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The successor to the Penn Central Railroad suffered a significant defeat Tuesday when a federal appeals court rejected its challenge to a settlement between the government and three other railroads of the toxic waste cleanup suit involving Pennsylvania’s Paoli Railyard. In the settlement, Amtrak, the Southeastern Pennsylvania Transportation Authority (SEPTA) and Conrail signed onto a consent decree in which they agreed to pay 67 percent of the $53 million estimated cleanup costs. In return, they were promised that non-settling Penn Central, now known as American Premier Underwriters, would not be allowed to seek contribution from them for its ultimate liability. Facing a 33 percent share that could swell if the estimates proved too low, American Premier appealed and argued that the settlement unfairly allocated the responsibility for cleanup at the site and that the contribution protections that it provided are not allowed under CERCLA (the Comprehensive Environmental Response Compensation and Liability Act). Attorney James J. Capra of Orrick Herrington & Sutcliffe in New York, representing American Premier, argued that CERCLA allows contribution protection only for matters addressed in the settlement. The problem with the settlement approved by U.S. District Judge Robert F. Kelly, he said, is that it gives the other three railroads contribution protection for the remedies that they will perform under the decree and for the remedies that American Premier will perform under an administrative order that was not addressed in the settlement. Capra argued that, as a result, the settlement should be considered a partial settlement, and the other three railroads should be entitled to contribution protection only for the remedies they are undertaking. The 3rd U.S. Circuit Court of Appeals disagreed. Writing for a unanimous three-judge panel, visiting 8th Circuit Senior Judge John R. Gibson found that “this is not a partial settlement.” Instead, Gibson said, the consent decree signed by SEPTA, Amtrak and Conrail specifically states that they and the government “wish to finally conclude … all claims and causes of action.” The ruling is a victory for attorney Bonnie A. Barnett of Drinker Biddle & Reath, who represented SEPTA and argued the case on behalf of the other settling railroads. Also winning were attorney Paul M. Schmidt of the Pennsylvania Department of Environmental Protection and U.S. Justice Department attorney James M. Gross. In the appeal, Capra argued that the consent decree was substantially unfair because it allocated responsibility on the basis of years of ownership, and because it set a minimum liability for American Premier while setting a maximum liability for the other three. Also unfair, he argued, was the lower court’s decision to approve a decree that immunized the other three railroads from sharing any liability for the uncertain future costs. Instead, Capra argued, the lower court should have accepted American Premier’s offer to assume 20 percent of the past and future costs of the cleanup. Gibson, who was joined by 3rd Circuit Judges Richard L. Nygaard and Samuel A. Alito, disagreed, saying Judge Kelly was not required to accept American Premier’s methodology for apportioning liability. “As long as the measure of comparative fault on which the settlement terms are based is not arbitrary, capricious and devoid of a rational basis, the district court should uphold it,” Gibson wrote. Toxic PCBs were used at the Paoli site for 25 years during which Penn Central owned the site, Gibson noted. By contrast, Amtrak owned the site for just 10 years of PCB use. During that time, Conrail and later SEPTA operated the yard. “Therefore, American Premier owned and operated the railyard for more than 70 percent of the time that PCBs were used,” Gibson wrote. Gibson found that Judge Kelly’s job was done as soon as he determined that the consent decree was based on a “rational” determination of comparative fault. “The district court did not abuse its discretion in accepting years of ownership and operation as a plausible method on which to judge the fairness of the consent decree,” Gibson wrote. Capra also complained that the consent decree unfairly set a minimum liability for American Premier while setting a maximum liability for the other three. And while American Premier is barred from bringing a contribution claim, the others are not barred from seeking contribution from American Premier. Gibson found that the total costs of the cleanup is likely to be $53 million, of which American Premier’s minimum share will be 33 percent, or more than $17 million — a figure that could swell if the other three bring a successful contribution claim against American Premier. Such a scheme is not unfair, Gibson found, since Congress wanted to reward settling parties and, at the same time, penalize non-settlers. “The intended effect of protecting settling parties from contribution claims is that non-settling defendants may bear disproportionate liability for their acts,” Gibson wrote. The fact that future costs in the cleanup are uncertain doesn’t change the analysis, Gibson said. “Whenever a non-settling party is barred from bringing a contribution action and work remains to be done, its future liability may exceed present estimates. The district court determined that this possibility did not render the consent decree unfair, and we see no abuse of discretion in that determination,” Gibson wrote.

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