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United States v. Montrose Chemical Corp.



The Ninth Circuit vacated and remanded the district court’s approval of a Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) consent decree, finding that the district court lacked any information from which to determine that the settlement was fair and reasonable.

The government brought suit against three groups of corporate defendants for DDT and PCB contamination, as well as against a publicly owned sewage system for not removing all the DDT and PCBs from its discharged wastewater. The district court appointed a retired judge to serve as Special Master to supervise pre-trial proceedings, including settlement negotiations. The Special Master coordinated settlements with both the public sewage system, to which 150 local government entities had been joined, and one of the three groups of the corporate defendants. Consent decrees were approved by the district court. The settling corporate defendant’s decree was not challenged on appeal.

Two remaining corporate defendants challenged the government settlement, claiming that the district court did not have sufficient information with which to deem the settlement reasonable and fair as required by CERCLA. In fact, the defendants argued, the district court did not have any estimates of potential damages. The Special Master’s report simply stated that the consent decree was reasonable in its relationship to the “estimates of restoration and response costs,” though no damage estimates were provided nor requested by the district court.

The government argued that the district court was entitled to rely on the Special Master’s recommendation and that the Special Master essentially vouched for the settlement’s fairness. After noting that the district court’s decision can only be reversed for an abuse of discretion and recognizing that CERCLA’s primary goal is to encourage early settlements, the Ninth Circuit nevertheless vacated the approval of the decree. They reasoned that “fair” and “reasonable” are comparative terms and that in order for the district court to fulfill its obligation to scrutinize the settlement, it must have a benchmark with which to compare. Without at least an estimate of the total damage, it could not have determined the substantive fairness of the settlement. The case was remanded to the district court for that determination.

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