New Brighton Enforcement Action

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

THIRD DIVISION The CITY OF NEW BRIGHTON, a Minnesota municipal corporation, et al., Court File No. 84-cv-1110 Plaintiffs, vs. The UNITED STATES OF AMERICA, et al., Defendants.

PLAINTIFF CITY OF NEW BRIGHTON’S MEMORANDUM IN SUPPORT OF

ITS MOTION TO ENFORCE SETTLEMENT AGREEMENT

INTRODUCTION

Twenty-six years ago, the Army settled New Brighton’s lawsuit arising from “the

most extensive Army contamination of a civilian water supply known to exist . . . affecting

the drinking water of approximately thirty-five thousand people.”1 In a unique, landmark

settlement, the Army agreed to “pay all costs” for New Brighton to own and operate a

state-of-the-art granular activated carbon water treatment facility, to be used to remove

Army contaminants from the groundwater and to supply safe and clean water to New

Brighton’s residents. The 1988 settlement agreement was approved by the late Judge

1 Brig. Gen. Michael J. Nardotti Jr., 1992 Memorandum to Command Counsel. (Decl. of John E. Drawz ¶ 45; Ex. 9 (emphasis added).)

CASE 3:84-cv-01110-RGR-EJC Document 3 Filed 05/21/14 Page 1 of 32

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Robert G. Renner. The settlement agreement remains in effect and will continue for

many more decades, because the contaminants released by the Army will remain in the

groundwater for many more decades.

New Brighton brings this motion to enforce the settlement agreement because the

Army now seeks to condition further performance of its obligation to pay all costs. It

demands that the City agree to new and additional terms contained in a “Cooperative

Agreement” proposed by the Army – new terms that were not part of the consideration

for the settlement agreement, and which would adversely change the settlement

agreement. The Army refuses to pay any costs unless and until the City agrees to the

Army’s new terms. In short, the Army seeks to change the settlement agreement and the

consideration exchanged in the 1988 settlement.

Because of the Army’s breach, the City is running out of money to operate the

water treatment facility. Unless the Army is compelled to honor its settlement

obligations, operating funds will be depleted in mid-2015. At that point, New Brighton’s

residents – the victims of the Army’s contamination – will be forced to pay the $2 million

to $3 million in annual costs required to treat groundwater that the Army contaminated.

New Brighton seeks an order compelling the Army to honor the settlement agreement.

FACTUAL BACKGROUND

I. The Army Contaminated New Brighton’s Water Supply.

A. TCAAP.

The Twin Cities Army Ammunition Plant (“TCAAP”) is a government-owned

facility surrounded by the cities of New Brighton, Arden Hills, Mounds View, and


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Shoreview. TCAAP was constructed in the 1940s, and once included hundreds of

buildings used to support the production of ammunition and related war materials.

Operated for decades, TCAAP generated thousands of tons of hazardous industrial

wastes, including solvents and degreasers containing volatile organic compounds

(“VOCs”), especially trichloroethylene (“TCE”), a known carcinogen. The hazardous

wastes were disposed of by on-site dumping, burial, and open-burning.

The disposal of hazardous wastes at TCAAP resulted in widespread contamination

of the Prairie du Chien/Jordan aquifers. (Decl. ¶ 5; Ex. 1.)2 Those aquifers are the

primary source of drinking water for many municipalities and, prior to discovery of the

contamination, were New Brighton’s sole source of drinking water. (Id.) As shown

below, the scope of the groundwater contamination remains extensive:

2 All references to “Decl.” are to the Declaration of John E. Drawz. All references to “Ex. __” are to the exhibits attached to the Drawz Declaration.


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(See Decl. ¶ 5 and Ex. 1.)


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B. The Public Health Crisis.

In July 1981, the Minnesota Department of Health (“MDH”) notified New

Brighton that its municipal wells were heavily contaminated with TCE and other harmful

VOCs. (Decl. ¶ 4.) The MDH ordered New Brighton to find an alternative,

uncontaminated water supply. (Id.) The order immediately affected more than 20,000

New Brighton residents, who were notified that it was not safe to drink, cook with, or

bathe in the water coming from the faucets in their homes.

The City responded to the crisis by ceasing use of the contaminated wells,

implementing water use restrictions, and commencing construction of wells in the deeper

Mt. Simon-Hinckley aquifer, which had not been contaminated by the Army’s TCAAP

operations. (Decl. ¶ 6.) Between 1982 and 1984, the City completed construction of

several deep wells, but was not able to fully restore its pre-contamination water supply

capacity. (Id.)

C. The Army Denied Responsibility and Declined to Provide Federal Assistance to Alleviate the Crisis.

Although the Army’s TCAAP facility was identified as the probable

contamination source, the Army and the federal government declined to assist the City in

responding to the crisis. (Decl. ¶¶ 7-8; Ex. 2.) Instead, they denied responsibility for

contaminating the City’s water supply, and left it to New Brighton alone to respond.

(Decl. ¶ 8.) The City thus had no choice but to bring this action in 1984 to recover its

costs to respond to the crisis created by the Army, including: (1) past costs incurred to

secure an emergency water supply and a partial permanent alternative water supply;


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(2) future costs to construct and operate additional deep wells; (3) additional costs caused

by the Army’s contamination; and (4) other relief. (Decl. ¶ 9; see also Complaint.)

The Army, the United States, and the other federal defendants filed their Answer

in this Court denying responsibility. They affirmatively alleged that they owed no duty

to the City, were not negligent, and their TCAAP activities were not the proximate cause

of the City’s injuries. (See Answer ¶¶ 51-53.)

II. The Settlement.

It was not until 1987 that the Army accepted responsibility and initiated settlement

discussions. (Decl. ¶ 11.) The City proposed a lump-sum payment that would reimburse

it for past costs and anticipated future costs of constructing its deep-well alternative water

supply. (Decl. ¶ 12; Ex. 2.)

A. The Army’s Settlement Counterproposal.

The Army made a counterproposal on very different terms. (Decl. ¶ 13.) It

proposed that the City meet its potable water needs by extracting contaminated water

from the Prairie du Chien/Jordan aquifers, treating the water with granular activated

carbon (“GAC”) to remove the TCAAP contaminants, and then distributing the treated

water for potable consumption. (Id.) The Army proposed that the City abandon its plans

to complete construction of the deep-well system and minimize the use of the existing

deep wells. (Decl. ¶ 14; Ex. 2.) The Army offered to pay all costs of supplying potable

water in this manner. (Id.)

This proposal was of substantial benefit to the Army. (Decl. ¶¶ 16, 17.) As the

wrongdoer – the party that contaminated the aquifers – the Army was responsible under


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CERCLA to federal and state regulators to remediate the contamination. See 42 U.S.C.

§ 9620(a). It was faced with the costs of constructing a facility to extract, treat, and

dispose of more than one billion gallons of treated water annually. The Army also had a

separate obligation to pay for New Brighton’s replacement water supply. (Decl. ¶ 16.)

The Army’s proposal meant that it could meet both obligations with a single facility.

(Decl. ¶ 17.)

B. The LitSAG.

After reviewing the Army’s settlement proposal, evaluating the efficacy of the

contaminated groundwater treatment system proposed by the Army, and after receiving the

Army’s assurances that it would pay all costs of the proposed treatment system, thus

assuring that New Brighton’s residents would bear no financial risk, New Brighton agreed

to the Army’s proposal. (Decl. ¶ 18.)

On August 5, 1988, the parties entered into a litigation settlement agreement

(“LitSAG”) entitled “Litigation Settlement Agreement and General Release by and

Among the City of New Brighton, the United States of America, the United States

Department of Defense . . . [and the] Department of the Army.” (Decl. ¶ 19; Ex. 3.) The

City’s lawsuit was thereafter dismissed. The LitSAG’s central premise is that the Army

will “pay all costs” for New Brighton to “plan, design, construct, inspect, operate,

monitor, maintain, and own the permanent GAC treatment facility to be located on New

Brighton property[.]” (Ex. 3, § 9.01 § 9.02.)

The LitSAG’s express purpose is for “providing additional water supply capacity

to New Brighton for clean and safe drinking water for the water users of the New


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Brighton municipal water system.” (Ex. 3, § 5.00.) An ancillary purpose is that the GAC

treatment facility would remove TCAAP contaminants, and thus help the Army meet its

remediation obligations owed to regulators.3

Another central premise of the LitSAG is that remediating the aquifers is the

Army’s obligation, not New Brighton’s. The City did not cause the contamination, is not

liable under CERCLA, and is not responsible for remediating the aquifers. The Army is.

Therefore, the LitSAG recites that the settlement agreement “is not intended to be a

remedial action plan.” (Ex. 3, § 3.00.) It recites that “the primary purpose for the GAC

facilities to be constructed and operated in accordance with this LitSAG is to provide

New Brighton water users with additional and safe water supply capacity,” as well as

reduce VOCs in the aquifer. (Id.)

The LitSAG is an ongoing – potentially perpetual – settlement agreement. It

continues until such time as the Army’s contaminants in the aquifers are reduced to levels

“protective of public health.” (Ex. 3, § 26.00.) The LitSAG will remain in effect for

decades, because TCE and the other hazardous substances disposed of by the Army at

TCAAP will remain in the aquifers for decades. (See Ex. 8, § 2.01 (“the life of existing

3 The Army’s LitSAG obligation owed to New Brighton to pay all costs of providing clean and safe water is more extensive than the Army’s separate obligation to regulators to remediate the contaminated aquifers. For example, under the Record of Decision (“ROD”) the Army entered into with state and federal regulators, the Army’s obligation is to remediate the aquifer to the Safe Drinking Water Act’s current maximum contaminant level (“MCL”) of five parts per billion (“ppb”) for TCE. (Decl. ¶ 21.) (The City is not a party to the ROD.) Under the LitSAG, however, the Army must pay all costs to provide clean and safe water to New Brighton residents at a “nondetectable concentration” for TCE (i.e., < 1 ppb). (See Ex. 3, § 10.01.)


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[GAC treatment] facilities is currently anticipated by the Parties to extend far into the

future, likely fifty years or more”).)

C. The LitSAGIAs.

The LitSAG describes, in general concept only, the permanent GAC treatment

facility to be designed, constructed, owned, and operated by New Brighton as its

municipal water supply. The parties subsequently had to agree on the specifics of how

the settlement would be implemented. They did so in a series of “Litigation Settlement

Agreement Implementing Agreements” (“LitSAGIAs”). The first two settlement

agreement implementing agreements, LitSAGIAs 1.0 and 2.0, were short-term

agreements, covering the period when the permanent GAC treatment facility – which

later became known as the New Brighton Contaminated Groundwater Recovery System

(“NBCGRS”) – was being designed and constructed. (Decl. ¶¶ 25-26; Exs. 5-6.)

In 1992, with NBCGRS construction largely completed, the Army and New

Brighton entered into a long-term implementing agreement, LitSAGIA 3.0. (Decl. ¶¶ 27,

28; Ex. 7.) The Army made an advance payment of $17 million to the City for the

anticipated costs of operating the NBCGRS for the next 20 years. (Decl. ¶ 28.) The

parties knew that additional Army payments would later be required because the

contaminated aquifers would remain contaminated for many decades. After several

additional NBCGRS modifications, the Army and New Brighton replaced LitSAGIA 3.0

with a second long-term settlement agreement implementing agreement, LitSAGIA 4.0,

and the Army made advance payment to the City of several million additional dollars to

cover additional expenses expected to be incurred. (Decl. ¶¶ 30, 39; Ex. 8.)


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Like the LitSAG itself, LitSAGIA 4.0 is potentially perpetual in duration; it

continues to govern the parties’ litigation settlement relationship until such time (if ever)

that the parties reach an agreement to replace it with a successor implementing agreement

“consistent with the LitSAG.” (Ex. 8, § 4.01.) That has not happened. Accordingly,

LitSAGIA 4.0 remains in effect and, together with the LitSAG, sets forth the governing

terms of the parties’ ongoing litigation settlement agreement. (Decl. ¶ 31; Ex. 8, § 17.)

(The LitSAG and LitSAGIA 4.0 are collectively referred to as the “Litigation Settlement

Documents.”)

III. The Consideration Exchanged in the Litigation Settlement Documents.

For both the Army and the City, the consideration received in exchange for

entering into the settlement agreement was crucial. The consideration the Army received

was that, for the cost of a single facility, it could meet both its obligation to New

Brighton to provide safe and clean water, and its separate obligation owed to state and

federal regulators to restore the contaminated aquifers. (Decl. ¶ 17.) By agreeing to the

terms of the Litigation Settlement Documents, the Army also received the means (potable

consumption) to dispose of more than one billion gallons of contaminated water that it

needed to treat in order to remediate the aquifers. (Id.)

The consideration that New Brighton bargained to receive included additional

clean water supply capacity from the NBCGRS, capacity that the City had not been able

to achieve with the deep-well system. (Decl. ¶ 6.) Additional consideration that New

Brighton bargained for included the following terms expressly made part of the Litigation

Settlement Documents.


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A. The Army “Pays All Costs.”

One of the City’s primary concerns about the Army’s 1987 settlement proposal

was the potential financial risk it posed. (Decl. ¶ 33.) The substantial costs of owning

and operating the GAC treatment facility would constitute a disproportionate share of the

City’s annual budget. (Id.) Thus, a key part of the consideration for the settlement is that

the Army pays all costs:

9.02. Army to Pay All Costs. The Army agrees to pay all reasonable costs which are associated with the permanent GAC system . . . .

(Ex. 3, § 9.02.) The “pay all costs” provision protects the City from a shift of financial

risk: “In no event shall New Brighton be required to spend its own funds to perform

activities under this Implementing Agreement.” (Ex. 8, § 7.05.3.)

B. The Army Must Pay in Advance.

Another key part of the consideration for the settlement is that the Army pays New

Brighton’s NBCGRS costs in advance. (Decl. ¶ 34.) This is to prevent any risk that the

burden of paying the $2 million to $3 million annual costs of pumping and treating the

contaminated water might be shifted from the Army to New Brighton’s residents. (Id.)

The Army expressly agreed that “the Army shall make additional payments” to New

Brighton any time the remaining balance in the fund “is insufficient to pay New

Brighton’s costs and expenses.” (Ex. 8, § 2.02.) The Army further agreed that “[i]n no

event shall New Brighton be obligated to operate the NBCGRS unless advance funding is

provided to New Brighton.” (Ex. 8, § 4.04.) Advance funding is also required in any

future litigation settlement agreement implementing agreement: “Any successor


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implementing agreement shall include advance financing by the Army of New Brighton’s

costs for such period as the Parties determine is appropriate.” (Ex. 8, § 8 (emphasis

added).)

C. The Army Must Maintain an Operating Reserve.

The Army’s obligation to provide advance funding also requires that the City’s

NBCGRS operating fund always have at least three years of expenses held in reserve.

The Army agreed to “evaluate the need for additional payments whenever . . . the Fund

balance is insufficient to pay costs and expenses for the next three years.” (Ex. 8,

§ 7.05.3.) This provision ensures that the City has an adequate operating reserve to

protect against the inevitable delays attendant to Army bureaucracy. (Decl. ¶ 35.) It is to

avoid a shift of financial risk to the City’s residents.4

D. State Law Governs.

Another important part of the consideration for the settlement agreement is that

New Brighton’s activities are to be governed by state law, not federal. (Decl. ¶ 37.)

When the Army first proposed that the City design, construct, own, and operate the

NBCGRS, Army lawyers stated the City could construct the facility faster, and with far

4 The reserve requirement was added to LitSAGIA 3.0, and later LitSAGIA 4.0, because of the City’s experience with the Army under the first two LitSAGIA, both of which had short terms. (Decl. ¶ 36.) The Army was slow to pay what was owed, sometimes being hundreds of thousands of dollars in arrears. (Id.) This caused significant financial problems for the City, which is obligated under Minnesota law to make timely payments to its vendors irrespective of whether the Army has made timely payments. (Id.)


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less red tape, than could the Army, precisely because of the fact that the City would not

be subject to federal regulations. (Decl. ¶ 15.)

The requirement that state law, not federal financing rules and regulations, would

govern New Brighton’s activities is thus part of the agreed consideration for the

Litigation Settlement Documents. LitSAGIA 1.0, and each subsequent implementing

agreement, has provided that “New Brighton and the Army agree that the laws of the

state of Minnesota provide appropriate safeguards and regulation of New Brighton with

respect to its performance of this Implementing Agreement.” (Ex. 5, § 6.00.) The

current agreement, LitSAGIA 4.0 states:

SECTION 6. REGULATION.

New Brighton is a municipal corporation organized under and subject to the laws and regulations of the state of Minnesota. New Brighton and the Army agree that laws and regulations governing the conduct of municipal corporations provide appropriate safeguards with respect to New Brighton’s performance of this Implementing Agreement. . . . The Parties agree that New Brighton shall not be subject to the Federal Acquisition Regulations or other federal statutes or regulations governing the Army’s procurement of goods and services.

(Ex. 8, § 6) (emphasis added).

IV. The Parties’ Course of Conduct.

Over the 26 years that the Litigation Settlement Documents have been in place, the

parties have followed the terms of the settlement agreement, as written, under Minnesota

law, without need to execute additional agreements. (Decl. ¶ 38.) Until recently, the

Army has complied with the advance-funding requirement. (Decl. ¶ 39.) It paid $17

million in 1992 to fund in advance the operation of the NBCGRS for at least 20 years,


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and paid additional millions in advance funding from 1995 through 1996. (Id.) The

Army (until recently) maintained the required operating reserve of at least three years of

expected costs and expenses of the NBCGRS. (Decl. ¶ 40.)

Minnesota state law has controlled. Until 2011, when the Army first insisted that

the City enter into a federal “Cooperative Agreement” as a condition to receiving further

settlement funds, the Army never attempted to apply the federal financial oversight

regulations that accompany federal assistance programs, such as federal grants and

cooperative agreements, appropriately recognizing that its relationship with the City is

based on the Litigation Settlement Documents, not on a federal assistance agreement.

(Decl. ¶¶ 41-42.) State law and the agreed audit procedures contained in the Litigation

Settlement Documents have proven appropriate for management of the NBCGRS funds,

and the Army has never challenged either the City’s stewardship of the funds or the

City’s operation of the NBCGRS. (Decl. ¶ 43.)

The Army has long recognized the importance of the NBCGRS and the benefits

that result from the City’s ownership and operation of the facility under state law. (Decl.

¶ 45.) In 1992, Brigadier General Michael Nardotti, Jr. (who subsequently became the

Army’s Judge Advocate General), wrote a Memorandum to Command Counsel

emphasizing the importance of the Army continuing to meet its settlement obligations:

I want to emphasize the importance of this project, and my determination to see it succeed. Although all the litigation is currently closed, the settlement agreements contain provisions allowing renewed litigation if we fail to meet our obligations. Public and regulator support can evaporate quickly resulting in millions of dollars or more in increased clean-up requirements and costly disputes. The other parties have top notch and responsive legal


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counsel, in many cases paid for by the Army as part of the settlements. We can afford no less.

(Ex. 9.)

V. The Army Now Refuses to Maintain a Three-Year Funding Reserve.

The Litigation Settlement Documents mandate an evaluation of the need for

additional payments whenever the operating fund balance is insufficient to pay the

expected NBCGRS costs for the next three years. (Ex. 8, § 7.05.3.) In 2012, 2013, and

2014, the City sent letters to the Army providing notice that additional payments were

required in order to maintain the required minimum three-year operating reserve. (Decl.

¶¶ 65, 67, 68; Exs. 14, 16, 17.) The letters provided data and projections of the expected

operating fund depletion rate. (Id.) As of June 1, 2014, the amount needed to restore the

three-year reserve is $7.6 million. (Decl. ¶ 68.) To date, the Army has refused to make

the required payments.

VI. The Army Now Refuses to “Pay All Costs” of the NBCGRS.

The Litigation Settlement Documents remain in full force and effect, and the

Army remains obligated to “pay all costs” necessary to operate and maintain the

NBCGRS. (Ex. 3, § 9.02, § 9.03.) The Army remains obligated to provide advance

funding of such costs, and remains obligated to prevent any increase or shift of financial

risk to the City.

Despite the fact that the Litigation Settlement Documents control the parties’

relationship, the Army has now refused to honor its settlement obligations unless and

until the City agrees to enter into a different agreement, one governed by the Federal


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Grant and Cooperative Agreement Act of 1977, 31 U.S.C. §§ 6301-6308. (Decl. ¶¶ 52-

59; Exs. 10-11.) On November 7, 2012, the Army sent the City a draft Cooperative

Agreement, and required the City to sign it as a “condition” to the Army providing

further funding of its settlement obligations. (Decl. ¶ 61; Ex. 12.) Despite the fact that

no federal regulations are incorporated into the existing Litigation Settlement Documents,

the Army’s new “Cooperative Agreement” would incorporate, among other regulations,

the Department of Defense Grant and Agreement Regulatory System (the “DoDGARS”),

found at 32 C.F.R. §§ 21-37, and OMB Circulars addressing Grants and Cooperative

Agreements with State and Local Governments, and all regulations cross-referenced in

those regulations. (Decl. ¶ 56.) Contrary to Section 6 of the existing LitSAGIA 4.0,

which states that “New Brighton shall not be subject to . . . federal statutes or regulations

governing the Army’s procurement of goods and services,” the Army’s proposed new

Cooperative Agreement states that New Brighton shall be subject to such statutes and

regulations. (Ex. 13, § 15.)

On November 29, 2012, the City advised the Army that a new agreement was

unnecessary, and that the Army should continue to perform its obligations under the

existing, and still effective, Litigation Settlement Documents. It asked the Army to

confirm that it would continue to pay for the operation and maintenance of the NBCGRS

if the City declined to sign the Army’s proposed Cooperative Agreement. (Decl. ¶ 62.)

On January 8, 2013, the Army advised the City that it would not honor its settlement

obligations unless the City signed the new Cooperative Agreement. (Decl. ¶ 63; Ex. 13.)


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On February 27, 2013, the City sent a letter to the Army and to the Department of

Justice providing notice that the Army is in breach of the Litigation Settlement

Documents. (Decl. ¶ 69; Ex. 18.) The Army has not cured its breach. Over the next

year, New Brighton continued its efforts to get the Army to honor the terms of the

settlement it made 26 years ago. In response, the Army attempted to change those terms

and refused to comply with the settlement agreement. (Decl. ¶ 70.)

VII. The Diminishing NBCGRS Operating Fund.

On February 26, 2014, the City notified the Army that because of its breach, the

funds to operate the NBCGRS will be depleted in mid-2015. (Decl. ¶ 71; see also

Exs. 19-20.) The Army again refused to provide funding unless the City signed a

Cooperative Agreement. (Decl. ¶ 71.)

ARGUMENT

I. The Court Has Authority to Enforce the Settlement Agreement.

A district court has the “inherent power to enforce a settlement agreement as a

matter of law” so long as the terms of the settlement are clear. See Barry v. Barry, 172

F.3d 1011, 1013 (8th Cir. 1999). The Court also has authority to enforce a settlement

agreement reached in a case previously dismissed by the Court. See Kokkonen v.

Guardian Life Ins. Co., 511 U.S. 375, 381-382 (1994). The exercise of jurisdiction to

enforce a settlement agreement serves to “enable a court to function successfully

[and] . . . manage its proceedings, vindicate its authority, and effectuate its decrees.”

Myers v. Richland Cnty., 429 F.3d 740, 746 (8th Cir. 2005).


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Here, New Brighton seeks an order to enforce the ongoing settlement agreement

with the Army. Both the Court’s dismissal order and the LitSAG permit either party to

seek relief from this Court to enforce the settlement agreement. (See Order dated Oct. 4,

1989; see also Ex. 3, § 21.02); see, e.g., Kokkonen, 511 U.S. at 381; Malama Makua v.

Gates, Civ. No. 00-00813 (SOM) (D. Haw. Mar. 11, 2008) (Dkt. No. 179) (finding that

the United States Army failed to comply with the settlement agreement and granting a

motion to compel specific performance consistent with the settlement agreement);

Malama Makua v. Panetta, Civ. No. 09-00369 (SOM-RLP), 2012 U.S. Dist. LEXIS

86341, at *6-8, *21-22 (D. Haw. Feb. 28, 2012) (requiring the Army defendants to

comply with various provisions of a settlement agreement reached in prior litigation),

recommendation adopted, 2012 U.S. Dist. LEXIS 85449 (D. Haw. June 20, 2012).

II. Minnesota Law Governs the Litigation Settlement Documents.

When considering a motion to enforce a settlement agreement, this Court applies

Minnesota law. See Transclean Corp. v. Motorvac Techs., Civ. No. 01-287 (JRT/FLN),

2002 U.S. Dist. LEXIS 19312, at *8-16 (D. Minn. Sept. 30, 2002) (analyzing the “many

cases in the Eighth Circuit and other courts which hold that state law applies to settlement

agreements”). Furthermore, the Litigation Settlement Documents specifically provide

that Minnesota law applies with respect to the performance of the settlement agreement.

(Ex. 8, § 6.00.)

Under Minnesota law, to enforce a settlement agreement, “a district court must

conclude that agreement has been reached on all material terms.” Lugino’s Inc. v.

Societes des Produits Nestle S.A., Civ. No. 03-4186 (ADM/RLE), 2005 U.S. Dist. LEXIS


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5157, at *3 (D. Minn. Mar. 30, 2005). “Unambiguous language in the settlement

agreement is to be given its plain and ordinary meaning.” State v. Philip Morris USA,

Inc., 713 N.W.2d 350, 355 (Minn. 2006). “If a contract is unambiguous, a party cannot

alter its language based on ‘speculation of an unexpressed intent of the parties.’” Baker

v. North Am. Capital Res., LLC, No. A10-1055, 2011 Minn. App. Unpub. LEXIS 28, at

*5 (Minn. Ct. App. Jan. 11, 2011) (quoting Metro. Sports Facilities Comm’n v. Gen.

Mills, Inc., 470 N.W.2d 118, 123 (Minn. 1991).

III. The Army is in Breach.

A. The Army Has Anticipatorily Breached the Settlement by Unilaterally Imposing New Conditions on Its Performance.

“An anticipatory breach is one in which one party unequivocally informs the other

that it no longer intends to honor their contract.” Melford Olsen Honey, Inc. v. Adee, 452

F.3d 956, 965 (8th Cir. 2006) (internal quotations omitted); see also In re Haugen, 278

N.W.2d 75, 79 n.6 (Minn. 1979) (defining anticipatory breach as the “unconditional

repudiation of a contract, either by words or acts, which is communicated to the other

party prior to the time fixed for his performance”).

Here, the Army has unequivocally informed the City that it will not perform its

settlement obligations. It will not “pay all costs” of the NBCGRS, and will not pay in

advance, pursuant to the express terms of the Litigation Settlement Documents.

Instead, the Army has conditioned payment on the City entering into a

“Cooperative Agreement” that incorporates extensive federal regulations which, as

discussed below, would change the nature and terms of the litigation settlement. The


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changes would impose new compliance burdens on the City. The federal financing and

oversight regulations that the Army seeks to insert into the 1988 settlement agreement

(despite the fact that, for 26 years, state law and the provisions of the settlement

agreement have provided sufficient oversight of how the City administers public funds)

are lengthy, complex, and often directly contradict the Litigation Settlement Documents

requirements. These federal regulations create the risk of potential civil and criminal

penalties for compliance errors. At a minimum, the City would have to hire a compliance

officer. These burdens were not part of the consideration that the parties bargained for in

their Litigation Settlement Documents, and the Army is not now offering further or

different consideration to New Brighton to offset such additional burdens. Instead, the

Army is withholding performance of its existing settlement payment obligations to force

the City to agree to change the settlement. That constitutes a breach.

In addition to being burdensome, the new requirements contained in the Army’s

proposed Cooperative Agreement are unacceptable to the City because they would

adversely change the bargained-for terms of the existing Litigation Settlement

Documents. For example, the Cooperative Agreement that the Army demands would:

• Preclude advance payment of the City’s NBCGRS expenses.5

5 Compare Ex. 8, § 2.02 (providing “the Army shall make additional payments” if the operating funds on hand are “insufficient to pay New Brighton’s costs and expenses”), Ex. 8, § 7.05.3 (requiring the Army to make “additional payments necessary to make the Fund balance sufficient for the Term”), and Ex. 8, § 8 (stating that any successor agreement “shall include advance financing by the Army of New Brighton’s costs”) with 32 C.F.R. § 22.810(c)(2)(iii) (“The [grant] recipient will not have excess cash on hand”), 32 C.F.R. § 33.23(a) (“a grantee may charge to the award only costs resulting from


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• Prohibit the City from maintaining an operating reserve.6

• Limit what the Army must pay for. 7

• Change the regulatory framework from state law to federal statutory and federal regulatory law.8

• Permit the Army to unilaterally change the regulatory framework.9

• Enable the Army to cease making settlement payments.10

obligations of the funding period”), 32 C.F.R. § 33.21(g)(3) (stating that funds cannot be paid to a grantee when previous funds have not been disbursed), and 32 C.F.R. § 33.50(d)(2) (“Grantee must immediately refund to the Federal agency any balance of unobligated (unencumbered) cash advanced”).

6 Compare Ex. 8, § 7.05.3 (requiring the Army to permit the City to retain funds on hand to serve as an operating reserve of expected NBCGRS costs) with 32 C.F.R. § 22.810(c)(2)(iii), 32 C.F.R. § 33.23(a), and 32 C.F.R. § 33.50(d)(2) (prohibiting grantees from maintaining additional cash on hand).

7 Compare Ex. 8, § 12.01 and Exhibit A thereto (describing the City’s “Scope of Work” for which the Army must pay) with 32 C.F.R. § 33.22 and OMB Circular A-87, 2 C.F.R. Part 225 (describing “allowable costs” for which grant funds may be used).

8 Compare Ex. 8, § 6 (“New Brighton and the Army agree that [Minnesota] laws and regulations governing the conduct of municipal corporations provide appropriate safeguards with respect to New Brighton’s performance” of the LitSAGIA) with 32 C.F.R. § 33.1 et seq. (establishing “uniform [federal] administrative rules for Federal grants and cooperative agreements . . . to State, local and Indian Tribal governments”).

9 Compare Ex. 3, § 25.00 and Ex. 8 § 17 (prohibiting unilateral changes to the Litigation Settlement Documents and requiring any modifications to be made in writing with consent of all parties) with 32 C.F.R. § 33.6(a) (permitting federal agencies to unilaterally change the regulatory framework by codifying new regulations).

10 Compare, Ex. 3, § 9.02 (mandating the Army “pay all costs” of the NBCGRS) with 32 C.F.R. § 33.43(a) (permitting an awarding agency to “wholly or partly suspend or terminate the current award” if the recipient “fails to comply with any term of [the] award, whether stated in a Federal statute or regulation, an assurance, . . . a notice of award, or elsewhere”).


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• Remove the City’s autonomy to operate its water system without federal interference.11

• Eliminate the three-phase dispute resolution process specified in the Litigation Settlement Documents and replace it with an administrative appeal to an Army “Grant Appeal Authority.”12

The Army also seeks to limit funding of its settlement obligations to Defense

Environmental Restoration Program (“DERP”) funds, 10 U.S.C. § 2703(c), even though

DERP funds may not be used for litigation settlements, and cannot be used to pay for

activities described in the Litigation Settlement Documents.13 The Army also has

11 Compare Ex. 8, § 12.03 (“The Parties intend that New Brighton shall continue to use its discretion and sound judgment to determine and undertake the activities necessary to fulfill its duties under the Scope of Work” and “shall have the sole right to select consultants, contractors and vendors who will assist New Brighton in completing the Scope of Work”) and Ex. 8, § 7.04 (limiting the Army’s ability to challenge the City’s expenditures of funds to challenges made after-the-fact, not before the expenditure is incurred) with 32 C.F.R. § 22.810(c)(2) (requiring an “Army Grants Officer” to preapprove payment requests, and providing the Grants Officer with the authority to deny all or portions of a requested payment); 32 C.F.R. § 33.30(a) (“[C]ertain types of post-award changes in budgets and projects shall require the prior written approval of the awarding agency”), and 32 C.F.R. § 33.30(b) (requiring “prior approval of certain types of costs”).

12 Compare Ex. 3, § 21.00 with 32 C.F.R. § 22.815(e).

13 The DERP Manual, DoD Manual No. 4715.20, states that “Payments that are ineligible for ERA and BRAC account funding include . . . [a]ny payment pursuant to a court judgment or compromise settlement.” (Ex. 21, p. 20, § 2e(2).) Under 10 U.S.C. § 2703(c), DERP funds “may be obligated or expended from the account only to carry out the environmental restoration functions of the Secretary of Defense . . . .” The Litigation Settlement Documents require the Army to pay for activities that are not “environmental restoration,” including payment for:

• a replacement water supply for the City;

• certain costs to obtain water at peak times from a deeper, uncontaminated aquifer;


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announced that it will not provide advance funding and will not permit the City to

maintain an operating reserve. The Army seeks to impose federal regulations on the

City’s operation of the NBCGRS, in the place of state law. The Army seeks to change

the terms of, and the consideration bargained for, in the settlement agreement.

The Litigation Settlement Documents require the Army to meet its payment

obligations without imposing further conditions. Nothing in the LitSAG or its

implementing agreements conditions the Army’s obligation to “pay all costs” on the

parties first entering into another agreement that would change the terms of the litigation

settlement. A “Cooperative Agreement” is not part of the consideration for the parties’

settlement. It is not mentioned in the Litigation Settlement Documents, was never

mentioned during the negotiations of those agreements, and the Army has, until now,

always performed its settlement obligations without ever suggesting the need for a

Cooperative Agreement. (Decl. ¶ 42.) Nothing in the Litigation Settlement Documents

conditions the Army’s payment obligations on the City agreeing to be bound by

DoDGARS, OMB circulars, and other federal regulations that apply to federal assistance

agreements such as federal grants and cooperative agreements. Those regulations have

never been mentioned in the parties’ litigation-based relationship over its 26-year history.

• incremental costs of treating water from the contaminated aquifers to a

“nondetectable” standard instead of to the 5 parts per billion MCL cleanup standard stated in the ROD;

• a “stipulated annual administrative fee” for the City; and

• the City’s legal fees.


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Nothing in the Litigation Settlement Documents conditions the Army’s obligation to “pay

all costs” on preapproval of projected expenses by an “Army Grants Officer.” Finally,

nothing in the LitSAG or its implementing agreements limits funding to DERP.

The Army’s insistence on conditioning its payment obligations on the City

agreeing to change the basic terms of the settlement is an anticipatory breach of the

settlement. The City will run out of money to operate the NBCGRS in mid-2015, and the

Army has already said that it will pay nothing more unless and until the City agrees to

change the litigation settlement by entering into the Cooperative Agreement. The Army

is thus in breach of the litigation settlement and should be ordered to meet its existing

settlement obligations as written.

B. The Army is in Breach of the Litigation Settlement by Not Maintaining a Three-Year Reserve.

The Army is obligated to maintain a minimum three-year reserve of expected

NBCGRS operating costs. (See Ex. 8, § 7.05.3 (“The Parties shall evaluate the need for

additional payments whenever . . . the Fund balance is insufficient to pay costs and

expenses for the next three years.”).) The Army has acknowledged this obligation. In a

letter dated August 16, 2012, COL Anthony Febbo, the Chief of the Army’s

Environmental Law Division, agreed that “[a]s you noted, section 7.05.3 of the 1996

LitSAGIA 4.0 established a three year advance funding mechanism.” (Ex. 15.)

On June 21, 2012, the City informed the Army that an additional payment of

approximately $2.1 million was required by the end of 2012 in order to maintain the

three-year reserve. (Ex. 14.) The Army refused to make the payment. (Ex. 15.) By June


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of 2013, the Army was $4.6 million in arrears, and refused to meet its obligation to

maintain a three-year operating reserve. (Ex. 16.) As of June 1, 2014, the amount

needed from the Army to restore the three-year reserve is $7.6 million. (Ex. 17.)

Despite acknowledging its obligation to maintain a three-year operating reserve,

the Army asserts that “a three year advance funding mechanism is no longer statutorily

permissible.” (Ex. 15.) As discussed below, the Army’s assertion is wrong. The Court

should enforce this provision of the settlement agreement by ordering the Army

immediately to pay to the City the sum of $7.6 million to restore the operating reserve.

IV. The Army Has No Basis for Refusing to Meet its Litigation Settlement Obligations.

The Army asserts that the performance of its litigation settlement obligations “is

no longer statutorily permissible.” (Ex. 15.) It makes that erroneous assertion by

recharacterizing the LitSAG and LitSAGIA as federal assistance agreements instead of

litigation settlement agreements. The Army asserts that since its relationship with the

City is based (in the Army’s view) on a discretionary federal grant or federal award, not a

litigation settlement, its payment obligations are subject to federal statutes and

regulations that are applicable to discretionary federal grants and awards, including 10

U.S.C. § 2701(d), and that honoring its settlement obligations is not permitted by those

statutes and regulations. The Army also argues that the Litigation Settlement Documents,

which are fully integrated, stand-alone agreements, are insufficient, and that the Army’s

performance of its payment obligations is conditioned on the City entering into a further

agreement – the Cooperative Agreement – that would change the terms of the settlement.


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Neither of the Army’s stated reasons for failing to meet its litigation settlement

obligations has merit.

A. The Army’s Settlement Payment Obligations are Not Limited by 10 U.S.C. § 2701(d).

10 U.S.C. § 2701(a)(1) authorizes the Secretary of Defense to carry out a program

of environmental restoration at facilities under the Secretary’s jurisdiction. In carrying

out his environmental restoration functions, the Secretary “may” enter into voluntary

agreements with local governments to “assist” the Secretary. Section 2701(d)(1)

provides:

(d) SERVICES OF OTHER ENTITIES.— (1) IN GENERAL.—Subject to paragraph (3), the Secretary may enter into agreements on a reimbursable or other basis with any other Federal agency, any State or local government agency, any Indian tribe, any owner of covenant property, or any nonprofit conservation organization to obtain the services of the agency, Indian tribe, owner, or organization to assist the Secretary in carrying out any of the Secretary’s responsibilities under this section. Services which may be obtained under this subsection include the identification, investigation, and cleanup of any off-site contamination resulting from the release of a hazardous substance or waste at a facility under the Secretary’s jurisdiction.

When the Secretary enters into a voluntary assistance agreement with a local

governmental unit of the type contemplated by § 2701(d), the agreement cannot span

more than two years:

(2) CROSS-FISCAL YEAR AGREEMENTS.— An agreement with an agency under paragraph (1) may be for a period that begins in one fiscal year and ends in another fiscal year so long as the period of the agreement does not exceed two years.


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10 U.S.C. §2701(d)(2). This provision was added to the statute in 2002. The Army

erroneously relies on it to argue that it can no longer provide advance funding of the

NBCGRS as required by the ongoing Litigation Settlement Documents.

1. § 2701(d) is Inapplicable to a Litigation Settlement.

The agreements between the Secretary of Defense and local governmental units

contemplated by 10 U.S.C. § 2701(d) are voluntary, consensual, federal assistance

agreements, not settlements reached in contested litigation. First, nothing in § 2701(d)

refers to litigation settlements. To the contrary, appropriated DERP funds used for

§ 2701(d) agreements expressly are not to be used for litigation settlements. See DoD

Manual No. 4715.20, § 2e(2) (stating that “Payments that are ineligible for ERA and

BRAC account funding include . . . [a]ny payment pursuant to a court judgment or

compromise settlement”). (Ex. 21, p. 20.)

Second, the fact that the Secretary of Defense has discretion to enter or not enter

into § 2701(d) agreements, as evidenced by the use of the permissive word “may,” and

the fact that the Secretary has the discretion to unilaterally terminate his performance

under such an agreement, or terminate the agreement altogether, demonstrates that

§ 2701(d) does not apply to litigation settlements. A party to a litigation settlement

agreement does not have discretion to unilaterally terminate its performance or terminate

the settlement agreement.

Third, a § 2701(d) agreement is between the Secretary of Defense and the local

government unit that agrees to assist the Secretary. Here, the LitSAG settled the City’s

claims against all of the “Federal Defendants,” defined by the LitSAG to include the


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United States of America, the Department of Defense, the Secretary of Defense, the

Department of the Army, and the Secretary of the Army. (Ex. 3, § 1.01.) The LitSAG is

not a limited agreement between the City and the Secretary of Defense to “assist” the

Secretary; it is a comprehensive settlement of federal litigation that released the City’s

claims against all of the Federal Defendants in exchange for the promises that the City’s

costs of owning and operating the NBCGRS would be paid in advance by the Army.

Finally, the 2002 amendment to § 2701(d)(2), which limits funding of voluntary

assistance agreement to less than two years, even if it applied to litigation settlements,

would not limit the Army’s performance under the existing and ongoing Litigation

Settlement Documents, i.e., the 1988 LitSAG and the 1996 LitSAGIA 4.0. The 2002

amendment is not retroactive. Congress cannot, ex post facto, change the Army’s

performance of an ongoing litigation settlement agreement entered into years before the

2002 legislation’s effective date. This motion involves the enforcement of the Army’s

obligations under the existing Litigation Settlement Documents; it does not seek to

compel the Army to enter into a new settlement agreement with the City. The 2002

amendment to § 2701(d)(2) is irrelevant.

2. The Army’s Performance of its Settlement Obligations is Not Contingent on a Particular Source of Funding.

The Army’s assertion that it is “no longer statutorily permissible” for it to honor

its settlement obligations is also based on the incorrect assertion that the LitSAG and its

implementing agreements limit funding to DERP. The Litigation Settlement Documents

say no such thing. Nowhere do they state that Army’s obligation to “pay all costs” of the


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NBCGRS is made dependent on the availability of funds from any particular funding

source. At no time during the negotiations of the Litigation Settlement Documents did

the Army attempt to limit its settlement payment obligations solely to funds appropriated

under DERP. (Decl. ¶ 22.) Limiting funding of the settlement to DERP funds was not

part of the consideration for the settlement agreement.

In a settlement of a CERCLA claim against the federal government or its agencies,

the source of funding is the Judgment Fund, established in 31 U.S.C. § 1304. See Matter

of: The Judgment Fund and Litigative Awards under the Comprehensive Environmental

Response, Compensation, and Liability Act, B-253179, 1993 U.S. Comp. Gen. LEXIS

1146 (Nov. 29, 1993). The City’s lawsuit against the Army and Federal Defendants was

based on CERCLA, and the settlement of the lawsuit is payable from the Judgment Fund.

DERP is not to be used for litigation settlements. (Ex. 21, p. 20, § 2e (2).)

That the Army used appropriated DERP funds in the past to meet its settlement

obligations was solely the Army’s decision, and does not bind the City. How the Army

chooses to fund its litigation settlement obligations is the Army’s decision alone. The

fact that the Army claims that the funding source it unilaterally selected is now limited in

scope, i.e., “no longer statutorily permissible,” provides no excuse for the Army’s failure

to meet its settlement obligations. If the Army needs to find a different funding source

from which to satisfy its litigation settlement obligations, it should do so.


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B. The Army’s Performance of its Settlement Obligations is Not Contingent on the City Executing a Cooperative Agreement.

The Litigation Settlement Documents are fully integrated agreements. LitSAG

Section 25.0 states that the agreement cannot be modified unless written consent is

provided by both parties. (Ex. 3.) LitSAGIA 4.0, Section 17, states:

This Agreement and its Exhibits, in conjunction with the LitSAG (see Section 1.02), represents the entire, fully integrated agreement between the Parties with respect to the operation and maintenance of the NBCGRS . . . and may only be modified or amended in a writing that is signed by duly authorized representatives of both Parties, as provided in this Section 17.

(Ex. 8.)

The fully integrated Litigation Settlement Documents do not require the City to

enter into further or additional agreements as a condition to the Army’s performance of

its settlement obligations, primary among them being to “pay all reasonable costs which

are associated with the permanent GAC system.” (Ex. 3, § 9.02.) The City is not

required to enter into a Cooperative Agreement in order for the Army to fulfill its

payment obligations under the Litigation Settlement Documents.

Cooperative agreements have nothing to do with litigation settlements. They are

used to administer federal grants and federal assistance awards, not administer settlement

agreements resolving contested lawsuits.14 The fact that the Federal Grants and

14 The Cooperative Agreement path was available to the Army in the early 1980s, when the City needed federal assistance to respond the public health crisis created by the Army’s contamination, but the Army and the other Federal Defendants chose a different path. They chose to deny responsibility and decline to offer federal assistance. By their denials they chose the litigation path; they cannot now revise history to recharacterize the litigation settlement as a federal assistance agreement.


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Cooperative Agreements Act has been in existence since 1977, but is never mentioned in

the LitSAG or its four implementing agreements, and was never mentioned in the 23

years between 1988 and 2011, demonstrates that the Army can perform its obligations

under the Litigation Settlement Documents without requiring the City to sign a

Cooperative Agreement that would fundamentally change the settlement.

CONCLUSION

General Nardotti’s warning in 1992 was prescient:

Although all the litigation is currently closed, the settlement agreements contain provisions allowing renewed litigation if we fail to meet our obligations. Public and regulator support can evaporate quickly resulting in millions of dollars or more in increased clean-up requirements and costly disputes.

(Ex. 9.) Despite his warning, the Army has not only failed to meet its settlement

agreement obligations, it seeks to change them, and thus has put the City at risk. The

City is running out of money to treat the groundwater contaminated by the Army. The

Army is in breach of the Litigation Settlement Documents and must be ordered to honor

its settlement agreement obligations. The City respectfully seeks the Court’s order

enforcing the settlement agreement.


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Respectfully submitted,

Dated: May 21, 2014 s/ Richard D. Snyder Richard D. Snyder (#191292) John E. Drawz (#24326) Timothy M. O’Shea (#386437) FREDRIKSON & BYRON, P.A. 200 South Sixth Street, Suite 4000 Minneapolis MN 55402-1425 Phone: (612) 492-7000 Fax: (612) 492-7077 [email protected] [email protected] [email protected]

ATTORNEYS FOR PLAINTIFF CITY OF NEW BRIGHTON

48885331.doc


mailto:[email protected]

