Roosevelt Irrigation District v. Salt River Project Agricultural Improvement & Power District

Citations: 222 F. Supp. 3d 757; 2016 U.S. Dist. LEXIS 187298Docket: NO. 2:10-CV-00290 DAE-BGM

Court: District Court, D. Arizona; November 21, 2016; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

The court granted the Motion for Partial Summary Judgment filed by a group of defendants in a significant environmental case, while partially overruling and sustaining objections related to additional fact statements submitted by the plaintiff, Roosevelt Irrigation District (RID). This case is a cost recovery action under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), where RID seeks to recover costs incurred from the contamination of its groundwater wells, which supply water for various uses in Maricopa County, Arizona. Over twenty of RID’s wells are affected by hazardous chlorinated volatile organic compounds (VOCs), such as trichloroethene (TCE) and tetrachloroethene (PCE), which are classified as hazardous substances under CERCLA and are deemed harmful to health and the environment by the EPA. RID asserts that these contaminants originated from releases by other entities, not from RID itself, and that even unimpacted wells are threatened by the same pollutants. The Arizona Department of Environmental Quality (ADEQ) was established in 1986 to address concerns regarding groundwater quality.

The Arizona Department of Environmental Quality (ADEQ) is responsible for investigating groundwater contamination and enforcing environmental laws in Arizona. Following the detection of groundwater contamination in west Phoenix, ADEQ initiated a groundwater investigation that led to the establishment of the West Van Burén Area (WVBA) Water Quality Assurance Revolving Fund (WQARF) Site, which includes contaminated groundwater wells owned by the Reclamation Irrigation District (RID). In August 2012, ADEQ published the "Remedial Investigation Report, West Van Burén WQARF Registry Site" (WVBA RI Report), concluding that the contamination in the WVBA is part of a larger commingled plume originating from various industrial facilities and contaminated groundwater to the east, particularly from the Motorola 52nd Street Federal Superfund Site (M-52 Site), established in 1989 due to severe groundwater contamination from the Motorola Plant.

The WVBA RI Report also noted that contaminated groundwater enters the WVBA from the north, specifically from the West Osborn Complex (WOC) WQARF Site, which is adjacent to the WVBA. RID claims that the contamination of its wells is linked to three regional sites identified under CERCLA and Arizona’s WQARF program: 1) the Motorola 52nd Street Superfund Site, 2) the West Van Burén Area WQARF Site, and 3) the West Central Phoenix Area WQARF Sites. RID asserts that VOC contaminants affecting its groundwater wells originate from these sites, forming a commingled plume. Studies indicate that various industries in these areas utilized significant amounts of chlorinated solvents, such as PCE and TCE, contributing to soil and groundwater VOC contamination through improper waste management practices, including on-site disposal systems that discharged waste directly to permeable subsurface sediments. The ADEQ’s report explains that VOCs migrate downward through the unsaturated zone into the groundwater, facilitated by the permeable vadose zone soils within the WVBA, which allows for continued unsaturated flow to the groundwater table.

The ADEQ’s WVBA RI Report indicates that volatile organic compounds (VOCs) dissolve into the upper aquifer upon reaching the groundwater table, with groundwater movement largely influenced by well-pumping from RID. Contaminated groundwater from three regional sites is hydrologically linked to RID's pumping activities. As a result, commingled plumes from the M-52 Site and WCP Area Sites flow towards the WVBA Site, forming one of the largest contaminant plumes in the country. RID claims that this contamination has affected over twenty of its groundwater wells and poses a threat to others, limiting the potential for using these resources as a municipal water supply. 

The document identifies several defendants associated with the release of VOCs: Reynolds, Air Liquide, ChemResearch, Dolphin, Maricopa County, Prudential, Univar, and Kinder Morgan for the WVBA Site; Honeywell, City of Phoenix, Milum, ITT, Meritor, and Freescale for the M-52 Site; and Corning, Nucor, Textron, and Univar for the WCP Area. To address the contamination, RID entered into an Agreement with ADEQ on October 8, 2009, committing to an Early Response Action (ERA) and a Feasibility Study for the WVBA WQARF Site. RID hired consultants to assess and design the ERA aimed at removing VOCs from the eight most contaminated wells. This action is justified under Arizona Administrative Code, A.A.C. R18-16-405, as it seeks to treat contaminated wells and mitigate further contamination risks. RID submitted a revised ERA Work Plan on February 4, 2010, which was approved by ADEQ on June 24, 2010.

On September 2, 2011, the Arizona Department of Environmental Quality (ADEQ) approved the RID-95 Wellhead Treatment System Proposal, aimed at developing a pilot initiative to pump and treat contaminated groundwater from four heavily contaminated RID wells. The initiative was intended to assess the effectiveness of liquid-phase granular activated carbon technology in removing volatile organic compounds (VOCs), evaluate two types of treatment for effectiveness and efficiency, explore the feasibility of wellhead treatment compared to centralized options, and refine cost estimates to reduce Environmental Response Action (ERA) costs. RID submitted a proposal on July 17, 2012, to modify the ERA Work Plan, which was followed by a submission on January 24, 2013, for implementation of the Modified ERA (MERA). ADEQ approved the MERA on February 1, 2013, resulting in a potential cost reduction of up to fifty percent.

In terms of procedural history, RID initiated a CERCLA action on February 9, 2010, to identify multiple defendants as potentially responsible parties for recouping incurred contamination response costs. The Third Amended Complaint was filed on May 6, 2014. Subsequently, on October 13, 2015, the Moving Defendants filed a Motion for Partial Summary Judgment regarding RID's claimed past costs, supported by a Statement of Facts (SOF). RID opposed the motion on November 16, 2015, providing a Separate SOF in opposition. The Moving Defendants replied on December 4, 2015, along with objections to RID’s additional fact statements. Freescale also filed objections on the same date, to which RID responded on December 14, 2015.

Under applicable law, summary judgment may be granted when no genuine dispute exists regarding material facts, and the movant is entitled to judgment as a matter of law. The nonmoving party must demonstrate that factual issues can only be resolved by a finder of fact, presenting evidence that a reasonable jury could favor them. Mere conclusory allegations, lacking factual support, are insufficient to avoid summary judgment. Assertions that a fact is genuinely disputed must be substantiated by specific references to the record or evidence showing the absence of a genuine dispute. Only admissible evidence is considered by the trial court in ruling on summary judgment motions, requiring proper authentication of evidence.

Moving Defendants seek partial summary judgment against RID regarding approximately $16 million in alleged past response costs under CERCLA Section 107(a). They argue that RID has not demonstrated actual payment or an existing non-contingent obligation for these costs. The Defendants specifically challenge six categories of costs associated with various entities, contending that RID has not "incurred" these costs under Section 107(a). CERCLA enforces strict liability for parties responsible for hazardous waste disposal, allowing for civil actions to recover cleanup costs. To establish a prima facie case under 42 U.S.C. 9607(a), a plaintiff must prove a facility exists, a hazardous substance has been released, that the release caused necessary response costs consistent with the national contingency plan (NCP), and that the defendants fall under one of the liable classes. Here, the Defendants focus on whether RID has actually incurred the necessary response costs. "Incur," while not defined by CERCLA, is interpreted to mean to acquire liability as a result of one's actions. It has been held that costs can be considered "incurred" even if paid by a third party, provided there is a legal obligation. Defendants argue that RID cannot recover costs as it lacks a non-contingent legal obligation, citing that its agreements with the listed entities are contingent on uncertain future obligations. RID acknowledges it has not paid these costs but claims they are recoverable because G&K, as RID's agent, assumed the payment obligation under a Fee Agreement allowing RID to sell remediated water.

The parties involved have entered into an agreement wherein G&K will represent RID in connection with a Proposed Water Project aimed at addressing environmental contamination and enhancing RID's water supply. The primary objectives include developing a remediation solution for water contaminated by volatile organic compounds (VOCs), improving RID's well system, and providing additional water resources without compromising existing irrigation needs. Importantly, the agreement stipulates that G&K will not receive direct payment from RID; instead, their compensation will be derived from "Project Funds" sourced from third parties, including potentially responsible parties (PRPs), governmental entities, and others benefiting from the project.

G&K's compensation is characterized as a contingency or "success" fee, contingent on the net profits from Project Funds after covering operational costs. G&K is responsible for compensating any consultants they engage using these Project Funds. The agreement allows for adjustments in G&K’s compensation as the project evolves, but confirms that RID is not liable for any direct payments to G&K. G&K will provide statements and summaries of their services upon RID's request, and they accept the risk of deferred or unpaid compensation should Project Funds prove insufficient. Furthermore, RID retains the right to terminate G&K’s services at any time, while G&K may resign if prospects for project success are deemed low after discussing with RID.

Moving Defendants argue that the Agreement’s language indicates that G&K is working on a contingent basis, rendering any rights to future remediated water uncertain. They assert that the Agreement does not establish a legal obligation for RID to pay for past response costs incurred by G&K. Since RID's fee arrangement is contingent upon the success of the lawsuit or the sale of remediated water, Moving Defendants claim that RID cannot recover these alleged past costs.

In contrast, RID contends that its agreement with G&K does impose an obligation to pay for response costs, regardless of any potential termination of the agreement by G&K. RID cites that, under CERCLA, a private plaintiff must incur some expenditure for cleanup to recover costs, but acknowledges that G&K paid the costs in this situation. Drawing from the Eighth Circuit case Trimble v. Asarco, the Court noted that plaintiffs who do not pay cleanup costs themselves may not establish a legal obligation to pay if their obligation to reimburse attorneys is contingent on the outcome of litigation.

RID differentiates its case from Trimble by arguing that it has conveyed expected revenues from remediated water sales to G&K, suggesting a non-contingent fee arrangement. However, the Court disagrees, finding RID has not demonstrated a legal obligation to reimburse G&K. It notes that under the Agreement, no obligation arises until RID secures a final judgment against the responsible parties (PRPs), and even then, payment to G&K is contingent on the judgment's extent. Additionally, the anticipated sale of remediated water remains speculative, as RID has not yet sold any. RID's reliance on Quarles Petroleum Co. v. United States is deemed misplaced, as the circumstances differ significantly from RID's case.

Plaintiffs are liable for the costs incurred in the clean-up of spilled oil, despite their insurer covering these costs. Evidence shows that G&K managed the remediation project and handled payments, with no involvement from RID in the payment or negotiation of response costs. According to the Fee Agreement, G&K is responsible for allocating project funds, compensating consultants, and making payments from a trust account, indicating G&K's control over the project. In comparison, case law from Karras v. Teledyne Indus. Inc. established that a party could incur response costs through contractual obligations and actual clean-up, which RID did not assume or perform. RID's reference to Bethlehem Iron Works, Inc. v. Lewis Indust. Inc. is misplaced, as it failed to show direct payment of initial response costs. Similarly, RID’s citation of Wilson Road Dev. Corp. v. Fronabarger Concreters, Inc. is not applicable since there is insufficient evidence of invoices or obligations directly addressed to RID, with correspondence instead directed to G&K's legal counsel. Lastly, while RID's Fee Agreement transfers future profits from remediated water to G&K, it does not establish a legal obligation for RID to cover the response costs.

G&K's potential profit from the sale of remediated water is not guaranteed, and there is no evidence that such sales have occurred or will occur. The Fee Agreement explicitly states that G&K bears the risk of not being compensated for response costs if sufficient project funds are not obtained, indicating that RID has no firm legal obligation to reimburse G&K for these costs. Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), recovery of response costs is restricted to costs that have already been incurred. The court concludes that RID failed to provide sufficient evidence to counter summary judgment regarding its liability for the claimed G&K costs. Consequently, summary judgment is granted in favor of the Moving Defendants concerning these costs.

Regarding the claimed Spinnaker costs, the Moving Defendants argue that RID has not demonstrated that it incurred or paid these costs, lacking evidence such as canceled checks or wire transfers. RID entered into two contracts with Spinnaker, including a Cost-Plus Agreement that stipulates payments are contingent upon RID collecting sufficient proceeds designated for cost recovery from potentially responsible persons involved in ongoing litigation. Additionally, any interest on deferred payments to Spinnaker requires court approval and is tied to the cost recovery process. Proceeds after settling amounts owed to the Arizona Department of Environmental Quality (ADEQ) will be shared between Spinnaker, RID, and RID's legal counsel.

Payments to Spinnaker by RID are contingent upon the collection of proceeds from the ongoing lawsuit, limited to the amounts approved by the Court. RID is not liable for payments beyond the collected proceeds, nor can it guarantee collection. Payments under both the Cost-Plus Agreement and the Operations Agreement hinge on the recovery of funds from potentially responsible persons (PRPs) related to the lawsuit, specifically ROOSEVELT IRRIGATION DISTRICT v. SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT. 

Once sufficient proceeds are collected, RID is required to remit payments to Spinnaker within thirty days, subject to certain withholding rights. Additionally, proceeds must first satisfy any obligations owed to the Arizona Department of Environmental Quality (ADEQ) before being shared between RID, Spinnaker, and RID’s legal counsel on a proportional basis. Despite RID's acknowledgment that Spinnaker's contracts may depend on the lawsuit's success, it still claims entitlement to recover past response costs, arguing payments were to be made from project funds. However, the agreements explicitly state that Spinnaker’s recovery is contingent upon the litigation's outcome, and RID has not provided evidence of incurred costs to Spinnaker.

RID acknowledges that G&K paid Spinnaker $269,800.53 for work on the well-head treatment system but admits to only “indirectly” incurring these costs. RID has not provided evidence of direct payments to Spinnaker or a non-contingent obligation to cover these costs. The Court ruled that RID's Fee Agreement with G&K does not create a legal obligation for RID to reimburse G&K for response costs. Consequently, summary judgment is granted in favor of Moving Defendants regarding the Claimed Spinnaker Costs.

Moving Defendants challenge the Claimed Synergy, HDR, and LMA Costs, asserting that RID has not demonstrated payment or a non-contingent obligation for these costs. RID concedes that no payments were made to HDR, which was retained briefly and unpaid. For Synergy and LMA, RID claims they are indirect beneficiaries of the RID-G&K Agreement. RID’s evidence relies on the Kimball Declaration, stating that G&K made payments to Synergy as RID's agent and that RID authorized G&K to engage consultants like LMA. However, this evidence is insufficient to establish RID's incurred costs, as no contracts or documentation evidencing payment obligations to Synergy or LMA were produced. Thus, summary judgment is also granted in favor of Moving Defendants for these claimed costs.

Finally, Moving Defendants assert that RID has incurred no costs for Montgomery, a consulting service, arguing that the contract with Montgomery fails to establish any payment obligation for RID.

Moving Defendants argue that Montgomery's contracts with Synergy do not create a direct payment obligation for RID to Montgomery. RID counters that payments for Montgomery's services were made through the RID-G&K Agreement. Montgomery is involved in three key contracts: the Montgomery Consulting Agreement with RID and G&K from March 2009, and two subcontract agreements with Synergy dated June 1, 2011, and August 30, 2013. The Montgomery Consulting Agreement specifies that payments are contingent on Project Funds collected from responsible parties and that RID is not directly liable for Montgomery's fees. Billing is directed to G&K, which is responsible for payments out of these funds, meaning Montgomery risks non-payment if Project Funds are insufficient. The Montgomery-Synergy Contracts designate Synergy as the payer, not RID, and RID has not shown any obligation to reimburse Synergy. G&K has a separate obligation to pay Synergy, making it unnecessary for RID to pay any amounts related to these contracts. RID also cannot use its agreement with G&K to claim a legal obligation to cover costs incurred by Synergy or others for remediation. Lastly, during a hearing, the parties identified $1.23 million of RID's claimed $16 million in past response costs.

RID claimed $16 million in remediation costs but acknowledged only $1.23 million has been paid, with the remaining $15 million unpaid. RID contended that the $1.23 million was incurred by them, as payments made by G&K to various entities came from Project Funds under the Fee Agreement. RID indicated that over $1 million from potentially responsible parties (PRPs) and settlements had been contributed to these Project Funds, which were settlements paid to RID.

The Court dismissed RID’s argument regarding the distinction of the $1.23 million, noting the Kimball declaration indicated G&K made payments from the Project Funds, with no evidence that these funds originated directly from RID. RID failed to provide documentation showing direct transfers from itself to the Project Funds, nor evidence that settlement funds were intended for RID rather than G&K, who acted as RID’s agent. Moreover, the Court found RID had not established a legal obligation to reimburse G&K for expenditures made on its behalf from the Project Funds. 

The Court raised concerns about potential double recovery, as prohibited by CERCLA and other regulations, emphasizing that no party could lawfully demand compensation more than once for cleanup costs. As such, the Court concluded that RID did not demonstrate a genuine dispute regarding material facts related to the six Challenged Cost Categories, granting judgment in favor of the Moving Defendants for these categories.

Additionally, Moving Defendants raised objections to RID's Statements of Fact (SOFs), asserting that certain paragraphs contained legal arguments rather than factual assertions.

The Court overrules several objections from Moving Defendants as moot due to its ruling on the motion for summary judgment. Specifically, objections to paragraphs 29-31, 26, 33, 40, 48, 39, 50, 51, 52-56, 60-65, and 66-70 are dismissed as moot. These objections primarily challenge the materiality, foundation, hearsay, best evidence rule, and legal conclusions related to the Kimball Declaration and RID's claims. However, the Court sustains part of the objection to paragraph 71, noting that RID's citation regarding the G&K Fee Agreement contradicts its assertion.

RID authorized G&K to make payments on its behalf, recognizing its obligation to compensate G&K from Project Funds when payments to consultants were made for remediation efforts. However, the Court found that RID lacked sufficient evidence to prove a legal obligation to reimburse G&K for its expenditures. Moving Defendants objected to multiple paragraphs of RID's Statements of Facts (SOFs) based on claims of materiality, foundation, personal knowledge, hearsay, violations of the best evidence rule, and legal conclusions. The Court overruled these objections, stating that the Kimball Declaration provided adequate personal knowledge and foundation for the representations in the challenged paragraphs. Additionally, Freescale filed its own objections to the Kimball Declaration and RID’s SOFs, arguing that Mr. Kimball was testifying against his former client, Freescale, and that this testimony could not be interpreted as a waiver of objections regarding evidence or testimony against them. Freescale contended that Mr. Kimball, as RID’s lawyer, had an obligation to advocate for RID in his Declaration, which they viewed as direct evidence of his stance against Freescale.

Mr. Kimball faces a conflict of interest that prevents him from fulfilling his obligations to former clients. Freescale argues that the Kimball Declaration serves as evidence of collaboration between G&K and RID’s counsel, Bonnet, and claims it could not have been submitted without Kimball’s communication with Bonnet. Freescale requests that the Court disregard the Kimball Declaration and related paragraphs in RID’s Statement of Facts (SOFs). In contrast, RID contends that Freescale's objections are an attempt to prevent G&K attorneys from serving as fact witnesses, a request the Court previously denied. RID asks the Court to reject Freescale's objections as a reconsideration of this prior ruling. The Court notes that the extent of G&K's involvement in the case has been contested multiple times but declines to detail the history of the dispute. The Court overrules Freescale’s motion to disqualify G&K and acknowledges that Freescale’s arguments are likely moot due to the ruling on a related summary judgment motion. The Court finds that the issues raised in the Kimball Declaration do not conflict with Freescale’s interests, and Freescale has not provided specific evidence of any adverse or confidential information disclosed. Consequently, Freescale's objections are overruled, and the Court grants partial summary judgment for the Moving Defendants while addressing some objections to RID’s additional fact statements.

Numerous motions regarding conflicts of interest among attorneys in the case have been filed and resolved by the Court. Moving Defendants do not contest five categories of Plaintiff's claimed costs totaling approximately $1,262,438.84 and have filed a motion for partial summary judgment on Plaintiff's remaining claimed costs, which is pending. Additionally, they do not dispute the necessity or consistency of the response costs with the National Contingency Plan (NCP) but have filed a separate motion for summary judgment concerning NCP compliance. RID has also filed a cross-motion on this issue. During a hearing, RID's counsel confirmed that no remediation or sale of water had yet occurred. The Eighth Circuit recognized potential inequities in requiring plaintiffs to incur costs before claiming recovery under CERCLA, noting that such a rule could disadvantage those with limited financial resources. However, the court believes its interpretation of the statute promotes timely responses to environmental issues and does not exclude anyone from CERCLA benefits, as state and federal agencies can also facilitate such goals. Furthermore, courts have applied equitable principles under CERCLA section 113 to prevent double recovery, emphasizing that any level of double recovery is inequitable in contribution actions. The document also mentions Freescale as a former client of G&K and Mr. Kimball.