U.S. Court of Appeals for the Ninth Circuit Rules That Owner and Operator Status is Determined at the Time Cleanup Costs are Incurred

August 2010

On July 22, 2010, the Ninth Circuit held in State of California Department of Toxic Substances Control v. Hearthside Residential Corporation, Case No. 09-55389, that “owner and operator” status for the purpose of determining cleanup liability under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or the “Act”) is determined at the time cleanup costs are incurred as opposed to when a cost recovery lawsuit is filed.

In 1999, Hearthside Residential Corporation (“Hearthside”) bought an undeveloped tract of wetlands called the Fieldstone Property, which it knew to be contaminated with polychlorinated biphenyls (“PCBs”). In 2002, Hearthside entered into a consent decree with the State of California Department of Toxic Substance Control (“DTSC”), agreeing to remediate the contamination. DTSC determined that an adjacent residential parcel, called the Residential Site, was also contaminated with PCBs that had migrated from the Fieldstone Property and that Hearthside was responsible for remediating the Residential Site in addition to the Fieldstone Property. Hearthside, however, denied responsibility for the Residential Site and limited its remediation to the Fieldstone Property. DTSC certified the Fieldstone Property cleanup as complete in 2005 and Hearthside subsequently sold the property to the California State Lands Commission.

As a result of Hearthside’s refusal to clean up the Residential Site, DTSC conducted the remediation and, in 2006, filed a complaint against Hearthside seeking reimbursement of its costs. DTSC maintained that Hearthside was liable for these costs as an “owner” of the Fieldstone Property at the time of the Residential Site cleanup. Hearthside countered that it was not liable as an “owner” because such status should be determined at the time a recovery suit is filed, which would make the California State Lands Commission the “owner” for CERCLA liability purposes. The District Court granted partial summary judgment in favor of DTSC on the issue of Hearthside’s status as an owner and operator. The Ninth Circuit agreed to hear the case, as it presented an issue of first impression.

CERCLA’s definition of “owner” does not specify the date on which ownership is determined. Relying on CERCLA’s statute of limitations, as well as the general purposes of the Act, the Ninth Circuit held that ownership should be determined at the time cleanup costs are incurred. The statute of limitations is triggered by either the completion of a removal action or the initiation of an on-site remedial action. Because the statute of limitations is tied to the time of cleanup, the Ninth Circuit found it reasonable to assume that Congress meant the owner of the property at the time of cleanup to be the “current owner” for purposes of CERCLA liability. The Ninth Circuit also reasoned that because CERCLA encourages swift remediation, it would be contrary to the purpose of the Act to adopt Hearthside’s interpretation of owner liability in that it would encourage an owner to delay remediation in order to find a new buyer of the property before a lawsuit is filed. Moreover, a rule that measures ownership from the time a lawsuit is filed requires a lawsuit to determine owner liability, which would encourage litigation instead of early settlement between potentially responsible parties.

The Ninth Circuit’s holding clarifies the scope of owner/operator liability by establishing that owner liability is determined at the time cleanup costs are incurred. The decision also reaffirms that CERCLA should be interpreted in a manner that encourages and expedites environmental cleanup.

The information in this newsletter is not intended to provide specific legal advice. You should consult with an attorney and not rely on any information contained herein regarding your specific situation.