SMILAND & KHACHIGIAN
601 W. 5TH STREET, 7TH FLOOR
LOS ANGELES, CA 90071
(213) 891-1010 (phone)
(213) 891-1414 (fax)
www.smilandlaw.com

September 14, 2000

NINTH CIRCUIT ISSUES SIGNIFICANT CERCLA RULING

In an extremely important and potentially far reaching decision today, the United States Court of Appeals for the Ninth Circuit ruled that: (1) a private party can be liable under 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 "disposal."  Carson Harbor Village v. Unocal Corp., No. 98-55056 (9th Cir., Sept. 14, 2000).  

The case involved a mobile home park (the "property") owned by the Plaintiff, Carson Harbor Village, Ltd. ("Plaintiff").  Between about 1945 and 1983 the property was leased to Unocal for petroleum production.  From about 1977 through 1983, the property was owned by Carson Harbor Mobile Home Park, a general partnership, (the "Partnership Defendants").  A portion of the property was a wetlands which  received drainage from several surrounding municipalities.  While seeking refinancing for the property in 1993, Plaintiff's lender commissioned an environmental assessment which revealed slag and tar like material in the wetlands.   Subsequent investigation disclosed that the material had been there for several decades and contained petroleum hydrocarbons and lead.  Soil samples upgradient of the material also contained elevated levels of TPH and lead. 

Because the lead concentrations exceeded reporting limits, appropriate governmental agencies were notified including the Regional Water Quality Control Board ("RWQCB").  The RWQCB assumed the role as lead agency.  While there was some dispute as to whether the RWQCB "ordered" remedial action, it was undisputed that plaintiff's consultants requested a "no further action" letter before proposing a remedial action plan ("RAP").  Apparently, after this request was rejected, plaintiff's consultant submitted a RAP to remove the tar and slag material and impacted soils.  The RAP was approved with cleanup levels set by the RWQCB.  The cleanup was undertaken in 1995 and the RWQCB then issued a closure letter.

Plaintiff then filed suit 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.  One of the claims was under CERCLA.  Plaintiff claimed that all of the Defendants were liable for its "necessary costs of response" 42 U.S.C. §9703(a)(4)(B).   Plaintiff also claimed that the Partnership Defendants were liable because the "owned or operated" the property "at the time of disposal of any hazardous substance" 42 U.S.C. §9703(a)(2). 

The District Court held that Plaintiff could not prevail against any of the defendants because it could not establish that the remedial action was "necessary" within the meaning of 42 U.S.C. §9607(a)(4)(B) because it failed to show that any regulatory agency required the cleanup. The Court held that "CERCLA . . . was not designed to permit property owners to clean up their property unnecessarily for business reasons, and then to shift the costs to prior owners."  Since, the Court found, that the remediation plan was initiated by plaintiff and that the RWQCB would not have required remediation action but for plaintiff's proposal, it held that the remediation was not "necessary" within the meaning of the CERCLA.   The District Court also noted that under CERCLA, a prior owner or operator  is only liable if he "owned or operated at the time of disposal."  The District Court held that "disposal" means "active" disposal and since there was no direct evidence of lead-containing storm water entering the property while the Partnership Defendants owned the property, they were not liable.

The Ninth Circuit reversed both holdings.  First, it held that in order to determine whether costs were "necessary" it must "focus on the nature of the threat presented by the contamination at issue and whether the response action is addressed to that threat.  These are factual questions requiring attention to objective circumstances of each case, not a party's subjective intent."  Thus, the issue of whether the RWQCB ordered that the work be done was not dispositive.  "[R]esponse costs can be 'necessary' even though the agency that required cleanup never approved the response actions taken."  The Ninth Circuit held that whether a public agency "fails or refuses to recognize an actionable threat . . . should not control given the institutional and financial constraints agency decision makes face.  This is particularly so with respect to relatively minor contamination sites which are unlikely to capture the attention of public officials or warrant the devotion of scarce resources." 

Second, the Ninth Circuit held that the term "disposal" "encompasses passive migration."  The Court noted that there is a circuit split on this issue.  However, it ruled that such a reading is consistent with the structure and purpose of CERCLA's liability provisions.  The Court noted that some have argued that since §107(a)(2) of CERCLA, 42 U.S.C. §9607(a)(2) only imposes liability upon a person "who, at the time of disposal of any hazardous substance owned or operated" a facility, that must mean that only those who owned and operated during active disposal are liable.  The Ninth Circuit disagreed, arguing that the time component is there to make it clear that those "owners or operators who precede the disposal are not covered by the Act, regardless of their knowledge that selling the property to a certain buyer . . . may result in contamination."  Moreover, the Court noted that there was no reason why the Partnership Defendants should be treated any differently from the current owners since neither of them actively caused a release of hazardous substances and both acquired the property after the hazardous substances were "actively" disposed on the property.

The decision has very far reaching consequences.  First, it clarifies that landowners who find it necessary to undertake remedial work even though there is no agency involvement, particularly where they need to do so in order to refinance or sell property, have potential claims against the parties which caused the contamination.  At the same time, the decision may make resolution of the question of whether a cleanup was necessary more difficult.  Despite the Court's articulation of an "objective" standard, whether a cleanup is "necessary" or not will be difficult to determine, particularly where there is no agency involvement.  PRPs will still argue that the fact that no agency required cleanup is evidence that the work was not necessary.

Second, prior landowners who previously thought that they could not be held liable because no active disposal occurred during their period of ownership are now potentially liable.  While such parties may have an innocent purchase defense - they can argue that they did not know and had no reason to know that the property was contaminated at the time they acquired it -  this defense can be difficult to prove since the party must establish that it exercised appropriate due diligence before acquiring the property (see 42 U.S.C. §9601(35).   Furthermore, if a landowner cannot establish an innocent purchase defense, it can never rid itself of liability, even by selling the property.  Under Carson, if you're in the chain of title and the contamination occurred before you purchased the property, you're probably liable. 

If you have any questions about this decision or would like a copy, please contact Albert M. Cohen at (213) 891-1010 or  acohen@smilandlaw.com.