District Court Decision to Include Sewer Utilities in CERCLA Liability Could Upend Liability, Allocation Discussions
By Steve JonesA district court in California recently held that a CERCLA contribution claim could be brought against a municipality that did no more than own a sewer pipe which received solvent from a dry-cleaner which discharged PCE into the sewer. Under the ruling, which came in the case of Adobe Lumber, Inc. v. Hellman,[1] the court found that that the City of Woodland, California could be held liable as both a current and former owner and operator of a CERCLA “facility.” The decision runs counter to a number of other district court opinions, including one from the same court. But there is also precedent going the other way, including a Fourth Circuit decision, and the overall picture is about as clear as the effluent being carried. Because contaminants at hundreds of Superfund sites are discharged to sewers, broad application of the rule announced in Adobe Lumber could upend allocation of liability at many sites around the country.
Background
Adobe Lumber owns four parcels of land located within the City of Woodland, California, one of which is occupied by the Woodland Shopping Center. One of the businesses in the shopping center, Sunshine Cleaners, allegedly discharged PCE to a floor drain located within the dry cleaner’s premises for at least 15 years. Adobe sued the dry cleaner, the City, and a number of other parties in 2005, asserting claims under both CERCLA[2] and California’s Hazardous Substance Account Act,[3] as well as common law claims for nuisance and trespass. With respect to the City, Adobe asserted that subsurface contamination from the City’s sewer was the result of leakage “due to its age, the large number of joint, grout (mortared) joints and defects in the sewer system” and the fact that the City’s “management and maintenance of the sewer system was re-active, miminal[,] and inadequate.”[4]
The City sought to have the CERCLA and HSAA[5] claims dismissed based on an argument that CERCLA’s definition of “facility” did not encompass the City sewer. In bringing its motion, the City acknowledged that some courts had rejected the reading of CERCLA the City was advancing, most notably the Fourth Circuit in the case of Westfarm Assoc, Ltd. P’ship v. Wash. Suburban Sanitary Comm’n.[6] Despite this fact, the City relied on authority from the Ninth Circuit and a previous opinion from the same court (the Eastern District of California) which supported the City’s reading of CERCLA. In addition, the City noted that other cases which had adopted the logic of Westfarm involved deliberate or knowing conduct by the party responsible for the sewer. Here, apart from its ownership of the sewer pipe, the City had no involvement in the actions which resulted in PCE being deposited in the sewer.
In Westfarm, a public agency which operated a sewer line sought to avoid CERCLA liability by arguing that the same language on which the City of Woodland relied “evince[d] a Congressional intent to exclude ‘publicly owned treatment works, or POTWs … from the definition of ‘facility.’”[7]
The Fourth Circuit rejected this reading of the definition of facility, holding that
Reading CERCLA as a whole … leads to the inescapable conclusion that Congress did not intend to exclude POTWs from liability. ... [I]f Congress had intended to exclude state and local governments from liability in other situations ... Congress would have either: (a) excluded all state and local governments from the definition of “owner or operator,” rather than limiting the exclusion to the involuntary acquisition situation; or (b) included POTWs in the list of entities excluded from the definition of “owner or operator.”[8]
Judge Shubb adopted the Fourth Circuit’s reasoning in rejecting the City’s argument.[9] He also held that there was no logical way to limit the reading offered by the City to only public sewers and that it was clear that Congress had intended to be as far-reaching as possible in the extension of liability under the statute, making no distinction between public and private parties and pointing to a “cascade of plain language [that] clearly demonstrates Congress aimed to abrogate sovereign immunity for the states.”[10]
In addition to rejecting the City’s reading of the statute, the court also rejected its policy arguments, namely, that the City was “unaware of the contaminant’s presence,” and the City’s attempt to distinguish the applicable case law on the grounds that the previous cases were grounded on “deliberate/knowing conduct by the party responsible for the sewer.”[11] In rejecting these policy arguments, the court noted that “CERCLA is a strict liability statute, and liability can attach even when the generator has no idea how its waste came to be located at the facility from which there was a release.”[12]
The court also found that the City could not take advantage of any of the statutory defenses, including the fact that the contamination was caused by third-parties. Here, the court found that, while it was undisputed that the dry cleaner’s actions were a cause of the contamination, this did not demonstrate that they were the sole cause.[13] Finally, the court noted that that a party seeking to take advantage of the “innocent party” defense must show that it exercised due care and took appropriate precautions. Yet the record included no proactive maintenance management system, leakage studies, or sewer master plan, notwithstanding reports indicating multiple defects in the system.[14]
Elements of CERCLA Liability Include Release from a “Facility”
CERCLA imposes strict liability on owners and operators of facilities at which hazardous substances have been disposed.[15] To demonstrate liability, a plaintiff must make a prima facie showing that the site where disposal occurs is a “facility,” and that the defendant is an owner or operator of the facility, a transporter or an arranger for disposal of hazardous substances. The City of Woodland maintained that its sewer meet did not fall within CERCLA’s definition of “facility,” and that it was therefore neither an owner nor an operator of a facility.
CERCLA defines “facility” very broadly:
The term “facility” means (A) any building, structure, installation, equipment, pipe or pipeline (including any pipe into a sewer or publicly owned treatment works), well, pit, pond, lagoon, impoundment, ditch, landfill, storage container, motor vehicle, rolling stock, or aircraft, or (B) any site or area where a hazardous substance has been deposited, stored, disposed of, or placed, or otherwise come to be located; but does not include any consumer product in consumer use or any vessel.[16]
Courts have read this definition expansively, with the Supreme Court remarking that “the term ‘facility’ enjoys a broad and detailed definition” and a number of other courts and commentators expressing similar views.[17] Judge Shubb cited to one annotation which stated that “it does not appear that any court has ever held that one or more of the defining terms in [42 U.S.C. § 9601(9)] was inapplicable in a particular case.”[18]
Against this backdrop, the City argued that the “express terms” of the statutory definition exempt its sewer from classification as a facility. The City supported this argument through heavy reliance on the parenthetical in subpart (A) of the definition: “the term ‘facility’ means (A) any … pipe or pipeline (including any pipe into a sewer or publicly owned treatment works).” (Italics supplied). The City argued that, by specifically mentioning “sewer” in the parenthetical and then by neglecting to include it the list of enumerated facilities in the preceding section, “Congress ‘had sewers in mind’ but deliberately kept them off the list.”[19]
Other Court Have Accepted the City’s Position
In making its argument, the City was forced to acknowledge that its reading of CERCLA had been rejected by several previous decisions,[20] the most significant of those being the Fourth Circuit’s decision in Westfarm. However, the City pointed to other cases in which its position had been accepted. For example, in Fireman’s Fund Ins. Co. v. City of Lodi,[21] the Ninth Circuit questioned that a municipality could be considered a PRP under CERCLA “merely as a result of operating its municipal sewer system.” In addition, one of Judge Shubb’s fellow judges in the Eastern District of California had previously rejected a claim that a municipal operator of a sewer system could be liable under CERCLA, although he did so based on his conclusion that San Joaquin County, California had successfully established facts supporting the contamination was solely the responsibility of a third-party. See Lincoln Prop., Ltd. v. Higgins.[22]
The City also pointed to other decisions in which liability under CERCLA was based on deliberate or knowing conduct by the party which had responsibility for the sewer. See, e.g., United States v. Meyer,[23] where a private sewer was designed for conveyance of hazardous waste from an electroplating plant; United States v. Union Corp.,[24] where the city in question chose to discharge excess flow from a combined sewer/stormwater system directly into a river; and Castaic Lake Water Agency v. Whittaker Corp.,[25] where the court pointed out that, in Westfarm, the sanitary commission failed to mend its sewer pipes or even change its regulations to ban PCE dumping.
Relying on this authority, the City tried to advance a similar defense to the one that had been accepted in Lincoln Properties and which had generated a remand by the Ninth Circuit in City of Lodi, namely, that it was an innocent party entitled to rely on the statutory third-party defense.[26] In order to successfully rely on the third-party defense, the City would need to show that Sunshine Cleaners’ release was not foreseeable and that its own conduct was “so indirect and insubstantial” that it was not the proximate cause of the release. In addition to Lincoln Properties, this defense had been successful in other courts.[27]
Ultimately, however, Judge Shubb found that the City could not sustain its burden of showing that the cleaner’s discharge was unforeseeable, based on the City’s knowledge of the dry cleaner and its requirement that they, along with other dry cleaners, submit to inspection in connection with the City’s industrial wastewater pretreatment program. The City was also on notice that there was leakage that might result in the introduction of PCE to the ground and it was undisputed that the City had not taken steps to remedy leaks from its sewers.[28]
Conclusion
Until there is more circuit court precedent, the liability of municipal wastewater utilities in CERCLA cost recovery cases is likely to remain muddy. Both the utilities and those who would sue them will have to carefully review the case law in their jurisdiction before deciding how to proceed in CERCLA cost allocation cases.
For more information contact Steve Jones or any other member of our Waste Cleanup practice group.
[1] E.D. California, No. 05-1510 WBS, EFB, ___ F. Supp.2d ___, 2009 WL 2913415 (September 8, 2009) (“Adobe Lumber”). All references to the opinion are to the Westlaw version.
[2] 42 U.S.C. § 9601, et seq.
[3] Cal. Health & Safety Code §§ 24300-24395.
[4] Adobe Lumber, 2009 WL 2913415, * 1 (quoting Plaintiff’s Statement of Disputed Facts).
[5] The HSAA’s definition of “site” has the same meaning as “facility” under CERCLA found at 42 U.S.C. § 9601(9) and is subject to the same defenses, including the innocent party defense. See Cal. Health & Safety Code §§ 25323.9, 25323.5. As a result, the parties acknowledged that the City’s arguments under CERCLA would be equally applicable to the HSAA claims. Adobe Lumber at *3.
[6] 66 F.2d 669 (4th Cir. 1995).
[7] Adobe Lumber, *5 (quoting Westfarm, 66 F.2d at 673).
[8] Westfarm, 66 F.2d at 678-79 (quoted in Adobe Lumber, *5).
[9] Adobe Lumber, *5-6.
[10] Id. at *6 (quoting Pennsylvania v. Union Gas Co., 491 U.S. 1, 7-13 (1989)).
[11] Id. at *11 (quoting City’s briefs).
[12] Id. at *12.
[13] Id. at *16.
[14] Id. at *18.
[15] Adobe Lumber at *2 (citing 3550 Stevens Creek Assocs. v. Barclays Bank of Cal., 915 F.2d 1355, 1357 (9th Cir. 1990)).
[16] 42 U.S.C. § 9601(9) (quoted in Adobe Lumber at *4).
[17] The quote is from United States v. Bestfoods, 524 U.S. 51, 56 (1998). Other courts have also read the term broadly. See, e.g., Sierra Club v. Seaboard Farms, 387 F.3d 1167, 1174 (10th Cir. 2004) (“[C]ircuits that have applied the defined term “facility” have done so with a broad brush.”); Uniroyal Chem. Co., Inc. v. Deltech Corp., 160 F.3d 238, 245 (5th Cir. 1998) (“[I]t is apparent that facility is defined in the broadest possible terms ....”); 3550 Stevens Creek Assocs. v. Barclay’s Bank, 915 F.2d 1355, 1358 n. 10 (9th Cir. 1990) (“[T]he term ‘facility’ has been broadly construed by the courts, such that ‘in order to show that an area is a “facility,” the plaintiff need only show that a hazardous substance under CERCLA is placed there or has otherwise come to be located there.’” (Quoting United States v. Metate Asbestos Corp., 584 F. Supp. 1143, 1148 (D. Ariz. 1984)).
[18] The quote comes from William B. Johnson, Annotation, What Constitutes “Facility” Within the Meaning of Section 101(9) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) (42 U.S.C. § 9601(9)), 147 A.L.R. Fed. 469 § 2(a) (1998 & Supp. 2009). The annotation was cited in Adobe Lumber at *4.
[19] Abode Lumber, *4 (quoting City’s Memorandum in Support of Motion for Summary Judgment).
[20] See Westfarm Assocs. Ltd. P'ship v. Wash. Suburban Sanitary Comm'n, 66 F.3d 669, 678-80 (4th Cir. 1995); United States v. Union Corp., 277 F. Supp.2d 478, 486-87 (E.D. Pa. 2003); see also United States v. Meyer, 120 F. Supp.2d 635, 639 (W.D. Mich. 1999); City of Bangor v. Citizens Commc'ns Co., No. 02-183, 2004 WL 483201, at *11 (D. Me. Mar. 11, 2004) (Kravchuk, Mag. J.), aff'd, 2004 WL 2201217, at *1 (D. Me. May 5, 2004).
[21] 302 F.3d 928, 946 (9th Cir. 2002).
[22] 823 F. Supp. 1528, 1539-44 (E.D. Cal. 1992).
[23] 120 F. Supp.2d 635 (W.D. Mich. 1999).
[24] 277 F. Supp.2d 478, 486 (E.D. Pa. 2003).
[25] 272 F. Supp.2d 1053, 1084 (C.D. Cal. 2003).
[26] See 42 U.S.C. §9607(b)(3).
[27] See United States v. Honeywell, Int’l, 542 F. Supp.2d 1188, 1199 (E.D. Cal., 2008); United States v. Iron Mountain Mines, Inc., 987 F. Supp. 1263, 1274 (E.D. Cal. 1997); Castaic Lake Water Agency v. Whittaker Corp., 272 F. Supp.2d 1052, 1079-80 (C.D. Cal. 2003); Advanced Tec. Corp. v. Eliskim, Inc., 96 F. Supp.2d 715, 718 (N.D. Ohio 2000); United States v. Meyer, 120 F. Supp.2d 635, 640 (W.D. Mich. 1999).
[28] Adobe Lumber, 2009 WL 2913415, * 16.
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