In a long-awaited decision, the United States Court of Appeals for the Ninth Circuit substantially limited liability for most prior landowners from Superfund liability. Carson Harbor Village v. Unocal Corp., __ F.3d. __, 2001 DJDAR 11365 (9th Cir., Oct. 25, 2001).
Summary of decision
The recent decision, rendered by an 11-judge panel, represents a stark turnaround from the court’s September 2000 decision in the same case (then decided by a three-judge panel).
The court’s earlier ruling determined that:
(1) a private party can be liable under the federal Superfund law (CERCLA) for cleanup costs regardless of whether a public agency required the party seeking recovery to incur those costs; and
(2) under CERCLA, “passive” migration of hazardous wastes constitutes an actionable disposal of contaminants. Carson Harbor Village v. Unocal Corp., No. 98-55056 (9th Cir., Sept. 14, 2000).
This most recent, and likely final, ruling from the Ninth Circuit panel holds:
(1) identical to the court’s prior ruling, an agency action is not a prerequisite for a finding of “necessity” under Superfund cleanup guidelines (the National Contingency Plan); and
(2) prior landowners are not liable under CERCLA where only “passive” migration of contamination occurs during their ownership period. In the Carson Harbor matter, the subject contamination was deposited prior to the target defendants’ purchase of the site and discovered after they sold the land. However, in certain circumstances, such as where the contamination emanates from an underground storage tank at the subject property, prior owners will remain subject to liability under the Superfund law.
The case involves a mobile home park (the “property”) owned by the Plaintiff, Carson Harbor Village, Ltd. (“Plaintiff”). Between about 1945 and 1983, Unocal leased the property for petroleum production. From about 1977 through 1983, Carson Harbor Mobile Home Park (“Partnership Defendants”) owned the property.
Wetlands occupy a portion of the property, which received storm drainage from several surrounding municipalities. While seeking refinancing for the property in 1993, Plaintiff’s lender completed an environmental assessment that revealed slag and tar-like material in the wetlands. Subsequent investigation revealed the material contained petroleum hydrocarbons and lead, and had been present for decades. Soil samples upgradient of the material also contained elevated levels of petroleum substances and lead.
As the lead concentrations exceeded reporting limits, Plaintiff notified the appropriate government agencies, including the Regional Water Quality Control Board (“RWQCB”), of the contamination. The RWQCB assumed the role of lead agency.
While some dispute existed as to whether the RWQCB “ordered” remedial action, Plaintiff admitted its consultant requested a “no further action” letter before proposing a remedial action plan (“RAP”). Apparently, after the RWQCB rejected the request for the letter, Plaintiff’s consultant submitted a RAP to remove the tar, slag material, and impacted soils. The RWQCB approved the RAP and set appropriate cleanup levels. The Plaintiff implemented the cleanup in 1995, and the RWQCB subsequently issued a closure letter.
After obtaining closure, Plaintiff filed suit under a CERCLA claim and other claims against various entities, including Unocal and the Partnership Defendants, seeking to recover the costs of its remedial action as well as damages arising from its inability to refinance the property.
Under CERCLA, Plaintiff claimed, all of the Defendants were liable for its assessment and cleanup costs. Plaintiff also claimed the Partnership Defendants were liable as owners under CERCLA in that during the time of their ownership of the property, contamination from the tar and slag material spread onto the surrounding soil.
The District Court ruled Plaintiff could not prevail against any of the defendants because it could not establish that the remedial action was “necessary” under the provisions of 42 U.S.C. §9607(a)(4)(B)of CERCLA.
The District Court reasoned that since the RWQCB would not have required remedial action but for Plaintiff’s taking the intiative to conduct the cleanup, the costs incurred were not recoverable. The District Court observed CERCLA was not designed to permit property owners to clean up their property voluntarily for business reasons, and then attempt to shift the costs to prior owners.
With respect to Plaintiff’s claims against the Partnership Defendants, the District Court found those defendants were not responsible parties under CERCLA since they were not owners or operators of a facility at the time of “disposal” of hazardous substances. The District Court, rejecting the “passive migration theory,” defined “disposal” as “active disposal.” Since the Partnership Defendants only used the property as a mobile home park, the District Court concluded they were not liable.
Strict compliance with guidelines not necessary
Under the Court of Appeals’ October 2001 ruling, landowners who choose to undertake remedial work without an agency directive or order (for example, as a result of a sale or refinance of real property) may seek reimbursement under CERCLA for the costs they incur against prior owners or operators.
The key inquiry on whether a cleanup is necessary focuses on objective evidence of a threat to human health or the environment. Based on this analysis, the lack of an actual agency investigation or cleanup order does not prevent a plaintiff from complying with the National Contingency Plan.
Passive migration does not mandate liability
Further, the appeals court specifically analyzed the issue of whether a prior owner can be liable for “passive” migration of contaminants while it owned the property. According to the Superfund statute, prior owners are liable only if they owned the subject property at the time of “disposal” of hazardous substances. Here, no evidence revealed that active disposal of contaminants occurred during the Partnership Defendants’ ownership period.
According to the majority opinion (three judges dissented and argued passive migration should subject prior owners to liability), the possible passive migration of contaminated soil from one part of the property to another, without any active encouragement by the actions of the Partnership Defendants or their knowledge, does not itself create liability.
However, the Court further ruled that, in certain instances, intervening conditions or actions will create liability for prior owners whose direct actions did not cause contamination. For example, someone owning property during a period when hazardous substances may be “passively” leaking from an on-site underground storage tank may be liable under the Superfund law even if the prior owner was not involved in causing or promoting the leaks. Otherwise, the Court noted, owners would have no incentive to inspect and maintain their properties.
While encouraging to past owners of commercial or industrial property, the Court’s decision does not completely immunize this group from liability.
First, the Carson Harbor court reinforced the Ninth Circuit’s relatively lax interpretation of compliance with the Superfund law’s cleanup guidelines, the National Contingency Plan. This alone could encourage future CERCLA litigation.
Second, prior landowners, who previously believed they were immune from liability because their activities did not involve active disposal of contaminants, may still incur CERCLA liability if contamination is found to have emanated from their property (such as from an underground tank, clarifier, degreaser, or other industrial improvement) during their ownership period.
These same prior owners may be liable for a “disposal” if neglect or oversight during their ownership period is found to have resulted in contamination. While such parties could conceivably argue CERCLA’s “innocent landowner” defense applies to them (they did not know and had no reason to know of contamination at the time of their purchase), this defense can be difficult to prove since the party must establish it exercised appropriate due diligence before acquiring the property. In short, as long as an owner appears in the chain of title and contamination occurred before it purchased the property, it remains susceptible to liability under the “passive” disposal theory because Superfund liability does not require “affirmative human conduct.”
Although Superfund liability may not instill the fear and chilling market effects it caused in the 1980s and much of the ’90s, CERCLA issues will remain a major concern in real estate and corporate matters for the foreseeable future.
Kenneth A. Ehrlich is a partner of Jeffer, Mangels, Butler & Marmaro and part of the firm’s Land Use, Environment, and Energy Department. Based in the firm’s Los Angeles office, the department’s practice includes environmental litigation, administrative matters, regulatory compliance, and transaction counseling.