NINTH CIRCUIT ALSO RULES THAT VOLUNTARY REMEDIAL ACTION MAY BE "NECESSARY" UNDER CERCLA
By Donald C. Nanney
In another excellent article, "Prior Property Owner Liability for Passive Waste Migration: Recent Ninth Circuit Ruling" by Donald Clary and Toby Rose Mallen focuses on the "passive migration" aspect of the decision in Carson Harbor Village, Ltd., v. Unocal Corporation, 227 F.3d 1196 (9th Cri., 2000). There was another key issue considered by the Ninth Circuit in that case, i.e., whether remedial action undertaken voluntarily for business reasons may be "necessary" for purposes of cost recovery cause of action under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA").
Carson Harbor Village, Ltd. ("Carson") was unable to refinance property because an environmental site assessment required by a lender revealed the presence of slag and tar-like material in a wetlands area on the property. Elevated levels of lead were found in the material and the surrounding soils. Carson reported the findings to the appropriate state agencies and sought confirmation from the Regional Water Quality Control Board ("RWQCB") that no remedial action was required. Lacking that confirmation, Carson submitted a remedial action plan ("Rap") proposing a cleanup level of 1,000 ppm total threshold limit concentration ("TTLC") for lead. The RAP was approved by the RWQCB subject to a more stringent cleanup level of 50 ppm TTLC. Carson removed more than 1,000 tons of contaminated material pursuant to the approved RAP. After testing showed residual levels of lead within the established limits, the RWQCB issued a "no further action" letter.
To recover the cost, Carson sued a number of former owners or operators of the site and included a claim under CERCLA. The U.S. District Court for the Central District of California granted the defendants' motion for summary judgment on the CERCLA cost recovery claim. The court highlighted the deposition testimony of the RWQCB representative who said that he had not ordered the cleanup and that it was "very likely" that the RWQCB would not have required any remedial action if Carson had reported the presence of slag and tar-like material without presenting a remediation plan.
On the "necessity" issue, the Ninth Circuit ruled that a governmental cleanup order is not a prerequisite to private parties cost recovery claim under CERCLA. A cleanup order can certainly establish necessity. But the absence of an order and the fact that remedial action may be voluntary do not establish that is was not necessary. The Court noted that in "the private cost recovery context, the plaintiff with no business or financial motive for investigating and cleaning up a site will be rare indeed." The fact that Carson acted to remedy an environmental condition "as part of an effort to secure financing is immaterial so long as there is evidence that the contamination presented a palpable threat to human health or the environment." Such a threat can exist even though a governmental agency does not pursue it, given the priorities public officials must place on allocation of resources. "Necessity" is a question of fact for each case. In this case, the RWQCB representation also testified that the lead contamination from the tar and slag material presented a threat to both surface and groundwater, and that the RWQCB generally requires that something be done when such elevated levels of lead are found. The Court inferred from the conduct of the RWQCB that it perceived an environmental threat worthy of responsive action. In particular, the RWQCB did allocate resources for oversight, did not issue the initially requested "no further action" letter, did require a more stringent cleanup level than was proposed, and did issue a "no further action" letter when the established cleanup level was achieved. This was sufficient evidence to establish a genuine issue of fact as to the existence of an environmental threat and the necessity of the responsive action, so that summary judgment for the defendants was not proper. The Ninth Circuit reversed and remanded the case so that Carson may pursue its CERCLA claims and so that the defendants may pursue any available statutory defenses.
As to defenses, the Ninth Circuit noted in dicta that the "innocent landowner" defense might still be available to an intervening owner if the active disposal occurred prior to the acquisition by that owner, notwithstanding any passive migration that may have occurred during the period of ownership of that owner. It appears that the Ninth Circuit has, in Solomonic fashion, construed the term "disposal" broadly when determining potential liability in the first instance and narrowly for purposes of availability of the innocent landowner defense, if that defense is otherwise available.
This Ninth Circuit decision is particularly significant and precedent-setting because it counters a trend whereby courts have been, little by little, narrowing the scope of CERCLA liability by making it harder for private party plaintiffs to establish one or more of the elements of a CERCLA claim. In the Carson Harbor case, the Ninth Circuit has dispensed with the notion that had been developing in a number of cases that cost recovery is not available under CERCLA where there is an ulterior, business motivation for undertaking remedial action. Instead, as long as there is also a valid environmental reason for the action, it is "necessary" and the existence of other motivations will not preclude a CERCLA cost recovery claim. This will reopen the availability of a CERCLA cost recovery remedy to private parties who usually have some under-lying business for financial motivation for undertaking voluntary remedial action. Also, the Ninth Circuit decision gives new life to the "passive migration" theory that may be of great assistance to current property owners who are dealing with old environmental contamination and who wish to obtain recourse under CERCLA against former owners and operators, including those who themselves acquired their interest in the property after the initial disposal. Taken together, these holdings of the Ninth Circuit will expand the ability of current owners of contaminated real property to share with their predecessors the pain of strict liability under CERCLA and associated remedial action costs.
Owners who have been discouraged from pursuing cost recovery claims due to previous court rulings may be able to reconsider their remedies under CERCLA in light of the Carson Harbor case. Also, in view of the expanded potential for former owners or operators of contaminated real property to incur CERCAL liability, it becomes even more important for transaction parties to assess, negotiate and allocate environmental risk at the time of a sale and other real estate transaction.
Donald C. Nanney is Co-Chair for the Land Use Planning and Environmental Law Subsection, Real Property Section, LACBA. Mr. Nanney's firm, Gilchrist & Rutter, represents the plaintiff in the Carson Harbor case, and Mr. Nanney wrote appellate briefs to the Ninth Circuit on behalf of the plaintiff in that case.
REPRINTED FROM THE REAL PROPERTY SECTION REVIEW NOV/DEC/2000
© Copyright 2000
