ENVIRONMENTAL LEGAL UPDATE: 9TH CIRCUIT DECIDES NEW ENVIRONMENTAL MATTER

The Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") is a federal statute whose primary purpose is to remedy contamination caused by hazardous substances by providing for identification of problem sites and applying rigorous cleanup standards. (42 U.S.C. 9601 et seq.). CERCLA liability is joint and several, meaning that a responsible party may be held liable for the entire cost of a cleanup even where other parties were responsible for the majority of contamination CERCLA's liability provisions apply to four categories of parties who are potentially responsible for cleanup costs. The four categories of potentially responsible parties ("PRP's") include:

1. Current site owners and operators of the contaminated site (regardless of whether their activities contributed to the contamination);
2. Those who owned or operated the contaminated site at the time of the disposal of hazardous substances;
3. Those "who by contract, agreement, or otherwise arranged for disposal or treatment, or arranged with a transporter for transport for disposal or treatment, of hazardous substances…"
4. Those who accepted hazardous substances for transportation to the contaminated site. (42 U.S.C. 9607(a)(1)-(4))

The Ninth Circuit recently clarified the scope of the first category in State of California Department of Toxic Substances Control v. Hearthside Residential Corporation ("Hearthside"). There, a defendant real-estate developer had purchased undeveloped wetlands in Huntington Beach, California that it knew were contaminated with polychlorinated biphenyls ("PCBs"). By 2002, the defendant had entered into a consent order with the California State Department of Toxic Substances Control ("DTSC") to cleanup the wetlands property. The DTSC also claimed that the PCB contamination had spilled into adjacent residential properties from the wetlands, but the defendant refused to take any responsibility for the alleged contamination in the adjacent properties.

The wetlands property was cleaned up by the defendant by December 1, 2005, and that month, the defendant sold the property to the California State Lands Commission. The adjacent residential properties were cleaned up by the DTSC in 2002 and 2003, and in October 2006, the DTSC filed suit against the defendant to recover the cost of cleaning up the adjacent residential properties.

The defendant argued that it was not liable for the cleanup of the adjacent properties because it was not the owner of the offending wetlands at the time the DTSC's lawsuit was filed. Rather, the defendant argued that the State Lands Commission, which had bought the wetlands 10 months before the lawsuit was filed, was the responsible party under CERCLA.

An issue of first impression, the Ninth Circuit addressed the question of whether current "owner and operator" status under CERCLA is determined at the time that cleanup costs are incurred or instead at the time that a lawsuit seeking reimbursement of cleanup costs is filed. The Court held that for determining CERCLA liability, a current owner/operator is determined at the time cleanup costs are incurred, and not at the time a lawsuit is filed.

The Court noted that its ruling would deter property owners and operators from delaying in cleaning up a property. If the Court had ruled that an owner/operator was determined at the time a cost recovery lawsuit is filed, then owners would delay cleaning up property until they had found a buyer for their property, as it is unlikely that a cost recovery lawsuit would be filed until after a clean-up was completed, and the costs of cleanup were fixed. The Court further noted that its ruling would encourage pre-litigation settlements, as a decision setting owner/operator liability at the time of filing a lawsuit would have required parties to wait until a lawsuit was filed to determine and allocate liability, thereby discouraging pre-litigation settlements.

The Ninth Circuit’s decision in Hearthside not only provides additional clarity to the complicated CERCLA liability scheme, it continues a long line of CERCLA cases that emphasize the need to interpret CERCLA in a manner that leads to expedited contamination remediation.