Pursuing A Declaratory Judgment of non-liability, Two Different Outcomes

A recent opinion from the Michigan Court of Appeals provides insight into remedies available for companies asked to undertake the performance of corrective action at hazardous waste sites. In CAI Liquidating, Inc. v EGLE, the Plaintiff formerly operated a hazardous waste treatment, storage and disposal facility (“TSD” facility). Most of its assets were acquired by a third party except for the real property on which the facility operated.

A dispute arose with EGLE as to whether some corrective action was required to address contaminants discovered at the property. EGLE sought the imposition of a restrictive covenant on the property. CAI claimed one wasn’t necessary because no release of hazardous waste had occurred.

The parties could not agree on a course of action and Plaintiff filed a court action requesting a declaratory judgment. A declaratory judgment is a legal determination by a court that resolves uncertain legal obligations between parties. A court has jurisdiction to issue a declaratory judgment when an “actual controversy” exists. CAI sought a declaration that EGLE was prohibited from requiring any corrective action where no release of hazardous waste had occurred. EGLE claimed that no controversy existed because no formal order requiring CAI to do anything had ever been issued. The trial court agreed and granted summary disposition in favor of EGLE. CAI appealed.

The Court of Appeals reversed the decision of the trial court. The COA concluded that an actual controversy existed as to whether EGLE could order CAI to perform corrective action where there is no evidence of a release at the facility. The court emphasized the fact EGLE never entered into an agreement with CAI, such as a consent order, requiring it to perform corrective action. Thus, a controversy existed because the parties disputed corrective action for years and a declaratory judgment was necessary to resolve the issue.

The holding in CAI is in stark contrast to a prior published case of the COA, Flanders Industries, Inc. v Michigan. After the DNR (a predecessor to EGLE) sent Flanders a PRP letter,Flanders took action to address paint sludge that had been dumped into Lake Michigan. Flanders tried to obtain declaratory judgment on its cleanup liability but the COA, in reliance on cases interpreting CERCLA, a federal cleanup statute, ultimately held it could not because the DNR had never initiated a cost recovery action against it. The Court believed Flanders’ liability could just as easily be determined after a cost recovery action was filed, therefore, no actual controversy existed. Without the initiation of a cost recovery action, any declaratory judgment would be premature.

The CAI Court acknowledged Flanders but claimed it was distinguishable because it believed EGLE’s actions directing CAI to investigate the property amounted to the initiation of corrective actions proceedings.

Allowing a party to prove their innocence prior to incurring cleanup costs and encouraging prompt cleanups are both laudable goals. The decisions in Flanders and CAI make it one or the other. The Flanders Court noted that federal laws like CERCLA embody a shoot first and ask questions later approach.

Flanders recognized that asking questions first could result in delaying any cleanup for years while the matter works its way through the courts. CAI held that because a potential cleanup was already delayed for years, the plaintiff should be allowed to contest liability. Implicit in that decision is the possibility for even further delays while the litigation plays to a conclusion.

Flanders is a published decision thus, it creates binding precedent. Even though the CAI court noted that fact, it chose not to follow it. Because of that, CAI may just be an aberration and its value may simply be that it illustrates a missing piece of the enforcement equation.