Beazer East Inc v. Mead Corp , 412 F.3d 429 ( 2005 )

Opinions of the United
2005 Decisions States Court of Appeals
for the Third Circuit
6-23-2005
Beazer East Inc v. Mead Corp
Precedential or Non-Precedential: Precedential
Docket No. 02-3727
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
__________________
Nos: 02-3727/02-4185
BEAZER EAST, INC
v.
THE MEAD CORPORATION
v.
KOPPERS INDUSTRIES, INC.
The Mead Corporation,
Appellant - Case No. 02-3727
BEAZER EAST, INC.
v.
THE MEAD CORPORATION
v.
KOPPERS INDUSTRIES, INC.
The Mead Corporation,
Appellant - Case No. 02-4185
__________________
Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil Action No. 91-cv-00408)
District Judge: Honorable Gustave Diamond, Chief Judge
Argued on December 16, 2003
Before: ROTH, MCKEE and ROSENN, Circuit Judges
(Opinion filed June 23, 2005 )
James Van Carson, Esquire (Argued)
Squire, Sanders & Dempsey
127 Public Square
4900 Key Tower
Cleveland, OH 44114
Charles R. McElwee II, Esquire
Squire, Sanders & Dempsey
One Maritime Plaza
Suite 300
San Francisco, CA 94111
David E. White, Esquire
Thorp, Reed & Armstrong
301 Grant Street
One Oxford Centre, 14th Floor
Pittsburgh, PA 15219
COUNSEL FOR APPELLANT
2
D. Matthew Jameson, Esquire (Argued)
Melissa L. Evans, Esquire
Mark D. Shepard, Esquire
Babst, Calland, Clements & Zomir
Two Gateway Center, 8 th Floor
Pittsburgh, PA 15222
John E. Frey, Esquire
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Suite 300
Chicago, IL 60606
COUNSEL FOR APPELLEES
OPINION
ROTH, Circuit Judge
The Mead Corporation appeals several orders of
the United States District Court for the Western District of
Pennsylvania in a CERCLA 1 contribution action brought by
Beazer East, Inc. The main issue presented in these appeals is
1
Comprehensive Environmental Response Compensation
and Liability Act (CERCLA), 42 U.S.C.A. §§ 9601-9675.
3
whether the District Court, over Mead’s objection, properly
referred part of Beazer’s action – the equitable allocation
proceeding – to the Magistrate Judge. In conducting this
proceeding, the Magistrate Judge resolved factual disputes
going to one of the ultimate issues in the case – what share of
Beazer’s response costs should be borne by each of the
responsible parties – and, in doing so, essentially tried part of
the case. Magistrate judges may not, however, try cases
without the parties’ consent. Because we conclude that the
District Court’s referral was an improper delegation of its
traditional adjudicatory function, this case must be remanded
for a new equitable allocation proceeding before the District
Judge.
II. Factual Background and Procedural History
This is the second time this CERCLA contribution
action has been before us. See Beazer East, Inc. v. The Mead
Corp., 34 F.3d 206 (3d Cir. 1994) (“Beazer I”). In 1991,
Beazer East, Inc., signed an Administrative Order on Consent
(AOC) developed by the United States Environmental
Protection Agency. The AOC required Beazer to investigate
and cleanup the Woodward Facility Coke Plant, an industrial
site in Alabama formerly owned and operated by Beazer.
Beazer’s predecessor, Koppers Company, Inc (KCI), bought
the site from The Mead Corporation in 1974. Beazer sought
contribution for its investigation and cleanup costs from Mead
under CERCLA, 42 U.S.C. §§ 9607(a) & 9613(f). Mead filed
a counterclaim for indemnity based on certain provisions of
the 1974 purchase agreement. The District Court granted
summary judgment to Mead on this basis, but we reversed in
4
Beazer I. We held that the key environmental indemnification
provision failed the basic rule of Alabama contract law that
promises to indemnify must be plain and unambiguous.
Beazer I at 216-19. Accordingly, we remanded the case to the
District Court for further proceedings on Beazer’s
contribution claim. Id. at 219 & n.10.
The chief tasks on remand were to determine which of
Beazer’s response costs were necessary and consistent with
the National Contingency Plan (NCP), 42 U.S.C.
9607(a)(4)(B), and what percentage of those costs should be
born by each of the responsible parties: Beazer, Mead, and
Koppers Industries, Inc. (KII).2 42 U.S.C. § 9613(f)(1) (“In
resolving contribution claims, the court may allocate response
costs among liable parties using such equitable factors as the
court determines are appropriate”). In July 1996, the District
Court referred this second question to the Magistrate Judge,
2
On remand Mead filed a third-party complaint against
KII, the current owner of much of the site. KII was formed in
a 1988 leveraged buy-out led by former KCI managers
following Beazer’s acquisition of KCI. Beazer sold the
operational portion of the site to KII in 1988, agreeing to
indemnify KII for environmental liabilities arising from pre-
1988 activities. KII continued to operate the site until 1998 and
demolished all site structures in 1999.
There is no dispute that Beazer, Mead, and KII are each
responsible parties as defined by CERCLA, 42 U.S.C. §
9607(a). Each entity has owned and operated the Woodward
Facility, and hazardous substances were disposed of at the
facility during each ownership period. See id. at § 9607(a)(2).
5
ordering the Magistrate Judge to issue a report, “after a
hearing if necessary,” identifying the appropriate equitable
factors and setting forth an allocation of Beazer’s clean-up
costs among the parties.
Mead objected, arguing that the Magistrate Judge did
not have authority under the Magistrates Act to decide the
equitable allocation issue in the first instance without the
parties’ consent. The District Court rejected this argument,
reasoning that equitable allocation was “essentially . . . a
pretrial matter” which can be referred to a magistrate judge
without the parties’ consent per 28 U.S.C. § 636(b)(1), and
that any concerns over the Magistrate Judge’s authority were
allayed by the District Court’s retention of de novo review
over the Magistrate Judge’s Report and Recommendation.
The Magistrate Judge conducted a lengthy hearing on
the equitable allocation issue in May 1997 and ultimately
issued a Report and Recommendation in November 1999.
Starting from the premise that responsible parties should pay
according to their relative fault, the Magistrate Judge found
that Mead was responsible for disposing of approximately
90% of the waste on the site, while Beazer and KII together
were responsible for disposing of approximately 10% of the
waste. However, the Magistrate Judge adjusted this initial
allocation to account for his proposed finding that the parties
to the 1974 purchase agreement “intended that Mead be able
to ‘walk away’ from the site, i.e., that Mead would not
indemnify [KCI] for any future costs at the site for any
6
reason, including environmental response costs.” 3 The
Magistrate Judge proposed that Mead’s share of Beazer’s
response costs be reduced and Beazer’s share increased by
15% of the total costs. The Magistrate Judge also found that
KII should bear a minor share of the response costs because,
as the current owner, it would benefit from the environmental
remediation of the site. The Magistrate Judge proposed that
KII’s share of Beazer’s response costs should be 2.5%, that
Mead’s share should be 73.75% (90% of the waste minus
15% shifted to Beazer minus 1.25%, half of KII’s share), and
that Beazer’s share should be 23.75% (10% of the waste plus
15% shifted from Mead minus 1.25%).
Following Mead’s objections, in March 2000, the
District Court adopted the Magistrate Judge’s report with the
following minor modifications: 1) 20% of the total costs —
rather than 15% — would be shifted to Beazer based on the
text, parole evidence, and legal context of the 1974 purchase
agreement; and 2) KII’s share would be subtracted entirely
from Mead’s share and added to Beazer’s share because
Beazer did not bring a contribution claim against KII.
Accordingly, Mead’s share was reduced to 67.5% (90%
3
This finding was based on the M agistrate Judge’s
interpretation of the indemnification clause in the 1974 purchase
agreement discussed in Beazer I, the “as is, where is” clause in
the same agreement, and the law of caveat emptor in Alabama
at the time of the agreement. The Magistrate Judge further
found that KCI performed a full inspection of the site prior to
purchase, and was “well aware of the environmental condition
of the site.”
7
minus 20% minus 2.5%), and Beazer’s increased to 32.5%
(10% plus 20% plus 2.5%).
In February 2002, the District Court conducted a three-
day trial to determine which of Beazer’s actual costs incurred
through December 31, 1999, were recoverable CERCLA
response costs. In August 2002 the District Court issued a
thorough opinion largely rejecting Mead’s challenges to
Beazer’s costs. The court determined that Beazer had
incurred recoverable response costs of $4,805,137.60 through
the end of 1999 and entered judgment against Mead for
67.5% of this amount, or $3,243,467.80. Pursuant to the
parties’ stipulation, in September 2002, the Court further
ordered Mead to pay pre-judgment interest in the amount of
$1,538,164.03. Finally, in October 2002, the District Court
entered a declaratory judgment requiring Mead to pay 67.5%
of Beazer’s ongoing response costs associated with
implementing the AOC. The order also provided a
framework for resolution of disputes over the necessity and
NCP-consistency of such costs.
Mead timely appealed these orders. In December
2002, we assigned the case for mediation pursuant to the
Third Circuit’s Appellate Mediation Program, L.A.R. 33.0.
The parties strenuously dispute what transpired at the
February 26, 2003, mediation session. Beazer claims that the
parties reached an oral agreement while Mead claims that the
tentative agreement reached at mediation was conditioned on
further management approval which was ultimately denied.
In May 2003, Beazer moved this Court to enforce the alleged
oral settlement and dismiss Mead’s appeal with prejudice.
The motion was referred to this panel and we decide it here
along with Mead’s appeals.
8
III. Jurisdiction
The District Court had jurisdiction over this case under
42 U.S.C. § 9613(b), which vests exclusive jurisdiction of
CERCLA claims in the federal courts, as well as under 28
U.S.C. §§ 1331 and 1332. Horsehead Industries, Inc. v.
Paramount Communications, Inc., 258 F.3d 132, 140 (3d Cir.
2001); Beazer I, 34 F.3d at 210. We have appellate
jurisdiction over the appeal from the District Court’s final
orders described above pursuant to 28 U.S.C. § 1291.
Horsehead Industries, 258 F.3d at 140. Finally, we have
original jurisdiction over Beazer’s motion to enforce the
alleged settlement agreement. See Fed. R. App. Pro. 33 (“The
court may, as a result of the [mediation], enter an order
controlling the course of the proceedings or implementing any
settlement agreement.”). See also Herrnreitter v. Chicago
Housing Auth., 281 F.3d 684, 637 (7th Cir. 2002).
V. Discussion
A. Enforcement of the alleged oral settlement.
Beazer’s motion to specifically enforce the alleged oral
settlement reached at the appellate mediation and to dismiss
this appeal with prejudice must be rejected. Both Local
Appellate Rule (LAR) 33.5 and sound judicial policy compel
the conclusion that parties to an appellate mediation session
are not bound by anything short of a written settlement. Any
other rule would seriously undermine the efficacy of the
Appellate Mediation Program by compromising the
9
confidentiality of settlement negotiations.4
Beazer requests enforcement of the alleged oral
settlement but admits that there are genuine factual disputes
regarding whether the parties actually reached an agreement.5
Mead correctly argues that we cannot resolve these disputes
without violating the confidentiality rule, LAR 33.5(c). With
exceptions not relevant here, Rule 33.5(c) provides that no
one at the mediation session – neither mediator, counsel, nor
party – may disclose “statements made or information
developed during the mediation process.” The provision
4
Federal Rule of Appellate Procedure 33 gives appellate
courts the power to order settlement conferences and to
“implement[] any settlement agreement” reached as a result of
such conferences. Fed. R. App. P. 33. The Third Circuit has
established an Appellate Mediation Program to implement this
general directive. Local Appellate Rule 33.0. The program is
subject to the rules and procedures provided in the Local
Appellate Rules. Id.
5
Beazer asserts that the parties reached an oral agreement
at the mediation conference but that Mead’s management
ultimately reneged on the agreement while it was being reduced
to writing over the course of the following weeks. Mead
contends that the parties only reached “a tentative resolution of
some of the financial terms.” According to Mead, this
resolution was non-binding because it exceeded Mead’s
representatives’ settlement authority. According to Beazer,
Mead’s representatives never indicated that the agreement
reached at the mediation session was conditioned on subsequent
approval by Mead’s management.
10
further provides that “the parties are prohibited from using
any information obtained as a result of the mediation process
as a basis for any motion or argument to any court.” LAR
33.5(c) (emphases added). Beazer cannot prove the existence
or terms of the disputed oral settlement without violating this
provision’s broadly stated prohibitions.6
Beazer argues that the rule is not so sweeping. Beazer
concedes that it may not use information obtained at the
conference in any argument going to the merits of the appeal,
but contends that it must be able to use that information for
the limited purposes of proving the existence and terms of a
settlement. This argument is unpersuasive. First, the rule is
stated in the broadest possible language and does not
contemplate any such exception. Second, Beazer’s proposed
exception would effectively undermine the rule and would
compromise the effectiveness of the Appellate Mediation
Program. A confidentiality provision “permits and
encourages counsel to discuss matters in an uninhibited
fashion often leading to settlement.” Lake Utopia Paper Ltd.
v. Connelly Containers, Inc., 608 F.2d 928, 929 (2d Cir.
1979). If counsel know beforehand that the proceedings may
6
It is true that the rule also provides that
“[n]otwithstanding the foregoing, the bare fact that a settlement
has been reached as a result of mediation shall not be considered
confidential.” LAR 33.5(c). However, this exception is
unavailing. Beazer may assert the “bare fact” that a settlement
was reached but may not offer any evidence supporting this
assertion. Since Mead asserts that no settlement was reached,
there is no way for us to resolve the dispute.
11
be laid bare on the claim that an oral settlement occurred at
the conference, they will “of necessity . . . feel constrained to
conduct themselves in a cautious, tight-lipped, non-committal
manner more suitable to poker players in a high-stakes game
than to adversaries attempting to arrive at a just resolution of
a civil dispute.” Id.; see also Herrnreiter, 281 F.3d at 637
(“A motion to implement a conference settlement easily could
be a strategy to pierce the confidentiality of the negotiations
and inform the judges of the parties’ position, rather than to
carry out an agreement actually reached.”). Third, Beazer’s
proposed exception would require appellate courts to receive
evidence and resolve factual disputes, tasks more properly
suited to the district courts. See Herrnreiter, 281 F.3d at 637.
We must also consider LAR 33.5(d), which provides
that “[n]o party shall be bound by statements or actions at a
mediation session unless a settlement is reached.” The rule
further provides that “if a settlement is reached, the agreement
shall be reduced to writing and shall be binding upon all
parties to the agreement.” Mead argues that the most
“straightforward” reading of this rule is that no agreement is
binding until it is written. Mead’s reading is serial: 1) if the
parties reach an agreement, 2) then that agreement shall be
written down, and 3) then, and only then, the agreement shall
be binding. However, the grammatical structure of the rule is
consistent with a parallel construction: 1) if the parties reach
an agreement, 2)a) then it shall be reduced to writing, and,
2)b) then it shall be binding. Under this reading, the
agreement is binding because it has been reached, not because
it has been written down.
The “parallel” construction of Rule 33.5(d) — which
would make oral settlement agreements binding on the parties
12
— is irreconcilable with Rule 33.5(c), because, as described
above, there is no way to prove the existence or terms of a
disputed oral settlement without violating the confidentiality
provision. Therefore, we adopt Mead’s “serial” reading of
Rule 33.5(d), according to which an agreement is not binding
unless it is reduced to writing. We note that the Ninth Circuit
adopted a serial interpretation of similar language in Barnett
v. Sea Land Serv., Inc., 875 F.2d 741, 743-44 (9th Cir. 1989).7
Further, Judge Easterbrook’s opinion in Herrnreiter
provides persuasive policy justifications for requiring written
7
As in this case, the parties in Barnett entered into
mediation, but one of the parties refused to sign a settlement
agreement prepared by another party after the mediation took
place and argued that no settlement had been reached. Id.
Relying on Local Rule 39.1, a confidentiality provision
governing mediation proceedings in the Western District of
Washington, the District Court prohibited the party seeking to
enforce the alleged agreement from eliciting testimony from the
mediator about whether a settlement had been reached. Id.
Local Rule 39.1 is very similar to the Third Circuit’s LAR
33.5(c) & (d). After providing that mediation proceedings and
statements are privileged, the rule states that “[n]o party shall be
bound by anything done or said at the conference unless a
settlement is reached, in which event the agreement upon a
settlement shall be reduced to writing and shall be binding upon
all the parties to that agreement.” Id. The Ninth Circuit
interpreted this language to mean that “until a settlement is
reduced to writing, it is not binding upon the parties.” Id. at
744.
13
settlements.8 In Herrnreiter the parties admitted that they had
reached an oral settlement at a voluntary appellate mediation
session but they did not agree on the terms. Id. at 636. The
court denied the defendant’s motion to implement the oral
settlement. Id. at 637. The court noted that there is no
transcript of appellate mediation sessions and that settlement
conference attorneys presiding over such sessions promise
both sides that nothing that transpires at the conference will
be revealed to the judges; the court finally observed that
appellate courts are not well-positioned to conduct fact-
finding missions. Id. Accordingly, the court concluded that
nothing short of a mutually satisfactory written settlement
agreement could terminate an appeal. Id. “Any other
approach would compromise the confidentiality of the
negotiations, require the settlement attorneys to become
witnesses in appellate factfinding proceedings, and
substantially complicate the disposition of litigation.” Id. All
of these concerns are equally present in this case. In fact, the
argument for preserving confidentiality of proceedings is even
stronger in this case, where participation in the appellate
mediation program is mandatory and the mediation is directed
by a court-employed mediator or a judicial officer. See In re
Anonymous, 283 F.3d 627, 636-37 (4th Cir. 2002) (citation
8
If there are analogous local rules governing the Seventh
Circuit’s appellate mediation program the Court in Herrnreitter
did not address them. Rather, it interpreted the text of Fed. R.
App. Pro. 33, which does not contain a confidentiality provision,
and the practice of the Seventh Circuit’s Settlement Conference
Office. 281 F.3d at 637-38.
14
omitted).
Beazer complains that if Mead’s interpretation of
Rules 33.5(c) and (d) is accepted then parties will be able to
enter into oral agreements at settlement conferences and
simply back out on a whim, significantly deterring the federal
policy of encouraging settlements. See D.R. v. East
Brunswick Bd. of Educ., 109 F.3d 896, 901 (3d Cir. 1997).
Beazer also relies on our oft-repeated position that a written
agreement is not necessary to render a settlement enforceable.
See, e.g., Green v. John H. Lewis & Co., 436 F.2d 389, 390
(3d Cir. 1970) (citations omitted). Mead’s first argument is
simply incorrect: if parties know beforehand that only a
written settlement agreement is binding, they will be sure to
memorialize their agreement in writing at the end of the
mediation session. Its second argument is based on basic
common law contract principles, see Main Line Theatres, Inc.
v. Paramount Film Distributing Corp., 298 F.2d 801, 803 (3d
Cir. 1962), and has no application where specific court rules
provide otherwise.
For all these reasons, Beazer’s motion to enforce the
alleged oral settlement agreement and dismiss the appeal is
denied.
B. The District Court’s Referral to the Magistrate
Judge.
Mead argues that the Magistrates Act, 28 U.S.C. § 636,
does not authorize the District Court’s referral to the
Magistrate Judge, over Mead’s objection, of the equitable
allocation issue. Mead contends that, for that reason, the
Magistrate Judge lacked jurisdiction to conduct a hearing or
15
issue a Report and Recommendation. Mead further asserts
that, because the Magistrate Judge lacked jurisdiction, the
District Court’s putative de novo review did not rectify the
improper referral. We agree with Mead on both points.9
The jurisdiction of magistrate judges is limited by
statute and may not be augmented by the federal courts. See
Thomas v. Whitworth, 136 F.3d 756, 758 (11th Cir. 1998)
(citing NLRB v. A-Plus Roofing, Inc., 39 F.3d 1410, 1415 (9th
Cir. 1994)). The District Court did not rely on any specific
provision of the Magistrates Act in its order of referral or its
order rejecting Mead’s objections to the referral, but it is clear
from the context that the court considered the equitable
allocation issue a “pretrial matter” under § 636(b)(1).10
Beazer argues in the alternative that the referral could be re-
characterized as a designation of the Magistrate Judge to
serve as a special master under § 636(b)(2) and Federal Rule
of Civil Procedure 53(b). Beazer also argues that the referral
was permissible under § 636(b)(3), which authorizes
magistrate judges to undertake “such additional duties as are
9
The scope of a magistrate judge’s authority is a question
of law over which this Court exercises plenary review. Bowers
v. National Collegiate Athletic Ass'n, 346 F.3d 402, 410 (3d Cir.
2003).
10
We agree with the Fifth Circuit that “[g]ood practice
would indicate that court orders of designation or reference state
plainly under what statutory provision the court is proceeding.”
Archie v. Christian, 808 F.2d 1132, 1137 (5th Cir. 1987) (en
banc); see also Silberstein v. Silberstein, 859 F.2d 40, 42 (7th
Cir. 1988).
16
not inconsistent with the Constitution and laws of the United
States.” We conclude that the referral was not proper under
any provision of the Magistrates Act.11
11
The District Court also held that Mead’s objections to the
referral were untimely because Mead did not immediately object
but waited until the Magistrate Judge had issued a scheduling
order contemplating implementation of the referral. Mead
correctly argues that objections to a magistrate judge’s authority
are jurisdictional and may be raised at any time. Government of
Virgin Islands v. Williams, 892 F.2d 305, 309 (3d Cir. 1989).
Further, for reasons provided in the next section of this opinion
we conclude that the Magistrate Judge essentially held a trial on
the equitable allocation issue, and trials may not be conducted
by a magistrate judge without the parties’ consent. 28 U.S.C. §
636(c)(1). Even if this consent requirement could be waived, a
question we need not reach here, we agree with Mead that the
brief lapse following the District Court’s order of referral cannot
be construed as a waiver. Mead objected to the Magistrate
Judge’s authority to consider the equitable allocation issue just
after the Magistrate Judge entered its scheduling order and long
before the Magistrate Judge had begun to consider the merits of
this issue, much less receive the parties’ submissions or hold a
hearing.
We note that Beazer has failed on appeal to respond to
any of Mead’s arguments on this point. Of course, an appellee
does not concede that a judgment should be reversed by failing
to respond to an appellant’s argument in favor of reversal. See
Singletary v. Continental Illinois Nat'l Bank, 9 F.3d 1236, 1240
(7th Cir.1993). However, the appellee “waives, as a practical
17
1. Equitable allocation is not a “pretrial
matter.”
We first consider whether the equitable allocation
proceeding referred to the Magistrate Judge is correctly
characterized as a “pretrial matter.” The Magistrates Act
authorizes district courts to appoint magistrate judges to
consider pretrial matters without regard to the parties’
consent. 28 U.S.C. § 636(b)(1).12 The District Court
considered the equitable allocation proceeding a pretrial
matter because it constituted a “significant step” in resolving
the case:
First, the identification of the equitable factors that
will be relevant in an ultimate disposition of this case
essentially is a pretrial matter and constitutes a
significant step in resolving the parties’ current
dispute. In addition, submitting briefs in support of
an allocation of Beazer’s clean-up costs among the
parties likewise is a pretrial undertaking which is
necessary to narrow the issues for trial.
matter anyway, any objections not obvious to the court to
specific points urged by the [appellant].” Hardy v. City Optical
Inc., 39 F.3d 765, 771 (7th Cir. 1994) (citations omitted).
12
The m ag istrate jud ge m ay hea r a nd decide non-
dispositive pretrial matters but may only issue a report and
recommendation on dispositive pre-trial matters. Compare 28
U.S.C. § 636(b)(1)(A) with id. at § 636(b)(1)(B); see also Fed.
R. Civ. P. 72; United States v. Polishan, 336 F.3d 234, 239 (3d
Cir. 2003); NLRB v. Frazier, 966 F.2d 812, 816 (3d Cir. 1992).
18
The District Court’s reasoning is misleading and without
supporting authority. First, the District Court significantly
understates the significance and scope of the referral. The
parties did not simply “submit briefs” in support of the
equitable allocation issue — they presented extensive
testimonial and documentary evidence over the course of a
12-day hearing. At the conclusion of this hearing the
Magistrate Judge not only identified equitable factors but also
applied those factors to make a recommendation as to the
allocation of liability among the parties. Second, by the
District Court’s reasoning, any issue in the case could be
could be considered by a magistrate judge in a “pretrial”
proceeding so long as the Court later conducted a “trial” on at
least one issue. Whether a given issue is a “pretrial matter,”
however, turns on the nature of the issue itself, not on the
position in which it falls in the sequence of decision.
A CERCLA contribution action consists of
determining which parties are liable under CERCLA and
apportioning the liable parties’ shares in an equitable manner.
See 42 U.S.C. §§ 9607(a) & 9613(f)(1); New Jersey Turnpike
Authority v. PPG Industries, Inc., 197 F.3d 96, 104 & n.7 (3d
Cir. 1999); Kalamazoo River Study Group v. Menasha Corp.,
228 F.3d 648, 656-57 (6th Cir. 2000). Here, the first phase
was uncontested: Mead, Beazer, and KII are each liable as
current or former owners and operators of the Woodward
Coke Plant. See 42 U.S.C. § 4607(a)(1). The equitable
apportionment phase was divided into two proceedings: a
proceeding (conducted by the Magistrate Judge) to determine
the parties’ equitable shares of response costs on a percentage
basis, see 42 U.S.C. § 9613(f)(1), and a separate proceeding
(conducted by the District Court) to determine which of
19
Beazer’s actual costs qualify as recoverable response costs,
see 42 U.S.C. § 9607(a)(4)(B). Contrary to the District
Court’s assertions, then, the issue referred to the Magistrate
Judge was not a precursor to resolution of the ultimate issue
— it was one of the ultimate issues to be tried. In fact, it was
the only issue in the case unique to contribution claims.
Whether a party is liable and which costs are recoverable are
questions governed by CERCLA’s liability provision, 42
U.S.C. § 9607. The contribution provision, section
9613(f)(1), provides 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.” This was the very task referred to the
Magistrate Judge.
Further, this task required the Magistrate Judge to
resolve factual disputes going to the merits of the case. In
Banks v. United States, 614 F.2d 95 (6th Cir. 1980), the court
reasoned that section 636(b)(1) was carefully drafted to avoid
granting magistrate judges the authority to perform fact-
finding on the merits of case because that function is the
essence of a trial, and magistrate judges cannot conduct trials
without the parties’ consent:
The statute clearly contemplates that a magistrate be
allowed to help a district judge with a variety of pre-
trial motions. However, absent consent, the
magistrate cannot conduct a trial itself. Under our
system of law, when there are factual controversies,
there must be a trial. Only when a party is entitled to
judgment as a matter of law may a trial be aborted.
See e.g. Fed R. Civ. P. 12, 56. Congress was careful
to recognize this distinction when it amended the
20
Federal Magistrate's Act. The Act permits a
magistrate to prepare proposed findings on a variety
of “case dispositive” motions such as summary
judgment. Except for prisoner's cases, the act does
not permit the magistrate to perform fact-finding on
the merits of a case. That is the exclusive function of
a district judge. Indeed, the magistrate judge's role is
to free the judge from pre-trial wrangling so that he
can try cases.
Id. at 97.13 In this case the Magistrate Judge did not facilitate
the District Court’s ultimate adjudicatory function – he
assumed that function. In the course of making his Report
and Recommendation, the Magistrate Judge resolved two
critical factual disputes. First, the he determined that Mead
was responsible for approximately 90% of the waste at the
Woodward Coke Plant. Second, he found that the parties to
the 1974 purchase agreement intended that Mead would not
be responsible for any environmental liabilities at the Plant.
13
This interpretation is supported by the legislative history
of the Magistrate’s Act and its amendments. See, e.g., H.R.
Rep. No. 94-1609, at 7 (1976) (explaining that the magistrate
judge is to “assist the district judge in a variety of pretrial and
preliminary matters thereby facilitating the ultimate and final
exercise of the adjudicatory function at the trial of the case.”);
see also Gomez v. United States, 490 U.S. 858, 872 & n.23
(1989) (collecting legislative history for the proposition that
“magistrates should handle subsidiary matters to enable district
judges to concentrate on trying cases”).
21
By making these findings, he tried part of the case and
usurped the role of the District Judge. Accordingly, the
equitable allocation proceeding conducted by the Magistrate
Judge is not a “pretrial matter” under 28 U.S.C. § 636(b)(1).
One further argument warrants mention. Beazer and
the District Court imply that the equitable allocation
proceeding conducted by the Magistrate Judge was a “pretrial
matter” simply because it preceded the recoverable costs
proceeding conducted by the District Court. This is mere
happenstance. The proceedings could have been held in the
reverse order or held together. As discussed above, the
important issue is not the order of decision but the nature of
decision – both the equitable allocation proceeding and the
recoverable costs proceeding required the decisionmaker to
resolve factual disputes going to the ultimate issues in the
case.
2. Equitable allocation cannot be referred to a
special master without the parties’ consent.
Beazer argues that, even if the referral is not
authorized by § 636(b)(1), we should recharacterize the
referral as a designation of the Magistrate Judge to serve as a
special master under § 636(b)(2). We need not reach the issue
of whether an appellate court can save a flawed referral in this
manner because we hold that the designation of a Magistrate
Judge to conduct an equitable allocation without the parties’
consent would constitute an abuse of discretion.14 See Sierra
14
At least one circuit court has suggested in dictum that an
improper referral under § 636(b)(1) could be re-characterized as
22
Club v. Clifford, 257 F.3d 444, 446 (9th Cir. 2001)
(designation of special master is reviewed for abuse of
discretion); American Cyanimid Co. v. Ellis-Foster Co., 298
F.2d 244, 247 (3d Cir. 1962) (same).
Section 636(b)(2) provides in pertinent part that a
judge “may designate a magistrate judge to serve as a special
master pursuant to the applicable provisions of this title and
the Federal Rules of Civil Procedure” without the parties’
consent. The applicable Federal Rule is Rule 53(b), which
provides for references to special masters:
A reference to a master shall be the exception and not
the rule. In actions to be tried by a jury, a reference
shall be made only when the issues are complicated;
in actions to be tried without a jury, save in matters of
account and of difficult computation of damages, a
reference shall be made only upon a showing that
a designation of a magistrate judge to serve as a special master
per § 636(b)(2) and Rule 53(b). In Callier v. Gray, 167 F.3d
977, 983 (6th Cir. 1999), the court upheld an ambiguous referral
to a magistrate judge of a damages issue under the “additional
duties” provision, § 636(b)(3). The court noted that Rule 53(b)
might have served as an “additional basis for jurisdiction of the
magistrate judge on the damages dispute,” but concluded that it
did not need to reach the issue. Id. at 983 n.10. The court
entertained this idea even though the referral in that case was
made specifically under § 636(b)(1)(B), not § 636(b)(2). We
take no position on this issue.
23
some exceptional condition requires it.15
The non-jury standard of review applies here. Thus, unless
the proceeding referred to the Magistrate Judge in this case is
characterized as part of a “difficult computation of damages,”
the reference can only be justified upon a showing that some
“exceptional condition” required it.
Beazer makes no argument that any “exceptional
condition” exists in this case, nor does Beazer argue that the
Magistrate Judge performed any difficult computations.
Rather, Beazer contends that the referral was proper because
the equitable allocation proceeding conducted by the
Magistrate Judge was a “predicate” to a “difficult
computation of damages” performed by the District Court.
Beazer’s expansive reading of Rule 53(b) is at odds with the
Supreme Court’s restrictive interpretation.
In La Buy v. Howes Leather Co., 352 U.S. 249, 256,
259 (1957), the Court affirmed the appellate court’s issuance
of a writ of mandamus compelling the District Court to vacate
its order referring essentially the entirety of two complex
antitrust cases to a special master. The Court noted that while
masters could “aid judges” in the performance of specific
duties, they could not be permitted to “displace the court.” Id.
at 256; see also Prudential Ins. Co. v. United States Gypsum
Co., 991 F.2d 1080, 1086 (3d Cir. 1993) (“A district court has
15
Both § 636(b)(2) and Rule 53(b) provide that a magistrate
judge may be designated as a special master without regard to
Rule 53(b)’s limitations upon consent of the parties. Because
Mead did not consent, this exception is inapplicable.
24
no discretion to delegate its adjudicatory responsibility in
favor of a decision maker who has not been appointed by the
President and confirmed by the Senate.”) (citing La Buy); In
re Bituminous Coal Operators' Ass'n, Inc. 949 F.2d 1165,
1168 (D.C. Cir. 1991) (“Rule 53 . . . authorizes the
appointment of special masters to assist, not to replace, the
adjudicator, whether judge or jury, constitutionally indicated
for federal court litigation”). The Court found that the
references at issue “amounted to little less than an abdication
of the judicial function depriving the parties of a trial before
the court on the basic issues involved in the litigation.” La
Buy, 352 U.S. at 256.16 The Court acknowledged, however,
that difficult damages computations could sometimes be
referred to a master without the parties’ consent. “The
detailed accounting required to determine the damages
suffered by each plaintiff might be referred to a master after
the court has determined the over-all liability of defendants,
16
The Court also rejected the judge’s claim that docket
congestion, complexity, and length of time necessary for trial
constituted “exceptional circumstances” justifying the reference.
Id. at 258-29; see also Charles Alan Wright & Arthur R. Miller,
9A Federal Practice and Procedure § 2605, at 662 (2d ed. 1994)
(noting that the Court rejected “the three most obvious matters”
that might be thought to constitute “exceptional conditions”); In
re Armco, Inc., 770 F.2d 103, 105 (8th Cir. 1985) ("Beyond
matters of account, difficult computation of damages, and
unusual discovery, it is difficult to conceive of a reference of a
nonjury case that will meet the rigid standards of the La Buy
decision.") (internal quotations omitted).
25
provided the circumstances indicate that the use of the court’s
time is not warranted in receiving the proof and making the
tabulation.” Id. at 259.
Accountings and other damages computations may be
referred without the parties’ consent because they generally
do not call for any peculiar judicial talent or insight. See 9A
Charles Alan Wright & Arthur R. Miller, Federal Practice and
Procedure § 2605 at 655-66 (2d ed. 1994). Equitable
apportionment, on the other hand, is a quintessentially judicial
endeavor. CERCLA’s contribution provision authorizes the
court to “allocate response costs among liable parties using
such equitable factors as the court determines are
appropriate.” 28 U.S.C. § 9613(f)(1). In a given case, “a
court may consider several factors or a few, depending on the
totality of the circumstances and equitable considerations.”
New Jersey Turnpike Authority v. PPG Industries, Inc., 197
F.3d 96, 104 (3d Cir. 1999) (citation omitted). This flexible
inquiry involves discretion, judgment, and legal reasoning that
simply is not connoted by the phrase “difficult computation of
damages.” This case provides a good illustration of this point.
The Magistrate Judge’s proposed allocation turned
chiefly on three factors: 1) volume of waste should be the
pre-eminent equitable factor given CERCLA’s over-arching
“polluter-pays” principle; 2) Mead was responsible for
approximately 90% of the waste; and 3) Mead was
nonetheless entitled to a reduction in its share based on the
parties’ intent that Mead would not be responsible for future
environmental liabilities. In weighing these factors, only the
second is reasonably related to a “computation of damages.”
The other two turn on questions of law, policy, equity, and
26
contractual intent. Further, even with respect to weighing the
second factor, the computations performed by the Magistrate
Judge were not “difficult” – they entailed elementary
subtraction and addition of percentages. The Magistrate
Judge did not crunch any numbers to determine that Mead
was responsible for 90% of the waste on the site; rather, he
decided which expert’s percentage estimates were more
convincing. In fact, even this decision largely turned on a
legal question: should Beazer be able to recover all of its
response costs based on an AOC ordered under the Resource
Conservation and Recovery Act that required investigation
and monitoring of the entire industrial site, or should it be
limited, as Mead’s chief expert contended, to costs that would
have been assessed under a more modest hypothetical AOC
issued pursuant to CERCLA? Thus, the issues referred to the
Magistrate Judge here were not akin to a complicated
accounting or difficult damages calculation. Rather, they
were foremost among the “basic issues” to be tried, and the
District Court’s referral of those issues without the parties’
consent was “an abdication of the judicial function.” La Buy,
352 U.S. at 256.
Beazer also argues that our opinion in Beazer I ended
the “liability phase” of this case, that everything that occurred
on remand constituted the “damages phase,” and therefore
everything on remand could have been properly referred to a
master. This formalistic argument is inconsistent with La
Buy’s reasoning. In United States v. Microsoft Corp., 147
F.3d 955, 954-55 (D.C. Cir. 1998), the D.C. Circuit Court of
Appeals vacated a reference to a special master to determine
the parties’ rights under a complex consent decree. Seeking
to uphold the reference, the Department of Justice invoked the
“well-established tradition” allowing special masters to
oversee compliance during the remedial phase of litigation,
arguing that the reference to oversee implementation of the
consent decree fell squarely within that tradition. Id. at 954.
27
(citations omitted). The court rejected this position, holding
that “[t]he matters referred to the master are no more
“remedial” than would be those of any total referral of a
contract case. The concern about nonconsensual references
turns on the determination of rights, not on a formalistic
division of the juridical universe into pre-trial, trial and post-
trial. It is for this reason that special masters may not decide
dispositive pretrial motions.” Id. (citation omitted).
Similarly, the reference here involved a complex and delicate
determination of equities.
We note, however,that there is some support for
Beazer’s position. In United States v. Conservation Chemical
Co., 106 F.R.D. 210, 216 (W.D. Mo. 1985), the District Court
referred all pretrial and discovery matters as well as the trial
on the merits to a special master without the parties’ consent.
The reference included “the authority to hold hearings and
issue recommendations on the claims for . . . apportionment
of costs.” Id. Predictably, the Eighth Circuit Court of Appeals
held that no “exceptional condition” justified the District
Court’s sweeping reference. In re Armco, 770 F.2d 103, 105
(8th Cir. 1985). But then, without explaining its reasoning,
the court affirmed all aspects of the reference except for the
trial on the liability issues. Thus, the court affirmed reference
of all post-liability damages proceedings. Id. Although not
explicitly stated, this reference necessarily covered any
equitable allocation proceedings that might be necessary to
resolve contribution claims brought by any of the liable
parties.
The Armco Court’s unexplained decision to uphold the
reference of dispositive matters without any showing of
exceptional conditions has been met with perplexity by two
other circuit courts. Stauble v. Warrob, Inc., 977 F.2d 690,
696 (1st Cir. 1992) (noting that the court was “baffled” by the
Armco Court’s decision to authorize reference of dispositive
pre-trial motions); In re United States, 816 F.2d 1083, 1091
28
(6th Cir. 1987) (noting the court’s inability “to follow the
[Armco] Court’s reasoning” on this issue). We also do not
consider Armco to be persuasive authority. It is possible that
the Armco Court was overly solicitous towards the District
Court’s Rule 53(b) reference because it perceived that the
District Court required an extraordinary degree of flexibility
to handle an enormous CERCLA case involving more than
250 parties. See 9A Wright & Miller, Federal Practice and
Procedure § 2605, at 666 (“Despite the restrictive standard set
out in the La Buy case, the actual utilization of masters under
Rule 53(b) in the past two decades has been quite lively[,]
undoubtedly [in response to] the rapid growth of complex
litigation in the federal courts, particularly in cases requiring
significant scientific and technical knowledge, [and]
management skills”). In contrast, this case does not present
similar administrative challenges — there are only three
parties, and one, KII, has played only a minor role in the
proceedings.
Accordingly, we reject Beazer’s contention that the
District Court could have designated the Magistrate Judge to
hear the equitable allocation issue as a special master without
Mead’s consent.
3. Equitable allocation cannot be referred
under the “additional duties” clause.
Finally, we reject Beazer’s suggestion that the referral
was proper under the “additional duties” clause. 28 U.S.C. §
636(b)(3). This clause covers only subsidiary matters in the
absence of the parties’ consent, and equitable allocation is
central, rather than subsidiary, to a CERCLA contribution
action.
The parties’ consent or lack thereof is a key factor in
deciding whether a referral is authorized under the “additional
duties” clause. In Gomez v. United States, 490 U.S. 858, 876
(1989), the Court held that this clause did not authorize
29
magistrate judges to supervise voir dire proceedings in a
criminal case over a defendant’s objection. However, in
Peretz v. United States, 501 U.S. 923, 932-36 (1991), the
Court held that the “additional duties” clause did authorize the
reference of voir dire in a criminal case where the defendant
consented to the reference. The Court reasoned that the scope
of the clause varied significantly according to whether the
parties’ consented to the reference. See Peretz, 501 U.S. at
931-33; Gomez, 490 U.S. at 970-71. As the Court explained
in Gomez and reiterated in Peretz, the scope of § 636(b)(3)’s
residuary clause had to be interpreted in light of the duties
specifically authorized in the other sections of the Act.
Peretz, 501 U.S. at 930-31 (citing Gomez, 490 U.S. at 864).
The Court explained that “the duties that a magistrate judge
may perform over the parties’ objections are generally
subsidiary matters not comparable to supervision of jury
selection. However, with the parties’ consent, a district judge
may delegate to a magistrate judge supervision of entire civil
and misdemeanor trials. These duties are comparable in
responsibility and importance to presiding over voir dire at a
felony trial.” Peretz, 501 U.S. at 932.
Thus, in the absence of Mead’s consent, the referral
would only be authorized under § 636(b)(3) if we
characterized the equitable allocation proceeding as a
“subsidiary matter.” See Charles Alan Wright et al, 12
Federal Practice & Procedure § 3068.1 at 329 (2d ed. 1997).
As explained in the previous two sections, equitable
allocation is central to Beazer’s CERCLA action, not
subsidiary thereto. Accordingly, the referral could not be
authorized under the “additional duties” clause over Mead’s
objection.
This conclusion is consistent with Congressional
intent. As the Court in Peretz explained, “[t]he Act is
designed to relieve the district courts of certain subordinate
duties that often distract the courts from more important
30
matters.” 501 U.S. at 934. In support of this assessment, the
Court cited several statements from the legislative history of
the Act and its various amendments. See, e.g., H.R. Rep. no.
94-1609, p. 7 (1976) (stating that a magistrate judge is to
“assist the district judge in a variety of pretrial and
preliminary matters thereby facilitating the ultimate and final
exercise of the adjudicatory function at the trial of the case”).
Equitable allocation is at the very core of a CERCLA
contribution action and is not a preliminary or subordinate
matter.
4. Remand is required notwithstanding the
District Court’s purported de novo review.
Beazer contends, and the District Court reasoned, that
any flaw in the referral is corrected by the District Court’s
purported de novo review of the Magistrate Judge’s proposed
equitable allocation. This argument is unavailing.
First, as noted above, a magistrate judge’s authority is
jurisdictional. Without the parties’ consent, a magistrate
judge cannot conduct a trial or any part thereof, see 28 U.S.C.
§ 636(c)(1) (“[u]pon the consent of the parties, a . . .
magistrate judge . . . may conduct any or all proceedings in a
jury or nonjury civil matter”), and “[t]he mere existence of a
recommendation [and accompanying de novo review] will not
change a full trial [or any part thereof] into a pre-trial
motion.” Jeffrey S. v. State Bd. of Educ., 896 F.2d 507, 512
n.17 (11th Cir. 1990) (citing Hall v. Sharpe, 812 F.2d 644,
647 (11th Cir. 1987)). Second, § 636(b)(1)(B) provides that
certain dispositive pre-trial motions may be referred to a
magistrate judge, but the magistrate judge’s proposal must be
reviewed de novo by the court. Mead correctly argues that
this provision would be meaningless if no specific statutory
delegation were necessary so long as the District Court
conducted a de novo review. Third, the District Court’s error
cannot be considered harmless no matter how admirable the
31
Magistrate Judge’s efforts may have been. See United States
v. Ruiz-Rodriguez, 277 F.3d 1281, 1293 n.17 (11th Cir. 2002)
(“[H]armless error analysis does not apply when a magistrate
judge lacks the power to act.”). Since the Magistrate Judge
lacked the power to conduct the equitable allocation
proceeding in this case, there was nothing for the District
Court to review.17
Although the issue of appropriate remedy is less settled
where the flawed referral is to a special master (or a
magistrate judge acting as a special master) rather than to a
magistrate judge qua magistrate judge, remand for a new trial
is the proper remedy even if the District Court’s referral could
be re-characterized as a designation of the Magistrate Judge to
serve as a special master. First, while at least two courts of
appeals have suggested that a remand for a new trial may not
be required where the district court reviews the master’s
report de novo, Sierra Club v. Clifford, 257 F.3d 444, 447 (9th
Cir. 2001) (vacating reference but declining to decide whether
de novo review by the district judge could save a flawed
reference), Stauble, 977 F.2d at 698 n.12 (same), we rejected
a similar argument in Prudential. The District Court in
Prudential had stated that the reference was limited to pre-
trial motions, and that it would review every conclusion of
law proposed by the special master de novo. 991 F.2d at 1086
n.11. We reasoned, however, that de novo review of legal
matters could not save an improper referral because such
review was always available regardless of whether the referral
violated Rule 53(b). Id. That is, if de novo review of legal
issues cured referrals made in violation of Rule 53(b), that
17
Because we conclude that the District Court could not
save the flawed referral no matter what level of review it
conducted, we need not consider whether it actually performed
a de novo review of the Magistrate Judge’s report and
recommendation.
32
provision would be meaningless.
Furthermore, the referral in this case encompassed
questions of fact as well as questions of law, and Rule
53(e)(2) provides that in non-jury trials the district court
“shall accept the master’s findings of fact unless clearly
erroneous.” Fed. R. Civ. Pro. 53(e)(2) (emphasis added);
Apex Fountain Sales, Inc. v. Kleinfeld, 818 F.2d 1089, 1097
(3d Cir. 1987) (noting that review of master’s legal
conclusions is plenary, but that district court must accept
master’s factual findings unless clearly erroneous). Relying
on this provision, the court in Microsoft rejected the argument
that de novo review can save an improper referral because the
master’s factual conclusions cannot be reviewed de novo
under Rule 53(e)(2). 147 F.3d at 955; see also Sierra Club,
257 F.3d at 448 (suggesting but not reaching same
conclusion). In this case the District Court claims that it
reviewed both the Magistrate Judge’s factual findings and its
legal conclusions de novo. This is inconsistent with Rule
53(e)(2), and a district court cannot cure one violation of Rule
53 by committing another. Finally, it would be inappropriate
to re-characterize the referral as a flawed designation of a
special master solely to avoid the remand required by case law
construing other provisions of the Magistrates Act.
Accordingly, this case must be remanded for a new
equitable allocation proceeding before the District Court. We
note that Beazer’s contribution action is now in its fourteenth
year and will likely enjoy several more birthdays, partly
because our reversal today will require the parties to retread
well-worn ground. In an attempt to avoid further duplicative
litigation and speed this case towards its conclusion, we take
this opportunity to resolve two other issues raised by the
parties on appeal.
C. The District Court’s Equitable Allocation Was
Erroneous.
First, we agree with Mead that the District Court
33
committed legal error, and therefore abused its discretion, in
prioritizing the parties’ respective contributions of waste at
the Woodward Coke Plant in determining the appropriate
allocation of Beazer’s response costs.18 The District Court
found that the parties to the 1974 sale intended that Mead
would not bear any environmental liability following the 1974
sale, but reduced Mead’s equitable share by only 20% in
recognition of this and related findings that we refer to here as
the “purchase agreement factors,” all of which favor Mead.19
The District Court’s decision to prioritize the volume
of waste over the purchase agreement factors appears to
follow two related rationales explicitly developed in the
Magistrate Judge’s Report and Recommendation. The
18
A district court’s allocation of CERCLA response costs
in a contribution action is reviewed for abuse of discretion. See,
e.g., Kalamazoo River Study Group v. Rockwell Intern. Corp.,
274 F.3d 1043, 1047 (6 th Cir. 2001). An abuse of discretion
occurs when “the district court's decision rests upon a clearly
erroneous finding of fact, an errant conclusion of law or an
improper application of law to fact.” International Union v.
Mack Trucks, Inc., 820 F.2d 91, 95 (3d Cir.1987).
19
The District Court found that the parties to the 1974
agreement “intended that Mead be able to ‘walk away’ from the
site, i.e., that Mead would not indemnify [KCI, Beazer’s
predecessor] for any future costs at the site for any reason,
including environmental response costs.” The District Court also
found that KCI purchased the property pursuant to the doctrine
of caveat emptor, that the purchase agreement contained an “as
is” clause, that KCI was “well aware of the environmental
condition of the site” after performing a full inspection prior to
purchase, and that “reasonable parties negotiating the sale of an
industrial site in Alabama in 1974 would expect that the seller
would not be held liable for any future environmental costs.”
34
Magistrate Judge concluded that “CERCLA is premised upon
the policy that the ‘polluter pays.’” Thus, the Magistrate
Judge began from the premise that each party’s equitable
share should be driven by its respective contribution of waste.
The Magistrate Judge deviated only slightly from this premise
to account for the equitable factors surrounding the 1974 sale.
The Magistrate Judge also concluded that it would be
inconsistent with our decision in Beazer I to allocate “all or
even most” of the response costs to Mead. The District Court
somewhat ambiguously adopted each rationale. However,
neither Beazer I, nor CERCLA itself, requires that the parties’
intent to shift environmental risk be subordinated to the
“polluter pays” principle – as long as someone pays.
Therefore, the District Court’s allocation, which was based in
part on its agreement with the Magistrate Judge’s flawed
reasoning, was an abuse of discretion.
First, the Magistrate Judge’s and District Court’s
prioritization of the “polluter pays” principle in equitable
allocation proceedings is inconsistent with CERCLA’s
contribution provision. That provision authorizes the district
courts to “allocate response costs among liable parties using
such equitable factors as the court determines are
appropriate.” 28 U.S.C. § 9613(f)(1). Courts examining this
language and its history have concluded that Congress
intended to grant the district courts significant flexibility in
determining equitable allocations of response costs, without
requiring the courts to prioritize, much less consider, any
specific factor. In a leading case, the Seventh Circuit Court of
Appeals explained that “the language of section 9613(f)
clearly indicates Congress’s intent to allow courts to
determine what factors should be considered in their own
discretion without requiring a court to consider any particular
list of factors.” Environmental Transportation Systems, Inc.
v. ENSCO, 969 F.2d 503, 508 (7th Cir. 1992); see also United
States v. R.W. Meyer, Inc., 932 F.2d 568, 576-77 (6th Cir.
35
1991) (reasoning that section 9613(f)(1)’s language “confirms
the legislative intent to grant courts flexibility in exercising
their discretion”) (citations to legislative history omitted). As
we have held, “a court may consider several factors or a few,
depending on the totality of the circumstances.” New Jersey
Turnpike Authority v. PPG Industries, Inc., 197 F.3d 96, 104
(3d Cir. 1999) (citation omitted).
Accordingly, the “polluter pays” principle has no
canonical or transcendent importance under § 9613(f)(1); it is
certainly not the “primary policy” of contribution claims, as
implied by the District Court. It is simply one of many factors
that may or may not bear on a given equitable allocation
determination. See Kerr-McGee, 14 F.3d at 326 (listing
possible factors). Specifically, there is no basis in CERCLA’s
text or history for prioritizing a priori the parties’ relative
contributions of waste over their contractual intent to allocate
environmental liability among themselves. To the contrary,
CERCLA expressly authorizes private indemnity agreements,
see 28 U.S.C. § 9607(e)(1); Fisher Development Co. v. Boise
Cascade Corp., 37 F.3d 104, 110 (3d Cir. 1994) (finding in §
107(e)(1) “a policy favoring private ordering of ultimate risk
distribution”), and the District Court’s insistence on elevating
relative waste contribution is fundamentally inconsistent with
CERCLA’s policy of favoring private indemnity agreements.
Second, Beazer I dealt with the legal interpretation of
Paragraph 4(c). As a matter of equity, however, the intent of
the parties, which is manifested by their actions and in the
written agreement, can be taken into account – no matter what
our legal conclusion was in Beazer I. Beazer I does not tip
the equitable scales one way or another. In Beazer I, we
determined that the 1974 agreement was governed by
Alabama law, 34 F.3d at 211-15, and that indemnification
agreements are enforceable under Alabama law only if they
contain “a plain and unambiguous expression of intent to
cover the cost of the liability in question.” Id. at 216.
36
Applying this standard, we concluded that “nothing in this
agreement demonstrates a clear and unambiguous intent to
transfer all CERCLA liability to [KCI].” Id. at 219. The
Magistrate Judge correctly reasoned that Beazer I reached no
conclusion regarding the parties’ actual intent; only that, as a
matter of Alabama law, the contract did not contain a
sufficiently clear expression that KCI would indemnify Mead
against all environmental liability associated with the site.
See id. Thus, the Magistrate Judge concluded that “there is no
inherent inconsistency in the ruling made on appeal and a
decision by this court that, as a matter of equity, the parties’
intentions concerning indemnity, to the extent they can be
divined from both the document and any other evidence
offered by the parties, should be considered in equitable
allocation.” 20
20
T he M agistra te Judge prope rly c ite d K err-M cG ee
Chemical Corp. v. Lefton Iron & Metal Co., 14 F.3d 321 (7th
Cir. 1994) in support of this distinction between legal and
equitable rulings. In that case, the District Court concluded that
the relevant indemnification provision was insufficiently clear
as a matter of Illinois law, id. at 327, and consequently “ignored
the [provision] when allocating responsibility for cleanup costs.”
Id. at 326. In dictum, the Seventh Circuit concluded that this
was error, reasoning that “[a]lthough contractual arrangements
between parties are not necessarily determinative of statutory
liability, Lefton’s intent to indemnify Kerr-McGee should be
considered in the allocation of cleanup costs.” Id. The court
further explained that the fact that “Lefton — with knowledge
of the creosote on the site — agreed that it took the property “as
is” and would assume future liabilities resulting from that
pollution is certainly a significant circumstance.” Id. The court
noted that “[t]he fact that Kerr-McGee’s predecessor Moss-
American was the source of most of the pollution at the site may
also weigh in the Court’s analysis; this however is not reason to
37
However, the Magistrate Judge further reasoned that
shifting all or most of the response costs to Beazer based on
the purchase agreement factors “would give the agreement,
found legally insufficient under Alabama law, the force of
law, and would place [the District] Court’s decision at odds
with the ruling made by the Court of Appeals.” This
conclusion does not follow from Beazer I.
The District Court, however, rejected Mead’s
contention that the Magistrate Judge had misinterpreted
Beazer I. The court quoted from its penultimate paragraph,
seemingly for the proposition that Mead’s “fair share” of
Beazer’s response costs should be greatly influenced, if not
largely determined, by Mead’s relative contributions of
hazardous waste to the site. The penultimate paragraph
provides:
Our refusal to construe Paragraph 4(c) as a clear
promise by Beazer to indemnify Mead against
CERCLA response costs leaves both Beazer and
Mead responsible for their fair share of the cleanup
costs associated with the Coke Plant. That result
reinforces CERCLA policy. “Congress enacted
CERCLA, a complex piece of legislation ... to force
polluters to pay for costs associated with remedying
their pollution.” United States v. Alcan Aluminum
Corp. 964 F.2d 252, 258 (3d Cir.1992).
34 F.3d at 219. Apparently, the District Court considered this
quotation from Alcan Aluminum to support (or perhaps
ignore other relevant considerations.” Id. The issue of the
appropriate weight to be accorded to each factor was not before
the court, and the court had no occasion to suggest an answer to
this question since it ultimately concluded that the
indemnification provision did cover CERCLA liability, so no
equitable allocation proceeding was required. Id. at 327-28.
38
require) elevating the “polluter pays” principle above all other
equitable factors.
The quoted paragraph does not warrant such
significance. The first two sentences uncontroversially state
that holding Mead and Beazer responsible for their fair share
of cleanup costs reinforces CERCLA policy. Id. at 219. The
next sentence, the quotation from Alcan Aluminum, is to the
effect that Congress intended that polluters pay for the costs
of remedying their pollution. Id. (quoting Alcan, 964 F.2d at
258).21 The District Court apparently inferred from the
juxtaposition of these statements that each party’s “fair share”
must be more or less rigidly tied to its share of pollution at the
site. Such an interpretation is, however, fundamentally at
odds with CERCLA’s contribution provision as well as with
CERCLA’s policy of favoring private indemnity agreements.
We note, moreover, that in the footnote at the end of
the penultimate paragraph, the Beazer I Court quoted the
“equitable factors” language of section 9607(a) and went on
to note that on remand, “the trial court will have to revisit the
parties’ contribution claims and correspondingly apportion
liability for attendant CERCLA response costs.” This
direction is significantly broader than a direction that liability
should be apportioned to reflect each party’s share of
pollution at the site – which the Beazer I Court could easily
have stated if that were its intent.
It is clear, then, that the District Court erred in
eliminating significant consideration of the parties’ intent in
its equitable allocation. See Kerr-McGee, 14 F.3d 321, 326
(“Although contractual arrangements between parties are not
21
Alcan Aluminum had nothing to do with contribution
actions under § 113(f); the issues considered in Alcan Aluminum
bore on Alcan’s initial liability under CERCLA and to what
degree it was required to reimburse the government for clean-up
costs. See 964 F.2d at 259, 267-71.
39
necessarily determinative of statutory liability, Lefton’s intent
to indemnify Kerr-McGee should be considered in the
allocation of cleanup costs.”). Moreover, to the extent that
the court felt itself bound by the “polluter pays” principle or
by our oblique reference to that principle in Beazer I, that
conclusion was unwarranted. Because we donclude that the
District Court’s ultimate allocation of Beazer’s costs was
predicated in large part on this error, that conclusion was an
abuse of discretion.
Mead would have us go further and prescribe that the
purchase agreement factors must be prioritized on remand,
but we think this is inappropriate. CERCLA places both the
selection and weighing of equitable factors in the sound
discretion of the district court, not the appellate court.
Accordingly, we leave these matters for the District Court to
decide on its own on remand, unfettered by the legal errors
discussed above.
D. Any Declaratory Judgment Should Contain a
Contingency Provision.
Finally, we are sympathetic with Mead’s contention
that the District Court’s declaratory judgment fixing the
parties’ equitable shares of future response costs should
contain a provision authorizing the parties to re-litigate the
District Court’s equitable allocation if new facts or future
events render the current division inequitable. For example,
Mead argues that once the investigatory phase of the case
concludes and the remedial phase ensues, the District Court’s
equitable allocation would no longer be fair if any required
remediation is “primarily or exclusively directed to those
areas of the Site where Beazer is responsible for the majority
of the contamination.”
Because the equitable allocation proceeding in this
case must be conducted again on remand by the District
40
Court, the declaratory judgment already entered in this case is
null and void. If and when the District Court enters a new
declaratory judgment covering future costs, however, we
agree with Mead that the judgment should contain some kind
of provision authorizing the parties to re-litigate the allocation
of those costs for good cause shown in response to new events
or new evidence that would reasonably bear upon the equity
of the allocation. Such contingency provisions are generally
favored in CERCLA contribution actions, see United States v.
Davis, 261 F.3d 1, 45 (1st Cir. 2001) (quoting contingency
provision imposed by district court); Achusnet Co. v. Coaters,
Inc., 972 F. Supp. 41, 69 (D. Mass. 1997); Boeing Co. v.
Cascade Corp., 920 F. Supp. 1121, 1142 (D. Or. 1996), and
we agree with the wisdom of those cases. We leave the
specific design of the provision to the discretion of the
District Court, with the help of the parties. We recognize
Beazer’s concern that Mead might use such a provision to re-
litigate issues that will have already been decided in the
equitable allocation proceeding to be conducted on remand,
but we think this concern can be adequately addressed by
application of the ‘law of the case’ doctrine.22
VI. Conclusion
For the reasons stated above, we will reverse the
judgments of the District Court and remand this action for
further proceedings consistent with this opinion.
22
Finally, contrary to Beazer’s suggestion, Federal Rule of
Civil Procedure 60(b) is insufficient to protect Mead’s rights if
new events render the initial allocation inequitable because
motions based on new evidence brought under that rule must be
made “not more than one year” after the judgment was entered.
41