Cadillac Fairview/California v. Dow Chemical Co.

• Decision Date: 06 August 2002
• Docket Number: No. 99-56641.,99-56641.
• Citation: 299 F.3d 1019
• Parties: CADILLAC FAIRVIEW/CALIFORNIA, INC., Plaintiff, v. DOW CHEMICAL COMPANY, Defendant-third-party-plaintiff-Appellee, v. United States of America, Defendant-third-party-defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

299 F.3d 1019

CADILLAC FAIRVIEW/CALIFORNIA, INC., Plaintiff, v. DOW CHEMICAL COMPANY, Defendant-third-party-plaintiff-Appellee, v. United States of America, Defendant-third-party-defendant-Appellant.

No. 99-56641.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 8, 2001.

Filed August 6, 2002.

COPYRIGHT MATERIAL OMITTED

Jeffrey C. Dobbins, Department of Justice, Environment & Natural Resources Division, Washington, D.C., for the appellant.

Edward W. Warren, Kirkland & Ellis, Washington, D.C., for the appellee.

Appeal from the United States District Court for the Central District of California; Mariana R. Pfaelzer, District Judge, Presiding. D.C. No. CV-83-07996-MRP (Bx).

Before D.W. NELSON, O'SCANNLAIN, and KLEINFELD, Circuit Judges.

OPINION

KLEINFELD, Circuit Judge.

This is a CERCLA dispute about whether the federal government can make a company that discharged pollutants into the soil at the government's direction and under its control during World War II, in a war production plant, pay part of the cost of cleaning them up.

Facts

In 1942, the Japanese had conquered almost all of the world's major natural rubber-producing areas in Southeast Asia. The Germans had perfected a synthetic rubber substitute, Buna-S, which they were manufacturing as quickly as possible at several plants, including the I.G. Farben plant in Auschwitz that used Jewish slaves.¹ American manufacture had been retarded by the Depression, which reduced demand for rubber, and by a cooperative research agreement Standard Oil had made with I.G. Farben in 1927, during the Weimar period.² As a result of the rubber shortage, tires had to be strictly rationed in the United States to preserve rubber for such myriad military uses as truck and aircraft tires and tubes, tank treads, equipment hoses and belts, footwear, medical supplies, life rafts, flotation equipment, barrage balloons, waterproof equipment, landing boats, gas masks and wire insulation.

The war was not going well in 1942, until the Battle of Midway in June. Germany had conquered continental Europe, and Japan had conquered much of the Pacific. Japan invaded and occupied part of the United States, the Attu and Kiska islands in Alaska, from June of 1942 until the terrible Battle of Attu in May of 1943, which took a commitment of 100,000 men and cost 3,829 casualties just in the landing force.³

Then-Senator Truman chaired hearings on why our country was unprepared to meet its critical need for rubber. President Roosevelt established a committee of three, Bernard Baruch as chairman, along with the presidents of Harvard and M.I.T., to investigate and "recommend such action as will produce the rubber necessary for our total war effort."⁴ The Baruch Committee reported that 90% of our prewar sources of natural rubber had been lost to Japan, and we had no substantial synthetic rubber industry.⁵ "Of all critical and strategic materials, rubber is the one which presents the greatest threat to the safety of our nation and the success of the Allied cause.... [I]f we fail to secure quickly a large new rubber supply our war effort and our domestic economy both will collapse."⁶ Baruch told industry representatives that the rubber program would be their job, and that "the bottleneck of the whole program would certainly be butadiene."⁷

Pursuant to this need for synthetic rubber, the government took steps to create, overnight, an industry to produce it. Acting through a series of agencies (referred to here as the "Rubber Reserve"), the government entered into agreements to finance and retain ownership of manufacturing facilities, which private companies would lease from the government and operate in exchange for management fees and royalties. The Rubber Reserve would pay all operating expenses. The companies would provide knowledge, management and use of their patents. The planning emphasized production of Buna-S synthetic rubber. Buna-S was made by attaching (or "polymerizing") molecules of butadiene (made from grain alcohol or petroleum) and styrene (made from ethylene and benzene). Dow Chemical was especially important to the war effort, as it was the only commercial producer of styrene, and therefore the only company able to provide practical experience with styrene production.

This case arises out of a facility in Torrance, California, one of the most important synthetic rubber facilities at the time. Constructed in 1942, the 280-acre facility contained two rubber copolymerization plants (operated by Goodyear and the U.S. Rubber Co. (now Uniroyal), the "Rubber Companies"), a butadiene plant operated by Shell Oil, and a styrene plant operated by Dow Chemical.

In the terminology then used, the Torrance styrene plant was an "agent plant" — not a "contract plant." This meant that Dow agreed to operate the government-owned styrene plant as the "agent" of the United States and "at the expense and risk" of the United States. Dow built the facility, but the Rubber Reserve coordinated all phases of construction and made, approved, or ratified all significant operating decisions. The government owned the land; the government owned the plant; the government owned the raw materials; the government owned the byproducts and wastes; and the government owned the rubber. All activities at the site were subject to unrestricted control by the Rubber Reserve. Dow, as the company with the most expertise managing the facility, was required by its contract with the government to "carry out the orders, instructions, and specifications of Rubber Reserve." The government required monthly reports from Dow that included the volume of residues dumped. Under its contract with the government, Dow was entitled to reimbursement for the expense of waste disposal, so it had no financial incentive to use a cheap but dirty method rather than a clean but expensive method.

The production of rubber created toxic waste. Dow built evaporation ponds for aqueous wastes, such as aluminum chloride sludge, and dug pits for other wastes, such as sulfur and aluminum chloride tars. The government and Dow knew they were polluting the soil and, on account of runoff, the water, but the government made a policy decision not to divert scarce resources from the war effort to stop the pollution. As one government consultant reported:

During this period, it was recognized that some raw and partially processed materials were lost into waste waters leaving the plants, and that some of these substances were causing a stream pollution problem. However, personnel could not be diverted from more pressing objectives to study the complex problems related to waste prevention or treatment — nor could construction materials be secured for such purposes.

Dow subsequently developed better ways to dispose of the waste and closed the disposal pits in 1947.

As part of the operating agreement entered into in 1942, the government signed a broad "hold harmless" agreement, protecting Dow Chemical from any liability to anyone for any damages to property:

It is understood that in the performance of [these] contract[s,] [Dow] shall in no event be liable for, but shall be held harmless by [the United States] against, any damage to or loss or destruction of property (whether owned by [the United States] or others) or any injury to or death of persons, in any manner, arising out of or in connection with the work hereunder....

After the war, in 1948, the operating agreement, with this broad hold harmless clause, was renewed. The Rubber Reserve interpreted this hold harmless agreement in its manual to indemnify Dow for any losses for which the United States would not reimburse Dow for the cost of insurance coverage. During the War, the Rubber Reserve paid a claim for deaths and illnesses of numerous cows from pollution from the plant, based on its interpretation of its obligation to pay pollution damages under its contract with Dow. The government participated in the decision about how to dispose of the sulfur tars, the byproduct of Buna-S production, and, with unrestricted control over what was done, decided that disposal in pits was the best way to do it. Government inspectors and consultants studied Dow's sulfur sludge pits at the Torrance plant and approved them.

Dow operated the facility until 1955, when the Rubber Reserve sold the Torrance facility to Shell Oil. Shell made synthetic rubber there until 1972, when it sold the site. Eventually ownership passed to a developer, Cadillac Fairview/ California, Inc. Most of the plants were demolished, and the site is currently occupied by commercial and industrial facilities.

In 1980, 35 years after the war ended and eight years after rubber production ended, Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).⁸ Under CERCLA, the Environmental Protection Agency (EPA) has broad authority to provide for remediation of sites contaminated by hazardous waste by conducting the cleanup itself or requiring liable parties to do so. Regardless of who performs the cleanup, financial liability lies with the parties responsible for the contamination. CERCLA allows any responsible party to seek contribution from other responsible parties⁹ and allows the district court to equitably apportion cleanup costs among liable parties.¹⁰

In 1983, Cadillac Fairview/California, the developer that bought the site at issue here, sued Dow Chemical, the United States, Shell Oil, and several rubber companies for damages to cover the expenses of investigating the soil pollution, and for an injunction and declaratory judgment. The United States crossclaimed against Dow and the other companies. Dow counterclaimed for indemnity and contribution under CERCLA. The United States settled with the mesne owners after it sold the property and before Cadillac Fairview bought it.

This complex litigation has come before us twice before. We held, in 1988, that Cadillac...