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AIR, LAND AND WATER LAW NEWSLETTER
EPA SENDS NOTICE LETTERS TO 94
ADDITIONAL On February 7, 2000, the United States Environmental Protection Agency ("EPA") sent "general notice letters" to a new group of 94 potentially responsible parties ("PRPs") informing them that they are potentially liable under Superfund and RCRA for the costs of remediating the Casmalia Disposal Site in Santa Barbara, California ("Casmalia Site"). Collectively, these parties contributed approximately 17.5% of the wastes to the Casmalia Site. This is the third group of parties sent such notices. The purpose of this update is to provide some background regarding the site and to discuss its current status. Background: The Casmalia Site was an extremely large, permitted, hazardous waste site which contained numerous evaporation ponds, evaporation pads, injection wells, disposal trenches, landfills and spreading areas, all of which were unlined. It opened in about 1973 and operated until about 1992. Over 10,000 businesses legally sent about 4.5 billion pounds of wastes to the site. These included an extremely wide range of toxic chemicals including solvents, pesticides and PCBs. There is one area called "RCRA Canyon" which is, literally, a canyon filled with 5 to 7 million barrels of solvents and pesticides. Large amounts of wastes, including drums containing liquids, are now disposed below the water table. Other drums were punctured and then disposed in the landfill. There are over 270 groundwater monitoring wells on this site. The groundwater wells at the base of the landfill are highly contaminated. The site has a long regulatory history. The owners obtained permits from the County of Santa Barbara and the California Regional Water Quality Control Board ("RWQCB") in about 1972 to operate the site. In 1980, the site qualified for and obtained "interim" status under the Resource Conservation and Recovery Act ("RCRA"), i.e., EPA provisionally permitted it. According to EPA, this "grandfathered in" the unlined disposal areas. The owners applied for a "Part B" RCRA permit in 1983. In 1984-85, EPA conducted an audit of the site and determined that releases were occurring and the groundwater was contaminated. Nevertheless, it allowed the site to continue to operate. A large percentage of the wastes were sent to the site after 1985. In about 1987, the RWQCB conducted a more detailed analysis which confirmed site-wide releases of inorganics and organics. It was not until 1988 that EPA informed the site owners that it would deny the final permit because the site failed to meet technical design and operations criteria and was not in compliance with financial assurance requirements. Also in about 1988, the RWQCB issued orders to the owners to cease using certain portions of the landfill and, in 1989, issued an order to cease all operations, investigate the site and prepare a remedial action plan. At about the same time, the owners proposed to modernize the facility. However, in 1992, the State—which had an approved state-run RCRA program—denied the application and all operations ceased. At that point, the state and Federal government stepped in to initiate remediation efforts. EPA inspected the site in about 1992 and observed many problems, including serious erosion and overflowing ponds and wells. EPA used its authority to take immediate action and recognized it would have to use its CERCLA authority, in addition to its RCRA authority, to deal with the problems. Numerous actions were taken between 1992 and 1996 to stabilize the site, treat liquids, remove liquids, and manage stormwater. In 1995, EPA released to Casmalia Creek about 100 million gallons of stormwater which had collected on the site. 2. First Round Settlement With Casmalia Steering Committee In 1993, EPA notified about 50 of the largest volume contributors to the Site that they were potentially liable. These entities, which had sent approximately 48.5% of the wastes to the Site, formed the Casmalia Steering Committee. In 1997, EPA entered into a Consent Decree with the CSC members. It contemplates that a "standard" RCRA remedy will be implemented. EPA divided the work into the four phases set out below. CSC members are liable to fund Phase I work and to implement, but not fund, Phase II work. The Consent Decree does not relieve the CSC of liability for Phases III and IV. However, they may not have to pay for any of this work if sufficient funds are collected from other parties. The four phases are generally as follows:
EPA currently estimates that it will cost about $272 million to investigate and remediate the site. The Consent Decree is somewhat unusual in that it relieves the largest generators of all liability for implementation of the site remedy, the largest component of the remedy. Thus, although the CSC members contributed almost 50% of the wastes sent to the Site, the total cash obligation of the CSC under this Consent Decree is about $75 million, i.e., less than 30% of EPA’s cost estimate. Instead, without notifying any of the other parties at the Site, EPA and the CSC apparently decided to fund the implementation of the remedy by extracting significant "cash-out" premiums from the non-CSC parties. Thus, it appears that an effect of the Consent Decree is to shift a significant portion of the remediation burden from the CSC members to the other parties. 3. Second Round Settlement With The De Minimis Parties In October, 1998, EPA sent general notice letters to approximately 750 de minimis parties which contributed about 13.5% of the wastes to the site. In January, 1999, EPA offered the de minimis parties the opportunity to "fully resolve" their liability in exchange for cash payments based on the volume of wastes they had sent to the Site. EPA's settlement offer was based on a cost estimate which it prepared with its consultant CH2M Hill. EPA estimated that the present value of the cleanup was approximately $380.7 million. EPA then added a 100% premium to this figure, raising the total to $761.4 million. It then added another $18.3 million in past costs, resulting in a total estimate of $779.7 million. EPA then "offered" to settle with each party for its volumetric percentage of this amount. Since the 750 de minimis parties represented about 13.5% of the wastes, EPA was offering to settle for a sum in excess of about $105 million. This came out to about $.18 per pound of wastes sent to the site. After EPA sent out its notice letter in October, 1998, several of the de minimis parties joined together to form what became known as the Casmalia De Minimis Group. They jointly retained Smiland & Khachigian to represent them and ultimately, about 200 parties joined the Group. The primary concerns of the de minimis parties included the following:
The de minimis parties negotiated with EPA over a period of approximately one year. Although they were not able to achieve all of their goals, they were able to achieve dramatic results. First, EPA reduced its cost estimate from about $399 million to about $272 million, a reduction of about 32%. In addition, EPA made certain adjustments which reduced the dollars on which the parties were required to pay a premium. As a result, the overall reduction to each party was about 37%. Collectively, this reduced the amount EPA was seeking from the de minimis parties by about $40 million. Second, EPA agreed to modify the definition of "Site" to include "any areas to which . . . contamination migrates" and covenanted not to sue and provide contribution protection with regard to "the Site." (AOC ¶¶ 45, 59). This eliminated the risk that de minimis parties would be liable for offsite releases. It also agreed to provide a release for offsite trans-shipments of wastes. Third, the federal natural resources trustees agreed to provide a release and covenant not to sue for natural resource damages and agreed to resolve their claims for past response costs. Ultimately, of the approximately 750 parties which were sent notice letters, approximately 600 accepted EPA’s settlement offer. As of this date, EPA has collected about $26 million from these parties. It expects to collect additional sums from other de minimis parties after it rules on their waste quantity reviews. The settlement is expected to be finalized in the next couple of months. 4. Third Round Notification of 94 Additional Parties Once EPA substantially completed its dealings with the de minimis parties, it sent out notices to an additional 94 parties. EPA scheduled a public informational meeting for early March. At that meeting EPA will provide information regarding the site and urge the parties to join together to form a group to negotiate with EPA. EPA is apparently undecided regarding what it will ask the 94 parties to do. As noted above, the settlement with the Casmalia Steering Committee appears to contemplate cash-out settlements with these parties. If so, and if EPA used the same figures as it used for the de minimis parties, each party’s liability would be about $.11 per pound(12). Another option might be for the parties to perform work at the site. In either case, there may be creative approaches which can significantly reduce the potential liability of the 94 majors. For example, if EPA offers a "cash-out" option, the parties may be able to insure the premium, thereby significantly reducing their out of pocket costs. Similarly, if EPA requires the parties to perform work, the parties may be able to use cost cap insurance to reduce the risk that the costs may be more than they originally thought. The key will be for the parties to work closely together and to consider and pursue creative approaches. If you have any questions regarding this matter. Please feel free to call Albert M. Cohen or Ivan J. Tether at (213) 891-1010. _____________________
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