court must limit itself to determining the probable sources of perchlorate and TCE contamination at the three Sites.
The parties agree that a significant proportion of the perchlorate contamination in the Redlands perchlorate plume originated from the burning of propellant wastes in the burn pits in the northern portion of the Redlands facility. (Feenstra Decl. ¶¶ 123, 127; Sterrett Decl. ¶¶ 17, 136-41.) As described by Dr. Sterrett, the "burn pits were essentially trenches dug in the bare ground." (Sterrett Decl. ¶ 136.) LPC employees burned propellant wastes, containing waste AP in liquid and solid form, on a daily basis. (USX963.0086 (Speer Decl.).)
The operation of the burn pits contributed perchlorate to the Redlands perchlorate plume because, unbeknownst to anyone at the time, the AP disposed of in the pits was not completely destroyed by burning. (Trial Tr. at 730 (Feenstra); see PX1224 at 10.) Any AP residue remaining in the pits after burning could dissolve in a solvent (including water) and infiltrate through the
The presence of perchlorate in groundwater wells in the southern portion of the Redlands facility also suggests the existence of perchlorate sources unassociated with the burn pits. (Feenstra Decl. ¶¶ 122, 148, 153.) The parties vigorously dispute the southern source of the perchlorate at the facility. The Court finds that there were three probable sources.
First, beginning as early as November 1958, liquid solvent and AP wastes drained onto the ground outside of Building 52, where LPC mixed propellants.
Second, AP-laden wastewater percolated into the ground outside of several buildings when LPC employees washed down
The final — and most significant — source of perchlorate from the southern portion of the Redlands facility was the washing of AP off of grinder parts and dust collection bags into the south sump outside of Building 77. LPC operated Building 77 as an AP grinding facility. In 1962, LPC issued a manufacturing process standard — Standard 00COO5 — addressing cleanup procedures for oxidizer grinding operations at Building 77. (USX32.) The Process Standard instructed LPC employees after each grind to "flush[] with water" certain parts of the grinder "to remove contamination." (Id. at .0003.) The standard further specified that "[t]he flushing will be performed at the faucet and sump outside the lower level of Bldg. 77. Do not use water inside the building." (Id. (emphasis in original).) The same process was mandated for the washing of the AP dust collection bags. (Id.; see also USX807.0031-33.)
Based on this process standard, both parties agree that after 1962, LPC washed AP dust off of the grinder parts and bags outside of Building 77. However, the parties dispute into which of the sumps on the west side of Building 77 the AP-contaminated washwater flowed. Mr. Cain opined that LPC employees washed the grinder parts and bags on the concrete slab outside of Building 77 and the washwater flowed naturally into the south sump, where it then percolated into the ground through a drain or was pumped to the south to drain naturally on the bare ground downhill and away from Building 77. (Cain Decl. ¶¶ 50-59, 79; see also Sterrett Decl. ¶¶ 125-35.) In rebuttal, Mr. Delaney, Lockheed's expert, opined that LPC employees washed the parts directly over and into the north sump, which pumped the washwater to an evaporation pit. (Delaney Decl. ¶¶ 38-50; see also Feenstra Decl. ¶¶ 109-21.)
The Court credits Mr. Cain's opinion that the washwater from cleaning the grinder parts and bags flowed to the south sump and ultimately percolated into the soil and migrated to the groundwater. LPC's process standards provided no clear instructions on precisely how to wash the grinder parts and bags at the "at the faucet and sump" outside of Building 77 (see USX32 § 1.3),
Moreover, two pieces of evidence support Mr. Cain's opinion that washwater from cleaning the grinder parts and bags flowed into the south sump. First, George Nelson White, a maintenance mechanic at LPC from 1961 to 1975, stated that when the south sump reached capacity, "it pumped the water up to the top of the dike out into the rocks. They're all oxidizers there." (USX994 at 116 (White Dep.).) Second, and perhaps most persuasively, an April 16, 1966 aerial photograph shows an area of staining or standing liquid at the end of the drainage channel down-gradient from the south sump fallout. (See Trial Tr. at 1412-13 (Sitton); Sitton Decl. ¶ 41; USX672.)
Based on this evidence, the Court finds that AP-laden washwater from LPC employees' regular washing of grinder parts and bags outside of a Building 77 flowed into the south sump and contributed significantly to the Redlands perchlorate plume.
The parties disagree vehemently as to the identity of the source of the Redlands TCE plume. The government argues that the TCE originated primarily from LPC employees' intentional dumping of solvents onto the bare ground at various locations at the Redlands facility. (Trial Tr. at 897-98 (gov't opening); Sterrett Decl. ¶¶ 54-75.) In contrast, Lockheed asserts that the TCE primarily originated from discharges from a solvent-water separator attached to the vapor degreaser in Building 91. (Trial Tr. at 42-43 (Lockheed opening); Feenstra Decl. ¶¶ 63-95.)
First, the Court finds ample evidence that LPC employees poured TCE on the bare ground and that those actions were a probable source of the Redlands TCE plume. (See Sterrett Decl. ¶ 54.) Repeated pouring of small amounts of a liquid onto a porous and permeable soil can create a "wetted pathway" by which a liquid's chance of evaporation in the soil strata decreases and newly dumped liquids move quickly and easily to groundwater. (Trial Tr. at 829 (Feenstra); Sterrett Decl. ¶ 60.) The record is replete with credible historic depositions from LPC employees admitting to frequently pouring TCE and other solvents on the bare ground in contravention of company policy. (See PX961.) For example, Earl Wessman, a maintenance mechanic at the Redlands facility from 1963 to 1975, testified that he dumped a quart to two gallons of TCE daily at the same "very porous" bed of gravel north of Building 119, where the TCE would "sink right in." (USX989 at 188-90 (Wessman Dep.); USX990 at 419-420 (Wessman Dep.); see also USX987 at 15-17 (Wessman Test.).) Likewise, Christian Mulder, a night shift operator at the Redlands facility from 1956 to 1965, testified that he and his colleagues dumped one to two gallons of TCE on the ground outside Buildings 8 and 12 "just about every night." (USX941 at 34-35, 46-47 (Mulder Dep.).) Although Mulder and his colleagues knew of the availability of a nearby evaporation pit for solvent disposal, they refused to walk there at night for fear of the "rattlesnakes and tarantulas." Instead, they poured the waste TCE on the ground. (Id. at 86-87.) Several other LPC employees also admitted to intermittent pouring of TCE on the bare ground at Redlands. (See Sterrett Decl. ¶¶ 68-72; USX944A.0002 (Nunes Decl.).)
Instead, some portion of the TCE in the Redlands plume probably originated in the vapor degreaser in Building 91. Vapor degreasers are used to clean grease and oil off of metal instruments. Heating elements in the bottom of a vapor degreaser boil a "solvent liquid to produce a zone of hot solvent vapor." (Feenstra Decl. ¶ 64.) When degreaser operators place cold metal parts into the vapor zone, either in a basket or on a chain, the vaporized solvent condenses on and cleans the part. The "soiled" liquid solvent drips back down into the degreaser sump, where it is reheated into a vapor. (Id. ¶ 65.) Solvent vapors that do not condense on the metal parts are condensed by cooling coils on the perimeter of the degreaser tank. This condensed liquid collects and is directed to a solvent-water separator. When functioning properly, the solvent-water separator separates water that had condensed with the solvent from the solvent and directs the solvent back into the main degreaser tank to revaporize. (Id. ¶¶ 64, 81.) Any condensed water will float and, once it reaches a certain level, it is released via a drain onto the floor. (Trial Tr. at 833 (Feenstra).)
LPC operated the vapor degreaser in Building 91 to degrease rocket motor casings and other large components. (See Feenstra Decl. ¶ 23.) Dr. Feenstra opined that the solvent-water separator in the degreaser functioned improperly and released one-to-two gallons of watered-downed or even pure TCE per day onto the floor of Building 91, which then flowed through a drain directly into the subsurface soils. (Id. ¶¶ 76, 85-87; Trial Tr. at 817 (Feenstra); PX841 (diagram showing drain below vapor degreaser).).
The Court credits Dr. Feenstra's theory. Vapor degreasers (and their solvent-water separators) are common sources of solvent contamination at industrial and dry cleaning sites and can release pure solvent into the environment. (Feenstra Decl. ¶ 84.) That there is no evidence that any LPC employees noticed releases of small amounts of TCE from the solvent-water separator is not surprising, considering the substantial TCE odor associated with the operation of the degreaser, which was capable of boiling 120 gallons of TCE at a time, and the fact that solvent-water separators release water onto the floor when functioning properly. (Trial Tr. at 685 (Feenstra).)
However, there is little evidence to support Dr. Feenstra's opinion that the vapor degreaser was the sole source of TCE in the Redlands plume. First, Dr. Feenstra's opinion that the solvent-water separator released exclusively pure TCE throughout LPC's operations at the Redlands facility lacks convincing support in the record. (Trial Tr. at 1185 (Sterrett); Sterrett Decl. ¶ 109.) Second, the evidence indicates that LPC did not operate the vapor degreaser every day or "with any great frequency." (USX951 at 61 (Rodgers Dep.); USX995 at 117 (White Dep.).) And finally, contrary to Dr. Feenstra's opinion and Lockheed's arguments, the Court finds, based on Lockheed's sworn statements in prior legal and administrative actions, that LPC switched from using TCE to TCA in the
As described above, the sources of perchlorate contamination in the soil and groundwater at the Potrero Canyon facility are undisputed. (See Trial Tr. at 1238-39 (Lockheed and government counsel).) A primary source of contamination for both soil and groundwater is the Burn Pit Area. (Sterrett ¶¶ 220-21, 226-27.) Some of the perchlorate contamination at the Potrero Canyon Burn Pit Area, like at the Redlands facility, resulted from the fact that a burn event would not completely destroy all of the AP, and some of the remaining AP residue dissolved in the rain and percolated into the soil and eventually the groundwater. (Cf. Trial Tr. at 730 (Feenstra); Sterrett Decl. ¶ 141; PX1224 at 10.)
However, the Court also finds that some of the perchlorate contamination at the Burn Pit Area probably originated pre-burn. LPC operated the Burn Pit Area at Potrero Canyon much differently than its burn pits at the Redlands facility. Rather than burning propellant wastes on a daily basis, mere minutes after putting the wastes into the pit (see USX910 at 183-84 (Heeseman Dep.); USX963 at 86 (Speer Dep.)), at the Potrero Canyon facility LPC accumulated wastes (propellant, solvent, etc.) over months and burned them only a few times per year. (See USX49.0074-75; USX53.)
Larry Borgelt, a safety engineer at LPC from 1966 to 1974, explicitly contrasted the
LPC's "hog out" procedures caused the perchlorate soil and groundwater contamination associated with the Large Motor Washout Area and the Rocket Motor Production Area. (Sterrett Decl. ¶¶ 220-21.) As described above, LPC washed propellant out of defective rocket motors using high-pressure water jets to allow the reuse of the expensive metal rocket casings. (Feenstra Decl. ¶ 164; USX49.0068; USX12.0050, .0055-56.) The propellant was hogged out onto the bare ground where the AP leached out of the propellant, dissolved in the water, and percolated into the soil and groundwater. (Sterrett ¶ 221; USX49.0068; cf. PX1067 at 4.) Today, hog out procedures are a recognized source of perchlorate groundwater and soil contamination. (See PX1224 at 10.) As Mr. Bauer testified, "if they hogged out on the ground, then it's a source." (Trial Tr. at 1160 (Bauer).)
As with the Potrero Canyon facility, the parties do not dispute the sources of perchlorate contamination at the LaBorde Canyon facility. (See Trial Tr. at 1238-39 (Lockheed and government counsel).) Perchlorate contamination associated with the Test Bay Canyons originated, as the name suggests, from rocket motor testing and firing operations. (Feenstra Decl. ¶ 169; Sterrett Decl. ¶ 240.) Although it is unclear precisely by what mechanism AP from the test-fired rocket motors ended up on the ground, the levels of perchlorate contamination associated with the Test Bay Canyon indicate that the ground surface was "flood[ed]" with "perchlorate-bearing water." (Feenstra Decl. ¶ 169; see also Sterrett Decl. ¶ 240.) Dr. Feenstra hypothesized that LPC may have "hogged-out" defective motors at the Test Bay Canyon. (Feenstra Decl. ¶ 169.)
Perchlorate contamination associated with the Waste Discharge Area was caused, at least in part, by LPC's disposal of propellant wastes from its burn pits. (Feenstra Decl. ¶ 170; Sterrett Decl. ¶ 241.) In 1962, the Santa Ana Regional Water Pollution Control Board issued a Resolution to LPC to direct its operation of the Waste Discharge Area. (See PX1116.) Under that Resolution, LPC was allowed to dispose of approximately 5000 gallons per year of propellant waste that remained after burning in a burn pit. (PX1116 at 1-2.) As described above, burning did not completely destroy all of the AP in propellant wastes. Thus, some of the AP residue remaining in the wastes disposed of at the Waste Discharge Area dissolved in rainwater and percolated into the soil and groundwater. (See Trial Tr. at 730 (Feenstra); Feenstra Decl. ¶ 171; PX1224 at 10.)
Because the parties have stipulated to liability, and substantially all of LPC's operations at the Sites were in performance of government contracts or subcontracts, the Court begins its analysis by invoking the per capita approach: a fifty-fifty split between Lockheed and the government. Cf. Davis, 31 F.Supp.2d at 63-64 (describing the proper and improper times to begin with a per capita approach). (See also Trial Tr. at 29-30 (Lockheed counsel advocating a per capita approach); id. at 1931, 1941 (Lockheed closing).) From there, the Court adjusts the equitable allocation based on its findings, keeping in mind that "[m]athematical precision in this process is not realistically achievable or desirable." United States v. Consolidation Coal Co., 184 F.Supp.2d 723, 744 (S.D.Ohio 2002).
In many cases, "the dominant factor in determining each party's equitable share of liability is the extent to which the response costs are attributable to waste for which that party is directly responsible." Davis, 31 F.Supp.2d at 64. This consideration, reflected in the first three Gore Factors and the first Torres factor, is inapplicable here, for all of the perchlorate and TCE contamination originated from LPC's operation of the Sites in the performance of its government contracts. It is therefore impossible to attribute even rough quantities of the perchlorate and TCE contamination between the parties without delving into issues regarding the extent of the government's involvement in and control over waste disposal practices at the Sites. (See infra Section II.B.-C.)
"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." Davis, 31 F.Supp.2d at 66; see also Weyerhaeuser, 771 F.Supp. at 1426. The economic benefits to the parties from LPC's operations at the Sites were "roughly equal." See AISLIC II, 2013 WL 135405, at *9. The government benefitted from LPC's research and development and received rockets supporting eight major Cold War-era programs, and LPC received payments for these services and products. See id. Although LPC may not have reaped large profits from its contracts with the government, it helped its parent corporation Lockheed Aircraft Corporation establish a foothold in the rocket propulsion field, a position that Lockheed retains to this day.
The sixth and final Gore factor considers "the degree of cooperation by the parties with Federal, State or local officials to prevent any harm to the public health or the environment." Envtl. Transp. Sys., 969 F.2d at 508. Because non-cooperating parties can undermine CERCLA's goal of promoting quick and efficient cleanups, see Consolidation Coal, 184 F.Supp.2d at 751, "[t]he degree of cooperation with government officials to prevent any harm to the public health or the environment is very important in the contribution analysis." Cent. Maine Power, Co. v. F.J. O'Connor Co., 838 F.Supp. 641,
However, Lockheed proceeds on a somewhat distorted view of the facts. Although Lockheed has cooperated with the state authorities regarding cleanup at the Sites, it cooperation can hardly be considered voluntarily. Lockheed denied liability for the Redlands TCE plume for years (PX1677 ¶¶ 12, 36; Trial Tr. at 332 (Blackman)) and initiated cleanup efforts only after ordered to do so by the Santa Ana Regional Water Quality Control Board. (Trial Tr. at 331-32 (Blackman).) For the government's part, there is no evidence that any California state agency ever asked the government to undertake response efforts, and neither Lockheed nor any other party sought reimbursement from the government under CERCLA until this suit was filed in 2008. And while the government has not directly paid for any response costs yet, see Consolidation Coal, 184 F.Supp.2d at 751 (finding that a failure to pay for response costs or actions prior to CERCLA suit relevant to whether the PRP meaningfully cooperated), its protests against doing so are grounded primarily on the fact that it has already indirectly paid for the majority of Lockheed's response costs at the Sites. (See Meyer Decl. ¶ 29 fig. 5.).
In short, Lockheed was forced by cleanup and abatement orders to undertake its remediation efforts, and the government has (albeit indirectly) footed most of the bill.
Pursuant to the government property clauses in its contracts with LPC, the government owned an unknown, but undoubtedly sizable, amount of the AP and TCE that was disposed of at the Sites. Under government contracting provisions, title will vest in the government for certain property — including chemicals and other raw materials — purchased and used by a government contractor. When title vests in the government generally depends on the type of contract and whether contractor charges the property as a direct or indirect cost.
Under LPC's cost-reimbursement contracts, such as the Apollo subcontract (PX104), title vested in the government for property charged as a direct cost as soon as the property was delivered to LPC, and title vested for property charged as indirect costs at the earliest of three events, including LPC's use of property in performance of the contract or the government's reimbursement of the cost to LPC. (Johnson Decl. ¶ 8.) For LPC's fixed-price contracts with progress payments, such as the SRAM production subcontracts, title vested in the government for property charged as both direct and indirect costs upon the issuance of a progress payment to LPC. However, title reverted
LPC most likely charged most, if not all, AP as a direct cost and TCE as an indirect cost to government contracts. (Johnson Decl. ¶ 20; Nagle Decl. ¶ 135.) Thus, title vested in the government for both materials during some point in the manufacturing processes and, depending on the contract type, remained vested in the government indefinitely (cost-reimbursement) or until the end of the contract (fixed-price with progress payments). In either event, the government retained title over at least some of the AP and TCE at the time of their disposal at the Sites.
Merely owning the hazardous substances that caused response costs is, however, insufficient for liability under CERCLA. See Morton Int'l, 343 F.3d at 679. Instead, a non-disposing owner of a hazardous substance is generally liable only if he arranges for its disposal or treatment by a third party. 42 U.S.C. § 9607(a)(3); see also Burlington N., 556 U.S. at 610-11, 129 S.Ct. 1870. The Court considers this distinction to be an important signal that, in passing CERCLA, Congress was more interested in holding liable, where distinguishable, those who disposed of and controlled the disposal of hazardous substances rather than those who owned them.
In its exercise of equitable discretion, the Court applies this distinction here. It is unclear how much of the AP or TCE used (and disposed of) at the Sites the government actually owned. While the government ownership was likely significant in absolute terms (e.g., pounds of AP or gallons of TCE), Lockheed's government contracts expert could not conclude with a reasonable degree of certainty that the government owned more than fifty percent of either AP or TCE used at the Sites. (Trial Tr. at 157 (Johnson).) Moreover, regardless of the government's ownership, Lockheed possessed the waste at all times up to and including the time of disposal. And, for fixed price contracts with progress payments (like SRAM), the waste — even if already disposed of — reverted back to Lockheed upon the termination of the contracts. See AISLIC II, 2013 WL 135405, at *8.
Owning a facility at the time hazardous substances were disposed of at that facility results in liability under CERCLA. See 42 U.S.C. § 9607(a)(2). From this statutory hook, courts frequently allocate an "owner's share" of liability to parties "simply by virtue of being the landowner," United States v. R.W. Meyer, Inc., 932 F.2d 568, 571 (6th Cir.1991), or owning the leaking or faulty equipment at a site. E.g., AISLIC II, 2013 WL 135405, at *4-5.
Both parties owned equipment at the Sites. (See, e.g., USX26.0018-28; USX27; USX28.0025-27.) Indeed, the government stipulated to its liability under CERCLA because it owned and furnished some of the major pieces of equipment for LPC's operations. (See Trial Tr. at 899 (government counsel).) Lockheed argues that government ownership of this equipment — including the vapor degreaser in Building 91 and the hogged-out rocket casings at the Potrero and LaBorde Canyon facilities — should weigh in Lockheed's equitable favor because those pieces of equipment were sources of TCE and perchlorate contamination (i.e., "facilities") at the Sites. (E.g., Trial Tr. at 33 (Lockheed opening); id. at 1946 (Lockheed closing.)
Lockheed is correct that both the government-owned vapor degreaser and hogged-out rocket casings are "facilities" under CERCLA § 101(9). See Am. Int'l Specialty Lines Ins. Co. v. United States (AISLIC I), 2010 WL 2635768, at *23-24 (C.D.Cal. June 30, 2010). The Court, however, does not consider the government's mere ownership of certain pieces of equipment to have much importance in determining an equitable allocation. Instead, just as with the ownership of the waste, the Court considers "[f]actors additional to the simple fact of ownership" of facilities — in particular the parties' respective control over the disposal operations — to be the paramount equitable consideration. See Yankee Gas, 852 F.Supp.2d at 248. Thus, the Court does not adjust the per capita equitable allocation on account of either party's ownership of equipment or facilities at the Sites.
The fifth Gore Factor considers "the degree of care exercised by the parties with respect to the hazardous waste concerned." Envtl. Transp. Sys., 969 F.2d at 508. As the Court concluded above, the contamination at the Sites originated, inter alia, from pouring TCE and AP wastewaters, and burning solid propellant wastes, on the bare ground. Mr. Bauer, a government expert, opined these disposal practices violated the standard of care in existence at the time of LPC's operations. (Trial Tr. at 1086-87 (Bauer); Bauer Decl. ¶¶ 11(b), 11(e), 138(b).) The Court does not credit Mr. Bauer's testimony for two reasons.
First, although LPC knew that the Sites were located in areas with sensitive groundwater supplies (see, e.g., USX15.0002-03; USX43.0002; USX50.0002; USX970 at 140-41 (Speer Dep.); USX977 at 35-36, 43 (Stickney Dep.)), neither TCE nor perchlorate were known groundwater contaminants at the time LPC operated the Sites. "[T]here
Second, both pouring TCE and AP wastewaters and burning solid propellant wastes on bare ground were entirely consistent with the general standards of care in existence at that time. For TCE, the Court need look no further than the government's position in a prior case:
Snyder et al. v. United States, 04-cv-627, Gov't Memo. in Support of Mot. for Summ. J. at 3-4, (Feb. 22, 2006 S.D. Miss.) (PX2060). In Snyder, the government adopted its expert's opinion that the disposal of TCE on the bare ground and "`letting it evaporate' was common practice throughout the period from 1940 until 1973, followed manufacturer's recommendations, and was not at variance with state or federal regulations." (Id. at 19; see also PX1948 (summary table of historic manufacturer disposal recommendations for TCE).) This was so because the prevailing understanding at the time was that TCE poured on bare ground would evaporate or be absorbed in the surface or subsurface soils and "would not contaminate or alter the intended use of underground water supplies." (PX2060 at 19.)
For perchlorate, the Court does not credit Mr. Bauer's opinion that LPC should have burned AP and propellant wastes at the Redlands and Potrero Canyon facilities in burn pans rather than on the bare ground in burn pits. (Bauer Decl. ¶¶ 11(e), 133-36, 138(c).) LPC's burning of propellant wastes on the bare ground was consistent with both military and industry practice during LPC's operations at the Sites. Military manuals applicable
On these facts, the Court cannot agree with the government's position that LPC breached any generally recognized standard of care by pouring TCE and AP wastewaters and burning solid propellant wastes on the bare ground at the Sites.
A party's violation of an environmental law in force at the time of its disposal of hazardous wastes can be an important equitable factor relevant to a PRP's degree of care, culpability, and cooperation with government authorities. Environmental violations are most relevant to the extent that (1) the law is not coterminous with CERCLA liability (i.e., strict liability for disposal of hazardous substances); (2) the party's actions clearly violated the law as established at the time of the disposals; (3) those violations were
The government argues that LPC's equitable share should be increased because it failed to submit reports of various waste discharges at the Sites as required under the Dickey Act, 1949 Cal. Stat. ch. 1549. (Trial Tr. at 874, 901-02 (gov't opening).)
According to the California Attorney General's interpretation of the Dickey Act, the disposal of industrial waste "on land with a possible subsequent movement by evaporation or percolation into ... underground waters" was considered an "indirect" discharge. 48 Op. Cal. Att'y Gen. 85, 86 (1966) (USX1175). The government asserts that LPC repeatedly violated the Dickey Act by disposing liquid industrial wastes — e.g., TCE and AP wastewaters — on the bare ground at various locations at the Sites without filing notices of proposed indirect discharges with the Santa Ana Regional Water Quality Control Board. (E.g., Trial Tr. at 900-03 (gov't opening); Bauer Decl. at ¶ 168.)
Lockheed's expert, Mr. Delaney, testified in response that LPC had no responsibility under the Dickey Act to file notices of proposed waste discharges with the Board for the disposals of TCE and propellants on the bare ground at the Sites. (Delaney Decl. ¶ 13.) In particular, Mr. Delaney opined that neither the Dickey Act nor its successor, the Porter Cologne Water Quality Act of 1969, 1969 Cal. Stat. ch. 482, prohibited "intermittent or accidental wastewater [indirect] discharges" such as those that occurred at the Sites. (Delaney Decl. ¶ 13; see also Trial Tr. at 419-20 (Delaney).) Instead, according to Mr. Delaney, the notification provisions of the Dickey Act only covered "large-scale, purposeful" disposals of industrial wastes directly or indirectly into surface or groundwaters. (Trial Tr. at 419 (Delaney); Delaney Decl. ¶ 13.)
Although the parties dedicated a significant amount of time to the issue of whether LPC violated the Dickey Act, the Court is unable to resolve this debate for purposes of determining Lockheed's equitable share. First, it is unclear whether LPC had the duty to report to the Board its disposal of TCE and propellant wastes on the bare ground at the Sites. Contrary to Mr. Delaney's opinion, the Dickey Act does not provide an exception for de minimis or intermittent discharges. Instead, the plain language of the statute required a notice of proposed waste discharge for any discharge of industrial waste. (USX122.0007.) Further, that TCE and AP were not known groundwater pollutants at the time (supra Section II.A.6) seems irrelevant under the Dickey Act's broad definition of "industrial waste." (USX122.0002.) On the other hand, the Board periodically inspected each of the Sites (see PX1121; PX1130), and no evidence exists that the Board ever instructed LPC to file a notice of proposed waste discharge for any of its disposal activities. (Cf. PX1130 ("No written instructions or regulations from [the Board] has been received.").) Indeed, in 1967, the Board considered "the amount of industrial waste discharged by LPC into the water drainage basin ... to be negligible." (Id.) This arguable conflict between the statute and the Board's on-the-ground enforcement of the Dickey Act suggests that the Board and LPC's contemporaneous understanding of the Act was that it did not apply to LPC's disposal activities.
Second, even assuming arguendo that the Dickey Act applied to LPC's disposal activities, the Court cannot agree with Mr. Bauer's speculation had LPC complied with the law, the Board would have imposed requirements that would have reduced groundwater contamination or response
In sum, the Court cannot conclude that LPC violated the Dickey Act as it was understood or applied at that time or that LPC's "compliance" with the Act would have led to Board regulation of its discharges and thus reduced contamination and response costs at the Sites today. Accordingly, the Court gives no equitable weight to the issue of LPC's compliance (or lack thereof) with the Dickey Act.
"[T]he principal reason for considering ability to pay is to ensure that the party seeking contribution will not bear sole responsibility for any portion of the joint liability otherwise attributable to defendants from whom recovery is unlikely." Davis, 31 F.Supp.2d at 66. This factor is not an open invitation for courts to increase or decrease a party's equitable share based solely on net worth, but is instead meant to recognize "that a PRP's share of liability should not be established at a level that exceeds its resources," lest the plaintiff be left to shoulder that PRP's equitable share. Id.
Both parties claim that certain indemnification clauses in the contracts argue in favor of lowering their share. Indemnification merely shifts, but does not negate, CERCLA liability. See 42 U.S.C. § 9607(e)(1). To determine whether pre-CERCLA indemnification clauses cover CERCLA liabilities, "courts have uniformly held that the clause must be either `[1] specific enough to include CERCLA liability or [2] general enough to include any and all environmental liability which would, naturally, include subsequent CERCLA claims.'" Elf Atochem N. Am. v. United States, 866 F.Supp. 868, 870 (E.D.Pa.1994) (quoting Beazer E., Inc. v. Mead Corp., 34 F.3d 206, 211 (3d Cir.1994)). Neither the indemnification provisions in the government-owned facilities contracts (which favor the government) nor the ultra-hazardous activities indemnification provisions in the SRAM production subcontracts (which
The government asserts that indemnification provisions in its facilities contracts support imposing a higher equitable allocation on Lockheed. During LPC's operations at the Sites, the government and Lockheed entered into facilities contracts that provided (often rent-free) government-furnished equipment — e.g., the vapor degreaser in Building 91 — to LPC for its use in performance of its contracts. (USX228.0004 (28 C.F.R. § 13.101-8 (1955).) Facilities contracts were required to have government indemnification clauses. (Trial Tr. at 952-53 (Nagle); Nagle Decl. ¶ 109.) Under one example of a government indemnification provision, LPC agreed to
(USX84.0029; USX 113.0020.)
The language in this provision is typical "of the type of language used to indemnify a transferor against a tort, nuisance or trespass claim" — environmental liabilities are nowhere mentioned. See Mobay Corp. v. Allied-Signal, Inc., 761 F.Supp. 345, 358 (D.N.J.1991). Without more, the Court may not infer any intent to cover CERCLA response costs. Id. Moreover, the provision is expressly limited by any contrary liability-shifting provisions in the related procurement contract. (USX84.0029.) Thus, even assuming the facilities indemnification provision did cover CERCLA response costs, it is impossible to determine whether the provision applies to any given instance of disposal without reference to the procurement contract — the vast majority of which are not available. In any event, the Court's conclusion that the ownership of facilities has little probative value in determining allocation as compared to the operation of those facilities (see supra Section II.B.5) means that the facilities indemnification provisions are of little importance. Accordingly, the Court gives no weight to the government indemnification provisions in the facilities contracts.
For its part, Lockheed asserts that indemnification provisions in the 1971-75 SRAM production subcontracts — LPC's largest contracts at the Sites — support an equitable adjustment in its favor. (Trial Tr. at 1848-51 (Lockheed closing).) Through these indemnification provisions, the government agreed to "hold harmless and indemnify" LPC against, inter alia,
(PX0560 § 5.4.2.1 (emphasis added).) The contracts defined as "unusually hazardous":
(Id. § 5.4.1.1.)
The broad definition of "unusually hazardous" risks arguably covers the use and disposal of AP and TCE, as "explosive" and "toxic" chemicals, respectfully. However, assuming arguendo that the SRAM indemnification provisions are broad enough to cover CERCLA response costs,
Second, and more importantly, the predominant concern in equity is the intent of the parties, not whether the plain language of the indemnification provision would bind either party in law. See Beazer E., Inc. v. Mead Corp., 412 F.3d 429, 447 (3d Cir. 2005) (taking into account intent of parties even though the court had previously concluded that, as a matter of law, the agreement
S. REP. NO. 2281, 85th Cong., 2d Sess., at 3, reprinted in 1958 U.S.C.C.A.N. 4043, 4045.
As noted, the paramount equitable factor in this case is the comparative level of control the parties exercised over disposal practices at the Sites, a variation on the fourth Gore factor's focus on "the degree of involvement by the parties in the generation ... [and] disposal of the hazardous wastes." Envtl. Transp. Sys., 969 F.2d at 508. The Court analyzes this equitable factor through the operator liability framework set forth in Bestfoods and its progeny.
Of course, because the parties have stipulated to liability, the Court is not required to determine whether either party was an operator at the Sites. However, the Supreme Court's definition of operator liability in Bestfoods is helpful in delineating the types of control over which CERCLA extends and thus which party should be more responsible as an equitable matter.
Bestfoods limited operator liability under CERCLA to those parties who "manage, direct, or conduct operations specifically related to pollution, that is, operations having
Lockheed argues that the government is also an operator under Bestfoods because (1) LPC's contracts incorporated government safety manuals, which included disposal practices; (2) DCAS approved process specifications, which included disposal procedures; (3) DCAS inspectors observed production processes and occasionally undertook facility-wide safety inspections; and (4) the government provided technical advice to LPC. (Trial Tr. at 31-32 (Lockheed opening); see also Lockheed's Response to the U.S. Memo. on Operator Liability, Feb. 25, 2014 [Dkt. No. 136] at 2-4.)
Even considering the height of government presence and influence at the Sites during the SRAM production years, the Court disagrees. Although the government had a significant presence and role at the Sites, there is no evidence that the government used its influence to manage or control the day-to-day disposal of hazardous wastes there. See City of Wichita, 306 F.Supp.2d at 1055.
First, "courts have consistently held that contract provisions, specifications, and even mandates similar to those expressed in the [manuals at issue] are insufficient to show `direction' or `control' over waste disposal for purposes of establishing operator liability." Steadfast Ins. Co. v. United States, 2009 WL 3785565, at *7 (C.D.Cal. Nov. 10, 2009) (collecting cases); see also City of Moses Lake v. United States, 458 F.Supp.2d 1198, 1227 (E.D.Wash.2006) (where Lockheed, as a defendant, successfully argued that "specifications that govern the operation of missile maintenance facilities are relevant only insofar as they show that Lockheed managed or directed not just any `operations,' but operations having to do with the leakage and disposal of hazardous waste."). The many manuals and specifications at issue in this case are no exception. The manuals permitted — but did not mandate — some of the common disposal operations LPC used at the Sites, including the use of burn pits for propellant wastes. (See, e.g., PX0007 §§ 1504-07 (allowing disposal of propellant waste by burning on bare ground, dumping at sea, or destruction by detonation).
Further, DCAS' day-to-day role at the Sites was limited to ensuring LPC's compliance with contract specifications for quality assurance purposes. (Nagle Decl. ¶¶ 40-41.) DCAS was not contractually obligated to perform inspections at the Sites. The government had the right, but not the duty, to inspect. (Id. ¶¶ 42-46; see also USX242.0003.) At least until 1970, the record indicates that DCAS' quality assurance inspections were insufficient both in quantity and quality. (See PX577 at 117; see also USX221.0004.) In fact, the AFRPL criticized DCAS — along with Boeing and LPC — for inadequate quality assurance procedures. (See PX577 at 117.). Most importantly, there is no evidence that any of the DCAS quality assurance inspection points, even at the height of DCAS oversight during the later SRAM years, included disposal — rather than production — processes. (See generally USX264 (listing "mandatory production certification inspection characteristics," none of which concerned disposal of wastes).) See Miami-Dade Cnty. v. United States, 345 F.Supp.2d 1319, 1343 (S.D.Fla.2004) (government was not liable as an operator where Air Force inspectors had "no objective, duty, or responsibility other than to enforce the ... contract provisions by ensuring the delivery of quality products.").
DCAS's sporadic (prior to 1970) and periodic (after 1970) safety inspections
The same can be said for the government's technical involvement at the Sites. During the SRAM period, government representatives at the Sites from the SPO were primarily "observers" pursuant to the TSPR initiative. (See, e.g., Trial Tr. at 1338-40 (Dull).) To the extent SPO or AFRPL representatives gave technical direction to Boeing or LPC, the guidance related solely to product development and performance, not issues such as safety or, more specifically, waste disposal. (See, e.g., id. at 1353.) Inspections and guidance unrelated to waste disposal, no matter how pervasive, are not indicative of operator liability under CERCLA. See, e.g., Miami-Dade Cnty., 345 F.Supp.2d at 1343; State of Wash. v. United States, 930 F.Supp. 474, 485 (W.D.Wash.1996) (finding no operator liability when "[g]overnment inspectors and accountants had no responsibility for directing activities that led to the deposit of the wastes. The primary concern of the inspectors and accountants was efficiency and cost control.").
Even assuming that FMC remains good law in the wake of Bestfoods,
Relatedly, while Lockheed's argument that the government determined "`what product the facility would produce, the level of production, the price of the product, and to whom the product would be sold'" (Lockheed Operator Br. at 8 (quoting FMC, 29 F.3d at 843)), is technically correct, it is ultimately irrelevant without evidence of government coercion. For LPC's argument, taken to its logical conclusion, would render the government an operator for practically any military output contract. Such a conclusion is inconsistent with Bestfoods's requirement that operator liability is concerned first and foremost with control over "operations having to do with the leakage or disposal of hazardous waste," 524 U.S. at 66-67, 118 S.Ct. 1876, and is expressly foreclosed by Circuit
Accordingly, considering the totality of the circumstances, the Court concludes that the government was not an operator of the Sites. To be sure, all of LPC's operations at the Sites were in performance of government contracts or subcontracts and the government had a pervasive influence over general activities at the Sites, whether through process specifications, safety manuals, inspections, or technical direction. However, the government did not manage, direct, or otherwise control on a frequent basis the day-to-day hazardous waste disposal activities at the Sites. See Coeur D'Alene Tribe v. Asarco Inc., 280 F.Supp.2d 1094, 1127-30 (D.Idaho 2003) (government is not liable as an operator in case with "pervasive involvement of federal government" including knowledge of "how the waste material was disposed of and that it was done in accordance with the customary and usual practices of the time" because the "federal government did not make the day-to-day decisions regarding operations of [disposal]"); United States v. Iron Mountain Mines, Inc., 987 F.Supp. 1277, 1287-88 (E.D.Cal.1997) (same). Because LPC was the sole operator of the Sites under Bestfoods, the Court concludes that Lockheed should shoulder a large proportion of the liability for response costs at the Sites.
That the government was not an operator of the Sites under Bestfoods does not, however, shift the entire equitable allocation to Lockheed. Although evidence that a party knew of another's disposal practices is insufficient to impose either operator or arranger liability, see, e.g., Burlington N., 556 U.S. at 610, 129 S.Ct. 1870 (arranger); Coeur D'Alene Tribe, 280 F.Supp.2d at 1127-30 (operator), courts often consider the "acquiescence of the parties in the contaminating activities" as a factor in equitable allocation. See, e.g., Weyerhaeuser, 771 F.Supp. at 1426; see also Cadillac Fairview, 299 F.3d at 1025.
Even though the government did not direct or control LPC's day-to-day hazardous waste disposal activities at the Sites, it was aware of and acquiesced in many of them. The government contracted with LPC (and Boeing) with the knowledge that "[d]isposal ... should be regarded as an integral part of solid propellant rocket operations" (PX0009 § 7-1.1 (1973 Air Force Manual); see also PX431 ("[LPC] will generate under normal operations approximately 10,000 pounds of waste materials per month."), and wrote the manuals that provided general recommendations for waste propellant disposal procedures. (See, e.g., PX0007; PX0009.) It would be inequitable for the Court to allocate to Lockheed full responsibility for the response costs at the Sites when the government could have anticipated, and in some instances knew, how LPC disposed of the TCE and propellant wastes created during the performance of its government contracts. See Weyerhaeuser, 771 F.Supp. at
That said, the level of government acquiescence varied among the Sites. Government presence and acquiescence was at its greatest at the Redlands facility. The full-time DCAS representatives were located there, the majority of DCAS inspection points were located there, and the inspections (safety and otherwise) focused on operations there. (See Trial Tr. at 1357; e.g., PX476 at 109.) Even though the government's technical observers and DCAS inspectors were not focused on the ultimate acts of disposal at Redlands — e.g., evaporation pits and burn pits — it is improbable that the government representatives were unaware of how Lockheed managed its wastes. Indeed, there is direct evidence that government representatives at least knew of both LPC's use of evaporation pits (e.g., PX471 at 1) and burn pits at Redlands. (E.g., Trial Tr. at 1380 (Dull); PX453.)
Government presence was lower, but still significant, at the Potrero Canyon facility. While DCAS inspections focused on the Redlands facility, they also covered some of the production operations at the Potrero Canyon facility. (See, e.g., PX474; PX476 at 109; PX0479 at 304.) The government also knew of LPC's burn pit operations at the Potrero Canyon facility and on several occasions it instructed LPC to burn abandoned government property there. (See PX0461; PX1073 at 1; see also supra n. 75.) Further, although there is no evidence that the government directed LPC to hog out defective rocket motors, the government was aware that LPC was using this procedure. (See Trial Tr. at 1352 (Dull); PX326 at 3; PX550 at 46.).)
The government had the least involvement with the LaBorde Canyon facility. The government knew of and probably observed a significant number of rocket motor tests in the Test Bay Canyons. The government also knew, to the extent it occurred at the LaBorde Canyon facility, that LPC hogged out defective rocket motors to reuse the casings. (See Trial Tr. at 1352 (Dull); PX326 at 3; PX550 at 46.).) However, there is little evidence of government inspections — safety or otherwise — at LaBorde Canyon facility. There is also no evidence that the government had any oversight over the Waste Disposal Area.
Of course, the government did not know of and acquiesce in all of LPC's disposal practices, including many that are sources of the contamination at the Sites. Indeed, in several instances LPC violated its own internal rules or a rare government requirement with regard to the handling and disposal of waste solvents and propellants. The Court focuses only on three violations that best demonstrate LPC's lack of due care at the Sites. Whether a result of inadequate training, poor oversight, or sloppy practices in general, these instances favor an upward adjustment to Lockheed's equitable allocations for the Redlands and Potrero Canyon facilities.
Second, LPC's washing of grinder parts and bags into Building 77's south sump at the Redlands facility (see supra Section I.A.1) also violated the company's internal protocols. As Mr. Delaney opined, LPC's process specifications treated "AP-contaminated wastewater ... no differently than dry AP." (Delaney Decl. ¶ 24.) Although the process specifications for washing grinder parts and bags did not specify how to treat AP-contaminated wastewater from grinder part and bag washing (see USX32 § 1.3), manufacturing process standards pertaining to Building 77 specifically stated that AP-contaminated "water is to be discarded as waste propellant." (PX1023 § 6.31.1; see also PX1043 § 100.6.5 ("Label and treat the drum of [contaminated] water as waste propellant.").) Under LPC's safety standard for propellant wastes, waste propellant was to be collected in drums and transported to the burn pits. (See PX1061 at 885-87.) As Mr. Oppliger testified, disposal of AP-contaminated wastewaters onto the bare ground "would not be allowed." (Trial Tr. at 95 (Oppliger).) Had this admonition been followed, a substantial portion of the perchlorate contamination in the Redlands plume probably could have been prevented.
Based on these above findings of facts and conclusions of law, were the Court to end its equitable analysis here, it would allocate liability for response costs (pasts and future) at the Sites as follows: at the Redlands facility, a 30% share of liability for the government and a 70% share of liability for Lockheed; at the Potrero Canyon facility, a 25% share of liability for the government and a 75% share of liability for Lockheed; and at the LaBorde Canyon facility, a 20% share of liability for the government and an 80% share of liability for Lockheed.
However, no analysis can be complete without consideration of the novel issue of what effect, if any, Lockheed's indirect recovery of significant percentages of its response costs for the Sites through U.S.-government contracts should have on the Court's equitable allocation of those same response costs between the Lockheed and the government. Lockheed urges that its indirect recoveries from the government should have no effect on its ability to recover directly from the government under CERCLA. In contrast, the government argues that allocating it a CERCLA share would amount to impermissible "double recovery." Because of the significant economic and legal distinctions between past and future response costs, the Court considers their allocations separately.
Lockheed has indirectly recovered from the government through higher contract prices over 72% of its past response costs for the Sites. (Meyer Decl. ¶ 29 & fig. 5.) Thus, the government's "effective share" is already well over two times higher than its equitable share for the Sites as determined in Section II.E. Moreover, based on the most recent data on the U.S.-government share of Lockheed's business, U.S.-government contracts would receive the benefit of only 87% of any CERCLA payment made by the government for past response costs.
"CERCLA expressly prohibits double recovery for response costs." Boeing Co. v. Cascade Corp., 920 F.Supp. 1121, 1133 (D.Or.1996). However, this prohibition is fairly narrow, in that it only applies to bar CERCLA recovery for costs already compensated "under any other Federal or State law." 42 U.S.C. § 9614(b). Because of the narrowness of the statutory bar on double recovery, courts have developed a broader equitable double recovery theory based on the principle that "permitting a CERCLA contribution-action plaintiff to recoup more than the response costs he paid out of pocket flies in the face of CERCLA's mandate to apportion those costs equitably among liable parties." Friedland, 566 F.3d at 1207. The theory also comports with the concept that "the environment is the injured party, not the plaintiff." United Alloys, Inc. v. Baker, 797 F.Supp.2d 974, 1002 (C.D.Cal. 2011). "In other words, Plaintiffs have not been damaged and are not `entitled' to money as a damaged party; but rather, Plaintiffs can only receive reimbursement for the costs they expended beyond their share of actual responsibility for the environmental damage." Basic Mgmt. Inc. v. United States, 569 F.Supp.2d 1106, 1124 (D.Nev.2008) (emphasis added). Plaintiffs "cannot make a profit on the contamination." Vine St., 460 F.Supp.2d at 765. The effect of an equitable bar on double recovery is simple: if a party has recovered from a collateral source, the amount of that recovery is subtracted from the total pool of allocable costs.
Courts have applied equitable principles to bar double recovery in circumstances where plaintiff-PRPs have received payouts from insurers, see, e.g., Yankee Gas, 852 F.Supp.2d at 255-56; Basic Mgmt., 569 F.Supp.2d at 1125; formal settlements with other PRPs, see, e.g., K.C.1986 Ltd. P'ship v. Reade Mfg., 472 F.3d 1009, 1017 (8th Cir.2007); and informal payments from other PRPs. See, e.g., Vine St., 460 F.Supp.2d at 766 (so holding even though, under the agreement, plaintiff had promised to pay back the PRPs for all reimbursements
In that vein, Lockheed argues that this case is more analogous to the utility rate recovery cases where courts have concluded that double recovery is not an equitable concern. See Yankee Gas, 852 F.Supp.2d at 256; N.Y. State Elec. & Gas Corp. v. FirstEnergy Corp., 808 F.Supp.2d 417, 528-29 (N.D.N.Y.2011). In those cases, plaintiff-utilities formally recovered their response costs through increased rates charged to ratepayers. The defendants in both cases argued that the recovery of response costs from ratepayers should equitably bar plaintiffs' recovery of those response costs under CERCLA, lest the plaintiffs receive a windfall. See Yankee Gas, 852 F.Supp.2d at 256; FirstEnergy, 808 F.Supp.2d at 528. Both courts disagreed, concluding that the plaintiffs' recoveries from defendants posed no large risk of double recovery or windfall. Yankee Gas, 852 F.Supp.2d at 256; FirstEnergy, 808 F.Supp.2d at 529. As the Yankee Gas court explained:
852 F.Supp.2d at 256 (quoting Marsh, 499 F.3d at 182) (emphasis in original).
This case, however, is distinguishable from Yankee Gas and FirstEnergy. Here, the principal "ratepayer" and the defendant-PRP are one and the same — the U.S. government. In such circumstances, careful consideration of the recovery crediting scheme is necessary to ensure that the plaintiff does not benefit from double recovery at the expense of the taxpayer. See R.W. Meyer, 932 F.2d at 572 ("`The hallmark of a court of equity is its ability to frame its decree to effect a balancing of all the equities and to protect the interest of all affected by it, including the public.'" (quoting Kay v. Mills, 490 F.Supp. 844, 855 (E.D.Ky.1980)).
The DiscOps Pool's crediting mechanism attempts to prevent "double recovery," at least as traditionally understood. Lockheed must allocate its CERCLA response cost recovery to the DiscOps Pool (see USX 1033 ¶ 4.7), and credits in the DiscOps Pool are passed through Lockheed's contracts in the same way as costs. (Trial Tr. at 1678 (Gatchel).) As in the utility rate recovery cases, one hundred percent of any CERCLA recovery ultimately flows to the ratepayers (i.e., the U.S.-government and Lockheed's other clients) and not Lockheed. Thus, there is no "double recovery" in the traditional sense because Lockheed cannot recover more in response costs than it initially paid, and there is little potential for a windfall to the plaintiff from the crediting system. (Cf. id. at 594-95 (Wright).)
To be sure, under any scenario where the government is allocated an equitable share of past response costs, it will be worse off and shoulder a larger "effective share" of Lockheed's response costs than
Moreover, the government has been complicit in designing the very system about which it so bitterly complains. The FAR allows indirect costs to be charged to government contracts and the DCAA has taken the position that environmental cleanup costs at discontinued sites generally constitute indirect costs. (See PX1862 ¶ 7-2120.7.) More importantly, in 2000, the government negotiated with Lockheed and signed the DOSA, which blessed the DiscOps Pool and its cost allocation and crediting scheme and explicitly stated that it did not settle any claims arising under CERCLA. (USX1033 ¶ 4.18.) The DOSA also recognized the coexistence of indirect contract and direct CERCLA recoveries by disallowing certain costs and credits from — rather than nullifying wholesale — the Burbank Consent Decree. (Id. ¶¶ 3.1-.3.) All the while, the government agreed, both pre- and post-DOSA, to toll the CERCLA statute of limitations for the Redlands facility, while allowing Lockheed to indirectly recover response costs through U.S.-government contracts.
Under these facts, the government cannot fairly assert, as it seems to here, that it was blindsided by Lockheed's decision to file a CERCLA claim for the Sites or that DOJ should not be bound by DOD's decisions regarding government procurement contracting.
Double recovery aside, the Court is nonetheless concerned about the economic benefit to Lockheed and the economic detriment to the taxpayers from any CERCLA recovery of past costs in this case. Framing the issue as one of economic benefit rather than double recovery serves the important purpose of preventing Lockheed from profiting from CERCLA — beyond the mere recovery of response costs — at the expense of the taxpayer.
Aside from having already indirectly recovered far more of its response costs through U.S.-government contracts than the government's equitable allocation for the Sites, Lockheed has also benefitted significantly by charging the government a profit factor on those response costs.
Mr. Kiefer opined, without conducting any quantitative analysis, that any recovery from the government in this case would cancel out past profits because credits reduce profits in the same way that costs create profits. (See Kiefer Decl. ¶¶ 32-33; cf. Meyer Decl. ¶¶ 42, 160 ("[T]he credit associated with the CERCLA payment results in lower profits for [Lockheed] (from lower costs passed through to contracts with the United States)."). However, as Lockheed admits (Trial Tr. at 1966 (Lockheed closing)), this argument ignores an important component — the significant time value of money benefits (over $5 million pre-tax) that accrued to Lockheed from its past profits on indirect recoveries from the government.
Mr. Kiefer faulted the government for not directly paying its share of response costs all along and opined that the government's unwillingness to pay directly for response costs in the past harmed Lockheed. (E.g., Kiefer Decl. ¶¶ 3-4; Trial Tr. at 1579-83 (Kiefer).) The facts do not support Mr. Kiefer's conclusion. Lockheed's historical rate of indirect recoveries from the government — which again is many times higher than the government's equitable allocations for the Sites — and the time value of the substantial profits that Lockheed has realized on these indirect recoveries, make it difficult, if not impossible, to conclude that Lockheed has been injured by the government's lack of direct payments over the last twenty years. Quite the opposite, in fact. Lockheed has benefitted greatly by recovering more money related to response costs (due to its profit factor) than it has spent.
Of course, profiting off of the cleanup of hazardous wastes is not per se undesirable or improper. CERCLA's bona fide prospective purchaser exemption, 42 U.S.C. § 9607(r)(1), makes clear that, in some instances, cleanup of hazardous wastes should be a profitable enterprise, lest no one voluntarily undertake the important task. See Small Business Liability Relief and Brownfields Revitalization Act, Pub. L. No. 107-118, 115 Stat. 2356 (2002) (providing an array of CERCLA amendments intended "to promote the cleanup and reuse of brownfields"). However, courts have consistently considered as an equitable factor the "economic benefits realized by a party as a result of remediation efforts." City of Wichita, 306 F.Supp.2d at 1101 (collecting cases); see also First-Energy, 808 F.Supp.2d at 533; Litgo, 2011 WL 65933, at *9. And CERCLA provides no indication that responsible parties should profit from the cleanup process at
Were the economic benefit to Lockheed limited to the time value of the profits it has already earned on indirect recoveries through its U.S.-government contracts, the Court might not be inclined to exempt the government from paying an equitable share of the past response costs at the Sites. For as Lockheed contends, it merely seeks to recover as much of its past response costs as possible under CERCLA to reduce costs for its clients and improve its own competitive position. (See Trial Tr. at 1667-68 (Gatchel).) However, even accepting these motives, Lockheed will receive three significant windfalls — all at the expense of the taxpayers — if the Court allocates the government an equitable share of past response costs.
First, as the parties agree, CERCLA § 107(a) mandates the award of prejudgment interest.
Bancamerica Commercial Corp., 100 F.3d at 801.
This case, however, implicates none of these policy concerns. There is no loss based on the time value of money because Lockheed indirectly recovered from the government much more than the government's equitable share of the response costs for the Sites through U.S.-government contracts as it incurred the costs.
A rough calculation of the amount of prejudgment interest potentially available in this case only further underscores the Court's conclusion. Assuming a demand date in 2000,
Lockheed would additionally benefit from a recovery of past response costs because between 40 and 50% of Lockheed's existing government contracts are fixed-price. (Trial Tr. at 1661 (Gatchel).) These prejudgment fixed-price contracts are of varying terms and were negotiated without the expectation of a large lump sum CERCLA recovery for past costs. (Id. at 1661, 1680.) Although Lockheed's business units will flow credits from any recovery down to existing fixed-cost contracts, these credits will reduce Lockheed's indirect costs on the contracts but will not reduce the price Lockheed realizes from the U.S. government-as-client. (Id. at 1679.) Thus, the credit does not functionally accrue to the government, but instead amounts to additional profit for Lockheed. (Id. at 601-04 (Wright); id. at 1679-80 (Gatchel).)
Third, the Court is swayed by the fact that the taxpayers have already underwritten a substantial portion of Lockheed's suit by indirectly paying for over 85% of Lockheed's more than $10 million in expert and legal fees and other costs. (See Meyer Decl. ¶ 172.) This result flies in the face of CERCLA's prohibition against "the award of private litigants' attorney's fees associated with bringing a cost recovery action." See Key Tronic Corp. v. United States, 511 U.S. 809, 819, 114 S.Ct. 1960, 128 L.Ed.2d 797 (1994). While FAR § 31.205-47 may allow Lockheed to recover its legal fees and costs through government contracts, that outcome is contrary to both CERCLA and the interests of the taxpayer. Thus, although it is beyond both the Court's jurisdiction and the scope of this case to disallow Lockheed's legal fees and costs associated with bringing this action, the Court considers it equitably important that the taxpayers are on the hook for over 85% of Lockheed's costs incurred in this action which, as concluded above, would result in further substantial costs to the taxpayers and accrue to the benefit of Lockheed.
Accordingly, considering the totality of the circumstances, the Court concludes that it would be inequitable to allocate any liability for past response costs for the Sites to the government under CERCLA § 113(f)(1). Lockheed indirectly recovered through U.S.-government contracts the lion's share of its past response costs at the Sites, plus a profit. And Lockheed has indirectly recovered through the same U.S.-government contracts almost all of its extraordinarily high attorneys' fees and costs that it has incurred to sue the government. From this baseline, it would be inequitable for Lockheed to then receive the additional economic benefits — at the taxpayer's expense — of substantial prejudgment interest and windfall profits from fixed-price contracts that would accompany any CERCLA recovery of past response costs. Accordingly, the Court equitably reduces the government's share for past response costs at each of the Sites to 0%.
The Court does not come to the same conclusion with regard to future response costs. CERCLA allocation and the DOSA pose no bigger threat of "double recovery" for future costs than for past costs.
Further, most of the equitable considerations that motivated the Court to eliminate any further recovery from the government for past response costs do not apply to future response costs. For, pursuant to a declaratory judgment in this case, the government should reimburse Lockheed for its future response as those costs are incurred. Indeed, in nominal terms Lockheed is worse off following a direct CERCLA recovery from the government because it loses profits that it would otherwise earn if those indirect costs were allocated to contracts (U.S.-government and otherwise) through the DOSA.
Nonetheless, the Court must make a small equitable adjustment to Lockheed's recovery of future response costs at the Sites to account for the — albeit temporary — issue of prejudgment fixed-price contracts. As described above, fixed-price contracts currently make up over forty percent of Lockheed's contract base, and Lockheed — rather than the government — will benefit from all credits passed on down to prejudgment fixed-price contracts. (Trial Tr. at 601-04 (Wright); id. at 1679-80 (Gatchel).) Further, over ten percent of these contracts will be in existence in five years. (Id. at 1680-81 (Gatchel).) However, Lockheed will continue incurring response costs for the Sites far into the future and all post judgment fixed-price contracts will price in the predictable government CERCLA allocation (and credits) pursuant to this action. With these counterbalancing factors in mind, the Court considers it equitable to decrease modestly the government's equitable allocation for future costs at each facility by 1%.
For these foregoing reasons, the Court will allocate a 0% share of liability to the United States for past response costs at the Sites. However, Lockheed is entitled to and will be granted a declaratory judgment that:
1. Twenty-nine percent of its future necessary response costs at or for the Redlands facility that are consistent with the National Contingency Plan will be allocated to the United States and shall be paid by the United States;
2. Twenty-four percent of its future necessary response costs at or for the Potrero Canyon facility that are consistent with the National Contingency Plan will be allocated to the United States and shall be paid by the United States; and
3. Nineteen percent of its future necessary response costs at or for the LaBorde Canyon facility that are consistent with the National Contingency Plan will be allocated to the United States and shall be paid by the United States.
An Order consistent with this Memorandum Opinion will also be entered on this date.
AP is an inorganic salt that "dissociates" in water into its constituent cation and anion: ammonium (NH
Nor, contrary to Dr. Sterrett and Mr. Cain's opinion (Sterrett Decl. ¶¶ 142-44; Cain Decl. ¶¶ 108-15), was Building 114's settling basin a probable source of perchlorate in the Redlands plume. LPC used Building 114 as a propellant research laboratory from which it discharged approximately 2500 gallons of wastewater into a dedicated settling basin. (USX781.0001.) Each week during dry weather, LPC pumped the water out of the settling basin "to an underground drain (storm sewer) catch basin" that "traverse[d]... into an open swale." (Id.) From that point, the water ran "on open ground" and infiltrated "due to the great percolation ability of the soil." (Id.) Although LPC's research laboratory used AP (Trial Tr. at 1282-83 (Cain)), the effluent pumped from the settling basin was actually lower in total dissolved solids (which would include AP) than the average groundwater in the area. (See id. at 1256-58, 1261 (Sterrett).) Based on this conflicting evidence, the Court cannot conclude that Building 114 was a probable source of perchlorate for the Redlands plume.
The parties' experts also dispute whether burn pits were a minor source for the Redlands TCE plume. (Compare Feenstra Decl. ¶¶ 40-46, with Sterrett Decl. ¶¶ 70-73.) Although LPC employees poured small amounts of TCE directly into the burn pit at the Redlands facility (see USX944A.0002 (Nunes Decl.)), there is no evidence of TCE in the soil gas surrounding the burn pits. (See USX818.) Thus, the Court credits Dr. Feenstra's conclusion that the burn pits at the Redlands facility were not a probable source of any sizable amount of TCE in the Redlands plume.
However, Aerojet's operations are too distinct from LPC's to credit the government's argument. First, Aerojet's discharge methods were specifically designed to allow its industrial wastes to percolate into the ground. (See Trial Tr. at 413-14 (Delaney); id. 802-03 (Feenstra).) LPC's only directly comparable disposal processes at the Sites were the "percolation pits" in the Waste Discharge Area at the LaBorde Canyon facility, for which LPC did file a notice of proposed waste discharge. (See id. at 802-03 (Feenstra).) Second, Aerojet's disposals were voluminous — up to 1000 gallons per day — and contained a much higher quantity of AP than at LPC's Sites — up to 270 pounds per day. (PX1112 at 1; Trial Tr. at 1154 (Bauer).) Even so, the Board's concern with Aerojet's discharges was toxicity to plant life. (PX1112 at 3.) And finally, the Aerojet and LPC operations fell under the jurisdiction of different regional water quality control boards — Central Valley and Santa Ana, respectfully — such that the Court cannot automatically infer that the Santa Ana Board would have taken the same actions for LPC that the Central Valley Board took at the Aerojet facility. Accordingly, the Court finds that Aerojet's regulation under the Dickey Act is of limited relevance to this case.
These documents do, however, demonstrate the government's liability as an arranger under CERCLA § 107(a)(3) for the Potrero Canyon facility. Lockheed attempts to go a step further by arguing that the government is liable as an arranger for all of the Sites based on its ownership of some of the TCE and AP wastes and its benefits under contracts with LPC, pursuant to which the wastes were disposed. (Lockheed's Memo. on Arranger Liability, Feb. 12, 2014 [Dkt. No. 121] at 3-5.) AISLIC I's contrary holding notwithstanding, see 2010 WL 2635768, at *30, the Court has serious doubts that arranger liability — with its focus on whether the party "planned for" the disposal — attaches to the government based solely on the existence of output contracts and government title over wastes due to idiosyncratic federal procurement regulations. See Burlington N., 556 U.S. at 612, 129 S.Ct. 1870. A party "may not be held liable as an arranger under CERCLA unless the plaintiff proves that the [party] entered into the relevant transaction with the specific purpose of disposing of a hazardous substance." Team Enterprises, LLC v. W. Inv. Real Estate Trust, 647 F.3d 901, 909 (9th Cir.2011). "Disposal of hazardous wastes must be a purpose of the transaction, not merely a foreseeable byproduct of the transaction." Pakootas v. Teck Cominco Metals, Ltd., 832 F.Supp.2d 1268, 1274 (E.D.Wash.2011) (holding that Washington state was not liable as an arranger for contamination that occurred as a foreseeable result of allowing mining companies to operate mines on state lands.) Thus, where, as here, disposals of hazardous wastes occur as a foreseeable but incidental result of a production process, arranger liability does not presumptively attach. See Shell Oil, 294 F.3d at 1059; Pakootas, 832 F.Supp.2d at 1274. Instead, arranger liability attaches only if the government exercised direction and control over waste disposal activities related to its contracts with LPC. See Shell Oil, 294 F.3d at 1055-56 (considering government's control over waste disposal at the site); Gen. Elec. Co. v. AAMCO Transmissions, Inc., 962 F.2d 281, 286 (2d Cir. 1992) (same); Pakootas, 832 F.Supp.2d at 1275 (same); AISLIC I, 2010 WL 2635768, at *30 (same). For this reason, the Court's analysis regarding control and direction for the purposes of operator liability necessarily leads the Court to decline to adjust the government's allocation as an equitable matter for being an arranger at any facility other than Potrero Canyon.
The Court will, however, minimally adjust its equitable allocation for the government based on its status as an arranger at the Potrero Canyon facility. The indemnification provisions that favor the government for those arranged disposals (see PX0461 at 2; PX1073 at 1) and the fact that the arranged disposals were limited to relatively small amounts of hazardous substances (see supra n.67), renders the government's arranger liability for the Potrero Canyon facility of limited importance.
29 F.3d at 844.
Similarly, Lockheed's evidence that the government "exerted control over LPC's personnel" (Lockheed Operator Br. at 7) is unconvincing. In FMC, the government obtained draft deferrals for personnel, directed workers from other industries to the American Viscose plants, provided housing for the additional workers, resolved labor disputes, and had a full-time worker at the plant dealing with labor issues. 29 F.3d at 837. In this case, there is evidence that on two occasions over a span of twenty years the government made recommendations to LPC regarding personnel issues. (PX388 (recommending removal of an LPC employee who reworked a nozzle design without informing superiors); PX577 at 118 (recommending SPO negotiation of LPC's engineering workforce down by at least fifty percent upon commencement of SRAM production).) And there is no evidence that either recommendation was ever followed. (See Trial Tr. at 1377 (Dull) (noting the negotiations in PX0577 never took place).) Based on this limited evidence, the Court cannot conclude that the government exerted any, let alone pervasive, control over LPC's personnel.
Second, Mr. Kiefer provides no quantitative analysis to defend his "conceptual" opinion that, when compared to his proposed baseline, Lockheed would not receive an economic benefit from a CERCLA recovery. (Trial Tr. at 1573-75 (Kiefer).) Although Mr. Kiefer testified that he "believe[d] it would be possible" to perform a quantitative analysis supporting his conceptual opinion, Lockheed did not ask him "to make an affirmative calculation of economic impact." (Id. at 1574.) Finally, Dr. Meyer's analysis, even though using a status quo baseline, does take into account what has happened in the past: that Lockheed incurred costs and recovered them (plus a profit) on an amortized basis. (Trial Tr. at 1512-13 (Meyer).) Because it neither ignores the past nor relies on unrealistic hypotheticals, the Court concludes that Dr. Meyer's status quo baseline provides the most equitable framework for determining how much a CERCLA recovery benefits Lockheed.
