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A Toxic Mess

Companies discover a benefit to cleaning up environmental damages before the government tells them to.
Laura DeMars, CFO Magazine
July 27, 2007

It was a rare example of large companies banding together with environmental groups — not to mention landowners and the states — against the federal government. Last month the U.S. Supreme Court ruled in the groups' favor in United States v. Atlantic Research Corp., a case that could have a major impact on who pays for the cleanup of toxic-waste sites.

Atlantic Research, which modified rocket engines under contract to the U.S. government, contaminated land at its Arkansas facility. It voluntarily cleaned up the site, then sued the government to recoup some of the costs, citing a section of the Superfund law as justification. The government argued that parties can sue other parties only after an enforcement action has been brought against them.

That, argued supporters of Atlantic Research, would greatly slow cleanup because the Environmental Protection Agency is too short-staffed to ferret out every instance of environmental damage. A similar case two years ago went in the government's favor, but this case hinged on a different passage in the Superfund law.

This has the makings of a landmark case, says Reed Rubinstein, a partner at Greenberg Traurig. "If the Court had ruled for the government," he says, "companies that own or operate contaminated sites would have found that mitigating the expense of cleanups through cost recovery would be much more difficult."

The decision is not a complete victory for Corporate America, however. Companies that voluntarily clean up toxic sites can sue not only the government (under certain circumstances) but other companies that may bear some responsibility. "It's a good idea to get in on cleanup efforts and reach a settlement up front," says Ken Ayers, a managing director of insurer Aon's Environmental Services Group. Companies associated with "legacy sites" that they no longer own or operate can buy insurance that would protect against possible future claims.

Expect to see plenty of lawsuits: despite its name, the Superfund is currently without funds, because the tax on petroleum and chemical companies that financed it has expired. That has ratcheted up the fever regarding who can sue whom over cleanup costs.