The Contribution/ Cost Recovery Debate Continues: Diamond X Ranch v Atlantic Richfield Company

The relationship between 42 USC section 107(a) (the cost recovery provision) and 42 USC section 113 (the contribution provision) has been the subject of two Supreme Court decisions and much debate.  The decision of the United States District Court of Nevada in Diamond X Ranch v Atlantic Richfield Company (Arco), 2016 WL 4498211 (August 26, 2016) adds a new twist to the debate as the court allowed a cost recovery defendant to bring a cost recovery counterclaim.

Diamond X brought a section 107(a) cost recovery claim against Arco alleging that contamination at the ranch was caused by drainage from the Leviathan Mine site, a site at which Arco is a responsible party.  Arco asserted counterclaims under both sections 107(a) and 113 and Diamond X moved to dismiss the section 107(a) claim on the ground that cost recovery plaintiffs are limited contribution clams under section 113.    The court denied the motion to dismiss reasoning that while ordinarily, a cost recovery defendant is limited to a contribution counterclaim (because the counterclaim is for a portion of the costs that are the subject of the cost recovery action), here a cost recovery counterclaim is appropriate because Arco is seeking to recover costs in the counterclaim that are not the subject of Diamond X’s cost recovery claim.  Arco’s theory is that Diamond X’s maintenance of its property and its irrigation caused the disposal of hazardous waste on the Diamond X property.  EPA had issued unilateral orders under section 106 requiring Arco to address contamination and the Arco counterclaim addressed those costs.

Nearly all courts limit a cost recovery defendant to a contribution counterclaim.  There are, however, significant advantages to being a cost recovery plaintiff.  Key among them are joint and several liability and a longer statute of limitations.  Thus, if the Diamond X decision is not reversed on appeal, we may see many cost recovery defendants working to make counterclaim allegations similar to Arco’s.



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