*1 On March 28, 2016, Plaintiff City of Los Angeles (“City”) filed a motion to compel further responses to Deposition Questions 18, 22, 23, 24, 39, 40, 56, 57, 62, 76, 78, 80 and 84, and Document Request Nos. 9, 10, 11, 12 and 13.[1] (Dkt. No. 110.) On April 18, 2016, the City filed a supplemental memorandum and request for judicial notice. (Dkt. No. 113.) On April 19, 2016, Defendant BAE Systems San Diego Ship Repair, Inc. (“BAE Systems”) filed a supplemental memorandum. (Dkt. No. 114.) The matter is appropriate for adjudication without oral argument. Fed. R. Civ. P. 78; Local Rule 7-15.

Procedural History

According to the record, BAE Systems' predecessor, Southwest Marine, Inc. (“Southwest Marine”), leased the site that is the subject of this CERCLA action commencing July 1, 1981 under Permit 449, which was superseded by Permit 594 on October 27, 1990. (Joint Stipulation (JS) at 13; Compl. ¶ 31.) The complaint alleges that Southwest Marine, which operated a commercial shipyard and ship dismantling facility, agreed to keep the site free of hazardous material and to prevent accumulation of hazardous material on the site. (Id. ¶¶ 16, 18-23, 34.)

The City terminated the lease effective October 31, 2004 and requested that Southwest Marine provide, among other things, remediation schedules. (Compl. ¶ 24; Exh. 1 to Mattfield Supp. Decl.) After discussions broke down, the City filed an unlawful detainer action on January 12, 2005 in the Los Angeles County Superior Court, Case No. NC041240. (Compl. ¶ 29; Mattfield Supp. Decl. ¶ 6.) On May 2, 2005, a stipulated judgment was entered in that case. (Compl. ¶ 30; Exh. 3 to Mattfield Supp. Decl.)

Between 2005 and 2007, the City conducted an environmental investigation and reported the results to the California Department of Toxics Substances Control (“DTSC”). (Compl. ¶ 36.) Effective September 30, 2006, the City and BAE entered into a tolling agreement that was renewed in September 2010. (Id. ¶¶ 37, 46; Exh. 4 to Mattfield Supp. Decl.) This court grants the City's request for judicial notice of the stipulated judgment entered in Case No. NC041240 and the tolling agreements.

On November 8, 2008, the DTSC issued a Remedial Action Order to the City and BAE Systems regarding the former Southwest Marine Terminal Island facility at Berth 240 of the Port of Los Angeles. (Compl. ¶ 38; Exh. 5 to Mattfield Supp. Decl.) The Remediation Action Order, which was amended on December 5, 2008, indicated that hazardous substances were found at the site. (Exh. 5 § 2.4.) “There has been a ‘release’ and/or there is a ‘threatened release’ of hazardous substances listed in Section 2.4 at the Site.” (Id. § 3.3.) The City and BAE Systems were ordered to conduct response actions, including a remedial investigation/feasibility study. (Id. §§ V-VI; Compl. ¶ 39.) The Remedial Investigation Report was posted on March 5, 2012 at http://www.envirostor.dtsc.ca.gov/public/profile_report.asp?global_id=60000999.

*2 On November 27, 2013, the City filed this lawsuit against BAE Systems for environmental cost recovery, contribution, express contractual indemnity, breach of contract (rent), breach of contract (restoration), negligence, nuisance and trespass. (Dkt. No. 1.) The City filed a First Amended Complaint. (Dkt. No. 38.)

BAE Systems filed counterclaims against the City seeking cost recovery, contribution, damages and other relief, and other claims. (Dkt. No. 42-43, 55.)

The City has filed a separate case against Lloyd's of London in Los Angeles County Superior Court, Case No. BC588876. (McDonnell Decl. ¶ 6.)

Factual Background of the Dispute

The City states that BAE Systems disclosed certain liability insurance policies as part of its Fed. R. Civ. P. 26(a) initial disclosures, but failed to include or supplement its initial disclosure with at least one excess policy that the City later discovered, Lloyd's of London (“Lloyd's”) Policy No. R03300E in effect February 1-August 1, 1985, with limits of $20 million. (See Exh. 1 at 2, 4 to McDonnell Decl.) A letter from Lloyd's indicates “the Companies and BAE are parties to a settlement agreement with regard to the Policies,” including R003300E. (Id. at 2.)

By letter dated February 17, 2015, Resolute Management Inc. (“Resolute”), which assumed responsibility for “servicing certain claims on behalf of certain London Market Companies,” stated there is no coverage under various policies because, among other things, “BAE and Resolute Companies and Underwriters entered into a confidential Settlement Agreement in September 2013 which released, rescinded, terminated and/or exhausted policies issued to Southwest Marine, Inc., including but not limited to the BAE Policies” under which the City claimed coverage (which list did not include R03300E, presumably because the City was unaware of that policy at the time). “As a result of that Settlement Agreement, Resolute Companies and Underwriters have no obligation [to] defend or indemnify any insured under those policies” covered by the Settlement Agreement. (Exh. B at 4-5 to McDonald Decl.)

The District Judge ordered a 30-day supplemental discovery period for limited fact discovery regarding BAE Systems' insurance policies. (Order dated Feb. 11, 2016, Dkt. No. 105 at 2.) Pursuant to that order, the City was to serve written Rule 30(b)(6) questions on BAE Systems on or about the date of entry of the order, and BAE Systems would respond within 14 days after receipt of the City's written questions. The last day for filing a discovery motion as to those matters was 45 days after entry of the order, and the last day for a hearing on the motion was May 9, 2016. (Id.) The deadline to hold a hearing was extended to August 9, 2016. (Order dated March 28, 2016, Dkt. No. 111.)

Discovery Requests At Issue

The discovery requests at issue all concern BAE's settlement or buyback of insurance policies that may cover the site and are as follows:

Discussion

Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) to facilitate the remediation of hazardous waste sites and the resolution of liability for related costs. See Chubb Custom Ins. Co. V. Space Sys., 710 F.3d 946, 956 (9th Cir. 2013). Section 107(a) of CERCLA allows a party who has incurred cleanup costs to bring a “cost recovery” action against a potentially responsible party (PRP) for a wide range of environmental cleanup expenses. 42 U.S.C. § 9607(a); United States v. Atl. Research Corp., 551 U.S. 128, 139 (2007). Section 113(f) allows a party to seek “contribution” from any person who is liable or potentially liable under § 107(a) “during or following any civil action” under § 107(a). 42 U.S.C. § 9613(f)(1). The Supreme Court defined contribution to mean a “ ‘tortfeasor's right to collect from others responsible for the same tort after the tortfeasor has paid more than his or her proportionate share, the shares being determined as a percentage of fault.’ ” Atl. Research, 551 U.S. at 138 (citation omitted). Cost recovery and contribution are distinct remedies. Id. at 139.

The Seventh Circuit has ruled that the collateral source rule does not apply in CERCLA actions “and so in principle courts may take insurance payments into account when deciding contribution shares.” NCR Corp. v. George A. Whiting Paper Co., 768 F.3d 682, 707 (7th Cir. 2014). Whereas the collateral source rule prevents a defendant from receiving the benefit of insurance payments to an innocent party, “[e]quity would not be served by requiring a district court to remain blind to alternate sources of recovery for one tortfeasor and the possibility of its recouping more than 100% of its share.” Id.

The Seventh Circuit's decision cited to a Ninth Circuit opinion that recognized, in a CERCLA contribution case, that “one equitable factor is preventing someone from recovering for the same harm twice.” Boeing Co. v. Cascade, 207 F.3d 1177, 1189 (9th Cir. 2000). In Boeing, the district court found that Boeing had received a settlement from its predecessors and that 1/3 of that settlement amount was attributable to the sandstone aquifer at issue. The Ninth Circuit found that the settlement amount was properly deducted after calculating Boeing's percentage share of liability to eliminate double reimbursement for the same expense. Id. at 1190. Other circuits have applied the same equitable consideration to permit deduction of settlement proceeds found to be attributable to the environmental cleanup at issue. See Friedland v. TIC-The Industrial Co., 566 F.3d 1203, 1207 (10th Cir. 2009) (citing Basic Management Inc. v. United States, 569 F. Supp. 2d 1106 (D. Nev. 2008)).

Thus, under existing precedent, the City is entitled to discovery of the settlement or buyback agreements of BAE Systems' insurance policies under which an insurer otherwise “may be liable to satisfy all or part of a possible judgment in the action or to indemnify or reimburse for payments made to satisfy the judgment.” Fed. R. Civ. P. 26(a)(1)(iv). At a minimum, under existing precedent, the City may be able to argue that the amounts BAE Systems received should be deducted from its percentage share of liability (assuming BAE Systems has such liability) in order to eliminate double reimbursement from the City for the same expense.

*4 BAE Systems makes several unpersuasive arguments. BAE Systems contends that the request is premature because there has not yet been a determination that BAE Systems has any liability. However, the City's complaint contains claims for cost recovery and contribution in the same action, as it is permitted to do under 42 U.S.C. § 9613(f)(1). Discovery in this case was not bifurcated. Indeed, the District Judge reopened discovery for a 30-day period regarding BAE Systems' insurance policies. (Order, Dkt. No. 105 at 2.) Thus, discovery is clearly not premature.

BAE Systems also contends that the settlement or buyback agreements occurred before the City filed its lawsuit and were not “specific to this site.” (JS at 16.) BAE Systems cites Appleton Papers Inc. v. George A. Whiting Paper Co., 955 F. Supp. 2d 947 (E.D. Wis. 2013), a decision that was reversed in part on the issue of insurance proceeds in NCR Corp., discussed above. Contrary to BAE Systems' argument, the Appleton decision does not support a denial of discovery of the settlement agreements and the proceeds BAE Systems received, and does not support exclusion of settlement agreements just because they were reached before the current lawsuit. The district court determined that double recoveries were not permitted under CERCLA and that insurance proceeds received by a party would be deducted from that party's claims against other tortfeasors.[2] Id. at 951. As the district court acknowledged, “[t]he more difficult question is how to determine ... what given insurance payments were ‘for.’ ” Id. “[W]hen payment is received for a number of different things ..., it can be difficult to parse the lump sum payment and assign value to each thing in the group,” particularly if the settlement agreements are silent on that issue and were reached long before the current lawsuit was filed. Id. at 951-52. “Ultimately, the fact that a figure is difficult to reach does not mean that it should not be attempted.” Id. at 953. In making that determination, the district court relied on the expert opinions of both sides about apportionment of settlement proceeds under the settlement agreements and other factors. Id. at 953. In other words, both sides had access to the information and the district court did not exclude settlements reached before the pending lawsuit.

BAE Systems also argues that its insurance proceeds should not be deducted because it is not a plaintiff but rather the counterclaimant. BAE Systems cites no authority for its position and the court has found none.

The court makes no determination as to whether BAE Systems has any liability or, if it does, whether insurance proceeds should be deducted and if so in what amount. Instead, the court determines that the discovery requested by the City is directly relevant to the parties' claims and defenses and proportional to the needs of the case, taking into account the importance of the environmental issues at stake in the litigation, the amount in controversy, the City's lack of access to the information, the parties' resources, the importance of the discovery in resolving the issues and the lack of any showing that the burden or expense of the proposed discovery would outweigh its likely benefit.[3] Fed. R. Civ. P. 26(b)(1).

*5 IT IS HEREBY ORDERED that the City's motion to compel is GRANTED. Within 21 days after entry of this order, or on a date mutually agreed by counsel, BAE Systems shall serve written responses to Deposition Questions 18, 22, 23, 24, 39, 40, 56, 57, 62, 76, 78, 80 and 84, and produce documents responsive to Document Request Nos. 9, 10, 11, 12 and 13.

The City filed a request for judicial notice of an article. The request is denied as unnecessary to the resolution of the pending motion.

The Seventh Circuit reversed because the district court's calculation did not correctly accomplish the intended result.

BAE Systems' objection that the City failed to send a letter identifying each issue in dispute before bringing the motion is rejected. BAE Systems has not shown prejudice from any procedural irregularity. As it acknowledges, counsel had previously discussed BAE Systems' objections before the discovery was served. (JS at 4.) The motion to compel was filed on March 28, 2016 and the parties have had ample time to consider their positions. There is no indication that any procedural irregularity affected the parties' impasse on the discovery dispute.