Indian Harbor Ins. Co. v. United States

• Decision Date: 11 January 2013
• Docket Number: No. 2012–5030.,2012–5030.
• Citation: 704 F.3d 949
• Parties: INDIAN HARBOR INSURANCE COMPANY, Plaintiff–Appellant, v. UNITED STATES, Defendant–Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

704 F.3d 949

INDIAN HARBOR INSURANCE COMPANY, Plaintiff–Appellant,

v.UNITED STATES, Defendant–Appellee.

No. 2012–5030.

United States Court of Appeals, Federal Circuit.

Jan. 11, 2013.

Scott A. Schipma, Winston & Strawn LLP, of Washington, DC, argued for plaintiff-appellant. With him on the brief was David C. Romm.

David D'Alessandris, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellee. With him on the brief were Stuart F. Delery, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Franklin E. White, Jr., Assistant Director. Of counsel on the brief was Jonelle Dilley, Trial Attorney, Navy Litigation Office, Office of the General Counsel, United States Department of Navy, of Washington, DC.

Before NEWMAN, LOURIE, and O'MALLEY, Circuit Judges.

O'MALLEY, Circuit Judge.

Indian Harbor Insurance Company (“Indian Harbor”) appeals the final judgment of the Court of Federal Claims dismissing Indian Harbor's Second Amended Complaint. In that complaint, Indian Harbor sought reimbursement under Section 330 of the National Defense Authorization Act of 1993, Pub. L. No. 102–484, Div. A, Title IU, § 330, 106 Stat. 2315, 2371 (Oct 23, 1992), amended by Pub. L. No. 103–160, Div. A, Title X, § 1002, 107 Star. 1547, 1745 (Nov. 30, 1993) (“Section 330”) for environmental cleanup costs associated with the development of property formerly used as a military base. The Court of Federal Claims determined that Indian Harbor failed to identify a “claim for personal injury or property” that triggered the government's duty to indemnify under Section 330, Indian Harbor Insurance Co. v. United States, 100 Fed.Cl. 239, 240 (Fed.Cl.2011) and, thus, dismissed the complaint under Rule 12(b)(6) of its rules. Because we disagree with the trial court's interpretation of the requirements of Section 330, we reverse the decision of the Court of Federal Claims and remand for proceedings in accordance with this decision.

I.

Section 330 requires the Department of Defense to indemnify subsequent owners of former military bases against certain claims arising from environmental contamination:

(a) In general—(1) Except as provided in paragraph (3) and subject to subsection (b), the Secretary of Defense shall hold harmless, defend, and indemnify in full the persons and entities described in paragraph (2) from and against any suit, claim, demand or action, liability, judgment, cost or other fee arising out of any claim for personal injury or property damage (including death, illness, or loss of or damage to property or economic loss) that results from, or is in any manner predicated upon, the release or threatened release of any hazardous substance, pollutant or contaminant, or petroleum or petroleum derivative as a result of Department of Defense activities at any military installation (or portion thereof) that is closed pursuant to a base closure law.

Section 330(a)(1). The right to indemnification extends to any persons or entities that acquire ownership or control of land formerly used as a military installation. Section 330(a)(2). This includes states, state agencies, political subdivisions of a state, and any successor, assignee, transferee, lender, or lessee. Id. Indemnification is not available to entities who contributed to the release of the hazardous contaminants. Section 330(a)(3).

II.

Marine Corps Air Station Tustin (“MCAS Tustin”), a military base in southern California, was scheduled for realignment and closure in 1993 pursuant to the Defense Base Closure and Realignment Act of 1990, 10 U.S.C. § 2687 (2000) ( “Base Closure Act”). In 1992, the City of Tustin, California, was designated as the Local Redevelopment Authority tasked with preparing a plan to receive, reuse, and develop the former base. The base was officially closed in 1999. The Navy, in cooperation with the United States Environmental Protection Agency, the California Environmental Protection Agency Department of Toxic Substances Control (“DTSC”), and the Santa Ana Regional Water Quality Control Board (“RWQCB”), organized an effort to investigate and clean up possible environmental contamination prior to transfer. This work culminated in a certification by the Navy that the base was suitable for transfer.

The Navy then conveyed the base, via quitclaim deed, to the City of Tustin, California on May 13, 2002. Included in the deed were covenants guaranteeing that all necessary remedial action had been or would be taken by the government. Of relevance here, the deed included specific recognition of the government's indemnification duties under Section 330: “2.7 Indemnification Regarding Transferees. The GRANTOR hereby recognizes its obligations under [Section 330].” The City of Tustin selected Tustin Legacy Community Partners, LLC (“TLCP”) as the Master Developer of the acquired property and conveyed and/or leased various portions of the former MCAS Tustin property to TLCP for residential and commercial development. Prior to TLCP's acquisition of the property at issue, TLCP obtained, from Indian Harbor, insurance policy No. PEC0010756 (“TLCP Policy”) providing, inter alia, coverage for certain remediation expenses incurred during development of the TLCP property.

In August 2007, while surface grading certain portions of the TLCP property, TLCP discovered total petroleum hydrocarbon (“TPH”) contamination in the soil. TLCP notified the Navy of the contamination and, in September 2007, TLCP entered into a Voluntary Cleanup Agreement with the DTSC. The stated purpose of the Voluntary Cleanup Agreement was for TLCP “to obtain the best available guidance and technical oversight from DTSC in preparing and implementing a Site Management Plan (“SMP”) and, if warranted, Removal Action Workplan(s).” J.A. 42. Six months later, the RWQCB sent TLCP a letter responding to TLCP's notification regarding petroleum contamination on the site. The RWQCB letter identified threatened contamination and stated:

the contamination at the site must be fully characterized, and appropriate remedial action must be taken. A work plan and time schedule for conducting these activities must be submitted, in accordance with State Water Resources Control Board (SWRCB) Resolution No. 92–49.

J.A. 34. The letter explicitly recognized the ongoing involvement of the DTSC and stated that the RWQCB had “no objection to TLCP continuing the work required by this letter under its existing oversight agreement with DTSC.” Accordingly, the RWQCB directed TLCP to continue working with DTSC staff to “establish appropriate cleanup goals for the soil and groundwater at the TLCP site, for the protection of human health and the environment.” J.A. 34. Discoveries of similar and/or related TPH contaminated soils on certain portions of TLCP property followed in 2007, 2008, and 2009. TLCP submitted its site management plan to DTSC for approval in August 2009. DTSC formally approved the plan, noting that it complied with the requirements of the Voluntary Cleanup Agreement between the parties. Over the next year, TLCP completed the majority of its remediation efforts.

Beginning in 2007, TLCP submitted claims to Indian Harbor under the TLCP Policy seeking reimbursement for costs associated with the remediation of TPH contamination. Indian Harbor complied with its obligations under the policy and, at the time of initiating this action, had reimbursed TLCP an amount in excess of $5,000,000 for costs associated with the remediation of TPH contamination at the former MCAS Tustin. Indian Harbor requested indemnification from the Navy in a letter on July 31, 2009. On April 14, 2010, Defendant issued a final decision denying Indian Harbor's Section 330 Claims.

Indian Harbor subsequently filed suit in the Court of Federal Claims seeking $5,331,872.09, plus interest and any additional amounts proven at trial, pursuant to Section 330. The United States moved to dismiss. Following briefing by the parties, oral argument was held on June 20, 2011. On June 28, 2011, the Court of Federal Claims granted Indian Harbor's unopposed motion to file its First Amended Complaint, which clarified Count II of the Complaint. On July 5, 2011, the Court of Federal Claims granted the Defendant's motion in part, dismissing Count I of Indian Harbor's Complaint on grounds that Indian Harbor failed to allege facts plausibly suggesting the existence of a “claim for personal injury or property damage” as required under Section 330.

In its opinion, the Court of Federal Claims focused on what constitutes “a claim for personal injury or property damage” triggering the government's duty to indemnify under Section 330. Specifically, the court questioned whether the correspondence received by the TLCP from state regulators demanding that the developer remediate the pollution properly constituted a “claim for personal injury or property damage” and, in construing the terms of Section 330, made several interpretive findings. According to the court below, Section 330 only contemplates indemnification where “the owner or developer of a former military property is subject to some action brought against him” by a third-party. Indian Harbor, 100 Fed.Cl. at 243. Thus, a third-party claim for personal injury or property damage, “regardless of how the third-party allegation is denominated (a suit, claim, action, etc.) and regardless of how fully developed it is (a mere demand or a judgment)”, is a necessary predicate for indemnification under Section 330. In addition, the Court of Federal Claims determined that “a straightforward reading dictates that the action brought by the third-party must allege injury to that person or damage to his property.” Id. at 244 (emphases in original). The court provided the examples of a property developer sued by a downstream farmer whose water supply had been contaminated by toxic runoff from the developer's land and a developer...