Lockheed Martin Corporation v. United States

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 2, 2015 Decided August 19, 2016

No. 14-5302

LOCKHEED MARTIN CORPORATION,
APPELLEE

v.

UNITED STATES OF AMERICA,
APPELLANT

Appeal from the United States District Court
for the District of Columbia
(No. 1:08-cv-01160)

J. David Gunter II, Attorney, U.S. Department of Justice,
argued the cause for appellant. With him on the briefs were
John C. Cruden, Assistant Attorney General, and John E.
Sullivan and Justin D. Heminger, Attorneys.

Dan Himmelfarb argued the cause for appellee. With him
on the brief were Marcia G. Madsen and E. Brantley Webb.
Raymond B. Ludwiszewski entered an appearance.

Jessica Ring Amunson was on the brief for amici curiae
National Defense Industrial Association and the Aerospace
Industries Association of America, Inc. in support of appellee.
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BEFORE: GARLAND, ⃰ Chief Judge, PILLARD, Circuit Judge,
AND EDWARDS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge PILLARD.

PILLARD, Circuit Judge: The United States appeals its
liability under the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA) for a portion of the
cost of cleaning up hazardous substances at three California
facilities owned by Lockheed Martin (Lockheed or the
Company). The government’s involvement at the facilities dates
to the Cold War, when the Department of Defense contracted
with Lockheed to build state-of-the-art, solid-propellant rockets.
Lockheed’s production of those rockets severely contaminated
the sites, with the contamination migrating into groundwater
miles away. The United States and Lockheed acknowledge their
joint responsibility for the contamination. Neither party
challenges the district court’s percentage allocations of liability.

The parties’ disagreement stems from the fact that the
government has been and remains Lockheed’s principal source
of business, and in that capacity has agreed to allow Lockheed to
charge costs incurred in cleaning up the sites—including
Lockheed’s own CERCLA liability—to new federal contracts
unrelated to these facilities and contracts. The government, in
other words, acknowledges its own share of CERCLA liability
and also that it agreed to reimburse Lockheed’s share via
overhead charges on unrelated contracts. The only question here
is whether the government has a valid claim that the particular
mechanism by which the United States will pay its share of the
costs of environmental remediation under CERCLA interacts
⃰
Chief Judge Garland was a member of the panel at the time the case
was argued but did not participate in this opinion.
 3
with the parties’ agreed-upon contract-based reimbursement
method in a way that impermissibly requires the government to
make double payment. We conclude that, in the circumstances
of this appeal, the government’s claims fail.

I.

A. CERCLA’s Cost-Recovery and Contribution Provisions

Congress enacted CERCLA, 42 U.S.C. §§ 9601-75, in 1980
“in response to the serious environmental and health risks posed
by industrial pollution.” United States v. Bestfoods, 524 U.S.
51, 55 (1998) (citing Exxon Corp. v. Hunt, 475 U.S. 355, 358-59
(1986)). Congress thereby sought “to promote the timely
cleanup of hazardous waste sites and to ensure that the costs of
such cleanup efforts [a]re 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 and
citation omitted). The statute imposes strict liability for
environmental remediation, assigning responsibility for cleaning
up even pollutants disposed of according to then-acceptable
practices before they were known to be hazardous.

CERCLA section 107 creates a cause of action through
which entities that have incurred costs cleaning up contaminated
sites may sue to recover cleanup costs from parties that may
have played a role in causing the pollution, whom CERCLA
refers to as potentially responsible parties (PRPs). See United
States v. Atl. Research Corp., 551 U.S. 128, 135-36 (2007).
PRPs may include, as relevant here, owners or operators of
facilities contaminated by hazardous substances, such as
Lockheed, and entities that arranged for disposal or treatment of
such substances. See 42 U.S.C. § 9607(a)(2)-(3). In this case,
Lockheed filed a section 107 claim against the United States,
alleging that the government played a critical role in the
 4
activities leading to contamination of the three California sites
and seeking reimbursement of a portion of the response costs
Lockheed incurred at those sites.

The United States responded to Lockheed’s CERCLA claim
with a counterclaim under CERCLA section 113(f), id.
§ 9613(f), asserting that Lockheed was the owner and operator
of the sites and had transported and arranged for disposal of
hazardous wastes there. Section 113(f) authorizes courts to
“allocate response costs among liable parties using such
equitable factors as the court determines are appropriate.” 42
U.S.C. § 9613(f). Under section 113(f), a defendant seeking to
avoid being assigned more than its fair share of liability in a
section 107 action may “blunt any inequitable distribution of
costs by filing a [section] 113(f) counterclaim” against the
section 107 plaintiff. Atl. Research Corp., 551 U.S. at 140.
“Resolution of a [section] 113(f) counterclaim would necessitate
the equitable apportionment of costs among the liable parties,
including the PRP that filed the § 107(a) action.” Id. The
United States counterclaimed that its liability under CERCLA
should be reduced to reflect only its proportionate responsibility
for the contamination.

CERCLA also codifies in a number of provisions a general
principle of avoiding double recovery of response costs. See,
e.g., 42 U.S.C. § 9607(f)(1) (prohibiting “double recovery under
this chapter for natural resource damages”); id. § 9612(f)
(prohibiting double recovery out of CERCLA’s Superfund for
any response costs); id. § 9613(f)(2) (reducing PRP liability for
CERCLA response costs by dollar amount of settlements paid
on the same matter to the state or federal government). The
government here invokes CERCLA’s principal double-recovery
bar, which appears in section 114. Section 114(a) defines
CERCLA’s relationship to other law, including non-preemption
 5
of state tort or environmental law beyond the liability CERCLA
imposes, and coordination with other federal laws. Section
114(b), in turn, 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 this chapter.” Id. § 9614(b). In its
answer to Lockheed’s section 107 complaint, the United States
invoked section 114(b), contending that Lockheed’s suit
unlawfully sought recovery for the same removal costs the
United States had already paid as overhead on contracts with
Lockheed for other goods and services.

B. Federal and Defense Agency Procurement Regulations

The second principal authority the government invokes is
federal procurement law. The Federal Acquisition Regulations
(FAR), 48 C.F.R. §§ 1.000-53.303, together with agency-
specific acquisition regulations, see, e.g., id. §§ 201.1-253.3
(Defense FAR Supplement), govern federal government
contracts for goods and services, see id. § 1.101. The FAR
authorize two types of government contracts: fixed-price and
cost-reimbursement. See id. § 16.101(b). For fixed-price
contracts, the parties set a price based on an estimate of the total
allowable costs and profits, id. § 16.202-1, with sharply
circumscribed opportunities thereafter to adjust those estimates
(and hence the contract price), see, e.g., id. § 15.407-1(b). Cost-
reimbursement contracts, by contrast, set a ceiling on the
government’s price, and authorize payment up to that ceiling
based on allowable costs the contractor incurs in performing the
contract, plus profit at an agreed-upon rate. See id. § 16.301-1.
Allowable costs under either type of contract include “direct
costs,” e.g., material and labor, as well as “indirect costs” that
comprise the company’s overhead not directly related to a
 6
specific contract. Id. § 31.201-1; see also id. §§ 31.202-.203.
The FAR provide that the government may only reimburse a
contractor for indirect costs that are: “allowable,” id. § 31.201-
2(a), i.e., “reasonable,” or of a kind that would be “incurred by a
prudent person in the conduct of competitive business,” id.
§ 31.201-3(a); “allocable,” i.e., “necessary to the overall
operation of the business, although a direct relationship to any
particular cost objective cannot be shown,” id. § 31.201-4(c);
and not otherwise specifically disallowed, id. § 31.201-6. If the
contractor’s cost of performance is cheaper than anticipated, the
overall contract price drops only if it is a cost-reimbursement
contract; if the contract is fixed-price, the contractor retains the
excess.

The Defense Contract Audit Agency (DCAA) “was
established to provide necessary audit services to government
officers in contract administration.” Cuneo v. Schlesinger, 484
F.2d 1086, 1088 (D.C. Cir. 1973). The DCAA in its internal
Manual provides specific guidance on application of the FAR’s
legal limitations to environmental costs from defense contracts.
See DEFENSE CONTRACT AUDIT AGENCY MANUAL (Dec. 12,
2012) (DCAA MANUAL). The DCAA Manual states that, if a
contractor that complied with applicable law and exercised due
care to avoid contamination nonetheless experiences
contamination not caused by its own wrongdoing, its
environmental cleanup costs may be treated as “normal business
expenses.” DCAA MANUAL § 7-2120.3, J.A. 493; see id. §§ 7-
2120.1, 7-2120.5, 7-2120.13, J.A. 493-94, 497. The DCAA
Manual also limits that principle: For purposes of the
government’s payment through defense procurement contracts,
“the allowable environmental cost should only include the
contractor’s share of the clean-up cost based on the actual
percentage of the contamination attributable to the contractor.”
Id. § 7-2120.9(a), J.A. 496. A contractor thus cannot pass
 7
through to the government in its defense contracts any cleanup
costs not attributable to the contractor under CERCLA.

Government contracting law also prohibits double charging.
Where a contractor receives from another source any portion of
a cost that it has already charged to the government as an
indirect cost, the FAR require that the payment received for
those same costs “shall be credited to the Government either as a
cost reduction or by cash refund.” 48 C.F.R. § 31.201-5; see
also id. § 52.216-7(h)(2). In other words, if the government has
paid a contractor a dollar in indirect costs for a specific overhead
cost, the contractor must credit back to the government any
portion of a dollar it otherwise receives (from another
responsible party or an insurer, for example) to cover that same
cost.

C. Factual Background

In the 1980s and 1990s, Lockheed and state and local
agencies discovered hazardous substances at and emanating
from three Lockheed facilities in Redlands and Beaumont,
California—the Redlands facility, the Potrero Canyon facility,
and the LaBorde Canyon facility (the sites or the facilities)—
with the bulk of contamination located at the Redlands facility.
See Lockheed Martin Corp. v. United States (Lockheed II), 35 F.
Supp. 3d 92, 105-09 (D.D.C. 2014). Lockheed’s corporate
predecessor, Lockheed Propulsion Company, had manufactured
solid-propellant rockets pursuant to government contracts at
those facilities between 1954 and 1975 using myriad hazardous
substances, including the organic solvents trichloroethylene and
1, 1, 1-trichloroethane, polychlorinated biphenyls (PCBs), and
ammonium perchlorate. Id. at 99-109. To dispose of those
substances, Lockheed Propulsion Company had, among other
things, pumped waste into shallow, concrete-lined “evaporation
pits” resulting in evaporation-pit sludge and other propellant
 8
wastes, burned such wastes in unlined earthen “burn pits,” and
simply poured onto the ground toxic substances and wastewater
contaminated from rinsing those substances from equipment. Id.
at 104-05. Those operations allowed hazardous substances to
seep into the ground and infiltrate nearby groundwater. Id. at
105-06. For example, trichloroethylene, a probable carcinogen,
and perchlorate, a constituent of ammonium perchlorate known
to decrease thyroid hormone production, migrated approximately
four miles from the facilities to form the “Redlands plumes” of
groundwater contaminants, exceeding applicable drinking-water
standards for those hazardous substances. Id. & nn. 8-9. The
government had a significant presence at the sites during rocket
production, mostly conducting inspections for quality assurance
and safety purposes but also acquiescing in waste disposal by
Lockheed Propulsion Company employees. Id. at 146-51.

After discovering decades later that each facility was
severely contaminated, Lockheed undertook containment and
remediation measures at the three sites and their environs in
compliance with orders from and consent decrees with various
state and local agencies. Id. at 106-09. By the time of trial of
the CERCLA claim against the United States in this case,
Lockheed had incurred environmental response costs at the
facilities of nearly $287 million and estimated that it would cost
another $124 million to complete the cleanup. Id. at 105.

Lockheed did not ultimately bear those costs, however.
Instead, as it paid cleanup costs at these and other sites over the
roughly twenty years from the initiation of the cleanup to the
judgment in this case, Lockheed received reimbursement by
allocating cleanup costs incrementally over time as indirect
contract costs charged to all of its customers. Id. at 109.
Because the United States constitutes the vast majority of
Lockheed’s customer base, Lockheed had by the time of the
 9
district court’s final judgment recovered through indirect
charges on its federal government contracts approximately $208
million of the total $287 million, or 72 percent, of the response
costs it had thus far incurred for cleanup at the three facilities.
Id. And, because the government’s share of Lockheed’s sales is
now larger than it was in the past, if Lockheed were to continue
charging to its contracts all costs it incurred at the sites post-
judgment, the percentage of its future response costs at the three
sites that Lockheed would pass through to the government, as
opposed to Lockheed’s other contract counterparties, would be
expected to rise to about 87 percent. Id. at 109, 113.

When Lockheed began charging those environmental
response costs to its clients, the government took the position
that the FAR’s cost-reimbursement provisions did not allow it to
pay such costs at sites where all operations had been
discontinued. Oral Arg. Rec. 3:45-3:49; Br. of Appellant United
States 31. Lockheed sued the United States under the Contract
Disputes Act and, in September 2000, the parties entered into
the Discontinued Operations Settlement Agreement (the Billing
Agreement) to resolve that payment-authority dispute. See
Lockheed II, 35 F. Supp. 3d at 111-12; see generally Billing
Agreement, J.A. 564-73. The Billing Agreement creates the
“Discontinued Operations Pool” (DiscOps Pool), an account or
“corporate overhead pool” to which the Agreement authorizes
Lockheed to debit various costs it had incurred or will incur
cleaning up facilities discontinued before January 2000—
including but not limited to the facilities at issue here. Billing
Agreement ¶ 1.8, J.A. 566.

Under the Billing Agreement, costs debited to the DiscOps
Pool, called Settled DiscOps Costs, are deemed “allowable”
indirect costs that may be allocated to Lockheed’s business
divisions, and thus charged by those divisions as overhead in
 10
their federal government contracts. Id. ¶¶ 2.4-2.5, 2.8, J.A. 568-
69. The Billing Agreement directs that all such costs be
amortized over five years, beginning the year after Lockheed
incurs the cost. Id. ¶ 2.17, J.A. 570. In other words, a cleanup
cost Lockheed incurred in 2005 was not simply charged all at
once to the contracting partners for which Lockheed happened to
work the next year, but was spread across contracts during the
ensuing five years. See Lockheed II, 35 F.Supp. at 112. The
costs the Billing Agreement allows Lockheed to charge the
government are wide ranging. They include traditional
environmental remediation costs (for demolition, groundwater
remediation, and soil remediation) as well as workers’
compensation costs and even Lockheed’s toxic tort settlement
payments to third parties. Billing Agreement ¶ 1.8, J.A. 566-67.

The Billing Agreement contains a crediting provision under
which Lockheed commits that it “shall not realize a double
recovery with regard to any Settled Discontinued Operations
Costs,” a bar that applies equally to “past or future Settled
Discontinued Operations Costs” when calculated “on a
cumulative basis,” and that it will “reimburse the United States
for any such double recovery of Settled Discontinued Operations
Costs under government contracts.” Id. ¶ 4.7, J.A. 572.
According to evidence presented at trial, Lockheed credited
CERCLA recoveries it obtained in other cases to the DiscOps
Pool and allocated them across all its contracts, thereby partially
offsetting cleanup costs debited to the pool. See Trial Testimony
of Robert Gatchel, Vice President of Government Finance,
J.A. 448. Thus, if Lockheed recovered from other PRPs under
CERCLA any of the response costs it previously had debited to
the DiscOps Pool, it credited those recoveries to the DiscOps
Pool (with certain exceptions not at issue here), as the Billing
Agreement requires. The Billing Agreement also provides that it
“does not settle claims, if any, arising under CERCLA,” Billing
 11
Agreement ¶ 4.18, J.A. 573, thereby permitting this lawsuit to
proceed.

D. Procedural History

After the United States agreed for more than a decade to toll
the statute of limitations on Lockheed’s CERCLA claims against
it, in July 2008 Lockheed filed this section 107(a) cost-recovery
action under CERCLA against the United States as a PRP.
Lockheed sued to recover the government’s share of the costs of
cleanup at the three California facilities. The United States
answered and counterclaimed for contribution under section
113(f), generally denying Lockheed’s allegations and seeking
equitable allocation of response costs. The government invoked
CERCLA’s section 114(b) double-recovery bar to oppose what
it saw as Lockheed’s effort to obtain from it under the Act “the
same removal costs” it had already recovered from the
government as contract overhead. 42 U.S.C. § 9614(b). The
government also contended, more generally, that Lockheed is
barred from recovering from the United States under section
107(a) because the government “has already paid its share” of
cleanup costs, so cost collection under CERCLA would be
inequitable under section 113(f). Answer, J.A. 197

The government moved for partial summary judgment on its
section 114(b) double-recovery defense, and Lockheed cross-
moved on the same issue for judgment on the pleadings. In
September 2009, the district court ruled in favor of Lockheed on
both motions. See Lockheed Martin Corp. v. United States
(Lockheed I), 664 F. Supp. 2d 14 (D.D.C. 2009). The court
concluded that section 114(b) does not bar Lockheed’s
CERCLA claim. See id. at 18-20. The court explained that,
“[p]ursuant to the FAR,” the government indirectly pays
contractors “costs that are not associated with a specific
contract—essentially, overhead,” such as the cleanup costs at
 12
issue here. Id. at 16. The court rejected the government’s
section 114(b) defense on the ground that the indirect-cost
payments for environmental response did not amount to
“compensation . . . pursuant to . . . Federal . . . law” within the
meaning of section 114(b). Id. at 18-19. That was because “the
government-as-client’s indirect cost payments are not made in
recognition of, or in compensation for, the government’s
CERCLA liability for those response costs.” Id. at 19.

The court specifically recognized that Lockheed’s indirect-
cost charges would be reduced if some of the liability were
apportioned to the government under CERCLA: If it were
determined that “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,” and a
CERCLA judgment against the government would limit
Lockheed “in its dealings with the government-as-client” to
charging as contract overhead “only . . . those costs for which it
[Lockheed] is actually liable.” Id. at 20. The court’s
anticipation that any CERCLA recovery would be excluded
from the DiscOps pool tracked its understanding of these same
parties’ coordination of CERCLA and indirect-cost payment
under an earlier settlement, when the government paid Lockheed
“directly for a percentage of the response costs incurred,” and
“that portion of the costs was excluded from the [DiscOps] pool,
to ensure that Lockheed did not recover the same costs twice.”
Id. at 17. The court further reasoned that, even if costs that
CERCLA assigned to the government were charged to the
DiscOps pool, the FAR’s crediting requirement, reinforced by
the crediting requirement in the Billing Agreement, would as a
practical matter prevent any double recovery or other windfall to
Lockheed. Id. at 19-20.
 13
The court denied the government’s motion for
reconsideration. It rejected the government’s argument that it
had paid costs “pursuant to” federal “law” within the meaning of
section 114(b). Although the FAR are federal law, the court
held, the contracts pursuant to which the government paid
Lockheed’s indirect costs are not.

Before trial of Lockheed’s CERCLA claim, the government
stipulated that Lockheed had incurred response costs for cleanup
at the three facilities, and both parties stipulated that they were
liable as PRPs under section 107(a), leaving for disposition only
the question of what share of liability each bore. When the
originally assigned trial judge retired, the case was transferred to
another judge. The new judge presided over a twelve-day bench
trial, which she characterized as a “battle of the experts” on
numerous issues. Lockheed II, 35 F. Supp. 3d at 119. Most of
the trial evidence pertained to contamination at the three sites
and the extent to which each party bore responsibility for that
contamination, id., issues not challenged in this appeal, see Br.
of Appellant United States 25, 45. The parties also spent “a
significant amount of trial” on the accounting issues surrounding
Lockheed’s indirect-cost billing and crediting. Id. at 119. On
those issues, the court received testimony of four experts—two
for each party—as well as testimony of Lockheed’s vice
president of government finance. Id. at 119-20.

In April 2014, the court issued a comprehensive
memorandum opinion apportioning liability between the United
States and Lockheed. See Lockheed II, 35 F. Supp. 3d 92.
Beginning from a baseline allocation following “the per capita
approach: a fifty-fifty split between Lockheed and the
government,” id. at 132, the court made a “traditional equitable
allocation” in light of the equitable factors often employed by
courts to assign responsibility and corresponding CERCLA
 14
liability, id. at 122-24, 132-53. The court found that, although
Lockheed had exercised significantly more control than the
government over the day-to-day disposal of hazardous waste at
the facilities, the government had acquiesced in some of
Lockheed’s disposal operations, to varying extents at each
facility, and thus bore a fraction of responsibility for the
contamination. See id. at 150-51. The court allocated liability
as follows: at the Redlands facility, a 30 percent share of
liability for the government and a 70 percent share for
Lockheed; at the Potrero Canyon facility, a 25 percent share for
the government and a 75 percent share liability for Lockheed;
and at the LaBorde Canyon facility, a 20 percent share for the
government and an 80 percent share for Lockheed. Id. at 153.

Next, the court addressed as an equitable matter the issue of
Lockheed’s indirect-cost recovery, in light of which the
government contended that any judgment against it under
CERCLA would yield double recovery. Id. at 153-62.
Recognizing “the narrowness of the statutory [section 114(b)]
bar on double recovery,” the court explained, “courts have
developed a broader equitable double recovery theory” under
section 113(f) to prevent a CERCLA judgment from granting a
windfall to the plaintiff. Id. at 154-55. The court found that
Lockheed had already indirectly recovered from the government,
through overhead charges on ensuing contracts, more than 72
percent of the response cost incurred to date for the three
facilities. Id. at 154. Thus, the court determined that, with
regard to the portion of the cleanup that had been completed,
“the government’s ‘effective share’ is already well over two
times higher than its [20 to 30 percent] equitable share.” Id.

The court noted that a CERCLA judgment against the
United States would not award Lockheed double recovery “in
the traditional sense.” Id. at 155. Even if the court were to
 15
require the government to pay Lockheed under CERCLA for
costs it had already reimbursed under the Billing Agreement, the
trial judge, like the judge who had ruled on the pretrial motion
under section 114(b), noted that FAR’s crediting mechanism
would require Lockheed to credit any CERCLA recovery for
those costs to the DiscOps Pool, and that such credits would be
passed through to Lockheed’s contracts in the same way as
costs. Id. Thus, Lockheed could not be left with more in
response costs than it initially paid.

Notwithstanding its rejection of the government’s equitable
double-recovery defense, the district court in its equitable
allocation under section 113(f) found that Lockheed had
received substantial economic benefits from charging
environmental cleanup as an indirect cost in its government
contracts over the preceding two decades. Id. at 156-57. The
court excluded from the government’s share of liability for past
costs the more than $18 million in prejudgment interest that the
government would otherwise owe on its CERCLA liability. See
42 U.S.C. § 9607(a). It did so because Lockheed had already
charged the government’s cleanup costs as contract overhead,
and so had use of the funds at issue during the relevant period.
See Lockheed II, 35 F. Supp. 3d at 159-60. Lockheed also had
charged through the DiscOps Pool the more than $10 million in
attorney’s fees and costs it incurred in bringing the CERCLA
action. Id. at 161. Because CERCLA does not authorize
collection of such costs, see Key Tronic Corp. v. United States,
511 U.S. 809, 819 (1994), the court concluded, a further
equitable reduction in the government’s share was warranted,
see Lockheed II, 35 F. Supp. 3d at 161. Additionally, the court
found that Lockheed had received significant excess economic
benefit from its application of a profit factor on the response-
costs increment of its indirect contract charges. Id. at 157-59.
Finally, the district court found that, with respect to both past
 16
and future costs, Lockheed received some excess benefit from its
collection of cleanup costs through its fixed-price contracts. Id.
at 160-61. For those reasons, the district court allocated 100
percent of already-incurred response costs to Lockheed, reducing
to 0 percent the government’s share of those past costs. Id. at
161.

The court found that, going forward, Lockheed would as a
transitional matter benefit from fixed-price contracts that it had
priced with reference to 100 percent of cleanup costs. Id. at 162.
Because Lockheed had many such contracts that remained in
effect for several years after the court limited Lockheed’s actual
share of future response costs to a maximum of 81 percent, the
court made a 1 percent reduction to the government’s overall
share of the entire future-cost liability. Id.

Thereafter, the parties stipulated to a process for payment of
future costs. See Joint Stipulated Order Regarding Payment of
Future Costs (Dkt. No. 158), Lockheed II, 35 F. Supp. 3d 92
(No. 1:08-cv-10060). Under their post-judgment agreement,
every six months Lockheed will make a written demand to the
United States for payment of the government’s equitable share
of response costs Lockheed incurred during the preceding six-
month period. Id. ¶¶ 2(a), 3(a)-(e). The government will pay
that amount within 120 days of receiving Lockheed’s demand,
less any amount it disputes. Id. ¶ 3(f)-(g). Lockheed and the
United States further agreed that Lockheed “will follow its
current disclosed and established practices including . . . all
applicable requirements under the Federal Acquisition
Regulation, the Cost Accounting Standards, and the
requirements of the [Billing Agreement], with respect to
environmental remediation costs and credits for the sites under
the Federal Contracts.” Id. ¶ 6. The government timely
appealed.
 17
II.

A. Standard of Review

In contribution actions under CERCLA section 113(f), the
district court has significant discretion to “allocate response
costs among liable parties using such equitable factors as the
court determines are appropriate.” 42 U.S.C. § 9613(f)(1); see
PCS Nitrogen Inc. v. Ashley II of Charleston LLC, 714 F.3d 161,
186 (4th Cir.), cert. denied, 134 S. Ct. 514 (2013). Courts “have
described the district court’s authority in this area as ‘broad and
loose.’” NCR Corp. v. George A. Whiting Paper Co., 768 F.3d
682, 695 (7th Cir. 2014) (quoting Browning-Ferris Indus. of Ill.,
Inc. v. Ter Maat, 195 F.3d 953, 957 (7th Cir. 1999)). “CERCLA
not only entrusts the district court to make the ultimate equitable
allocation of costs, but it also grants the court the authority to
decide which equitable factors will inform its decision in a given
case.” Id.

We do not simply “rubber-stamp” a district court’s
equitable allocation, id. at 696, but review it for abuse of
discretion, see Agere Sys., Inc. v. Advanced Envtl. Tech. Corp.,
602 F.3d 204, 216 (3d Cir. 2010); United States v.
Consolidation Coal Co., 345 F.3d 409, 412 (6th Cir. 2003);
Boeing Co. v. Cascade Corp., 207 F.3d 1177, 1187 (9th Cir.
2000); cf. Massachusetts v. Microsoft Corp., 373 F.3d 1199,
1207 (D.C. Cir. 2004) (“We review the district court’s decision
whether to grant equitable relief only for abuse of discretion.”).
“An abuse of discretion occurs when the district court’s decision
rests upon a clearly erroneous finding of fact, an errant
conclusion of law or an improper application of law to fact.”
Agere Sys., Inc., 602 F.3d at 216 (internal quotation marks and
citations omitted). In the equitable allocation context, we ask
“(1) whether the district court failed to consider a relevant factor
that should be been given significant weight; (2) considered and
 18
gave significant weight to an irrelevant or improper factor; or
(3) considered all proper factors and no improper ones, but in
weighing those factors, committed a clear error of judgment.”
K.C. 1986 Ltd. P’ship v. Reade Mfg., 472 F.3d 1009, 1017 (8th
Cir. 2007) (internal quotation marks omitted).

We review de novo the district court’s grant of Lockheed’s
motion for judgment on the pleadings and its denial of the
United States’ motion for partial summary judgment. See
Defenders of Wildlife v. Gutierrez, 532 F.3d 913, 918 (D.C. Cir.
2008); Thomson v. Dist. of Columbia, 530 F.3d 914, 915-16
(D.C. Cir. 2008).

B. Analysis

The United States has played two roles relevant to this
appeal: The federal government is (1) Lockheed’s primary
source of ongoing business, and (2) a partially responsible party
under CERCLA with a legal duty to pay its share of the cleanup
costs. The United States voluntarily assumed the first role,
agreeing to pay the Company higher prices on unrelated goods
and services to reimburse Lockheed for its environmental
cleanup costs. Although the government initially had resisted
such charges, its 2000 Billing Agreement with Lockheed
authorized the Company to include as routine contract overhead
on any new contracts a charge for remediation of past
environmental contamination at its discontinued operations,
including the three sites at issue in this case. Billing Agreement
¶¶ 1.8, 2.4-2.5, 2.8, J.A. 566, 568-69. The United States does
not here dispute that by this arrangement it agreed to reimburse
Lockheed’s own share of the cleanup costs. See Br. of
Appellant United States 54; Reply Br. 1, 18; see also Oral Arg.
Rec. 13:30-14:00, 15:30-16:00. In its second role, the
government stipulated that it bore partial responsibility for
causing the environmental damage at the sites, and is therefore
 19
obligated by CERCLA to pay its own proportionate share of the
cleanup costs. Each party admittedly contributed to the
problem; what Lockheed and the United States dispute on appeal
is how they will pay to remedy it.

Lockheed filed suit in 2008, asking the court to identify and
order the United States to pay the government’s share as a PRP
under CERCLA. Neither party challenges the district court’s
percentage allocation of responsibility following trial or any of
the district court’s detailed factual findings. Nor do the parties
contest the district court’s decision in the exercise of its
equitable powers to reduce the government’s share to 0 percent
for past costs, and to reduce by 1 percent the 20 to 30 percent
responsibility the court initially allocated to the government for
future costs.

The only issue raised on appeal is whether the United States
must pay under CERCLA the 19 to 29 percent of the post-
judgment response costs the district court awarded to Lockheed.
The United States contends that its contractual payments
already fulfilled its CERCLA obligation. It presses two
CERCLA defenses that it says should have completely barred
Lockheed’s recovery in this case, even for response costs yet to
be incurred. It invokes CERCLA section 113(f), which requires
courts to apply equitable principles to prevent excess recovery in
allocating response costs between liable parties. 42 U.S.C.
§ 9613(f). The government claims the district court should have
exempted it from all liability against it under CERCLA, given
that it has already paid far more than its equitable share, and
Lockheed far less. The government also relies on CERCLA
section 114(b), which bars recovery of “the same removal costs”
by any party that has already received “compensation for
removal costs” if such compensation was made “pursuant to any
other Federal or State law.” 42 U.S.C. § 9614(b). The
 20
government contends it already compensated Lockheed
“pursuant to” federal government contracting law.

Each of the government’s theories boils down to an
objection against double recovery. If the government were to
pay what is at most a 29 percent CERCLA share of the
approximately $124 million in estimated future costs, its total
CERCLA exposure for the future cost portion at the end of the
cleanup would be approximately $36 million. Even adding the
past costs, for which the court allocated the government a 0
percent share in light of its payments to date, a 29 percent share
of the estimated overall total of $411 million would not exceed
$120 million. And yet, as noted above, the government has
already paid out $208 million via contract overhead—before
paying the CERCLA judgment from which it now appeals.
Stated another way, the government emphasizes, it “has already
paid 55 percent of the total past and future response costs that
Lockheed is expected to incur,” Br. of Appellant United States
23, and even absent a CERCLA judgment, it will eventually pay
83 percent of total response costs at the site—well above its
court-allocated equitable share of only 19 to 29 percent of
future costs incurred in cleaning up the three sites, id. at 43-44.
The crediting mechanism in the Billing Agreement would not fix
the problem, the government maintains; as 87 percent of
Lockheed’s customer base, the United States would only receive
87 percent of any credited CERCLA award while 13 percent
would inure to the benefit of other Lockheed customers. The
government reasons that, because it has already paid more than
its share and any additional payment would increase its effective
share even further, it should not have to pay more.

Lockheed counters that neither defense holds water. It
insists that there is no possibility of double recovery as either an
equitable or a statutory matter, because the Billing Agreement’s
 21
crediting mechanism would require any CERCLA recovery from
the government to be credited back to Lockheed’s customers,
more than offsetting the government’s payments toward those
costs. Section 114(b) poses no bar, Lockheed contends, because
indirect-cost payments for unrelated goods and services pursuant
to contract do not constitute “compensation for removal costs
pursuant to . . . Federal law.”

1. The United States’ primary equitable argument, with
which we begin, has some intuitive appeal. Under CERCLA, to
the extent that the government did not cause the pollution,
taxpayers should not be “required to shoulder the financial
burden” of environmental cleanup. B.F. Goodrich Co. v.
Murtha, 958 F.2d 1192, 1198 (2d Cir. 1992). In its uncontested,
careful, and detailed analysis of the parties’ relative
responsibility for the contamination at the site, the district court
concluded that Lockheed—not the government—was largely
responsible. Lockheed II, 35 F. Supp. 3d at 132-53. One would
think, then, that Lockheed—not the taxpayers—would shoulder
the lion’s share of the costs. But, as described above, that is not
what is happening. The government has indirectly paid the vast
majority of past cleanup costs, and Lockheed will continue to
bill its own remediation costs to its current and future
contracts—principally federal government contracts—until
Lockheed is fully reimbursed. All the while, Lockheed has
maintained an extraordinarily lucrative business dominated by
U.S.-government contracting, with strong cash generation,
record earnings and profit margins, and exceptional stock
performance since the cleanup began. Id. at 141 & n.66; see
Consolidated Statement of Earnings, Lockheed Martin
Corporation Annual Report (2012) at 55, J.A. 554.

A taxpayer might reasonably ask whether it makes sense for
the government to play both roles identified by the district court
 22
here—that of a contracting party paying the majority of
Lockheed’s unrelated remediation costs and that of a PRP with a
share of CERCLA liability—or whether instead it should play
just one role. The government has long since paid for the
rockets Lockheed built. And CERCLA’s liability-allocation
provisions are not designed to provide a government-funded
cleanup program, but to assign environmental response costs
proportionally to the parties responsible for causing them. It is
not obvious how it comports with CERCLA’s basic principle of
making responsible parties internalize the costs of their pollution
that Lockheed (1) profits mightily from its defense contracting
business, and (2) passes through to the taxpayer its share of the
environmental harm it wreaked. It might seem more sensible for
Lockheed to have to charge its own corporate surplus, not the
United States taxpayer, for its own CERCLA share of response
costs. At the end of the day, the government laments, Lockheed
internalizes none of the costs associated with the remediation of
the hazardous waste sites its business created, and the decision
of the district court does nothing to change that.

Contrary to the government’s claim, however, in the
circumstances of this limited appeal, we, too, are powerless to
shift Lockheed’s share of the removal costs from the taxpayer
back onto the Company. To be sure, there is ample authority for
the government’s basic proposition that the law forbids a
polluter like Lockheed from recovering from the government
twice for the same environmental response costs. CERCLA, the
Federal Acquisition Regulations, the parties’ own Billing
Agreement, and the district court’s final judgment in this case
are unanimous on the point: No party may lawfully demand
double recovery of the money it spent cleaning up hazardous
waste. See 42 U.S.C. § 9614(b); 48 C.F.R. §§ 31.201-5, 52.216-
7(h)(2); Billing Agreement ¶ 4.7, J.A. 572; Lockheed II, 35 F.
Supp. 3d at 154-55. And, as the district court recognized,
 23
Lockheed II, 35 F. Supp. 3d at 154-55, courts have invoked
principles of equity under section 113(f) to bar CERCLA relief
where double recovery would otherwise result, even in
circumstances in which further recovery is not barred by
CERCLA section 114(b). See, e.g., Litgo New Jersey Inc. v.
Comm’r of the N.J. Dep’t of Envtl. Prot., 725 F.3d 369, 391 (3d
Cir. 2013) (holding equitable allocation must be offset by
settlements); Friedland v. TIC-The Indus. Co., 566 F.3d 1203,
1206-07 (10th Cir. 2009) (holding equitable allocation must be
offset by amount plaintiff received from insurance settlements);
K.C. 1986 LP, 472 F.3d at 1017 (holding settlement credits
“present a significant allocation factor” under CERCLA); Akzo
Nobel Coatings, Inc. v. Aigner Corp., 197 F.3d 302, 307-08 (7th
Cir. 1999) (holding equitable allocation must be offset by
settlement credits); Yankee Gas Servs. Co. v. UGI Utils. Inc.,
852 F. Supp. 2d 229, 255-56 (D. Conn. 2012) (holding equitable
allocation must be offset by insurance payments); Basic Mgmt.
Inc. v. United States, 569 F. Supp. 2d 1106, 1122-23 (D. Nev.
2008) (holding equitable allocation must be offset by insurance
payments). It is well settled that “any level of double recovery is
inequitable in CERCLA contribution actions.” NCR Corp., 768
F.3d at 708.

But here, the district court’s CERCLA judgment did not
create any double recovery. The reason the government will end
up paying far more than its own 19 to 29 percent share of future
costs is that it voluntarily agreed to let Lockheed pass through its
share, too. It was the government’s choice to accept the Billing
Agreement, authorizing Lockheed to assign to the DiscOps Pool
and charge as indirect contract costs certain cleanup costs
relating to facilities at which Lockheed had discontinued
operations prior to December 31, 1999. Billing Agreement
¶¶ 1.7-1.8, 2.4-2.5, 2.8, 2.13, 4.3, J.A. 566-70. The Billing
Agreement specifies that itemized environmental remediation
 24
costs, as well as myriad other costs incurred by the company
related to discontinued facilities, id. ¶ 1.8, J.A. 566-67, “will be
recognized and reimbursed and treated as allowable and
allocable costs between the parties,” id. ¶ 2.5, J.A. 568.

That settlement required the government to pay all past
cleanup costs Lockheed incurred at the specified sites (except
for the small portion Lockheed passed through its few contracts
with other customers). Indeed, the government does not dispute
that it agreed in the parties’ 2000 Billing Agreement to pay even
Lockheed’s share of the remediation costs. It acknowledged in
its briefing to this court that “[t]he consequence of the
government’s execution of the [Billing] Agreement . . . was that
it likely would pay a much higher share of Lockheed’s response
costs than it would bear under an equitable allocation.” Br. of
Appellant United States 54; see also, e.g., Reply Br. 1 (“The
United States does not complain here about the price of its
contracts, even though its payment of indirect contract costs for
Lockheed’s cleanup far exceeds its equitable share of those
costs.”). At oral argument the government conceded that, by
operation of the Billing Agreement, at the end of the day it will
pay nearly 100 percent of the response costs incurred at the sites,
whether through indirect payments alone or through a
combination of indirect payments and a CERCLA judgment.
Oral Arg. Rec. 15:30-16:00; see also Oral Arg. Rec. 13:30-14:45
(government counsel noting that the government does not
contest the validity, or seek reimbursement, of the indirect-cost
payments it made to Lockheed in excess of the government’s
share of liability). Given the government’s decision to enter the
Billing Agreement to reimburse Lockheed’s share of cleanup
costs together with its CERCLA liability setting its own share,
the only portion of the cleanup bill the government will not foot
is the relatively small portion paid by Lockheed’s other
customers.
 25
The extent of the government’s payment thus results from
the government’s own choice. Even after the government pays
its percentage of the future remediation bills, it will still be left
paying the vast majority of Lockheed’s proportionate share in
addition to its own. But the government agreed to that
consequence by entering a settlement that allowed Lockheed in
its new contracts to charge the government for the company’s
own CERCLA liability at the discontinued sites. Like the
district court, we are in no position to “save the government
from the natural and probable consequences of its own conduct.”
Lockheed II, 35 F. Supp. 3d at 156. Indeed, given that our
review of the district court’s equitable judgment is for abuse of
discretion, we are even more powerless than the district court to
do so.

2. Also unavailing is the government’s protest that the
crediting mechanism does not help, but instead harms it further.
Lockheed insists that the government has no ground for any
double-payment concern, because the government will soon get
back its CERCLA payment. After all, says Lockheed, the
governent’s CERCLA payment will be credited to the DiscOps
pool. But the government is unmoved, pointing out that
Lockheed’s other customers get a portion of any credit to the
DiscOps pool. In particular, the United States asserts, it would
only receive 87 percent of any credited CERCLA award, while
13 percent would benefit Lockheed’s other customers.

As an initial matter, we note that nothing in the FAR, the
DCAA Manual, the Billing Agreement, or the District Court
opinions requires the parties to funnel the now-established
governmental share of future response costs through the
DiscOps pool. In fact, the Audit Manual notes that
“environmental laws usually require each [PRP] for
contamination at a site to be individually liable for the complete
 26
clean-up of the site” and specifically states that “[t]he allowable
environmental cost should only include the contractor’s share of
the clean-up costs based on the actual percentage of
contamination attributable to the contractor.” DCAA AUDIT
MANUAL § 7-2120.9(a), J.A. 496 (emphasis added). The parties
have not identified any authority for using the Billing
Agreement’s indirect-cost billing-and-crediting process for
anything beyond Lockheed’s share. Now that the district court
has set the parties’ relative shares of responsibility, it is unclear
why the government would not simply pay its share of CERCLA
liability directly to Lockheed as Lockheed incurs remediation
costs.

Nothing in the district court’s judgment requires that the
government’s CERCLA payments be routed through the
DiscOps pool. In rejecting the government’s section 114(b)
defense, the court observed that, “[i]f 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 Settled [DiscOps]
Pool.” Lockheed I, 664 F. Supp. 2d at 20. Instead, the court
explained, “Lockheed may recover separately under CERCLA
from the government-as-PRP . . . , burdened in its dealings with
the government-as-client only by those costs for which it is
actually liable.” Id.; see also Lockheed II, 35 F. Supp. 3d at 117.

Similarly, the district judge who made the post-trial
equitable-allocation decision noted that, “pursuant to a
declaratory judgment in this case, the government should
reimburse Lockheed for its response costs as those costs are
incurred.” Lockheed II, 35 F. Supp. 3d at 162. The court
contemplated that the government’s direct CERCLA payments
to Lockheed would, in all likelihood, predate and be wholly
separate from any post-judgment indirect-cost contract payments
to cover Lockheed’s share. See id. at 161 n.97. The court made
 27
clear that it did not expect—let alone require—Lockheed to
charge the government’s share to future contracts as indirect
costs nor credit the government’s CERCLA payment to the
DiscOps pool. Indeed, it pointed out that in some ways
Lockheed would be “worse off following a direct CERCLA
recovery from the government because it loses profits [on that
portion of its overhead charges] that it would otherwise earn if
those costs were allocated to contracts . . . through the [Billing
Agreement].” Id. at 162. Were the parties to take the
straightforward approach set forth in the Audit Manual and
contemplated by the district court, the government would
reimburse only Lockheed’s share through indirect-cost contract
payments, paying its own share directly as the costs are incurred.
In that event, the 13 percent loss of which the government
complains would not occur.

But here, again, only the government’s own choice appears
to constrain its path forward. Nothing in the district court’s
decision requires the parties to use the DiscOps pool to charge
out the government’s share of future costs; the parties appear to
be using that system solely because of their Billing Agreement,
extended by their post-judgment stipulation. As the district
court explained, “[b]ecause the [government’s] CERCLA
allocation payment for a given year’s response costs would
predate Lockheed’s indirect recovery for those costs through
government contracts, the [Billing Agreement]—and not the
CERCLA allocation for future costs—is the source of the
government’s rub.” Id. at 161 n.97. Although the Billing
Agreement by itself does not appear to mandate the approach of
which the government now complains, the parties did not elect
any different payment system in their post-judgment, stipulated
order regarding payment of future costs. See Joint Stipulated
Order Regarding Payment of Future Costs (Dkt. No. 158) ¶ 6,
Lockheed II, 35 F. Supp. 3d 92 (No. 1:08-cv-10060). The loss
 28
to the government from the crediting process is not a result of
the judgment of the district court; it is a problem of the
government’s own making.

3. Even assuming we were in a position to review the
equities of the parties’ own choice in their Billing Agreement to
resort to the indirect-cost billing and crediting mechanism and
their apparent decision to use that mechanism for payment and
crediting of future costs, the government has not clearly
identified how the crediting mechanism is a source of inequity.
As the district court explained, the FAR and the Billing
Agreement, where they apply, require Lockheed to credit any
CERCLA recovery to the DiscOps Pool and to assign credits to
Lockheed’s contracts in the same way as costs. Lockheed II, 35
F. Supp. 3d at 111-12, 154-55 (citing Settlement Agreement
¶ 4.7, J.A. 572, and Trial Testimony of Robert Gatchel, Vice
President of Government Finance, J.A. 448). Under the Billing
Agreement, Lockheed does not bill the government directly.
Instead, it first charges all remediation costs to contract
overhead. It then must credit back to its contracting customers
any CERCLA recovery it receives. In that respect, this case is
similar to those in which courts have declined to reduce a
utility’s equitable allocation based on its collection of those
same costs through rates, where a utility that previously charged
its customers costs of remediation must later reduce its prices by
any CERCLA judgment the utility received to cover those costs.
See Yankee Gas Servs. Co., 852 F. Supp. 2d at 255; see also
N.Y. State Elec. & Gas Corp. v. FirstEnergy Corp., 808 F. Supp.
2d 417, 528-29 (N.D.N.Y. 2011), aff’d in part, vacated in part,
remanded, 766 F.3d 212 (2d Cir. 2014). The district court acted
within its sound discretion in concluding that Lockheed
ultimately would not twice recover the government’s share of
CERCLA response costs.
 29
Moreover, it is apparent that the government will not have
paid its 19 to 29 percent equitable share more than once. Based
on evidence presented at trial, the district court found that
Lockheed had recovered from the government through higher
contract prices more than 72 percent of the total of its past
response costs for the sites, a figure anticipated to rise to an
average of approximately 83 percent because the government
now represents a larger share of Lockheed’s business than it did
in the past. Lockheed II, 35 F. Supp. 3d at 113, 154. The court
also found that the government will receive through credits the
benefit of only 87 percent of any CERCLA judgment the
government pays Lockheed. Id.

The government cites these findings to support its
contention that it only will receive 87 percent of its CERCLA
judgment through the crediting mechanism. Br. of Appellant
United States 52-53. However, that contention ignores the
court’s first finding. Because the government only pays as
indirect costs, or contract overhead, a percentage of response
costs corresponding to its percentage of Lockheed’s business at
a given time, it will only have paid a commensurate percentage
of the total response costs, including only a percentage of its
own proportionate share of the future response costs. Lockheed
II, 35 F. Supp. 3d at 113, 154. The government has not shown
how it would be inequitable to credit to the government 87
percent of its CERCLA payments after the government will have
paid only a similar percentage of the corresponding costs
through indirect-cost contract payments.

The government’s only retort is that it should not be
required to pay anything beyond its 19 to 29 percent share of
liability, because it has already paid 83 percent of the overall
remediation costs. Br. of Appellant United States 43-44, 50. As
discussed above, that argument contests not overpayment
 30
beyond the government’s equitable share under CERCLA, but
the consequence of the government’s own decision to pay
Lockheed’s share pursuant to the Billing Agreement. We
therefore conclude that the district court did not abuse its
discretion in declining to eliminate the government’s share of
liability on the basis of an equitable double-recovery theory.

4. Finally, the United States has appealed from the district
court’s pretrial ruling rejecting the government’s claim that
section 114(b) altogether bars Lockheed’s CERCLA claim. In
view of the district court’s final judgment and the government’s
failure to identify how that decision imposes any double liability
or double recovery, however, we need not delve into the parties’
textual and purposive section 114(b) arguments. At this
juncture, on appeal from the district court’s judgment imposing
no liability on the government for past costs, section 114(b)
simply is not implicated. The only costs the government has
already paid are indirect-cost contract payments covering the
bulk of past costs Lockheed incurred cleaning up the sites.
Lockheed II, 35 F. Supp. 3d at 113. But the district court
exercised its equitable discretion to reduce the government’s
share to 0 percent of past costs, id. at 162, and that decision
remains unchallenged. The judgment simply does not impose
on the government any risk of paying those past costs again.
The government’s CERCLA payments for its 19 to 29 percent of
future costs will not be “for the same removal costs” within the
meaning of section 114(b) as those already paid, and thus do not
implicate that section’s double-recovery bar. 42 U.S.C.
§ 9614(b).

With respect to future costs, as discussed above, nothing in
the FAR, the DCAA Manual, the Billing Agreement, or the
District Court opinions requires the parties to employ the Billing
Agreement’s indirect-cost billing-and-crediting process for
 31
anything more than Lockheed’s share, now that the parties’
shares have been established. We therefore decline to evaluate
the interplay of federal contracting law and section 114(b), an
issue of first impression in the courts of appeals. We need not
pass on that question here.

***

For the foregoing reasons, we affirm the judgment of the
district court.

So ordered.