Daily Development for Monday, April 21, 2002

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

HAZARDOUS SUBSTANCES; CERCLA; "DISPOSAL;" MIGRATING SUBSTANCES: Ninth Circuit concludes that migration is not "disposal" under CERCLA.

Carson Harbor Village, Ltd. v. Unocal Corporation, 270 F.3d 863 (9th Cir. 2001), cert. Denied, 2002 U.S. Lexis 2176, 70 U.S.L.W. 3614 (U.S. Apr. 1, 2002)

In a case of first impression for the U.S. Court of Appeals for the Ninth Circuit, the Court ruled after a rehearing en banc, that the migration of contamination on property does not constitute "disposal" under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA").

This case involved a claim by a current property owner, Carson Harbor Village, Ltd. ("Carson Harbor"), for reimbursement, in part, from a predecessor in title for environmental cleanup costs incurred by Carson Harbor. Carson Harbor is the owner and operator of a mobile home park in California. Its predecessor in title, Carson Harbor Village Mobile Home Park, a general partnership (the "Partnership"), owned and operated the site from 1977 until 1983. The Partnership also operated the site as a mobile home park. Prior to the Partnership’s ownership, the property was operated by Unocal Corporation, which leased the site and engaged in petroleum production at the site. Approximately 17 acres of the site was comprised of wetlands.

During an attempt by Carson Harbor to refinance the property, the lender performed an environmental investigation of the site and discovered "tar-like and slag materials in the wetlands area of the property." Further due diligence revealed that the "materials were a waste or by-product of petroleum production and that they had been on the property for several decades prior to its development as a mobile home park."

Carson Harbor filed suit to recover its cleanup costs advancing a number of theories for relief, including a claim for contribution under CERCLA. The district court granted the Partnership summary judgment, holding, in part, that the Partnership was not a potentially responsible party under CERCLA "because ‘disposal warranting CERCLA liability requires a showing that hazardous substances were affirmatively introduced into the environment.’" On appeal, a three judge panel held that the former property owner may be liable under CERCLA for the passive migration of contamination occurring during its period of ownership. On rehearing, the Court positioned itself with the Second, Third and Sixth Circuits, and at odds with the Fourth Circuit, in holding that "passive migration of contaminants through soil during … ownership" is not "disposal" within the plain meaning of CERCLA.

The Court’s decision is useful for its precise examination of the subtle differences between the decisions of the other circuit courts, recognizing that "their holdings suggests a more nuanced range of views, depending in large part on the factual circumstances of the case," rather than a clear split concerning the distinction between active versus passive disposal. The Court observed that the Fourth Circuit first looked at this issue in the context of a leaking underground storage tank, and rejected the requirement for "’active human conduct.’" Accordingly, the Fourth Circuit in Nurad, Inc. v. William E. Hopper & Sons Co., 966 F.2d 837 (4th Cir. 1992) concluded that the owner of a property at the time of a spill or leak has disposal liability for purposes of CERCLA.

The Court also focused on: (a) the Third Circuit’s decision in United States v. CDMG Realty Co., 96 F.3d 706 (3d Cir. 1996), which concluded "that ‘the passive migration of contamination dumped in the land prior to [the past owner’s] ownership does not constitute disposal,’" but demurred on deciding "’whether the movement of contaminants unaided by human conduct can ever constitute disposal’"; (b) the Second Circuit’s decision in ABB Indus. Sys., Inc. v. Prime Tech., Inc., 120 F.3d 351 (2d Cir. 1997), which followed the Third Circuit’s holding and determined that the mere gradual movement of contamination in soil is not disposal, but also demurred on the issue of liability of a passive prior property owner of a site with leaking barrels; and (c) the Sixth Circuit’s decision in United States v. 150 Acres of Land, 204 F.3d 698 (6th Cir. 2000), which determined that in order to have "disposal" there must be "human activity involved in … [the] movement of hazardous substances … on the property... ."

Reporter’s Comment: Unfortunately, a writ of certiorari was denied by the United States Supreme Court on April 1, 2002. This is significant for reasons that are more far reaching than just the disunity within the circuit courts. On January 11, 2002, President Bush signed into law the Small Business Liability Relief and Brownfields Revitalization Act. The new federal brownfield law creates a new limitation of liability for the "Bona Fide Prospective Purchaser."

One of the criteria for qualifying as a bona fide prospective purchaser, or "BFP", is that a party must establish that disposal of contamination occurred prior to acquisition. The ability of a party to satisfy this requirement, however, will now depend upon the jurisdiction in which the property is located. If a property is situated in a jurisdiction that has determined, or in the future does determine, that passive migration is "disposal," then BFP status will not be possible. This will undermine the very purpose behind the new federal brownfield law, which is to provide liability protection for developers of contaminated sites and foster re-use of brownfield properties.

Editor’s Comment: Yes, it’s unfortunate that the Supreme Court didn’t take up the case and affirm the Ninth Circuit, but let’s be grateful for small victories. A little common sense filters into the miasma of undifferentiated blame that spreads like a vile plume around federal environmental policy.

The Reporter for this case was Jack Fersko of the New Jersey Bar.

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