Team Enterprises Llc v. Western Inv. Real Estate Trust

• Decision Date: 26 September 2011
• Docket Number: No. 10–16916.,10–16916.
• Citation: 647 F.3d 901
• Parties: TEAM ENTERPRISES, LLC, Plaintiff–Appellant,v.WESTERN INVESTMENT REAL ESTATE TRUST, AKA Western Properties Trust; WPT, Inc., Defendants,andPK II Century Center LP; Pan Pacific Retail Properties, Inc., as a corporation and as successor-in-interest to Western Investment Real Estate Trust; Kimco Realty Corporation, as a corporation and as successor-in-interest to Pan Pacific Retail Properties, Inc.; Prudential Real Estate Investors, as a corporation and as successor-in-interest to Pan Pacific Retail Properties, Inc.; John A. Branagh, individually and as a partner of Modesto Center Investors, LP and MC II, LP; Lynette F. Branagh, individually and as a partner of Modesto Center Investors, LP and MC II, LP; Gaylon C. Patterson, individually and as a partner of 9559 Modesto Center Investors, LP and MC II, LP; Marla J. Patterson, individually and as a partner of Modesto Center Investors, LP and MC II, LP; Modesto Center Investors, LP; MC II, LP; Vulcan Materials Company; Legacy Vulcan Corporation; Multimatic Corporation, now known as Kirrberg Corporation; Multimatic, LLC; The Kirrberg Corporation, FKA Multimatic Corporation; The Dow Chemical Company; R.R. Street & Co. Inc., Defendants–Appellees,v.City of Modesto, Third-party-defendant.
• Court: U.S. Court of Appeals — Ninth Circuit

647 F.3d 901

11 Cal. Daily Op. Serv. 9344

2011 Daily Journal D.A.R. 11,218

2011 Daily Journal D.A.R. 14,614

TEAM ENTERPRISES, LLC, Plaintiff–Appellant,

v.WESTERN INVESTMENT REAL ESTATE TRUST, AKA Western Properties Trust; WPT, Inc., Defendants,andPK II Century Center LP; Pan Pacific Retail Properties, Inc., as a corporation and as successor-in-interest to Western Investment Real Estate Trust; Kimco Realty Corporation, as a corporation and as successor-in-interest to Pan Pacific Retail Properties, Inc.; Prudential Real Estate Investors, as a corporation and as successor-in-interest to Pan Pacific Retail Properties, Inc.; John A. Branagh, individually and as a partner of Modesto Center Investors, LP and MC II, LP; Lynette F. Branagh, individually and as a partner of Modesto Center Investors, LP and MC II, LP; Gaylon C. Patterson, individually and as a partner of 9559 Modesto Center Investors, LP and MC II, LP; Marla J. Patterson, individually and as a partner of Modesto Center Investors, LP and MC II, LP; Modesto Center Investors, LP; MC II, LP; Vulcan Materials Company; Legacy Vulcan Corporation; Multimatic Corporation, now known as Kirrberg Corporation; Multimatic, LLC; The Kirrberg Corporation, FKA Multimatic Corporation; The Dow Chemical Company; R.R. Street & Co. Inc., Defendants–Appellees,

v.City of Modesto, Third-party-defendant.

No. 10–16916.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 13, 2011.Filed July 26, 2011.As Amended on Denial of Rehearing Sept. 26, 2011.

Jan A. Greben, Greben & Associates, Santa Barbara, CA, argued the cause and filed the briefs for the plaintiff-appellant.

With him on the briefs were Jeff G. Coyner and Danielle L. De Smeth, Greben & Associates, Santa Barbara, CA.Eric Grant, Hicks Thomas LLP, Sacramento, CA, argued the cause and filed a brief for the defendant-appellee. With him on the brief was John B. Thomas, Hicks Thomas LLP, Houston, TX.Appeal from the United States District Court for the Eastern District of California, Lawrence J. O'Neill, District Judge, Presiding. D.C. No. 1:08–cv–00872–LJO–SMS.Before: DIARMUID F. O'SCANNLAIN and RONALD M. GOULD, Circuit Judges, and AMY J. ST. EVE, District Judge.^*Opinion by Judge O'SCANNLAIN; Concurrence by Judge ST. EVE.

OPINION

O'SCANNLAIN, Circuit Judge:

We must decide, among other things, whether the manufacturer of a machine used in the dry cleaning process may be held liable for contribution to environmental cleanup costs under the Comprehensive Environmental Response, Compensation, and Liability Act.

I

Plaintiff–Appellant Team Enterprises, LLC (“Team”) has, since 1980, leased space in a shopping center in Modesto, California, where it operates a dry cleaning store. From 1980 to 2004, Team used perchlorethylene (“PCE”), a volatile organic compound defined as a “hazardous substance” by the State of California, in its dry cleaning operation. Team's dry cleaning machines used PCE as part of the cleaning process, thereby generating wastewater containing the chemical. Team used Puritan Rescue 800 filter-and-still combination equipment (“Rescue 800”), designed and manufactured by Defendant–Appellee R.R. Street & Co. Inc. (“Street”), to filter and to recycle the PCE-laden wastewater for reuse. The Rescue 800 returned distilled PCE to Team's dry cleaning machines and deposited the resulting wastewater into an open bucket. Once in the bucket, some of the remaining PCE would separate from the water, allowing Team to recapture “pure” (or visible amounts of) PCE for reuse. The remaining wastewater contained dissolved—and invisible—PCE.

Team disposed of this wastewater by pouring it down the sewer drain. Some of the PCE then leaked into the soil, and the California Regional Water Quality Control Board deemed the affected property in need of cleanup, which Team duly performed at its own expense.

Team sued Street and several other defendants in the Eastern District of California,¹ for contribution under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), 42 U.S.C. §§ 9601– 9675. Team also alleged various state-law causes of action, including claims for trespass and nuisance.

The district court granted summary judgment to Street on all claims and entered final judgment as to it. Team timely appealed the district court's grant of summary judgment as to Team's CERCLA, trespass, and nuisance claims.

II

A

Congress enacted CERCLA in 1980 “in response to the serious environmental and health risks posed by industrial pollution.” Burlington N. & Santa Fe Ry. Co. v. United States, ––– U.S. ––––, 129 S.Ct. 1870, 1874, 173 L.Ed.2d 812 (2009). CERCLA was “designed to promote the timely cleanup of hazardous waste sites and to ensure that the costs of such cleanup efforts were borne by those responsible for the contamination.” Id. (internal quotation marks and citation omitted). The statute imposes strict liability for environmental contamination upon four broad classes of covered persons. ² 42 U.S.C. § 9607(a).

Once identified as a covered person, “an entity ... may be compelled to clean up a contaminated area or reimburse the Government for past and future response costs.” Burlington N., 129 S.Ct. at 1878; see also 42 U.S.C. § 9607(a)(4)(A)-(D) (describing the remediation and cleanup costs for which covered persons may be held liable). CERCLA further provides that a person who has incurred cleanup costs may seek contribution from any other covered person. 42 U.S.C. § 9613(f)(1). Team argues that Street is a covered person because Street allegedly “arranged for disposal” of hazardous substances. The section giving rise to arranger liability provides, in relevant part, that liability shall be imposed on:

any person who by contract, agreement or otherwise arranged for disposal ... of hazardous substances owned or possessed by such person, by any other party or entity, at any facility ... owned or operated by another party or entity and containing such hazardous substances....

42 U.S.C. § 9607(a)(3). Arranger liability ensures that owners of hazardous substances may not free themselves from liability by selling or otherwise transferring a hazardous substance to another party for the purpose of disposal. See Burlington N., 129 S.Ct. at 1878 (“[Arranger] liability would attach ... if an entity were to enter into a transaction for the sole purpose of discarding a used and no longer useful hazardous substance.”). Because there are myriad schemes by which a party may “arrange[ ] for disposal” of a hazardous substance, courts have recognized that determining whether a transaction gives rise to arranger liability is a fact-intensive inquiry. See Cal. Dep't of Toxic Substances v. Alco Pac., Inc., 508 F.3d 930, 938 (9th Cir.2007).

B

Team alleges that Street is subject to arranger liability under two distinct theories: (1) Street took “intentional steps” and “planned a disposal” of PCE, and (2) Street had “authority to control and exercised control over the disposal process.”

In Burlington Northern, the Supreme Court recognized that “CERCLA does not specifically define what it means to ‘arrang[e] for’ disposal of a hazardous substance.” 129 S.Ct. at 1879. Nevertheless, giving the phrase its “ordinary meaning,” the Court explained that “the word ‘arrange’ implies action directed to a specific purpose.” Id. (citing Merriam–Webster's Collegiate Dictionary 64 (10th ed.1993)). Therefore, “an entity may qualify as an arranger ... when it takes intentional steps to dispose of a hazardous substance.” Id. While actions taken with the intent to dispose of a hazardous substance are sufficient for arranger liability, actions taken with the mere knowledge of such future disposal are not. See id. at 1880. As the Court explained,

[w]hile it is true that in some instances an entity's knowledge that its product will be ... discarded may provide evidence of the entity's intent to dispose of its hazardous wastes, knowledge alone is insufficient to prove that an entity “planned for” the disposal, particularly when the disposal occurs as a peripheral result of the legitimate sale of an unused, useful product.

Id. (emphasis added).

In light of the intent requirement, we have long recognized the so-called useful product defense to CERCLA claims. See Alco Pac., 508 F.3d at 934. The defense prevents a seller of a useful product from being subject to arranger liability, even when the product itself is a hazardous substance that requires future disposal. Id. In other words, a person may be subject to arranger liability “only if the material in question constitutes ‘waste’ rather than a useful product.” ³ Id. (citation omitted). A plaintiff can overcome the defense by showing that the substance involved in the transaction “has the characteristic of waste at the time it is delivered to another party.” Id. at 936 (internal quotation marks and citation omitted).

The useful product doctrine serves as a convenient proxy for the intent element because of the general presumption that persons selling useful products do so for legitimate business purposes. It would be odd, for example, to say that an auto parts store sells motor oil to car owners for the purpose of disposing of hazardous waste. Conversely, persons selling or otherwise arranging for the transfer of hazardous waste (which no longer serves any useful purpose) are more likely trying to avoid incurring liability that might attach were they to dispose of the hazardous waste themselves. In other words, the probable purpose for entering into such a transaction is to dispose of hazardous waste.

a

We recognize that the prototypical case applying the useful product doctrine to avoid liability involves a defendant selling products that qualify as hazardous substances, such as pesticides or batteries. See, e.g., Burlington N., 129 S.Ct. at 1870 (sale of pesticides); Alco Pac., 508 F.3d 930(sale of dross and slag); La.-Pac. Corp. v. ASARCO Inc., 24 F.3d 1565 (9th Cir.1994) (sale...