Fireman's Fund Insurance Company v. City of Lodi, 99-15614.

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Citation302 F.3d 928
Docket NumberNo. 99-15802.,No. 99-15614.,99-15614.,99-15802.
PartiesFIREMAN'S FUND INSURANCE COMPANY, a California corporation, Plaintiff-Appellant, v. CITY OF LODI, CALIFORNIA, Jack Sieglock, in his capacity as Mayor of the City of Lodi; Richard Prima, Jr., in his capacity as Enforcing Officer of Lodi Ordinance No. 1650; Randall A. Hays, individually and in his capacity as Lodi City Attorney; Michael C. Donovan, individually and in his capacity as Lodi Assistant City Attorney; Adam L. Babich, individually and in his capacity as Lodi Assistant City Attorney; Steven H. Doto, individually and in his capacity as Lodi Assistant City Attorney; Bret A. Stone, individually and in his capacity as Lodi Assistant City Attorney; John R. Till, individually and in his capacity as Lodi Assistant City Attorney; Zevnik, Horton, Guibord and McGovern, LLP, individually and in their capacity as Lodi Assistant City Attorneys; Fran E. Forkas, in his capacity as Enforcing Officer of Lodi Ordinance No. 1650, Defendants-Appellees. Unigard Insurance Company, a Washington corporation; Unigard Security Insurance Company, a Washington corporation, Plaintiffs-Appellants, v. City of Lodi, Defendant-Appellee.
Decision Date06 August 2002

Terry J. Houlihan, Bingham McCutchen LLP, San Francisco, California, for plaintiff-appellant Fireman's Fund Insurance Co.

Dennis Zarazoga, Law Offices of Dennis Zarazoga, San Francisco, California, for plaintiffs-appellants Unigard Insurance Company and Unigard Security Insurance Company.

Randall A. Hays, City Attorney, Lodi, California, and Michael C. Donovan and Cecelia C. Fusich, Assistant City Attorneys, Envision Law Group, LLP, Lafayette, California, for the defendants-appellees.

Appeal from the United States District Court for the Eastern District of California; Frank C. Damrell, Jr., District Judge, Presiding. D.C. Nos. CV-98-01489-FCD, CV-98-01712-FCD.

Before: PREGERSON, D.W. NELSON, Circuit Judges and MOSKOWITZ, District Judge.1

PREGERSON, Circuit Judge.

This consolidated appeal of two separate actions requires us to consider the constitutionality of an innovative municipal ordinance enacted by the City of Lodi, California ("Lodi" or "the City") to remedy hazardous waste contamination within its borders. Fireman's Fund Insurance Company ("Fireman's Fund"), Unigard Insurance Company, and Unigard Security Insurance Company ("Unigard") (collectively "the Insurers") appeal from the district court's judgments in favor of Lodi in the Insurers' separate but related actions for declaratory and injunctive relief. Both Fireman's Fund and Unigard filed suit to prevent Lodi from enforcing the local ordinance, named the Comprehensive Municipal Environmental Response and Liability Ordinance ("MERLO" or "the Ordinance"), which permits the City to investigate and remediate the hazardous waste contamination of its soil and groundwater.

The Insurers allege that MERLO is preempted by the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601-9675, and by various state laws including California's Carpenter-Presley-Tanner Hazardous Substance Account Act, ("HSAA"), Cal. Health & Safety ("H & S") Code §§ 25300-25395.15.2 We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

A. The Contamination of Lodi's Water

Lodi first detected the presence of tetrachloroethylene ("PCE"), in its groundwater in April 1989. PCE is a known carcinogen that is often used as a dry-cleaning agent.3

Groundwater is Lodi's sole source of drinking water and the primary source of water for agricultural use in California's Central Valley.

In 1993, the Department of Toxic Substances Control ("DTSC") of the California Environmental Protection Agency began investigating Lodi's PCE contamination. DTSC is the state agency responsible for ensuring that California's public health and environment are protected from the harmful effects of hazardous substances. See Cal. H & S Code §§ 25312, 25313, 25350-25359.8. DTSC is authorized to oversee the cleanup of hazardous waste sites by issuing remedial orders and by entering into agreements with "potentially responsible parties" ("PRPs" or "RPs") to facilitate remediation.

DTSC's investigation revealed that four small businesses were potentially responsible for the PCE-contaminated waste-water that migrated throughout Lodi by land disposal, sewer lines, and city water wells. One business, Lustre-Cal Nameplate Corporation ("Lustre Cal") — a manufacturer of color anodized and etched aluminum nameplates and labels — is insured by defendant Fireman's Fund. Another business Busy Bee Laundry & Cleaners ("Busy Bee") — a dry cleaner — was a tenant of M & P Investments, which is insured by defendant Unigard. As a result of its investigation, DTSC listed the "Lodi Groundwater Site" as a state hazardous waste site beginning in fiscal year 1993-94.4 This is significant because listed sites are subject to the "procedures, standards, and other requirements" of HSAA. Cal. H & S Code § 25356(d). After it listed the Lodi Groundwater Site, DTSC began an HSAA-authorized administrative action against selected PRPs, including Lodi, to address the soil and groundwater contamination.5

B. Lodi's Investigation and Remediation Strategy

In May 1997, Lodi and DTSC entered into a "Comprehensive Joint Cooperation Agreement" ("Cooperative Agreement" or "Agreement").6 Under the Agreement, DTSC and Lodi agree to "coordinate and cooperate in a single and consolidated effort" to timely investigate and remediate the hazardous substance contamination affecting the City. Consistent with this joint effort, DTSC designates Lodi the "lead enforcement entity" in the cleanup of hazardous substances in and around the City. In exchange, Lodi agrees to "actively seek the input ... of DTSC in the settlement of any environmental enforcement actions" brought by the City pursuant to the Cooperative Agreement, and DTSC agrees "not to independently prosecute any claims [against PRPs] without the full cooperation of ... Lodi." Lodi also agrees either to clean up the contamination itself or to compel PRPs to do so.

In furtherance of remediation, the Agreement, at section VI.(A)(1), requires Lodi to:

utiliz[e], as appropriate, the full range of its remedial and regulatory injunctive and cost recovery authority under federal, state and municipal law, to compel the complete, timely, competent, cost-effective performance of the Work in full compliance with federal, state and local law, specifically including the NCP,7 as appropriate. These enforcement efforts will include ... the prompt enactment and enforcement of a comprehensive municipal environmental response ordinance which shall enact into municipal law additional legal authorities to appropriately supplement the City of Lodi's already extensive environmental response authority under federal, state and local law....

(emphasis added). The Agreement further states that DTSC retains its authority under HSAA to oversee Lodi's investigation and remediation efforts, and to review and approve any remediation plan developed by the City.

Lodi acknowledges, as part of the Agreement, that DTSC "may have certain claims against the City of Lodi relating to the released Hazardous Substances, which arise from or relate to the City of Lodi's design, construction, operation or maintenance of the commercial, industrial and residential storm and sanitary sewer systems operated by the City." In light of this acknowledgment, Lodi agrees to reimburse DTSC for past and future response costs not to exceed $1,024,549.55, if those costs are not reimbursed by PRPs as a result of Lodi's investigation and remediation efforts. Nevertheless, Lodi continues to deny being a PRP. Indeed, the Cooperative Agreement between DTSC and Lodi specifically includes a section entitled "No Admission of Liability," in which Lodi expressly disclaims any admission of liability "arising from or relating to the City of Lodi's design, construction, maintenance, or operation of sanitary and storm sewer systems...."

In consideration for Lodi's agreement to reimburse DTSC, DTSC grants Lodi a "covenant not to sue with respect to claims arising from ... Lodi's design, construction, operation or maintenance of any storm or sanitary sewer systems." DTSC also agrees to protect Lodi from contribution actions under CERCLA, 42 U.S.C. § 9613(f)(2), and California's contribution statute, Cal.Code Civ. Pro. § 877, for "matters addressed" in the Cooperative Agreement.

On August 6, 1997, Lodi's City Council enacted the "comprehensive municipal environment response and liability ordinance" as required by the Cooperative Agreement. Ordinance 1650 — commonly known as MERLO — is the subject of this suit. It sets forth a comprehensive remedial liability scheme modeled on CERCLA and HSAA. MERLO specifically provides Lodi with municipal authority to investigate and remediate existing or threatened environmental nuisances affecting the City, and to hold PRPs or their insurers liable for the cost of the City's nuisance abatement activities. See generally MERLO §§ 8.24.010-

In order to facilitate this effort, MERLO: (1) authorizes Lodi to demand the production of documents related to environmental contamination or to any PRP's ability to pay for investigation and abatement, id. § 8.24.050; (2) creates an administrative hearing process subject to judicial review to resolve liability issues, id. at § 8.24.060; (3) authorizes Lodi to initiate municipal enforcement actions against PRPs, id. at § 8.24.080; (4) authorizes Lodi to bring direct actions against...

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