1039-00003 · Torchlight Mining Corp · Consent Decree/Drafting & Negotiation

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PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

MEMORANDUM

FROM: Elliot Nguyen, Lead Associate, Calderwood & Harkness LLP Harrison Wexford, Responsible Partner, Calderwood & Harkness LLP

TO: Miriam Soo-Hwan Park, General Counsel, Torchlight Mining Corp. Gareth Linford, VP, Environmental Health & Safety, Torchlight Mining Corp.

CC: Beatrice Holloway, Billing Partner, Calderwood & Harkness LLP Grace Nakamura, Working Associate, Calderwood & Harkness LLP Russell Dane, Holcroft, Dane & Weiss LLP Denise Quartaro, sagebrush Law Group, PLLC Nathan Tully, Baxter, Tully & Crane PLLC

DATE: January 6, 2025

RE: Analysis of Dispute Resolution Mechanism — Proposed Consent Decree, United States of America and State of Montana v. Torchlight Mining Corp., et al., Civil Action No. 9:24-cv-00087-DWM (U.S. District Court for the District of Montana, Missoula Division)

MATTER NO.: 1039-00003

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I. Executive Summary

This memorandum analyzes the three-tier dispute resolution provision contained in the Department of Justice's first draft consent decree, circulated on November 8, 2024, in the above-captioned matter and recommends modifications to protect the interests of Torchlight Mining Corp. ("TMC"). While the government's counter-redline has not yet been formally received, informal signals from government counsel — principally through communications between Harrison Wexford and Philip Orenstein (DOJ, Environment and Natural Resources Division ("ENRD")) on December 19, 2024 and January 2, 2025 — indicate that the dispute resolution mechanism will be an area of significant contention in the next round of negotiations. We anticipate that the government counter-redline will be received approximately January 14, 2025, and this memorandum is prepared in advance to provide TMC with a comprehensive framework for evaluating and responding to the government's expected positions.

The proposed consent decree governs remediation obligations at four sites spanning three states:

1. Ridgecrest Copper-Molybdenum Mine (Drummond, Montana)

2. Gallatin Chemical Works (Belgrade, Montana)

3. Bonanza Creek Gold Mine (Lander County, Nevada)

4. Kanawha Bend Chemical Plant (Institute, West Virginia)

The financial exposure associated with this consent decree is substantial. The combined nominal remediation costs total approximately $343.5 million, supplemented by civil penalties of $31.5 million, supplemental environmental projects ("SEPs") of $12.0 million, reimbursement of EPA past costs of $18.1 million, and estimated independent monitor costs of $4.8 million — for a grand total of approximately $409.9 million in aggregate financial exposure. The remediation obligations at Ridgecrest alone span a 30-year period, and the overall consent decree will govern TMC's environmental compliance posture for decades. Given the magnitude, duration, and complexity of these obligations, the dispute resolution mechanism is among the most consequential procedural provisions in the decree and warrants careful negotiation.

The government's proposed three-tier mechanism proceeds as follows: (1) informal negotiation between the parties for a period of 30 days; (2) formal decision by EPA for a period of 30 days; and (3) judicial review by petition to the Court within 30 days of EPA's decision. While the three-tier structure itself is consistent with the general framework found in most EPA consent decrees, the specific procedural details of the government's proposal present several areas of significant concern for TMC.

Our key concerns with the government's proposal are:

• Standard of judicial review. The government proposes arbitrary-and-capricious / substantial-evidence review at Tier 3, which is the most deferential standard available and would render EPA's Tier 2 decisions effectively unreviewable in all but the most egregious cases.

• Burden of proof allocation. The government proposes that TMC bear the burden of demonstrating that EPA's decision is arbitrary, capricious, or not supported by substantial evidence — placing the burden on the party challenging an adverse decision rendered by its adversary.

• Scope of disputes covered. The mechanism purports to cover all disputes "arising under or relating to" the consent decree, without appropriate carve-outs for matters that should be resolved directly by the Court.

• Stay of performance obligations during dispute resolution. The government's proposal does not toll stipulated penalties or stay performance obligations during the dispute resolution process, exposing TMC to potentially significant penalty accrual while a dispute remains pending.

• Treatment of technical versus legal disputes. The proposal makes no distinction between disputes involving technical or scientific determinations and disputes involving legal questions or the interpretation of consent decree terms, applying the same deferential standard of review across the board.

TMC's overall negotiation posture, as we recommend it, should be to preserve maximum access to de novo judicial review and to shift burden allocation to the government where possible, without jeopardizing the broader consent decree settlement. As discussed in Section VII below, we have structured our recommended modifications in a tiered priority system with corresponding concession strategies to provide TMC's negotiating team with flexibility to respond to the government's positions.

II. Background and Context

A. Procedural Posture

On January 18, 2024, the United States of America, acting through the Department of Justice on behalf of the Environmental Protection Agency, together with the State of Montana, filed a complaint against Torchlight Mining Corp. and certain affiliated entities (collectively, "TMC" or "Defendants") in the United States District Court for the District of Montana, Missoula Division. The case was assigned Civil Action No. 9:24-cv-00087-DWM and is presided over by the Honorable Donald W. Molloy, Senior United States District Judge.

The complaint asserts claims under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601–9675; the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§ 6901–6992k; the Clean Water Act ("CWA"), 33 U.S.C. §§ 1251–1387; the Migratory Bird Treaty Act ("MBTA"), 16 U.S.C. §§ 703–712; and analogous state environmental statutes. The complaint seeks injunctive relief requiring remediation of contamination at the four sites identified above, civil penalties for alleged violations of federal and state environmental laws, and reimbursement of EPA's past response costs.

TMC filed its answer on March 5, 2024, denying the material allegations of the complaint and asserting numerous affirmative defenses, including limitations on CERCLA liability under the innocent-landowner and third-party defenses, statute of limitations defenses as to certain penalty claims, and constitutional challenges to the scope of the requested injunctive relief. To preserve the parties' respective positions while exploring settlement, the parties executed a tolling agreement on April 22, 2024, which tolls all applicable statutes of limitations through December 31, 2025.

On May 15, 2024, the Court entered an order referring the matter to Magistrate Judge Clara Finnegan for mediation. Magistrate Judge Finnegan conducted an initial mediation session on June 12, 2024, and a follow-up session on July 18, 2024. As a result of these sessions, the parties reached an agreement in principle on a consent-decree framework on July 30, 2024. The framework agreement addressed the broad contours of the remediation obligations, penalty amounts, and compliance mechanisms, but expressly deferred detailed drafting of several key provisions — including the dispute resolution mechanism, stipulated penalties, force majeure, and financial assurance — to the formal consent decree drafting process.

Calderwood & Harkness LLP was engaged by TMC on October 21, 2024, replacing prior environmental counsel Whitfield, Palmer & Goss LLP, which had represented TMC through the mediation phase. Our engagement was occasioned by TMC's determination that the consent decree drafting process required specialized environmental enforcement expertise and a litigation team with experience in multi-site, multi-agency consent decree negotiations. The transition of counsel was accomplished without disruption to the negotiation timeline.

The DOJ circulated its first draft consent decree on November 8, 2024, totaling 187 pages with 14 appendices. The TMC redline of the first draft was submitted on December 16, 2024, proposing modifications to approximately 45 substantive provisions across the decree. The dispute resolution section (Section XIX of the draft decree, paragraphs 87 through 104) was one of several areas in which TMC proposed significant revisions. The government's counter-redline is anticipated on or about January 14, 2025, based on representations made by DOJ counsel Philip Orenstein during a telephone conference on January 2, 2025.

B. Overview of the Four Sites and Anticipated Dispute Areas

To properly evaluate the dispute resolution mechanism, it is essential to understand the nature and complexity of the remediation obligations at each of the four sites, as these obligations will generate the substantive disputes that the mechanism must resolve. We provide below a summary of each site's key characteristics and the areas in which disputes are most likely to arise during the multi-decade remediation period.

1. Ridgecrest Copper-Molybdenum Mine (Drummond, Montana)

The Ridgecrest Mine is the largest and most complex of the four sites and will account for the majority of TMC's remediation expenditures under the consent decree. The mine operated as an open-pit copper-molybdenum extraction facility from 1958 through 2019, producing an estimated 2.4 billion pounds of copper concentrate and 180 million pounds of molybdenum concentrate over its operational lifetime. The site encompasses approximately 4,200 acres and includes the main open pit, three tailings impoundments, waste rock storage areas, a former processing mill, and contaminated floodplain areas along Rock Creek and the Clark Fork River.

EPA has proposed listing the Ridgecrest Mine on the National Priorities List ("NPL"), a decision that remains pending at the time of this memorandum. The consent decree addresses EPA's CERCLA cost recovery claim of $14.3 million for response actions already undertaken at the site. The negotiated remediation cost for the Ridgecrest site is $198.6 million over a 30-year remediation period, and the associated civil penalty is $14.2 million. These figures represent the single largest component of the overall consent decree financial exposure.

Disputes at the Ridgecrest site are likely to arise in several areas. First, remedy selection remains a significant area of potential contention. TMC's remediation estimate, developed by Pinnacle Creek Environmental, LLC, is $187.5 million — approximately $36.5 million less than EPA's estimate of $224.0 million. The negotiated figure of $198.6 million reflects a compromise, but the underlying disagreement over the scope and cost of remediation activities may resurface as specific remedy components are designed and implemented. Second, completion criteria for the remediation — including numeric standards for groundwater quality, soil cleanup levels, and ecological restoration benchmarks — are expected to be the subject of ongoing technical disputes throughout the 30-year remediation period. Third, long-term monitoring standards, including the frequency, location, and parameters of groundwater and surface water sampling, are likely to generate disagreements between TMC's technical consultants and EPA's project team.

The EPA Project Coordinator for the Ridgecrest site is Dr. Samuel Tesfaye, a senior remedial project manager with EPA Region 8 based in Helena, Montana. The government's designated technical expert for the Ridgecrest site is Dr. Patricia Voss of Cascade Geosciences, Inc., a geochemistry and mine-remediation consulting firm based in Bozeman, Montana. Dr. Voss has served as the government's technical expert in three prior mining consent decrees in EPA Region 8 and is known for aggressive remedy-selection positions favoring comprehensive rather than targeted approaches to mine-site remediation.

2. Gallatin Chemical Works (Belgrade, Montana)

The Gallatin Chemical Works is a former industrial chemical manufacturing facility located in Belgrade, Montana, approximately 12 miles west of Bozeman. The facility operated from 1964 through 2008, producing carbon disulfide (CS₂), sodium thiosulfate, and various sulfur-based industrial chemicals. The site is subject to RCRA corrective action under Permit No. MTD098712456 and includes three identified Solid Waste Management Units ("SWMUs"): the former CS₂ production area (SWMU-1), the sulfur storage and loading area (SWMU-2), and the former wastewater treatment lagoons (SWMU-3).

The primary contaminant of concern is carbon disulfide in groundwater. CS₂ has been detected in monitoring wells at concentrations up to 890 micrograms per liter (µg/L) — approximately 89 times the Maximum Contaminant Level ("MCL") of 10 µg/L. The CS₂ plume extends approximately 1,800 feet downgradient from the former production area and has impacted residential drinking water wells in the adjacent subdivision. The negotiated remediation cost for the Gallatin site is $42.8 million over a 15-year remediation period, with an associated civil penalty of $5.8 million.

Disputes at the Gallatin site are possible in at least two areas. First, corrective measures selection — including the choice between in-situ chemical oxidation, air sparging, and pump-and-treat technologies — is an area where TMC and EPA have expressed differing technical views during preliminary discussions. Second, cleanup levels for CS₂ are potentially disputable, as TMC may seek risk-based alternative cleanup levels in excess of the MCL based on site-specific exposure pathway analysis.

3. Bonanza Creek Gold Mine (Lander County, Nevada)

The Bonanza Creek Gold Mine is an active open-pit, heap-leach gold mining operation located in Lander County, Nevada, approximately 35 miles south of Battle Mountain. The mine commenced operations in 2015 and is one of TMC's currently producing properties. The consent decree addresses three documented releases from heap-leach pad liner failures occurring in March 2022, August 2022, and January 2023, which resulted in the discharge of cyanide- and mercury-bearing process solution into the adjacent Bonanza Creek drainage.

In addition to the liner-failure releases, EPA has documented 17 avian mortalities at the site's process solution ponds, constituting violations of the Migratory Bird Treaty Act. The negotiated remediation cost for the Bonanza Creek site is $63.2 million over a 20-year remediation period, with an associated civil penalty of $7.9 million.

The EPA Project Coordinator for the Bonanza Creek site is Jennifer Whitfield, a remedial project manager with EPA Region 9 based in San Francisco. Disputes at the Bonanza Creek site are possible over liner repair adequacy — specifically, whether TMC's proposed repair methodology satisfies EPA's performance standards for geomembrane liner systems — and ongoing operational compliance with best management practices for cyanide solution management and wildlife deterrence at process solution ponds.

4. Kanawha Bend Chemical Plant (Institute, West Virginia)

The Kanawha Bend Chemical Plant is a former specialty chemical manufacturing facility located in Institute, West Virginia, in the Kanawha River Valley. The facility operated from 1945 through 2012 and is subject to RCRA corrective action under Permit No. WVD048823915. The primary environmental concern is the presence of dense non-aqueous phase liquid ("DNAPL") — principally trichloroethylene ("TCE") and perchloroethylene ("PCE") — in fractured bedrock beneath the facility. The DNAPL contamination presents particularly complex remediation challenges due to the heterogeneous fracture network in the underlying bedrock, which makes predicting contaminant transport and designing effective remediation systems extremely difficult.

EPA conducted an emergency response action at the site in 2021–2022, incurring costs of $3.8 million, which are included in the EPA past-costs reimbursement component of the consent decree. The negotiated remediation cost for the Kanawha Bend site is $38.9 million over a 20-year remediation period, with an associated civil penalty of $3.6 million.

Disputes at the Kanawha Bend site are likely to center on DNAPL remedy selection — specifically, the choice among thermal treatment, in-situ chemical oxidation, surfactant-enhanced aquifer remediation, and containment-based approaches — and on interim stabilization standards to prevent further DNAPL migration while the final remedy is designed and implemented.

C. TMC's Environmental Remediation Consultant

Pinnacle Creek Environmental, LLC serves as TMC's environmental remediation consultant across all four sites covered by the consent decree. The firm is led by Senior Principal Dr. Astrid Bergmann, P.E., a registered professional engineer with more than 25 years of experience in mine-site remediation and hazardous waste management. Dr. Bergmann's team includes specialists in hydrogeology, geochemistry, risk assessment, and remedial design. Pinnacle Creek Environmental has been retained by TMC since February 2024 and has been actively involved in developing TMC's technical positions throughout the consent decree negotiations.

In addition to Pinnacle Creek Environmental, the Court has designated Verdant Analytics, Inc. as the independent auditor and monitor for the consent decree. Verdant Analytics is led by Dr. Kamal Osei, a nationally recognized environmental compliance auditor who has served as an independent monitor in five prior federal consent decrees. The independent monitor's role is to conduct quarterly compliance audits and publish annual public reports on the progress of remediation at each of the four sites. As discussed in greater detail in Section IV.E below, the monitor's determinations may themselves become subjects of dispute, and the dispute resolution mechanism must account for this possibility.

D. State Co-Plaintiffs

Three state environmental agencies are co-plaintiffs or intervenors in this action:

• Montana Department of Environmental Quality ("Montana DEQ"), represented by counsel Annika Hedstrom, with jurisdiction over the Ridgecrest Mine and Gallatin Chemical Works sites;

• Nevada Division of Environmental Protection ("Nevada DEP"), represented by counsel Ricardo Fuentes, with jurisdiction over the Bonanza Creek Gold Mine; and

• West Virginia Department of Environmental Protection ("West Virginia DEP"), represented by counsel Loretta May Hatcher, with jurisdiction over the Kanawha Bend Chemical Plant.

The participation of three state co-plaintiffs across three different jurisdictions adds a layer of complexity to the dispute resolution mechanism that the government's draft does not adequately address. As discussed in Section IV.D below, the dispute resolution mechanism must clearly define the role of state co-plaintiffs in disputes — including whether states have independent dispute-initiation authority or must act through the United States — and must provide for coordination among the governmental parties to prevent inconsistent outcomes.

III. Analysis of the Government's Proposed Three-Tier Dispute Resolution Mechanism

The government's proposed dispute resolution mechanism, set forth in Section XIX (paragraphs 87 through 104) of the first draft consent decree, establishes a three-tier process for resolving disputes between the parties. We analyze each tier below, identify TMC's principal concerns, and recommend specific modifications.

A. Tier 1: Informal Negotiation (30-Day Period)

1. Structure as Proposed. Under the government's proposal, either party may invoke the dispute resolution process by providing written notice to the other party identifying the specific matter in dispute and setting forth the invoking party's position with respect to that matter. Upon receipt of the notice, a 30-day period for informal negotiation commences. During this period, the parties' designated representatives are expected to attempt to resolve the dispute through direct communication and negotiation.

The government's draft designates the following individuals as the parties' representatives for purposes of informal negotiation: for the government, the EPA project coordinator(s) for the relevant site and EPA case attorney Margaret Coulson (Office of Enforcement and Compliance Assurance); for TMC, Gareth Linford (Vice President, Environmental Health & Safety) and TMC's designated outside counsel. The draft permits the 30-day informal negotiation period to be extended by mutual written agreement of the parties, but does not provide for unilateral extension by either party.

The government's proposal does not impose any specific procedural requirements on the informal negotiation process. There is no requirement for the parties to exchange documents or technical data, no requirement for in-person or telephonic meetings, and no obligation for the parties to negotiate in good faith. The informal negotiation period functions as a mandatory waiting period rather than a structured dispute resolution procedure.

2. TMC's Concerns. We have identified four principal concerns with the government's proposed Tier 1 mechanism.

First, the 30-day informal negotiation period may be inadequate for complex technical disputes. Many of the disputes likely to arise under the consent decree will involve highly technical scientific and engineering questions — for example, the selection of remediation technology at Ridgecrest, the evaluation of DNAPL treatment alternatives at Kanawha Bend, or the assessment of liner repair adequacy at Bonanza Creek. These disputes will often require the exchange and review of technical reports, the analysis of monitoring data, and the evaluation of competing expert opinions. A 30-day period is unlikely to be sufficient for meaningful engagement on disputes of this nature, and the premature escalation of unresolved technical disputes to Tier 2 will burden the process and may result in EPA decisions rendered without the benefit of full technical exchange.

Second, the government's proposal does not require the government to engage in good-faith negotiation or to provide supporting technical data during the informal negotiation period. Without such a requirement, the government could treat the Tier 1 period as a mere formality — declining to engage substantively and allowing the 30-day clock to run before advancing to Tier 2, where EPA exercises unilateral decision-making authority. This possibility is not merely theoretical; it reflects a pattern observed in other consent decree enforcement contexts where the government has used the informal negotiation tier as a procedural prerequisite rather than a genuine dispute resolution step.

Third, the government's proposal does not toll stipulated penalties during the informal negotiation period. Under the consent decree's stipulated penalty provisions (analyzed in our separate memorandum dated December 20, 2024), TMC faces penalties of $1,500 per day for the first 30 days of a violation, $3,000 per day for days 31 through 60, and $5,500 per day thereafter. If a dispute concerns whether a particular obligation has been satisfied — a common type of consent decree dispute — TMC could be accruing substantial stipulated penalties throughout the dispute resolution process even if TMC's position is ultimately vindicated. The exposure is particularly acute given the multi-site scope of the consent decree and the dozens of individual compliance obligations associated with each site.

Fourth, the role of state co-plaintiffs in informal negotiation is not clearly defined. It is unclear whether the state environmental agencies (Montana DEQ, Nevada DEP, West Virginia DEP) may independently invoke the dispute resolution process or participate in informal negotiations. This ambiguity could lead to parallel or duplicative proceedings, particularly at the Montana sites where Montana DEQ exercises concurrent regulatory authority.

3. Recommended Modifications. We recommend the following modifications to the Tier 1 mechanism:

(a) Extend the informal negotiation period to 45 days, with an automatic 15-day extension. TMC should propose that the initial informal negotiation period be extended from 30 to 45 days, with a provision for an automatic 15-day extension upon written request by either party. This modification would provide additional time for the substantive technical exchange necessary to resolve complex disputes and would bring the total maximum Tier 1 period to 60 days — still a reasonable timeline that does not unduly delay the resolution of disputes.

(b) Require exchange of relevant technical data and positions. TMC should propose that both parties be required to exchange relevant technical data and written position statements within 10 business days of the dispute notice. This requirement ensures that both parties have access to the information necessary for meaningful negotiation and creates a documentary record that may inform subsequent proceedings at Tiers 2 and 3.

(c) Mandate good-faith negotiation. TMC should propose the inclusion of a good-faith negotiation requirement, including a mandate that the parties hold at least one in-person or video conference meeting during the informal negotiation period. The meeting should include the parties' designated representatives and, where the dispute involves technical or scientific matters, the parties' respective technical consultants (i.e., Pinnacle Creek Environmental for TMC and the government's designated technical experts).

(d) Toll stipulated penalties during the dispute resolution process. TMC should propose that stipulated penalties be expressly tolled for the duration of the entire dispute resolution process — encompassing all three tiers — with respect to the specific obligation that is the subject of the dispute. The tolling provision should include a carve-out permitting the Court to deny tolling retroactively if it finds that the dispute was raised by TMC in bad faith or for the purpose of delay. This carve-out should be sufficient to address any government concern about the potential for abuse of the dispute resolution process as a penalty-avoidance mechanism.

(e) Clarify the role of state co-plaintiffs. TMC should propose language providing that state co-plaintiffs have the right to participate in informal negotiations as observers or advisors to the United States, but may not unilaterally initiate informal negotiations independent of the United States. Any dispute raised by a state co-plaintiff must first be joined by the United States (acting through EPA or DOJ) before it may proceed through the dispute resolution mechanism. Alternatively, if a state co-plaintiff seeks to raise a dispute that the United States declines to join, the state must channel the dispute through a separate Tier 1 process with TMC, and any resulting EPA decision at Tier 2 must be coordinated with the United States' position.

B. Tier 2: Formal EPA Decision (30-Day Period)

1. Structure as Proposed. Under the government's proposal, if the parties are unable to resolve the dispute through informal negotiation during the Tier 1 period, the dispute is elevated to EPA's Office of Enforcement and Compliance Assurance ("OECA") for a formal written decision. EPA has 30 days from the close of the informal negotiation period to issue a written decision resolving the dispute. The decision is binding on the parties unless TMC seeks judicial review under Tier 3 within the prescribed petition period.

The government's proposed mechanism vests EPA with unilateral decision-making authority at Tier 2. The draft does not require EPA to conduct a hearing, accept submissions from TMC, consider TMC's technical evidence, or issue a reasoned written explanation for its decision. The decision is simply issued by OECA and communicated to TMC in writing.

Additionally, the government's draft provides that EPA may extend the 30-day decision period "as necessary" — language that effectively grants EPA an unlimited extension and places no ceiling on the time EPA may take to render its decision. During any such extension, TMC remains subject to the accruing stipulated penalties for the underlying obligation (assuming no tolling provision is adopted), and the disputed obligation remains in effect unless TMC can persuade the Court to issue interim relief.

2. TMC's Concerns. The Tier 2 mechanism raises several concerns of fundamental procedural fairness and practical significance.

First, EPA serves as both party and adjudicator at Tier 2. EPA is the agency that initiated the enforcement action, negotiated the consent decree terms, and will oversee TMC's compliance. When a dispute arises under the decree, EPA is invariably an interested party — indeed, in most cases, the dispute will directly concern whether TMC has satisfied EPA's requirements. Under the government's proposal, this same interested party is vested with unilateral decision-making authority over the dispute, without any procedural safeguards to ensure impartiality. This structure is fundamentally at odds with basic principles of due process and fair dealing.

Second, the absence of procedural safeguards at Tier 2 is deeply problematic. TMC has no right to be heard before EPA renders its decision, no right to submit written arguments or technical evidence, and no assurance that EPA will consider TMC's position at all. There is no requirement that EPA issue a reasoned decision — the decision could consist of a single sentence rejecting TMC's position without explanation. This absence of procedural safeguards is particularly concerning in the context of technical and scientific disputes, where the factual basis for EPA's decision may be difficult to evaluate without a reasoned explanation.

Third, EPA's ability to unilaterally extend the 30-day decision period "as necessary" creates an asymmetric timeline that disadvantages TMC. While EPA may take as long as it wishes to render its decision, TMC remains subject to ongoing obligations, accruing stipulated penalties, and the practical pressures of remediation deadlines. The open-ended extension language also deprives TMC of any ability to predict or plan around the dispute resolution timeline, which has significant implications for remediation scheduling and financial planning.

Fourth, the government's draft makes no distinction between disputes that are purely legal in nature (e.g., the interpretation of consent decree terms), disputes that are purely technical or scientific (e.g., the appropriateness of a particular remedy technology), and disputes of a mixed character. This undifferentiated approach is problematic because the justification for deference to EPA — if any — differs markedly across these categories. EPA may possess relevant technical expertise in evaluating remedy technologies, but it has no special competence in interpreting the legal provisions of a consent decree, a function that is properly within the province of the Court.

Fifth, under the government's proposed framework, EPA's Tier 2 decision becomes the presumptive "correct" outcome, establishing an asymmetric burden of proof at Tier 3. Because the Tier 3 standard of review (arbitrary and capricious / substantial evidence) is highly deferential, the party challenging EPA's decision bears a heavy burden. Combined with the record-limitation rule (which limits judicial review to the administrative record compiled during Tiers 1 and 2), EPA's Tier 2 decision effectively becomes the final word on most disputes, rendering Tier 3 judicial review illusory in all but the most extreme cases.

3. Recommended Modifications. We recommend the following modifications to the Tier 2 mechanism:

(a) Require EPA to accept and consider TMC's written submissions. TMC should propose that the consent decree expressly require EPA to accept and consider written submissions from TMC — including technical reports, data analyses, and expert opinions from TMC's consultants such as Pinnacle Creek Environmental — before issuing a Tier 2 decision. The draft should specify a deadline for TMC's submissions (e.g., within 15 days of the close of Tier 1), and EPA's decision should not be issued until TMC's submission deadline has passed.

(b) Require EPA to issue a reasoned written decision. TMC should propose that EPA's Tier 2 decision include a reasoned written explanation addressing the key arguments and evidence presented by both parties during Tiers 1 and 2. The requirement for a reasoned decision serves multiple purposes: it ensures that EPA has actually considered TMC's submissions, it creates a meaningful record for judicial review at Tier 3, and it promotes discipline and accountability in EPA's decision-making process.

(c) Limit EPA's extension authority. TMC should propose that EPA's ability to extend the 30-day decision period be limited. Specifically, EPA should be permitted to extend the period by no more than 15 additional days (for a total of 45 days), and only upon written notice to TMC stating the reasons for the extension. If EPA fails to issue a decision within the extended period, TMC should have the right to proceed directly to Tier 3 judicial review as if EPA had issued a decision adverse to TMC.

(d) Eliminate the presumption of correctness. TMC should propose language providing that EPA's Tier 2 decision does not create a presumption of correctness for purposes of Tier 3 judicial review. This issue is closely related to the standard-of-review analysis at Tier 3, discussed in Section III.C below, but should also be addressed at the Tier 2 level to prevent the government from arguing that the mere issuance of an EPA decision establishes a baseline of correctness that TMC must overcome.

(e) Provide for independent monitor advisory opinions on technical disputes. For disputes involving technical or scientific determinations, TMC should propose a mechanism for referral to the court-appointed independent monitor, Verdant Analytics, Inc. (Dr. Kamal Osei), for a non-binding advisory opinion before EPA renders its Tier 2 decision. This modification serves two important purposes. First, it interposes a neutral technical expert between the parties, creating an independent factual record that may facilitate resolution of the dispute without the need for a formal EPA decision. Second, even if the dispute is not resolved, the monitor's advisory opinion will be part of the record available at Tier 3 judicial review, providing the Court with an independent technical assessment against which to evaluate EPA's decision. We recognize that this modification may increase the estimated costs of the independent monitor engagement (currently projected at $4.8 million over five years) and that the cost allocation for advisory opinions will need to be negotiated separately.

C. Tier 3: Judicial Review (Petition Within 30 Days of EPA Decision)

1. Structure as Proposed. Under the government's proposal, TMC may petition the Court — the Honorable Donald W. Molloy, United States District Court for the District of Montana, Missoula Division — for judicial review of EPA's Tier 2 decision within 30 days of receiving the decision. The government's draft specifies the following parameters for judicial review:

• Standard of review: The Court shall review EPA's decision under the arbitrary-and-capricious / substantial-evidence standard — the same standard of review applied to agency action under the Administrative Procedure Act ("APA"), 5 U.S.C. § 706(2)(A).

• Burden of proof: TMC bears the burden of demonstrating that EPA's decision is arbitrary, capricious, an abuse of discretion, or not supported by substantial evidence.

• Scope of review: The Court's review is limited to the administrative record compiled during Tiers 1 and 2. No supplemental evidence may be presented by either party.

• Scheduling: The draft includes no provision for expedited consideration or scheduling of the judicial review proceeding.

• Interim relief: The draft includes no provision for interim relief, stay of the disputed obligation, or preservation of the status quo pending judicial resolution.

2. TMC's Concerns. The Tier 3 mechanism as proposed raises the most significant concerns of any provision in the dispute resolution section. In practical terms, the combination of the arbitrary-and-capricious standard, the record-limitation rule, and the burden-of-proof allocation renders judicial review largely illusory. We elaborate on each concern below.

Standard of review. The arbitrary-and-capricious / substantial-evidence standard is the most deferential standard of judicial review available in federal law. Under this standard, the Court may not substitute its own judgment for that of the agency; it may reverse EPA's decision only if the decision is so lacking in rational basis that no reasonable decision-maker could have reached it. In the specific context of consent decree dispute resolution, this standard creates a structural imbalance: EPA, acting as both party and decision-maker at Tier 2, issues a decision that the Court is then required to uphold unless TMC can demonstrate that the decision is beyond the bounds of rationality. Because most disputes under the consent decree will involve questions of technical judgment on which reasonable minds could differ, the arbitrary-and-capricious standard will in practice insulate nearly all of EPA's Tier 2 decisions from meaningful judicial scrutiny.

It is important to note that the application of APA-style deference in the consent decree context is analytically distinct from its application in the traditional administrative law context. In the typical APA review scenario, the agency acts in a quasi-legislative or quasi-adjudicatory capacity, exercising authority delegated by Congress and applying its specialized expertise to implement a statutory scheme. Deference to the agency in that context is justified by the statutory delegation and the agency's institutional competence. In the consent decree context, by contrast, EPA is acting as an enforcement party — a litigant — exercising contractual authority under a court-supervised settlement agreement. There is no statutory delegation of adjudicatory authority, and the consent decree is not an exercise of EPA's rulemaking or adjudicatory functions. Accordingly, the justification for APA-style deference is significantly weaker in this context, and several courts have recognized that the level of deference appropriate in consent decree disputes is a matter for the decree itself to specify rather than a matter of statutory mandate.

Burden of proof. The government proposes that TMC bear the burden of demonstrating that EPA's decision is arbitrary, capricious, or not supported by substantial evidence. This burden allocation compounds the structural imbalance created by the deferential standard of review. TMC is required to prove a negative — that EPA's decision lacks rational support — based solely on the administrative record compiled during Tiers 1 and 2. Because EPA controls the Tier 2 decision-making process and has no obligation to consider TMC's submissions (under the government's draft), the record may be incomplete or one-sided, further disadvantaging TMC at the judicial review stage.

Record limitation. The government's proposed record-limitation rule prevents TMC from presenting evidence at Tier 3 that was not available during Tiers 1 and 2. In the context of environmental remediation, where new data is constantly being generated through ongoing monitoring and investigation, this rule could exclude highly relevant technical evidence. For example, if Pinnacle Creek Environmental develops new groundwater data during the Tier 2 period that supports TMC's position, TMC would be unable to present that data to the Court if it was not formally submitted to EPA during the Tier 1 or Tier 2 process. This limitation is particularly problematic given the absence of procedural safeguards at Tier 2 — the government's draft provides no mechanism for TMC to submit evidence at Tier 2, yet limits judicial review to the evidence submitted at that stage.

Absence of scheduling provisions. The government's draft includes no provision for expedited consideration of judicial review petitions. Without such a provision, disputes could linger for months or years in the normal course of the Court's docket, during which time TMC's obligations under the consent decree remain in effect (or, depending on the nature of the dispute, in limbo). For a consent decree governing remediation activities at four sites over periods of 15 to 30 years, the absence of a predictable judicial review timeline creates significant uncertainty for remediation planning and financial modeling.

Absence of interim relief provisions. The government's draft includes no provision for the Court to grant interim relief pending resolution of a Tier 3 dispute. Without such a provision, TMC may be required to implement EPA's Tier 2 decision — including potentially costly or technically inappropriate remediation activities — while its judicial challenge is pending. If TMC ultimately prevails at Tier 3, the costs of implementing the disputed decision during the pendency of the review may be unrecoverable.

3. Recommended Modifications — Standard of Review. We recommend that TMC advance the following positions on the standard of review, in order of preference:

Primary position: *De novo* review for all disputes. TMC's primary position should be that the Court reviews EPA's Tier 2 decision de novo — that is, the Court exercises its independent judgment on both questions of fact and questions of law, without deference to EPA's determination. This position is supported by the fundamental principle that a consent decree is a court order, and the Court retains inherent authority to interpret and enforce its own orders. The application of APA-style deference to a consent decree dispute is neither required by statute nor dictated by the institutional competence rationale that justifies deference in the traditional administrative law context. Moreover, because EPA acts as an enforcement party (not a neutral adjudicator) at Tier 2, deference to EPA's determination is functionally equivalent to deference to the opposing litigant's position — a result that is inconsistent with the Court's obligation to ensure the fair administration of the consent decree.

TMC should further argue that APA deference is inapplicable because EPA is acting in an enforcement capacity under the consent decree, not in a rulemaking or formal adjudicatory capacity pursuant to a statutory delegation of authority. The consent decree does not confer adjudicatory authority on EPA; rather, it establishes a procedural framework for resolving disputes that is ultimately subject to the Court's supervisory jurisdiction. To apply APA-style deference in this context would effectively transfer the Court's adjudicatory authority to one of the parties, a result that is neither intended nor appropriate.

Our prior Comparative Consent Decree Analysis, dated November 20, 2024, identifies several precedent consent decrees in which the parties agreed to de novo judicial review, confirming that this position is within the range of outcomes achievable in negotiation.

Fallback position 1: Bifurcated standard. If the government is unwilling to accept de novo review for all disputes, TMC should propose a bifurcated standard of review that distinguishes between legal/interpretive disputes and factual/technical disputes:

• Legal and interpretive disputes — including disputes over the meaning, scope, or application of consent decree terms, the interpretation of regulatory requirements incorporated by reference, and the determination of legal rights and obligations — would be subject to de novo review.

• Factual and technical disputes — including disputes over the selection of remediation technologies, the adequacy of technical data, and the interpretation of monitoring results — would be subject to a "clearly erroneous" standard of review.

The bifurcated standard is more protective of TMC's interests than the arbitrary-and-capricious standard proposed by the government because the "clearly erroneous" standard, while deferential, requires the reviewing court to have a "definite and firm conviction" that a mistake has been made — a somewhat lower threshold than the arbitrary-and-capricious standard. More importantly, the bifurcated standard preserves full de novo review for legal and interpretive disputes, which are likely to be among the most consequential disputes under the decree and for which deference to EPA's position is least justified.

Fallback position 2: Arbitrary-and-capricious standard with record supplementation. If the government insists on the arbitrary-and-capricious standard for technical disputes, TMC should at minimum negotiate for express language permitting the Court to supplement the record with evidence that was not available during Tiers 1 and 2 or that could not have been reasonably presented during those stages. This modification addresses one of the most significant practical disadvantages of the government's proposal — the exclusion of newly developed technical evidence — while accepting the government's preferred standard of review for technical matters. The supplementation provision should provide that either party may move to supplement the record upon a showing of good cause, and that the Court has discretion to admit supplemental evidence that is material to the resolution of the dispute.

4. Recommended Modifications — Burden of Proof. We recommend that TMC advance the following positions on burden of proof:

Primary position: Burden on the government. TMC's primary position should be that the burden of proof at Tier 3 rests on the government (EPA) to demonstrate the reasonableness of its Tier 2 decision. This position follows logically from the structural concern identified above: because EPA acts as both party and decision-maker at Tier 2, fairness requires that EPA bear the burden of justifying its decision when the decision is challenged before a neutral tribunal. Placing the burden on TMC to disprove the reasonableness of EPA's decision — a decision rendered by TMC's adversary without procedural safeguards — is fundamentally asymmetric and inconsistent with the principles underlying the consent decree framework.

Fallback position: Shifting burden. If the government rejects the primary position, TMC should propose a shifting-burden framework. Under this approach, EPA bears the initial burden of presenting a prima facie justification for its Tier 2 decision — i.e., demonstrating that the decision rests on a reasonable factual and legal basis. Once EPA has satisfied this initial burden, the burden shifts to TMC to demonstrate that EPA's decision is incorrect or unreasonable. This approach ensures that EPA must at least articulate a rational basis for its decision before TMC is required to shoulder the burden of refutation, and it prevents EPA from relying solely on the presumption of correctness without affirmative justification.

5. Recommended Modifications — Procedural Safeguards at Judicial Review. In addition to the standard-of-review and burden-of-proof modifications discussed above, we recommend the following procedural modifications to the Tier 3 mechanism:

(a) Extend the petition period from 30 to 45 days. TMC should propose that the deadline for filing a petition for judicial review be extended from 30 to 45 days. Given the complexity of the disputes likely to arise under the consent decree and the need for TMC's counsel to evaluate EPA's Tier 2 decision, coordinate with TMC's technical consultants, and prepare a petition that complies with the applicable procedural requirements, a 45-day period is more appropriate and does not prejudice the government's interests.

(b) Require an expedited briefing schedule. TMC should propose that the consent decree include an expedited briefing schedule for judicial review proceedings: opening brief within 30 days of the petition, response brief within 30 days, and reply brief within 15 days. TMC should further propose that the decree request the Court to render its decision within 60 days of the completion of briefing. While the Court's scheduling is ultimately within its discretion, the inclusion of a target timeline in the consent decree signals the parties' shared interest in expeditious resolution and provides a basis for the Court to prioritize dispute resolution proceedings.

(c) Permit supplementation of the record. As discussed in the standard-of-review analysis above, TMC should propose that either party may move to supplement the administrative record upon a showing of good cause. Good cause should include, at a minimum, the existence of evidence that was not available during Tiers 1 and 2 or that could not have been reasonably presented during those stages.

(d) Provide for interim and provisional relief. TMC should propose a provision authorizing the Court to grant interim or provisional relief pending resolution of a Tier 3 dispute. Such relief may include a stay of the disputed obligation, modification of interim deadlines, or other equitable measures to preserve the status quo pending judicial resolution. The provision should specify that the Court may grant interim relief upon a showing by TMC that (i) TMC is likely to succeed on the merits, (ii) TMC will suffer irreparable harm absent interim relief, (iii) the balance of equities favors interim relief, and (iv) interim relief is consistent with the protection of human health and the environment. This standard is consistent with the traditional four-factor test for preliminary injunctive relief and provides appropriate safeguards against misuse.

(e) Preserve TMC's right to seek emergency relief. TMC should propose that the consent decree expressly preserve TMC's right to seek emergency relief from the Court at any time, outside the dispute resolution process, for matters posing imminent harm to TMC's interests. This provision ensures that the three-tier dispute resolution mechanism does not preclude TMC from seeking immediate judicial intervention in exigent circumstances — for example, where EPA takes an enforcement action that threatens to disrupt ongoing remediation activities or to impose irreversible obligations on TMC.

IV. Cross-Cutting Issues

In addition to the tier-specific issues analyzed in Section III above, several cross-cutting issues affect the operation of the dispute resolution mechanism as a whole. We address these issues below.

A. Scope of Disputes Subject to the Mechanism

The government's draft provides that all disputes "arising under or relating to" the consent decree are subject to the three-tier dispute resolution mechanism. This expansive scope language is standard in EPA consent decrees but sweeps in several categories of disputes that are more appropriately resolved through other channels.

TMC should seek to exclude the following categories of disputes from the three-tier mechanism:

(i) Disputes over the amount of stipulated penalties. Under Section XX of the draft consent decree, stipulated penalties are assessed by EPA and may be contested by TMC. Disputes over the amount of stipulated penalties are fundamentally legal and factual disputes — did the violation occur, what is the appropriate penalty rate, are there mitigating circumstances — that should be resolved directly by the Court without first proceeding through an EPA decision at Tier 2. Requiring TMC to submit to EPA's unilateral determination of penalty amounts before seeking judicial review is inappropriate, as EPA is the party seeking to impose the penalties.

(ii) Disputes concerning force majeure claims. Section XVIII of the draft consent decree establishes a separate procedure for force majeure claims, including a 15-day written notice requirement and a provision for EPA to accept or deny the claim. If EPA denies a force majeure claim, the dispute should proceed directly to the Court, bypassing the Tier 2 EPA decision stage. Force majeure situations are by their nature time-sensitive, and the additional delay of the three-tier process is incompatible with the urgency of force majeure disputes. A more detailed analysis of force majeure provisions is set forth in our separate memorandum dated January 3, 2025.

(iii) Disputes concerning termination certification. Section XXIII of the draft consent decree establishes criteria and procedures for termination of the decree with respect to individual sites. Disputes over whether TMC has satisfied the termination criteria and is entitled to termination certification should be subject to direct judicial determination, as these disputes raise fundamental questions about the ongoing jurisdiction of the Court and the scope of TMC's continuing obligations. Moreover, because termination certification involves both EPA and the independent monitor, the standard dispute resolution mechanism — which is designed for bilateral EPA-TMC disputes — may not be procedurally adequate.

(iv) Third-party claims and insurance-related matters. Disputes between TMC and third parties — including disputes with TMC's surety (Ironbark Surety of America), trustee (Larchfield Trust Company, N.A.), or insurers (Meridian Environmental Insurance Company) — are outside the scope of the consent decree and should not be subject to the consent decree's internal dispute resolution mechanism. These disputes arise under separate contractual arrangements and are governed by their own dispute resolution provisions.

B. Tolling of Stipulated Penalties During Dispute Resolution

The tolling of stipulated penalties during the dispute resolution process is among the most critical practical issues in the consent decree and warrants particular attention.

Under the government's draft, stipulated penalties continue to accrue during the dispute resolution process. This means that if TMC invokes the dispute resolution mechanism with respect to a particular obligation, and the dispute proceeds through all three tiers, TMC could face substantial penalty accrual before the dispute is ultimately resolved.

To illustrate the potential exposure, consider a dispute that proceeds through the full three-tier process in the minimum time permitted under the government's proposal:

This calculation reflects the minimum penalty accrual for a single violation proceeding through all three tiers in the shortest possible time. In practice, the accrual period would likely be significantly longer — particularly if EPA exercises its authority to extend the Tier 2 period, or if the judicial review proceeding at Tier 3 extends beyond the 30-day petition period (as it almost certainly would, given the time required for briefing and decision). A judicial review proceeding lasting six months, for example, would result in an additional $5,500/day × 180 days = $990,000 in penalty accrual, bringing the total for a single violation to over $1.29 million.

Given the four-site scope of the consent decree and the dozens of individual compliance obligations associated with each site, the cumulative stipulated penalty exposure during dispute resolution is potentially enormous. This creates a perverse incentive for TMC to refrain from invoking the dispute resolution process — even when TMC has a meritorious position — simply to avoid the accrual of penalties. Such an incentive undermines the purpose of the dispute resolution mechanism and is inconsistent with the fair administration of the consent decree.

TMC should insist on one of the following positions:

Primary position: Full tolling during the dispute resolution process. Stipulated penalties for the obligation in dispute should be tolled from the date TMC invokes the dispute resolution process until the date of final resolution — whether by agreement at Tier 1, EPA decision at Tier 2 (if not challenged), or judicial determination at Tier 3. If TMC's position is ultimately upheld, no penalties accrue. If TMC's position is rejected, penalties accrue retroactively from the date the obligation was originally due.

Fallback position: Tolling during Tiers 1 and 2 with resumption at Tier 3. Stipulated penalties for the obligation in dispute should be tolled during the Tier 1 and Tier 2 periods and resume accruing only if TMC files a Tier 3 petition for judicial review and is ultimately unsuccessful. Under this approach, TMC bears no penalty exposure while the dispute is being resolved through informal negotiation and EPA decision-making, but assumes the risk of penalty accrual if it chooses to pursue judicial review and does not prevail.

C. Preservation of Rights Pending Dispute Resolution

A related but distinct issue concerns whether TMC is required to implement EPA's Tier 2 decision while a Tier 3 petition for judicial review is pending. Under the government's draft, EPA's Tier 2 decision is binding unless reversed by the Court at Tier 3 — which implies that TMC must comply with the decision during the pendency of judicial review.

This result is problematic for several reasons. First, compliance with a disputed decision may require TMC to undertake costly remediation activities that may ultimately prove unnecessary or inappropriate if the decision is reversed. Second, in some cases, implementing the disputed decision may foreclose the remedy that TMC advocates — for example, if EPA's decision directs TMC to install a particular treatment system, the installation costs may be unrecoverable even if the Court determines that a different treatment system would have been more appropriate. Third, requiring compliance with EPA's decision pending review effectively eliminates the practical significance of judicial review, as the disputed work will have been completed (or substantially advanced) before the Court renders its decision.

TMC should propose the following modifications:

(a) No obligation to implement EPA's Tier 2 decision during Tier 3 review, except where EPA demonstrates that the disputed obligation is necessary to address an imminent endangerment to human health or the environment. This carve-out ensures that urgent health and safety matters are not delayed by the judicial review process while protecting TMC from the obligation to implement disputed decisions on non-urgent matters.

(b) Compliance without prejudice. To the extent TMC does implement EPA's Tier 2 decision pending judicial review — whether voluntarily or pursuant to a court order — such compliance should be expressly without prejudice to TMC's right to seek reversal of the decision and recovery of the costs incurred in implementing the disputed work. This provision ensures that TMC does not waive its Tier 3 rights by complying with the disputed decision during the pendency of review.

D. Multi-Party Complications — Role of State Co-Plaintiffs

As noted in Section II.D above, three state environmental agencies — Montana DEQ, Nevada DEP, and West Virginia DEP — are co-plaintiffs or intervenors in this action. The government's draft does not clearly address the role of state co-plaintiffs in the dispute resolution mechanism, creating the potential for confusion, inconsistency, and pro

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
MEMORANDUM
FROM: Elliot Nguyen, Lead Associate, Calderwood & Harkness LLP Harrison Wexford, Responsible Partner, Calderwood & Harkness LLP
TO: Miriam Soo-Hwan Park, General Counsel, Torchlight Mining Corp. Gareth Linford, VP, Environmental Health & Safety, Torchlight Mining Corp.
CC: Beatrice Holloway, Billing Partner, Calderwood & Harkness LLP Grace Nakamura, Working Associate, Calderwood & Harkness LLP Russell Dane, Holcroft, Dane & Weiss LLP Denise Quartaro, sagebrush Law Group, PLLC Nathan Tully, Baxter, Tully & Crane PLLC
DATE: January 6, 2025
RE: Analysis of Dispute Resolution Mechanism — Proposed Consent Decree, United States of America and State of Montana v. Torchlight Mining Corp., et al., Civil Action No. 9:24-cv-00087-DWM (U.S. District Court for the District of Montana, Missoula Division)
MATTER NO.: 1039-00003
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I. Executive Summary
This memorandum analyzes the three-tier dispute resolution provision contained in the Department of Justice's first draft consent decree, circulated on November 8, 2024, in the above-captioned matter and recommends modifications to protect the interests of Torchlight Mining Corp. ("TMC"). While the government's counter-redline has not yet been formally received, informal signals from government counsel — principally through communications between Harrison Wexford and Philip Orenstein (DOJ, Environment and Natural Resources Division ("ENRD")) on December 19, 2024 and January 2, 2025 — indicate that the dispute resolution mechanism will be an area of significant contention in the next round of negotiations. We anticipate that the government counter-redline will be received approximately January 14, 2025, and this memorandum is prepared in advance to provide TMC with a comprehensive framework for evaluating and responding to the government's expected positions.
The proposed consent decree governs remediation obligations at four sites spanning three states:
1. Ridgecrest Copper-Molybdenum Mine (Drummond, Montana)
2. Gallatin Chemical Works (Belgrade, Montana)
3. Bonanza Creek Gold Mine (Lander County, Nevada)
4. Kanawha Bend Chemical Plant (Institute, West Virginia)
The financial exposure associated with this consent decree is substantial. The combined nominal remediation costs total approximately $343.5 million, supplemented by civil penalties of $31.5 million, supplemental environmental projects ("SEPs") of $12.0 million, reimbursement of EPA past costs of $18.1 million, and estimated independent monitor costs of $4.8 million — for a grand total of approximately $409.9 million in aggregate financial exposure. The remediation obligations at Ridgecrest alone span a 30-year period, and the overall consent decree will govern TMC's environmental compliance posture for decades. Given the magnitude, duration, and complexity of these obligations, the dispute resolution mechanism is among the most consequential procedural provisions in the decree and warrants careful negotiation.
The government's proposed three-tier mechanism proceeds as follows: (1) informal negotiation between the parties for a period of 30 days; (2) formal decision by EPA for a period of 30 days; and (3) judicial review by petition to the Court within 30 days of EPA's decision. While the three-tier structure itself is consistent with the general framework found in most EPA consent decrees, the specific procedural details of the government's proposal present several areas of significant concern for TMC.
Our key concerns with the government's proposal are:
• Standard of judicial review. The government proposes arbitrary-and-capricious / substantial-evidence review at Tier 3, which is the most deferential standard available and would render EPA's Tier 2 decisions effectively unreviewable in all but the most egregious cases.
• Burden of proof allocation. The government proposes that TMC bear the burden of demonstrating that EPA's decision is arbitrary, capricious, or not supported by substantial evidence — placing the burden on the party challenging an adverse decision rendered by its adversary.
• Scope of disputes covered. The mechanism purports to cover all disputes "arising under or relating to" the consent decree, without appropriate carve-outs for matters that should be resolved directly by the Court.
• Stay of performance obligations during dispute resolution. The government's proposal does not toll stipulated penalties or stay performance obligations during the dispute resolution process, exposing TMC to potentially significant penalty accrual while a dispute remains pending.
• Treatment of technical versus legal disputes. The proposal makes no distinction between disputes involving technical or scientific determinations and disputes involving legal questions or the interpretation of consent decree terms, applying the same deferential standard of review across the board.
TMC's overall negotiation posture, as we recommend it, should be to preserve maximum access to de novo judicial review and to shift burden allocation to the government where possible, without jeopardizing the broader consent decree settlement. As discussed in Section VII below, we have structured our recommended modifications in a tiered priority system with corresponding concession strategies to provide TMC's negotiating team with flexibility to respond to the government's positions.
II. Background and Context
A. Procedural Posture
On January 18, 2024, the United States of America, acting through the Department of Justice on behalf of the Environmental Protection Agency, together with the State of Montana, filed a complaint against Torchlight Mining Corp. and certain affiliated entities (collectively, "TMC" or "Defendants") in the United States District Court for the District of Montana, Missoula Division. The case was assigned Civil Action No. 9:24-cv-00087-DWM and is presided over by the Honorable Donald W. Molloy, Senior United States District Judge.
The complaint asserts claims under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601–9675; the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§ 6901–6992k; the Clean Water Act ("CWA"), 33 U.S.C. §§ 1251–1387; the Migratory Bird Treaty Act ("MBTA"), 16 U.S.C. §§ 703–712; and analogous state environmental statutes. The complaint seeks injunctive relief requiring remediation of contamination at the four sites identified above, civil penalties for alleged violations of federal and state environmental laws, and reimbursement of EPA's past response costs.
TMC filed its answer on March 5, 2024, denying the material allegations of the complaint and asserting numerous affirmative defenses, including limitations on CERCLA liability under the innocent-landowner and third-party defenses, statute of limitations defenses as to certain penalty claims, and constitutional challenges to the scope of the requested injunctive relief. To preserve the parties' respective positions while exploring settlement, the parties executed a tolling agreement on April 22, 2024, which tolls all applicable statutes of limitations through December 31, 2025.
On May 15, 2024, the Court entered an order referring the matter to Magistrate Judge Clara Finnegan for mediation. Magistrate Judge Finnegan conducted an initial mediation session on June 12, 2024, and a follow-up session on July 18, 2024. As a result of these sessions, the parties reached an agreement in principle on a consent-decree framework on July 30, 2024. The framework agreement addressed the broad contours of the remediation obligations, penalty amounts, and compliance mechanisms, but expressly deferred detailed drafting of several key provisions — including the dispute resolution mechanism, stipulated penalties, force majeure, and financial assurance — to the formal consent decree drafting process.
Calderwood & Harkness LLP was engaged by TMC on October 21, 2024, replacing prior environmental counsel Whitfield, Palmer & Goss LLP, which had represented TMC through the mediation phase. Our engagement was occasioned by TMC's determination that the consent decree drafting process required specialized environmental enforcement expertise and a litigation team with experience in multi-site, multi-agency consent decree negotiations. The transition of counsel was accomplished without disruption to the negotiation timeline.
The DOJ circulated its first draft consent decree on November 8, 2024, totaling 187 pages with 14 appendices. The TMC redline of the first draft was submitted on December 16, 2024, proposing modifications to approximately 45 substantive provisions across the decree. The dispute resolution section (Section XIX of the draft decree, paragraphs 87 through 104) was one of several areas in which TMC proposed significant revisions. The government's counter-redline is anticipated on or about January 14, 2025, based on representations made by DOJ counsel Philip Orenstein during a telephone conference on January 2, 2025.
B. Overview of the Four Sites and Anticipated Dispute Areas
To properly evaluate the dispute resolution mechanism, it is essential to understand the nature and complexity of the remediation obligations at each of the four sites, as these obligations will generate the substantive disputes that the mechanism must resolve. We provide below a summary of each site's key characteristics and the areas in which disputes are most likely to arise during the multi-decade remediation period.
1. Ridgecrest Copper-Molybdenum Mine (Drummond, Montana)
The Ridgecrest Mine is the largest and most complex of the four sites and will account for the majority of TMC's remediation expenditures under the consent decree. The mine operated as an open-pit copper-molybdenum extraction facility from 1958 through 2019, producing an estimated 2.4 billion pounds of copper concentrate and 180 million pounds of molybdenum concentrate over its operational lifetime. The site encompasses approximately 4,200 acres and includes the main open pit, three tailings impoundments, waste rock storage areas, a former processing mill, and contaminated floodplain areas along Rock Creek and the Clark Fork River.
EPA has proposed listing the Ridgecrest Mine on the National Priorities List ("NPL"), a decision that remains pending at the time of this memorandum. The consent decree addresses EPA's CERCLA cost recovery claim of $14.3 million for response actions already undertaken at the site. The negotiated remediation cost for the Ridgecrest site is $198.6 million over a 30-year remediation period, and the associated civil penalty is $14.2 million. These figures represent the single largest component of the overall consent decree financial exposure.
Disputes at the Ridgecrest site are likely to arise in several areas. First, remedy selection remains a significant area of potential contention. TMC's remediation estimate, developed by Pinnacle Creek Environmental, LLC, is $187.5 million — approximately $36.5 million less than EPA's estimate of $224.0 million. The negotiated figure of $198.6 million reflects a compromise, but the underlying disagreement over the scope and cost of remediation activities may resurface as specific remedy components are designed and implemented. Second, completion criteria for the remediation — including numeric standards for groundwater quality, soil cleanup levels, and ecological restoration benchmarks — are expected to be the subject of ongoing technical disputes throughout the 30-year remediation period. Third, long-term monitoring standards, including the frequency, location, and parameters of groundwater and surface water sampling, are likely to generate disagreements between TMC's technical consultants and EPA's project team.
The EPA Project Coordinator for the Ridgecrest site is Dr. Samuel Tesfaye, a senior remedial project manager with EPA Region 8 based in Helena, Montana. The government's designated technical expert for the Ridgecrest site is Dr. Patricia Voss of Cascade Geosciences, Inc., a geochemistry and mine-remediation consulting firm based in Bozeman, Montana. Dr. Voss has served as the government's technical expert in three prior mining consent decrees in EPA Region 8 and is known for aggressive remedy-selection positions favoring comprehensive rather than targeted approaches to mine-site remediation.
2. Gallatin Chemical Works (Belgrade, Montana)
The Gallatin Chemical Works is a former industrial chemical manufacturing facility located in Belgrade, Montana, approximately 12 miles west of Bozeman. The facility operated from 1964 through 2008, producing carbon disulfide (CS₂), sodium thiosulfate, and various sulfur-based industrial chemicals. The site is subject to RCRA corrective action under Permit No. MTD098712456 and includes three identified Solid Waste Management Units ("SWMUs"): the former CS₂ production area (SWMU-1), the sulfur storage and loading area (SWMU-2), and the former wastewater treatment lagoons (SWMU-3).
The primary contaminant of concern is carbon disulfide in groundwater. CS₂ has been detected in monitoring wells at concentrations up to 890 micrograms per liter (µg/L) — approximately 89 times the Maximum Contaminant Level ("MCL") of 10 µg/L. The CS₂ plume extends approximately 1,800 feet downgradient from the former production area and has impacted residential drinking water wells in the adjacent subdivision. The negotiated remediation cost for the Gallatin site is $42.8 million over a 15-year remediation period, with an associated civil penalty of $5.8 million.
Disputes at the Gallatin site are possible in at least two areas. First, corrective measures selection — including the choice between in-situ chemical oxidation, air sparging, and pump-and-treat technologies — is an area where TMC and EPA have expressed differing technical views during preliminary discussions. Second, cleanup levels for CS₂ are potentially disputable, as TMC may seek risk-based alternative cleanup levels in excess of the MCL based on site-specific exposure pathway analysis.
3. Bonanza Creek Gold Mine (Lander County, Nevada)
The Bonanza Creek Gold Mine is an active open-pit, heap-leach gold mining operation located in Lander County, Nevada, approximately 35 miles south of Battle Mountain. The mine commenced operations in 2015 and is one of TMC's currently producing properties. The consent decree addresses three documented releases from heap-leach pad liner failures occurring in March 2022, August 2022, and January 2023, which resulted in the discharge of cyanide- and mercury-bearing process solution into the adjacent Bonanza Creek drainage.
In addition to the liner-failure releases, EPA has documented 17 avian mortalities at the site's process solution ponds, constituting violations of the Migratory Bird Treaty Act. The negotiated remediation cost for the Bonanza Creek site is $63.2 million over a 20-year remediation period, with an associated civil penalty of $7.9 million.
The EPA Project Coordinator for the Bonanza Creek site is Jennifer Whitfield, a remedial project manager with EPA Region 9 based in San Francisco. Disputes at the Bonanza Creek site are possible over liner repair adequacy — specifically, whether TMC's proposed repair methodology satisfies EPA's performance standards for geomembrane liner systems — and ongoing operational compliance with best management practices for cyanide solution management and wildlife deterrence at process solution ponds.
4. Kanawha Bend Chemical Plant (Institute, West Virginia)
The Kanawha Bend Chemical Plant is a former specialty chemical manufacturing facility located in Institute, West Virginia, in the Kanawha River Valley. The facility operated from 1945 through 2012 and is subject to RCRA corrective action under Permit No. WVD048823915. The primary environmental concern is the presence of dense non-aqueous phase liquid ("DNAPL") — principally trichloroethylene ("TCE") and perchloroethylene ("PCE") — in fractured bedrock beneath the facility. The DNAPL contamination presents particularly complex remediation challenges due to the heterogeneous fracture network in the underlying bedrock, which makes predicting contaminant transport and designing effective remediation systems extremely difficult.
EPA conducted an emergency response action at the site in 2021–2022, incurring costs of $3.8 million, which are included in the EPA past-costs reimbursement component of the consent decree. The negotiated remediation cost for the Kanawha Bend site is $38.9 million over a 20-year remediation period, with an associated civil penalty of $3.6 million.
Disputes at the Kanawha Bend site are likely to center on DNAPL remedy selection — specifically, the choice among thermal treatment, in-situ chemical oxidation, surfactant-enhanced aquifer remediation, and containment-based approaches — and on interim stabilization standards to prevent further DNAPL migration while the final remedy is designed and implemented.
C. TMC's Environmental Remediation Consultant
Pinnacle Creek Environmental, LLC serves as TMC's environmental remediation consultant across all four sites covered by the consent decree. The firm is led by Senior Principal Dr. Astrid Bergmann, P.E., a registered professional engineer with more than 25 years of experience in mine-site remediation and hazardous waste management. Dr. Bergmann's team includes specialists in hydrogeology, geochemistry, risk assessment, and remedial design. Pinnacle Creek Environmental has been retained by TMC since February 2024 and has been actively involved in developing TMC's technical positions throughout the consent decree negotiations.
In addition to Pinnacle Creek Environmental, the Court has designated Verdant Analytics, Inc. as the independent auditor and monitor for the consent decree. Verdant Analytics is led by Dr. Kamal Osei, a nationally recognized environmental compliance auditor who has served as an independent monitor in five prior federal consent decrees. The independent monitor's role is to conduct quarterly compliance audits and publish annual public reports on the progress of remediation at each of the four sites. As discussed in greater detail in Section IV.E below, the monitor's determinations may themselves become subjects of dispute, and the dispute resolution mechanism must account for this possibility.
D. State Co-Plaintiffs
Three state environmental agencies are co-plaintiffs or intervenors in this action:
• Montana Department of Environmental Quality ("Montana DEQ"), represented by counsel Annika Hedstrom, with jurisdiction over the Ridgecrest Mine and Gallatin Chemical Works sites;
• Nevada Division of Environmental Protection ("Nevada DEP"), represented by counsel Ricardo Fuentes, with jurisdiction over the Bonanza Creek Gold Mine; and
• West Virginia Department of Environmental Protection ("West Virginia DEP"), represented by counsel Loretta May Hatcher, with jurisdiction over the Kanawha Bend Chemical Plant.
The participation of three state co-plaintiffs across three different jurisdictions adds a layer of complexity to the dispute resolution mechanism that the government's draft does not adequately address. As discussed in Section IV.D below, the dispute resolution mechanism must clearly define the role of state co-plaintiffs in disputes — including whether states have independent dispute-initiation authority or must act through the United States — and must provide for coordination among the governmental parties to prevent inconsistent outcomes.
III. Analysis of the Government's Proposed Three-Tier Dispute Resolution Mechanism
The government's proposed dispute resolution mechanism, set forth in Section XIX (paragraphs 87 through 104) of the first draft consent decree, establishes a three-tier process for resolving disputes between the parties. We analyze each tier below, identify TMC's principal concerns, and recommend specific modifications.
A. Tier 1: Informal Negotiation (30-Day Period)
1. Structure as Proposed. Under the government's proposal, either party may invoke the dispute resolution process by providing written notice to the other party identifying the specific matter in dispute and setting forth the invoking party's position with respect to that matter. Upon receipt of the notice, a 30-day period for informal negotiation commences. During this period, the parties' designated representatives are expected to attempt to resolve the dispute through direct communication and negotiation.
The government's draft designates the following individuals as the parties' representatives for purposes of informal negotiation: for the government, the EPA project coordinator(s) for the relevant site and EPA case attorney Margaret Coulson (Office of Enforcement and Compliance Assurance); for TMC, Gareth Linford (Vice President, Environmental Health & Safety) and TMC's designated outside counsel. The draft permits the 30-day informal negotiation period to be extended by mutual written agreement of the parties, but does not provide for unilateral extension by either party.
The government's proposal does not impose any specific procedural requirements on the informal negotiation process. There is no requirement for the parties to exchange documents or technical data, no requirement for in-person or telephonic meetings, and no obligation for the parties to negotiate in good faith. The informal negotiation period functions as a mandatory waiting period rather than a structured dispute resolution procedure.
2. TMC's Concerns. We have identified four principal concerns with the government's proposed Tier 1 mechanism.
First, the 30-day informal negotiation period may be inadequate for complex technical disputes. Many of the disputes likely to arise under the consent decree will involve highly technical scientific and engineering questions — for example, the selection of remediation technology at Ridgecrest, the evaluation of DNAPL treatment alternatives at Kanawha Bend, or the assessment of liner repair adequacy at Bonanza Creek. These disputes will often require the exchange and review of technical reports, the analysis of monitoring data, and the evaluation of competing expert opinions. A 30-day period is unlikely to be sufficient for meaningful engagement on disputes of this nature, and the premature escalation of unresolved technical disputes to Tier 2 will burden the process and may result in EPA decisions rendered without the benefit of full technical exchange.
Second, the government's proposal does not require the government to engage in good-faith negotiation or to provide supporting technical data during the informal negotiation period. Without such a requirement, the government could treat the Tier 1 period as a mere formality — declining to engage substantively and allowing the 30-day clock to run before advancing to Tier 2, where EPA exercises unilateral decision-making authority. This possibility is not merely theoretical; it reflects a pattern observed in other consent decree enforcement contexts where the government has used the informal negotiation tier as a procedural prerequisite rather than a genuine dispute resolution step.
Third, the government's proposal does not toll stipulated penalties during the informal negotiation period. Under the consent decree's stipulated penalty provisions (analyzed in our separate memorandum dated December 20, 2024), TMC faces penalties of $1,500 per day for the first 30 days of a violation, $3,000 per day for days 31 through 60, and $5,500 per day thereafter. If a dispute concerns whether a particular obligation has been satisfied — a common type of consent decree dispute — TMC could be accruing substantial stipulated penalties throughout the dispute resolution process even if TMC's position is ultimately vindicated. The exposure is particularly acute given the multi-site scope of the consent decree and the dozens of individual compliance obligations associated with each site.
Fourth, the role of state co-plaintiffs in informal negotiation is not clearly defined. It is unclear whether the state environmental agencies (Montana DEQ, Nevada DEP, West Virginia DEP) may independently invoke the dispute resolution process or participate in informal negotiations. This ambiguity could lead to parallel or duplicative proceedings, particularly at the Montana sites where Montana DEQ exercises concurrent regulatory authority.
3. Recommended Modifications. We recommend the following modifications to the Tier 1 mechanism:
(a) Extend the informal negotiation period to 45 days, with an automatic 15-day extension. TMC should propose that the initial informal negotiation period be extended from 30 to 45 days, with a provision for an automatic 15-day extension upon written request by either party. This modification would provide additional time for the substantive technical exchange necessary to resolve complex disputes and would bring the total maximum Tier 1 period to 60 days — still a reasonable timeline that does not unduly delay the resolution of disputes.
(b) Require exchange of relevant technical data and positions. TMC should propose that both parties be required to exchange relevant technical data and written position statements within 10 business days of the dispute notice. This requirement ensures that both parties have access to the information necessary for meaningful negotiation and creates a documentary record that may inform subsequent proceedings at Tiers 2 and 3.
(c) Mandate good-faith negotiation. TMC should propose the inclusion of a good-faith negotiation requirement, including a mandate that the parties hold at least one in-person or video conference meeting during the informal negotiation period. The meeting should include the parties' designated representatives and, where the dispute involves technical or scientific matters, the parties' respective technical consultants (i.e., Pinnacle Creek Environmental for TMC and the government's designated technical experts).
(d) Toll stipulated penalties during the dispute resolution process. TMC should propose that stipulated penalties be expressly tolled for the duration of the entire dispute resolution process — encompassing all three tiers — with respect to the specific obligation that is the subject of the dispute. The tolling provision should include a carve-out permitting the Court to deny tolling retroactively if it finds that the dispute was raised by TMC in bad faith or for the purpose of delay. This carve-out should be sufficient to address any government concern about the potential for abuse of the dispute resolution process as a penalty-avoidance mechanism.
(e) Clarify the role of state co-plaintiffs. TMC should propose language providing that state co-plaintiffs have the right to participate in informal negotiations as observers or advisors to the United States, but may not unilaterally initiate informal negotiations independent of the United States. Any dispute raised by a state co-plaintiff must first be joined by the United States (acting through EPA or DOJ) before it may proceed through the dispute resolution mechanism. Alternatively, if a state co-plaintiff seeks to raise a dispute that the United States declines to join, the state must channel the dispute through a separate Tier 1 process with TMC, and any resulting EPA decision at Tier 2 must be coordinated with the United States' position.
B. Tier 2: Formal EPA Decision (30-Day Period)
1. Structure as Proposed. Under the government's proposal, if the parties are unable to resolve the dispute through informal negotiation during the Tier 1 period, the dispute is elevated to EPA's Office of Enforcement and Compliance Assurance ("OECA") for a formal written decision. EPA has 30 days from the close of the informal negotiation period to issue a written decision resolving the dispute. The decision is binding on the parties unless TMC seeks judicial review under Tier 3 within the prescribed petition period.
The government's proposed mechanism vests EPA with unilateral decision-making authority at Tier 2. The draft does not require EPA to conduct a hearing, accept submissions from TMC, consider TMC's technical evidence, or issue a reasoned written explanation for its decision. The decision is simply issued by OECA and communicated to TMC in writing.
Additionally, the government's draft provides that EPA may extend the 30-day decision period "as necessary" — language that effectively grants EPA an unlimited extension and places no ceiling on the time EPA may take to render its decision. During any such extension, TMC remains subject to the accruing stipulated penalties for the underlying obligation (assuming no tolling provision is adopted), and the disputed obligation remains in effect unless TMC can persuade the Court to issue interim relief.
2. TMC's Concerns. The Tier 2 mechanism raises several concerns of fundamental procedural fairness and practical significance.
First, EPA serves as both party and adjudicator at Tier 2. EPA is the agency that initiated the enforcement action, negotiated the consent decree terms, and will oversee TMC's compliance. When a dispute arises under the decree, EPA is invariably an interested party — indeed, in most cases, the dispute will directly concern whether TMC has satisfied EPA's requirements. Under the government's proposal, this same interested party is vested with unilateral decision-making authority over the dispute, without any procedural safeguards to ensure impartiality. This structure is fundamentally at odds with basic principles of due process and fair dealing.
Second, the absence of procedural safeguards at Tier 2 is deeply problematic. TMC has no right to be heard before EPA renders its decision, no right to submit written arguments or technical evidence, and no assurance that EPA will consider TMC's position at all. There is no requirement that EPA issue a reasoned decision — the decision could consist of a single sentence rejecting TMC's position without explanation. This absence of procedural safeguards is particularly concerning in the context of technical and scientific disputes, where the factual basis for EPA's decision may be difficult to evaluate without a reasoned explanation.
Third, EPA's ability to unilaterally extend the 30-day decision period "as necessary" creates an asymmetric timeline that disadvantages TMC. While EPA may take as long as it wishes to render its decision, TMC remains subject to ongoing obligations, accruing stipulated penalties, and the practical pressures of remediation deadlines. The open-ended extension language also deprives TMC of any ability to predict or plan around the dispute resolution timeline, which has significant implications for remediation scheduling and financial planning.
Fourth, the government's draft makes no distinction between disputes that are purely legal in nature (e.g., the interpretation of consent decree terms), disputes that are purely technical or scientific (e.g., the appropriateness of a particular remedy technology), and disputes of a mixed character. This undifferentiated approach is problematic because the justification for deference to EPA — if any — differs markedly across these categories. EPA may possess relevant technical expertise in evaluating remedy technologies, but it has no special competence in interpreting the legal provisions of a consent decree, a function that is properly within the province of the Court.
Fifth, under the government's proposed framework, EPA's Tier 2 decision becomes the presumptive "correct" outcome, establishing an asymmetric burden of proof at Tier 3. Because the Tier 3 standard of review (arbitrary and capricious / substantial evidence) is highly deferential, the party challenging EPA's decision bears a heavy burden. Combined with the record-limitation rule (which limits judicial review to the administrative record compiled during Tiers 1 and 2), EPA's Tier 2 decision effectively becomes the final word on most disputes, rendering Tier 3 judicial review illusory in all but the most extreme cases.
3. Recommended Modifications. We recommend the following modifications to the Tier 2 mechanism:
(a) Require EPA to accept and consider TMC's written submissions. TMC should propose that the consent decree expressly require EPA to accept and consider written submissions from TMC — including technical reports, data analyses, and expert opinions from TMC's consultants such as Pinnacle Creek Environmental — before issuing a Tier 2 decision. The draft should specify a deadline for TMC's submissions (e.g., within 15 days of the close of Tier 1), and EPA's decision should not be issued until TMC's submission deadline has passed.
(b) Require EPA to issue a reasoned written decision. TMC should propose that EPA's Tier 2 decision include a reasoned written explanation addressing the key arguments and evidence presented by both parties during Tiers 1 and 2. The requirement for a reasoned decision serves multiple purposes: it ensures that EPA has actually considered TMC's submissions, it creates a meaningful record for judicial review at Tier 3, and it promotes discipline and accountability in EPA's decision-making process.
(c) Limit EPA's extension authority. TMC should propose that EPA's ability to extend the 30-day decision period be limited. Specifically, EPA should be permitted to extend the period by no more than 15 additional days (for a total of 45 days), and only upon written notice to TMC stating the reasons for the extension. If EPA fails to issue a decision within the extended period, TMC should have the right to proceed directly to Tier 3 judicial review as if EPA had issued a decision adverse to TMC.
(d) Eliminate the presumption of correctness. TMC should propose language providing that EPA's Tier 2 decision does not create a presumption of correctness for purposes of Tier 3 judicial review. This issue is closely related to the standard-of-review analysis at Tier 3, discussed in Section III.C below, but should also be addressed at the Tier 2 level to prevent the government from arguing that the mere issuance of an EPA decision establishes a baseline of correctness that TMC must overcome.
(e) Provide for independent monitor advisory opinions on technical disputes. For disputes involving technical or scientific determinations, TMC should propose a mechanism for referral to the court-appointed independent monitor, Verdant Analytics, Inc. (Dr. Kamal Osei), for a non-binding advisory opinion before EPA renders its Tier 2 decision. This modification serves two important purposes. First, it interposes a neutral technical expert between the parties, creating an independent factual record that may facilitate resolution of the dispute without the need for a formal EPA decision. Second, even if the dispute is not resolved, the monitor's advisory opinion will be part of the record available at Tier 3 judicial review, providing the Court with an independent technical assessment against which to evaluate EPA's decision. We recognize that this modification may increase the estimated costs of the independent monitor engagement (currently projected at $4.8 million over five years) and that the cost allocation for advisory opinions will need to be negotiated separately.
C. Tier 3: Judicial Review (Petition Within 30 Days of EPA Decision)
1. Structure as Proposed. Under the government's proposal, TMC may petition the Court — the Honorable Donald W. Molloy, United States District Court for the District of Montana, Missoula Division — for judicial review of EPA's Tier 2 decision within 30 days of receiving the decision. The government's draft specifies the following parameters for judicial review:
• Standard of review: The Court shall review EPA's decision under the arbitrary-and-capricious / substantial-evidence standard — the same standard of review applied to agency action under the Administrative Procedure Act ("APA"), 5 U.S.C. § 706(2)(A).
• Burden of proof: TMC bears the burden of demonstrating that EPA's decision is arbitrary, capricious, an abuse of discretion, or not supported by substantial evidence.
• Scope of review: The Court's review is limited to the administrative record compiled during Tiers 1 and 2. No supplemental evidence may be presented by either party.
• Scheduling: The draft includes no provision for expedited consideration or scheduling of the judicial review proceeding.
• Interim relief: The draft includes no provision for interim relief, stay of the disputed obligation, or preservation of the status quo pending judicial resolution.
2. TMC's Concerns. The Tier 3 mechanism as proposed raises the most significant concerns of any provision in the dispute resolution section. In practical terms, the combination of the arbitrary-and-capricious standard, the record-limitation rule, and the burden-of-proof allocation renders judicial review largely illusory. We elaborate on each concern below.
Standard of review. The arbitrary-and-capricious / substantial-evidence standard is the most deferential standard of judicial review available in federal law. Under this standard, the Court may not substitute its own judgment for that of the agency; it may reverse EPA's decision only if the decision is so lacking in rational basis that no reasonable decision-maker could have reached it. In the specific context of consent decree dispute resolution, this standard creates a structural imbalance: EPA, acting as both party and decision-maker at Tier 2, issues a decision that the Court is then required to uphold unless TMC can demonstrate that the decision is beyond the bounds of rationality. Because most disputes under the consent decree will involve questions of technical judgment on which reasonable minds could differ, the arbitrary-and-capricious standard will in practice insulate nearly all of EPA's Tier 2 decisions from meaningful judicial scrutiny.
It is important to note that the application of APA-style deference in the consent decree context is analytically distinct from its application in the traditional administrative law context. In the typical APA review scenario, the agency acts in a quasi-legislative or quasi-adjudicatory capacity, exercising authority delegated by Congress and applying its specialized expertise to implement a statutory scheme. Deference to the agency in that context is justified by the statutory delegation and the agency's institutional competence. In the consent decree context, by contrast, EPA is acting as an enforcement party — a litigant — exercising contractual authority under a court-supervised settlement agreement. There is no statutory delegation of adjudicatory authority, and the consent decree is not an exercise of EPA's rulemaking or adjudicatory functions. Accordingly, the justification for APA-style deference is significantly weaker in this context, and several courts have recognized that the level of deference appropriate in consent decree disputes is a matter for the decree itself to specify rather than a matter of statutory mandate.
Burden of proof. The government proposes that TMC bear the burden of demonstrating that EPA's decision is arbitrary, capricious, or not supported by substantial evidence. This burden allocation compounds the structural imbalance created by the deferential standard of review. TMC is required to prove a negative — that EPA's decision lacks rational support — based solely on the administrative record compiled during Tiers 1 and 2. Because EPA controls the Tier 2 decision-making process and has no obligation to consider TMC's submissions (under the government's draft), the record may be incomplete or one-sided, further disadvantaging TMC at the judicial review stage.
Record limitation. The government's proposed record-limitation rule prevents TMC from presenting evidence at Tier 3 that was not available during Tiers 1 and 2. In the context of environmental remediation, where new data is constantly being generated through ongoing monitoring and investigation, this rule could exclude highly relevant technical evidence. For example, if Pinnacle Creek Environmental develops new groundwater data during the Tier 2 period that supports TMC's position, TMC would be unable to present that data to the Court if it was not formally submitted to EPA during the Tier 1 or Tier 2 process. This limitation is particularly problematic given the absence of procedural safeguards at Tier 2 — the government's draft provides no mechanism for TMC to submit evidence at Tier 2, yet limits judicial review to the evidence submitted at that stage.
Absence of scheduling provisions. The government's draft includes no provision for expedited consideration of judicial review petitions. Without such a provision, disputes could linger for months or years in the normal course of the Court's docket, during which time TMC's obligations under the consent decree remain in effect (or, depending on the nature of the dispute, in limbo). For a consent decree governing remediation activities at four sites over periods of 15 to 30 years, the absence of a predictable judicial review timeline creates significant uncertainty for remediation planning and financial modeling.
Absence of interim relief provisions. The government's draft includes no provision for the Court to grant interim relief pending resolution of a Tier 3 dispute. Without such a provision, TMC may be required to implement EPA's Tier 2 decision — including potentially costly or technically inappropriate remediation activities — while its judicial challenge is pending. If TMC ultimately prevails at Tier 3, the costs of implementing the disputed decision during the pendency of the review may be unrecoverable.
3. Recommended Modifications — Standard of Review. We recommend that TMC advance the following positions on the standard of review, in order of preference:
Primary position: *De novo* review for all disputes. TMC's primary position should be that the Court reviews EPA's Tier 2 decision de novo — that is, the Court exercises its independent judgment on both questions of fact and questions of law, without deference to EPA's determination. This position is supported by the fundamental principle that a consent decree is a court order, and the Court retains inherent authority to interpret and enforce its own orders. The application of APA-style deference to a consent decree dispute is neither required by statute nor dictated by the institutional competence rationale that justifies deference in the traditional administrative law context. Moreover, because EPA acts as an enforcement party (not a neutral adjudicator) at Tier 2, deference to EPA's determination is functionally equivalent to deference to the opposing litigant's position — a result that is inconsistent with the Court's obligation to ensure the fair administration of the consent decree.
TMC should further argue that APA deference is inapplicable because EPA is acting in an enforcement capacity under the consent decree, not in a rulemaking or formal adjudicatory capacity pursuant to a statutory delegation of authority. The consent decree does not confer adjudicatory authority on EPA; rather, it establishes a procedural framework for resolving disputes that is ultimately subject to the Court's supervisory jurisdiction. To apply APA-style deference in this context would effectively transfer the Court's adjudicatory authority to one of the parties, a result that is neither intended nor appropriate.
Our prior Comparative Consent Decree Analysis, dated November 20, 2024, identifies several precedent consent decrees in which the parties agreed to de novo judicial review, confirming that this position is within the range of outcomes achievable in negotiation.
Fallback position 1: Bifurcated standard. If the government is unwilling to accept de novo review for all disputes, TMC should propose a bifurcated standard of review that distinguishes between legal/interpretive disputes and factual/technical disputes:
• Legal and interpretive disputes — including disputes over the meaning, scope, or application of consent decree terms, the interpretation of regulatory requirements incorporated by reference, and the determination of legal rights and obligations — would be subject to de novo review.
• Factual and technical disputes — including disputes over the selection of remediation technologies, the adequacy of technical data, and the interpretation of monitoring results — would be subject to a "clearly erroneous" standard of review.
The bifurcated standard is more protective of TMC's interests than the arbitrary-and-capricious standard proposed by the government because the "clearly erroneous" standard, while deferential, requires the reviewing court to have a "definite and firm conviction" that a mistake has been made — a somewhat lower threshold than the arbitrary-and-capricious standard. More importantly, the bifurcated standard preserves full de novo review for legal and interpretive disputes, which are likely to be among the most consequential disputes under the decree and for which deference to EPA's position is least justified.
Fallback position 2: Arbitrary-and-capricious standard with record supplementation. If the government insists on the arbitrary-and-capricious standard for technical disputes, TMC should at minimum negotiate for express language permitting the Court to supplement the record with evidence that was not available during Tiers 1 and 2 or that could not have been reasonably presented during those stages. This modification addresses one of the most significant practical disadvantages of the government's proposal — the exclusion of newly developed technical evidence — while accepting the government's preferred standard of review for technical matters. The supplementation provision should provide that either party may move to supplement the record upon a showing of good cause, and that the Court has discretion to admit supplemental evidence that is material to the resolution of the dispute.
4. Recommended Modifications — Burden of Proof. We recommend that TMC advance the following positions on burden of proof:
Primary position: Burden on the government. TMC's primary position should be that the burden of proof at Tier 3 rests on the government (EPA) to demonstrate the reasonableness of its Tier 2 decision. This position follows logically from the structural concern identified above: because EPA acts as both party and decision-maker at Tier 2, fairness requires that EPA bear the burden of justifying its decision when the decision is challenged before a neutral tribunal. Placing the burden on TMC to disprove the reasonableness of EPA's decision — a decision rendered by TMC's adversary without procedural safeguards — is fundamentally asymmetric and inconsistent with the principles underlying the consent decree framework.
Fallback position: Shifting burden. If the government rejects the primary position, TMC should propose a shifting-burden framework. Under this approach, EPA bears the initial burden of presenting a prima facie justification for its Tier 2 decision — i.e., demonstrating that the decision rests on a reasonable factual and legal basis. Once EPA has satisfied this initial burden, the burden shifts to TMC to demonstrate that EPA's decision is incorrect or unreasonable. This approach ensures that EPA must at least articulate a rational basis for its decision before TMC is required to shoulder the burden of refutation, and it prevents EPA from relying solely on the presumption of correctness without affirmative justification.
5. Recommended Modifications — Procedural Safeguards at Judicial Review. In addition to the standard-of-review and burden-of-proof modifications discussed above, we recommend the following procedural modifications to the Tier 3 mechanism:
(a) Extend the petition period from 30 to 45 days. TMC should propose that the deadline for filing a petition for judicial review be extended from 30 to 45 days. Given the complexity of the disputes likely to arise under the consent decree and the need for TMC's counsel to evaluate EPA's Tier 2 decision, coordinate with TMC's technical consultants, and prepare a petition that complies with the applicable procedural requirements, a 45-day period is more appropriate and does not prejudice the government's interests.
(b) Require an expedited briefing schedule. TMC should propose that the consent decree include an expedited briefing schedule for judicial review proceedings: opening brief within 30 days of the petition, response brief within 30 days, and reply brief within 15 days. TMC should further propose that the decree request the Court to render its decision within 60 days of the completion of briefing. While the Court's scheduling is ultimately within its discretion, the inclusion of a target timeline in the consent decree signals the parties' shared interest in expeditious resolution and provides a basis for the Court to prioritize dispute resolution proceedings.
(c) Permit supplementation of the record. As discussed in the standard-of-review analysis above, TMC should propose that either party may move to supplement the administrative record upon a showing of good cause. Good cause should include, at a minimum, the existence of evidence that was not available during Tiers 1 and 2 or that could not have been reasonably presented during those stages.
(d) Provide for interim and provisional relief. TMC should propose a provision authorizing the Court to grant interim or provisional relief pending resolution of a Tier 3 dispute. Such relief may include a stay of the disputed obligation, modification of interim deadlines, or other equitable measures to preserve the status quo pending judicial resolution. The provision should specify that the Court may grant interim relief upon a showing by TMC that (i) TMC is likely to succeed on the merits, (ii) TMC will suffer irreparable harm absent interim relief, (iii) the balance of equities favors interim relief, and (iv) interim relief is consistent with the protection of human health and the environment. This standard is consistent with the traditional four-factor test for preliminary injunctive relief and provides appropriate safeguards against misuse.
(e) Preserve TMC's right to seek emergency relief. TMC should propose that the consent decree expressly preserve TMC's right to seek emergency relief from the Court at any time, outside the dispute resolution process, for matters posing imminent harm to TMC's interests. This provision ensures that the three-tier dispute resolution mechanism does not preclude TMC from seeking immediate judicial intervention in exigent circumstances — for example, where EPA takes an enforcement action that threatens to disrupt ongoing remediation activities or to impose irreversible obligations on TMC.
IV. Cross-Cutting Issues
In addition to the tier-specific issues analyzed in Section III above, several cross-cutting issues affect the operation of the dispute resolution mechanism as a whole. We address these issues below.
A. Scope of Disputes Subject to the Mechanism
The government's draft provides that all disputes "arising under or relating to" the consent decree are subject to the three-tier dispute resolution mechanism. This expansive scope language is standard in EPA consent decrees but sweeps in several categories of disputes that are more appropriately resolved through other channels.
TMC should seek to exclude the following categories of disputes from the three-tier mechanism:
(i) Disputes over the amount of stipulated penalties. Under Section XX of the draft consent decree, stipulated penalties are assessed by EPA and may be contested by TMC. Disputes over the amount of stipulated penalties are fundamentally legal and factual disputes — did the violation occur, what is the appropriate penalty rate, are there mitigating circumstances — that should be resolved directly by the Court without first proceeding through an EPA decision at Tier 2. Requiring TMC to submit to EPA's unilateral determination of penalty amounts before seeking judicial review is inappropriate, as EPA is the party seeking to impose the penalties.
(ii) Disputes concerning force majeure claims. Section XVIII of the draft consent decree establishes a separate procedure for force majeure claims, including a 15-day written notice requirement and a provision for EPA to accept or deny the claim. If EPA denies a force majeure claim, the dispute should proceed directly to the Court, bypassing the Tier 2 EPA decision stage. Force majeure situations are by their nature time-sensitive, and the additional delay of the three-tier process is incompatible with the urgency of force majeure disputes. A more detailed analysis of force majeure provisions is set forth in our separate memorandum dated January 3, 2025.
(iii) Disputes concerning termination certification. Section XXIII of the draft consent decree establishes criteria and procedures for termination of the decree with respect to individual sites. Disputes over whether TMC has satisfied the termination criteria and is entitled to termination certification should be subject to direct judicial determination, as these disputes raise fundamental questions about the ongoing jurisdiction of the Court and the scope of TMC's continuing obligations. Moreover, because termination certification involves both EPA and the independent monitor, the standard dispute resolution mechanism — which is designed for bilateral EPA-TMC disputes — may not be procedurally adequate.
(iv) Third-party claims and insurance-related matters. Disputes between TMC and third parties — including disputes with TMC's surety (Ironbark Surety of America), trustee (Larchfield Trust Company, N.A.), or insurers (Meridian Environmental Insurance Company) — are outside the scope of the consent decree and should not be subject to the consent decree's internal dispute resolution mechanism. These disputes arise under separate contractual arrangements and are governed by their own dispute resolution provisions.
B. Tolling of Stipulated Penalties During Dispute Resolution
The tolling of stipulated penalties during the dispute resolution process is among the most critical practical issues in the consent decree and warrants particular attention.
Under the government's draft, stipulated penalties continue to accrue during the dispute resolution process. This means that if TMC invokes the dispute resolution mechanism with respect to a particular obligation, and the dispute proceeds through all three tiers, TMC could face substantial penalty accrual before the dispute is ultimately resolved.
To illustrate the potential exposure, consider a dispute that proceeds through the full three-tier process in the minimum time permitted under the government's proposal:
This calculation reflects the minimum penalty accrual for a single violation proceeding through all three tiers in the shortest possible time. In practice, the accrual period would likely be significantly longer — particularly if EPA exercises its authority to extend the Tier 2 period, or if the judicial review proceeding at Tier 3 extends beyond the 30-day petition period (as it almost certainly would, given the time required for briefing and decision). A judicial review proceeding lasting six months, for example, would result in an additional $5,500/day × 180 days = $990,000 in penalty accrual, bringing the total for a single violation to over $1.29 million.
Given the four-site scope of the consent decree and the dozens of individual compliance obligations associated with each site, the cumulative stipulated penalty exposure during dispute resolution is potentially enormous. This creates a perverse incentive for TMC to refrain from invoking the dispute resolution process — even when TMC has a meritorious position — simply to avoid the accrual of penalties. Such an incentive undermines the purpose of the dispute resolution mechanism and is inconsistent with the fair administration of the consent decree.
TMC should insist on one of the following positions:
Primary position: Full tolling during the dispute resolution process. Stipulated penalties for the obligation in dispute should be tolled from the date TMC invokes the dispute resolution process until the date of final resolution — whether by agreement at Tier 1, EPA decision at Tier 2 (if not challenged), or judicial determination at Tier 3. If TMC's position is ultimately upheld, no penalties accrue. If TMC's position is rejected, penalties accrue retroactively from the date the obligation was originally due.
Fallback position: Tolling during Tiers 1 and 2 with resumption at Tier 3. Stipulated penalties for the obligation in dispute should be tolled during the Tier 1 and Tier 2 periods and resume accruing only if TMC files a Tier 3 petition for judicial review and is ultimately unsuccessful. Under this approach, TMC bears no penalty exposure while the dispute is being resolved through informal negotiation and EPA decision-making, but assumes the risk of penalty accrual if it chooses to pursue judicial review and does not prevail.
C. Preservation of Rights Pending Dispute Resolution
A related but distinct issue concerns whether TMC is required to implement EPA's Tier 2 decision while a Tier 3 petition for judicial review is pending. Under the government's draft, EPA's Tier 2 decision is binding unless reversed by the Court at Tier 3 — which implies that TMC must comply with the decision during the pendency of judicial review.
This result is problematic for several reasons. First, compliance with a disputed decision may require TMC to undertake costly remediation activities that may ultimately prove unnecessary or inappropriate if the decision is reversed. Second, in some cases, implementing the disputed decision may foreclose the remedy that TMC advocates — for example, if EPA's decision directs TMC to install a particular treatment system, the installation costs may be unrecoverable even if the Court determines that a different treatment system would have been more appropriate. Third, requiring compliance with EPA's decision pending review effectively eliminates the practical significance of judicial review, as the disputed work will have been completed (or substantially advanced) before the Court renders its decision.
TMC should propose the following modifications:
(a) No obligation to implement EPA's Tier 2 decision during Tier 3 review, except where EPA demonstrates that the disputed obligation is necessary to address an imminent endangerment to human health or the environment. This carve-out ensures that urgent health and safety matters are not delayed by the judicial review process while protecting TMC from the obligation to implement disputed decisions on non-urgent matters.
(b) Compliance without prejudice. To the extent TMC does implement EPA's Tier 2 decision pending judicial review — whether voluntarily or pursuant to a court order — such compliance should be expressly without prejudice to TMC's right to seek reversal of the decision and recovery of the costs incurred in implementing the disputed work. This provision ensures that TMC does not waive its Tier 3 rights by complying with the disputed decision during the pendency of review.
D. Multi-Party Complications — Role of State Co-Plaintiffs
As noted in Section II.D above, three state environmental agencies — Montana DEQ, Nevada DEP, and West Virginia DEP — are co-plaintiffs or intervenors in this action. The government's draft does not clearly address the role of state co-plaintiffs in the dispute resolution mechanism, creating the potential for confusion, inconsistency, and pro

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