• Court Defines “Current Owner” for Purposes of CERCLA Liability
  • January 10, 2011 | Author: Laura P. Kelly
  • Law Firm: Wilson Elser Moskowitz Edelman & Dicker LLP - Los Angeles Office
  • Overview

    In California v. Hearthside Residential Corp., the U.S. Court of Appeals for the 9th Circuit determined an issue of first impression:  at what specific time is land “ownership” determined for purposes of clean-up liability under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).

    CERCLA imposes strict liability for the costs associated with cleanup of hazardous substances upon certain statutorily defined parties known as PRPs (potentially responsible parties).  One type of PRP is the owner of a site on which hazardous substances are found.  The statute, however, is silent on how to measure the time frame for “ownership.” Although case law has determined that “ownership” means “current ownership,” no case has decided the issue of exactly when ownership begins and ends for parties in these matters.

    On July 22, 2010, the 9th Circuit Court of Appeals affirmed the District Court’s ruling and held that “ownership” for the purposes of assigning CERCLA liability is determined at the time that clean-up costs are incurred, and not when a cost recovery lawsuit is filed.  The court held that determining “ownership” at the time of cleanup best supports the policy behind CERCLA’s enactment, i.e., to encourage responsible parties to quickly and effectively remediate hazardous facilities.

    Background

    In 1999, defendant Hearthside Residential Corp. purchased an undeveloped tract of wetland known to be contaminated with polychlorinated biphenyls (PCBs) in Huntington Beach, California.  Several residential parcels of land directly adjacent to the wetland were also contaminated with PCBs, which the State of California Department of Toxic Substance Control (the Department) alleged had migrated from Hearthside’s property.  Hearthside voluntarily agreed to clean up the wetland, but denied any responsibility for remediating the residential property.

    The cleanup on Hearthside’s wetland was completed in 2005 and, immediately thereafter, Hearthside sold the wetland to the California Lands Commission.  The Department undertook to clean up the residential property itself and incurred clean-up expenses prior to Hearthside’s sale of the wetland.  Thereafter, the Department sued Hearthside under CERCLA to recover its clean-up costs, alleging that Hearthside was the “owner” of the contamination source, the wetland, at the time of cleanup.  Hearthside disputed liability and argued that “owner” status was determined at the time the recovery suit was filed, which was after Hearthside sold the wetland.

    CERCLA imposes “strict liability for environmental contamination” upon certain statutorily defined parties known as PRPs (potentially responsible parties), and that liability is joint and several.  This means that a party can be held liable for the entire cost of cleanup, even where other individuals contributed to the contamination, and then have to sue other PRPs for contribution.  One category of PRP is “the owner and operator of a vessel or a facility,” meaning the owner of a site on which hazardous substances are found.  42 U.S.C. § 9607(a)(1).  The statute, however, is silent on the date from which ownership is measured.  See 42 U.S.C. § 9601(20).

    Noting a lack of meaningful case law on the issue, the United States District Court for the Central District of California granted partial summary judgment in favor of the Department, concluding that “the purposes of CERCLA support a holding that ‘owner’ status is determined at the time a response-recovery claim accrues, not at the time the lawsuit is initiated.”  The Court of Appeals granted both parties’ requests for an immediate appeal.

    New Law

    The 9th Circuit Court of Appeals agreed with the District Court and determined that measuring ownership from the time of cleanup best aligns with the purposes for which CERCLA was enacted ¿ for three reasons.  First, that the statute of limitations on a CERCLA action starts to run once remedial action has begun suggests that Congress intended the “owner” to be the owner at the time of cleanup.  Second, CERCLA encourages responsible parties to remediate without delay and, if a landowner could avoid liability by transferring its property before a lawsuit is filed, then that landowner would have every incentive to delay cleanup until it found a buyer.  Third, CERCLA was also enacted to encourage settlement and early voluntary cleanup of contaminated properties, and Hearthside’s proposed rule would require that a lawsuit be filed as a prerequisite to recovery in every case. 

    Hearthside argued that pinpointing ownership based on clean-up activities would promote some factual uncertainty because of questions about when cleanup began, when it was completed, and when enough response costs were incurred to give rise to a cost recovery claim. The court agreed, but stated that such “factual questions surrounding the relevant cleanup dates are routine and familiar components of CERCLA actions and can be resolved without difficulty.”

    Comment

    The Hearthside decision is important because a property owner can no longer attempt to avoid PRP liability by selling his property immediately before a lawsuit is filed.  Further, a purchaser of a fully remediated property should no longer be at risk of being held strictly liable for the costs of cleaning up the property prior to purchase.

    For further reference, see California v. Hearthside Residential Corp., 09-55389 (9th Cir. July 22, 2010), and the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9607(a)(1).