Cal. Dep't of Toxic Substances Control v. Westside Delivery, LLC, 16-56558

• Decision Date: 27 April 2018
• Docket Number: No. 16-56558,16-56558
• Citation: 888 F.3d 1085
• Parties: CALIFORNIA DEPARTMENT OF TOXIC SUBSTANCES CONTROL, Plaintiff–Appellant, v. WESTSIDE DELIVERY, LLC; and Does 1 through 10, inclusive, Defendants–Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

888 F.3d 1085

CALIFORNIA DEPARTMENT OF TOXIC SUBSTANCES CONTROL, Plaintiff–Appellant,

v.WESTSIDE DELIVERY, LLC; and Does 1 through 10, inclusive, Defendants–Appellees.

No. 16-56558

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 8, 2018, Pasadena, California

Filed April 27, 2018

James R. Potter (argued) and Brian J. Bilford, Deputy Attorneys General; Sarah E. Morrison, Supervising Deputy Attorney General; Xavier Becerra, Attorney General; Office of the Attorney General, Los Angeles, California; for Plaintiff–Appellant.

Emily L. Murray (argued) and Tim C. Hsu, Allen Matkins Leck Gamble Mallory & Natsis LLP, Los Angeles, California, for Defendants–Appellees.

Before: Susan P. Graber, William A. Fletcher, and John B. Owens, Circuit Judges.

GRABER, Circuit Judge:

This case presents a question of first impression in this circuit concerning the reach of the third-party defense in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"): Does a defendant who buys real property at a tax sale have a "contractual relationship" with the previous owner of the property within the meaning of CERCLA? We conclude that it does. Because we also conclude that the previous owner caused contamination "in connection with" its contractual relationship with Defendant Westside Delivery, LLC, we hold that Defendant is not entitled to CERCLA's third-party defense. We therefore reverse the district court's grant of summary judgment to Defendant and remand the case for further proceedings.

FACTUAL AND PROCEDURAL HISTORY¹

From 1949 to 1990, the Davis Chemical Company recycled spent solvents at its facility in Los Angeles, California. One of the company's owners, Ernest A. Davis, owned the property at which the facility was located (the "Davis Chemical Site" or "Site"). In 1986, he conveyed the property to the Ernest A. Davis Separate Property Trust by quitclaim deed. Following Mr. Davis' death, the property passed to the Davis Family Trust.²

In October 1990, Plaintiff, the California Department of Toxic Substances Control, ordered Davis to cease and desist all hazardous-waste-related activities. In 1992, the United States Environmental Protection Agency ("EPA") conducted a preliminary assessment of the Davis Chemical Site and noted that there was "significant spillage." The EPA referred the Site to Plaintiff for further investigation and remediation. A 1996 study conducted by a group of environmental consultants revealed that the soil at the Site contained elevated levels of several hazardous substances. Plaintiff then investigated further and identified former customers of Davis who might be liable for cleanup costs under CERCLA and state law. In 2002, Plaintiff reached an agreement with several of Davis' former customers, requiring those customers to devise a plan to clean up the Site. Plaintiff approved the plan in 2008.

For reasons that are not readily apparent from the record, the plan was not put into effect in 2008. Instead, Plaintiff sought out additional parties that might be responsible for shouldering the cost of cleanup. However, those parties were either unable to pay or had viable legal defenses, forcing Plaintiff to seek out alternative funding for the cleanup effort.

In the meantime, Davis had failed to pay property taxes on the Site, prompting the Los Angeles County Tax Collector to sell the Site at a tax auction in 2009. The Site was not on the list of "Potentially Contaminated Parcels" included in the auction materials, but the list itself noted that it was not exhaustive, and the auction materials warned bidders that the onus was on them to investigate the properties. In August 2009, at the auction, Defendant submitted the highest bid on the Davis Chemical Site. On September 17, 2009, the Tax Collector executed a tax deed to Defendant, conveying title to the Site. Since purchasing the Site, Defendant has not conducted any operations there.

From 2010 through 2015, Plaintiff conducted cleanup efforts at the Site. After finishing the cleanup, Plaintiff sued Defendant under CERCLA, seeking to recover its cleanup expenses. Defendant asserted CERCLA's third-party defense, arguing that it was not liable because the release of hazardous substances at the Site was caused solely by third parties (including Davis) with whom it lacked a "contractual relationship" within the meaning of the statute. The district court agreed with that argument and granted summary judgment to Defendant. Plaintiff timely appealed.

STANDARD AND SCOPE OF REVIEW

We review de novo the district court's grant of summary judgment and the district court's interpretation of CERCLA. Carson Harbor Vill., Ltd. v. Unocal Corp. , 270 F.3d 863, 870 (9th Cir. 2001) (en banc).

Our review of a district court's grant of summary judgment is ordinarily limited to "the record presented to the district court at the time [it granted] summary judgment." Taylor AG Indus. v. Pure–Gro , 54 F.3d 555, 558–59 (9th Cir. 1995). Here, however, because we granted several requests for judicial notice, we consider the materials submitted by the parties in connection with those requests as well as the record before the district court. Lowry v. Barnhart , 329 F.3d 1019, 1024–25 (9th Cir. 2003).

DISCUSSION

Before answering the question whether the purchaser of real property at a tax sale has a "contractual relationship" with the previous private owner of the property within the meaning of CERCLA, we will briefly sketch the outlines of CERCLA and of California's tax-sale system. We also will discuss the role that state law plays in our analysis. We then will address the "contractual relationship" question and the related issue of whether Davis' acts leading to contamination of the Site occurred "in connection with" its contractual relationship with Defendant.

A. Background

1. CERCLA (1980)

"In 1980, Congress enacted [CERCLA] in response to the serious environmental and health risks posed by industrial pollution." Burlington N. & Santa Fe Ry. Co. v. United States , 556 U.S. 599, 602, 129 S.Ct. 1870, 173 L.Ed.2d 812 (2009) (citation omitted). Unlike the Clean Air Act or the Clean Water Act, CERCLA is not a forward-looking regulatory statute that governs regulated entities' polluting activities. Rather, "CERCLA looks backward in time and imposes wide-ranging liability" on parties who are in some way responsible for contaminating a facility.³ Marsh v. Rosenbloom , 499 F.3d 165, 178 (2d Cir. 2007). Relevant to this case, CERCLA allows a state that has responded to a "release" or "threatened release"⁴ of hazardous substances at a facility to recoup its response costs from the owner of that facility, even if the owner had nothing to do with placing the hazardous substances at the facility. Chubb Custom Ins. Co. v. Space Sys./Loral, Inc. , 710 F.3d 946, 956–57 (9th Cir. 2013). What matters is that the state responded to a release or threatened release at a time when the defendant-owner owned the facility. Cal. Dep't of Toxic Substances Control v. Hearthside Residential Corp. , 613 F.3d 910, 911 (9th Cir. 2010).

CERCLA originally provided three affirmative defenses that otherwise-liable parties could assert to escape liability. The defense relevant to this case is the third-party defense:

There shall be no liability ... for a person otherwise liable who can establish by a preponderance of the evidence that the release or threat of release of a hazardous substance and the damages resulting therefrom were caused solely by—

....

(3) an act or omission of a third party other than an employee or agent of the defendant, or than one whose act or omission occurs in connection with a contractual relationship, existing directly or indirectly, with the defendant (except where the sole contractual arrangement arises from a published tariff and acceptance for carriage by a common carrier by rail), if the defendant establishes by a preponderance of the evidence that (a) he exercised due care with respect to the hazardous substance concerned, taking into consideration the characteristics of such hazardous substance, in light of all relevant facts and circumstances, and (b) he took precautions against foreseeable acts or omissions of any such third party and the consequences that could foreseeably result from such acts or omissions[.]

42 U.S.C. § 9607(b)(3).

2. SARA (1986)

In 1986, Congress passed the Superfund Amendments and ReauthorizationAct ("SARA"), Pub. L. No. 99-499, 100 Stat. 1613 (1986). SARA was "aimed at speeding cleanup and forcing quicker action by the EPA." Carson Harbor Vill. , 270 F.3d at 887. SARA added a new type of third-party defense known as the innocent-landowner defense.⁵ Id. Congress added that defense in an odd way: it defined the previously undefined phrase "contractual relationship"—a phrase key to the applicability of the third-party defense—and then set out certain circumstances in which that definition would not be met. Id. The innocent-landowner defense provides as follows:

The term "contractual relationship," for the purpose of section 9607(b)(3)..., includes, but is not limited to, land contracts, deeds, easements, leases, or other instruments transferring title or possession, unless the real property on which the facility concerned is located was acquired by the defendant after the disposal or placement of the hazardous substance on, in, or at the facility, and one or more of the circumstances described in clause (i), (ii), or (iii) is also established by the defendant by a preponderance of the evidence:

(i) At the time the defendant acquired the facility the defendant did not know and had no reason to know that any hazardous substance which is the subject of the release or threatened release was disposed of on, in, or at the facility.

(ii) The defendant is a government entity which acquired the facility by escheat, or through any other involuntary transfer or acquisition, or through the exercise of eminent domain authority by purchase or

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