NATURAL RESOURCES DAMAGE ASSESSMENTS UNDER CERCLA
AND OPA 90: THE 900-POUND GORILLA?
(Published April 2002)
Of considerable interest to owners and operators of maritime vessels, their P&I clubs insuring those vessels and attorneys representing them, is the methodology used to quantify Natural Resources Damage Assessments ("NRDAs") arising under the Comprehensive Environmental Response, Cleanup and Liability Act ("CERCLA") and the Oil Pollution Act of 1990 ("OPA 90"). When a shipowner incurs liability for damages to natural resources resulting from a discharge of a hazardous substance, that liability is often satisfied by the shipowner by paying an "assessment;" which may range from the payment for the construction of an artificial coral reef seeded with replacement organisms to the purchase of machinery and/or equipment necessary for the protection of U.S. navigable waters. The costs of such an assessment can be staggering. How are the costs and potential for success of these assessments arrived at? Who decides? Are the assessments based on actual costs and generally accepted scientific principles, or are they the product of junk science or voodoo economics?
With an emphasis on OPA 90, this article focuses on the nature and authority of such Natural Resource Damages, the basic theory behind and criticism of such assessments, and steps shipowners and operators can take to minimize the considerable risk of over-paying for such assessments.
Intent Of And Distinction Between CERCLA And OPA
The two main purposes of CERCLA (the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), Pub. L. No. 96-510, codified in various portions of the United States Code, and amended by the Superfund Amendments and Reauthorization Act ("SARA") of 1986, Pub. L. 99-499) are: (1) the cleanup of contaminated waste sites; and (2) the recovery of costs incurred in such cleanups, or natural resources damages. Parties liable under CERCLA include the current owners and operators of a facility, owners and operators of a facility at the time the hazardous substances were disposed of, persons arranging for transport and disposal of hazardous substances, and transporters of hazardous substances. Prior to the passage of OPA, natural resource damages incurred as a result of oil spills or discharges into navigable waters were assessed pursuant to CERCLA.
The Oil Pollution Act ("OPA") of 1990, Pub. L. No. 101-380 (codified at 33 U.S.C. §§ 2701-20, 2731-37, 2751-53, 2761 (1994)), was enacted largely in response to the EXXON VALDEZ disaster of 1989, when 11 million gallons of crude oil were spilled into Prince William Sound, Alaska. OPA 90 was modeled after the Clean Water Act ("CWA"), 33 U.S.C.§§ 1251- 1387, and is intended to cover all discharges of oil from vessels or facilities into navigable waters that occur after the date of its enactment. OPA requires that each responsible party be liable for all response costs associated with the cleanup of the discharged oil. Additionally, responsible parties are liable for natural resource damages and the costs of assessing those damages, for damage to real or personal property, subsistence use, lost revenues, lost profits and earning capacity, and the cost of providing additional or increased services. OPA directs the President, who has delegated his authority to the Environmental Protection Agency ("EPA") and the Coast Guard, to clean up oil spills.
Under both CERCLA and OPA 90, federal and state "trustees" are provided with the authority for and responsibility of pursuing natural resource damage actions. The trustees can be federal, state or Indian tribe officials who, by statute, are designated to act on behalf of the public as "trustees" for natural resources. OPA's regulations were drafted by the National Oceanic and Atmospheric Administration ("NOAA") of the Commerce Department, and NOAA officials are often designated as the "trustees." However, Coast Guard or state officials may also be trustees. Section 1002 of OPA makes responsible parties liable for "damages for injury to, destruction of, loss of, or loss of use of, natural resources, including the reasonable cost of assessing the damage." OPA also limits the ultimate liability of responsible parties (e.g., limiting liability of any offshore facility, except a deepwater port, to removal costs plus $75 million per incident), but allows trustees to draw additional necessary amounts from the Oil Spill Liability Trust Fund, a fund financed primarily by a five-cent-per-barrel tax on imported and domestic oil.
Natural resource damages under OPA may only be used to reimburse or pay a trustee, and all such monies are to be used solely to reimburse or pay the costs of assessment of damages and for the costs of developing and implementing a plan designed to restore, replace, rehabilitate or acquire equivalent natural resources.
Calculating Natural Resource Damages Under OPA
The main distinction between the natural resource damage assessment regulations under CERCLA and OPA is that CERCLA is principally a "response" statute, whereas the assessment of natural resource damages under OPA begins with a prespill evaluation. This prespill evaluation is intended to determine a "baseline" level of how the resource existed before the spill or discharge occurred. CERCLA, on the other hand, attempts to quantify the damage to the resource as a result of the discharge.
To facilitate the recovery of natural resource damages, OPA directed the President (who acted through NOAA) to "promulgate regulations for the assessment of natural resource damages." NOAA promulgated regulations codified at 15 C.F.R. Section 990.00 et seq., which utilized a "restoration-based" approach, developing and implementing plans for restoring and rehabilitating damaged resources. Unlike CERCLA, the regulations do not focus merely on the response costs associated containing the impact of the spill.
The regulations set out a cumbersome and lengthy three-stage procedure for assessing the consequences of oil spills and for developing and implementing plans to restore damaged resources. The first stage is the "Preassessment Phase," which requires trustees to determine whether they have jurisdiction under OPA to pursue restoration activities and whether actions taken by other agencies have adequately addressed the injuries. The Preassessment Phase also requires the trustee to collect and analyze pertinent data, prepare a notice of intent to conduct restoration planning activities, and to open a publicly available administrative record.
The second stage, the "Restoration Planning Phase," consists of two substages. The "injury assessment" substage requires the trustee to determine whether an injury has occurred, whether a nexus can be established between the discharged oil and the injury, and whether the injury resulted from the discharge. If the injury resulted from the discharge, the trustee must then quantify the degree of the damage. If that analysis leads to the conclusion that the injury requires restoration, the trustee then proceeds to the "restoration selection" substage, where the trustee identifies a "reasonable range" of restoration alternatives, evaluating them against several factors including cost, potential success, risk of collateral damage, and public health and safety.
Once the trustee settles on a restoration plan that best restores the value of natural resources allegedly damaged by the spill or discharge of oil, the trustee then develops a Draft Restoration Plan ("Draft Plan"). The Draft Plan sets forth the trustee's approach for assessing the natural resources damaged, the procedures used, the nature and extent of the injuries allegedly caused by the spill or discharge, the restoration goals, the range of restoration alternatives considered, the methodology used to evaluate the alternatives, and which alternatives were chosen. The trustee must give the public, including the responsible parties, an opportunity to review and comment on the Draft Plan. After public comment and any needed modification, the trustee then develops a Final Restoration Plan.
The final stage of assessment is called the "Restoration and Implementation Phase." It is at this point that the trustee presents a written demand for payment to the owner of the vessel or facility responsible for the spill or discharge. If the responsible party or parties refuse to pay the assessment within 90 days of the trustee's demand, or if the trustee and responsible parties cannot agree on a mutually acceptable alternative, the trustee may sue the responsible party or seek an appropriation from the Oil Spill Liability Trust Fund.
In assessing the nature and extent of the natural resource damages, the regulations direct trustees to consider both "active use" and "passive use" losses. "Active use" refers to the loss of actual use of the resource. "Passive use," on the other hand, refers to the value individuals place on the existence of natural resources, even if they never plan to use them. See General Electric Co. v. United States Dept. of Commerce, 128 F.3d 767, 772 (D.C. Cir. 1997). To assess the value of "passive use" (also called "nonuse value"), researchers employ a controversial survey technique known as "contingent valuation" ("CV"). Researchers create a "hypothetical market" and then ask survey respondents how much they would pay to preserve or protect a given natural resource. By averaging the responses, the researchers then determine the value the public ostensibly places on the resource. See Swanson, OPA 90 + 10: The Oil Pollution Act of 1990 After Ten Years, 32 J. Mar. L. &. Com. 135 (2001).
Under OPA, natural resource damage assessments made by a trustee in accordance with the regulations "shall have the force and effect of a rebuttable presumption on behalf of the trustee in any administrative or judicial proceeding." However, before the trustees may take advantage of the rebuttable presumption, they must prove that their damage assessments are "reliable and valid for the particular incident." General Electric Co. v. U.S. Dep't of Commerce, supra, 128 F.3d at 772.
Criticisms Of NRDA Standards
The valuation of natural resources has been the subject of considerable debate and discussion in industry, legal and academic circles since the inception of governmental regulation of the environment and has given rise to the "science" of "resource economics." Resource economics attempts to assign an economic value to things as diverse as clean air and water, the oil obtained by offshore drilling, or the biodiversity of the marine environment.
Where there is a recognized market for a resource, valuation is easier to conceptualize. For example, if a shipowner is responsible for the loss or damage to a cargo of iron ore pellets or crude oil, its liability for the cargo is based on the contract price of the goods, which is based on the market price of such goods. But how does one ascribe an economic value to things such as coral reefs for which there is no readily ascertainable market? Under resource economics, three general methodologies have been developed in an attempt to quantify the economic value of environmental resources. These include: (1) valuation based on restoration and replacement costs; (2) behavioral use valuation; and (3) contingent valuation.
Under the common law of contract and tort, the costs of restoration and replacement of the lost or damaged goods or resources has long been recognized as an acceptable remedy. Behavioral use valuation is an attempt to ascribe economic value based on observation of a broad range of behavioral patterns. One common example is the value of enjoyment inherent in a house on a pristine beach versus a house near a Superfund site. Under the contingent valuation method of economic valuation, the value of a natural resource and its services are measured by surveying a sample of the population regarding the price they would be willing to pay to preserve or restore that resource. For example, if a spill injures or destroys a population of mussels growing on a pier, researchers will design a survey to poll members of the public to determine the value of the injury to individual members of the population. The researchers then use the individual responses to estimate the value of the mussels lost on account of the injury to the entire populace.
The use of contingent valuation in natural resource damage estimates has been highly controversial. Critics of the method argue that the method is hypothetical and generates unreliable damage estimates, produces results that cannot be independently validated, determines value from persons lacking sufficient information to be estimating value, and is not consistent with principles of valuation that are basic to the economics profession. The term "contingent valuation," by definition, means that valuation is contingent on a set of hypothetical events. See David S. Brookshire & Michael McKee, Is the Glass Half Empty, Is the Glass Half Full? Compensable Damages and the Contingent Valuation Method, 34 Nat. Resources J. 51, 67 (1994). These deficiencies in contingent valuation arguably inhibit the method from accurately measuring use and existence values.
Additional criticisms of NRDAs have focused on the trustees themselves. The trustees are government officials statutorily delegated with the authority to levy and collect NRDAs. Often, multiple trustees are involved in a single NRDA claim due to overlapping jurisdiction of state or federal offices clothed with trustee authority. Due to the scope of trustee authority under OPA, the lack of oversight of the trustees, and the deference with which courts typically accord assessments levied by, and settlements entered into by trustee, there is a significant potential for an abuse of that authority. Due the lack of oversight, trustees may use recovered funds for activities beyond the costs of restoring or replacing the damaged natural resources. A large part of the $900 million EXXON VALDEZ settlement, for example, has been spent by the six NRDA trustees to reimburse their own expenses rather than restore damaged resources. See Stewart, Liability for Natural Resource Injury: Beyond Tort, in Analyzing Superfund: Economics, Science, and Law 219, 230 (Revesz & Stewart, eds., 1995).
Statutory Defenses To NRDAs
There is no retroactive liability under CERCLA for damages that occurred wholly before December 11, 1980, and CERCLA prohibits liability where the discharge of hazardous waste is in compliance with an authorized permit. However, injured parties may still seek damages for such discharges under existing statutory or common law at the time of the incident. 42 U.S.C. § 9607(j). Both OPA and CERCLA specify three-year statutes of limitations. CERCLA calculates the limitations period from the date of discovery of damage to natural resources or the date of promulgation of natural resource damage regulations until an action is brought to recover damages. OPA replaces the date of promulgation of natural resource damage regulations with the date of completion of a natural resource damage assessment until the date an action is brought. 33 U.S.C. § 2717(f)(1); 42 U.S.C. § 9613(g)(1).
Defenses to CERCLA and OPA actions are specifically limited by statute. For example, both CERCLA and OPA provide defenses if it can be established that the damages were the result of an act of God, an act of war, or an act or omission of a third party with no relationship to the defendant. 33 U.S.C. § 2703(a); 42 U.S.C. § 9607(b). Perhaps the most common "remedy" for a responsible party who has incurred response costs in a CERCLA action is to bring a "contribution" action under 113(f), 42 U.S.C. § 9613(f). Certainly, a responsible party under OPA may also seek contribution from other responsible parties. However, § 1017(f)(3) of OPA prohibits bringing contribution actions more than three years after either the date of judgment in any action under OPA for recovery of costs or damages, or the date of entry of a judicially approved settlement with respect to those costs. Id.§ 2717(f)(3). Both CERCLA and OPA prohibit double recovery for injuries to natural resources. 33 U.S.C. § 2706(d)(3); 42 U.S.C. 9612(f).
Challenging Contingent Valuation As "Junk Science" Or "Voodoo Economics"
Since the majority of special assessment claims are resolved by settlement, it is essential that the shipowner and P&I Club realize the value of challenging the trustee's assessment methodology.
The speculative and uncertain results created by quantification methods such as "contingent valuation" may provide shipowners with the most effective legal challenge to a natural resource assessment levied against them. The longstanding hallmark of maritime jurisprudence is promoting predictability and uniformity in the application of standards designed to govern the industry. The cottage industry of "resource economics" has yet to undergo the legal challenges that would protect this basic tenet of maritime law. Under the Federal Rules of Evidence, it is yet to be determined whether the contingent valuation method meets the minimum threshold of reliability.
In Daubert v. Merrill Dow Pharmaceuticals Inc., 509 U.S. 579 (1993), the United States Supreme Court placed limits upon the admissibility of scientific evidence. Under Daubert, the expert's reasoning and methodology must be examined for scientific validity. The Supreme Court has noted that, among other things, the methodology of an expert must be generally accepted in the scientific community. The Supreme Court held that federal judges are to act as "gate keepers" in assessing the admissibility of expert opinion. In more recent decisions, the Supreme Court extended the Daubert criteria to the evaluation of all expert witnesses Ð not just scientific expert witnesses. See Kumho Tire v. Carmichael, 526 U.S. 137, 141 (1999). This extension of the Daubert criteria suggests the Supreme Court is adamant in marshaling the types of admissible evidence and will require a careful analysis of evidence employing speculative and uncertain methodologies.
Whether a natural resource damage assessment, based in whole or in part upon contingent valuation methodology will meet the evidentiary standards of admissibility set forth in Daubert and its progeny must be determined on a case-by-case basis. There are many evidentiary problems inherent with a valuation methodology such as contingent valuation. Contingent valuation has been criticized as hypothetical and unreliable, that it produces results that cannot be independently validated, that it is not consistent with principles of valuation basic to the economics profession, and that it determines value from persons without sufficient information to be assessing such value. For example, on what basis does the surveyed population establish a valuation for a colony of mussels growing on a commercial pier? This is not to suggest that such mussels are without value and not worthy of protection or restoration. However, the degree of subjectivity inherent in the polling process and participants does not lend itself to the consistent and predictable results that should be expected under a uniform body of maritime law.
To date, there have been few published decisions squarely addressing the admissibility of contingent valuation studies in connection with natural resource damage assessments. Some of the reported cases, however use rationale that would be consistent with the Daubert analysis. In the case of Idaho v. Southern Refrigerated Transport, Inc. (1991 U.S. LEXIS 1869) (D. Idaho 1991), the court held that the contingent valuation study used was too speculative to establish the "existence value" of a population of trout killed by a release of agricultural fungicide. However, the scope of the study at issue was not specifically designed to calculate the value of the fish lost due to the spill, but rather to evaluate the "public value" of hypothetically doubling the fish population in a nearby watercourse. Moreover, in the state court of Pennsylvania, the trustee under a Pennsylvania state statute filed pre-trial objections to the introduction of contingent value evidence regarding contaminated groundwater. The Pennsylvania court ruled that such objections were premature without presentation of evidence on the methodology used in the particular study, recognizing that a case-by-case evaluation was necessary to evaluate such evidence. See In re Dublin Borough Groundwater Litigation, Penn. St. Comm. Pls., Bucks County, No. 89-0006-21-2, discussed in Zaepfel, The Reauthorization of CERCLA NRDs: A Proposal for a Reformulated and Rational Federal Program, 8 Vill. Envtl. L.J. 359 (1997).
The more difficult issue is challenging the use of contingent valuations as a whole. As mentioned above, a damage assessment performed in accordance with the regulations promulgated under CERCLA and OPA is by statute entitled to "the force and effect of a rebuttable presumption in any administrative or judicial proceeding." 42 U.S.C. § 9607(f)(2)(C). Under Constitutional analysis, if the statute is silent or ambiguous with respect to the manner in which the statute should be implemented, the legal question then becomes whether the agency charged with implementing the statute has made a "reasonable interpretation" of the statute. The agency's actions must only be rationally related and consistent with the intent of the statute. This is the minimum threshold standard that a governmental agency must meet in seeking judicial approval of its legislative enactments. See NLRB v. United Food & Commercial Workers Local 23, 484 U.S. 112 (1987), as quoted in National Ass'n of Manufacturers v. United States Dept. of the Interior, 328 U.S. App. D.C. 271 (1998). When reviewing an agency's technical judgments under the criteria set forth by the United States Supreme Court in Chevron v. National Resources Defense Council, 467 U.S. 837 (1984), the court must ask whether the agency's choices are "reasonable and consistent with congressional intent, and therefore worthy of deference." Ohio v. DOI, 880 F.2d 432 (D.C. Cir. 1989). One district court gave great deference to agency regulations holding in applying standards to the scientific judgment of an agency, the courts do not "review scientific judgments of the agency [as if the court is] the chemist, biologist, or statistician, [which the court is] neither qualified by training nor experience to be, but as a reviewing court exercising our narrowly defined duty of holding agencies to certain minimum standards of rationality." Troy Corp. v. Browner, 120 F.3d 277, 283 (D.C. Cir. 1997).
Conclusion
Any comprehensive scheme for environmental liability and cleanup requires uniformity and predictability in order to provide for rapid response and resolution of claims. Owners, operators and insurers of vessels and facilities subject to CERCLA and OPA are entitled to the same or an equal degree of predictability and uniformity with respect to the calculation of natural resource damage assessments as they are in any other area of admiralty law. At the same time, society in general, including the maritime industry, benefits from the diligent and well-considered protection of the environment. As the law currently stands, however, it is highly questionable whether the current regulations governing and methodologies used in the quantification of natural resource damage assessments provide an acceptable level of predictability and uniformity. Shipowners and P&I clubs should keep in mind that the majority of NRDAs result in settlements between the trustees and the responsible parties. Oftentimes political considerations mandate that an early settlement be achieved. However, on a case-by-case basis, shipowners, operators and P&I Clubs may have good cause to attack NRDAs based on imprecise and unreliable methodologies. Kaye, Rose & Partners, LLP will continue to monitor this important issue and report current developments in future editions of this Newsletter.
