Commander Oil Corp. v. Barlo Equip. Corp.

• Decision Date: 19 October 1999
• Docket Number: Docket Nos. 98-7975
• Citation: 215 F.3d 321
• Parties: (2nd Cir. 2000) COMMANDER OIL CORP., Plaintiff-Counter-Defendant-Appellee-Cross-Appellant, v. BARLO EQUIPMENT CORP., Defendant-Appellant-Cross-Appellee, ADVANCE FOOD SERVICE EQUIPMENT ET AL., Defendants-Counter-Claimants, JACKSON STEEL PRODUCTS, INC. and SLATER ELECTRIC, INC., Defendants-Counter-Claimants-Third-Party Plaintiffs, DIE MATIC PRODUCTS, INC., Defendant-Cross-Claimant, M.V. BARMED, INC. and JACKSON ACQUISITION CORP., Third-Party Plaintiffs, JOHN J. BERNANSKY ET AL., Third-Party Defendants, AMPEREX ELECTRONIC CO. ET AL., Defendants, ROBERT PASLEY and PASLEY SOLVENTS & CHEMICALS, INC., Defendants-Cross-Defendants. (L), 98-9075(xap) August Term 1999
• Court: U.S. Court of Appeals — Second Circuit

Page 321

215 F.3d 321 (2nd Cir. 2000)

COMMANDER OIL CORP., Plaintiff-Counter-Defendant-Appellee-Cross-Appellant, v. BARLO EQUIPMENT CORP., Defendant-Appellant-Cross-Appellee, ADVANCE FOOD SERVICE EQUIPMENT ET AL., Defendants-Counter-Claimants, JACKSON STEEL PRODUCTS, INC. and SLATER ELECTRIC, INC., Defendants-Counter-Claimants-Third-Party Plaintiffs, DIE MATIC PRODUCTS, INC., Defendant-Cross-Claimant,

M.V. BARMED, INC. and JACKSON ACQUISITION CORP., Third-Party Plaintiffs,

JOHN J. BERNANSKY ET AL., Third-Party Defendants,

AMPEREX ELECTRONIC CO. ET AL., Defendants,

ROBERT PASLEY and PASLEY SOLVENTS & CHEMICALS, INC., Defendants-Cross-Defendants.

Docket Nos. 98-7975(L), 98-9075(xap)

August Term 1999

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Argued October 19, 1999

Decided: June 12, 2000

Appeal and cross-appeal from a judgment of the United States District Court for the Eastern District of New York (Jacob Mishler, J.), imposing CERCLA liability on Barlo Equipment Corp. as an "owner" within the meaning of 42 U.S.C. §9607(a)(1) because of its status as a sublessor of contaminated property; apportioning liability on that basis; granting Barlo leave to amend its answer to plead a statute of limitations defense; and granting Barlo's partial summary judgment motion on Commander Oil's state-law claims. We hold that Barlo is not an "owner" within the meaning of CERCLA and therefore REVERSE the judgment of the district court to the extent that it was in Commander Oil's favor; otherwise, we AFFIRM the judgment of the district court.

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DAVID JACOBY, ESQ., MARTIN B. WASSER, ESQ., DANIEL KOLKO, ESQ., Phillips Nizer Benjamin Krim & Ballon LLP, New York, N.Y., (J. DAVID MACCARTNEY, Jr., ESQ., MacCartney, MacCartney, Kerrigan & MacCartney, Nyack, New York, on the brief) for Plaintiff-Counter-Defendant-Appellee-Cross-Appellant.

ANDREW J. SIMONS, ESQ., Farrell Fritz, P.C., Uniondale, New York, for Plaintiff-Counter-Defendant-Appellee-Cross-Appellant.

Before: WALKER, CABRANES, and KATZMANN, Circuit Judges.

JOHN M. WALKER, Jr., Circuit Judge:

This dispute requires us to decide whether the lessee of a 75' X 250' parcel of land in Uniondale, New York, may be held liable as an "owner" for purposes of allocating the costs of remediation imposed by the Environmental Protection Agency ("EPA") under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §§ 9601-9675 ("CERCLA").

Defendant Barlo Equipment Corp. ("Barlo") appeals from a judgment of the United States District Court for the Eastern District of New York (Jacob Mishler, Judge), finding it liable under CERCLA to plaintiff Commander Oil Corp. ("Commander Oil") as an "owner" of the parcel by virtue of its status as the parcel's lessee/sublessor. Although we conclude that a lessee may, under some circumstances, be held liable under CERCLA as an "owner," we conclude that, under the circumstances of this case, Barlo was not an "owner" within the meaning of CERCLA. Accordingly, we reverse the judgment of the district court in substantial part.¹

BACKGROUND

In 1963, Commander Oil became the owner of two lots in Nassau County, lots 7A and 7B, after Commander Oil merged with Lawrence J. Bennett, Inc., the lots' record owner. Lot 7A contained office and warehouse space; 7B, the parcel at issue in this case, housed twelve above-ground petroleum storage tanks and was used by Commander Oil as a fuel depot and "throughput" facility at least until 1967. In 1964, Commander Oil leased the office and warehouse space on lot 7A to Barlo, which was in the business of buying, manufacturing, and distributing petroleum-handling equipment. In 1969, Commander Oil leased lot 7B to Pasley Solvents & Chemicals, Inc. ("Pasley"), which used the site to repackage solvents purchased in bulk and to reclaim and revitalize used solvents. Under Pasley's lease, Commander Oil retained the use of three oil storage tanks on lot 7B.

The arrangement at the heart of the present dispute arose in 1972 when Commander Oil consolidated its leases. Under a single new lease, Commander Oil rented both lots 7A and 7B to Barlo, which in turn subleased 7B to Pasley. This arrangement simplified Commander Oil's bookkeeping and also delegated responsibility to Barlo for basic maintenance and payment of taxes on both lots. The nature of the sublease from Barlo to Pasley is fiercely contested. Barlo characterizes itself simply as a rent conduit and the lease and sublease of 7B as a bookkeeping measure implemented entirely at Commander Oil's behest. Barlo claims that the new arrangement did not change the actual relationship between the three parties and that Pasley continued to treat Commander Oil as its lessor. Commander Oil paints a substantially different picture, referring to instances of Barlo's alleged involvement with Pasley's activities on 7B, and to the fact that Barlo derived a profit, albeit a small one, from the sublease arrangement. We need not resolve this dispute, however, because it does not affect the legal result.

In 1981, an investigation by the Nassau County Department of Health ("DOH") led to the discovery of contamination on lot 7B. The DOH referred the matter to the New York State Department of Environmental Conservation, which charged Pasley in Nassau County District Court with violating the Nassau County Fire Prevention Ordinances. Pasley agreed to drain its tanks, remove solvents it had stored on the lot, and vacate the premises.

Six years later, the EPA ordered Commander Oil to conduct an investigation and a feasibility study to determine the extent of the contamination and to propose a plan for its remediation. In 1995, the EPA sought reimbursement from Commander Oil and other defendants for response costs incurred by the federal government in remediating the site. On January 26, 1996, Commander Oil and other defendants entered into a consent decree in which "Commander agreed to design and implement response actions at the site and to reimburse the United States for past and future response costs incurred in connection with the Site." (Consent Decree ¶ 20). In turn, Commander Oil received contribution for these costs from certain defendants, who ultimately settled for $1,849,127.91.

In 1990, Commander Oil filed this action, demanding contribution or indemnification for additional costs from Barlo and Pasley. Commander Oil's complaint seeks, inter alia, indemnification or contribution under CERCLA, contractual indemnification, and damages for various state-law claims including trespass, negligence, nuisance, and waste.

On June 12, 1997, the district court granted partial summary judgment to both Commander Oil and Barlo. For purposes of establishing CERCLA liability, the only contested issue was whether Barlo was an "owner" within the meaning of 42 U.S.C. § 9607(a)(1). The district court held that Barlo was an owner within the meaning of §9607(a)(1) by virtue of its "authority and control" over lot 7B. In so holding, the district court implicitly rejected Barlo's argument that "owner" in §9607(a)(1) means "record owner" and instead ruled that "a lessee who has control over and responsibility for the use of the property is the owner of the property" for CERCLA purposes. The district court also denied Commander Oil's claims for contractual indemnification, permitted Barlo to amend its answer in order to plead a statute of limitations defense to Commander Oil's various state-law claims, and, in the same order, dismissed the claims as time barred.

The district court subsequently held a bench trial to apportion liability as between Barlo, Commander Oil, and Pasley. Following trial, the district court ruled that although Pasley was responsible for all response costs, the costs had to be allocated between Commander Oil and Barlo because Pasley was "financially irresponsible." The district court rejected Commander Oil's request for full indemnification from Barlo under CERCLA on the ground that Commander Oil was not an "innocent landowner" within the meaning of 42 U.S.C. §9607(b)(3). Nevertheless, the district court ruled that Commander Oil could recover 25% of its costs from Barlo under 42 U.S.C. §9613(f)(1). Accordingly, the district court entered judgment against Barlo in the amount of $802,915 plus 25% of "any future restoration costs."

Barlo appeals from that judgment, arguing that its status as a lessee/sublessor did not make it an "owner" within the meaning of CERCLA and that the district court's apportionment of liability was clearly erroneous. Commander Oil cross-appeals claiming that the district court erred in dismissing its claims for contractual indemnification and in permitting Barlo to amend its pleadings to assert a statute of limitations defense to Commander Oil's state-law causes of action.

DISCUSSION

We are called upon in this case to resolve yet another ambiguity within CERCLA's miasmatic provisions. CERCLA creates a regime of broad-ranging liability, permitting the government to recover its remediation expenses directly from parties responsible for pollution, see 42 U.S.C. § 9607(a)(4)(A), and authorizing private parties to pursue contribution or indemnification from potentially responsible parties for expenses incurred responding to environmental threats, see 42 U.S.C.§9607(a)(4)(B). CERCLA creates various categories of potentially responsible parties, one of which is pertinent to this case: owners and operators of facilities. See 42 U.S.C. §9607(a)(1); B.F. Goodrich Co. v. Murtha, 958 F.2d 1192, 1198 (2d Cir. 1992) (delineating potentially responsible parties as: "past and present owners or operators of facilities, transporters of hazardous substances, and those . . . who generate or arrange for the disposal or treatment of hazardous substances"). Absent a showing that one of CERCLA's affirmative defenses applies, liability for owners and operators is strict. See B.F....