GE Loses Last Issue in Lengthy Court Case on Superfund Liability

After eight years of fighting to prove that parts of the Superfund law are unconstitutional, General Electric Co. once again has failed to lay a glove on the statute.

The unilateral administrative order process the Environmental Protection Agency applies to Section 106 of the Comprehensive Environmental Response, Compensation and Liability Act does not constitute an unfair property taking in violation of the due-process clause of the U.S. Constitution, U.S. District Judge John D. Bates ruled.

The Washington, D.C., federal court case has been long and contentious. The one remaining issue was the Section 106 process.

General Electric filed the constitutional challenge in 2000 in the U.S. District Court for the District of Columbia related to three sites where GE faces hazardous-waste cleanup actions. The sites include a 40-mile stretch of New York's Hudson River, where it is spending $600 million for dredging to remove 1.3 million pounds of PCBs.

However, rather than contest any particular EPA order concerning those sites, GE's lawsuit involved a facial challenge to CERCLA on the ground the statute generally deprives parties like GE of their constitutional due-process rights and adequate procedural safeguards.

Judge Bates previously disposed of several issues related to Sections 107 and 113 of the law in an April 22, 2005, ruling, leaving only GE's argument that Section 106 violated the Constitution's prohibition against the taking of private property without adequate notice or compensation.

The UAO Process

GE argued that the unconstitutional taking occurs when the EPA issues a unilateral administrative order requiring potentially responsible parties (the owners and operators and previous owners of a contaminated site) to clean up the property because it poses an imminent danger to public health or the environment.

If a potentially responsible party refuses to voluntarily clean up a contaminated site, the EPA issues a unilateral administrative order requiring the cleanup. In cases where the responsible parties are totally uncooperative, the EPA taps the Superfund to clean up the site itself and then sues the potentially responsible parties to recover the costs.

GE asserted that there should be a pre-authorization hearing in front of an impartial fact finder before the EPA issues a unilateral administrative order because the very act of issuing the UAO causes the taking of property: the loss of such assets as stock price, brand value and corporate reputation.

GE further argued that a defendant corporation's refusal to comply with the UAO leads to additional losses of corporate value and reputation because the EPA labels the company "recalcitrant."

Rather than review the issue in the abstract, Judge Bates allowed both sides to complete discovery and establish a complete factual record with regard to the orders the EPA issued against GE.

He also heard from experts on both sides as to the potential average losses to companies when they do or do not comply with UAOs.

First Judge Bates rejected the argument that the potentially responsible party suffers a loss when a UAO is issued.

He noted that the situation is no different than when the Food and Drug Administration recalls potentially harmful drugs or the Securities and Exchange Commission announces financial investigations.

Next he also rejected GE's contention that the company's rights are violated if it fails to comply with the UAO and that therefore it has no meaningful choice but to comply.

The judge noted that the EPA goes through a lengthy process before issuing a UAO that gives potentially responsible parties several opportunities to comment, challenge the action and negotiate a settlement.

It is only when that lengthy process ends and negotiation fails that the EPA will normally issue a UAO, he said.

Judge Bates concluded that while the price of noncompliance is probably much higher than that of complying, the loss that a non-cooperating corporation suffers is largely a financial one that it can seek to recover in litigation against the government and other defendants later.

The addition of a pre-authorization hearing prior to issuing a UAO would be costly to the government, would not add any additional safeguards to the already lengthy process, would not reduce the EPA's already low error rate significantly and thus would not provide more constitutional protections to environmental defendants, the judge concluded.

To comment, ask questions or contribute articles, contact West.Andrews.Editor@ThomsonReuters.com.

GE was represented by Carter Phillips, Michael D. Warden and Thomas G. Echikson of Sidley Austin Brown & Wood in Washington; Donald W. Fowler and Gordon Lasker of Spriggs & Hollingsworth in Washington; and Laurence H. Tribe of Harvard Law School in Cambridge, Mass.The EPA was represented by Brian H. Lynk, John D. Gunter III and Angeline Purdy of the Justice Department's Environmental Defense Section in Washington.