Daily Development for Wednesday, September 20, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

Note that there are two entries on the same case here. The second item strikes the editor as the more significant, though both are valuable.

HAZARDOUS SUBSTANCES; CERCLA; NECESSITY FOR REMEDIATION: A specific public remediation order is not required in order for a landowner to recover costs of remediation under CERCLA; if remediation is necessary to respond to a "palpable threat to human health or the environment," costs of remediation are recoverable even though the remediation was volunatry.

Carson Harbor Village v. Unocal Corporation, No. 9855056, 2000 Daily Journal D.A.R. 10199 (9th Cir., Sept. 14, 2000), discussed more fully under the heading Hazardous Substances; CERCLA

Carson Harbor was unable to refinance property because an environmental site assessment required by a lender revealed the presence of slag and tarlike material in a wetlands area on the property. Elevated levels of lead were found in the material and the surrounding soils. Carson Harbor 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 Harbor 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. More than 1,000 tons of contaminated material was removed pursuant to the approved RAP. After testing showed residual levels of lead within the established limits, the RWQCB issued a "no further action" letter.

The U.S. District Court for the Central District of California granted the defendants' motions 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 Harbor had reported the presence of the slag and tarlike material without presenting a remediation plan. The RWQCB had merely accommodated the property owner's request for oversight of a voluntary cleanup. The court therefore concluded that Carson Harbor's remedial action was initiated voluntarily for its own business reasons, and that Carson Harbor failed to satisfy the "necessity" element of a CERCLA claim.

On the "necessity" issue, the Ninth Circuit ruled that a governmental cleanup order is not a prerequisite to a private party 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 such action 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 harbor 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 representative 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.

Reporter's Comment: This Ninth Circuit decision is particularly significant and precedentsetting 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 underlying business or financial motivation for undertaking voluntary remedial action.

The Reporters for this case are Frank Gooch and Don Nanney of Gilchrest & Rutter, Santa Monica, counsel for the plaintiffs.

HAZARDOUS SUBSTANCES; CERCLA; "DISPOSAL" OF HAZARDOUS SUBSTANCES: Ninth Circuit rules that former owner of contaminated property is liable for costs of removal of hazardous substances that migrated from pollution deposits discharged onto the site by an even earlier owner.

Carson Harbor Village v. Unocal Corporation, No. 9855056, 2000 Daily Journal D.A.R. 10199 (9th Cir., Sept. 14, 2000). discussed more fully under the heading Hazardous Substances; CERCLA; Remediation Costs."

Landowners Carson Harbor discovered a substantial deposit of "slag and tarlike material in wetlands on their property. Tests showed lead contamination that had passed into the ground from this material. To recover the cost of remediating a major hazardous substance contamination of its property, landowners sued an oil company that had conducted oil and gas operations at the site decades earlier, and likely had first discharged this material onto the property. In addition, landowners sued certain Partnership Defendants who had owned the property for several years before selling it to landowners.

With respect to the Partnership Defendants (former owners), the trial court found that the initial disposal of the slag and tarlike material had occurred many years before they became the owners of the property. The trial court further concluded that any subsequent discharge or movement of the lead contamination in the soil at the site (during the ownership of the Partnership Defendants) was of no consequence. The trial court (in the absence of precedent from the Ninth Circuit on the issue) followed the majority of federal circuit courts that have rejected the "passive migration" theory of disposal. The court instead interpreted "disposal" within the meaning of CERCLA to require some active human participation. The Partnership Defendants were not liable CERCLA because they are not the current owners and they did not own the property at the time when the active disposal took place.

On appeal: Held: Reversed.. The Ninth Circuit faced for the first time the "active/passive"disposal issue that has resulted in conflicting opinions among other federal circuits as well as among district courts in the Ninth Circuit. The court undertook a detailed review of the semantic conundrums arising from the CERCLA definitions of the terms "disposal" and "release," and ultimately sided with the Fourth Circuit's minority view that the term "disposal" is broad enough to encompass "passive migration"of contamination as well as the initial active deposit. The Ninth Circuit panel rejected the views of the Second, Third and Sixth Circuits that have ruled that active human participation is required for "disposal" and any subsequent passive migration of contaminants does not constitute disposal. In view of its holding that "disposal" includes passive migration, the court ruled that landowners were entitled to proceed with the CERCLA claim against the Partnership Defendants even though the initial disposal occurred decades before the Partnership Defendants acquired the property.

Reporter's Comment: 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 wish to reconsider their remedies under CERCLA in light of the Carson Harbor.

Finally, in view of the expanded potential for former owners or operators of contaminated real property to incur CERCLA liability, it becomes even more important for transaction parties to negotiate and allocate environmental risk, including potential CERCLA liability, at the time of a sale or other real estate transaction.

Editor's Comment 1: The editor congratulates the Reporters for their significant victory, but cannot share their joy at the policy analysis of the Ninth Circuit. It may well be that parcing the CERCLA statute would lead to the result contended, but obviously a number of other courts have disagreed, so the editor assumes that the real difference is one of policy, and not one of grammatical construction.

The court stresses the unfairness of the current landowners being stuck with the bill of remediation while the prior owners escape (unless they made the original deposit). Of course there is a degree of unfairness here, but the real unfairness is in the Congressional decision to make innocent landowners of contaminated property liable in the first place for cleanup costs that, in not paid by the contaminator, should be borne by the public. Although misery may love company, the editor sees not valid basis for spreading the mantle of liability to prior innocent owners of contaminated properties.

Keep in mind that not all prior owners become liable. The decision affects only those who had the bad luck to own property with contamination that migrated within the property during their ownership (albeit without their knowledge or active participation). There is still a line of demarcation that is unfairly drawn, but now in a different place. Modern CERCLA practice, through which new purchasers can acquire property free of potential CERCLA liability by becoming "innocent purchasers" after investigating for hazardous substances, makes a lot of sense. Query, by the way. Does this ruling make such "innocent purchasers" liable for post acquisition seepage from hazardous substances that they did not find? The editor assumes that the answer is no, but it is a question worth asking.

The consequence of the decision is to create another lawyer's feeding frenzy in the Ninth Circuit as litigants owning polluted properties rush to punish their land sellers for seepage as to which such sellers had no knowledge or control. Oh, and on the way, we'll undoubtedly pick up a lot of insurance carriers who also had no knowledge or control over new environmental awareness arising decades later. Although the editor likes to see other lawyers grow rich, he nevertheless is concerned that this decision compounds the poor decision Congress made originally to punish the innocent for the sins of long expired polluters.

The Reporters for this case are Frank Gooch and Don Nanney of Gilchrest & Rutter, Santa Monica, counsel for the plaintiffs.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.

Parties posting messages to DIRT are posting to a source that is readily accessible by members of the general public, and should take that fact into account in evaluating confidentiality issues.

ABOUT DIRT:

DIRT is an Internet discussion group for serious real estate professionals. Message volume varies, but commonly runs 5 ‑ 10 messages per workday.

Daily Developments are posted every workday.

To subscribe to Dirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Subscribe Dirt [your name]

To cancel your subscription to Dirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Signoff Dirt

For information on other commands, send the message Help to the listserv address.

DIRT has an alternate, more extensive coverage that includes not only commercial and general real estate matters but also focuses specifically upon residential real estate matters. Because real estate brokers generally find this service more valuable, it is named “Brokerdirt.” But residential specialist attorneys, title insurers, lenders and others interested in the residential market will want to subscribe to this alternative list. If you subscribe to Brokerdirt, it is not necessary also to subscribe to DIRT, as Brokerdirt carries all DIRT traffic in addition to the residential discussions.

To subscribe to Brokerdirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Subscribe Brokerdirt [your name]

To cancel your subscription to Brokerdirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Signoff Brokerdirt

DIRT is a service of the American Bar Association Section on Real Property, Probate & Trust Law and the University of Missouri, Kansas City, School of Law. Daily Developments are copyrighted by Patrick A. Randolph, Jr., Professor of Law, UMKC School of Law, but Professor Randolph grants permission for copying or distribution of Daily Developments for educational purposes, including professional continuing education, provided that no charge is imposed for such distribution and that appropriate credit is given to Professor Randolph, DIRT, and its sponsors.

DIRT has a WebPage at: http://www.umkc.edu/dirt/