“Broken Link in the Chain of Liability”: MTCA Decision Highlights Intricacies of Corporate Law

Last week, in a decision highlighting the overlay of environmental and corporate law, a Washington federal district court dismissed claims seeking remediation costs, attorneys’ fees, and a declaratory judgment on liability under the Model Toxics Control Act (MTCA) by the current owner of a service station in Cle Elem against Chevron Corp., Chevron USA, Inc., and unnamed “predecessor companies and subsidiaries.” Short Stop Shell, LLC v. Chevron Corp., No. 1:19-cv-03103-RMP, Dkt. No. 43 (E.D. Wash. Aug. 27, 2019) (Order Granting in Part & Denying in Part Defendants’ Mot. to Dismiss & Denying Plaintiff’s Mot. for Summ. J.). The court rejected the allegation that the Chevron entities were corporate successors to Texaco, Inc., which was believed to be responsible for contamination at the service station.

The court’s findings reflect a limitation on the sweeping liability under MTCA and similar statutes, the relevance of corporate transactions in minimizing such liability, and the potential difficulty of identifying proper corporate defendants before filing lawsuits for cost recovery at contaminated sites.

Site Background – Petroleum Contamination at Service Station

The claims alleged that, until 1984, Texaco owned and operated the service station where contamination had been disposed or released at the property. In 2000, Texaco agreed to indemnify an owner of the service station for “actual petroleum contamination originating from the Property in excess of clean up levels [that] originated from Texaco’s operation of a gasoline … facility … or from deliveries of motor fuels to the station ….” Then, in 2001, Chevron Corp. acquired Texaco in a “reverse triangular merger.” 

The plaintiff acquired the property in 2012, decommissioned several underground storage tanks alleged to be leaking, and incurred over $275,000 in remediation costs.

Court Decision – “Broken Link in the Chain of Liability”

Ultimately, the court concluded that the “reverse triangular merger,” in which Texaco merged with a subsidiary of Chevron Corp., did not cause Chevron to assume Texaco’s liabilities. Rather, Texaco remained a “separate entity” as a Chevron subsidiary and Chevron was not a successor to Texaco’s liabilities. The Court found further that suing unnamed defendants was a “disfavored practice” and agreed to strike the “John Doe”-style pleading that included a general reference to the defendants’ “predecessor companies and subsidiaries.” 

The court also rejected a judicial estoppel theory that the defendants had already accepted liability “through their actions,” which included interactions between Chevron EMC, a Chevron subsidiary “that manages environmental matters for affiliated companies, including Texaco,” and Ecology. Notably, the court determined that even if, in an ambiguous exchange with Ecology in 2003, Chevron had accepted “potentially liable person status,” that such an acceptance did not amount to a “representation” that the defendants had “expressly assumed Texaco’s liabilities.” 

However, litigation is likely to continue. In order to “properly allege a theory of liability,” the court granted the plaintiff leave to incorporate allegations in an amended complaint that the defendants “delivered gasoline products to tanks” that they “knew were leaking.”

Beveridge & Diamond’s Superfund, Site Remediation, and Natural Resources Damages practice group assists clients in litigation and allocation of CERCLA sites, including complex, large-scale sites. We counsel clients on developing case law and requirements under CERCLA and state-equivalent hazardous waste laws. For more information, please contact the authors.