Maxim I Properties v. Krohn

Background

The case concerns hazardous contamination at property located at 1300-1310 Old Bayshore Highway in San Jose. Moyer Products, Inc. operated a pesticide and fertilizer business at the property from 1947 to 1982. A 1977 inspection found significant soil and groundwater contamination involving hazardous pesticides and solvents. Maxim I Properties purchased the property in 2002 and later learned that it had been a former hazardous-waste transfer site.

The California Department of Toxic Substances Control began an enforcement proceeding in 2012 against 60 respondents. In 2013, the Department entered a corrective-action consent agreement with at least 40 generators, including Moyer, Renesas Electronics America Inc., and other parties. The generators funded and developed a Corrective Measures Study. Moyer contributed approximately $1.5 million of the study’s $3 million cost. The Department approved the study in March 2023. Estimates for total remediation costs ranged from $1.32 million to $2.4 million, and completion was projected to take 30 years.

Maxim’s lawsuit asserted claims involving cleanup costs under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), the Resource Conservation and Recovery Act, the California Hazardous Substance Account Act, and state law. Moyer asserted counterclaims and cross-claims, and Renesas asserted a counterclaim against Moyer. The court had previously denied approval of an earlier proposed $1.7 million settlement because it did not satisfy the requirements for a good-faith settlement and was not fair, reasonable, and adequate under CERCLA.

Second Settlement Agreement

The second agreement involved Maxim, Moyer, and the Department. Moyer agreed to pay $1.7 million through its insurers into a qualified settlement fund. The Department would administer the fund and implement corrective action either directly or through a respondent it selected, but not through Moyer or Maxim. Maxim could apply for reimbursement of qualifying costs up to $380,000, but submitted a sworn declaration agreeing not to seek more than $160,000.

The agreement required the settling parties and their affiliates to dismiss claims against one another and release past, present, and future claims relating to the existing contamination. The Department agreed not to sue or take judicial or administrative action against Moyer, Maxim, or Maxim’s affiliates for claims related to the current contamination, while reserving certain other claims. The agreement would also bar Moyer’s cross-claims against the remaining parties and Renesas’s counterclaim against Moyer.

Court’s Analysis

The court applied California’s good-faith-settlement standards, including the factors from Tech-Bilt, Inc. v. Woodward-Clyde & Associates. Those factors include the estimated total recovery, the settling party’s proportionate liability, the settlement amount, the allocation of settlement proceeds, the settling party’s financial condition, and possible collusion. The opposing parties had the burden to show that the settlement was so far outside the reasonable range that it was inconsistent with the statute’s goals.

The court found that the agreement addressed problems identified in the earlier order. Most of the $1.7 million would fund remediation rather than go to Maxim. Assuming Maxim sought the full $160,000 cap and remediation costs reached $2.4 million, approximately $1.54 million would go toward remediation, or 64 percent of the estimated cost. Moyer had already contributed approximately half of the cost of the Corrective Measures Study. Although evidence suggested Moyer may have caused much of the contamination, the record also showed possible responsibility by other generators, and the court found Moyer’s contribution was not grossly disproportionate to its potential liability.

The court also found that the releases involving Maxim’s affiliates were not improper. Maxim had obtained a rescission judgment indicating that it was never the actual owner of the property. The court recognized that Maxim’s affiliate American Drilling might have some potential operator liability, but found no evidence that it contributed to the contamination or acted without due care. The court therefore found American Drilling’s potential share to be very low or nonexistent.

The court rejected objections that the settlement was illusory or collusive. Maxim was giving up claims and the right to challenge the Department’s decision about reimbursable costs, while only 9 percent of the settlement could be used for Maxim’s qualifying costs; the remaining 91 percent would fund remediation. The parties had negotiated through mediation and settlement conferences, and the public-comment period produced no comments or objections. The court also found that an exact accounting of Moyer’s insurance coverage was unnecessary because the settlement was roughly proportional and there was no evidence that Moyer was hiding assets.

The court separately considered CERCLA’s objectives of promoting timely cleanup, requiring responsible parties to bear cleanup costs, and encouraging settlement. It found that the fund would be established within 30 days of the final ruling, that an administrator had been identified, and that the Department—not the settling parties—would control the fund and remediation. The court concluded that the agreement would advance cleanup rather than delay it and was fair, reasonable, and consistent with CERCLA’s objectives.

Disposition

The court granted the motion for a good-faith settlement determination. It found that the agreement between Maxim, Moyer, and the Department was reached in good faith and was fair, reasonable, and consistent with CERCLA’s policy objectives. Maxim’s and Moyer’s claims against each other were dismissed with prejudice. Moyer’s cross-claims against the cross-defendants for contribution and indemnity were barred, and Renesas’s counterclaim against Moyer for contribution was barred. The court denied the settling parties’ request to retain jurisdiction over the settlement. Because no claims remained, the action was closed. Judge Donna M. Ryu signed the order.