[00:00:00] Speaker 02:
Good morning.

[00:00:01] Speaker 02:
Good morning, Your Honors.

[00:00:03] Speaker 02:
May it please the Court, my name is Mark Dangerfield.

[00:00:06] Speaker 02:
I'm appearing on behalf of Gallagher and Kennedy, whom I'll generally refer to as G and K. I'd like to reserve three minutes for rebuttal here.

[00:00:16] Speaker 02:
All right.

[00:00:17] Speaker 02:
This appeal focuses on the meaning of the word incurred in CERCLA Section 107A and how it should be construed to further the objectives of CERCLA.

[00:00:30] Speaker 02:
And specifically, the issue is whether GNK incurred response costs, first, when it committed its own time and resources to the RID remediation, and second, when it supervised the response work of others that GNK is obligated to pay for if it recovers those costs.

[00:00:51] Speaker 02:
And I'd like to briefly discuss this issue.

[00:00:52] Speaker 03:
Could I interrupt you with a question?

[00:00:53] Speaker 03:
I gather from the briefing and from the statement that you just made that the record does not show that G and K actually paid its own money towards any of the remediation.

[00:01:12] Speaker 03:
Is that a correct understanding?

[00:01:14] Speaker 02:
Not quite, Your Honor.

[00:01:18] Speaker 02:
There are two different issues.

[00:01:20] Speaker 02:
GNK devoted its own time and resources.

[00:01:23] Speaker 03:
In other words... I understand that time and resources.

[00:01:27] Speaker 03:
I'm asking about whether the funds, the project funds, for example, whether GNK paid any funds, money into that fund or otherwise had money, an outlay of money

[00:01:46] Speaker 02:
Yeah, so the first issue on GNK's direct cost, it simply devoted its own time and resources.

[00:01:56] Speaker 04:
To manage the subcontractors and manage the cleanup.

[00:01:59] Speaker 02:
Correct.

[00:02:00] Speaker 04:
But there's a project fund that, how much money did the project fund, and Judge Graber's asking you, did GNK put any money into the project fund?

[00:02:08] Speaker 02:
Correct.

[00:02:09] Speaker 02:
GNK did not put any money into the project fund other than the funds that it was collecting.

[00:02:17] Speaker 02:
In other words, the project fund didn't magically appear.

[00:02:20] Speaker 02:
GNK had to go out, and there were settlements that were negotiated and funds that came in.

[00:02:26] Speaker 02:
But GNK didn't take... They came in from other polluters, right?

[00:02:31] Speaker 02:
Well, other polluters and other sources as well.

[00:02:35] Speaker 02:
How much came into the fund?

[00:02:39] Speaker 02:
Total?

[00:02:40] Speaker 02:
Yes.

[00:02:42] Speaker 02:
I'm not sure the answer to that.

[00:02:44] Speaker 02:
It was about $2 million, I believe.

[00:02:47] Speaker 02:
OK.

[00:02:50] Speaker 04:
But none of that's GNK money.

[00:02:52] Speaker 02:
Yeah, GNK didn't take law firm money.

[00:02:53] Speaker 02:
Let's put it that way and put it into that fund.

[00:02:56] Speaker 04:
OK, and the project fund money's all been paid out.

[00:02:59] Speaker 02:
It has, yes.

[00:03:00] Speaker 04:
And GNK says it spent about $8 million administering all the cleanup so far, right?

[00:03:08] Speaker 04:
That's correct, Your Honor.

[00:03:09] Speaker 04:
And the total cleanup is?

[00:03:11] Speaker 04:
About $20 million.

[00:03:12] Speaker 04:
$21 million or $20 million?

[00:03:14] Speaker 04:
It's $21 million and some change.

[00:03:16] Speaker 04:
Okay, and so we've run out of project money, right?

[00:03:21] Speaker 04:
That is correct.

[00:03:22] Speaker 04:
And so GNK wants its $8 million.

[00:03:28] Speaker 02:
GNK wants its $8 million and wants to collect the money that it will then pay out to the subcontractors for the other $12 million.

[00:03:36] Speaker 04:
And there are bills pending.

[00:03:37] Speaker 04:
There are subcontractor bills pending but not... Correct.

[00:03:42] Speaker 05:
Can you clarify as far as GNK's own time and resources exactly what you did?

[00:03:49] Speaker 05:
Because we're looking at Keytronic and having to decide, is this more sort of akin to sort of litigation expenses or is this actually tied to the cleanup itself?

[00:03:58] Speaker 05:
And I can't quite tell from the declaration of David Kimball exactly what you did.

[00:04:04] Speaker 02:
Well, let's start with this to simplify it.

[00:04:08] Speaker 02:
None of it is litigation time.

[00:04:10] Speaker 02:
And in fact, as the district court noted, for this appeal, the defendants are not asserting that they're not challenging that all of that $8 million was, as required by the statute, both necessary and consistent with the National Contingency Plan, or the NCP.

[00:04:34] Speaker 02:
So that's kind of a given for this appeal.

[00:04:36] Speaker 02:
I'm sure they'll challenge it if this case goes back down.

[00:04:40] Speaker 05:
You're saying they do not challenge that it was closely tied to actual cleanup?

[00:04:44] Speaker 02:
That's exactly right, Your Honor.

[00:04:45] Speaker 05:
But what did you do because the declaration is vague?

[00:04:49] Speaker 02:
Over a period of 10 years, GNK, actually a little more than 10 years, GNK supervised the entire project.

[00:05:02] Speaker 02:
GNK had control over the entire remediation project, so it hired subcontractors.

[00:05:09] Speaker 02:
Some of those subcontractors were hired directly with GNK as the

[00:05:16] Speaker 02:
As the actual hirer, some were contracted by GNK on behalf of RID.

[00:05:24] Speaker 02:
But in any event, GNK signed all of those agreements, found the contractors.

[00:05:29] Speaker 02:
They assisted in interacting with the Arizona Department of Environmental Quality, ADEQ.

[00:05:35] Speaker 05:
But under Keytronic, that wouldn't be covered.

[00:05:37] Speaker 05:
That wouldn't count as closely tied to actual cleanup.

[00:05:40] Speaker 02:
No, I don't think that's quite right, Your Honor.

[00:05:43] Speaker 02:
It wouldn't be.

[00:05:44] Speaker 02:
The time that they spent, if they spent, what Keytronic says is, if you spend time negotiating a consent agreement with the government, that's not.

[00:05:54] Speaker 02:
That time doesn't count.

[00:05:56] Speaker 02:
But time involved with helping work out the plans.

[00:06:01] Speaker 04:
So your position is that GNK's own time, effort, and resources could come under Keytronic.

[00:06:06] Speaker 02:
Exactly, Your Honor.

[00:06:07] Speaker 02:
And that's not an issue here.

[00:06:09] Speaker 02:
My major point is they are not challenging that it wasn't.

[00:06:13] Speaker 02:
And so this court doesn't have to worry about that.

[00:06:15] Speaker 02:
That's not an issue for this appeal.

[00:06:18] Speaker 04:
Well, let's take you over to Chubb Custom Insurance Company versus Space Systems.

[00:06:23] Speaker 04:
Sure.

[00:06:24] Speaker 04:
says, that basically says reimbursement of the costs of others was insufficient to find a party had quote unquote incurred, we're interpreting the words, incurred costs under CERCLA.

[00:06:36] Speaker 04:
Hasn't the firm simply reimbursed the subcontractors for their work?

[00:06:42] Speaker 02:
Well, the reason Chubb doesn't apply here, it doesn't, the facts in Chubb were that the

[00:06:52] Speaker 02:
the contractor or the owner did the remediation work.

[00:06:58] Speaker 02:
But they didn't sue.

[00:07:00] Speaker 02:
Chubb sued because it had paid for the work.

[00:07:07] Speaker 02:
And the court found that Chubb itself had not done any of the remediation.

[00:07:13] Speaker 02:
It was simply looking to collect the money that it paid not for remediation, but to reimburse its policyholder.

[00:07:21] Speaker 02:
It was an insurer.

[00:07:23] Speaker 02:
Those facts aren't the facts here.

[00:07:25] Speaker 04:
Okay, so then you've got Trimble versus Asarco that suggests that contingent costs are too speculative to qualify as quote unquote incurred costs.

[00:07:39] Speaker 04:
So what case most strongly supports your position that your contingent obligations are non-speculative?

[00:07:49] Speaker 02:
The reason these costs aren't speculative is that they already are done.

[00:08:00] Speaker 02:
We know exactly what the costs are.

[00:08:01] Speaker 02:
Nobody's speculating.

[00:08:04] Speaker 02:
We have produced in discovery, and the defendants have had a chance to examine every single penny of what was spent by both G and K and the subcontractors.

[00:08:14] Speaker 03:
It's not speculative.

[00:08:15] Speaker 03:
I'm sorry.

[00:08:17] Speaker 03:
I want to clarify one other thing.

[00:08:19] Speaker 03:
You have pending invoices, which you just referred to.

[00:08:24] Speaker 03:
But as I understand it, again, correct me if I'm wrong, you are not under a current, or GNK is not under a current legal obligation to pay those invoices.

[00:08:37] Speaker 03:
Is that correct or not?

[00:08:40] Speaker 02:
G&K is legally obligated to pay those invoices if it collects the money.

[00:08:47] Speaker 03:
OK, so it's contingent.

[00:08:49] Speaker 03:
It's contingent.

[00:08:50] Speaker 03:
They're not currently obligated.

[00:08:52] Speaker 02:
That's right, Your Honor.

[00:08:53] Speaker 02:
The issue, which focuses the issue here, the meaning of, and that's what I indicated at the beginning, the case is about the meaning of incurred.

[00:09:05] Speaker 03:
But also, a follow-up question to that.

[00:09:09] Speaker 03:
If the money is collected to pay the invoices, that money will not have belonged to G and K. They're essentially going to be a pass-through.

[00:09:22] Speaker 03:
Is that correct?

[00:09:24] Speaker 02:
Let me make sure I understand your question.

[00:09:28] Speaker 03:
The contingency is that they have to collect

[00:09:32] Speaker 03:
There has to be more money to pay those invoices, right?

[00:09:36] Speaker 03:
Right.

[00:09:37] Speaker 03:
But that money is not GNK's money.

[00:09:40] Speaker 03:
It's coming from another source, the project fund or other entities.

[00:09:47] Speaker 03:
And so I guess I'm asking whether that is a correct understanding that it would not be out of GNK's pocket directly.

[00:09:56] Speaker 02:
Well, see, that depends on how you define GNK's money.

[00:10:00] Speaker 02:
GNK is in charge of the project fund monies.

[00:10:03] Speaker 04:
Well, okay, but the project monies gone, okay.

[00:10:07] Speaker 04:
So, and my understanding is that if the project money runs out, G&K is not under any obligation to pay these subs.

[00:10:19] Speaker 04:
Is that right?

[00:10:21] Speaker 02:
G&K is only under, is under an obligation to pay if it recovers.

[00:10:25] Speaker 02:
If you get money in the project fund.

[00:10:28] Speaker 04:
Right.

[00:10:28] Speaker 04:
And- And Judge Graber keeps pressing you that G&K did not put one penny into the project fund.

[00:10:36] Speaker 04:
You've managed

[00:10:37] Speaker 04:
collecting people to put money into it.

[00:10:41] Speaker 04:
You've spent your time managing all these projects, but it's not, in the project fund, there's not any of your money, right?

[00:10:51] Speaker 02:
I believe that the project funds are G&K's money.

[00:10:54] Speaker 02:
They're nobody else's money.

[00:10:56] Speaker 02:
The fact that GNK obtained them from another source, all businesses get money from another source.

[00:11:02] Speaker 04:
Well, but if it were your money, you could pay yourself from the project fund before you paid any subcontractors, and you can't do that, right?

[00:11:10] Speaker 02:
I guess I didn't quite understand that question.

[00:11:13] Speaker 04:
Well, you said the project fund is your money, but if it were your money, you could just pay yourself.

[00:11:19] Speaker 04:
But you can't.

[00:11:20] Speaker 04:
But the reason you're asking us to say that you can be paid under CERCLA is because it's not your money.

[00:11:28] Speaker 02:
Well, but CERCLA entitles us to recover the cost that we have incurred.

[00:11:35] Speaker 02:
So that gets us back to what is the meaning of incurred?

[00:11:38] Speaker 05:
But your fee agreement says that if the project fund is insufficient, which you've conceded this morning,

[00:11:45] Speaker 05:
You bear the risk of not getting paid, and that's true of the subcontractors.

[00:11:50] Speaker 05:
All of you bore the risk that if the project fund was insufficient, you wouldn't get paid.

[00:11:53] Speaker 05:
So what are we to do with that fee agreement language that you agreed to?

[00:11:57] Speaker 02:
Well, Your Honor, we are not suing under the fee agreement.

[00:12:01] Speaker 02:
We are suing the defendant PRPs under CERCLA, Section 107A.

[00:12:08] Speaker 02:
And under CERCLA, we're allowed to recover regardless of a contract.

[00:12:12] Speaker 02:
There is no CERCLA defense that says, oh, you've got a contract that says otherwise.

[00:12:18] Speaker 02:
And in fact, what CERCLA does say, CERCLA 107A says that a PRP's liability under the CERCLA is subject only, I'm quoting the statute, only to the three defenses set forth in subsection B. And those three defenses... Well, we're taking you into your rebuttal time, which I don't want to use up unless my colleagues have questions.

[00:12:43] Speaker 04:
No, thank you.

[00:12:45] Speaker 04:
OK.

[00:12:45] Speaker 04:
Let's leave it with, and you can think about this, if it would appear that there's no case exactly on point for either of you here.

[00:12:54] Speaker 04:
So would it be your position that whatever this court decides probably needs to be published?

[00:12:59] Speaker 04:
Because there really isn't anything in any other circuit or the Ninth Circuit that actually answers your question directly.

[00:13:09] Speaker 04:
Is that correct?

[00:13:09] Speaker 04:
I think it is a matter of first impression for this court, yes.

[00:13:12] Speaker 04:
OK.

[00:13:12] Speaker 04:
So I'm going to we've used a little bit of your time, but I'm going to give you three minutes for rebuttal.

[00:13:17] Speaker 02:
All right.

[00:13:17] Speaker 04:
Thank you.

[00:13:20] Speaker 04:
All right.

[00:13:20] Speaker 04:
So we'll hear from Mr. Thomas and you have 10 minutes.

[00:13:29] Speaker 01:
Morning may please the court Chris Thomas counsel for the city of Phoenix and also on behalf of the other two defendants here With me is William Pearson from the Pearson law group who was counseled for Maricopa County he's going to take five minutes and Joining us virtually is John Condry who was counsel for?

[00:13:47] Speaker 01:
Prudential overall supply and are you and mr. Pearson splitting up subject matter or We are splitting up time and he's gonna bat clean up in case I bungled something along the way

[00:13:59] Speaker 04:
So we can ask you anything we want.

[00:14:01] Speaker 01:
You can.

[00:14:03] Speaker 01:
If I answer poorly, then Mr. Pearson will correct me.

[00:14:08] Speaker 01:
I think the court has already identified the key issues here, and let me clear up some of the factual questions.

[00:14:14] Speaker 01:
First, what Gallagher and Kennedy is seeking here is a combination of approximately $2 million routed through the project funds account and paid to the subcontractors

[00:14:29] Speaker 01:
That was money paid by third parties and Gallagher and Kennedy did not contribute a penny to that account.

[00:14:34] Speaker 04:
Do you agree this is an issue of first impression?

[00:14:37] Speaker 01:
I do.

[00:14:38] Speaker 04:
Since we're kind of focused on this, let's just jump to you appear to be arguing that no one has quote unquote incurred costs in this situation, which I think seems incorrect given that cleanup has occurred.

[00:14:54] Speaker 04:
Given the subcontractors expended money by performing the cleanup work,

[00:14:59] Speaker 04:
Did they incur costs such that they could bring cost recovery suit against the city or other responsible parties?

[00:15:07] Speaker 01:
Your Honor, that goes to an issue addressed by G and K in its reply where it argued that we should be judicially stopped from asserting that Gallagher and Kennedy did not incur within the meaning of CERCLA costs put out by Spinnaker and Synergy, the subcontractors.

[00:15:26] Speaker 01:
The record indicates that those two entities after judge Ezra as you may recall ruled that Roosevelt irrigation district the nominal client here

[00:15:37] Speaker 01:
did not incur costs that had no- Well, but cleanup has occurred, right?

[00:15:43] Speaker 01:
Some mass was removed sporadically at the expense of Spinnaker.

[00:15:48] Speaker 04:
Synergy also invested sweat equity, much like Gallagher and Kennedy in the project, but let me point out that- But you get some benefit from that, and then you want to deny them benefit.

[00:16:00] Speaker 01:
We would disagree as the water provider in the Phoenix metro area that any benefit was provided to anyone by the sporadic Removal efforts, but nevertheless let me point out that spinnaker and synergy did file a lawsuit themselves seeking to recover what they had expended Gallagher asserts that we should be a stop from alleging that Gallagher incurred those costs that's incorrect at the time that the

[00:16:29] Speaker 01:
Parties moved argued to the court in 2018 that the spinnaker and synergy costs were not yet rape the RID lawsuit had not yet been concluded and addition to that Roosevelt irrigation was district was continuing its efforts to sell water which would have replenished the

[00:16:49] Speaker 01:
project funds account and made funds available to pay those other vendors.

[00:16:54] Speaker 01:
I have a question too.

[00:16:56] Speaker 01:
Go ahead Judge Graber.

[00:16:59] Speaker 03:
You used the phrase sweat equity and G&K I guess uses a more refined term but they actually spent time and work

[00:17:12] Speaker 03:
on making sure that remediation occurred, whether it was complete or satisfactory is a different question.

[00:17:20] Speaker 03:
But they did in fact spend their time on that, about $8 million worth according to them.

[00:17:26] Speaker 03:
Why isn't that a form of incurring costs to make remediation happen?

[00:17:38] Speaker 03:
There's no statutory definition of incur.

[00:17:42] Speaker 03:
And so why isn't that a form of expenditure that can be reimbursed by the polluters?

[00:17:52] Speaker 01:
Well, first off, Keytronic obviously holds that litigation-related attorney's fees.

[00:17:58] Speaker 01:
There's no fee-shifting provision.

[00:18:00] Speaker 03:
This is not all litigation.

[00:18:02] Speaker 03:
I'm asking about the part where they were managing

[00:18:05] Speaker 03:
the actual remediation and the subcontractors.

[00:18:08] Speaker 03:
I agree with you on legal work, but this wasn't all legal work.

[00:18:14] Speaker 03:
So as to the things that were not legal work or litigation related specifically, why isn't that a cost incurred?

[00:18:23] Speaker 01:
There's no case that holds that a law firm can effectively become its own client by conducting work at an impacted site.

[00:18:36] Speaker 04:
But there's no case that says what incurred means either.

[00:18:39] Speaker 04:
So that's what they're arguing one thing, you're arguing another.

[00:18:42] Speaker 01:
We are indeed.

[00:18:44] Speaker 05:
But let's look at what they did.

[00:18:45] Speaker 05:
GNK and its consultant synergy performed well investigations and prepared a well investigation work plan that was submitted to ADEQ.

[00:18:53] Speaker 05:
I don't see how you can do remediation without the work that they did.

[00:18:58] Speaker 05:
GNK and its consultant synergy prepared a public health exposure and mitigation work plan.

[00:19:02] Speaker 05:
If you don't have those work plans,

[00:19:04] Speaker 05:
that will lay out how to do the remediation.

[00:19:07] Speaker 05:
You can't have remediation, so I just don't understand how these aren't necessary costs for the cleanup.

[00:19:12] Speaker 05:
And we can just go through the whole list.

[00:19:14] Speaker 05:
It's not litigation.

[00:19:15] Speaker 05:
It's preparing the plan to how to pump and treat the contaminated groundwater.

[00:19:21] Speaker 01:
Judge Cote, first off, the sporadic remediation efforts were abandoned in 2020.

[00:19:28] Speaker 01:
after the project funds account was exhausted and RID settled its water rights case with the Bureau of Reclamation, which included a provision prohibiting the irrigation district from selling water for drinking water purposes.

[00:19:40] Speaker 01:
That basically killed off the source of revenue that Gallagher and the other joint ventures had anticipated would

[00:19:46] Speaker 01:
produce project funds in profit.

[00:19:49] Speaker 05:
But that's not an answer to my question.

[00:19:51] Speaker 05:
That's not an answer to my question.

[00:19:52] Speaker 05:
How could you do remediation without the work plans that GNK and the subcontractors created to actually guide the cleanup?

[00:20:03] Speaker 01:
Your Honor, certainly a work plan is a regular part of a circular response.

[00:20:08] Speaker 01:
The work plan was drafted by synergy, presumably Gallagher made some comments on it, but again, with respect to the necessity of those efforts and the consistency with the NCP,

[00:20:21] Speaker 01:
Those were not at issue in the motion below, which was limited to the incurred cost issue.

[00:20:26] Speaker 01:
So whether or not they're necessary is not something for this court to decide and was not something- Well, this was motion for summary judgment.

[00:20:33] Speaker 05:
So at a minimum, there's a factual material dispute, right, as to whether these GNK costs and these subcontracts.

[00:20:39] Speaker 05:
The GNK cost let's just limit it to GNK the necessary for the cleanup at a minimum I mean it sounds like you conceded that they actually were necessary for the cleanup.

[00:20:49] Speaker 01:
That's that's not correct We did not concede the necessity and reasonableness of any cost because the only issue addressed in this no That's not the question, but if you're not going to concede it we can move on Another question too because you've said several times that the remediation was incomplete it was abandoned and so forth

[00:21:09] Speaker 03:
Does that have any legal effect with respect to the remediation efforts that were in fact completed, whether they were good or bad?

[00:21:20] Speaker 03:
I don't understand the circle to say, well, it has to be complete for it to be an incurred cost.

[00:21:31] Speaker 01:
Your Honor, I think it does reflect on whether this is the appropriate case to extend the definition of incurred from other cases such as Chubb and Trimble.

[00:21:45] Speaker 03:
That's not an answer to my question.

[00:21:48] Speaker 03:
Does the statute require in your view

[00:21:51] Speaker 03:
that a remediation be complete or satisfactory in order for costs to be incurred with respect to the remediation that was done?

[00:22:02] Speaker 01:
Well, certainly CERCLA allows parties to seek cost recovery after an initial phase of costs have been incurred before the remediation is entirely complete.

[00:22:16] Speaker 04:
Let me ask you a hypothetical, that if Gallagher and Kennedy was liable on a non-contingent basis to pay the subcontractors for their work, would you agree that the firm had incurred costs?

[00:22:34] Speaker 01:
That would bring them much closer to the existing case law that says that you have incurred costs.

[00:22:40] Speaker 04:
Maybe yes.

[00:22:41] Speaker 01:
Maybe yes, but that's not the case here.

[00:22:45] Speaker 05:
Let me tell you what I have a concern about.

[00:22:47] Speaker 05:
In this case, if the district court is affirmed, then the parties that actually caused the contamination will be receiving the benefit of at least some remediation, which you can see whether it was abandoned or completed or not, some remediation was done.

[00:23:04] Speaker 05:
And the parties who had no role in causing the contamination will be stuck with the bill.

[00:23:09] Speaker 05:
I just don't see how that's consistent with the purpose of CERCLA.

[00:23:13] Speaker 01:
Well, there are a variety of purposes of CIRCLE, including encouraging appropriate cleanup under supervision.

[00:23:19] Speaker 05:
But this is... So how would that encourage cleanup if other parties, subcontractors, law firms, see this case and see you can do a lot of remediation and you will not get reimbursed?

[00:23:31] Speaker 05:
How does that encourage cleanup?

[00:23:32] Speaker 05:
Why is that consistent with the statute?

[00:23:34] Speaker 01:
Your Honor, it may discourage other parties from entering into this, as far as we know, unusual and unprecedented agreement, but that would hardly be inappropriate because CERCLA is not intended to basically replicate the common law on subrogation.

[00:23:53] Speaker 01:
Price and other cases hold that it's not a vehicle for subcontractors to seek recovery directly from potentially responsible parties.

[00:24:02] Speaker 01:
I see that I am just about out of time.

[00:24:08] Speaker 04:
Do either of my colleagues have any additional questions?

[00:24:10] Speaker 04:
No, thank you.

[00:24:11] Speaker 01:
No, thank you.

[00:24:12] Speaker 01:
Thank you.

[00:24:13] Speaker 01:
I'm going to turn it over to Mr. Pearson.

[00:24:15] Speaker 04:
All right.

[00:24:15] Speaker 04:
Thank you.

[00:24:16] Speaker 04:
And he has five minutes.

[00:24:21] Speaker 04:
OK, so you're the relief pitcher here.

[00:24:23] Speaker 04:
So any questions that maybe you don't think were answered, go for it.

[00:24:27] Speaker 00:
All right, I'll do my best.

[00:24:28] Speaker 00:
May it please the court?

[00:24:29] Speaker 00:
My name's William Pearson.

[00:24:30] Speaker 00:
I represent Maricopa County.

[00:24:32] Speaker 00:
along with the city and Prudential.

[00:24:35] Speaker 04:
Well, why don't you start with where Judge Koh left off in terms of, because obviously we want things to be cleaned up and it would seem there's a good argument could be made that your interpretation of incurred allows polluters to have the benefit and other people that are working for cleanup.

[00:24:58] Speaker 04:
Okay.

[00:24:59] Speaker 04:
They can't claim that they've incurred costs.

[00:25:02] Speaker 00:
Could I answer two of the first questions and then come right to you?

[00:25:06] Speaker 04:
You can answer what I asked you, and then you can answer what you want.

[00:25:09] Speaker 00:
All right.

[00:25:12] Speaker 00:
The answer is that Circliffe sets up a whole structure for cleaning up sites.

[00:25:18] Speaker 00:
And part of that structure is that a party who is going to do a cleanup signs an agreement with the government who has obligations under that agreement, penalties for not performing that agreement,

[00:25:31] Speaker 00:
provides that they pay the vendors who do the work to ensure that the work continues, and EPA requires them to provide financial assurance that they will complete the project.

[00:25:44] Speaker 00:
None of that happened here.

[00:25:45] Speaker 04:
So the subcontractors could go after you then.

[00:25:48] Speaker 04:
You would agree to that?

[00:25:49] Speaker 00:
Well, subcontractors arguably could come after us if they did, but they didn't.

[00:25:54] Speaker 00:
In this case, the only party before the court is plaintiff G and K. Spinnaker's synergy

[00:26:01] Speaker 00:
They're not before us.

[00:26:03] Speaker 00:
They're not parties here.

[00:26:04] Speaker 00:
GNK doesn't represent .

[00:26:05] Speaker 00:
.

[00:26:05] Speaker 00:
.

[00:26:05] Speaker 04:
Well, I know, but when you argue something, the court's like a logical scheme.

[00:26:09] Speaker 04:
I think what Judge Coe's saying, you shouldn't get to free ride on this.

[00:26:13] Speaker 04:
If you say GNK doesn't get it, then would logically the subcontractors, if they sued for whatever they performed, would they be able to get it from you?

[00:26:24] Speaker 00:
In that framework, if they did the work and that work was paid for, they could

[00:26:29] Speaker 00:
bring their action.

[00:26:30] Speaker 00:
CERCLA assumes that there's a... So who should pay them?

[00:26:35] Speaker 05:
Who's the responsible party that should pay the subcontractors?

[00:26:37] Speaker 00:
The party who hired them.

[00:26:39] Speaker 00:
Because that's the dispute between the performing party and the party who hired the entity, the vendor, to do the work.

[00:26:46] Speaker 00:
And there's a relationship there.

[00:26:47] Speaker 00:
And CERCLA assumes there's a relationship there.

[00:26:50] Speaker 00:
And so that if the performing party hires a vendor, like Spinnaker, like Synergy, to do work, or like GNK to do work,

[00:26:58] Speaker 00:
then that party is obligated to pay.

[00:27:01] Speaker 00:
That's the long-standing case precedent on incurring costs under CERCLA.

[00:27:06] Speaker 00:
If they don't pay, or have no obligation to pay, then the vendor is not paid.

[00:27:12] Speaker 00:
And that's the risk that the vendor took in entering a relationship with a performing party.

[00:27:18] Speaker 00:
They knew what they were getting into, and if there's a dispute, then they should have a dispute with the performing party.

[00:27:25] Speaker 00:
CERCLA does not provide a direct action

[00:27:27] Speaker 00:
for a vendor who is unpaid to then bring their own action back in a circular case, because the vendor hasn't gone through and performed the cleanup as would be normal in the circumstances.

[00:27:43] Speaker 00:
Let me respond to two quick questions.

[00:27:46] Speaker 00:
One is on project funds.

[00:27:47] Speaker 00:
GNK put no money in project funds.

[00:27:50] Speaker 00:
There was a little over $2 million in that from other sources.

[00:27:53] Speaker 00:
Jean Kate does no ownership rights over that.

[00:27:55] Speaker 00:
She was put in a trust account, and they paid it out.

[00:27:58] Speaker 05:
Let me ask you another question.

[00:28:00] Speaker 05:
Why shouldn't a Morrison and Ninth Circuit case apply here that says if you incur fees, even if you're only obligated to pay them in the event you're able to recover?

[00:28:12] Speaker 00:
Well, Morrison is a... Why shouldn't that apply here?

[00:28:14] Speaker 00:
Sure.

[00:28:15] Speaker 00:
Morrison's a fee-shifting case.

[00:28:17] Speaker 00:
That's, in the IRS code, provides for a prevailing party to

[00:28:21] Speaker 00:
to be awarded the funds or litigation costs if they are able to establish some other issues as well related to the IRS code.

[00:28:33] Speaker 00:
That is not the case here.

[00:28:35] Speaker 00:
Circular does not provide a fee-shifting provision.

[00:28:38] Speaker 00:
Some of the other environmental statutes have citizen suit provisions where you can get your litigation fees.

[00:28:43] Speaker 00:
But Morrison is clearly not applicable here for that reason.

[00:28:50] Speaker 04:
Okay, you have less than a minute, but I'll give you an extra minute to answer the question we didn't ask you that you want to answer.

[00:28:57] Speaker 00:
Okay.

[00:28:58] Speaker 00:
I would ask the court to just step back for a minute and understand what happened here.

[00:29:03] Speaker 00:
This is not a cleanup project.

[00:29:05] Speaker 00:
This was a high-risk joint venture organized by Gallagher and Kennedy in order to make a zillion dollars in selling drinking water.

[00:29:14] Speaker 00:
That venture collapsed.

[00:29:16] Speaker 00:
When that collapsed, G&K now goes,

[00:29:19] Speaker 00:
Now, we need to look to CERCLA, invoke CERCLA, to see if we can get our money that we lost.

[00:29:27] Speaker 04:
Well, so that collapsed because they were going to sell water that wasn't potable to agriculture or something, and then they didn't get to do that, so they didn't make money off selling water during the period.

[00:29:42] Speaker 04:
Is that your point?

[00:29:43] Speaker 00:
Right.

[00:29:43] Speaker 00:
All the money was going into project funds, and that's where all the parties expected to be paid.

[00:29:48] Speaker 00:
So when the drinking water scheme collapsed, there was no money in the project funds.

[00:29:53] Speaker 00:
And so G and K looked around and said, well, let's see if we can get our, our contribution in the joint venture paid out through CERCLA.

[00:30:01] Speaker 00:
When they never agreed to do the cleanup, they never put any money into the cleanup.

[00:30:05] Speaker 00:
They walked away as soon as they, as soon as the drinking water scheme failed and

[00:30:12] Speaker 00:
And the state agency had grid withdraw the cleanup plan.

[00:30:16] Speaker 05:
What case law says that your motivation to make a profit means you can't get reimbursed under CIRCLA?

[00:30:24] Speaker 05:
I guess I don't see the relevance of this, other than you're trying to make GNK look like greedy actors.

[00:30:30] Speaker 05:
I don't know.

[00:30:30] Speaker 00:
What's the legal significance of this history?

[00:30:33] Speaker 00:
The ultimate motivation, the case law is pretty clear.

[00:30:35] Speaker 00:
The ultimate motivation for doing the work is not

[00:30:38] Speaker 00:
So the only reason I'm bringing it up, it gives an explanation for how this whole process occurred and gives an explanation for why G and K should not be able to claim that they are a compliant... Well, you're saying that's why the scheme did not work.

[00:30:58] Speaker 00:
That's why the scheme did not work, but because of that, that then shows that this is not a contingency fee agreement.

[00:31:05] Speaker 00:
It's a joint venture agreement, and that shows

[00:31:07] Speaker 00:
why they did not follow the normal circular steps in order to be a compliance circular plaintiff by signing an agreement to do the work.

[00:31:16] Speaker 00:
Our position is if you're going to be able to be paid for having incurred costs, you have to be in line with what a circular compliant plaintiff would do.

[00:31:26] Speaker 00:
You can't just go out there with a backhoe and dig up some dirt and take it off and dump it somewhere and then bring a cost recovery action.

[00:31:35] Speaker 00:
So the last, the, the, uh, so.

[00:31:41] Speaker 00:
Well, I've given you extra time.

[00:31:42] Speaker 04:
So 30 seconds, wrap it up.

[00:31:46] Speaker 00:
Okay.

[00:31:47] Speaker 00:
Um, don't test me.

[00:31:50] Speaker 00:
Okay.

[00:31:51] Speaker 00:
Um, my last comment is judge Ezra looked at these issues three times and he issued three detailed report decisions.

[00:32:00] Speaker 00:
They're all well-written, looked at all the case law that we have in front of us, and he came out with a dismissal of the GNK claims.

[00:32:08] Speaker 00:
And we believe that those are well-reasoned.

[00:32:10] Speaker 00:
This case has gone on for 14 years, and we think it's time to terminate the litigation and affirm the district court's decision.

[00:32:18] Speaker 00:
Thank you.

[00:32:18] Speaker 04:
Thank you for your argument.

[00:32:19] Speaker 00:
Thank you.

[00:32:20] Speaker 04:
All right.

[00:32:21] Speaker 04:
Three minutes for rebuttal.

[00:32:27] Speaker 02:
Thank you, Your Honor.

[00:32:32] Speaker 02:
I want to go back to the statute, the language of the statute for just a minute if we could, because I think that's really each thing at issue here.

[00:32:42] Speaker 02:
And I want to make two points.

[00:32:44] Speaker 02:
First of all, incur.

[00:32:47] Speaker 02:
That word, as you know, is undefined in the statute.

[00:32:50] Speaker 02:
And incur thus takes its ordinary meaning.

[00:32:54] Speaker 02:
Well, the ordinary meaning of incur, according to the various dictionaries,

[00:33:00] Speaker 02:
is to become liable for or subject to.

[00:33:05] Speaker 02:
It does not mean to actually pay for.

[00:33:10] Speaker 02:
What I just said was a quote from the Quarles Petroleum case, a court of claims case that we've cited in the briefs.

[00:33:18] Speaker 02:
And when you look at the meaning of incur, or when you look at the meaning of to become liable for or subject to, that's a vague phrase.

[00:33:29] Speaker 02:
But it's broad enough to include both absolute liability and contingent liability, as this court determined in the Morrison case.

[00:33:40] Speaker 02:
Now, let me talk about the Morrison case for just a minute.

[00:33:43] Speaker 04:
But if the selling water had worked out, we wouldn't have to be here, right?

[00:33:48] Speaker 04:
You would have gotten paid.

[00:33:51] Speaker 02:
I suppose that's the case, but that's completely irrelevant because the question is, did we incur costs under 107A?

[00:33:59] Speaker 02:
Selling water has nothing to do with it.

[00:34:03] Speaker 04:
But if that had happened, we wouldn't be here.

[00:34:05] Speaker 04:
That caused a problem.

[00:34:08] Speaker 02:
I don't even know if that's true or not, Your Honor.

[00:34:09] Speaker 02:
That's a complicated issue, the sale of water.

[00:34:12] Speaker 04:
Well, for $21 million of cleanup to only have $2 million in the profit in the project management, you can do the math there.

[00:34:20] Speaker 04:
There's a problem.

[00:34:22] Speaker 02:
Well, GNK was dependent on this lawsuit, on CERCLA 107A.

[00:34:27] Speaker 02:
That's how people do recover costs.

[00:34:30] Speaker 02:
For example, in the OHM case that we've cited, the remediation contractor itself put in millions of dollars of work for which it didn't get paid.

[00:34:42] Speaker 02:
In that case, its principal simply went away and didn't pay it.

[00:34:48] Speaker 02:
So what's its option?

[00:34:50] Speaker 02:
It has the option of suing under this same statute, and it did that, and the court said yes, you can recover the cost you personally expended there.

[00:35:00] Speaker 02:
So in determining the meaning of incurred, the court has to look at the policy underlying CERCLA, just as the court in Morrison looked at the policy underlying the statute at issue there.

[00:35:15] Speaker 02:
And when you look at that policy,

[00:35:18] Speaker 02:
The intent of the statute is clearly to promote the effectiveness and the ability to get remediation done.

[00:35:32] Speaker 04:
So basically, you've used your time.

[00:35:34] Speaker 04:
But since I try to keep things equal, you've got a minute to wrap everything up.

[00:35:38] Speaker 02:
OK, Your Honor.

[00:35:40] Speaker 02:
Let me wrap up with the big picture.

[00:35:43] Speaker 02:
The big picture is this.

[00:35:44] Speaker 02:
GNK came up with a creative way

[00:35:48] Speaker 02:
to get remediation done, to help remediate the RID contaminated wells that were contaminated by the PRPs, our defendants here and others.

[00:35:59] Speaker 02:
Came up with a creative way to do that because RID had no money itself to do it and there was no government agency that was stepping forward.

[00:36:07] Speaker 02:
So GNK stepped forward and over a period of 10 years

[00:36:13] Speaker 02:
did all the things, some of which we've discussed in the briefs, to ensure that this could get remediated.

[00:36:19] Speaker 02:
It didn't entirely work out, but billions of gallons of contaminants were successfully removed and treated at the RID wells.

[00:36:30] Speaker 02:
GNK didn't cause any of that, but GNK and the subcontractor should be reimbursed for that.

[00:36:36] Speaker 02:
Otherwise, the PRPs go free, and that would turn the objective of the circle on its head.

[00:36:43] Speaker 02:
We ask you to reverse, Your Honor.

[00:36:44] Speaker 04:
Okay.

[00:36:44] Speaker 04:
Thank you for your argument.

[00:36:46] Speaker 04:
Thank you both for your arguments.

[00:36:47] Speaker 04:
This matter will stand submitted.

[00:36:49] Speaker 04:
Thank you.