Government Liable for Cleanup Costs Long After Performance

Contractors were entitled to reimbursement from the government for environmental cleanup costs incurred after fuel contracts expired, according to the Court of Federal Claims, because the costs were charges covered under the contracts and the contracts did not limit recovery to costs incurred during contract performance. Nearly 50 years after performance ended, several contractors that produced aviation gasoline during World War II were held liable under the Comprehensive Environmental Response, Compensation and Liability Act for the costs to clean up waste produced during production of the "avgas." The contractors filed suit for reimbursement and moved for partial summary judgment on the government's liability for the cleanup expense. The government moved to dismiss, arguing the claims sought indemnification but the contracts did not contain an indemnification clause. However, the contracts contained language in the "Taxes" clause that required the government to pay for new or additional charges, as mandated by federal law, that were incurred as a result of the production and distribution of the avgas. The government contended the "Taxes" clause was expressly limited to taxes, fees and charges incurred during contract performance and CERCLA liability did not fit into those cost categories.

However, the word "charges" in the Taxes clause encompassed costs and expenses beyond tax obligations. Also, while not contemplated by the parties at the time they executed the contracts, CERCLA liability was clearly a new charge that was contemplated by the parties under the language of the contracts. The government further argued the additional charges had to have been imposed during contract performance and the contractors did not incur the cleanup costs "by reason of "their performance. According to the government, nothing in the contracts indicated the obligations extended into the "indefinite future." However, looking at the plain and ordinary meaning of the Taxes clause language, the contract did not distinguish between new costs imposed during performance and additional charges imposed after production of the avgas ended, a limitation the government could have required. Moreover, because the only alternative to dumping waste was a reduction of avgas production, it was clear the dumping and subsequent cleanup occurred "by reason of" the production of avgas. Thus, the cleanup costs were "properly seen as part of the war effort for which the American public as a whole should pay." (Shell Oil Co., et al. v. U.S., FedCl, 52 CCF ¶78,888)

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