UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
)
LOCKHEED MARTIN CORPORATION, )
)
Plaintiff, )
)
v. ) Civil Action No. 08-1160 (ESH)
) UNDER SEAL
UNITED STATES, )
)
Defendant. )
_______________________________________)
MEMORANDUM OPINION
Lockheed Martin Corporation brings this action against the United States under the
Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), 42
U.S.C. § 9601 et seq., for recovery of past and future response costs to remediate the
environmental contamination caused by its corporate predecessor’s operation of three rocket
motor-production facilities – Redlands, Potrero Canyon, and LaBorde Canyon – in California
from 1954 to 1975. Both parties admit to being liable as potentially responsible parties (“PRPs”)
for the contamination at the three facilities under CERCLA § 107(a). The Court held a twelve-
day bench trial from February 10 to March 14, 2014, to determine the equitable allocation of
response costs between the parties. Having considered the evidence, the controlling law, and all
relevant equitable factors, the Court has determined that an equitable allocation for the past
response costs for all three facilities is 0% liability to the United States and 100% liability to
Lockheed. In contrast, the Court will equitably allocate future response costs between the parties
differently for each facility: 29% to the United States and 71% to Lockheed for the Redlands
facility; 24% to the United States and 76% to Lockheed for the Potrero Canyon facility; and 19%
to the United States and 81% to Lockheed for the LaBorde Canyon facility.
1
TABLE OF CONTENTS
BACKGROUND .............................................................................................................................3
I. History of the Sites...................................................................................................3
A. Government contracts for solid propellant rockets at the Sites ...................3
B. Solid propellant rocket operations at the Sites .............................................7
C. General waste disposal practices at the Sites .............................................14
II. Cleanup of the Sites ...............................................................................................15
A. Redlands facility ........................................................................................15
1. Trichloroethylene ...........................................................................16
2. Perchlorate .....................................................................................18
B. Potrero Canyon facility ..............................................................................19
C. LaBorde Canyon facility ............................................................................21
III. Lockheed’s indirect recovery of response costs through U.S.-government
contracts .................................................................................................................22
A. The Federal Acquisition Regulations.........................................................23
B. The Discontinued Operations Settlement Agreement (“DOSA”) .............25
C. Lockheed’s treatment of response costs for the Sites under the DOSA ....27
IV. Procedural history ..................................................................................................29
A. Related actions while the CERCLA statute of limitations was tolled .......29
B. The government’s partial motion for summary judgment .........................33
C. Trial on equitable allocation ......................................................................36
LEGAL FRAMEWORK ...............................................................................................................40
FINDINGS OF FACTS AND CONCLUSIONS OF LAW ..........................................................46
I. Sources of contamination at the Sites ....................................................................47
A. Redlands facility ........................................................................................47
1. Perchlorate .....................................................................................47
2. Trichloroethylene ...........................................................................52
B. Potrero Canyon facility ..............................................................................56
C. LaBorde Canyon facility ............................................................................58
II. Traditional equitable allocation .............................................................................59
A. Limited value of certain equitable factors .................................................59
1. Waste attributable to each party .....................................................59
2. Parties’ relative benefits from waste disposal activities ................60
3. Degree of cooperation ....................................................................60
4. The government’s ownership of waste ..........................................62
5. The government’s ownership of facilities......................................64
6. Knowledge of risk of pollution from AP and TCE ........................65
7. Violation of California water quality laws.....................................68
8. Ability to pay .................................................................................74
9. Indemnification provisions ............................................................74
B. LPC exercised significantly more control than the government over the
day-to-day hazardous waste disposal operations at the Sites.....................79
C. The government acquiesced in many of LPC’s disposal operations at the
Sites ............................................................................................................88
2
D.
Some of LPC’s disposals at the Sites violated internal LPC rules or
government requirements...........................................................................90
E. Conclusion under traditional equitable allocation .....................................93
III. Effect of indirect recoveries on equitable allocation .............................................93
A. Lockheed’s recovery of past response costs would unfairly burden the
taxpayer. .....................................................................................................94
B. Lockheed’s recovery of future response costs would not unfairly burden
the taxpayer. .............................................................................................106
CONCLUSION ............................................................................................................................107
BACKGROUND1
I. HISTORY OF THE SITES
The environmental contamination that underlies this action arose from the operation of
solid propellant rocket production facilities by Lockheed Propulsion Company (“LPC”)2 at three
locations in Redlands and Beaumont, California – the Redlands facility, the Potrero Canyon
facility, and the LaBorde Canyon facility (collectively the “Sites”) – between 1954 and 1975.
A. Government contracts for solid propellant rockets at the Sites
LPC researched, developed, and manufactured state-of-the-art solid propellant rocket
technologies at the Sites in support of military and scientific programs critical to the United
States’ Cold War efforts. (Roman Decl. ¶¶ 21, 23.) Government interest in the development of
solid propellant rocket technologies grew significantly in the 1950s following the Soviet Union’s
successful nuclear tests in 1949 and the Sputnik launches in 1957. (Id. ¶¶ 19, 24-25.) Rocket
motors using solid propellants offered, at a lower cost, several benefits over their liquid-based
counterparts – greater safety, operational readiness, and reliability. (Id. ¶ 24, 27.) The
1
What follows in this section, although labeled “Background” and generally undisputed by the
parties, constitutes findings of fact in accordance with Fed. R. Civ. P. 52.
2
Grand Central Rocket operated the Sites from 1954 to 1963, when LPC purchased the company.
(USX88.0044.) For simplicity’s sake, the Court will refer to GCR and Lockheed Propulsion Company as
“LPC.” During its existence, LPC was an operating division of Lockheed Aircraft Corporation, which, in
1977, became the Lockheed Corporation. The Lockheed Corporation merged with the Martin Marietta
Corporation in 1995 to form the Lockheed Martin Corporation.
3
Eisenhower administration’s decision to initiate the development of several large missile
programs and to prioritize the research and development of solid propellants created the market
for a private solid propellant industry. (Id. ¶ 33.) As the only purchaser of advanced solid
propellant rockets at the time, the United States held monopsonistic control over the solid
propellant industry. (Trial Tr. 65-66 (Roman); Roman Decl. ¶¶ 5, 34.)
LPC was one of the largest participants in that industry, and as a contractor, it developed
or manufactured rockets for eight major Cold War programs: the Vanguard artificial satellite,
the Explorer artificial satellite, the Nike-Zeus anti-ballistic missile system, Project Mercury, the
Apollo Program, the Large Solid Propellant Motor Program, the TAGBOARD reconnaissance
drone, and the Short Range Attack Missile (“SRAM”) program. (Roman Decl. ¶¶ 7, 35.)
President Eisenhower designated four of these programs – Vanguard, Nike-Zeus, Mercury, and
Apollo – as of the “highest national priority.” (Id. ¶¶ 7, 23.)
As described by three aeronautics scholars, “[t]he brief life of the Lockheed Propulsion
Company was marked by rather modest, but notable historical and technical achievements in
solid rocket development.” (PX0088 at 14.) LPC contributed to four major Cold War space
programs both as a developer and manufacturer of solid propellant rocket motors. In the 1950s,
LPC developed and manufactured the third-stage motor for the Vanguard satellite program and
loaded solid propellants into motors for the Explorer satellite program. Following the first of
many successful launches into orbit in 1958, both Vanguard and Explorer were foundational
space race programs. (Roman Decl. ¶¶ 8, 36-37.) LPC later developed and manufactured
launch escape motors for Project Mercury, the United States’ first manned space program. The
escape motors – critical for the safety of the astronaut in the event of an emergency during a
launch – had a 100% reliability rate over numerous tests and missions. (Id. ¶¶ 10, 40-41.)
4
Finally, LPC developed and manufactured the launch escape and pitch control motors for the
Apollo manned lunar exploration program. The motors were part of the space capsule for eight
Apollo lunar missions, including Apollo 8, the first manned orbit of the moon in December 1968,
and Apollo 11, the first manned lunar landing in July 1969. (Id. ¶¶ 11, 42-43.)
From 1958 to 1974, LPC also researched, developed, and tested large solid propellant
motors for NASA and the Department of Defense (“DOD”). Large solid propellant motors were
necessary to generate enough thrust to lift large vehicles into space. Under the Large Solid
Propellant Motor Program, LPC designed, fabricated, and tested the first 120-inch and 156-inch
solid propellant motors and contributed to numerous technological advances later incorporated
by competitors in the Space Shuttle and ballistic missile programs. For instance, the “Lockseal”
device developed by LPC as a solution to solid propellant rocket thrust vector control became a
mainstay in the solid propellant rocket industry. (Id. ¶¶ 12-13, 44-45.)
LPC also contributed as a developer and manufacturer to the conventional Cold War
arms race. LPC developed the second-stage motor for the Nike-Zeus missile, a surface-to-air
missile designed to destroy incoming nuclear warheads. The Nike-Zeus missiles were
successfully tested in 1958 and 1959. (Id. ¶¶ 38-39.) LPC also developed and produced forty-
five motors for the then-highly classified TAGBOARD reconnaissance drone program in the late
1960s. LPC designed motors capable of allowing the unmanned drone to reach an altitude and
speed that would ignite the drone’s ramjet. Once the ramjet ignited, the drone could reach
speeds in excess of Mach 3 and photograph an area sixty miles wide and 3000 miles long in a
single flight. The government ultimately discontinued TAGBOARD in 1971 for technical and
political reasons. (Id. ¶¶ 49-50; see also PX0088 at 13.)
5
LPC’s largest contracts, however, were for the SRAM program. The SRAM was a
nuclear-armed air-to-ground missile designed for use on the aerial front lines in the case of an
American invasion into Soviet territory. (Roman Decl. ¶ 51.) LPC developed and manufactured
a revolutionary two-pulse solid propellant rocket motor, which enabled an individual SRAM to
shut down and then restart mid-flight. This innovation created the possibility for three distinct
flight profiles and an “omni-directional” striking capability for each missile. (Id. ¶¶ 51, 54, 70-
71; see also Trial Tr. at 68 (Roman).)
The Air Force developed the technical requirements for the SRAM program in the spring
of 1964. (Roman Decl. ¶ 53) The Air Force Rocket Propulsion Lab (“AFRPL”) initiated SRAM
research and development contracts with LPC, as well as several of its competitors, that same
year. (Trial Tr. at 1340-41 (Dull).) LPC was the only contractor to successfully demonstrate the
feasibility of a two-pulse motor during its research and development contracts. (Roman Decl. ¶
54.) In 1966, Boeing won the development contract for the SRAM program (Trial Tr. at 1339,
1341 (Dull)) and awarded the subcontract for the development of the propulsion system – i.e.,
the solid propellant rocket motor – to LPC. (Roman Decl. ¶ 55.)
Numerous technical difficulties and rocket failures plagued the SRAM program. (Trial
Tr. at 1341 (Dull); Roman Decl. ¶¶ 56-60.) The September 1969 initial qualification tests for the
SRAM motor were unsuccessful. (Roman Decl. ¶ 61.) Shortly thereafter, Boeing and LPC filed
a $54.2 million claim against the Air Force asserting that the SRAM propulsion system
requirements were “unattainable” and “grossly impracticable.” The Air Force settled the claim
for $20 million before it could be adjudicated. (Id. ¶ 63.)
Setbacks notwithstanding, the Air Force deemed the SRAM motor fit for production in
1971. The Air Force awarded Boeing the first production contract, and Boeing awarded LPC a
6
one-year production subcontract worth $27.6 million. (Id. ¶ 64.) The Air Force awarded Boeing
four more production contracts, and Boeing and LPC entered into four additional production
subcontracts between 1972 and 1975. During that period, LPC produced 1500 SRAM solid
propellant rocket motors and completed 107 consecutive successful test fires. (Trial Tr. at 1395-
96 (Dull); Roman Decl. ¶ 68.) Each SRAM was 150 inches long, nearly 18 inches in diameter
(see Trial Tr. at 1337 (Dull)), and carried a thermonuclear weapon with a yield of approximately
170 kilotons, roughly ten times the yield of the atomic bomb the United States dropped over
Hiroshima during World War II. (Roman Decl. ¶ 69.) Thus, a B-52 bomber with the capacity to
carry 20 SRAMs had a destructive power equivalent to 200 Hiroshima bombs. (Id.)
In light of decreased government focus on solid propellant rocketry for defense and space
exploration purposes, LPC ceased its operations in the summer of 1975 at the end of its fifth
SRAM subcontract. (Id. ¶ 68.) Nonetheless, SRAMs – all of which contained solid propellant
motors produced by LPC – remained a mainstay in the United States’ arsenal through the 1980s
and were considered critical to the deterrent effect of the United States’ strategic bomber force.
(Id. ¶¶ 70-72.) Even twenty years after the first successful SRAM test firing, the Soviet Union
had not developed an air defense system capable of neutralizing the omni-directional capabilities
of SRAMs provided by LPC’s two-pulse rocket system. (Id. ¶ 71.)
B. Solid propellant rocket operations at the Sites
While the parties dispute what happened on a day-to-day basis with respect to operations
at the Sites, particularly relating to the disposal of the hazardous substances, many of the
background facts are undisputed.
LPC began its rocket motor production operations at the nearly 500-acre Redlands
facility in 1954 when it leased the facility from the City of Redlands. (USX15; see also
7
USX11.0020-21.) Between 1958 and 1962, LPC acquired the parcels comprising the much-
larger 9,100-acre Potrero Canyon and 2,500-acre LaBorde Canyon facilities located near
Beaumont, California. (USX12.0044.)3 Lockheed researched and manufactured solid propellant
rockets at the Redlands facility from 1954 to 1975. (USX11.0018-20.) LPC used the Potrero
Canyon facility for manufacturing solid propellant rockets, testing rocket motors, and washing
out defective rocket motors for re-use from 1958 to 1974. (Sterrett Decl. ¶ 213; USX12.0046.)
LPC used the LaBorde Canyon facility for assembling small rocket motors, testing rocket
motors, and washing out defective motors for reuse from 1958 to 1974. (Sterrett Decl. ¶ 214;
USX13.0011-12.)
The design, testing, and production processes for LPC’s contracts followed a general
protocol. The government provided requirements regarding the performance, dimensions, and
interface points of the solid propellant rocket motor. (Trial Tr. at 78 (Oppliger).) From those
specifications, LPC’s engineering analysts manipulated the composition of the propellant and the
physical design of the propellant grain within the rocket casing to achieve desired rocket
performance. (Id. at 78-79.) LPC engineers then designed the rocket casing and casing
insulation based on the characteristics of the propellant grain design. (Id. at 80.) From there,
LPC began the iterative process of testing subscale (and eventually to-scale) rockets against the
government-provided specifications. (See id. at 80-83.)
Although LPC’s applications of solid propellant rocket technology were state-of-the-art,
solid propellant rocket motors themselves are “simple units” with “no moving parts.” (PX91 at
3
Today, the San Bernardino Valley Water Conservation District owns the majority of the
Redlands facility and uses portions of it for water spreading to recharge groundwater. Operators of an
industrial park own the remaining sixty-six acres of the Redlands facility. (USX11.0021.) California
owns and manages as a wildlife area all but nearly 600 acres of the Potrero Canyon facility. Lockheed
owns the remaining acreage under a conservation easement. (USX12.0047.) The County of Riverside
has owned the LaBorde Canyon facility since 2006. (USX13.0011.)
8
934.) A solid propellant rocket “motor consists of an encased energy supply, which is a
combustible mixture of all of the elements required for the generation of propulsive energy” – it
is self-contained and ready to fire when it leaves the factory. (Id.)
A solid propellant is composed of three basic components – an oxidizer and two fuels, a
“rubber-like binder” and powdered aluminum. (Id. at 935.) Because solid propellant
combustion occurs in the closed environment of a rocket’s core, a solid propellant requires much
more oxidizer than fuel. (Id. at 955.) The oxidizer used by LPC consisted of precise proportions
of ground and unground ammonium perchlorate (“AP”). LPC used several grinders at the Sites
to grind raw AP down from 200 microns in diameter (unground) to precise sizes of less than
eight microns in diameter. (Id.) LPC combined the ground and unground oxidizer with a fuel
slurry in a large mixing machine to produce a homogenous fluid propellant. (Id. at 958.)
LPC then “cast” the fluid propellant into the rocket motor case under vacuum conditions,
and “cured” the rocket by heating the cast for nearly a week to “stiffen[] it into a rubbery, shape-
retaining mass.” (Id. at 935, 961.) LPC produced these solid propellant motors in short,
cylindrical segments that could be joined to complete the rocket motor. (Id. at 940.) Once the
nozzle and igniter were added, the rockets were ready for either testing or shipment. (Id. at 938.)
Aside from providing the initial specifications for a particular solid propellant rocket
motor, the government played several additional roles in the design, testing, and production of a
rocket.4 First, as a government contractor or subcontractor, LPC had to comply with any military
and federal specifications incorporated in a particular contract. (PX1057 ¶¶ 13-14 (Speer
Decl.).) Deviation from government specifications required government review and approval.
(Id. ¶ 14.) Second, LPC’s contracts often incorporated by reference specific safety and
4
Because of the lack of contracts and documents from the LPC’s earlier years, this section
focuses primarily on LPC’s later – and biggest – subcontracts under the SRAM program.
9
production manuals. (See Trial Tr. at 941 (Nagle); see also, e.g., PX0001-0003, 0005, 0007,
0009.) The manuals provided guidance for best practices regarding safety and production
processes. Although LPC was not required to comply with all aspects of the referenced and
applicable manuals, LPC was required to comply with, or to seek a waiver or deviation from, any
directives in the manuals that used the words “shall” or “must.” (See Trial Tr. at 439 (Delaney);
id. at 941 (Nagle); PX0007 § 102). Waivers or deviations, however, were commonly sought and
granted. (Trial Tr. at 941 (Nagle); see, e.g., PX400.)
Specifications aside, the government had limited input into LPC’s technical development
of solid propellant rocket motors under government contracts. In the mid-1960s, the government
adopted the so-called Total System Performance Responsibility (“TSPR”) for the SRAM
contracts, meaning that the prime contractor – Boeing – and its subcontractor –LPC – had “total
system responsibility to build th[e SRAM] without any more direction from the Air Force.”
(Trial Tr. at 1338 (Dull); see USX222.0003.) “The Air Force provide[d] a statement of work,
what [it] want[ed] to be built, and a system spec that goes into technical details” regarding
performance, but it did not “dictate the design” of the rocket. (Trial Tr. at 1338 (Dull).)
Given the technical complexity of the SRAM program, LPC held daily early morning
meetings to discuss pertinent program details. (See Trial Tr. at 86 (Oppliger).) Government
representatives from the Air Force Systems Program Office (“SPO”)5 and the AFRPL attended
these meetings, as well as other technical interchange meetings scheduled by Boeing, only on
invitation by Boeing. (Id. at 1341, 1345-47 (Dull).) Although the frequency of these meetings
increased over time due to the repeated rocket motor failures that plagued SRAM, government
representatives at the meetings were instructed not to provide direction, but to only “observe,
5
The SPO, located at Wright-Patterson Air Force Base near Dayton, Ohio, was the Air Force
division responsible for procuring weapons systems, including SRAM. (Trial Tr. at 1335-36 (Dull).)
10
take notes, and report back to . . . supervisors.” (Id. at 1347-48.) Even at SRAM’s preliminary
design review, which included high-ranking officials from LPC, Boeing, and the Air Force, the
Air Force representatives attended only “as observers to witness the progress at [LPC] at that
time.” (Id. at 1349.) Waste disposal practices were not discussed at these technical meetings.
(Id. at 1352.)
At the beginning of its SRAM development subcontract, LPC formed the SRAM
Propulsion Program Review Committee to provide LPC monthly guidance on meeting the
SRAM program’s technical and schedule objectives. (PX0571 at 443.) The Committee was
initially comprised of Lockheed Aircraft Corporation employees who did not generally work for
LPC at the Sites. (Id.) In early 1968, pending the commencement of SRAM rocket motor test
firing, LPC , with the permission of Boeing, expanded the Committee to include several outside
experts, including Boeing engineers, scholars, and Donald Ross, “Mr. Solid Rocket,” from the
AFRPL. (Id. at 444, 446; see Trial Tr. at 1369-70 (Dull).) Although Mr. Ross was generally an
“observer” under the TSPR (Trial Tr. at 1370 (Dull)), he provided some technical input to LPC
through the Committee. (See PX0571 at 0439.) LPC promptly implemented many of the
improvements recommended by the expanded Committee. (See Roman Decl. ¶ 60.)
In 1970, at the request of the SPO, the AFRPL reviewed the design of the SRAM rocket
motor, the test firing results, and LPC’s tooling and manufacturing processes and internal
procedures, to ensure that LPC “w[as] ready for production” and to “document the things that
needed to be completed” before SRAM rocket motor production could begin. (Trial Tr. at 101,
104-05 (Oppliger); see also Trial Tr. at 1356 (Dull); PX0577 at 110.) Pursuant to this review,
the AFRPL provided eight recommendations to Boeing regarding LPC’s readiness for SRAM
rocket motor production. (See PX0577 at 115-18.) These recommendations ranged from the
11
procedural – recommending that Boeing conduct a First Article Contractual Inspection following
the eight test motor firings – to the prudent – suggesting that LPC’s engineering work force
could be reduced by fifty percent once development ended and production began. (Id. at 116,
118.) Although the government recommendations did not bind either Boeing or LPC (Trial Tr.
at 1376-77 (Dull)), LPC ultimately adopted many of them. (Id. at 106 (Oppliger).)
The government’s quality assurance presence at the Sites was much larger than its
technical development presence described above. Although LPC had its own safety and quality
control inspectors (id. at 128), both Boeing (as prime contractor for SRAM) and the Defense
Contract Administration Service (“DCAS”) had offices at the Redlands facility and had the
“right[]” to “roam the production floor and see anything they wanted to see and watch anything
they wanted to watch.” (Id. at 90-92, 94, 110-11.) DCAS officials, Boeing officials, and LPC
engineers reviewed the process specifications and manufacturing process standards before
production could begin and inspected the processes once underway. (Id. at 90.)6 DCAS officials
determined which steps in the production process they wanted to inspect and, in theory, a
production process could not proceed beyond a dedicated inspection point until a DCAS official
had inspected and “stamped off” the process. (Id. at 90-92.)
During the SRAM development and production contracts, DCAS had between four and
five full-time representatives and Boeing had around twenty full-time employees stationed at the
Redlands facility. (Trial Tr. at 111 (Oppliger); id. at 1346, 1357 (Dull).) By comparison, LPC
6
“Process specifications” identified the applicable government specifications for a contract and
provided a high-level description of the production process. (See PX1057 ¶¶ 16-17 (Speer Decl.); see,
e.g., PX328.) Manufacturing process standards, on the other hand, were “how-to” documents that
provided step-by-step instructions for the completion of certain processes in compliance with the process
specifications. (PX1057 ¶ 22; see, e.g., PX913.) That is, “[m]anufacturing process standards were used to
tell the operators how to do or how to use a certain piece of equipment or how to do a certain thing.”
(Trial Tr. at 117 (Oppliger).)
12
had around four hundred employees at the Redlands facility. (Trial Tr. at 139 (Oppliger);
PX1202 at 133.)
The frequency and quality of inspections at the Sites varied over time. “The amount and
kind of inspection to be performed by the Government [wa]s at the discretion of DCAS.”
(USX270.) In its 1970 review of the SRAM Rocket Motor, the AFRPL criticized all three
parties – LPC, Boeing, and DCAS – for practicing a laissez-faire “‘call us and we’ll come and
inspect’” approach to inspecting production processes. (PX577 at 117, 151-52; cf. PX576 at 48-
49, 81.) The AFRPL therefore concluded that that the SRAM program had “not been receiving
the on-station witnessing of work that the program has and continues to deserve” (PX577 at 151-
52) and suggested that SPO recommend to Boeing and DCAS to “re-evaluate their inspection
philosophy and inspection operations with a view to substantially increasing their on-station
witness of work operations besides work results.” (Id. at 117; see also Trial Tr. at 1375-76
(Dull).) After this review, both inspection points and the frequency of inspections increased at
the Sites as the first SRAM production contract got underway. (Trial Tr. at 138 (Oppliger).)
Nonetheless, DCAS continued to “lean[] on Boeing for engineering judgment and decisions
essential to the quality assurance function.” (USX221.0004.)
In addition to their daily quality assurance inspections, DCAS representatives also
occasionally undertook safety inspections at the Sites. (See, e.g., PX476-77, 482-84.)7
However, these inspections were limited to safety risks involving fires and explosions inherent in
the production, testing, and disposal of propellants and did not address safety risks regarding
environmental pollution. (See, e.g., Trial Tr. at 87 (Oppliger).)
7
Prior to the creation of DCAS in 1964, the Los Angeles Ordnance District undertook safety
inspections. (Trial Tr. at 960-61, 1013-14 (Nagle).)
13
C. General waste disposal practices at the Sites
Solid propellant rocket motor research, design, testing, and production processes produce
myriad and voluminous waste streams including waste propellant (used, unused, and defective),
waste solvents containing propellants, and scrap motors. (See PX457 at 801.) As a result,
disposal of waste was “regarded as an integral part of solid propellant rocket operations.”
(PX0009 § 7-1.1.)
During its operations of the Sites, LPC used several organic solvents – including
trichloroethylene (“TCE”) and 1,1,1-trichloroethane (“TCA”) – to clean the equipment used to
produce the solid propellant rocket motors. At the Redlands facility, AP and propellant-laden
wastewaters, AP and propellant-laden solvents, and solvents in general, were first piped,
pumped, or transported via drums to “evaporation pits.” (Trial Tr. at 669 (Feenstra); Feenstra
Decl. ¶¶ 50-51.) These shallow, concrete-lined basins allowed the organic solvents and water to
evaporate, leaving behind a residual sludge containing large amounts of AP. (See Trial Tr. at
700 (Feenstra).)
LPC ultimately disposed of most of its propellant wastes – including sludge taken from
evaporation pits – by burning them in earthen “burn pits” at the Redlands and Potrero Canyon
facilities. (Feenstra Decl. ¶¶ 51, 156.) In some instances, propellant wastes were disposed of
off-site at Camp Irwin – a military facility in the Mojave Desert (now Fort Irwin). (See id. ¶ 42;
PX431; PX440.)
An exception to disposal-by-burning existed, however, for defective rocket motor
casings. Rather than burning the entire rocket motor – and ruining the expensive metal casing –
LPC often attempted to reuse the motor casing by removing the propellant with water. In the
1950s, LPC did this by “soaking out” the scrapped rocket motors in evaporation pits at the
14
Redlands facility. (Feenstra Decl. ¶¶ 47, 152; see also PX429.) Later, LPC began “hogging out”
defective rocket motors at the Potrero Canyon facility using high-pressure water jets to remove
the propellant from the motor casing. (See Trial Tr. at 393 (Delaney); USX49.0068.)
II. CLEANUP OF THE SITES
As of the beginning of the trial, Lockheed had incurred environmental response costs for
the Sites totaling nearly $287 million. Lockheed estimates it will incur another $124 million in
future response costs for the Sites. (See Meyer Decl. ¶ 50 fig. 29.) Because each facility has a
distinct operational and cleanup history, the Court considers them separately below.
A. Redlands facility
TCE8 and perchlorate9 are the principal contaminants driving the cleanup costs relating to
the Redlands facility. Due to a combination of hydrogeologic factors around Redlands, the
majority of the TCE and AP disposed of during LPC’s operations is no longer located at the
facility. (Sterrett Decl. ¶ 44.) Rather, the substances percolated through the soil and into the
groundwater and have travelled downgradient to form the “Redlands plumes,” 10 approximately
four miles away. (See generally id. ¶¶ 29-45; see also Trial Tr. at 286-87 (Blackman).) Because
8
TCE is now recognized as a probable carcinogen for humans (PX1621 at 263) and the ingestion
of TCE-contaminated water has been associated with a wide variety of other health problems.
(USX826.0023, 0067-0111.)
9
During the trial, at the Court’s direction, the parties and witnesses did not distinguish between
“AP” and “perchlorate.” However, the Court must distinguish between the two in this Memorandum
Opinion: while AP is the oxidizer LPC used and disposed of at the Sites, perchlorate is the component of
AP that contaminates the soil and groundwater at the Sites.
AP is an inorganic salt that “dissociates” in water into its constituent cation and anion:
ammonium (NH4+) and perchlorate (ClO4-), respectfully. (See PX1224 at 1; PX1685 ¶ 3.) Perchlorate is
highly soluble and mobile in water and chemically stable. As a result, perchlorate forms persistent
contaminant plumes when it is released into surface or groundwaters. (PX1224 at 1.) Perchlorate is
harmful to human health because, even in the low µg/L range, it can interfere with iodide uptake by the
thyroid gland, thereby resulting in decreased thyroid hormone production. (PX1224 at 4, 35-36.)
10
Although substantially overlapping, the perchlorate and TCE plumes are distinct. (Sterrett
Decl. ¶ 46.)
15
the plumes are “detached” from the Redlands facility, environmental investigation of the facility
cannot demonstrate a “direct connection” between specific locations (and thus production
activities) at the facility and the plumes. (Sterrett Decl. ¶ 52.) That is, simply by looking at the
plumes and the facility, one cannot reliably discern where in the facility the TCE or perchlorate
originated.
1. Trichloroethylene
The California Department of Health Services first discovered the Redlands TCE plume
in 1980. (PX1677 ¶ 1.) Throughout the 1980s, several municipal wells were shut down after
testing revealed TCE concentrations above the California drinking water maximum contaminant
level of 5 µg/L. (Id. ¶ 3.)11 Lockheed began investigating the plume in the early-to-mid 1980s,
concluding in 1985 that a local airport, and not LPC’s activities at the Redlands site, was the
“most likely source” for the TCE. (Id. ¶ 12.) Notwithstanding that conclusion, the Santa Ana
Regional Water Quality Control Board instructed Lockheed to conduct further investigations into
its operations at the Redlands site. (Id.) Lockheed and the Board continued investigating the
Redlands facility as a potential source for the TCE plume into the early 1990s. (Id. ¶¶ 13-32.)
By October 1992, Lockheed argued that continued investigations into the Redlands
facility would be fruitless because whatever TCE might have been disposed of at the facility had
either volatized or dispersed through the porous soil and formed the detached Redlands TCE
plume. (Id. ¶ 33.) In November, the Board informed Lockheed that it had concluded the
Redlands facility was the source of the Redlands TCE plume and that it would order Lockheed to
investigate and cleanup the plume. (Id. ¶ 34.) Lockheed replied that it would consider proposing
11
As of 2008, the maximum TCE concentrations in the plume are in the mid-20 µg/L range.
(USX11.0032.)
16
to the Board a remediation plan that would negate the need for any order and thereafter
undertook a detailed study of the Redlands TCE plume. (Id. ¶¶ 34-35.)
On May 6, 1993, Lockheed denied responsibility for the plume, informing the Board that
“it was [its] position that there was not substantial evidence to indicate that Lockheed was the
source of the TCE contamination in the [Redlands plume], and that Lockheed, therefore, was not
in a position where they could justifiably utilize stockholders’ funds in conducting any additional
work.” (Id. ¶ 36.)12 The Board responded on January 28, 1994, by issuing its first Cleanup and
Abatement Order for the Redlands TCE plume. The Order required, inter alia, that Lockheed
submit a workplan for using groundwater monitoring wells to define the plume and based on
data gathered from those wells, submit and implement plans to first contain and then remediate
the plume. (Id. at 10-11; see also Trial Tr. at 286-87 (Blackman).) On that same day, the Board
also issued an “investigative order” requiring Lockheed to conduct groundwater and subsurface
soil investigations at the Redlands facility. (PX1678 at 10; see also Trial Tr. at 285 (Blackman).)
On April 22, 1994, after discussions with Lockheed, the Board modified its initial Cleanup and
Abatement Order by removing the requirement that Lockheed implement any remedial actions
for the plume while investigations were still ongoing. (PX1679 at 10-11; see also Trial Tr. at
295-96 (Blackman).) Lockheed continued to deny responsibility for the Redlands TCE plume
(see USX653 (January 1994 letter from Lockheed to Board)), but otherwise complied with the
1994 Orders and worked with the Board to develop an acceptable remediation plan. (Trial Tr. at
296-99 (Blackman).)
12
Mr. Blackman explained that Lockheed initially was unconvinced that the Redlands TCE
plume originated from LPC’s operations at the Redlands facility because testing of groundwater at the
facility had not revealed the presence of TCE. (Trial Tr. at 288 (Blackman).) That is, Lockheed was
unconvinced of its liability because the plume was “detached from” the facility. (See id.)
17
2. Perchlorate
In late April 1997, following a breakthrough in testing methodologies for perchlorate (see
Trial Tr. at 301-03 (Blackman)), the California Department of Health Services discovered
perchlorate levels in several wells within the Redlands TCE plume that exceeded California’s
provisional drinking water standard of 18 µg/L. (PX1685 ¶¶ 3-4.)13 The Board connected
LPC’s use of AP at the Redlands facility – and in particular the waste disposal practices – with
the Redlands perchlorate plume. (Id. ¶¶ 3, 5.) The Board accordingly issued a Cleanup and
Abatement Order requiring Lockheed to investigate and then develop and implement a remedial
action plan for the Redlands perchlorate plume. (Id. at 2.) Lockheed appealed the Order, but
complied during the appellate process. (Trial Tr. at 337 (Blackman).) Because the Redlands
facility was “the only source of [AP] in the” watershed, Lockheed eventually accepted
responsibility for the Redlands perchlorate plume. (See id. at 307.) Further, after the discovery
of the perchlorate plume, Lockheed “began to realize that the TCE, which was fully enveloped in
the perchlorate plume, must have also come from the” Redlands facility as well. (Id. at 308.)
Since that time Lockheed has complied with all orders of the Board regarding
investigation, containment, and remediation of the Redlands plumes, including working with
water purveyors (e.g., surrounding municipalities) to reduce TCE and perchlorate concentrations
to acceptable levels and to drill new wells for drinking water supplies. (Id. at 314-17;
USX11.0023-26.) Among other remedial steps, Lockheed treated from select wells TCE-laden
13
As of 2008, maximum perchlorate levels in the plume ranged from 60 to 90 µg/L.
(USX11.0031.)
18
groundwater with granular activated carbon and AP-laden groundwater with an ion exchange
resin. (See Trial Tr. at 319-20 (Blackman); USX11.0041-42.)14
Although Lockheed has removed large amounts of TCE and perchlorate from the
Redlands plumes, concentrations remain at levels that will require continued treatment that may
“go on for many decades.” (Trial Tr. at 321 (Blackman).) As of 2011, Lockheed had incurred
over $231 million in response costs for the Redlands plumes. 15 (See Meyer Decl. ¶ 50 fig. 29.)
Response costs for the Redlands plumes also make up the lion’s share of the more than $25
million in response costs at the Sites from January 1, 2012 to February 10, 2014, and are
expected to comprise the majority of the projected $125 million in future costs for the Sites.
(Trial Tr. at 1188 (Lockheed counsel); cf. Meyer Decl. ¶ 50 fig. 29.)
B. Potrero Canyon facility
Although TCE, TCA-related compounds,16 and polychlorinated biphenyls have been
found in the soil and groundwater at the Potrero Canyon facility, perchlorate is the principal
contaminant of concern at the facility. (Sterrett Decl. ¶¶ 22.) Unlike at the Redlands facility, the
contamination at the Potrero Canyon facility is not detached, so the perchlorate contamination is
traceable to specific locations at the facility. (Feenstra Decl. ¶ 155; Sterrett Decl. ¶ 216.)
14
Granular-activated carbon is a less costly technology than ion exchange, which was developed
specifically for perchlorate contamination. (Trial Tr. at 322 (Blackman).) While response costs for the
Redlands plume in the 1990s were primarily from the cleanup of TCE, the recent, current, and future
costs are perchlorate-driven. (Id. at 1188 (Lockheed counsel).)
15
Facility-specific data are unavailable for response costs incurred after 2011. (See Meyer Decl.
¶ 50 fig. 29; see also USX378; USX401-402.)
16
These compounds include 1,4-dioxane and 1,1-DCE. 1,4-dioxane is a chemical used to
“inhibit” – or stabilize – TCA. (Feenstra Decl. ¶ 155.) Similarly, TCA – once “uninhibited” by the
preferential removal of 1,4-dioxane in water – degrades in the presence of powdered aluminum (a fuel in
rocket propellant) to 1,1-DCE. (Trial Tr. at 674-75 (Feenstra).) Thus, the presence of 1,4-dioxane and
1,1-DCE can indicate the prior disposal of TCA.
19
The primary sources of perchlorate soil contamination at the Potrero Canyon facility are
the Large Motor Washout Area and the Burn Pit Area (Sterrett ¶¶ 220-21),17 with perchlorate
levels as high as 302,000 µg/kg and 171,000 µg/kg, respectively. (USX12.0229-30.) The
former Rocket Motor Production Area is a secondary source area, covering a much larger portion
of the facility but with lower perchlorate soil concentrations (20,400 µg/kg). (Id. at 0229, 0244-
45.) The Sanitary Landfill is also identified as a secondary source area, with soil perchlorate
levels as high as 67,300 µg/kg. (Sterrett Decl. ¶ 222; USX12.0233.)
The Burn Pit Area is the primary source of perchlorate groundwater contamination at the
facility. (Feenstra Decl. ¶ 155; Sterrett Decl. ¶¶ 226-27; USX12.0237-38.) Secondary sources at
the facility include the Rocket Motor Production Area and, to a lesser extent, the Large Motor
Washout Area. (Feenstra Decl. ¶ 165; USX12.0237-38.)
In 1986, Lockheed conducted a historical study of the Potrero Canyon facility (along with
the LaBorde Canyon facility) to better plan later investigations into environmental
contamination. (See USX49.0011.) Following that study and a 1989 Consent Order from the
California Department of Health Services, Lockheed has undertaken further remedial
investigations and some remedial actions at the facility, the most recent and relevant beginning
in 2002. (See USX12.0064-90.)
As of 2011, Lockheed had incurred nearly $21 million in response costs for the Potrero
Canyon facility. (See Meyer Decl. ¶ 50 fig. 29.) Further remedial actions are presently under
evaluation. (Feenstra Decl. ¶ 154; see generally USX699.144-300.) As of 2012, the preferred
remedial alternative for perchlorate-impacted soils at the facility is excavation and off-site
removal. The preferred remedial alternative for perchlorate-contaminated groundwater at the
17
The TCE-contaminated soils identified at the facility – located in the Burn Pit Area – were
remediated in the 1990s. (Sterrett ¶ 224; USX12.0233-35.)
20
facility hydraulic containment through the installation of a pump-and-treat system involving ex
situ treatment of the groundwater, with the discharge of remediated water back into the ground or
into local waterways. (USX699.0299-300.)
C. LaBorde Canyon facility
The soil and groundwater at the LaBorde Canyon facility are also contaminated with
perchlorate and, to a lesser extent, TCE. (Sterrett Decl. ¶¶ 25, 238.) As at the Potrero Canyon
facility, groundwater contamination at LaBorde Canyon is not detached and is therefore
traceable to specific locations of historic operations at the facility. (Id. ¶ 235.) The primary
sources of perchlorate at the facility are the Test Bay Canyons and the Waste Discharge Area.
(Feenstra Decl. ¶ 167; Sterrett Decl. ¶ 239.) Perchlorate has been detected in soil at
concentrations exceeding 100,000 µg/kg and in groundwater at concentrations exceeding
100,000 µg/L. (USX13.0236-38, .0241.)
As was the case at Potrero Canyon, Lockheed undertook a historical study of the
LaBorde Canyon facility in 1986. (See USX49.0011.) The California Department of Health
Services issued a Consent Order requiring cleanup of contamination at the facility in 1989.
(USX13.0012.) Lockheed completed remedial investigations and removal actions from 1990 to
1993, after which the California Department of Toxic Substances Control issued a “Report of
Completion of Removal Action” stating that no further remedial action was necessary. (Id.;
USX700.0037-38.) Groundwater perchlorate contamination was first detected at the facility in
the early 1990s. (Feenstra Decl. ¶ 174.) However, the California Department of Toxic
Substances Control did not reopen the facility for further assessment until 2003. (USX13.0012.)
Since then, Lockheed has engaged in nearly ten years of remedial investigations. (USX13.0027-
31.)
21
As of 2011, Lockheed had incurred over $10 million in response costs for the LaBorde
Canyon facility. (See Meyer Decl. ¶ 50 fig. 29.) Further remedial actions are currently under
evaluation. (USX700.0148-206.) As of 2012, the preferred remedial alternative for the facility
is limited shallow soil removal, plume containment, and institutional controls. (Id. at 0191,
0215.)
III. LOCKHEED’S INDIRECT RECOVERY OF RESPONSE COSTS THROUGH
U.S.-GOVERNMENT CONTRACTS
Lockheed has recovered and continues to recover its response costs for the Sites (and
others sites like them) from its customers by allocating its cleanup expenses to its contracts as
indirect costs. Because the U.S. government is by far Lockheed’s largest customer, to date
Lockheed has indirectly recovered18 $208 million – over 72% of its total past response costs for
the Sites – through indirect costs charged to U.S.-government (primarily DOD) contracts.19
Because the U.S.-government share of Lockheed’s business is larger than it was in the past, the
percentage of total response costs for the Sites that Lockheed has recovered through U.S.-
government contracts is expected to rise in the future.
This cost-recovery system has its foundation in the byzantine federal contracting
regulations and was formalized, as to environmental response costs in particular, by the
Discontinued Operations Settlement Agreement (“DOSA”) signed by Lockheed and the U.S.
18
In its public filings, Lockheed refers to its formalized recoupment of environmental response
costs through its contracts with the U.S. government as a “recovery.” (See USX397.0069 (Lockheed
2012 Annual Report).)
19
The vast majority of Lockheed’s U.S.-government contracts are with the DOD. (See
PX397.0017.) However, Lockheed also has contracts with NASA, the Federal Aviation Administration,
the Social Security Administration, the Department of Treasury, the Department of Justice, the
Department of Health and Human Services, the Environmental Protection Agency, and the U.S. Postal
Service. (Trial Tr. at 1654 (Gatchel); USX397.0016.)
22
Defense Contract Management Agency (“DCMA”)20 in 2000. As a result of these regulations
and the DOSA, the Court must decide, in determining the equitable allocation of response costs
between the parties under CERCLA, what weight, if any, should be given to the fact that a
government contractor (1) has already formally, though indirectly, “recovered” from the U.S.
government a significant portion of its response costs through the pricing of its goods and
services and (2) now seeks to directly recover from the U.S. government those same response
costs under CERCLA. As the parties agree, this is an issue of first impression.21 But before the
Court can address that question, it must explain the relevant regulations and the DOSA, both of
which complicate the resolution of this case.
A. The Federal Acquisition Regulations
Lockheed’s cost-recovery system has an established basis in the complex Federal
Acquisition Regulations (“FAR”) that govern government contracting. Pursuant to the FAR, the
government pays contractors both their “direct” and “indirect” costs, plus a profit. (Wright Decl.
¶ 84.) Direct costs are those costs related to a specific contract, such as materials and labor. See
48 C.F.R. § 31.202. Indirect costs are those costs not associated with a specific contract –
essentially overhead. See id. § 31.203. Profit factors are determined on a contract-by-contract
20
The DCMA is the component of the DOD that engages directly with defense contractors on
issues of contract compliance.
21
Although an issue of first impression, it is far from sui generis. Counsel for the parties
identified at least two other cases involving Lockheed and the government where the same issue will need
to be addressed. (Trial Tr. at 999-1000.) See Lockheed Martin Corp. v. United States, 06-cv-1032-RSL
(W.D. Wash. filed July 21, 2006) (“Seattle Shipyards”); Lockheed Martin v. United States, 06-cv-1438-
RJL (D.D.C. filed Aug. 15, 2006) (“Great Neck”). The issue was also raised in Raytheon Aircraft Co. v.
United States, 2007 WL 4300221 (D. Kan. Dec. 8, 2007), but that case settled before trial. Because
environmental contamination at defense contracting facilities is pervasive, the issue likely looms large in
any case where a major government contractor can sue the government for recovery of environmental
response costs under CERCLA. (Cf. Trial Tr. at 1996 (government closing).)
23
basis. (See Trial Tr. at 600-01 (Wright); id. at 1660-61 (Gatchel).) Across all contracts in 2013,
Lockheed’s operating margin (i.e., pre-tax profit) was over 9.9%.22
The government will only reimburse a contractor for “allowable” indirect costs. An
indirect cost is “allowable” if it is “reasonable,” i.e., “it does not exceed that which would be
incurred by a prudent person in the conduct of competitive business,” 48 C.F.R. § 31.201-3(a), is
“allocable,” complies applicable accounting standards, and is not otherwise disallowed by
regulation or contract. See id. §§ 31.201-2, -4. Although not specifically allowable under the
FAR, see generally id. § 31.205, environmental costs “are normal costs of doing business and are
generally allowable costs if reasonable and allocable.” (PX1862 § 7-2120.1 (Defense Contract
Audit Agency Contract Audit Manual).) 23 Environmental cleanup costs at facilities no longer in
operation are generally allocable as indirect costs. (Id. ¶ 7-7120.7.) Attorneys’ fees and legal
22
See Press Release, Lockheed Martin Corp., Lockheed Martin Reports Fourth Quarter and Full
Year 2013 Results (Jan. 23, 2014), available at http://www.lockheedmartin.com/us/news/press-
releases/2014/ january/0123hq-earnings.html.
23
There was a movement in the late 1980s to make environmental cleanup costs, except for those
at government-owned, contractor-operated facilities, unallowable; however, the proposal was ultimately
withdrawn in the face of industry resistance. See Cpt. Gerald P. Kohns et. al., A Primer on Contractor
Environmental Remediation and Compliance Costs, ARMY LAW., Nov. 1993, at 22, 28. In 1991, a
revised draft environmental cost principle – proposed FAR § 31.205-9 – was approved by Defense
Acquisition Regulation Council and by the Civilian Agency Acquisition Council. Cpt. Joshua H. Van
Eaton, A Not-So Equitable Allocation: The Need for an Environmental Cost Principle, 14 MO. ENVTL. L.
& POL’Y REV. 441, 459 (2007). The proposed principle would have disallowed environmental cleanup
costs except where the contractor could show that it was performing a government contract at the time of
the disposal that required cleanup and that performance of the government contract caused the disposal.
Id. at 460. Even in those instances, however, the contractor would also have to demonstrate
reasonableness of costs, due diligence, compliance with environmental standards of care and laws at the
time of disposal, and the exhaustion of legal remedies to defray cleanup costs. Id. at 473-74. The
regulation was never finalized, presumably because of the moratorium on new regulations in effect at the
time. Id. at 460. Even so, the U.S. Government Accountability Office continued to press for the
development of an environmental cost principle to address what it considered to be inconsistent – and
ultimately detrimental to the government – treatment of environmental costs by contractors. Id. at 461-
63. In 1997, after years of industry resistance, the DOD ultimately abandoned its efforts to develop an
environmental cost principle. Id. at 463-64.
24
costs incurred while pursuing a CERCLA action may also be treated as indirect costs. See 48
C.F.R. § 31.205-47.
For a fixed-price contract, contractors attempt to predict the incurrence of indirect costs
that will be allocated to that contract over its term. Because the price of the contract is fixed, the
contractor benefits from a relatively higher return on its contract if it overestimates the total
indirect costs; on the other hand, if the contractor underestimates the total indirect costs, it will
receive a relatively lower profit on that contract. In contrast, in cost-reimbursement contracts the
contractor is paid for all allowable direct and indirect costs allocated to the contract. Thus, over-
or under-estimating indirect costs with regard to a cost-reimbursement contract does not pose the
same potential for increased or reduced returns. (Cf. Trial Tr. at 1660, 1679 (Gatchel).)
Even after the contractor has allocated indirect costs to specific contracts and has been
paid for those costs pursuant to those contracts, the contractor must credit back to the
government “either as a cost reduction or by cash refund” any “applicable portion of any income,
rebate, allowance, or other credit relating to” those indirect costs “received by or accruing to the
contractor.” 48 U.S.C. § 31.201-5. For environmental cleanup costs in particular, this provision
requires a contractor to credit back to its indirect environmental cost pool any recoveries for
cleanup costs from insurance policies or other PRPs. (Wright Decl. ¶ 50.)
B. The Discontinued Operations Settlement Agreement (“DOSA”)
Lockheed and the DCMA recognized the allowability and appropriate accounting
treatment of environmental remediation expenses as indirect costs when they signed the DOSA
on September 6, 2000. (USX1033 at 10.) The DOSA formally allowed as indirect costs, inter
alia, environmental response costs incurred for “discontinued operations,” sites, or facilities that
25
Lockheed closed, abandoned, or sold prior to January 1, 2000, including all three Sites at issue in
this case. (Id. ¶¶ 1.7-.8.)
Under the DOSA, Lockheed collects its environmental response costs for discontinued
sites in an accounting pool at the corporate level – the Settled Discontinued Operations Pool
(“DiscOps Pool”).24 (Id. ¶ 2.4.) Environmental response costs in the DiscOps Pool are not
charged to contracts immediately upon incurrence; instead, the costs for a given year are
amortized over a five-year period. (USX407 at 5; Mateer Decl. ¶ 8.) Both parties benefit from
amortization because it smoothes costs over time, thereby increasing predictability in multi-year
contract prices and promoting uniformity and comparability in the measurements of contract
costs. (Mateer Decl. ¶ 9; see generally PX1859 at 3-4.)
Lockheed “flows down” the allocable costs for a given year from the DiscOps Pool to its
business units using a three-factor formula typically used in government contracting. (USX1033
¶ 2.8; Wright Decl. ¶ 45.) It is the business units that then develop indirect rates, based partially
on the DiscOps Pool, to use when bidding on and billing government contracts. (Wright Decl. ¶
45; Mateer Decl. ¶¶ 10-12.) The percentage of Lockheed’s indirect costs passed on to U.S.-
government contracts roughly correlates with the U.S. government’s share of Lockheed’s
business for a given year. (Wright Decl. ¶ 74.)
Thus, under DOSA, if Lockheed spent $10 million on environmental response costs at
discontinued operations in the year 2005, it would amortize those costs over the next five years,
and $2 million per year would flow down to its business units from 2006 to 2010. Assuming that
U.S.-government contracts make up 80% of Lockheed’s business, Lockheed would recover $1.6
24
The DOSA also settled disputes between the parties as to the allowability of past response costs
allocated as indirect costs through the DiscOps Pool from 1991 onward. (See USX1033 ¶¶ 2.9-.11.)
Importantly, the DOSA merely formalized past practice and did not materially affect how Lockheed had
treated or would continue to treat the recovery of response costs for the Sites.
26
million per year – or $8 million total – of the response costs through its government contracts. In
addition, Lockheed would recover the remaining $400,000 per year – or $2 million total – in an
identical manner from non-U.S. government contracts.25
The DOSA also provides that Lockheed “shall not realize a double recovery with regard
to any Settled Discontinued Operations Costs,” and to the extent that it does, it “will reimburse
the United States for any such double recovery . . . under government contracts.” (USX1033 ¶
4.7.) Pursuant to this provision, and as required under 48 C.F.R. § 31.201-5, Lockheed credits to
the DiscOps Pool any direct payment it receives for environmental remediation costs at its
discontinued operations, whether in the form of insurance proceeds, settlements, or other
recoveries. (Wright Decl. ¶ 50; Mateer Decl. ¶ 14.) Credits are treated the same as costs and are
amortized over the five years following receipt of the payment. (Wright Decl. ¶ 51.) Therefore,
credits represent a bottom line reduction to the DiscOps Pool, lowering the total indirect costs
passed on to Lockheed’s clients. Thus, again assuming that U.S.-government contracts make up
80% of Lockheed’s business, the U.S. government would receive 80% of the benefit of any
credits allocated to the DiscOps Pool in the form of reduced contract costs. (See Wright ¶ 73-74;
USX1009 at 154-55 (Reese Dep.).)
C. Lockheed’s treatment of response costs for the Sites under the DOSA
To date, the DOSA and DiscOps Pool have functioned as intended. As to the three
discontinued Sites in this case, Lockheed has incurred environmental response costs related to
those Sites, allocated them to the DiscOps Pool, amortized them over five years, and passed them
down to its business units for bidding and billing purposes. Because once individual costs enter
the DiscOps Pool, they are not “tracked” or “followed” (as individual costs) down through the
25
Beyond the U.S. government, Lockheed provides goods and services to other governmental and
some commercial entities, including foreign governments, state governments, municipalities, institutions
of higher education, and the United Parcel Service. (Trial Tr. at 1653-56 (Gatchel).)
27
business unit or specific contracts, it is impossible to identify or trace response costs for the Sites
to any particular government contract. (See Mateer Decl. ¶ 13.) Nonetheless, it is clear that
Lockheed has indirectly recovered, and continues to indirectly recover, response costs for the
Sites from the U.S. government through the indirect costs charged to U.S.-government contracts.
(Wright Decl. ¶ 57-59; USX407 at 4-5.) Indeed, Lockheed boasts that its “underlying tenet in
pricing [its] contracts with the U.S. government” is its “ability to recover [its] costs . . .
regardless of the type of contract.” (USX407 at 4-5.)
As of December 31, 2013, Lockheed had indirectly recovered through its U.S.-
government contracts more than $208 million – or 72% – of its estimated $287 million in total
nominal response costs at the Sites. (Meyer Decl. ¶ 29 & fig. 5.)26 In the future, this “effective
government share” of response costs at the site is expected to rise because U.S.-government
contracts will make up an even higher percentage of Lockheed’s business than in the past. (See
Trial Tr. 581 (Wright); Meyer Decl. ¶ 82 & fig. 30; USX 402.0002.) Indeed, in the past few
years, Lockheed’s recovery rate through U.S.-government contracts has been approximately 87%
(Wright Decl. ¶ 66), and it is predicted that this recovery rate will continue to fluctuate around
that percentage in the near future. (See Trial Tr. 591-93 (Wright); USX 402.0002.) Accounting
for the increase in Lockheed’s U.S.-government contract base, and considering the projected
future cleanup costs for the Sites, the government’s expert economist estimates that Lockheed
will ultimately indirectly recover through U.S.-government contracts nearly 83% of its total
nominal response costs at the Sites. (Meyer Decl. ¶ 30 & fig. 6.)
26
Lockheed also earned, and continues to earn, a profit factor on every dollar of response costs
passed through to its contracts, U.S.-government or otherwise. (See Meyer Decl. ¶ 39; Wright Decl. ¶¶
77, 83.) Thus, the higher the indirect costs charged to the DiscOps Pool, the more profit Lockheed earns
from its clients. (See Wright Decl. ¶ 84.)
28
Aside from its indirect recovery of over 72% of its response costs for the Sites through
U.S.-government contracts to date, Lockheed has also allocated as an indirect cost and
subsequently recovered (though not through the DiscOps Pool) a substantial portion of its legal
fees and costs associated with bringing this action. The government’s expert economist
estimates that Lockheed indirectly recovered through government contracts, in nominal dollars,
over 85% of the $7.35 million in legal fees and costs it incurred between 2007 and 2012. (Meyer
Decl. ¶¶ 163-75.) Lockheed incurred an additional $3.2 million in legal fees and costs through
November 2013 (Gov’t Closing Presentation [Dkt. No. 144] at 245), and undoubtedly, it has
incurred several million dollars more in fees and costs for the extensive pretrial preparation and
trial briefing since December 2013, the expert fees for the six experts who provided testimony at
trial, and the fees and costs associated with the five counsel who attended a twelve-day trial.
According to the government’s expert economist, Lockheed will indirectly recover over 85% of
its total legal fees and costs (presumably at least $10 million) through U.S.-government
contracts. (See Meyer Decl. ¶ 172.)
IV. PROCEDURAL HISTORY
A. Related actions while the CERCLA statute of limitations was tolled
Lockheed did not bring this action for recovery of response costs under CERCLA until
2008, fourteen years after it began remediation efforts at the Redlands facility. The parties,
through Lockheed’s in-house counsel and attorneys within the Environmental and Natural
Resources Division of the Department of Justice, agreed to a tolling of the CERCLA statute of
limitations, see 42 U.S.C. § 9613(g)(2), beginning in 1997. (See PX1788, 1823, 1838, 1849,
2078.) These tolling agreements, specifically for the Redlands site, were in effect from January
27, 1997 to November 1, 2003. (PX 1788, 2078.) The parties renegotiated the agreements on a
29
semi-annual basis during this time period, including negotiating a one-year extension of the
tolling agreement on July 10, 2000 (PX1849), less than two months before Lockheed and the
DCMA entered into the DOSA on September 6, 2000. (USX1033 at 10.)
Although the DOSA addressed environmental cleanup costs, it did not purport to settle
CERCLA liabilities between Lockheed and the government. To the contrary, the DOSA
explicitly provides that it “does not settle any claims, if any, arising under CERCLA.” (Id. ¶
4.18.) Indeed, the DOSA implicitly recognized the potential coexistence of direct recoveries
from the government under CERCLA and indirect recoveries from the government through costs
charged to U.S.-government contracts. In particular, the parties devoted an entire section of the
DOSA to the treatment of the January 20, 2000 Consent Decree signed by Lockheed and the
Department of Justice in the Burbank CERCLA litigation.27 (USX1033 ¶¶ 3.1-.5.) In the
Burbank Consent Decree, the United States agreed to pay Lockheed directly for over forty-four
percent of past response costs and for fifty percent of most future response costs for the site.
(PX1844 ¶¶ 3.1-.6, 4.1-.3.) While the Burbank Consent Decree acknowledged that Lockheed
was already allocating “certain environmental remediation costs” to its discontinued operations
pool, it did not purport to “resolve[]” the “allowability and allocability of these costs.” (Id. ¶
2.14.) Nonetheless, the Consent Decree did specify that under no circumstance could the United
States determine that the agreed-upon past costs were “not properly subject to payment under the
terms of the Decree because the costs were previously reimbursed by the United States or
27
The Burbank case arose when, in 1991, the United States sued Lockheed, among others, under
CERCLA § 107(a) for the recovery of response costs associated with the cleanup of TCE at a former
Lockheed aircraft and aeronautic production facility in Burbank, California. (PX1844 ¶¶ 2.1, 2.5.) The
parties signed an initial consent decree in 1992 requiring Lockheed to operate a groundwater treatment
plant at the Burbank facility and to reimburse the government for response costs it had incurred. (Id. ¶
2.5.) In 1997, Lockheed filed a counterclaim against the government under CERCLA § 113(f), seeking
contribution for its past and future response costs at the Burbank facility. (Id. ¶ 2.9.) The 2000 Burbank
Consent Decree settled Lockheed’s counterclaim against the United States.
30
another party through an overhead pool” like the discontinued operations pool. (Id. ¶ 3.16.) To
counterbalance that provision, the Consent Decree required that “Lockheed Martin shall not
realize a double recovery with regard to any” response costs and “shall credit its continued
operations pool with amounts received from the United States pursuant to this Decree in
accordance with an agreement of Lockheed Martin and the United States.” (Id. ¶ 3.25.) The
“agreement” encompassed the DOSA, wherein the parties agreed to disallow $80.6 million in
costs related to the Burbank site and disallow $29 million in credits paid to Lockheed by the
United States pursuant to the Burbank Consent Decree. (USX1033 ¶¶ 3.1-.3.)
During the tolling period, Lockheed was involved in several related matters. In 1993, a
group of insurers sued Lockheed in state court in California, seeking a declaration that they were
not required to defend or indemnify Lockheed for the costs of environmental remediation at
multiple sites, including the Redlands facility. Procter v. Lockheed Corp., Case No. 731752,
Complaint (Cal. Sup. Ct. May 27, 1993) (PX2070). The trial court ruled for the insurers,
holding, inter alia, that Lockheed’s indirect recovery of response costs through government
contracts triggered the “government reimbursement exclusion” contained in the policies, and
thus, the insurers were not required to defend or indemnify Lockheed. Procter v. Lockheed
Corp., Case No. 731752, Statement of Decision Re: Phase II at 65-79 (Cal. Sup. Ct. Oct. 27,
2003) (PX2073). Prior to the entry of judgment, Lockheed sought declaratory relief in federal
court to enjoin the state court’s preliminary ruling. In that action, the government filed an
application to intervene in support of Lockheed’s position that indirect payments for response
costs through government contracts does not reduce or eliminate insurance coverage under the
government reimbursement exclusion. (PX2069 ¶¶ 25-26 (Porterfield Decl.).) The federal court
dismissed Lockheed’s action for lack of subject matter jurisdiction, and the state court entered
31
final judgment on October 22, 2003. (Id. ¶¶ 27-28.) Lockheed immediately appealed, and on
November 22, 2005, the California Court of Appeal affirmed the trial court’s decision. See
Lockheed Corp. v. Cont’l Ins. Co., 35 Cal. Rptr. 3d 799 (Cal. Ct. App. 2005). The Supreme
Court of California denied Lockheed’s petition for review on March 22, 2006, and the parties
subsequently entered into a confidential settlement agreement whereby the insurers “bought
back” the disputed policies. (Trial Tr. at 479 (Lockheed counsel); PX2069 ¶ 31 (Porterfield
Decl.); PX2075-76.) The proceeds from that agreement were credited to the DiscOps Pool.
(Trial Tr. at 1455-56 (Lockheed counsel).)
In 1995, Lockheed sued Seven W Enterprises, which at the time operated a
manufacturing facility on a portion of the Redlands facility, for recovery of response costs
incurred for the Redlands TCE plume. See Lockheed Martin Corp. v. Seven W Enterprises, 95-
cv-6153, Complaint (C.D. Cal. Sept. 14, 1995). Pursuant to a confidential settlement in late
1996, Lockheed indemnified Seven W from future liability in exchange for a lump sum payment.
Lockheed credited the amount recovered under this confidential agreement to the DiscOps Pool.
(Trial Tr. at 476-77 (Lockheed counsel).)
That same year, a group of plaintiffs filed a toxic tort class action suit against Lockheed
seeking medical monitoring costs and punitive damages based on the contamination of drinking
water from the Redlands TCE plume. See Lockheed Martin Corp. v. Superior Court, 63 P.3d
913, 916 (2003). The California Court of Appeal reversed the trial court’s class certification and,
in 2003, the Supreme Court of California affirmed. Id. at 922. The case settled some ten years
later, while the second bellwether group of plaintiffs was seeking class certification. (Trial Tr. at
372-73 (Lockheed counsel).) Under the DOSA, Lockheed’s payments pursuant to its
32
confidential settlement of the toxic tort action are specifically allowable as indirect costs charged
to the DiscOps Pool. (USX1033 ¶1.8.)
Finally, in 2004, Lockheed – sponsored by The Boeing Company – pursued an appeal
under the Contracts Dispute Act, 41 U.S.C. § 7101 et seq., to the Armed Services Board of
Contract Appeals (“ASBCA”) seeking indemnification from the government for response costs
and toxic tort liabilities at the Sites arising out of LPC’s performance of SRAM production
contracts from 1971 to 1975. See generally In re Boeing Co., ASBCA No. 54853, 06-1 BCA ¶
33,270 (Apr. 12, 2006).28 Lockheed sought indemnification under provisions in its SRAM
production subcontracts that provided for government indemnification for certain claims or
losses resulting from “unusually hazardous” risks. See id. After several rulings on cross-
motions for partial summary judgment, see, e.g., Appeal of the Boeing Co., ASBCA No. 54853,
11-2 B.C.A. ¶ 34,813 (July 28, 2011), the parties filed summary judgment briefs on whether
environmental response costs arising out of LPC’s solid propellant rocket motor production were
“unusually hazardous risks.” (Trial Tr. at 374-75 (government counsel).) On April 15, 2013,
after the toxic tort settlement and before the ASBCA could rule on those motions, Lockheed
(through Boeing) voluntarily dismissed its appeal with prejudice. (USX74.)
B. The government’s partial motion for summary judgment
Meanwhile, after over fourteen years of cleanup actions at the Redlands facility, on July
1, 2008, Lockheed brought this action against the United States under CERCLA § 107(a). The
government filed a counterclaim against Lockheed under CERCLA § 113(f) seeking, to the
extent it was a PRP, equitable allocation of response costs between the parties.
28
Boeing sponsored LPC’s claim because Boeing was the prime contractor for the SRAM
production contracts. (Trial Tr. at 371 (Lockheed counsel).)
33
Several months later, the government moved for a partial summary judgment on the
ground that Lockheed could not recover under CERCLA § 107(a) those response costs for the
Sites that it had already recovered through indirect costs charged to the DiscOps and passed
through to government contracts. (Mot. for Partial Summ. J., Jan. 9, 2009 [Dkt. No. 25-2] at 10.)
The government contended that Lockheed’s recovery of costs under CERCLA, for which the
government-as-client (primarily the DOD) had already indirectly paid pursuant to the DOSA,
would result in a double recovery – a violation of both the DOSA and CERCLA. See 42 U.S.C.
§ 9614(b).
On September 29, 2009, Judge Robertson rejected the government’s legal arguments on
several grounds. See Lockheed Martin Corp. v. United States, 664 F. Supp. 2d 14 (D.D.C.
2009). Judge Robertson first distinguished the bar on double recovery in CERCLA § 114(b)
from the present case. Section 114(b) states that “[a]ny person who receives compensation for
removal costs or damages or claims pursuant to any other Federal or State law shall be precluded
from receiving compensation for the same removal costs or damages or claims as provided in
[CERCLA].” 42 U.S.C. § 9614(b). Judge Robertson faulted the government’s argument for
failing appreciate the distinction between the “government-as-client” and the “government-as-
PRP.” To Judge Robertson, the government-as-client’s indirect cost payments under
government contracts were not “compensation” for the government’s liability in the same
manner as direct payments from an insurer, private PRP, or government PRP. Lockheed Martin
Corp., 664 F. Supp. 2d at 19. Judge Robertson further noted that the DOSA “explicitly states
that it ‘does not settle claims, if any, arising under CERCLA.’” Id.
Judge Robertson also distinguished the double recovery cases cited by the government.
In those cases, plaintiffs sought to recover response costs which they had already recovered from
34
other PRPs (through settlement or state-law versions of CERCLA) or response costs which their
insurers had paid for directly. Id. The courts in those cases applied CERCLA section 114(b) in
order to prevent plaintiffs from receiving “a windfall from its environmental cleanup.” Id.
Judge Robertson concluded that there would be “no windfall” in this case because Lockheed was
required under both the DOSA and the FAR to credit any CERCLA recovery from the
government to the DiscOps Pool. Id. at 19-20. Thus, “any CERCLA recovery from the
government would lead to a commensurate reduction in the [DiscOps Pool] that Lockheed could
charge as indirect costs on its government contracts. From a monetary standpoint, Lockheed
would be back where it started.” Id. at 19.
Judge Robertson also emphasized the “important implications for both parties” –
Lockheed would “improve its competitive position” and the government-as-client would benefit
from decreased contract prices. Id. at 20. Accordingly, Judge Robertson concluded:
If Lockheed is only partially liable for the response costs it is incurring at the Site,
it should not have to include all its response costs in the [DiscOps] Pool. The
ruling on the instant motions ensures that Lockheed may recover separately under
CERCLA from the government-as-PRP (if the suit ends with a recovery),
burdened in its dealings with the government-as-client only by those costs for
which it is actually liable.
Id.
On October 22, 2009, the government moved for reconsideration, inter alia, on the
grounds that Judge Robertson improperly imported requirements, such as the potential for
“windfall,” into the language of CERCLA § 114(b) and failed to address the argument that
Lockheed’s indirect recovery of response costs through government contracts could be
considered as an equitable factor during allocation of response costs under CERCLA § 113(f)(1).
(Mot. for Reconsideration, Oct. 22, 2009 [Dkt. No. 39] at 2-3.)
35
Judge Robertson denied the motion on February 18, 2010. (Mem. Order, Feb. 18, 2010
[Dkt. No. 43] at 2-3.) While remaining steadfast in his denial of summary judgment, Judge
Robertson acknowledged that some of the government’s positions, “including those about the
equitable considerations under Section 113(f)(1) and burden to taxpayers, may be relevant to
allocation determinations that might lie ahead in this litigation.” (Id. at 3.)29 Judge Robertson
therefore left open the door to the equitable double recovery and taxpayer burden arguments that
are now at the center of the allocation phase of the case.30
C. Trial on equitable allocation
The parties engaged in extensive factual and expert discovery over the next four years.
On September 26, 2013, the Court bifurcated the pending trial into two phases: (1) the parties’
liability as PRPs under CERCLA § 107(a) and the equitable allocation of response costs under
CERCLA § 113(f); and (2) the “accurate accounting” of response costs. (Order, Sept. 26, 2013
[Dkt. No. 97] at 2.) The Court scheduled a two-week bench trial for Phase I to begin on
February 10, 2014. (Id.)
Leading up to the trial, the parties stipulated that they were both PRPs liable under
CERCLA § 107(a) for the response costs that Lockheed had incurred at the Sites and that the
Court should allocate liability for the response costs between them according to equitable
principles under CERCLA § 113(f)(1). (Stipulation on Liability, Dec. 20, 2013 [Dkt. No. 103] at
2-3.) The parties also stipulated that, as required under CERCLA, Lockheed had incurred at
least one dollar of “necessary costs of response” at the Sites in a manner “consistent with the
29
In Raytheon (cited supra n. 21), the government raised an affirmative defense analogous to that
rejected by Judge Robertson in this case. 2007 WL 4300221, at *2-3. As Judge Robertson did, the judge
in Raytheon concluded that Raytheon’s indirect recovery of response costs through U.S.-government
contracts could be considered as an equitable matter. Id. at *3. However, as noted, the Raytheon case
settled before the issue of allocation was reached.
30
Following Judge Robertson’s retirement, the case was reassigned to this Court on June 3, 2010.
36
National Contingency Plan.” (Stipulation on Response Costs, Dec. 20, 2013 [Dkt. No. 104] at 1-
2 (quoting 42 U.S.C. § 9607(a)(4)(B)).)
Given the stipulations on liability, the Phase I bench trial concerned only the equitable
allocation of liability under CERCLA § 113(f)(1). The Court presided over the Phase I bench
trial over twelve days beginning February 10 and ending on March 14, 2014. Through no fault
of the parties or their counsel, the evidence at the trial was both voluminous and inconclusive in
many significant respects. Arguably, the most useful testimony came from the only two
witnesses who had been on the ground during LPC’s operations at the Sites, but even those
witnesses had limited recollections. (See, e.g., Trial Tr. at 95 (Oppliger); id. at 1374 (Dull).)
Otherwise, the record suffered from the many shortcomings inherent in CERCLA actions:
hundreds of missing contracts31 and significant gaps in the documents; a lack of
contemporaneous accounts of waste disposal operations at the Sites; almost no fact witnesses,
thus requiring extensive reliance on “historic” depositions, themselves taken some twenty to
thirty years after operations at the Sites; and contamination that, at least at the Redlands facility,
had migrated miles from the location of original disposals. In view of these evidentiary
constraints, the parties understandably relied almost exclusively on experts. The experts, who
provided direct testimony by declaration and were subject to cross examination and redirect at
trial, predictably presented diametrically opposed opinions regarding almost every important
subject, often relying on assumptions that were not sufficiently provable for the Court to draw
any reliable conclusions.
31
Out of the estimated hundreds or thousands of contracts relevant to this action, Lockheed’s
contracting expert had reviewed “perhaps three” and could not confirm that any contract he had reviewed
was actually complete. (Trial Tr. at 148-49 (Johnson).) Without contracts themselves, the experts had to
rely on Master Project Orders and documentation of contract revisions to attempt to piece together the
“very limited database” of contracts available in this case. (Id. at 149.)
37
The testimony and evidence presented at trial addressed five somewhat-overlapping
issues, and as could be expected, on each issue save one, the Court had a battle of the experts.
First, Dr. Peter Roman, Lockheed’s expert historian, provided a mostly undisputed account of
the history of the solid rocket propellant industry and LPC’s government contracts. Second, the
parties presented evidence of the degree of government activity at and control over the Sites with
respect to government specifications, safety manuals, project reviews, and safety inspections.
Each party also called a fact witness to describe the government’s presence at the Sites. Mr.
Gerald Oppliger testified about his experiences working as an engineering analyst for LPC
designing rockets for several government contracts, including SRAM, from 1962 to 1971. (Trial
Tr. at 74-77 (Oppliger).) Mr. Peter Dull testified about his work on SRAM as a propulsion
engineer for the SPO from the program’s inception to Lockheed’s delivery of the rockets. (Id. at
1337-38 (Dull).) Third, the parties put on dueling experts relating to the subject of government
contracting – Mr. Richard Johnson (for Lockheed) and Mr. James Nagel (for the government) –
who provided opinions on whether and to what extent the government, through contracting
regulations, owned the TCE and AP at the Sites.
Fourth, the parties spent an excessively large amount of trial time on the issues of
contamination and, in particular, which of LPC’s activities caused it. Lockheed called Thomas
Blackman to provide foundational testimony regarding the contamination and response actions at
the Redlands facility. Both parties then put on multiple experts. Lockheed’s primary expert, Dr.
Stanley Feenstra, a hydrogeologist, opined on the probable sources of TCE (vapor degreaser) and
perchlorate contamination (burn pits) at the Sites and the level of care with which LPC handled
its solvent and propellant wastes. Dr. Tod Delaney, an environmental engineer, provided a
rebuttal opinion to the government expert opinion from Thomas Cain, a chemical and process
38
engineer, regarding the sources of perchlorate contamination from the southern half of the
Redlands facility. The government’s primary expert, Dr. Robert Sterrett, a hydrogeologist,
opined primarily on probable sources of TCE (employee dumping) and perchlorate
contamination (burn pits and grinder part washing) at the Sites, while Mr. David Bauer, a
chemist, opined on the level of care with which LPC handled its solvent and propellant wastes.
The government also called Ms. Mary Sitton as an aerial photography expert who analyzed
historical aerial photographs of the Sites for evidence of sources of pollution. Of the myriad,
though incomplete, sources available to them, the experts relied primarily on LPC’s process
specifications, engineering diagrams of buildings and equipment, and the historic deposition
testimony of dozens of former LPC workers. The experts also relied on their own personal
experiences and general industrial and military practices at the time. Nonetheless, the ultimate
expert opinions often amounted to no more than exercises in reasoned speculation.
Finally, the parties spent a significant amount of trial on the accounting and economic
issues that make this case unique. Lockheed called Mr. Robert Gatchel, Lockheed’s current vice
president of government finance, to describe the implementation of the DOSA and Lockheed’s
government contracting procedures. Each party also called two experts to address the DOSA,
double recovery, and Lockheed’s economic benefit from a CERCLA recovery in this case. For
the government, Mr. Wiley Wright opined on the general function of DOSA, and Dr. Joan Meyer
presented an economic model demonstrating the benefit to Lockheed from various CERCLA
recovery scenarios. Lockheed’s experts, Mr. Mark Kiefer and Mr. Rodney Mateer, criticized the
assumptions and methodologies of the government experts, but provided no competing economic
model to substantiate their position that Lockheed would not economically benefit from a
CERCLA recovery in this case.
39
The difficulty of an incomplete record and heavy reliance on expert testimony was
compounded by the lack of analogous CERCLA cases.32 While many CERCLA actions have
been brought by government contractors against the U.S. government, only a few appear to have
reached the allocation stage. And none of those address the key issue in this case: whether the
fact that the government contractor has been indirectly recovering its response costs from the
U.S. government-as-client through U.S.-government contracts should, as an equitable
consideration, reduce its recovery from the U.S. government-as-PRP under CERCLA.
LEGAL FRAMEWORK
Congress enacted CERCLA “in response to the serious environmental and health risks
posed by industrial pollution.” United States v. Bestfoods, 524 U.S. 51, 55 (1998). The statute
“was designed to promote the timely cleanup of hazardous waste sites and to ensure that the
costs of such cleanup efforts were borne by those responsible for the contamination.” Burlington
N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 602 (2009) (internal quotation marks
omitted). By requiring responsible parties to pay for cleanup efforts, CERCLA also ensures that
“the taxpayers [are] not required to shoulder the financial burden of a nationwide cleanup.” B.F.
Goodrich Co. v. Murtha, 958 F.2d 1192, 1198 (2d Cir. 1992).
In furtherance of these goals, CERCLA allows private parties to recover the costs of
cleaning up hazardous wastes from several broad categories of PRPs. 42 U.S.C. § 9607(a)(1)-
(4).33 Liability under these provisions is strict and, by default, joint and several. PCS Nitrogen
32
At the Court’s request, the parties filed several helpful memoranda on legal issues, including
operator and arranger liability, equitable indemnification, double recovery, and prejudgment interest.
33
A private-party plaintiff establishes a prima facie case for cost recovery under CERCLA by
establishing that (1) the defendant is a PRP; (2) the site constitutes a “facility”; (3) a “release” or a
threatened release of hazardous substances exists at the “facility”; (4) the plaintiff has incurred costs
responding to the release or threatened release of hazardous substances (“response costs”); and (5) the
response costs conform to the National Contingency Plan. PCS Nitrogen Inc. v. Ashley II of Charleston
40
Inc. v. Ashley II of Charleston LLC, 714 F.3d 161, 168 (4th Cir. 2013). Relevant to this action,
PRPs include any past “owner” or “operator” and any “arranger.” See 42 U.S.C. § 9607(a)(2)-
(3).34
Under CERCLA, a person is liable as a past “owner” or “operator” if he “at the time of
disposal of any hazardous substance owned or operated any facility at which such hazardous
substances were disposed of.” Id. § 9607(a)(2). The phrase “owner or operator” is unhelpfully
defined “only by tautology . . . as ‘any person owning or operating’ a facility.” Bestfoods, 524
U.S. at 56 (quoting 42 U.S.C. § 9601(20)(A)(ii)). Courts consider “owner” and “operator”
liabilities in the disjunctive. Commander Oil Corp. v. Barlo Equip. Corp., 215 F.3d 321, 328 (2d
Cir. 2000); cf. Bestfoods, 524 U.S. at 64. In this regard, past owner liability is fairly simple, and
premised on the ownership, whether de facto or de jure, of a “‘facility’ at the time of the disposal
of a hazardous substance.” PCS Nitrogen, 714 F.3d at 172 (citing 42 U.S.C. § 9607(a)(2)); see
Commander Oil, 215 F.3d at 331-32.35 Notably, the ownership of the hazardous substances
disposed of at a given facility is irrelevant to ownership liability. See 42 U.S.C. § 9607(a)(2).
LLC, 714 F.3d 161, 167-68 (4th Cir. 2013); see also 42 U.S.C. §§ 9601(9), (22), 9607(a). Each of these
requirements is stipulated to or otherwise undisputed in this case. (See Stipulation on Liability, Dec. 20,
2013 [Dkt. No. 103]; Stipulation on Response Costs, Dec. 20, 2013 [Dkt. No. 104].)
34
Because both parties have stipulated to liability under CERCLA § 107(a), the Court need not
determine under which provision(s) each party falls. Nonetheless, the Court does find it useful to
consider the breadth (and limits) of types of PRP liability when balancing the equities under CERCLA §
113(f).
35
Under CERCLA, the term “facility” has two meanings. First, the term “facility” serves as a
catch-all for almost any original source from which a disposal might have occurred. See 42 U.S.C. §
9601(9)(A) (defining “facility” as “any building, structure, installation, equipment, pipe or pipeline
(including any pipe into a sewer or publicly owned treatment works), well, pit, pond, lagoon,
impoundment, ditch, landfill, storage container, motor vehicle, rolling stock, or aircraft”). Second, the
term “facility” includes “any site or area where a hazardous substance has been deposited, stored,
disposed of, or placed, or otherwise come to be located.” Id. § 9601(9)(B). Courts have interpreted this
second meaning to cover, at a minimum, “‘the bounds of the contamination.’” See PCS Nitrogen, 714
F.3d at 178 (quoting United States v. Twp. of Brighton, 153 F.3d 307, 313 (6th Cir. 1998)). Thus, “[t]here
may be several ‘facilities’ at a site for purposes of CERCLA, including separately owned ‘equipment’
41
Operator liability is more nuanced, but Bestfoods provides some helpful guidance. There,
the Supreme Court clarified that when defining “operator” liability under CERCLA, Congress
“obviously meant something more than mere mechanical activation of pumps and valves” and
intended liability to extend to those who “exercise . . . direction over the facility’s activities.”
524 U.S. at 71. On this basis, the Court concluded that an operator under CERCLA must
“manage, direct, or conduct operations specifically related to pollution, that is, operations having
to do with the leakage or disposal of hazardous waste, or decisions about compliance with
environmental regulations.” Id. at 66-67. The definition of “operator” in Bestfoods “clearly
requires actual participation, not merely the potential to do so.” City of Wichita, Kansas v.
Trustees of APCO Oil Corp. Liquidating Trust, 306 F. Supp. 2d 1040, 1054 (D. Kan. 2003); see
also United States v. Twp. of Brighton, 153 F.3d 307, 314 (6th Cir. 1998) (describing Bestfoods
as “highlight[ing] the importance of establishing some actual control by a putative operator”).
Although “actual participation” in this sense “does not require a finding that the [defendant]
directly participated in the day-to-day activities” at the facility, see United States v. Kayser-Roth
Corp., 103 F. Supp. 2d 74, 82 (D.R.I. 2000), Bestfoods requires that an operator “make the
relevant decisions” regarding the disposal of hazardous wastes “on a frequent, typically day-to-
day basis.” City of Wichita, 306 F. Supp. 2d at 1055 (collecting cases).
Arranger liability generally “prevents owners of hazardous waste from avoiding liability
under CERCLA by transferring ownership of the waste to another party for the purposes of
disposal.” Wilson Rd. Dev. Corp. v. Fronabarger Concreters, Inc., -- F. Supp. 2d. ---, 2013 WL
4875071, at *6 (E.D. Mo. Sept. 11, 2013). CERCLA defines “arranger” as “any person who by
within a larger facility,” Am. Int’l Specialty Lines Ins. Co. v. United States, 2010 WL 2635768, at *21
(C.D. Cal. June 30, 2010), as well as the location where the contamination has migrated over time. In this
regard, the “facilities” in this case include not only any historic sources of contamination at the Redlands,
Potrero Canyon, and LaBorde Canyon properties, but also the area of the Redlands TCE and perchlorate
plumes.
42
contract, agreement, or otherwise arranged for disposal or treatment, or arranged with a
transporter for transport for disposal or treatment, of hazardous substances owned or possessed
by such person, by any other party or entity, at any facility or incineration vessel owned or
operated by another party or entity and containing such hazardous substances.” 42 U.S.C. §
9607(a)(3).
Arranger liability requires ownership or possession of hazardous substances, but “cannot
be imposed on that basis alone.” Morton Int’l, Inc. v. A.E. Staley Mfg. Co., 343 F.3d 669, 679
(3d Cir. 2003).36 Instead, as the Supreme Court clarified in Burlington Northern, “whether an
entity is an arranger requires a fact-intensive inquiry that looks beyond the parties’
characterization of the transaction as a ‘disposal’ or a ‘sale’ and seeks to discern whether the
arrangement was one Congress intended to fall within the scope of CERCLA’s strict-liability
provisions.” 556 U.S. at 610. Under the plain language of the statute, a person is only an
arranger if he “plans for” or “takes intentional steps to dispose of a hazardous substance” he
owned or possessed. Id. at 611. Accordingly, although knowledge that a hazardous substance
will be disposed of “may provide evidence of the entity’s intent to dispose of its hazardous
wastes, knowledge alone is insufficient to prove that an entity ‘planned for’ the disposal,
particularly when the disposal occurs as a peripheral result of a legitimate” transaction, such as
the sale of a useful product. Id. at 612. Courts oftentimes consider – as with operator liability –
a party’s exercise of control over the disposal of hazardous substances as “a crucial element of
the [fact-specific] determination of whether a party is an arranger.” See United States v. Shell
Oil Co., 294 F.3d 1045, 1055 (9th Cir. 2002).
36
But see United States v. Iron Mountain Mines, Inc., 881 F. Supp. 1432, 1451 (E.D. Cal. 1995)
(collecting cases where courts “impose[d] arranger liability on parties who did not literally own or
physically possess hazardous wastes,” but noting that “in each of these cases the party either was the
source of the pollution or managed its disposal by the arranger.”).
43
A plaintiff who is also a PRP theoretically may avoid CERCLA liability altogether by
imposing joint and several liability on a PRP-defendant under CERCLA § 107(a). However, the
PRP-defendant can “blunt any inequitable distribution of costs by filing a § 113(f) counterclaim”
against the PRP-plaintiff. United States v. Atl. Research Corp., 551 U.S. 128, 140 (2007). In
such instances – as here – a court must determine the allocation of liabilities between the PRPs
pursuant to CERCLA § 113(f)(1).
CERCLA § 113(f)(1) states that “[i]n resolving contribution claims, the court may
allocate response costs among liable parties using such equitable factors as the court determines
are appropriate.” 42 U.S.C. § 9613(f)(1). Courts have universally held that “[t]his plain
language grants a court significant discretion to choose which factors to consider in determining
equitable allocation of liability.” PCS Nitrogen Inc., 714 F.3d at 186; see also Boeing Co. v.
Cascade Corp., 207 F.3d 1177, 1187 (9th Cir. 2000). “[I]n any given case, a court may consider
several factors, a few factors, or only one determining factor . . . depending on the totality of
circumstances presented to the court.” Envtl. Transp. Sys., Inc. v. ENSCO, Inc., 969 F.2d 503,
509 (7th Cir. 1992).
“Courts generally trot out two lists of factors when considering allocation under
CERCLA.” Yankee Gas Servs. Co. v. UGI Utilities, Inc., 852 F. Supp. 2d 229, 247 (D. Conn.
2012). The first, the so-called “Gore Factors,” find their source in the legislative history (and
unsuccessful amendment) of CERCLA by then-Representative Al Gore. See Boeing, 207 F.3d at
1187. The “Gore Factors” include:
[1.] the ability of the parties to demonstrate that their contribution to a discharge, release
or disposal of a hazardous waste can be distinguished;
[2.] the amount of the hazardous waste involved;
[3.] the degree of toxicity of the hazardous waste involved;
44
[4.] the degree of involvement by the parties in the generation, transportation, treatment,
storage, or disposal of the hazardous waste;
[5.] the degree of care exercised by the parties with respect to the hazardous waste
concerned, taking into account the characteristics of such hazardous waste; and
[6.] the degree of cooperation by the parties with Federal, State or local officials to
prevent any harm to the public health or the environment.
Envtl. Transp. Sys., 969 F.2d at 508 (quoting United States v. A & F Materials Co., 578 F. Supp.
1249, 1256 (S.D. Ill. 1984)).
Courts also often invoke the so-called “Torres Factors,” named after the “critical factors”
enumerated by then-Judge Torres:
1. The extent to which cleanup costs are attributable to wastes for which a party
is responsible.
2. The party’s level of culpability.
3. The degree to which the party benefitted from disposal of the waste.
4. The party’s ability to pay its share of the cost.
United States v. Davis, 31 F.Supp.2d 45, 63 (D.R.I. 1998).37
Given the broad discretion granted in CERCLA § 113(f)(1), courts also look beyond the
Gore and Torres factors when equitably allocating response costs. See, e.g., Am. Int’l Specialty
Lines Ins. Co. v. United States (AISLIC II), 2013 WL 135405, at *9 (C.D. Cal. Jan. 9, 2013). Of
relevance to this case, courts have also considered the following factors under CERCLA §
113(f)(1):
37
Some scholars have argued that while “[t]he Gore factors are most relevant in academic and
theoretical analysis of the way Superfund liabilities should be allocated. . . . in the real world Judge
Torres’ list of four critical factors often provides the basis upon which Superfund allocations are made.”
Robert P. Dahlquist, Making Sense of Superfund Allocation Decisions: The Rough Justice of Negotiated
and Litigated Allocations, 31 ENVTL. L. REP. 11098, 11099 (2001) (emphasis added); see also Yankee
Gas, 852 F. Supp. 2d at 247.
45
1. The “knowledge and/or acquiescence of the parties in the contaminating
activities.” Weyerhaeuser Co. v. Koppers Co., 771 F.Supp. 1420, 1426 (D. Md.
1991).
2. The value of the contamination-causing activities to furthering the
government’s national defense efforts. Cadillac Fairview/Cal., Inc. v. Dow
Chemical Co., 299 F.3d 1019, 1026 (9th Cir. 2002); Shell Oil, 294 F.3d at 1060.
3. The existence of an indemnification agreement demonstrating “the parties’
parties’ intent to allocate liability among themselves.” Halliburton Energy Servs.,
Inc. v. NL Indus., 648 F. Supp. 2d 840, 863 (S.D. Tex. 2009); see also Beazer E.,
Inc. v. Mead Corp., 412 F.3d 429, 447 (3d Cir. 2005).
4. “The financial benefit that a party may gain from remediation of a site.” Litgo
New Jersey, Inc. v. Martin, 2011 WL 65933, at *9 (D.N.J. Jan. 7, 2011); see also
City of Wichita, 306 F. Supp. 2d at 1101.
5. The potential for windfall “double recoveries” by a plaintiff. See, e.g., Litgo
N.J. Inc. v. Comm’r N.J. Dep’t of Envtl. Prot., 725 F.3d 369, 391 (3d Cir. 2013);
Friedland v. TIC-The Indus. Co., 566 F.3d 1203, 1207 (10th Cir. 2009).
6. The potential that a plaintiff might “make a profit on the contamination” at the
expense of another PRP. See Vine St., LLC v. Keeling ex rel. Estate of Keeling,
460 F. Supp. 2d 728, 765 (E.D. Tex. 2006).
7. CERCLA’s intent that “‘responsible parties, rather than taxpayers, bear the
costs’” of cleanup. Yankee Gas, 852 F. Supp. 2d at 256 (quoting Marsh v.
Rosenbloom, 499 F.3d 165, 182 (2d Cir. 2007) (emphasis added)).
With these factors in mind, the Court now turns to the ultimate question before it: the equitable
allocation between Lockheed and the government of past and future response costs at the Sites.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
To reach an equitable allocation for the Sites, the Court proceeds in three steps. First, the
Court determines, to the extent possible, the sources of contamination at the Sites. From there,
the Court bifurcates its equitable allocation analysis to consider (1) the familiar exercise of
allocating response costs among parties and (2) the novel issue of whether Lockheed’s indirect
46
recovery of those response costs through U.S-government contracts should affect the otherwise-
equitable allocation.
I. SOURCES OF CONTAMINATION AT THE SITES
Although in many cases courts can find that a particular facility, party, or disposal action
was responsible for a specific proportion of contamination at a site, see, e.g., AlliedSignal, Inc. v.
Amcast Int’l Corp., 177 F. Supp. 2d 713, 724 (S.D. Ohio 2001), the Court is unable to do so here
given the gaping holes in the record. Instead, the Court must limit itself to determining the
probable sources of perchlorate and TCE contamination at the three Sites.
A. Redlands facility
1. Perchlorate
The parties agree that a significant proportion of the perchlorate contamination in the
Redlands perchlorate plume originated from the burning of propellant wastes in the burn pits in
the northern portion of the Redlands facility. (Feenstra Decl. ¶¶ 123, 127; Sterrett Decl. ¶¶ 17,
136-41.) As described by Dr. Sterrett, the “burn pits were essentially trenches dug in the bare
ground.” (Sterrett Decl. ¶ 136.) LPC employees burned propellant wastes, containing waste AP
in liquid and solid form, on a daily basis. (USX963.0086 (Speer Decl.).)
The operation of the burn pits contributed perchlorate to the Redlands perchlorate plume
because, unbeknownst to anyone at the time, the AP disposed of in the pits was not completely
destroyed by burning. (Trial Tr. at 730 (Feenstra); see PX1224 at 10.) Any AP residue
remaining in the pits after burning could dissolve in a solvent (including water) and infiltrate
through the porous soil down into the groundwater. (See Feenstra Decl. ¶ 126; PX1224 at 10).
Dissolution of residue AP occurred during rainfall events (Feenstra Decl. ¶ 126) and when LPC
47
operators “thoroughly soaked with water” the burn pits when used multiple times in a day. (See
PX0007 § 1505(d) (1968 DOD Safety Manual).)
The presence of perchlorate in groundwater wells in the southern portion of the Redlands
facility also suggests the existence of perchlorate sources unassociated with the burn pits.
(Feenstra Decl. ¶¶ 122, 148, 153.) The parties vigorously dispute the southern source of the
perchlorate at the facility. The Court finds that there were three probable sources.38
First, beginning as early as November 1958, liquid solvent and AP wastes drained onto
the ground outside of Building 52, where LPC mixed propellants.39 (Sterrett Decl. ¶¶ 146-47.)
At that time, a pipe intended to connect Building 52 to Evaporation Pit 61 only “drained toward”
the pit, even though LPC recognized that it “should be piped right into [the] pit.” (USX43.0002
(emphasis in original).) An October 16, 1959 aerial photograph showed staining and liquid
38
Contrary to Dr. Feenstra’s opinion (Feenstra Decl. ¶¶ 148-49), neither fugitive dust from AP
handling and processing nor leakage from evaporation pits were probable sources of perchlorate in the
Redlands plume. While some fugitive dust inevitably escaped the grinding buildings at the Redlands
facility – particularly in the 1950s (see USX1160.0006, .0012-14) prior to the installation of advanced
baghouse technologies (see USX1117) – prevailing winds would have spread the light, small AP dust
particles far and wide before they settled onto the ground. (Cain Decl. ¶¶ 45-47.) Spread so far, it is
unlikely the AP dust, once settled and dissolved by rainfall, could develop a wetted pathway necessary to
migrate through the soil to the groundwater. Similarly, there is no evidence that the evaporation pits at
the Redlands facility ever leaked (Feenstra Decl. ¶ 150; see also Trial Tr. at 1252-53 (Sterrett)), nor any
evidence that AP-laden wastewater from the “soaking out” of rocket motors in the evaporation pits was
disposed of on the ground. (See Feenstra Decl. ¶ 152.)
Nor, contrary to Dr. Sterrett and Mr. Cain’s opinion (Sterrett Decl. ¶¶ 142-44; Cain Decl. ¶¶ 108-
15), was Building 114’s settling basin a probable source of perchlorate in the Redlands plume. LPC used
Building 114 as a propellant research laboratory from which it discharged approximately 2500 gallons of
wastewater into a dedicated settling basin. (USX781.0001.) Each week during dry weather, LPC
pumped the water out of the settling basin “to an underground drain (storm sewer) catch basin” that
“traverse[d] . . . into an open swale.” (Id.) From that point, the water ran “on open ground” and
infiltrated “due to the great percolation ability of the soil.” (Id.) Although LPC’s research laboratory
used AP (Trial Tr. at 1282-83 (Cain)), the effluent pumped from the settling basin was actually lower in
total dissolved solids (which would include AP) than the average groundwater in the area. (See id. at
1256-58, 1261 (Sterrett).) Based on this conflicting evidence, the Court cannot conclude that Building
114 was a probable source of perchlorate for the Redlands plume.
39
Because LPC used cyclohexane, and not TCE, as a solvent in Building 52 in the late 1950s
(USX43.0002), there is no evidence that this unconnected pipe was a source of the Redlands TCE plume.
48
within a drainage channel consistent with drainage from Building 52 toward rather than into
Evaporation Pit 61. (Sitton Decl. ¶ 34; USX670.) Although it is unclear precisely when LPC
addressed the problem it first recognized in late 1958,40 aerial photography confirms by at least
April 1963 a pipe did connect Building 52 to Evaporation Pit 61. (See Trial Tr. at 1434 (Sitton).)
Second, AP-laden wastewater percolated into the ground outside of several buildings
when LPC employees washed down the interiors of those buildings with hoses and failed to
collect the water or otherwise direct it to evaporation pits. (Sterrett Decl. ¶¶ 148-53; Cain Decl.
¶ 102; see Feenstra Decl. ¶ 151.) LPC employees washed down the interiors of grinding
buildings at the Redlands facility on a weekly basis. (See USX808.0022 (Building 77 Process
Specification); USX873 at 126-27 (Caldwell Dep.); USX973 at 157-58 (Spencer Dep.).) LPC
employees also washed down the interiors of the mixing buildings, although with less frequency.
(USX895 at 103-05 (Eastman Dep.).) For the portions of those buildings that did not have
drains, the AP-laden wastewater “ran out of the building” (id. at 101) and onto the ground
(USX994 at 115-16 (White Dep.), where it percolated into the soil and ultimately into the
groundwater. (Sterrett Decl. ¶ 153.)
The final – and most significant – source of perchlorate from the southern portion of the
Redlands facility was the washing of AP off of grinder parts and dust collection bags into the
south sump outside of Building 77. LPC operated Building 77 as an AP grinding facility. In
1962, LPC issued a manufacturing process standard – Standard 00COO5 – addressing cleanup
procedures for oxidizer grinding operations at Building 77. (USX32.) The Process Standard
instructed LPC employees after each grind to “flush[] with water” certain parts of the grinder “to
remove contamination.” (Id. at .0003.) The standard further specified that “[t]he flushing will
40
A July 11, 1960 letter from LPC to the Los Angeles Ordnance District suggests that the
unconnected pipe probably was addressed by that point. (See PX1046 at 2.)
49
be performed at the faucet and sump outside the lower level of Bldg. 77. Do not use water inside
the building.” (Id. (emphasis in original).) The same process was mandated for the washing of
the AP dust collection bags. (Id.; see also USX807.0031-33.)
Based on this process standard, both parties agree that after 1962, LPC washed AP dust
off of the grinder parts and bags outside of Building 77. However, the parties dispute into which
of the sumps on the west side of Building 77 the AP-contaminated washwater flowed. Mr. Cain
opined that LPC employees washed the grinder parts and bags on the concrete slab outside of
Building 77 and the washwater flowed naturally into the south sump, where it then percolated
into the ground through a drain or was pumped to the south to drain naturally on the bare ground
downhill and away from Building 77. (Cain Decl. ¶¶ 50-59, 79; see also Sterrett Decl. ¶¶ 125-
35.) In rebuttal, Mr. Delaney, Lockheed’s expert, opined that LPC employees washed the parts
directly over and into the north sump, which pumped the washwater to an evaporation pit.
(Delaney Decl. ¶¶ 38-50; see also Feenstra Decl. ¶¶ 109-21.)
The Court credits Mr. Cain’s opinion that the washwater from cleaning the grinder parts
and bags flowed to the south sump and ultimately percolated into the soil and migrated to the
groundwater. LPC’s process standards provided no clear instructions on precisely how to wash
the grinder parts and bags at the “at the faucet and sump” outside of Building 77 (see USX32 §
1.3),41 and the record lacks any evidence on how the workers actually performed the task. Mr.
Delaney opined that LPC employees must have washed the parts and bags directly over the 3-
foot by 3-foot north sump because they would have known that washing the parts over concrete
would have presented a fire and explosion hazard if the AP recrystallized before reaching the
south sump. (Delaney Decl. ¶¶ 28, 43-44.) Although Mr. Delaney’s concern has a scientific
41
Generally, wastewater containing AP was to be treated the same as waste propellant. (See, e.g.,
PX1023 § 6.31.1; PX1043 §100.6.5.)
50
basis (cf. Cain Decl. ¶ 49), he vastly overstates the safety consciousness of LPC’s employees.
Former employee Donald Eastman stated in a deposition that, when the workers washed AP-
laden wastewater out of grinding buildings, there was no effort to contain the water because “it
wasn’t considered a problem.” (USX895 at 101 (Eastman Dep.).) Likewise, the numerous other
instances of employees ignoring LPC-established safety protocols (see infra I.A.2) undermine
Mr. Delaney’s suggestion that those same employees would develop at Building 77 their own,
more burdensome, cleaning protocols in the name of safety. Ultimately, there is little evidence
to support the conclusion that the workers would on a near-daily basis spend the time and effort
to remove the heavy lid over the north sump and wash the parts and bags directly over that sump
when they had available the much easier process of washing the parts and bags over the concrete
pad and allowing the wastewater to flow naturally into the south sump. (See Trial Tr. at 1298-99
(Cain).)42
Moreover, two pieces of evidence support Mr. Cain’s opinion that washwater from
cleaning the grinder parts and bags flowed into the south sump. First, George Nelson White, a
maintenance mechanic at LPC from 1961 to 1975, stated that when the south sump reached
capacity, “it pumped the water up to the top of the dike out into the rocks. They’re all oxidizers
there.” (USX994 at 116 (White Dep.).) Second, and perhaps most persuasively, an April 16,
1966 aerial photograph shows an area of staining or standing liquid at the end of the drainage
channel down-gradient from the south sump fallout. (See Trial Tr. at 1412-13 (Sitton); Sitton
42
When Building 77 and its sumps were constructed, the washing of grinder parts occurred inside
the building. Because the top floor had an internal drain to the north sump and, ultimately, to an
evaporation pit, releases of AP-laden washwater onto the ground were minimal in the early years. (See
Trial Tr. at 1301 (Cain).) It was not until 1962, when, due to humidity concerns, LPC changed its process
specification to disallow washing inside Building 77. (Trial Tr. at 1300 (Cain); see also USX32 § 1.3).)
51
Decl. ¶ 41; USX672.)43 Because there had been no precipitation in the fifteen days prior to the
photograph (Sitton Decl. ¶ 42), the south sump would have only filled up and pumped water to
the outfall if LPC employees were washing grinder parts and bags into the south sump.
Based on this evidence, the Court finds that AP-laden washwater from LPC employees’
regular washing of grinder parts and bags outside of a Building 77 flowed into the south sump
and contributed significantly to the Redlands perchlorate plume.44
2. Trichloroethylene
The parties disagree vehemently as to the identity of the source of the Redlands TCE
plume. The government argues that the TCE originated primarily from LPC employees’
intentional dumping of solvents onto the bare ground at various locations at the Redlands
facility. (Trial Tr. at 897-98 (gov’t opening); Sterrett Decl. ¶¶ 54-75.) In contrast, Lockheed
asserts that the TCE primarily originated from discharges from a solvent-water separator
attached to the vapor degreaser in Building 91. (Trial Tr. at 42-43 (Lockheed opening); Feenstra
Decl. ¶¶ 63-95.)45 Having considered the evidence on these sources, the Court finds that both
probably contributed substantially to the Redlands TCE plume.
43
Lockheed suggested, based on an engineering drawing of Building 77 (PX837), that the water
from the south sump flowed northeast, rather than southwest, and thus the staining or standing liquid Ms.
Sitton identified could not have originated in the south sump. (See Trial Tr. at 1410 (Sitton).) However,
close inspection of the engineering drawing reveals that the “existing drainage” flowing to the northeast
had been “close[d] off” by the construction of a dyke. (PX837.) With the “existing drainage” to the
northeast closed off, the “sump drains over [the] dyke” (id.) to the southwest, consistent with Ms. Sitton’s
analysis of the aerial photography and the general topography at the Redlands facility.
44
Mr. Cain estimated that up to 20,000 pounds of the between 40,000 and 60,000 pounds of
perchlorate in the Redlands plume may have originated from the washing of AP dust collection bags at
Building 77. (Cain Decl. ¶ 92; see Sterrett Decl. ¶ 51.) The Court finds it unnecessary to decide on the
validity of his estimations; it suffices to say that the washing of grinder parts and bags outside of Building
77 contributed significantly to the Redlands perchlorate plume and thus cleanup costs at the Redlands
facility.
45
Although in his declaration Dr. Sterrett opined that TCE could have leaked into the ground
through cracks in the evaporation pits (Sterrett Decl. ¶ 78), he admitted on cross-examination that he had
52
First, the Court finds ample evidence that LPC employees poured TCE on the bare
ground and that those actions were a probable source of the Redlands TCE plume. (See Sterrett
Decl. ¶ 54.) Repeated pouring of small amounts of a liquid onto a porous and permeable soil can
create a “wetted pathway” by which a liquid’s chance of evaporation in the soil strata decreases
and newly dumped liquids move quickly and easily to groundwater. (Trial Tr. at 829 (Feenstra);
Sterrett Decl. ¶ 60.) The record is replete with credible historic depositions from LPC employees
admitting to frequently pouring TCE and other solvents on the bare ground in contravention of
company policy. (See PX961.) For example, Earl Wessman, a maintenance mechanic at the
Redlands facility from 1963 to 1975, testified that he dumped a quart to two gallons of TCE
daily at the same “very porous” bed of gravel north of Building 119, where the TCE would “sink
right in.” (USX989 at 188-90 (Wessman Dep.); USX990 at 419-420 (Wessman Dep.); see also
USX987 at 15-17 (Wessman Test.).) Likewise, Christian Mulder, a night shift operator at the
Redlands facility from 1956 to 1965, testified that he and his colleagues dumped one to two
gallons of TCE on the ground outside Buildings 8 and 12 “just about every night.” (USX941 at
34-35, 46-47 (Mulder Dep.).) Although Mulder and his colleagues knew of the availability of a
nearby evaporation pit for solvent disposal, they refused to walk there at night for fear of the
“rattlesnakes and tarantulas.” Instead, they poured the waste TCE on the ground. (Id. at 86-87.)
no evidence that cracks existed in the evaporation pits at the Redlands facility. (See Trial Tr. at 1252-53
(Sterrett).)
The parties’ experts also dispute whether burn pits were a minor source for the Redlands TCE
plume. (Compare Feenstra Decl. ¶¶ 40-46, with Sterrett Decl. ¶¶ 70-73.) Although LPC employees
poured small amounts of TCE directly into the burn pit at the Redlands facility (see USX944A.0002
(Nunes Decl.)), there is no evidence of TCE in the soil gas surrounding the burn pits. (See USX818.)
Thus, the Court credits Dr. Feenstra’s conclusion that the burn pits at the Redlands facility were not a
probable source of any sizable amount of TCE in the Redlands plume.
53
Several other LPC employees also admitted to intermittent pouring of TCE on the bare ground at
Redlands. (See Sterrett Decl. ¶¶ 68-72; USX944A.0002 (Nunes Decl.).)46
However, recognizing that some of the TCE poured onto the ground would have
evaporated before it could percolate into the soil (Trial Tr. at 820 (Feenstra)) and that LPC
shifted from using TCE to TCA as its preferred solvent in the mid-1960s (USX847 at 246-49
(Borgelt Dep.)), the Court concludes that it is improbable that LPC employee’s pouring of TCE
on the ground could account for the entirety of the Redlands TCE plume.
Instead, some portion of the TCE in the Redlands plume probably originated in the vapor
degreaser in Building 91. Vapor degreasers are used to clean grease and oil off of metal
instruments. Heating elements in the bottom of a vapor degreaser boil a “solvent liquid to
produce a zone of hot solvent vapor.” (Feenstra Decl. ¶ 64.) When degreaser operators place
cold metal parts into the vapor zone, either in a basket or on a chain, the vaporized solvent
condenses on and cleans the part. The “soiled” liquid solvent drips back down into the degreaser
sump, where it is reheated into a vapor. (Id. ¶ 65.) Solvent vapors that do not condense on the
metal parts are condensed by cooling coils on the perimeter of the degreaser tank. This
condensed liquid collects and is directed to a solvent-water separator. When functioning
properly, the solvent-water separator separates water that had condensed with the solvent from
the solvent and directs the solvent back into the main degreaser tank to revaporize. (Id. ¶¶ 64,
81.) Any condensed water will float and, once it reaches a certain level, it is released via a drain
onto the floor. (Trial Tr. at 833 (Feenstra).)
46
Dr. Feenstra questioned whether the employees could recall which solvent they had poured on
the ground decades before, or if, at the time of disposal, they could have distinguished between TCE and
TCA. (See Feenstra Decl. ¶ 32.) The Court finds Dr. Feenstra’s opinion in tension with Mr. Oppliger’s
testimony that LPC was a “very unique company” with a “lot of highly educated” and “attentive [and]
detail-oriented type people” (Trial Tr. at 85-86 (Oppliger)), and therefore, it credits the LPC employees’
identification of the solvents they dumped on the bare ground. (See Sterrett ¶¶ 58, 66.)
54
LPC operated the vapor degreaser in Building 91 to degrease rocket motor casings and
other large components. (See Feenstra Decl. ¶ 23.) Dr. Feenstra opined that the solvent-water
separator in the degreaser functioned improperly and released one-to-two gallons of watered-
downed or even pure TCE per day onto the floor of Building 91, which then flowed through a
drain directly into the subsurface soils. (Id. ¶¶ 76, 85-87; Trial Tr. at 817 (Feenstra); PX841
(diagram showing drain below vapor degreaser).).
The Court credits Dr. Feenstra’s theory. Vapor degreasers (and their solvent-water
separators) are common sources of solvent contamination at industrial and dry cleaning sites and
can release pure solvent into the environment. (Feenstra Decl. ¶ 84.) That there is no evidence
that any LPC employees noticed releases of small amounts of TCE from the solvent-water
separator is not surprising, considering the substantial TCE odor associated with the operation of
the degreaser, which was capable of boiling 120 gallons of TCE at a time, and the fact that
solvent-water separators release water onto the floor when functioning properly. (Trial Tr. at
685 (Feenstra).)
However, there is little evidence to support Dr. Feenstra’s opinion that the vapor
degreaser was the sole source of TCE in the Redlands plume. First, Dr. Feenstra’s opinion that
the solvent-water separator released exclusively pure TCE throughout LPC’s operations at the
Redlands facility lacks convincing support in the record. (Trial Tr. at 1185 (Sterrett); Sterrett
Decl. ¶ 109.) Second, the evidence indicates that LPC did not operate the vapor degreaser every
day or “with any great frequency.” (USX951 at 61 (Rodgers Dep.); USX995 at 117 (White
Dep.).) And finally, contrary to Dr. Feenstra’s opinion and Lockheed’s arguments, the Court
finds, based on Lockheed’s sworn statements in prior legal and administrative actions, that LPC
55
switched from using TCE to TCA in the vapor degreaser “about late 1966 or early 1967.”47
(USX22.0012-13 (Lockheed interrogatory responses in Seven W litigation); see also
USX120.0007-09 (response to request for information from California Department of Toxic
Substances Control).) Thus, while the Court credits Dr. Feenstra’s opinion that the solvent-water
separator on the vapor degreaser in Building 91 is a probable source of a significant portion of
the Redlands TCE plume, it is improbable that, as Dr. Feenstra opines, the vapor degreaser was
the only source. (See Feenstra Decl. ¶ 92.)48
B. Potrero Canyon facility
As described above, the sources of perchlorate contamination in the soil and groundwater
at the Potrero Canyon facility are undisputed. (See Trial Tr. at 1238-39 (Lockheed and
government counsel).) A primary source of contamination for both soil and groundwater is the
Burn Pit Area. (Sterrett ¶¶ 220-21, 226-27.) Some of the perchlorate contamination at the
Potrero Canyon Burn Pit Area, like at the Redlands facility, resulted from the fact that a burn
event would not completely destroy all of the AP, and some of the remaining AP residue
47
Lockheed attempted to disassociate itself from its prior sworn representations by arguing that
the representations were made “very early in [its] fact development.” (Trial Tr. at 1731-32 (Lockheed
closing).) The Court rejects Lockheed’s attempt to play fast-and-loose with its prior and at-the-time-
advantageous sworn representations regarding the switch from TCE to TCA in the vapor degreaser,
especially since Lockheed’s past position is corroborated by Larry Borgelt, who was a safety engineer for
LPC from 1966 to 1974. (See USX841 at 251-52 (Borgelt Dep.).)
48
The Court also concludes that the contribution, if any, of TCE from the Norton Air Force Base
TCE plume into the Redlands TCE plume is of no consequence. The map relied on by Dr. Feenstra that
showed the Norton and Redlands TCE plumes overlapping (see PX1972) demarcated the plumes using
TCE concentrations of 0.5 µg/L, ten times lower than California’s current maximum contaminant level
for TCE of 5 µg/L. (Sterrett Decl. ¶¶ 165, 209; see also Trial Tr. at 648-50 (Feenstra).) The two plumes
do not currently overlap at TCE concentration levels requiring cleanup, and to the extent that they
overlap, the commingling will not cause the TCE concentration in the Redlands TCE plume to increase
above the maximum contaminant level. (Trial Tr. at 653-54 (Feenstra).) Moreover, Lockheed failed to
demonstrate that contributions from the Norton Air Force Base TCE plume has caused in the past or
would cause in the future increased response costs for the Redlands TCE plume. (Id. at 655-56; Sterrett
Decl. ¶¶ 20-21, 209-10.)
56
dissolved in the rain and percolated into the soil and eventually the groundwater. (Cf. Trial Tr. at
730 (Feenstra); Sterrett Decl. ¶ 141; PX1224 at 10.)
However, the Court also finds that some of the perchlorate contamination at the Burn Pit
Area probably originated pre-burn. LPC operated the Burn Pit Area at Potrero Canyon much
differently than its burn pits at the Redlands facility. Rather than burning propellant wastes on a
daily basis, mere minutes after putting the wastes into the pit (see USX910 at 183-84 (Heeseman
Dep.); USX963 at 86 (Speer Dep.)), at the Potrero Canyon facility LPC accumulated wastes
(propellant, solvent, etc.) over months and burned them only a few times per year. (See
USX49.0074-75; USX53.)49 The pits were deeper than those at Redlands and the burns much
larger – each containing up to 250,000 pounds of wastes. (USX49.0074-76.)
Larry Borgelt, a safety engineer at LPC from 1966 to 1974, explicitly contrasted the
Redlands and Potrero Canyon burn pits (USX842 at 432-33 (Borgelt Dep.)), referring to the
latter as a “disposal area.” (USX841 at 318 (Borgelt Dep.).) In anticipation of a burn event, LPC
stored some wastes in drums on a concrete pad (USX49.0077), but also accumulated wastes
directly in the burn pits. (See Sterrett Decl. ¶ 228.) Some of the barrels accumulated in the pits
were leaking and some were emptied directly onto the ground. (USX841 at 318-19 (Borgelt
Dep.); USX842 at 432 (Borgelt Dep.).) These pre-burn event practices contributed to the
perchlorate contamination associated with the Burn Pit Area. Liquid wastes containing AP,
either poured directly into the burn pit or leaking out of barrels, percolated into the soil and
groundwater. Likewise, solid AP dumped into the burn pit weeks or months before a burn would
dissolve in the rain and infiltrate into the soil and groundwater. (Sterrett Decl. ¶ 230.)
49
This was only the case following the termination of the Large Solid Propellant Motor Program
in 1966. Prior to 1966, LPC burned materials on a daily or weekly basis. (Feenstra Decl. ¶ 156;
USX49.0076.)
57
LPC’s “hog out” procedures caused the perchlorate soil and groundwater contamination
associated with the Large Motor Washout Area and the Rocket Motor Production Area. (Sterrett
Decl. ¶¶ 220-21.) As described above, LPC washed propellant out of defective rocket motors
using high-pressure water jets to allow the reuse of the expensive metal rocket casings. (Feenstra
Decl. ¶ 164; USX49.0068; USX12.0050, .0055-56.) The propellant was hogged out onto the
bare ground where the AP leached out of the propellant, dissolved in the water, and percolated
into the soil and groundwater. (Sterrett ¶ 221; USX49.0068; cf. PX1067 at 4.) Today, hog out
procedures are a recognized source of perchlorate groundwater and soil contamination. (See
PX1224 at 10.) As Mr. Bauer testified, “if they hogged out on the ground, then it’s a source.”
(Trial Tr. at 1160 (Bauer).)
C. LaBorde Canyon facility
As with the Potrero Canyon facility, the parties do not dispute the sources of perchlorate
contamination at the LaBorde Canyon facility. (See Trial Tr. at 1238-39 (Lockheed and
government counsel).) Perchlorate contamination associated with the Test Bay Canyons
originated, as the name suggests, from rocket motor testing and firing operations. (Feenstra
Decl. ¶ 169; Sterrett Decl. ¶ 240.) Although it is unclear precisely by what mechanism AP from
the test-fired rocket motors ended up on the ground, the levels of perchlorate contamination
associated with the Test Bay Canyon indicate that the ground surface was “flood[ed]” with
“perchlorate-bearing water.” (Feenstra Decl. ¶ 169; see also Sterrett Decl. ¶ 240.) Dr. Feenstra
hypothesized that LPC may have “hogged-out” defective motors at the Test Bay Canyon.
(Feenstra Decl. ¶ 169.)
Perchlorate contamination associated with the Waste Discharge Area was caused, at least
in part, by LPC’s disposal of propellant wastes from its burn pits. (Feenstra Decl. ¶ 170; Sterrett
58
Decl. ¶ 241.) In 1962, the Santa Ana Regional Water Pollution Control Board issued a
Resolution to LPC to direct its operation of the Waste Discharge Area. (See PX1116.) Under
that Resolution, LPC was allowed to dispose of approximately 5000 gallons per year of
propellant waste that remained after burning in a burn pit. (PX1116 at 1-2.) As described above,
burning did not completely destroy all of the AP in propellant wastes. Thus, some of the AP
residue remaining in the wastes disposed of at the Waste Discharge Area dissolved in rainwater
and percolated into the soil and groundwater. (See Trial Tr. at 730 (Feenstra); Feenstra Decl. ¶
171; PX1224 at 10.)
II. TRADITIONAL EQUITABLE ALLOCATION
Because the parties have stipulated to liability, and substantially all of LPC’s operations
at the Sites were in performance of government contracts or subcontracts, the Court begins its
analysis by invoking the per capita approach: a fifty-fifty split between Lockheed and the
government. Cf. Davis, 31 F. Supp. 2d at 63-64 (describing the proper and improper times to
begin with a per capita approach). (See also Trial Tr. at 29-30 (Lockheed counsel advocating a
per capita approach); id. at 1931, 1941 (Lockheed closing).) From there, the Court adjusts the
equitable allocation based on its findings, keeping in mind that “[m]athematical precision in this
process is not realistically achievable or desirable.” United States v. Consolidation Coal Co.,
184 F. Supp. 2d 723, 744 (S.D. Ohio 2002).
A. Limited value of certain equitable factors
1. Waste attributable to each party
In many cases, “the dominant factor in determining each party’s equitable share of
liability is the extent to which the response costs are attributable to waste for which that party is
directly responsible.” Davis, 31 F. Supp. 2d at 64. This consideration, reflected in the first three
59
Gore Factors and the first Torres factor, is inapplicable here, for all of the perchlorate and TCE
contamination originated from LPC’s operation of the Sites in the performance of its government
contracts. It is therefore impossible to attribute even rough quantities of the perchlorate and TCE
contamination between the parties without delving into issues regarding the extent of the
government’s involvement in and control over waste disposal practices at the Sites. (See infra
Section II.B.-C.)
2. Parties’ relative benefits from waste disposal activities
“Fairness suggests that parties deriving greater benefit from disposal of hazardous waste
should bear a greater portion of the responsibility for mitigating its adverse effects.” Davis, 31
F. Supp. 2d at 66; see also Weyerhaeuser, 771 F. Supp. at 1426. The economic benefits to the
parties from LPC’s operations at the Sites were “roughly equal.” See AISLIC II, 2013 WL
135405, at *9. The government benefitted from LPC’s research and development and received
rockets supporting eight major Cold War-era programs, and LPC received payments for these
services and products. See id. Although LPC may not have reaped large profits from its
contracts with the government, it helped its parent corporation Lockheed Aircraft Corporation
establish a foothold in the rocket propulsion field, a position that Lockheed retains to this day.50
3. Degree of cooperation.
The sixth and final Gore factor considers “the degree of cooperation by the parties with
Federal, State or local officials to prevent any harm to the public health or the environment.”
Envtl. Transp. Sys., 969 F.2d at 508. Because non-cooperating parties can undermine
CERCLA’s goal of promoting quick and efficient cleanups, see Consolidation Coal, 184 F.
Supp. 2d at 751, “[t]he degree of cooperation with government officials to prevent any harm to
50
See Lockheed’s Memo. on the Benefit Received by Lockheed Propulsion Company, Feb. 20,
2014 [Dkt. No. 124] at 3-6; U.S. Memo. on the Benefit Received by Lockheed Propulsion Company, Feb.
23, 2014 [Dkt. No. 134] at 1-2.
60
the public health or the environment is very important in the contribution analysis.” Cent. Maine
Power, Co. v. F.J. O’Connor Co., 838 F. Supp. 641, 646 (D. Me. 1993). Lockheed argues that
because it has cooperated with California cleanup authorities since before remediation efforts
began, and the government did not admit liability until the eve of this trial, the “cooperation”
factor should favor Lockheed and disfavor the government. (Trial Tr. at 1939 (Lockheed
closing).)
However, Lockheed proceeds on a somewhat distorted view of the facts. Although
Lockheed has cooperated with the state authorities regarding cleanup at the Sites, it cooperation
can hardly be considered voluntarily. Lockheed denied liability for the Redlands TCE plume for
years (PX1677 ¶¶ 12, 36; Trial Tr. at 332 (Blackman)) and initiated cleanup efforts only after
ordered to do so by the Santa Ana Regional Water Quality Control Board. (Trial Tr. at 331-32
(Blackman).) For the government’s part, there is no evidence that any California state agency
ever asked the government to undertake response efforts, and neither Lockheed nor any other
party sought reimbursement from the government under CERCLA until this suit was filed in
2008. And while the government has not directly paid for any response costs yet, see
Consolidation Coal, 184 F. Supp. 2d at 751 (finding that a failure to pay for response costs or
actions prior to CERCLA suit relevant to whether the PRP meaningfully cooperated), its protests
against doing so are grounded primarily on the fact that it has already indirectly paid for the
majority of Lockheed’s response costs at the Sites. (See Meyer Decl. ¶ 29 fig. 5.).
In short, Lockheed was forced by cleanup and abatement orders to undertake its
remediation efforts, and the government has (albeit indirectly) footed most of the bill.51 On these
51
The fact that Lockheed has indirectly recovered through government contracts over 72% of its
past response costs for the Sites distinguishes this case from AISLIC II, in which that court concluded the
plaintiff’s cooperation with state regulatory authorities over a twenty-year period, without assistance from
61
facts, the Court cannot conclude that the government has been meaningfully uncooperative such
that it should receive an upward adjustment in its equitable allocation for the Sites.
4. The government’s ownership of waste
Pursuant to the government property clauses in its contracts with LPC, the government
owned an unknown, but undoubtedly sizable, amount of the AP and TCE that was disposed of at
the Sites. Under government contracting provisions, title will vest in the government for certain
property – including chemicals and other raw materials – purchased and used by a government
contractor. When title vests in the government generally depends on the type of contract and
whether contractor charges the property as a direct or indirect cost.
Under LPC’s cost-reimbursement contracts, such as the Apollo subcontract (PX104), title
vested in the government for property charged as a direct cost as soon as the property was
delivered to LPC, and title vested for property charged as indirect costs at the earliest of three
events, including LPC’s use of property in performance of the contract or the government’s
reimbursement of the cost to LPC. (Johnson Decl. ¶ 8.) For LPC’s fixed-price contracts with
progress payments, such as the SRAM production subcontracts, title vested in the government
for property charged as both direct and indirect costs upon the issuance of a progress payment to
LPC. However, title reverted back to LPC at the termination of the contract. (Id. ¶ 9; Nagle
Decl. ¶¶ 98, 103-105.)52
the federal government, necessitated a 5% increase in the government’s equitable share. See AISLIC II,
2013 WL 135405, at *5-6.
52
Government regulations did not require fixed-price contracts without a progress payment
clause (e.g., USX188) to include a government property clause. (Nagle Decl. ¶ 100-01.) Thus, LPC
owned and retained ownership of all AP and TCE used in its performance of those contracts. (See id. ¶
102.) Due to the limited record in this case (see supra n. 31), it is impossible to determine what
percentage of LPC’s contracts were fixed-price without a progress payment clause or what percentage of
AP and TCE wastes those contracts represented. (See Trial Tr. at 151-52, 156-57 (Johnson).)
62
LPC most likely charged most, if not all, AP as a direct cost and TCE as an indirect cost
to government contracts. (Johnson Decl. ¶ 20; Nagle Decl. ¶ 135.) Thus, title vested in the
government for both materials during some point in the manufacturing processes and, depending
on the contract type, remained vested in the government indefinitely (cost-reimbursement) or
until the end of the contract (fixed-price with progress payments). In either event, the
government retained title over at least some of the AP and TCE at the time of their disposal at
the Sites.53 Lockheed argues that the government’s ownership of the AP and TCE ultimately
disposed of at the Site should result in a higher equitable allocation for the government. (E.g.,
Trial Tr. at 33 (Lockheed opening).)
Merely owning the hazardous substances that caused response costs is, however,
insufficient for liability under CERCLA. See Morton Int’l, 343 F.3d at 679. Instead, a non-
disposing owner of a hazardous substance is generally liable only if he arranges for its disposal
or treatment by a third party. 42 U.S.C. § 9607(a)(3); see also Burlington N., 556 U.S. at 610-
11. The Court considers this distinction to be an important signal that, in passing CERCLA,
Congress was more interested in holding liable, where distinguishable, those who disposed of
and controlled the disposal of hazardous substances rather than those who owned them.
In its exercise of equitable discretion, the Court applies this distinction here. It is unclear
how much of the AP or TCE used (and disposed of) at the Sites the government actually owned.
While the government ownership was likely significant in absolute terms (e.g., pounds of AP or
53
Mr. Nagle, the government’s contracting expert, opined that “any title to materials acquired by
the government pursuant to a title vesting clause[] would not survive the consumption of the material in
the manufacturing process and, therefore, the government did not ‘retain’ title to waste generated by
[LPC] during contract performance.” (Nagle Decl. ¶ 143.) The Court is sympathetic to Mr. Nagle’s
pragmatic opinion that the title vesting clauses were not meant to extend to waste and shares his
reluctance to engage in a debate over the metaphysical question of who owns waste at the molecular level.
(See Trial Tr. at 1058 (Nagle).) However, from a textual standpoint, the contract clauses do not provide
automatic title reversion or automatic government abandonment for “waste” property. Thus, the Court
concludes that the government’s title in AP and TCE survives even after each becomes “waste.”
63
gallons of TCE), Lockheed’s government contracts expert could not conclude with a reasonable
degree of certainty that the government owned more than fifty percent of either AP or TCE used
at the Sites. (Trial Tr. at 157 (Johnson).) Moreover, regardless of the government’s ownership,
Lockheed possessed the waste at all times up to and including the time of disposal. And, for
fixed price contracts with progress payments (like SRAM), the waste – even if already disposed
of – reverted back to Lockheed upon the termination of the contracts. See AISLIC II, 2013 WL
135405, at *8.
Thus, while ownership of the TCE and AP may be an important factor in establishing
arranger liability under CERCLA § 107(a)(3), this is not the issue before the Court. Rather, as to
the allocation analysis, the Court finds the ownership of the substances to be of limited value.
Cf. AISLIC II, 2013 WL 135405, at *8. The critical issue is not ownership in the first instance,
but rather the parties’ respective control over the disposal of TCE and AP at the Sites. (See infra
Section II.B.-C.)
5. The government’s ownership of facilities
Owning a facility at the time hazardous substances were disposed of at that facility results
in liability under CERCLA. See 42 U.S.C. § 9607(a)(2). From this statutory hook, courts
frequently allocate an “owner’s share” of liability to parties “simply by virtue of being the
landowner,” United States v. R.W. Meyer, Inc., 932 F.2d 568, 571 (6th Cir. 1991), or owning the
leaking or faulty equipment at a site. E.g., AISLIC II, 2013 WL 135405, at *4-5.
Both parties owned equipment at the Sites. (See, e.g., USX26.0018-28; USX27;
USX28.0025-27.) Indeed, the government stipulated to its liability under CERCLA because it
owned and furnished some of the major pieces of equipment for LPC’s operations. (See Trial Tr.
at 899 (government counsel).) Lockheed argues that government ownership of this equipment –
64
including the vapor degreaser in Building 91 and the hogged-out rocket casings at the Potrero
and LaBorde Canyon facilities – should weigh in Lockheed’s equitable favor because those
pieces of equipment were sources of TCE and perchlorate contamination (i.e., “facilities”) at the
Sites. (E.g., Trial Tr. at 33 (Lockheed opening); id. at 1946 (Lockheed closing.)
Lockheed is correct that both the government-owned vapor degreaser and hogged-out
rocket casings are “facilities” under CERCLA § 101(9). See Am. Int’l Specialty Lines Ins. Co. v.
United States (AISLIC I), 2010 WL 2635768, at *23-24 (C.D. Cal. June 30, 2010). The Court,
however, does not consider the government’s mere ownership of certain pieces of equipment to
have much importance in determining an equitable allocation. Instead, just as with the
ownership of the waste, the Court considers “[f]actors additional to the simple fact of ownership”
of facilities – in particular the parties’ respective control over the disposal operations – to be the
paramount equitable consideration. See Yankee Gas, 852 F. Supp. 2d at 248. Thus, the Court
does not adjust the per capita equitable allocation on account of either party’s ownership of
equipment or facilities at the Sites.
6. Knowledge of risk of pollution from AP and TCE
The fifth Gore Factor considers “the degree of care exercised by the parties with respect
to the hazardous waste concerned.” Envtl. Transp. Sys., 969 F.2d at 508. As the Court
concluded above, the contamination at the Sites originated, inter alia, from pouring TCE and AP
wastewaters, and burning solid propellant wastes, on the bare ground. Mr. Bauer, a government
expert, opined these disposal practices violated the standard of care in existence at the time of
LPC’s operations. (Trial Tr. at 1086-87 (Bauer); Bauer Decl. ¶¶ 11(b), 11(e), 138(b).) The
Court does not credit Mr. Bauer’s testimony for two reasons.
65
First, although LPC knew that the Sites were located in areas with sensitive groundwater
supplies (see, e.g.,USX15.0002-03; USX43.0002; USX50.0002; USX970 at 140-41 (Speer
Dep.); USX977 at 35-36, 43 (Stickney Dep.)), neither TCE nor perchlorate were known
groundwater contaminants at the time LPC operated the Sites. “[T]here was generally no
recognition that TCE posed a danger to the environment until the mid 1970’s.” Bolinder Real
Estate, L.L.C. v. United States, 2002 WL 732155, at *8 (D. Utah Apr. 24, 2002). Indeed, TCE
groundwater contamination was first discovered in California only in 1979 (PX1537 at 12), and
the EPA did not regulate TCE as a drinking water contaminant until 1989. (PX2060 at 18.)
Similarly, according to the U.S. Government Accountability Office, perchlorate “was initially
identified by EPA as a potential [groundwater] contaminant in 1995” (PX1229 at 3), and,
according to the DOD, did not “emerge[] as an environmental issue of national interest [until]
1997,” when new testing processes decreased the detection threshold from 400 to 4 µg/L.
(PX1223 at 5; see also PX1229 at 3-4.)54 Although LPC knew when it operated the Sites that
AP was a dangerous material, their safety concerns were limited to fires and explosions and did
not extend to environmental contamination. (See, e.g., Trial Tr. at 87, 94-95 (Oppliger).)
Second, both pouring TCE and AP wastewaters and burning solid propellant wastes on
bare ground were entirely consistent with the general standards of care in existence at that time.
For TCE, the Court need look no further than the government’s position in a prior case:
54
Accordingly, the Court does not credit Mr. Bauer’s testimony that members of scientific
community knew that pouring TCE or AP wastewaters or burning propellants on the bare ground would
cause groundwater contamination. (Trial Tr. at 1081-87 (Bauer).) Mr. Bauer’s reliance on “personal
experience and knowledge and chemical research” (id. at 1083), as well as a single, ambiguous scholarly
article from 1953 that concluded “[s]olvents and soluble chemicals contained in industrial wastes . . .
remain in solution in the liquid phase . . . and percolate downward to the underlying groundwater”
(USX810.0006) is countered by the vast weight of the evidence that neither TCE nor perchlorate were
considered groundwater pollutants at the time LPC operated the Sites. (See Feenstra Decl. ¶¶ 96-102
(TCE), 175-91 (AP/perchlorate); PX2020-2024 (summary tables of historic published literature on
groundwater contamination re: TCE); PX2025-2028 (summary tables of historic published literature on
groundwater contamination re: AP/perchlorate).)
66
It is undisputed that the plaintiff’s allegations of negligence, in particular,
‘pouring the solvents onto the ground . . . ,’ even if true, could not have violated
any standard of care in existence prior to, or during . . . the early 1970s.
Snyder et al. v. United States, 04-cv-627, Gov’t Memo. in Support of Mot. for Summ. J. at 3-4,
(Feb. 22, 2006 S.D. Miss.) (PX2060). In Snyder, the government adopted its expert’s opinion
that the disposal of TCE on the bare ground and “‘letting it evaporate’ was common practice
throughout the period from 1940 until 1973, followed manufacturer’s recommendations, and was
not at variance with state or federal regulations.” (Id. at 19; see also PX1948 (summary table of
historic manufacturer disposal recommendations for TCE).) This was so because the prevailing
understanding at the time was that TCE poured on bare ground would evaporate or be absorbed
in the surface or subsurface soils and “would not contaminate or alter the intended use of
underground water supplies.” (PX2060 at 19.)
For perchlorate, the Court does not credit Mr. Bauer’s opinion that LPC should have
burned AP and propellant wastes at the Redlands and Potrero Canyon facilities in burn pans
rather than on the bare ground in burn pits. (Bauer Decl. ¶¶ 11(e), 133-36, 138(c).) LPC’s
burning of propellant wastes on the bare ground was consistent with both military and industry
practice during LPC’s operations at the Sites. Military manuals applicable to the LPC’s
operations explicitly recommended the burning of explosive wastes on bare ground. (See, e.g.,
PX0002 at 316; PX0003 § 125(b)(1), (c); PX0005 §§ 3-6, 4-11, 4-12; PX0007 § 1505; PX0009 §
7-2(c).) And the United States military itself burned propellant wastes on the bare ground and in
burn pits at its facilities (Trial Tr. at 1380 (Dull)), including at Camp Irwin, where the
government occasionally disposed of wastes from the Redlands facility. (See USX852 at 168
(Borgelt Dep.).) Indeed, the government failed to identify any government facilities where burn
pans were used for propellant wastes prior to the 1980s. It is no surprise, then, that the rampant
67
perchlorate groundwater contamination at historic DOD and NASA facilities was caused by the
same activities for which the government now seeks to fault LPC: “disposing of perchlorate
wastes in open pits, open burning and detonation of perchlorate, and using water to remove
perchlorate residue from rocket engines.” (See PX1229 at 26.)55 Indeed, in 2010, the GAO
identified, in California alone, seven government facilities with perchlorate-contaminated
groundwater that were listed on the Superfund National Priorities List and eleven DOD facilities
with perchlorate groundwater levels exceeding 15 µg/L. (Id. at 42, 44.)
On these facts, the Court cannot agree with the government’s position that LPC breached
any generally recognized standard of care by pouring TCE and AP wastewaters and burning
solid propellant wastes on the bare ground at the Sites.56
7. Violation of California water quality laws
A party’s violation of an environmental law in force at the time of its disposal of
hazardous wastes can be an important equitable factor relevant to a PRP’s degree of care,
55
The Court also concludes that LPC’s hog out procedures did not violate any a standard of care
in existence at the time. In the 1970s, “hogging out” was widely used by solid propellant rocket motor
manufacturers as a cost-saving tactic that allowed the reuse of expensive metal rocket casings. (See
PX0457 at 5-10 to 5-11; see also PX1229 at 26.) Indeed, as late as 1975 DOD contracted with companies
to hog out rocket motors. See AISLIC I, 2010 WL 2635768, at *11-12.
56
Mr. Bauer appeared to adopt the so-called “precautionary principle” as the relevant standard of
care in a CERCLA allocation action. (See, e.g., Trial Tr. at 1087, 1141 (Bauer).) An amorphous pillar of
contemporary environmental theory, the precautionary principle “requires that in the light of scientific
uncertainty, when credible evidence is put forth that a risk exists, action should be taken to minimize that
risk or eliminate it even though absolute proof has not been obtained which quantifies the risk.” New
Mexico v. Gen. Elec. Co., 335 F. Supp. 2d 1185, 1221 (D.N.M. 2004); see also OXFORD DICTIONARY OF
ENVIRONMENT AND CONSERVATION 353 (2008); Thomas O. McGarity, MTBE: A Precautionary Tale, 28
HARV. ENVTL. L. REV. 281, 334-35 (2004). While the precautionary principle may be equitably
applicable in other CERCLA cases, it is of little value here. For applying the precautionary principle as a
standard of care requires, at a minimum, a demonstration that some factual basis for the exercise of
precaution – i.e., knowledge of the potential environmental risk – existed at the time of the relevant
disposals. There is no such factual basis here, for scant evidence exists that anyone (the government
included) was exercising precaution, or had any inkling to do so, with regard to the disposal of TCE or
AP between 1954 and 1975. Hindsight, however perfect, is an insufficient basis for imposing a standard
of care as demanding as the precautionary principle.
68
culpability, and cooperation with government authorities. Environmental violations are most
relevant to the extent that (1) the law is not coterminous with CERCLA liability (i.e., strict
liability for disposal of hazardous substances); (2) the party’s actions clearly violated the law as
established at the time of the disposals; (3) those violations were either knowing or reckless; and
(4) compliance with the law would have reduced the total contamination or response costs.
The government argues that LPC’s equitable share should be increased because it failed
to submit reports of various waste discharges at the Sites as required under the Dickey Act, 1949
Cal. Stat. ch. 1549. (Trial Tr. at 874, 901-02 (gov’t opening).)57 Passed in 1949, California’s
Dickey Act established regional water quality control boards and a state water quality control
board “to co-ordinate state activities with regard to water pollution and nuisance by sewage and
industrial waste.” See Note, California’s Water Pollution Problem, 3 STAN. L. REV. 649, 652
(1951). Dickey Act § 13054 required “[a]ny person proposing to discharge sewage or industrial
waste within any region, other than into a community sewer system, [to] file with the regional
board of that region a report of such proposed discharge.” (USX122.0007.)58 Once a discharger
filed a report, the regional board was to “prescribe requirements as to the nature of such
discharge with relation to the conditions existing from time to time in the disposal area or
receiving waters upon or into which the discharge is proposed and notify the person proposing
the discharge of its action.” (Id.) The discharger was required to “provide adequate facilities to
meet any such requirements” prescribed by the regional board. (Id.)
57
The government did not dispute Lockheed’s assertion that LPC complied with California’s air
pollution laws by obtaining the necessary permits when operating the evaporation and burn pits at the
Sites. (Trial Tr. at 1751 (Lockheed closing); Feenstra Decl. ¶¶ 40, 49-50.)
58
Dickey Act § 13005 defined “industrial waste” broadly as “any and all liquid or solid waste
substance, not sewage, from any producing, manufacturing or processing operation of whatever nature.”
(USX122.0002.)
69
According to the California Attorney General’s interpretation of the Dickey Act, the
disposal of industrial waste “on land with a possible subsequent movement by evaporation or
percolation into . . . underground waters” was considered an “indirect” discharge. 48 Op. Cal.
Att’y Gen. 85, 86 (1966) (USX1175). The government asserts that LPC repeatedly violated the
Dickey Act by disposing liquid industrial wastes – e.g., TCE and AP wastewaters – on the bare
ground at various locations at the Sites without filing notices of proposed indirect discharges
with the Santa Ana Regional Water Quality Control Board. (E.g., Trial Tr. at 900-03 (gov’t
opening); Bauer Decl. at ¶ 168.)59 Mr. Bauer opined that LPC was aware of the Dickey Act
because it submitted a notice of proposed waste discharge in 1962 for the Waste Discharge Area
at the LaBorde Canyon facility and subsequently received a Resolution from the Board
approving the proposed discharge. (Bauer Decl. ¶ 168.)60 Mr. Bauer further opined that had
LPC submitted notices of proposed waste discharges for its various indirect discharges across the
Sites, the Board would have investigated and likely placed requirements on the discharges to
limit groundwater pollution. (Id. ¶ 166.)
Lockheed’s expert, Mr. Delaney, testified in response that LPC had no responsibility
under the Dickey Act to file notices of proposed waste discharges with the Board for the
59
In particular, Mr. Bauer opined that LPC violated the Dickey Act by failing to notify the Board
of most of its disposal activities, including, but not limited to, LPC’s use of burn pits at the Redlands and
Potrero Canyon facilities, the washout from grinding and mixing buildings and the discharges from
Building 77’s south sump at the Redlands facility, the hog out procedures at the Potrero Canyon and
LaBorde Canyon facilities, and the waste disposal areas at the Potrero Canyon and LaBorde Canyon
facilities. (See, e.g., Bauer Decl. ¶¶ 104, 117, 122, 137, 168.)
60
Mr. Bauer also opined that LPC violated its Dickey Act Resolution for the Waste Discharge
Area at the LaBorde Canyon facility – Resolution 62-24 – by constructing too many ponds and by
discharging perchlorate and other compounds not listed in the resolution. (Bauer Decl. ¶¶ 205-06.)
However, under that Resolution, the Board was allowed to and did “[p]eriodically” inspect the Waste
Discharge Area to ensure compliance with the Resolution. (PX1116 at 3; PX1121; PX 1130.) Further, as
noted above, no one at the time knew that the burn pit residues disposed of at the Waste Discharge Area
would still contain perchlorates. (See Trial Tr. at 730 (Feenstra); Feenstra Decl. ¶ 171; PX1224 at 10.)
Based on these facts, the Court cannot agree that LPC violated Resolution 62-24 when operating the
Waste Discharge Area at the LaBorde Canyon facility.
70
disposals of TCE and propellants on the bare ground at the Sites. (Delaney Decl. ¶ 13.) In
particular, Mr. Delaney opined that neither the Dickey Act nor its successor, the Porter Cologne
Water Quality Act of 1969, 1969 Cal. Stat. ch. 482, prohibited “intermittent or accidental
wastewater [indirect] discharges” such as those that occurred at the Sites. (Delaney Decl. ¶ 13;
see also Trial Tr. at 419-20 (Delaney).) Instead, according to Mr. Delaney, the notification
provisions of the Dickey Act only covered “large-scale, purposeful” disposals of industrial
wastes directly or indirectly into surface or groundwaters. (Trial Tr. at 419 (Delaney); Delaney
Decl. ¶ 13.)
Although the parties dedicated a significant amount of time to the issue of whether LPC
violated the Dickey Act, the Court is unable to resolve this debate for purposes of determining
Lockheed’s equitable share. First, it is unclear whether LPC had the duty to report to the Board
its disposal of TCE and propellant wastes on the bare ground at the Sites. Contrary to Mr.
Delaney’s opinion, the Dickey Act does not provide an exception for de minimis or intermittent
discharges. Instead, the plain language of the statute required a notice of proposed waste
discharge for any discharge of industrial waste. (USX122.0007.) Further, that TCE and AP
were not known groundwater pollutants at the time (supra Section II.A.6) seems irrelevant under
the Dickey Act’s broad definition of “industrial waste.” (USX122.0002.) On the other hand, the
Board periodically inspected each of the Sites (see PX1121; PX1130), and no evidence exists
that the Board ever instructed LPC to file a notice of proposed waste discharge for any of its
disposal activities. (Cf. PX1130 (“No written instructions or regulations from [the Board] has
been received.”).) Indeed, in 1967, the Board considered “the amount of industrial waste
discharged by LPC into the water drainage basin . . . to be negligible.” (Id.) This arguable
conflict between the statute and the Board’s on-the-ground enforcement of the Dickey Act
71
suggests that the Board and LPC’s contemporaneous understanding of the Act was that it did not
apply to LPC’s disposal activities.61
Second, even assuming arguendo that the Dickey Act applied to LPC’s disposal
activities, the Court cannot agree with Mr. Bauer’s speculation had LPC complied with the law,
the Board would have imposed requirements that would have reduced groundwater
contamination or response costs at the Sites. Under the Dickey Act, the Board lacked the power
to prohibit indirect discharges. 48 Op. Cal. Att’y Gen. at 86.62 Further, although the Board
could set limits on the concentrations of contaminants in discharged industrial waste (see Trial
Tr. at 1129-31), the statute “prohibited [the Board] from specifying the design, location, type of
construction or particular manner in which compliance may be had.” Ronald R. Robie, Water
Pollution: An Affirmative Response by the California Legislature, 1 PAC. L. J. 2, 19-20 (1970).
Considering the Board’s seeming lack of concern regarding LPC’s industrial waste disposal
practices (see PX1130), the fact that neither TCE nor perchlorate were recognized groundwater
contaminants at the time,63 and that LPC generally operated consistent with the recognized
standards of care for TCE and AP waste disposal (see supra Section II.A.6), the Court is unable
to conclude that if LPC had reported its waste discharges, the Board would have required LPC to
61
The government provided no evidence that other solid rocket motor manufacturers filed notices
of proposed waste discharges for the common disposal methods, i.e., burn pits and hogging out, that are at
issue here. Indeed, with the exception of the Aerojet General Corporation’s notice of proposed waste
discharge (which, as discussed infra n. 64, is not comparable to Lockheed’s activities at the Sites), the
government provided no evidence that any manufacturers at the time filed notices of proposed waste
discharges related to TCE or perchlorate.
62
Although the Porter-Cologne Water Quality Control Act was passed in 1969, it was not until
1975 that the California Attorney General interpreted the statute as providing regional boards with the
authority to prohibit indirect discharges. 58 Op. Cal. Att’y Gen. 531, 531 (1975) (USX1176).
63
Indeed, as the Los Angeles Regional Water Quality Control Board stated in 1980, “TCE and
other volatile organics now listed on EPA priority pollutant lists were not known or believed to have been
posing [a] pollution threat to groundwaters because of their high volatility and loss to evaporation at the
time of use” in the 1950s through the 1970s. (PX1532 at 128.)
72
undertake preventative actions to reduce the TCE or perchlorate concentrations in its industrial
wastes before disposal.64 The government’s suggestions that the Board could have set discharge
limits that required burn pans or other preventative measures (Trial Tr. at 881, 903-04 (gov’t
opening); id. at 1140 (Bauer); Bauer Decl. ¶ 35) are also speculative and lack support in the
record.
In sum, the Court cannot conclude that LPC violated the Dickey Act as it was understood
or applied at that time or that LPC’s “compliance” with the Act would have led to Board
regulation of its discharges and thus reduced contamination and response costs at the Sites today.
Accordingly, the Court gives no equitable weight to the issue of LPC’s compliance (or lack
thereof) with the Dickey Act.
64
To argue otherwise, the government points to the regulation, under the Dickey Act, of the
Aerojet General Corporation’s solid rocket motor production site in Rancho Cordova, California. (See,
e.g., Trial Tr. at 883-84, 900-01 (gov’t opening); Bauer Decl. ¶ 34.) Aerojet submitted a notice of
proposed waste discharge to the Central Valley Regional Water Pollution Control Board in the early
1950s and the Board adopted a Resolution prohibiting the discharge of wastes containing, inter alia, TCE
and AP “in a manner which will permit their entry into either the groundwater or the waters of the
American River.” (USX128.0002.) The Board modified the Resolution in 1962 to impose stricter
discharge limits. (USX132.) The government argues that Aerojet’s filing of a notice of proposed waste
discharge and the Board’s issuance of Resolutions regarding those discharges demonstrates both that LPC
violated the Dickey Act and that, had LPC filed a notice of proposed waste discharge, its regional board
would have regulated its disposals as indirect discharges.
However, Aerojet’s operations are too distinct from LPC’s to credit the government’s argument.
First, Aerojet’s discharge methods were specifically designed to allow its industrial wastes to percolate
into the ground. (See Trial Tr. at 413-14 (Delaney); id. 802-03 (Feenstra).) LPC’s only directly
comparable disposal processes at the Sites were the “percolation pits” in the Waste Discharge Area at the
LaBorde Canyon facility, for which LPC did file a notice of proposed waste discharge. (See id. at 802-03
(Feenstra).) Second, Aerojet’s disposals were voluminous – up to 1000 gallons per day – and contained a
much higher quantity of AP than at LPC’s Sites – up to 270 pounds per day. (PX1112 at 1; Trial Tr. at
1154 (Bauer).) Even so, the Board’s concern with Aerojet’s discharges was toxicity to plant life.
(PX1112 at 3.) And finally, the Aerojet and LPC operations fell under the jurisdiction of different
regional water quality control boards – Central Valley and Santa Ana, respectfully – such that the Court
cannot automatically infer that the Santa Ana Board would have taken the same actions for LPC that the
Central Valley Board took at the Aerojet facility. Accordingly, the Court finds that Aerojet’s regulation
under the Dickey Act is of limited relevance to this case.
73
8. Ability to Pay
“[T]he principal reason for considering ability to pay is to ensure that the party seeking
contribution will not bear sole responsibility for any portion of the joint liability otherwise
attributable to defendants from whom recovery is unlikely.” Davis, 31 F. Supp. 2d at 66. This
factor is not an open invitation for courts to increase or decrease a party’s equitable share based
solely on net worth, but is instead meant to recognize “that a PRP’s share of liability should not
be established at a level that exceeds its resources,” lest the plaintiff be left to shoulder that
PRP’s equitable share. Id.65 In this case, the parties’ abilities to pay have no real importance
because both Lockheed and the federal government are capable of shouldering the entirety of the
cleanup costs for the Sites. The Court notes, however, that in the recent years of increased
government austerity and serious fiscal shortfalls, Lockheed has – primarily through U.S.-
government contracts – seen “record . . . earnings, and profit margin as well as strong cash
generation.” (See Press Release, supra n.22.)66
9. Indemnification provisions
Both parties claim that certain indemnification clauses in the contracts argue in favor of
lowering their share. Indemnification merely shifts, but does not negate, CERCLA liability. See
42 U.S.C. § 9607(e)(1). To determine whether pre-CERCLA indemnification clauses cover
65
In this regard, the “ability to pay” consideration is an ex ante protection against so-called
“orphaned” shares – “those shares of ‘liability attributable to a party who is insolvent, cannot be located,
or cannot be identified.’” PCS Nitrogen, 714 F.3d at 168 (quoting Lyondell Chem. Co. v. Occidental
Chem. Corp., 608 F.3d 284, 303 (5th Cir. 2010)).
66
Since 1994, Lockheed’s stock price has soared from around $20 per share to around $160 per
share today, more than doubling the performance of the S&P 500 and the Dow Jones Industrial Average
during that time period. See Lockheed Martin Corporation, YAHOO! FINANCE, http://finance.yahoo.com/
echarts?s=LMT+Interactive#symbol=LMT;range= (last visited April 22, 2014) (compare with “DJI” and
“GSPC” from January 3, 1994 to April 1, 2014). Although Lockheed’s net sales were down in the first
quarter of 2014, its profits were up by over 22% ($172 million) compared to the first quarter of 2013.
Press Release, Lockheed Martin Corp., Lockheed Martin Reports First Quarter 2014 Earnings Results
(April 22, 2014), available at http://www.lockheedmartin.com/us/news/press-releases/2014/april/0422hq-
earnings.html.
74
CERCLA liabilities, “courts have uniformly held that the clause must be either ‘[1] specific
enough to include CERCLA liability or [2] general enough to include any and all environmental
liability which would, naturally, include subsequent CERCLA claims.’” Elf Atochem N. Am. v.
United States, 866 F. Supp. 868, 870 (E.D. Pa. 1994) (quoting Beazer E., Inc. v. Mead Corp., 34
F.3d 206, 211 (3d Cir. 1994)). Neither the indemnification provisions in the government-owned
facilities contracts (which favor the government) nor the ultra-hazardous activities
indemnification provisions in the SRAM production subcontracts (which favor Lockheed) satisfy
this test.67
The government asserts that indemnification provisions in its facilities contracts support
imposing a higher equitable allocation on Lockheed. During LPC’s operations at the Sites, the
government and Lockheed entered into facilities contracts that provided (often rent-free)
government-furnished equipment – e.g., the vapor degreaser in Building 91 – to LPC for its use
in performance of its contracts. (USX228.0004 (28 C.F.R. §13.101-8 (1955).) Facilities
contracts were required to have government indemnification clauses. (Trial Tr. at 952-53
(Nagle); Nagle Decl. ¶ 109.) Under one example of a government indemnification provision,
LPC agreed to
indemnify and hold the Government harmless against claims for injury to persons
or damage to property of the contractor or others arising from the Contractor’s
possession or use of the Facilities. However, the provisions of the Contractor’s
related procurement contracts shall govern the Government’s assumption of
liability for such claims arising out of or related to the performance of each such
related procurement contract and involving the possession or use of the Facilities.
(USX84.0029; USX 113.0020.)
67
At least two abandonment contracts, through which the United States abandoned government-
owned equipment or raw materials, contained indemnification provisions that clearly shifted liability
arising from the disposal of those equipment and raw materials (including AP) to LPC. (E.g., PX461;
PX1073.) Because those contracts are so few, and limited to relatively small amounts of hazardous
substances, they are insufficient to shift the equities in this case.
75
The language in this provision is typical “of the type of language used to indemnify a
transferor against a tort, nuisance or trespass claim” – environmental liabilities are nowhere
mentioned. See Mobay Corp. v. Allied-Signal, Inc., 761 F. Supp. 345, 358 (D.N.J. 1991).
Without more, the Court may not infer any intent to cover CERCLA response costs. Id.
Moreover, the provision is expressly limited by any contrary liability-shifting provisions in the
related procurement contract. (USX84.0029.) Thus, even assuming the facilities
indemnification provision did cover CERCLA response costs, it is impossible to determine
whether the provision applies to any given instance of disposal without reference to the
procurement contract – the vast majority of which are not available. In any event, the Court’s
conclusion that the ownership of facilities has little probative value in determining allocation as
compared to the operation of those facilities (see supra Section II.B.5) means that the facilities
indemnification provisions are of little importance. Accordingly, the Court gives no weight to
the government indemnification provisions in the facilities contracts.
For its part, Lockheed asserts that indemnification provisions in the 1971-75 SRAM
production subcontracts – LPC’s largest contracts at the Sites – support an equitable adjustment
in its favor. (Trial Tr. at 1848-51 (Lockheed closing).) Through these indemnification
provisions, the government agreed to “hold harmless and indemnify” LPC against, inter alia,
[c]laims (including reasonable expenses of litigation or settlement) by third
persons . . . for death, bodily injury (including sickness or disease), or loss of,
damage to, or loss of use of property; [l]oss of or damage to property of [LPC],
and loss of use of such property, but excluding loss of profit; . . . to the extent that
such a claim, loss or damage arises out of the direct performance of this contract;
is not compensated by insurance or otherwise; and results from a risk defined in
this contract to be unusually hazardous.
(PX0560 § 5.4.2.1 (emphasis added).) The contracts defined as “unusually hazardous”:
all risks resulting from or in connection with (i) the explosion, detonation,
combustion, or surface impact of a missile, simulated missile or component
76
thereof utilizing the material delivered or services rendered under this contract;
(ii) the use of materials containing radioactive, toxic, explosive or other hazardous
properties of chemicals or energy sources . . . regardless of whether the harm
occurs before or after delivery to the Government of equipment or materials under
this contract, or within or outside the United States.
(Id. § 5.4.1.1.)
The broad definition of “unusually hazardous” risks arguably covers the use and disposal
of AP and TCE, as “explosive” and “toxic” chemicals, respectfully. However, assuming
arguendo that the SRAM indemnification provisions are broad enough to cover CERCLA
response costs,68 the Court finds that they are not useful in making an allocation determination
for two reasons. First, Lockheed voluntarily dismissed with prejudice its contract action before
the Armed Services Board of Contract Appeals, in which it sought from the United States
indemnification under these precise provisions in its SRAM production subcontracts.
(USX83.)69
68
The Court questions whether the provision’s relevant limitation to “damage to property” is too
narrow to unambiguously cover CERCLA response costs. Because CERCLA is not a tort statute, it “does
not provide compensation to a private party for damages resulting from contamination.” Gussack Realty
Co. v. Xerox Corp., 224 F.3d 85, 91 (2d Cir. 2000). And, although a majority of courts hold that, in the
insurance context, response costs incurred under CERCLA are considered “property damages,” see, e.g.,
Indep. Petrochemical Corp. v. Aetna Cas. & Sur. Co., 944 F.2d 940, 945-46 (D.C. Cir. 1991) (applying
Missouri law); AIU Ins. Co. v. Superior Court, 799 P.2d 1253, 1270-71 (Cal. 1990); Carol A. Crocca,
Annotation, Liability Insurance Coverage for Violations of Antipollution Laws, 87 A.L.R. 444 (1991),
“[v]iewed outside the insurance context, the term ‘damages’ is ambiguous: it is reasonably open to
different constructions.” Cont’l Ins. Companies v. Ne. Pharm. & Chem. Co., 842 F.2d 977, 985 (8th Cir.
1988); see also New Castle Cnty. v. Hartford Acc. & Indem. Co., 933 F.2d 1162, 1188 (3d Cir. 1991).
The case law distinguishes between “ordinary” meaning of “damages,” which would encompass
traditionally equitable recoveries, and the “legal” meaning, which differentiates legal damages (like in a
tort action) and equitable remedies (like a recovery under CERCLA). See New Castle Cnty., 933 F.2d at
1187-88. Considering this ambiguity in the term “damages”, it is at least questionable whether the plain
language of the SRAM indemnification provisions encompassed environmental cleanup costs, or was
instead simply a run-of-the-mill tort provision narrowly targeted to certain “unusually hazardous” risks.
Cf. Mobay Corp., 761 F. Supp. at 358.
69
Even had Lockheed dismissed its claims before the ASBCA without prejudice, under the
Tucker Act this Court would lack subject-matter jurisdiction over any legal claims for indemnification
under the SRAM production subcontracts because those claims would be based entirely in contract and
77
Second, and more importantly, the predominant concern in equity is the intent of the
parties, not whether the plain language of the indemnification provision would bind either party
in law. See Beazer E., Inc. v. Mead Corp., 412 F.3d 429, 447 (3d Cir. 2005) (taking into account
intent of parties even though the court had previously concluded that, as a matter of law, the
agreement did not provide indemnification for CERCLA response costs); Halliburton, 648 F.
Supp. 2d at 880-81, 884 (“[T]he issue is not whether the indemnity provisions apply to this case
or are enforceable, but what the parties intended as to allocation.”) Beyond the arguably
ambiguous text of the indemnification provisions, there is no evidence that the parties intended
the government to indemnify LPC for environmental contamination caused by routine disposals
of TCE and propellant wastes. The SRAM indemnification provisions were added to the SRAM
subcontracts pursuant to Public Law 85-804. (Trial Tr. at 217-18 (Johnson).) According to
Lockheed’s contracting expert, Mr. Johnson, Public Law 85-804 was a “special statute” enacted
“to handle catastrophic risks that insurance cannot possibly cover” (id. at 217) – namely a
“missile going astray and causing civilian casualties.” (Id. at 254.) Indeed, as described by the
Senate Report accompanying the law:
The need for indemnity clauses in most cases arises from the advent of nuclear
power and the use of highly volatile fuels in the missile program. The magnitude
of the risk involved under procurement contracts in these areas have rendered
commercial insurance either unavailable or limited in coverage.
S. REP. NO. 2281, 85th Cong., 2d Sess., at 3, reprinted in 1958 U.S.C.C.A.N. 4043, 4045.70 The
pollution here, while tragic, is by no means “catastrophic” in the sense envisioned by drafters of
seek relief greater than $10,000. 28 U.S.C. §§ 1346(a)(2), 1491(a)(1); see also Franklin-Mason v.
Mabus, 742 F.3d 1051, 1054-55 (D.C. Cir. 2014).
70
Further, Boeing first requested indemnification under Public Law 85-804 for its SRAM
contracts in 1966 “on the basis that performance under the contract will involve unusually hazardous risks
in the event of an incident of catastrophic proportion resulting from explosion, malfunction or
ground/flight accident precipitating a nuclear incident.” (PX506 at 1.)
78
Public Law 85-804 and could have been insured against at the time.71 Accordingly, the Court
gives no equitable weight to the indemnification provisions in LPC’s SRAM production
subcontracts.
B. LPC exercised significantly more control than the government over the day-
to-day hazardous waste disposal operations at the Sites.
As noted, the paramount equitable factor in this case is the comparative level of control
the parties exercised over disposal practices at the Sites, a variation on the fourth Gore factor’s
focus on “the degree of involvement by the parties in the generation . . . [and] disposal of the
hazardous wastes.” Envtl. Transp. Sys., 969 F.2d at 508. The Court analyzes this equitable
factor through the operator liability framework set forth in Bestfoods and its progeny.
Of course, because the parties have stipulated to liability, the Court is not required to
determine whether either party was an operator at the Sites. However, the Supreme Court’s
definition of operator liability in Bestfoods is helpful in delineating the types of control over
which CERCLA extends and thus which party should be more responsible as an equitable
matter.
Bestfoods limited operator liability under CERCLA to those parties who “manage, direct,
or conduct operations specifically related to pollution, that is, operations having to do with the
leakage or disposal of hazardous waste, or decisions about compliance with environmental
regulations.” 524 U.S. at 66-67. LPC clearly meets the Bestfoods standard. LPC employees
planned, managed, and performed the day-to-day operations that resulted in disposals of AP and
TCE at the Sites.
71
In addition, Lockheed’s argument that the SRAM indemnification provisions were intended to
cover routine environmental spills flies in the face of one of Lockheed’s central theses of the cases – that
no one knew that releases of TCE and propellant wastes onto the ground would cause environmental
harms. Having accepted Lockheed’s position (see supra Section II.A.6), the Court is not inclined to view
TCE and perchlorate pollution as posing “unusually hazardous” risks.
79
Lockheed argues that the government is also an operator under Bestfoods because (1)
LPC’s contracts incorporated government safety manuals, which included disposal practices; (2)
DCAS approved process specifications, which included disposal procedures; (3) DCAS
inspectors observed production processes and occasionally undertook facility-wide safety
inspections; and (4) the government provided technical advice to LPC. (Trial Tr. at 31-32
(Lockheed opening); see also Lockheed’s Response to the U.S. Memo. on Operator Liability,
Feb. 25, 2014 [Dkt. No. 136] at 2-4.)
Even considering the height of government presence and influence at the Sites during the
SRAM production years, the Court disagrees. Although the government had a significant
presence and role at the Sites, there is no evidence that the government used its influence to
manage or control the day-to-day disposal of hazardous wastes there. See City of Wichita, 306 F.
Supp. 2d at 1055.
First, “courts have consistently held that contract provisions, specifications, and even
mandates similar to those expressed in the [manuals at issue] are insufficient to show ‘direction’
or ‘control’ over waste disposal for purposes of establishing operator liability.” Steadfast Ins.
Co. v. United States, 2009 WL 3785565, at *7 (C.D. Cal. Nov. 10, 2009) (collecting cases); see
also City of Moses Lake v. United States, 458 F. Supp. 2d 1198, 1227 (E.D. Wash. 2006) (where
Lockheed, as a defendant, successfully argued that “specifications that govern the operation of
missile maintenance facilities are relevant only insofar as they show that Lockheed managed or
directed not just any ‘operations,’ but operations having to do with the leakage and disposal of
hazardous waste.”). The many manuals and specifications at issue in this case are no exception.
The manuals permitted – but did not mandate – some of the common disposal operations LPC
used at the Sites, including the use of burn pits for propellant wastes. (See, e.g., PX0007 §§
80
1504-07 (allowing disposal of propellant waste by burning on bare ground, dumping at sea, or
destruction by detonation).72 And even assuming arguendo that the manuals guided LPC’s
decision to, for instance, use burn pits, this does rise to the level of daily control over waste
disposal operations at the Sites by the government. Indeed, Lockheed was free to seek waivers
from even mandatory provisions of manuals and such waivers were commonly granted if they
would have no effect on design or performance. (Trial Tr. at 941 (Nagle); cf. USX221.0002.)73
Likewise, the government is not an operator at the Sites simply because DCAS
representatives approved process standards that included disposal processes, observed certain
production processes, and conducted periodic safety inspections. DCAS’ approval, without
more, of process standards does not constitute the degree of “direct[ion]” necessary to establish
operator liability. Cf. United States v. Dart Indus., Inc., 847 F.2d 144, 145-46 (4th Cir.1988) (a
state regulatory body was not an operator for merely approving and inspecting disposal practices
at private site). No manufacturing process standard existed for the ultimate disposal of wastes,
either at the burn pits at the Redlands or Potrero Canyon facilities or at the waste disposal area at
the LaBorde Canyon facility. Thus, the record does not support Lockheed’s argument that the
United States “‘made, approved or ratified all significant operating decisions’ at the sites.”
(Lockheed Operator Br. at 5 (quoting Cadillac Fairview, 299 F.3d at 1022). Indeed, even the
process standards that did exist, although generally detailed, were vague as to what specific
72
However, the manuals did not direct or recommend the other disposal methods LPC used,
including the pouring of TCE or release of AP-contaminated wastewaters on the bare ground at Redlands.
73
Lockheed urges that the distinction between “recommendation” and “requirement” in this case
is a false one, citing Nu-W. Min. Inc. v. United States, 768 F. Supp. 2d 1082, 1090-91 (D. Idaho 2011).
(Lockheed Operator Liability Br. at 4-5.) Nu-West is distinguishable because in that case the government
was “actively involved in the design and location of the waste dumps, and in ensuring that the waste
dumps complied with the mining plans and environmental rules.” 786 F. Supp. 2d at 1091. Here, there is
no such evidence of specific, let alone pervasive, government direction as to the placement, design, or
operation of the burn pits, evaporation pits, sumps, or other waste disposal facilities or processes.
81
disposal practices should be followed. (See, e.g., USX32 § 1.3 (stating that the washing of
grinder parts “will be performed at the faucet and sump outside the lower level of Bldg. 77”
without specifying into which sump the water was to flow.) DCAS’ approval of such vague
process standards cannot signal any meaningful degree of government direction or control over
LPC’s waste disposal practices.
Further, DCAS’ day-to-day role at the Sites was limited to ensuring LPC’s compliance
with contract specifications for quality assurance purposes. (Nagle Decl. ¶¶ 40-41.) DCAS was
not contractually obligated to perform inspections at the Sites. The government had the right,
but not the duty, to inspect. (Id. ¶¶ 42-46; see also USX242.0003.) At least until 1970, the
record indicates that DCAS’ quality assurance inspections were insufficient both in quantity and
quality. (See PX577 at 117; see also USX221.0004.) In fact, the AFRPL criticized DCAS –
along with Boeing and LPC – for inadequate quality assurance procedures. (See PX577 at 117.).
Most importantly, there is no evidence that any of the DCAS quality assurance inspection points,
even at the height of DCAS oversight during the later SRAM years, included disposal – rather
than production – processes. (See generally USX264 (listing “mandatory production
certification inspection characteristics,” none of which concerned disposal of wastes).) See
Miami-Dade Cnty. v. United States, 345 F. Supp. 2d 1319, 1343 (S.D. Fla. 2004) (government
was not liable as an operator where Air Force inspectors had “no objective, duty, or
responsibility other than to enforce the . . . contract provisions by ensuring the delivery of quality
products.”).
DCAS’s sporadic (prior to 1970) and periodic (after 1970) safety inspections74 present a
closer issue, yet still do not support a finding that the government was an operator. Wastes and
74
There is evidence of one site-wide safety inspection by DCAS or its predecessor prior to 1969.
(See, e.g., PX321; PX471-472; PX1046.) Under SRAM, safety surveys were more common, but by no
82
waste (particularly propellant) disposal implicated worker safety, rather than environmental
contamination. (See Trial Tr. at 87 (Oppliger); see also PX0009 § 7-1.1.) As a result, some
DCAS safety inspections briefly touched on issues of waste. (See, e.g., PX471 at 1 (1960 –
questioning the efficacy of a drain from Building 52 to Evaporation Pit 61); PX0372 at 2 (1970 –
out of over fifty safety-related observations, noting broken grating over sump pump at Building
77); PX0484 at 3 (1972 – out of nineteen items of concern, noting improper handling and storage
of propellant trimmings)). However, these safety inspections – to the limited extent they
concerned wastes at all – did not make recommendations regarding the ultimate disposal of the
waste; rather, they were limited to the safe handling, storage, or transportation of waste prior to
the disposal processes that LPC chose to use. Moreover, LPC could – and on occasion did –
reject DCAS’s waste-related recommendations arising out of its safety inspections. (See PX484
at 3 (rejecting DCAS’s recommendation to use metal containers, rather than hamburger cartons
and water, when handling propellant trimmings); see also Trial Tr. at 1023-24 (Nagle).)
Ultimately, the sporadic nature of DCAS’s inspections, combined with their limited focus on
waste disposal activities per se, fails to demonstrate the level of frequent control over hazardous
waste disposal activities required for operator liability under Bestfoods
The same can be said for the government’s technical involvement at the Sites. During the
SRAM period, government representatives at the Sites from the SPO were primarily “observers”
pursuant to the TSPR initiative. (See, e.g., Trial Tr. at 1338-40 (Dull).) To the extent SPO or
AFRPL representatives gave technical direction to Boeing or LPC, the guidance related solely to
product development and performance, not issues such as safety or, more specifically, waste
disposal. (See, e.g., id. at 1353.) Inspections and guidance unrelated to waste disposal, no matter
means frequent. (See, e.g., PX474 (1969); PX372-373 (April 1970); PX476-477 (June 1970); PX398,
484-485 (November 1972).)
83
how pervasive, are not indicative of operator liability under CERCLA. See, e.g., Miami-Dade
Cnty., 345 F. Supp. 2d at 1343; State of Wash. v. United States, 930 F. Supp. 474, 485 (W.D.
Wash. 1996) (finding no operator liability when “[g]overnment inspectors and accountants had
no responsibility for directing activities that led to the deposit of the wastes. The primary
concern of the inspectors and accountants was efficiency and cost control.”).75
75
The evidence of actual “direction” regarding the disposal of any wastes is limited to a few
instances where the government abandoned property and instructed LPC – with LPC’s consent – to
destroy it by burning in the Potrero Canyon burn pits. (See PX0461; PX1073 at 1 (“Dispose [AP] by pit
burning at your Portereo [sic] plant.”).) These “occasional” instances of “direction,” involving a
miniscule percentage of the total wastes burned at the Sites, are insufficient to demonstrate the level of
“frequent” direction or control required for operator liability. See City of Wichita, 306 F. Supp. 2d at
1055.
These documents do, however, demonstrate the government’s liability as an arranger under
CERCLA § 107(a)(3) for the Potrero Canyon facility. Lockheed attempts to go a step further by arguing
that the government is liable as an arranger for all of the Sites based on its ownership of some of the TCE
and AP wastes and its benefits under contracts with LPC, pursuant to which the wastes were disposed.
(Lockheed’s Memo. on Arranger Liabilty, Feb. 12, 2014 [Dkt. No. 121] at 3-5.) AISLIC I’s contrary
holding notwithstanding, see 2010 WL 2635768, at *30, the Court has serious doubts that arranger
liability – with its focus on whether the party “planned for” the disposal – attaches to the government
based solely on the existence of output contracts and government title over wastes due to idiosyncratic
federal procurement regulations. See Burlington N., 556 U.S. at 612. A party “may not be held liable as
an arranger under CERCLA unless the plaintiff proves that the [party] entered into the relevant
transaction with the specific purpose of disposing of a hazardous substance.” Team Enterprises, LLC v.
W. Inv. Real Estate Trust, 647 F.3d 901, 909 (9th Cir. 2011). “Disposal of hazardous wastes must be a
purpose of the transaction, not merely a foreseeable byproduct of the transaction.” Pakootas v. Teck
Cominco Metals, Ltd., 832 F. Supp. 2d 1268, 1274 (E.D. Wash. 2011) (holding that Washington state was
not liable as an arranger for contamination that occurred as a foreseeable result of allowing mining
companies to operate mines on state lands.) Thus, where, as here, disposals of hazardous wastes occur as
a foreseeable but incidental result of a production process, arranger liability does not presumptively
attach. See Shell Oil, 294 F.3d at 1059; Pakootas, 832 F. Supp. 2d at 1274. Instead, arranger liability
attaches only if the government exercised direction and control over waste disposal activities related to its
contracts with LPC. See Shell Oil, 294 F.3d at 1055-56 (considering government’s control over waste
disposal at the site); Gen. Elec. Co. v. AAMCO Transmissions, Inc., 962 F.2d 281, 286 (2d Cir. 1992)
(same); Pakootas, 832 F. Supp. 2d at 1275 (same); AISLIC I, 2010 WL 2635768, at *30 (same). For this
reason, the Court’s analysis regarding control and direction for the purposes of operator liability
necessarily leads the Court to decline to adjust the government’s allocation as an equitable matter for
being an arranger at any facility other than Potrero Canyon.
The Court will, however, minimally adjust its equitable allocation for the government based on its
status as an arranger at the Potrero Canyon facility. The indemnification provisions that favor the
government for those arranged disposals (see PX0461 at 2; PX1073 at 1) and the fact that the arranged
disposals were limited to relatively small amounts of hazardous substances (see supra n.67), renders the
government’s arranger liability for the Potrero Canyon facility of limited importance.
84
Perhaps recognizing the insufficiency of the government’s safety manuals and inspector
presence at the Sites, Lockheed argues that the government exercised such significant control
over the Sites by virtue of its monopsony over the solid rocket propellant industry as to establish
operator liability. (Trial Tr. at 31 (Lockheed opening); Lockheed Operator Br. at 1-2, 5-8.) In so
arguing, Lockheed clings to a pre-Bestfoods Third Circuit decision where the government was
found to be an operator for a contractor’s facility based on its pervasive authority over both the
site and the industry. (Lockheed Operator Br. at 1-2, 5-8 (citing FMC Corp. v. U.S. Dep’t of
Commerce, 29 F.3d 833 (3d Cir. 1994) (en banc).) In FMC, the en banc majority affirmed the
district court’s application of the “substantial control” test to hold the government was an
operator of a high tenacity rayon production facility owned and operated by American Viscose
during World War II. 29 F.3d at 843-45.76
Even assuming that FMC remains good law in the wake of Bestfoods,77 this case does not
present the pervasive levels of control exhibited in FMC and other World War II cases. See, e.g.,
76
The FMC en banc majority concluded that the government exercised significant day-to-day
control over the American Viscose facility because
American Viscose would not have been making high tenacity rayon if not at the
government’s direction. To obtain the commercial product it needed, the government
diverted American Viscose from its previous commercial endeavors. Thus, every day
American Viscose did what the government ordered it to do. Second, although the
government officials and employees personally did not take over the plant, the
government maintained a significant degree of control over the production process
through regulations, on-site inspectors, and the possibility of seizure. Third, the
government built or had built plants supplying raw materials to American Viscose,
controlled these plants, arranged for an increased labor force, and supervised employee
conduct, at least to the extent of helping American Viscose deal with labor disputes and
worker absenteeism. Fourth, the government supplied machinery and equipment for use
in the manufacturing process. Fifth, the government controlled product marketing and
price.
29 F.3d at 844.
77
The government argues that Bestfoods effectively abrogated FMC’s “substantial control” test.
(Trial Tr. at 1809 (gov’t closing).) Although the “substantial control” test is in tension with Bestfoods’s
focus on a party’s particularized control over hazardous waste disposal processes, see Miami-Dade Cnty.,
345 F. Supp. 2d at 1342, the Court need not decide if FMC’s remains good law.
85
Cadillac Fairview, 299 F.3d at 1022; Shell Oil, 294 F.3d at 1049-50.78 The government’s
monopsony over the solid propellant rocket industry does not alone make the government an
operator of the Sites. See E. Bay Mun. Util. Dist. v. U.S. Dep't of Commerce, 142 F.3d 479, 486
(D.C. Cir. 1998) (an output contract that “reflected the monopsonistic wartime market” did not
make the government an operator). Indeed, important under FMC was not only the fact that the
government created and held a monopsony over the high tenacity rayon market but also that it
forced American Viscose to participate in that market under the threat of takeover. FMC, 29
F.3d at 844. There is no comparable evidence here. LPC voluntarily – and repeatedly – bid on,
won, and completed significant government contracts and subcontracts.79 See E. Bay Mun. Util.
Dist., 142 F.3d at 486-87 (concluding that the record lacked evidence that the government
coerced plaintiff to operate mine).
78
In Cadillac Fairview, “[t]he government owned the land; the government owned the plant; the
government owned the raw materials; the government owned the byproducts and wastes; and the
government owned the [product –] rubber.” 299 F.3d at 1022. The government also had unrestricted
control over its contractor’s operations of the site, required monthly reports regarding hazardous waste
disposal, and agreed to indemnify the contractor for all costs. Id. at 1022, 1026.
79
Lockheed also cites the government’s provision of government-owned equipment and raw
materials, as well as putative control over personnel at the Sites, as evidence of the government’s
“pervasive” control. (Lockheed Operator Br. at 6-7.) The provision of government-owned equipment is
of limited importance to operator liability when, as in this case, the government does not operate, no less
control, that equipment. The same can be said for raw materials. Although the government’s provision or
aid in procuring the raw materials, such as AP, may be instructive for arranger liability, it is of limited
importance in determining who directed waste disposal operations at the Site
Similarly, Lockheed’s evidence that the government “exerted control over LPC’s personnel”
(Lockheed Operator Br. at 7) is unconvincing. In FMC, the government obtained draft deferrals for
personnel, directed workers from other industries to the American Viscose plants, provided housing for
the additional workers, resolved labor disputes, and had a full-time worker at the plant dealing with labor
issues. 29 F.3d at 837. In this case, there is evidence that on two occasions over a span of twenty years
the government made recommendations to LPC regarding personnel issues. (PX388 (recommending
removal of an LPC employee who reworked a nozzle design without informing superiors); PX577 at 118
(recommending SPO negotiation of LPC’s engineering workforce down by at least fifty percent upon
commencement of SRAM production).) And there is no evidence that either recommendation was ever
followed. (See Trial Tr. at 1377 (Dull) (noting the negotiations in PX0577 never took place).) Based on
this limited evidence, the Court cannot conclude that the government exerted any, let alone pervasive,
control over LPC’s personnel.
86
Relatedly, while Lockheed’s argument that the government determined “‘what product
the facility would produce, the level of production, the price of the product, and to whom the
product would be sold’” (Lockheed Operator Br. at 8 (quoting FMC, 29 F.3d at 843)), is
technically correct, it is ultimately irrelevant without evidence of government coercion. For
LPC’s argument, taken to its logical conclusion, would render the government an operator for
practically any military output contract. Such a conclusion is inconsistent with Bestfoods’s
requirement that operator liability is concerned first and foremost with control over “operations
having to do with the leakage or disposal of hazardous waste,” 524 U.S. at 66-67, and is
expressly foreclosed by Circuit precedent. See E. Bay Mun. Util. Dist., 142 F.3d at 486
(“[E]ntering into an output contract does not make the government an operator.”). Thus, without
evidence that the government coerced LPC to enter into its solid propellant rocket contracts, the
general terms – e.g., product, quantity, and price – of those contracts cannot form the basis of a
finding of operator liability. See Rospatch Jessco Corp. v. Chrysler Corp., 962 F. Supp. 998,
1005-06 (W.D. Mich. 1995) (the government was not an operator where it did not “twist [the]
arm” of contractor to produce wartime materials, and the government’s control over site was
limited to process specifications and inspections).
Accordingly, considering the totality of the circumstances, the Court concludes that the
government was not an operator of the Sites. To be sure, all of LPC’s operations at the Sites
were in performance of government contracts or subcontracts and the government had a
pervasive influence over general activities at the Sites, whether through process specifications,
safety manuals, inspections, or technical direction. However, the government did not manage,
direct, or otherwise control on a frequent basis the day-to-day hazardous waste disposal activities
at the Sites. See Coeur D’Alene Tribe v. Asarco Inc., 280 F. Supp. 2d 1094, 1127-30 (D. Idaho
87
2003) (government is not liable as an operator in case with “pervasive involvement of federal
government” including knowledge of “how the waste material was disposed of and that it was
done in accordance with the customary and usual practices of the time” because the “federal
government did not make the day-to-day decisions regarding operations of [disposal]”); United
States v. Iron Mountain Mines, Inc., 987 F. Supp. 1277, 1287-88 (E.D. Cal. 1997) (same).
Because LPC was the sole operator of the Sites under Bestfoods, the Court concludes that
Lockheed should shoulder a large proportion of the liability for response costs at the Sites.
C. The government acquiesced in many of LPC’s disposal operations at the
Sites.
That the government was not an operator of the Sites under Bestfoods does not, however,
shift the entire equitable allocation to Lockheed. Although evidence that a party knew of
another’s disposal practices is insufficient to impose either operator or arranger liability, see,
e.g., Burlington N., 556 U.S. at 610 (arranger); Coeur D’Alene Tribe, 280 F. Supp. 2d at 1127-30
(operator), courts often consider the “acquiescence of the parties in the contaminating activities”
as a factor in equitable allocation. See, e.g., Weyerhaeuser, 771 F. Supp. at 1426; see also
Cadillac Fairview, 299 F.3d at 1025.
Even though the government did not direct or control LPC’s day-to-day hazardous waste
disposal activities at the Sites, it was aware of and acquiesced in many of them. The government
contracted with LPC (and Boeing) with the knowledge that “[d]isposal . . . should be regarded as
an integral part of solid propellant rocket operations” (PX0009 § 7-1.1 (1973 Air Force Manual);
see also PX431 (“[LPC] will generate under normal operations approximately 10,000 pounds of
waste materials per month.”), and wrote the manuals that provided general recommendations for
waste propellant disposal procedures. (See, e.g., PX0007; PX0009.) It would be inequitable for
the Court to allocate to Lockheed full responsibility for the response costs at the Sites when the
88
government could have anticipated, and in some instances knew, how LPC disposed of the TCE
and propellant wastes created during the performance of its government contracts. See
Weyerhaeuser, 771 F. Supp. at 1424-26. Thus, the Court will allocate the government an
equitable share based on its acquiescence.
That said, the level of government acquiescence varied among the Sites. Government
presence and acquiescence was at its greatest at the Redlands facility. The full-time DCAS
representatives were located there, the majority of DCAS inspection points were located there,
and the inspections (safety and otherwise) focused on operations there. (See Trial Tr. at 1357;
e.g., PX476 at 109.) Even though the government’s technical observers and DCAS inspectors
were not focused on the ultimate acts of disposal at Redlands – e.g., evaporation pits and burn
pits – it is improbable that the government representatives were unaware of how Lockheed
managed its wastes. Indeed, there is direct evidence that government representatives at least
knew of both LPC’s use of evaporation pits (e.g., PX471 at 1) and burn pits at Redlands. (E.g.,
Trial Tr. at 1380 (Dull); PX453.)
Government presence was lower, but still significant, at the Potrero Canyon facility.
While DCAS inspections focused on the Redlands facility, they also covered some of the
production operations at the Potrero Canyon facility. (See, e.g., PX474; PX476 at 109; PX0479
at 304.) The government also knew of LPC’s burn pit operations at the Potrero Canyon facility
and on several occasions it instructed LPC to burn abandoned government property there. (See
PX0461; PX1073 at 1; see also supra n. 75.) Further, although there is no evidence that the
government directed LPC to hog out defective rocket motors, the government was aware that
LPC was using this procedure. (See Trial Tr. at 1352 (Dull); PX326 at 3; PX550 at 46.).)
89
The government had the least involvement with the LaBorde Canyon facility. The
government knew of and probably observed a significant number of rocket motor tests in the
Test Bay Canyons. The government also knew, to the extent it occurred at the LaBorde Canyon
facility, that LPC hogged out defective rocket motors to reuse the casings. (See Trial Tr. at 1352
(Dull); PX326 at 3; PX550 at 46.).) However, there is little evidence of government inspections
– safety or otherwise – at LaBorde Canyon facility. There is also no evidence that the
government had any oversight over the Waste Disposal Area.
D. Some of LPC’s disposals at the Sites violated internal LPC rules or
government requirements
Of course, the government did not know of and acquiesce in all of LPC’s disposal
practices, including many that are sources of the contamination at the Sites. Indeed, in several
instances LPC violated its own internal rules or a rare government requirement with regard to the
handling and disposal of waste solvents and propellants. The Court focuses only on three
violations that best demonstrate LPC’s lack of due care at the Sites. Whether a result of
inadequate training, poor oversight, or sloppy practices in general, these instances favor an
upward adjustment to Lockheed’s equitable allocations for the Redlands and Potrero Canyon
facilities.80
The disposal of TCE on the bare ground at the Redlands facility (see supra Section I.A.2)
is the most prominent example of LPC employees violating LPC’s rules. As the Court has
80
This consideration falls within the fifth Gore factor – “the degree of care exercised by the
parties with respect to the hazardous waste concerned.” Envtl. Transp. Sys., 969 F.2d at 508. Under that
same factor, the Court has previously concluded that LPC did not violate any generally recognized
standard of care by pouring liquid TCE or propellant wastes, or burning propellant wastes, on the bare
ground. (See supra Section II.A.6.) Here, the Court asks the different question of whether LPC failed to
live up to its own rules or shirked any government requirements. Just as the government should have
been able to rely on LPC to operate according to generally recognized standards of care, the government
should have been able to rely on LPC to follow its own rules and any relevant government requirements.
90
concluded, pouring TCE and other solvents on the bare ground did not violate any standard of
care generally recognized in the 1950s through mid-1970s. (See supra Section II.A.6.)
Nonetheless, recognizing the safety risks of pouring AP-contaminated solvents on the bare
ground, LPC constructed evaporation pits for the disposal of solvent wastes. (Trial Tr. at 95, 99
(Oppliger); USX977 at 48-49 (Stickney Dep.).)81 LPC memorialized its policy for the collection
of solvents and disposal in evaporation pits in its Standard Operating Procedure 11 (“SOP-11”).
(See PX961.) SOP-11 stated, inter alia, that “[a]t no time are solvents to be poured on the
ground or in the water [settling] basin south of Bldg. 114.” (Id. at 2.) Several witnesses testified
that SOP-11 was more than hortatory. Mr. Oppliger testified that, even though he did not
manage waste disposal processes, he would have “definitely” stopped LPC employees from
dumping solvent on the bare ground because such disposals were “dangerous” and “would not be
allowed.” (Trial Tr. at 95, 99, 108-10 (Oppliger).) Similarly, Mr. Donald Eastman, who worked
as a process operator and later as foreman at LPC from 1956 to 1974, testified that he was
“indoctrinated” to “not dump chemicals in the ground.” (USX895 at 5-9, 106-07 (Eastman
Dep.).) Nonetheless, whether as a result of inadequate training (E.g., USX987 at 21 (Wessman
Dep.), poor oversight (e.g., id. at 26), or sloppy practices, several LPC employees testified to
routinely violating SOP-11. Had LPC better enforced SOP-11, some portion of the TCE
contamination in the Redlands plume probably could have been prevented.
Second, LPC’s washing of grinder parts and bags into Building 77’s south sump at the
Redlands facility (see supra Section I.A.1) also violated the company’s internal protocols. As
Mr. Delaney opined, LPC’s process specifications treated “AP-contaminated wastewater . . . no
differently than dry AP.” (Delaney Decl. ¶ 24.) Although the process specifications for washing
81
After the mid-1960s, LPC no longer used evaporation pits for solvent wastes, but instead it sent
contaminated solvents directly to burn pits. (See Trial Tr. at 808-09 (Feenstra).)
91
grinder parts and bags did not specify how to treat AP-contaminated wastewater from grinder
part and bag washing (see USX32 § 1.3), manufacturing process standards pertaining to Building
77 specifically stated that AP-contaminated “water is to be discarded as waste propellant.”
(PX1023 § 6.31.1; see also PX1043 §100.6.5 (“Label and treat the drum of [contaminated] water
as waste propellant.”).) Under LPC’s safety standard for propellant wastes, waste propellant was
to be collected in drums and transported to the burn pits. (See PX1061 at 885-87.) As Mr.
Oppliger testified, disposal of AP-contaminated wastewaters onto the bare ground “would not be
allowed.” (Trial Tr. at 95 (Oppliger).) Had this admonition been followed, a substantial portion
of the perchlorate contamination in the Redlands plume probably could have been prevented.82
Third, LPC’s burial of propellant wastes constituted a clear violation of a government
requirement.83 While the government did not mandate any specific method for LPC’s disposal
of propellant wastes (see supra Section II.B), it did explicitly proscribe the disposal of solid
propellant wastes by burial. (See USX47 § 2704 (1951 Army Safety Ordnance Manual)
(“Collected explosive wastes must not be disposed of by being buried . . . .” (emphasis added)).)
At some point prior to 1963, LPC violated this government proscription by burying propellant
wastes at the Potrero Canyon facility. (See USX55.)84 The record provides no indication where
82
The foregoing conclusion also applies to the LPC employees’ release of AP-contaminated
wastewaters onto the bare ground after washing down the interiors of buildings. (See supra Section
Section I.A.1.) However, it does not apply to LPC’s hog out operations. Although hogging out defective
rocket motors onto the bare ground did violate LPC’s general protocol regarding the disposal of AP-
contaminated wastewaters, the Court does not consider this violation to be of significance because the
government was aware of the process. (See supra Section II.C.)
83
Additional violations of LPC protocols and government recommendations regarding AP wastes
included pouring of propellant scraps and wastewater directly into burn pits rather than burning them in
drums (compare USX1002A.0001 (Wright Decl.), with PX0009 § 7-2, 7-3 (recommending propellant
cuttings in water to be burned in drums); PX961 (SOP-11)), and the failure for several years to connect
the pipe between Building 52 to Evaporation Pit 61. (See supra Section I.A.1.)
84
Lockheed claims that LPC buried “inert propellants” at the Potrero Canyon facility. However,
the fact that in 1963 LPC was concerned about the presence of the buried propellants “in the watershed”
92
LPC buried these wastes, how much was buried, whether the wastes were ever removed, or
whether the wastes contributed to the perchlorate contamination at the facility. (See Sterrett
Decl. ¶ 223.) Nonetheless, LPC’s flagrant violation of the Safety Ordnance Manual necessitates
a slight upward adjustment in Lockheed’s equitable allocation for the Potrero Canyon facility.
E. Conclusion under traditional equitable allocation
Based on these above findings of facts and conclusions of law, were the Court to end its
equitable analysis here, it would allocate liability for response costs (pasts and future) at the Sites
as follows: at the Redlands facility, a 30% share of liability for the government and a 70% share
of liability for Lockheed; at the Potrero Canyon facility, a 25% share of liability for the
government and a 75% share of liability for Lockheed; and at the LaBorde Canyon facility, a
20% share of liability for the government and an 80% share of liability for Lockheed.
III. EFFECT OF INDIRECT RECOVERIES ON EQUITABLE ALLOCATION
However, no analysis can be complete without consideration of the novel issue of what
effect, if any, Lockheed’s indirect recovery of significant percentages of its response costs for the
Sites through U.S.-government contracts should have on the Court’s equitable allocation of those
same response costs between the Lockheed and the government. Lockheed urges that its indirect
recoveries from the government should have no effect on its ability to recover directly from the
government under CERCLA. In contrast, the government argues that allocating it a CERCLA
share would amount to impermissible “double recovery.” Because of the significant economic
and legal distinctions between past and future response costs, the Court considers their
allocations separately.
and considered it necessary to “mark[] with some type of pole or flag” the location of the propellants in
preparation for construction leads the Court to conclude that not all of the buried propellants were inert.
(USX55.)
93
A. Lockheed’s recovery of past response costs would unfairly burden the
taxpayer.
Lockheed has indirectly recovered from the government through higher contract prices
over 72% of its past response costs for the Sites. (Meyer Decl. ¶ 29 & fig. 5.) Thus, the
government’s “effective share” is already well over two times higher than its equitable share for
the Sites as determined in Section II.E. Moreover, based on the most recent data on the U.S.-
government share of Lockheed’s business, U.S.-government contracts would receive the benefit
of only 87% of any CERCLA payment made by the government for past response costs.85
(Wright Decl. ¶ 74; see Trial Tr. at 1677-78 (Gatchel).) Thus, any allocation payment made by
the United States would cause their effective share to rise even further beyond their equitable
share. This, the government argues, is double recovery. (E.g., Trial Tr. at 1891 (government
closing).)
“CERCLA expressly prohibits double recovery for response costs.” Boeing Co. v.
Cascade Corp., 920 F. Supp. 1121, 1133 (D. Or. 1996). However, this prohibition is fairly
narrow, in that it only applies to bar CERCLA recovery for costs already compensated “under
any other Federal or State law.” 42 U.S.C. § 9614(b). Because of the narrowness of the
statutory bar on double recovery, courts have developed a broader equitable double recovery
theory based on the principle that “permitting a CERCLA contribution-action plaintiff to recoup
more than the response costs he paid out of pocket flies in the face of CERCLA’s mandate to
apportion those costs equitably among liable parties.” Friedland, 566 F.3d at 1207. The theory
85
Under the DiscOps Pool, the government benefits from the same percentage of credits in a
given year as it incurs costs – a feature Lockheed refers to as the “mirror image” principle. (See Trial Tr.
at 1679 (Gatchel).) Thus, if Lockheed recovered $69 million of its past response costs for the Redlands
facility from the government pursuant to this action (30% of Lockheed’s $231 million in total past
response costs for the facility), under the current Lockheed contract mix, only 87% ($60 million) would
pass through as credits to benefit U.S.-government contracts. The remaining 13% ($9 million) would
pass through as credits to the benefit non-U.S. government contracts. (Wright Decl. ¶ 74; see Trial Tr. at
1678 (Gatchel).)
94
also comports with the concept that “the environment is the injured party, not the plaintiff.”
United Alloys, Inc. v. Baker, 797 F. Supp. 2d 974, 1002 (C.D. Cal. 2011). “In other words,
Plaintiffs have not been damaged and are not ‘entitled’ to money as a damaged party; but rather,
Plaintiffs can only receive reimbursement for the costs they expended beyond their share of
actual responsibility for the environmental damage.” Basic Mgmt. Inc. v. United States, 569 F.
Supp. 2d 1106, 1124 (D. Nev. 2008) (emphasis added). Plaintiffs “cannot make a profit on the
contamination.” Vine St., 460 F. Supp. 2d at 765. The effect of an equitable bar on double
recovery is simple: if a party has recovered from a collateral source, the amount of that recovery
is subtracted from the total pool of allocable costs.
Courts have applied equitable principles to bar double recovery in circumstances where
plaintiff-PRPs have received payouts from insurers, see, e.g., Yankee Gas, 852 F. Supp. 2d at
255-56; Basic Mgmt., 569 F. Supp. 2d at 1125; formal settlements with other PRPs, see, e.g.,
K.C.1986 Ltd. P’ship v. Reade Mfg., 472 F.3d 1009, 1017 (8th Cir. 2007); and informal
payments from other PRPs. See, e.g., Vine St., 460 F. Supp. 2d at 766 (so holding even though,
under the agreement, plaintiff had promised to pay back the PRPs for all reimbursements
received). However, as Judge Robertson correctly observed, those cases are distinguishable
from this case because they all considered direct payments to the plaintiff that, if not taken into
account, could amount to a windfall for the plaintiff. Lockheed Martin Corp., 664 F. Supp. 2d at
19.
In that vein, Lockheed argues that this case is more analogous to the utility rate recovery
cases where courts have concluded that double recovery is not an equitable concern. See Yankee
Gas, 852 F. Supp. 2d at 256; N.Y. State Elec. & Gas Corp. v. FirstEnergy Corp., 808 F. Supp. 2d
417, 528-29 (N.D.N.Y. 2011). In those cases, plaintiff-utilities formally recovered their response
95
costs through increased rates charged to ratepayers. The defendants in both cases argued that the
recovery of response costs from ratepayers should equitably bar plaintiffs’ recovery of those
response costs under CERCLA, lest the plaintiffs receive a windfall. See Yankee Gas, 852 F.
Supp. 2d at 256; FirstEnergy, 808 F. Supp. 2d at 528. Both courts disagreed, concluding that the
plaintiffs’ recoveries from defendants posed no large risk of double recovery or windfall.
Yankee Gas, 852 F. Supp. 2d at 256; FirstEnergy, 808 F. Supp. 2d at 529. As the Yankee Gas
court explained:
Money recovered from [defendant] will allow DPUC to reduce the amount it
allows Yankee Gas to collect from its utility customers during future rate cycles.
Thus, money contributed by UGI is money that will not have to be paid by utility
customers in Connecticut. The “windfall,” if that is the word, goes to the rate
payer, not Yankee Gas. This is in keeping with “CERCLA’s goals of cleaning up
environmental contamination and making sure that responsible parties, rather
than taxpayers, bear the costs.”
852 F. Supp. 2d at 256 (quoting Marsh, 499 F.3d at 182) (emphasis in original).
This case, however, is distinguishable from Yankee Gas and FirstEnergy. Here, the
principal “ratepayer” and the defendant-PRP are one and the same –the U.S. government. In
such circumstances, careful consideration of the recovery crediting scheme is necessary to ensure
that the plaintiff does not benefit from double recovery at the expense of the taxpayer. See R.W.
Meyer, 932 F.2d at 572 (“‘The hallmark of a court of equity is its ability to frame its decree to
effect a balancing of all the equities and to protect the interest of all affected by it, including the
public.’” (quoting Kay v. Mills, 490 F. Supp. 844, 855 (E.D. Ky. 1980)).
The DiscOps Pool’s crediting mechanism attempts to prevent “double recovery,” at least
as traditionally understood. Lockheed must allocate its CERCLA response cost recovery to the
DiscOps Pool (see USX1033 ¶ 4.7), and credits in the DiscOps Pool are passed through
Lockheed’s contracts in the same way as costs. (Trial Tr. at 1678 (Gatchel).) As in the utility
rate recovery cases, one hundred percent of any CERCLA recovery ultimately flows to the
96
ratepayers (i.e., the U.S.-government and Lockheed’s other clients) and not Lockheed. Thus,
there is no “double recovery” in the traditional sense because Lockheed cannot recover more in
response costs than it initially paid, and there is little potential for a windfall to the plaintiff from
the crediting system. (Cf. id. at 594-95 (Wright).)
To be sure, under any scenario where the government is allocated an equitable share of
past response costs, it will be worse off and shoulder a larger “effective share” of Lockheed’s
response costs than it does now.86 (Meyer Decl. ¶ 33.) But an increase in the government’s
“effective share” does not alone amount to a “double recovery.” For “double recovery” focuses
on the projected post-recovery economic position of the plaintiff, not the defendant. See
Friedland, 566 F.3d at 1207 (framing the issue as whether the plaintiff “recoup[s] more than the
response costs he paid out of pocket”).
Moreover, the government has been complicit in designing the very system about which
it so bitterly complains. The FAR allows indirect costs to be charged to government contracts
and the DCAA has taken the position that environmental cleanup costs at discontinued sites
generally constitute indirect costs. (See PX1862 ¶ 7-2120.7.) More importantly, in 2000, the
government negotiated with Lockheed and signed the DOSA, which blessed the DiscOps Pool
and its cost allocation and crediting scheme and explicitly stated that it did not settle any claims
arising under CERCLA. (USX1033 ¶ 4.18.) The DOSA also recognized the coexistence of
indirect contract and direct CERCLA recoveries by disallowing certain costs and credits from –
rather than nullifying wholesale – the Burbank Consent Decree. (Id. ¶¶ 3.1-.3.) All the while, the
government agreed, both pre- and post-DOSA, to toll the CERCLA statute of limitations for the
86
In nominal terms, and without accounting for taxes levied on Lockheed profits, the detriment to
the government of a CERCLA allocation for past costs can be expressed as: Detriment = (1 – recovery
rate from U.S. government) x Equitable Allocation x Past Response Costs.
97
Redlands facility, while allowing Lockheed to indirectly recover response costs through U.S.-
government contracts.
Under these facts, the government cannot fairly assert, as it seems to here, that it was
blindsided by Lockheed’s decision to file a CERCLA claim for the Sites or that DOJ should not
be bound by DOD’s decisions regarding government procurement contracting.87 Nor will the
Court in equity save the government from the natural and probable consequences of its own
conduct. Thus, the Court finds that there is no “double recovery” in this case and that – all other
things being equal – it would not be inequitable for the government’s effective share of past
response costs to increase as a result of Lockheed’s recovery of response costs from the
government under CERCLA.
Double recovery aside, the Court is nonetheless concerned about the economic benefit to
Lockheed and the economic detriment to the taxpayers from any CERCLA recovery of past costs
in this case. Framing the issue as one of economic benefit rather than double recovery serves the
important purpose of preventing Lockheed from profiting from CERCLA – beyond the mere
recovery of response costs – at the expense of the taxpayer.88
87
Importantly, Burbank Consent Decree – signed by DOJ –explicitly recognized the possibility of
an agreement like the DOSA, which was signed only months later by Lockheed and DCAS. (See PX1844
¶ 3.25; USX1033.) The DOJ also signed the CERCLA tolling agreements applicable to the Redlands
facility, including one agreement that was executed less than two months before the DOSA was signed.
(See PX1849.)
88
In its closing rebuttal argument, Lockheed cited TRW, Inc. v. United States, 28 Fed. Cl. 155
(Fed. Cl. 1993), in support of its position that the government cannot avoid its obligation to make direct
payments under the law on the basis that it had already made indirect payments through government
contracts regarding the same contractor costs. (Trial Tr. at 1966-68 (Lockheed closing.) In TRW, a
contractor sought to recover from the government $2.9 million in bid and proposal (“B & P”) costs
associated with preparing a bid proposal for an IRS request for proposals on the ground that the IRS did
not consider the proposal “fairly and honestly.” 28 Fed. Cl. at 156-57. The government argued that the
contractor had indirectly recovered $2.1 million of those B & P costs through advance agreements with
the DOD. Id. at 157. The court denied the government’s motion for summary judgment because, under
the advance agreement accounting system, the contractor would have received the same total in payments
whether or not it had bid on the IRS proposal. Id. at 160. In essence, the government failed to
98
In this regard, the Court credits Dr. Meyer’s opinion that economic benefit should be
analyzed from the status quo – i.e., the parties current, pre-allocation positions based on the
response costs incurred and indirect recoveries made over the past twenty years. (Meyer Decl.
¶¶ 54-57, 138-39.)89
Aside from having already indirectly recovered far more of its response costs through
U.S.-government contracts than the government’s equitable allocation for the Sites, Lockheed
has also benefitted significantly by charging the government a profit factor on those response
demonstrate that it had indirectly paid the contractor $2.1 million dollars for the relevant B & P costs. Id.
at 162. This case is inapposite here. First, it is undisputed that Lockheed has indirectly recovered from
the government over $200 million in response costs associated with the Sites, thus undermining the
accounting basis for the TRW decision. It is not clear what would have happened in TRW had the
government proven that the contractor had indirectly recovered $2.1 million of the relevant B & P costs
through advance agreements with the DOD. Second, and more importantly, the TRW court was not
considering how to equitably allocate liability between two responsible parties.
89
Mr. Kiefer criticized Dr. Meyer’s definition of the status quo as the baseline for economic
benefit analysis and seemed to suggest that the proper analysis would compare Lockheed’s comparative
economic benefit under a CERCLA recovery with the hypothetical baseline assuming the government had
directly reimbursed Lockheed for its equitable share as the costs were incurred. (Cf. Trial Tr. at 1580
(Kiefer); Kiefer Decl. ¶¶ 3-4.) The Court rejects Mr. Kiefer’s proposed baseline for several reasons.
First, it is common practice in an economic benefit analysis to use a status quo baseline. This is so
because economic benefit analyses addressing hypothetical futures are most useful when compared to
real, present-day conditions rather than hypothetical past occurrences. (See Trial Tr. at 1512 (Meyer);
Meyer Decl. ¶ 138.) Indeed, as a practical matter, Mr. Kiefer’s baseline would have required, as early as
1994, the government to have known and directly reimbursed Lockheed for its equitable share of costs –
the very issue before this Court some twenty years later.
Second, Mr. Kiefer provides no quantitative analysis to defend his “conceptual” opinion that,
when compared to his proposed baseline, Lockheed would not receive an economic benefit from a
CERCLA recovery. (Trial Tr. at 1573-75 (Kiefer).) Although Mr. Kiefer testified that he “believe[d] it
would be possible” to perform a quantitative analysis supporting his conceptual opinion, Lockheed did
not ask him “to make an affirmative calculation of economic impact.” (Id. at 1574.) Finally, Dr. Meyer’s
analysis, even though using a status quo baseline, does take into account what has happened in the past:
that Lockheed incurred costs and recovered them (plus a profit) on an amortized basis. (Trial Tr. at 1512-
13 (Meyer).) Because it neither ignores the past nor relies on unrealistic hypotheticals, the Court
concludes that Dr. Meyer’s status quo baseline provides the most equitable framework for determining
how much a CERCLA recovery benefits Lockheed.
99
costs.90 Mr. Wright estimated this pre-tax profit factor to be six percent. (Wright Decl. ¶ 85; see
also Meyer Decl. ¶ 101 n.52.) Lockheed’s public filings, however, reveal significantly higher
pre-tax profit margins over the years. (See USX383.0030 (9.0% for 1998, 8.2% for 1996, 8.5%
for 1996); USX397.0030 (9.4% for 2012, 8.6% for 2011, 9.0% for 2010, 10.2% for 2009, 11.7%
for 2008).) Even assuming Mr. Wright’s conservative six-percent profit markup, Lockheed
effectively recovered at the expense of the taxpayers six cents on every dollar of its response
costs passed on to U.S.-government contracts. (See Wright Decl. ¶ 84.) All told, these pre-tax
profits amounted to approximately $11.8 million in nominal dollars (see USX433A.0007-08), or
adjusting for the time value of money, approximately $17.2 million in net present value terms.
(Id. at 0012-13.)
Mr. Kiefer opined, without conducting any quantitative analysis, that any recovery from
the government in this case would cancel out past profits because credits reduce profits in the
same way that costs create profits. (See Kiefer Decl. ¶¶ 32-33; cf. Meyer Decl. ¶¶ 42, 160
(“[T]he credit associated with the CERCLA payment results in lower profits for [Lockheed]
(from lower costs passed through to contracts with the United States).”). However, as Lockheed
admits (Trial Tr. at 1966 (Lockheed closing)), this argument ignores an important component –
the significant time value of money benefits (over $5 million pre-tax) that accrued to Lockheed
from its past profits on indirect recoveries from the government.
Mr. Kiefer faulted the government for not directly paying its share of response costs all
along and opined that the government’s unwillingness to pay directly for response costs in the
past harmed Lockheed. (E.g., Kiefer Decl. ¶¶ 3-4; Trial Tr. at 1579-83 (Kiefer).) The facts do
not support Mr. Kiefer’s conclusion. Lockheed’s historical rate of indirect recoveries from the
90
Lockheed identifies as its “underlying tenet in pricing [its] contracts with the U.S. government”
as its “ability to recover [its] costs plus profit, regardless of the type of contract.” (USX407 at 4-5
(emphasis added).)
100
government – which again is many times higher than the government’s equitable allocations for
the Sites – and the time value of the substantial profits that Lockheed has realized on these
indirect recoveries, make it difficult, if not impossible, to conclude that Lockheed has been
injured by the government’s lack of direct payments over the last twenty years. Quite the
opposite, in fact. Lockheed has benefitted greatly by recovering more money related to response
costs (due to its profit factor) than it has spent.91
Of course, profiting off of the cleanup of hazardous wastes is not per se undesirable or
improper. CERCLA’s bona fide prospective purchaser exemption, 42 U.S.C. § 9607(r)(1),
makes clear that, in some instances, cleanup of hazardous wastes should be a profitable
enterprise, lest no one voluntarily undertake the important task. See Small Business Liability
Relief and Brownfields Revitalization Act, Pub. L. No. 107–118, 115 Stat. 2356 (2002)
(providing an array of CERCLA amendments intended “to promote the cleanup and reuse of
brownfields”). However, courts have consistently considered as an equitable factor the
“economic benefits realized by a party as a result of remediation efforts.” City of Wichita, 306 F.
Supp. 2d at 1101 (collecting cases); see also FirstEnergy, 808 F. Supp. 2d at 533; Litgo, 2011
WL 65933, at * 9. And CERCLA provides no indication that responsible parties should profit
from the cleanup process at the expense of other responsible parties. Cf. Vine St., 460 F. Supp.
2d at 765.
91
Lockheed attempts to rebut this conclusion by suggesting, through the testimony of Mr.
Gatchel, that it lost contracts due to “overall cost,” including environmental response costs. (Trial Tr. at
1674 (Gatchel).) However, Mr. Gatchel did not identify any specific contract that Lockheed lost because
of environmental response costs at the Sites. Without such evidence, the Court will not credit Lockheed’s
argument that response costs for the Sites – even totaling tens of millions of dollars annually – caused
Lockheed to lose any government contracts, especially given Lockheed’s annual net sales of over $45
billion in each of the past five years. (See Press Release, supra n.22 (2013); USX397.0002 (2012);
USX396.0002 (2011); USX395.0002 (2010); USX394.0002 (2009).)
101
Were the economic benefit to Lockheed limited to the time value of the profits it has
already earned on indirect recoveries through its U.S.-government contracts, the Court might not
be inclined to exempt the government from paying an equitable share of the past response costs
at the Sites. For as Lockheed contends, it merely seeks to recover as much of its past response
costs as possible under CERCLA to reduce costs for its clients and improve its own competitive
position. (See Trial Tr. at 1667-68 (Gatchel).) However, even accepting these motives,
Lockheed will receive three significant windfalls – all at the expense of the taxpayers – if the
Court allocates the government an equitable share of past response costs.
First, as the parties agree, CERCLA § 107(a) mandates the award of prejudgment
interest.92 42 U.S.C. 9607(a)(4)(D); see K.C.1986 Ltd. P’ship, 472 F.3d at 1018. This statutory
requirement applies with equal force when – as here – a plaintiff has sued under § 107(a) and the
defendant counterclaims under § 113(f). See Litgo, 725 F.3d at 392; Bancamerica Commercial
Corp. v. Mosher Steel of Kansas, Inc., 100 F.3d 792, 799-801 (10th Cir. 1996). The purpose for
awarding prejudgment interest was clearly explained by the Tenth Circuit:
Failure to grant prejudgment interest on contribution awards may . . . result in
inequitable apportionment, because parties awarded contribution will still have
lost the time value of the money they spent on behalf of other liable persons, and
those persons will have gained an equal amount. Further, refusal to grant
prejudgment interest is a disincentive for private parties to voluntarily undertake
cleanup actions because they will lose the time value of the money they spend on
behalf of other persons. Indeed, it would create a perverse incentive for
responsible parties to delay involvement in cleanups, because as they delay, they
gain the time value of the funds they should be investing in the cleanup.
Bancamerica Commercial Corp., 100 F.3d at 801.
This case, however, implicates none of these policy concerns. There is no loss based on
the time value of money because Lockheed indirectly recovered from the government much
92
See Lockheed Memo. on the Availability of Prejudgment Interest, Feb. 20, 2014 [Dkt. No. 128]
at 1-3; Trial Tr. at 1454 (government counsel).
102
more than the government’s equitable share of the response costs for the Sites through U.S.-
government contracts as it incurred the costs.93 Nor would the lack of prejudgment interest in
this case have disincentivized cleanup efforts. Lockheed was ordered to clean up the Sites by the
California environmental authorities and, in any event, it was able to indirectly recover its
response costs (plus a healthy profit) from the U.S. government and its other clients as it incurred
them. Indeed, as the Court has already explained, Lockheed actually benefitted from its cleanup
efforts through the profits it gained on the response costs that flowed down to its U.S.-
government contracts. For these reasons, the purposes of prejudgment interest are inapplicable
to this equitable allocation case.
A rough calculation of the amount of prejudgment interest potentially available in this
case only further underscores the Court’s conclusion. Assuming a demand date in 2000,94 and
that all of Lockheed’s past responses costs qualify for recovery under CERCLA, the potentially
available prejudgment interest in this case totals over $61 million dollars – over 20% of
Lockheed’s total past response costs for the Sites.95 Applying the Court’s above-determined
93
Of course, Lockheed’s amortization of response costs over five years has time value of money
implications. Both parties lament, in their own way, the “interest free loans” they provided each other
during the respective cost and credit amortization periods in the DiscOps Pool. (Kiefer Decl. ¶¶ 25-26;
Meyer Decl. ¶ 60.) However, because both parties benefit from amortization – through cost smoothing,
increased predictability in multi-year contracts, and increased contractual uniformity and comparability –
the Court considers the issue of amortization to be a wash. (See Mateer Decl. ¶ 9; PX1859 at 3-4.)
94
Prejudgment interest accrues under CERCLA “from the later of (i) the date payment of a
specified amount is demanded in writing, or (ii) the date of the expenditure concerned.” 42 U.S.C. §
9607(a)(4). Lockheed represented in its memorandum on prejudgment interest that it sent a CERCLA
demand letter to the government in December 2000. (Lockheed Memo. on Prejudgment Interest at 2 &
n.1; cf. PX2063 (draft of demand letter).)
95
The Court calculated the potentially available prejudgment interest (assuming a 100%
allocation to the government) for a given year using that year’s response costs for the Sites (see Meyer
Decl. ¶ 50 fig. 29) and compounding interest from that year through 2013 using the variable Superfund
interest rates. (See USX427.) (Costs prior to 2000 were aggregated and treated as all having been
incurred during 2000.) The Court then summed the potentially available prejudgment interest for each
year’s response costs to reach an estimated total potentially available prejudgment interest of over $61
103
equitable allocations for the Sites (supra Section II.E), the government would owe Lockheed
over $18 million in prejudgment interest.96 Critically, there is no evidence – and Lockheed has
expressly declined to provide any assurance – that this $18 million in prejudgment interest would
be allocated to the DiscOps Pool and thus partially (87%) credited back to U.S.-government
contracts. (Trial Tr. at 1455 (Lockheed counsel); id. at 1878 (Lockheed closing).) Instead, the
$18 million in prejudgment interest would amount to a bonanza for Lockheed.
Lockheed would additionally benefit from a recovery of past response costs because
between 40 and 50% of Lockheed’s existing government contracts are fixed-price. (Trial Tr. at
1661 (Gatchel).) These pre-judgment fixed-price contracts are of varying terms and were
negotiated without the expectation of a large lump sum CERCLA recovery for past costs. (Id. at
1661, 1680.) Although Lockheed’s business units will flow credits from any recovery down to
existing fixed-cost contracts, these credits will reduce Lockheed’s indirect costs on the contracts
but will not reduce the price Lockheed realizes from the U.S. government-as-client. (Id. at
1679.) Thus, the credit does not functionally accrue to the government, but instead amounts to
additional profit for Lockheed. (Id. at 601-04 (Wright); id. at 1679-80 (Gatchel).)
Of course, fixed-price contracts entered into after an allocation of past costs to the
government in this case presumably would account for upcoming amortized credits from the
DiscOps Pool, and many pre-judgment fixed price contracts would terminate during the five-year
million. This methodology is consistent with Dr. Meyer’s methodology that calculated a total potentially
available prejudgment interest of just over $66 million, except that she used a demand date of 1994,
which is inconsistent with CERCLA § 107(a)(4)(D). (See Trial Tr. at 1518 (Meyer); Meyer Decl. ¶ 144.)
96
The Court conservatively calculated the government’s exposure by calculating prejudgment
interest available by facility (using facility-specific response costs up through 2011) according to the
procedure described above (supra n. 95) and multiplying each facility’s potentially available prejudgment
interest by the government’s equitable allocation for that facility’s response costs. (See supra Section
II.E.) The Court then summed the results for each facility to estimate the government’s total prejudgment
interest exposure under the Court’s traditional equitable allocation.
104
amortization period following a CERCLA recovery of past costs. However, Mr. Gatchel
estimated that over ten percent of pre-judgment fixed-price contracts would remain in effect over
the entire five-year amortization period. (Id. at 1680-81 (Gatchel).) The record before the Court
is insufficient to establish with any precision how much Lockheed would benefit from a
CERCLA recovery of past costs due to this incompatibility between the DiscOps Pool crediting
scheme, unanticipated credits, and fixed-price contracts. Nonetheless, the available evidence
makes clear that the benefits for Lockheed would be substantial and at the expense of the
taxpayer.
Third, the Court is swayed by the fact that the taxpayers have already underwritten a
substantial portion of Lockheed’s suit by indirectly paying for over 85% of Lockheed’s more
than $10 million in expert and legal fees and other costs. (See Meyer Decl. ¶ 172.) This result
flies in the face of CERCLA’s prohibition against “the award of private litigants’ attorney’s fees
associated with bringing a cost recovery action.” See Key Tronic Corp. v. United States, 511
U.S. 809, 819 (1994). While FAR § 31.205-47 may allow Lockheed to recover its legal fees and
costs through government contracts, that outcome is contrary to both CERCLA and the interests
of the taxpayer. Thus, although it is beyond both the Court’s jurisdiction and the scope of this
case to disallow Lockheed’s legal fees and costs associated with bringing this action, the Court
considers it equitably important that the taxpayers are on the hook for over 85% of Lockheed’s
costs incurred in this action which, as concluded above, would result in further substantial costs
to the taxpayers and accrue to the benefit of Lockheed.
Accordingly, considering the totality of the circumstances, the Court concludes that it
would be inequitable to allocate any liability for past response costs for the Sites to the
government under CERCLA § 113(f)(1). Lockheed indirectly recovered through U.S.-
105
government contracts the lion’s share of its past response costs at the Sites, plus a profit. And
Lockheed has indirectly recovered through the same U.S.-government contracts almost all of its
extraordinarily high attorneys’ fees and costs that it has incurred to sue the government. From
this baseline, it would be inequitable for Lockheed to then receive the additional economic
benefits – at the taxpayer’s expense – of substantial prejudgment interest and windfall profits
from fixed-price contracts that would accompany any CERCLA recovery of past response costs.
Accordingly, the Court equitably reduces the government’s share for past response costs at each
of the Sites to 0%.
B. Lockheed’s recovery of future response costs would not unfairly burden the
taxpayer.
The Court does not come to the same conclusion with regard to future response costs.
CERCLA allocation and the DOSA pose no bigger threat of “double recovery” for future costs
than for past costs.97 And it bears emphasis, once more, that the DOSA clearly anticipated (if not
intended) the coexistence of Lockheed’s indirect recoveries from the government through
government contracts and direct recoveries from the government under CERCLA.
Further, most of the equitable considerations that motivated the Court to eliminate any
further recovery from the government for past response costs do not apply to future response
costs. For, pursuant to a declaratory judgment in this case, the government should reimburse
Lockheed for its future response as those costs are incurred. Indeed, in nominal terms Lockheed
is worse off following a direct CERCLA recovery from the government because it loses profits
97
Indeed, Lockheed would probably credit any direct payments from the government pursuant to
a CERLCA allocation to the DOSA before the associated indirect response costs were flowed down to
government contracts. Because the CERCLA allocation payment for a given year’s response costs would
predate Lockheed’s indirect recovery for those costs through government contracts, the DOSA – and not
the CERCLA allocation for future costs – is the source of the government’s rub.
106
that it would otherwise earn if those indirect costs were allocated to contracts (U.S.-government
and otherwise) through the DOSA.98
Nonetheless, the Court must make a small equitable adjustment to Lockheed’s recovery
of future response costs at the Sites to account for the – albeit temporary – issue of pre-judgment
fixed-price contracts. As described above, fixed-price contracts currently make up over forty
percent of Lockheed’s contract base, and Lockheed – rather than the government – will benefit
from all credits passed on down to pre-judgment fixed-price contracts. (Trial Tr. at 601-04
(Wright); id. at 1679-80 (Gatchel).) Further, over ten percent of these contracts will be in
existence in five years. (Id. at 1680-81 (Gatchel).) However, Lockheed will continue incurring
response costs for the Sites far into the future and all post-judgment fixed-price contracts will
price in the predictable government CERCLA allocation (and credits) pursuant to this action.
With these counterbalancing factors in mind, the Court considers it equitable to decrease
modestly the government’s equitable allocation for future costs at each facility by 1%.
CONCLUSION
For these foregoing reasons, the Court will allocate a 0% share of liability to the United
States for past response costs at the Sites. However, Lockheed is entitled to and will be granted a
declaratory judgment that:
1. Twenty-nine percent of its future necessary response costs at or for the Redlands
facility that are consistent with the National Contingency Plan will be allocated to the United
States and shall be paid by the United States;
98
Of course, when taken to net present value, an up-front and direct CERCLA payment by the
government is likely more valuable to Lockheed than the costs recovered and profits earned through
government and non-government contracts over five years.
107
2. Twenty-four percent of its future necessary response costs at or for the Potrero
Canyon facility that are consistent with the National Contingency Plan will be allocated to the
United States and shall be paid by the United States; and
3. Nineteen percent of its future necessary response costs at or for the LaBorde Canyon
facility that are consistent with the National Contingency Plan will be allocated to the United
States and shall be paid by the United States.
An Order consistent with this Memorandum Opinion will also be entered on this date.
/s/
ELLEN SEGAL HUVELLE
United States District Judge
Date: April 22, 2014
108