Atl. Richfield Co. v. Cent. Valley Reg'l Water Quality Control Bd.

• Decision Date: 13 September 2019
• Docket Number: C086745
• Citation: 41 Cal.App.5th 91,253 Cal.Rptr.3d 888
• Parties: ATLANTIC RICHFIELD COMPANY, Plaintiff and Respondent, v. CENTRAL VALLEY REGIONAL WATER QUALITY CONTROL BOARD, Defendant and Appellant.
• Court: California Court of Appeals Court of Appeals

41 Cal.App.5th 91

253 Cal.Rptr.3d 888

ATLANTIC RICHFIELD COMPANY, Plaintiff and Respondent,

v.CENTRAL VALLEY REGIONAL WATER QUALITY CONTROL BOARD, Defendant and Appellant.

C086745

Court of Appeal, Third District, California.

Filed September 13, 2019

As Modified October 15, 2019

Xavier Becerra, Attorney General, Robert W. Byrne, Assistant Attorney General, Tracy L. Winsor and Russell B. Hildreth, Deputy Attorneys General, for Defendant and Appellant.

Farella Braun + Martel, James H. Colopy, San Francisco, Caroline E. Lee, Russell E. Taylor, San Francisco; Davis Graham & Stubbs and Benjamin B. Strawn for Plaintiff and Respondent.

BUTZ, Acting P. J.

The storied history of mining in California has adverse consequences, among them the discharge of toxic residues from mining sites. Plaintiff Atlantic Richfield Company (ARCO) filed a petition in June 2014 to overturn a March 2014 order of defendant Central Valley Regional Water Quality Control Board¹ (Water Board) that sought to impose liability for remediation of metallic and acidic water pollution from an abandoned mine, the owner of which was the subsidiary of ARCO's predecessors in interest. The trial court granted the petition in January 2018. The Water Board appeals.

The Water Board contends the trial court applied the wrong legal standard to determine whether the ARCO predecessors incurred direct liability for control over activities resulting in the hazardous waste that the mine discharges. We agree that the trial court employed too restrictive a standard in evaluating the evidence, and therefore will reverse and remand for reconsideration of the record under the proper standard.² In light of this disposition, we do not need to address the Water Board's claim that the evidence did not support absolving ARCO even under the narrower standard, or the claim that the evidence established that the ARCO predecessors engaged in mining on their own at the mine before acquiring an interest in the mining company.

FACTUAL AND PROCEDURAL BACKGROUND

Given that we find the evidence was filtered through the wrong legal standard, we do not summarize the entirety of the evidence in the record. We provide a few historical facts before providing the details of the trial court's ruling.

J. R. Walker began developing the Walker Mine in 1909, located to the north of Quincy and Portola in Plumas County. It is within the drainage of a watershed feeding ultimately into the north fork of the Feather River.

The Walker Mining Company took title in 1915 and commenced mining in 1916. At one point in the 1930s, this was the largest copper mine in California.

International Smelting and Refining Company was a wholly owned subsidiary of the Anaconda Copper Mining Company, which later swallowed International in a merger. International/Anaconda acquired a controlling interest in the Walker Mining Company in 1918. Ultimately, ARCO became a successor through Anaconda's merger with an ARCO subsidiary in 1977 and the subsidiary's merger with ARCO in 1981. (See Hudson Riverkeeper Fund, Inc. v. Atlantic Richfield Co. (S.D.N.Y. 2001) 138 F.Supp.2d 482, 484.)

The mine ceased production in 1941 and ceased all operations in 1943, after producing six-million tons of ore. The assets of the Walker Mining Company were sold in bankruptcy proceedings in 1945 and transferred to subsequent owners over the decades; the Water Board reached a settlement with the current owner of the property in 2004, which at present appears to be an inactive and insolvent corporation. By virtue of this and an earlier settlement against a previous owner, the Water Board has a right of access to the property under which it can authorize ARCO to conduct remediation activities.

The mine has 13 miles of flooded underground workings, comprising a total void volume estimated at 543 million gallons. The mine openings and tailings on the site discharge soluble copper and acidic mine drainage into surface waters, at times eliminating aquatic life 10 miles downstream from the mine. In 1987, the Water Board installed a concrete plug at a mine opening that was a primary source of mine leakage, which has eliminated most of the direct discharge but is causing a buildup of contaminated water inside the mine that is leaching into groundwater, and the mining waste on the surface also continues to be a source of water pollution.

The Water Board concluded that the mine and its tailings "have discharged metals and acid mine drainage" into the watershed "from at least the time production ceased in 1941, if not earlier." The ARCO predecessors "concurrently managed, directed, or conducted operations specifically related to the leakage or disposal of waste" in tandem with the Walker Mining Company. The activities "included exploration, ore location, mine development work ..., and removal of ore, all of which directly resulted in the condition of discharge ... at the mine and tailings." This involvement "went well beyond what is normally expected of a ... corporate parent." The Water Board also concluded that the ARCO predecessors directly discharged waste from their own mining activities from 1916 to 1918. It therefore ordered ARCO to investigate and remediate the hazardous waste associated with the Walker Mine.

The trial court stated that the parties had agreed that " United States v. Bestfoods (1998) 524 U.S. 51 [118 S.Ct. 1876 141 L.Ed.2d 43] [ ( Bestfoods ) ] is controlling with respect to potential liability in a parent-subsidiary relationship under the ... federal statutory scheme [analogous] to the water quality and remediation statutes in California ... law." The trial court applied a six-category paradigm to the evidence of mining activity: (1) exploration and ore reserves development; (2) mine development; (3) ore extraction; (4) concentration of desired minerals; (5) new product distribution; and (6) waste disposal. "[ARCO] contends [that its predecessors were] involved in the first two phases of mining, and potentially the third, but [the evidence] falls far short of participati[on] in phase six. [ARCO] argues that because it did not participate in phase six, it cannot be held liable pursuant to Bestfoods. [Water Board] argues any participation in any of the six phases of mining is sufficient to satisfy Bestfoods , and that the evidence here demonstrates that [ARCO] engaged in at least phases one through three, and even supports a finding of participation in phase six." After reviewing several cases applying Bestfoods , the trial court concluded that it must find that the parent corporation "participated in or directed activities specifically involving hazardous waste disposal or environmental regulation compliance," which was limited to evidence connected with category six activities.

Turning to the evidence, the trial court first found insufficient evidence that the ARCO predecessors directly engaged in ore extraction in 1916-1918 and were focused only on "exploration or mine development." With respect to any evidence in connection with the first three categories, "these phases of mining are insufficient to reach Bestfoods liability," and thus the court would "not discuss" such evidence. "Instead, the Court focuse[d] on [Water Board's] arguments that [the ARCO predecessors] directed waste disposal." The court then rejected the Water Board's assertion that the disposal of mine tailings "equates to disposal of hazardous waste," or that the ARCO predecessors directed disposal of this waste or disregarded the contaminated nature of water leaking from the mine. "[ARCO] was not involved in the sixth phase of mining, therefore [ARCO] was not involved in any sort of waste disposal."

DISCUSSION

Central to this case is Bestfoods. Perforce, we digest Bestfoods at some length.

Interpreting the comparable (but not necessarily congruent)³ federal statutory scheme for the abatement of hazardous waste, Bestfoods first discussed derivative liability of a parent corporation for the remediation of a subsidiary's hazardous waste. It noted a parent corporation is ordinarily not liable for the acts of a subsidiary in which it holds stock. ( Bestfoods , supra , 524 U.S. at p. 61, 118 S.Ct. 1876.) The parent nevertheless is subject to derivative liability for discharge of hazardous waste where circumstances are present that would traditionally allow the application of the doctrine of piercing the corporate veil. ( Id. at p. 62, 118 S.Ct. 1876.) A parent may also have direct liability for hazardous waste if it is found to "operate" the activities of the facility responsible for the waste, which is not premised merely on its status as parent. ( Id. at pp. 64-66 & fn. 12, 68, 118 S.Ct. 1876.) In this regard, courts must distinguish between ordinary oversight of the subsidiary and control of its facility's operations. ( Id. at p. 71, 118 S.Ct. 1876.) Actions consistent with an ordinary investor status, such as the monitoring of performance, supervision of finances, or the articulation of general policies are not sufficient. ( Id. at p. 72, 118 S.Ct. 1876.) Under one of the more unusual standards to apply, the degree and detail of the control of the facility must be "eccentric" under the norms of parent control of a subsidiary. ( Ibid. ) The focus is on activities "specifically related to pollution , that is, operations having to with the leakage or disposal of hazardous waste." ( Id. at pp. 66-67, 118 S.Ct. 1876, italics added.)

Water Board contends the trial court erred in narrowing its focus to evidence of eccentric control of category six activities under Bestfoods. We agree.⁴ This disregards the highlighted language in the above quote and undermines the purpose of statutory efforts to remediate hazardous waste: If a parent corporation had its fingerprints all over the activities of a facility that resulted in the spewing of hazardous waste, it does not make sense to insulate it from liability because it eschewed the direction of any efforts the subsidiary might have made...