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9th Circuit Clarifies Who is a Current Owner or Operator for CERCLA Liability

Beveridge & Diamond, P.C., July 29, 2010

The Ninth Circuit Court of Appeals recently issued a decision clarifying that a current owner or operator is determined at the time cleanup costs are incurred and not at the time a cost recovery suit is filed for purposes of determining liability under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §§ 9601 et seq. (“CERCLA”).  In State of California Department of Toxic Substances Control v. Hearhtside Residential Corp., No. 09-55389, the Court addressed an issue left open since its 2001 decision in Carson Harbor Vill., Ltd. v. Unocal Corp., 270 F.3d 863, 881 (9th Cir. 2001) (en banc), that the “owner and operator” liability category under CERCLA Section 107(a)(1) (42 U.S.C. § 9607(a)(1)) is limited to “current” owners or operators.  In its decision, the Hearthside Court discussed the federal common law that touched on the issue as well as the policies underlying CERCLA, and held that the property owner at the time of the cleanup could not escape liability by selling the property before suit was filed.

The defendant here, Hearthside Residential Corporation (“Hearthside”), had purchased wetlands that it knew were contaminated with polychlorinated biphenyls (“PCBs”).  In 2002, Hearthside entered into an administrative consent order with the California Department of Toxic Substances Control (“DTSC”) to clean up the property.  DTSC also claimed the PCB contamination had migrated to an adjacent residential property, but Hearthside refused to take action with respect to that property.  DTSC then cleaned up the adjacent property in 2002 – 2003.  Hearthside completed its cleanup of the wetlands property in 2005, and later sold the property.  In 2006, DTSC filed suit against Hearthside, seeking to recover the cost of cleaning up the adjacent property.

Hearthside argued it was not liable because it was not the “owner and operator” of the wetlands property at the time DTSC filed suit.  On motions for summary judgment, the trial court disagreed and granted DTSC partial summary judgment on the limited issue of whether Hearthside was an “owner and operator” of the property.  Hearthside sought an interlocutory appeal to the Ninth Circuit, which agreed to hear the appeal as it presented an issue of first impression.

The Ninth Circuit held that a current owner/operator is determined at the time response costs are incurred and not at the time that cost recovery lawsuit is filed, for two reasons.  First, such an interpretation best comports with CERCLA’s overall structure.  CERCLA’s statute of limitations for a cost recovery action is triggered (1) at the completion of a removal action, or (2) at the initiation of a remedial action, CERCLA Section 113(g)(2) (42 U.S.C. § 9613(g)(2)), which the Court interpreted to imply that the potential defendant should be determined at the same stage in the process.  Second, the court sought to effectuate CERCLA’s remedial purposes.  It found that determining owner/operator status at the cleanup stage would deter responsible parties from delaying cleanup until they had found a buyer for the property.  The court added that its ruling would encourage pre-litigation settlements, which it cited as an “important purpose” of CERCLA.

The Ninth Circuit’s decision in Hearthside clarifies one aspect of CERCLA’s perplexing scheme of strict liability.  It also reinforces a long line of appellate decisions holding that CERCLA should be interpreted in a manner consistent with its remedial purpose, so as to encourage accelerated remediation of contaminated sites.  This is an important consideration for CERCLA litigants, and provides some guidance when construing the statute’s poorly worded liability provisions.

For a printable PDF of this article, please click here.

For more information, please contact Nico van Aelstyn at (415) 262-4008, nvanaelstyn@bdlaw.com, or Steve Jawetz at (202) 789-6045, sjawetz@bdlaw.com. This Client Alert was prepared with the assistance of Zachary Norris. 

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