United Artists Theatre Circuit, Inc. v. Reg'l Water Quality Control Bd.

Citation255 Cal.Rptr.3d 796,42 Cal.App.5th 851
Decision Date27 November 2019
Docket NumberA152988
Parties UNITED ARTISTS THEATRE CIRCUIT, INC., Plaintiff and Appellant, v. REGIONAL WATER QUALITY CONTROL BOARD, San Francisco Region, Defendant and Appellant; Moonlite Associates LLC, Real Party in Interest.
CourtCalifornia Court of Appeals

Hogan Lovells US, Scott H. Reisch, Katherine B. Wellington, for Plaintiff and Appellant.

Xavier Becerra, Attorney General, Gavin G. McCabe, Mark W. Poole and Marc N. Melnick, Deputy Attorneys General, for Defendant and Appellant.

SIMONS, J.

Under Water Code section 13304,1 a prior owner of property may be required to participate in the cleanup of wastes discharged from its property that resulted in ground water contamination, if that person "caused or permitted" the discharge. The San Francisco Bay Regional Water Quality Control Board (Regional Board) named United Artists Theatre Circuit, Inc. (UATC) in a section 13304 cleanup order addressing waste discharges from dry cleaning operations at a shopping center owned by UATC in the 1960s and 1970s. UATC filed a petition challenging its inclusion in the order, and the trial court concluded the Regional Board had erred.

On appeal, both the Regional Board and UATC agree that the word "permitted" contains a knowledge component, but they disagree on the degree of knowledge required to establish a prior owner’s liability for a cleanup resulting from a tenant’s activities. Furthermore, UATC argues that even if it would otherwise be subject to a cleanup order, its liability was discharged in a bankruptcy reorganization proceeding commenced in the year 2000. Each of these matters are issues of first impression in California.

As to the knowledge component of "permitted," we adopt a standard that focuses on the landlord’s awareness of a risk of discharge: a prior owner may be named in a section 13304 cleanup order upon a showing the owner knew or should have known that a lessee’s activity created a reasonable possibility of a discharge into waters of the state of wastes that could create or threaten to create a condition of pollution or nuisance.2 This test is informed by the Legislature’s express intent to "exercise its full power and jurisdiction to protect the quality of waters in the state." (§ 13000.) We further conclude that, even assuming the Regional Board’s entitlement to a cleanup order was a claim within the meaning of bankruptcy law, it was not discharged in UATC’s bankruptcy proceeding because it did not arise before confirmation of reorganization.

BACKGROUND
Statutory Background

In 1967, the Legislature created the State Water Resources Control Board (State Board) within the Resources Agency; the State Board now resides within the California Environmental Protection Agency. (§ 175; Stats. 1967, ch. 284, § 2.4, p. 1442, eff. Dec. 1, 1967; Governor’s Reorganization Plan No. 1 of 1991, § 192, eff. July 17, 1991, 4 Stats.1991; see also Gov’t Code, § 12080 et seq. ) In 1968, the Assembly Committee on Water suggested that the State Board "establish a task force to develop a comprehensive review of the Water Quality Control Act ...." (Assem. Daily J. (May 13, 1968) pp. 3003–3005.) The State Board responded by convening a Study Panel that produced in March 1969 a report entitled "Recommended Changes in Water Quality Control[:] Final Report of the Study Panel to the California State Water Resources Control Board" (Study Panel Report).3 The report explained that the Study Panel was composed of leaders in relevant fields and representatives of statewide organizations and state agencies "with responsibility or interest in water quality or water quality control." (Study Panel Report, at pp. iv–v.)

The Study Panel Report contained an "Appendix A" consisting of "recommended changes" to several California codes, including the Water Code. (Study Panel Report, March 1969, Appendix A.) Appendix A also included various explanatory notes with respect to particular proposed provisions. In 1969, the Legislature adopted the Study Panel’s recommendations in Assembly Bill 413 (1969 Reg Sess.). (See Stats. 1969, ch. 482, pp. 1045–1088.)4 The changes included replacing Division 7 of the Water Code with a new Division 7, to be known as the Porter–Cologne Water Quality Control Act (Porter–Cologne Act). (Stats. 1969, ch. 482, §§ 17–18, pp. 1051–1052, see § 13020.) An entry in the Assembly Journal makes clear the Legislature’s reliance on the work of the Study Panel. In particular, the Assembly Committee on Water reported that, "Except for the comments set out below, the notes contained under the various sections of Assembly Bill No. 413 as set out in corresponding sections in Appendix A [of the Study Panel Report] reflect the intent of the Assembly Committee on Water in approving the various provisions of Assembly Bill No. 413." (Assembly Journal, May 5, 1969, pp. 2677–2678.)

The Porter–Cologne Act finds and declares "that the people of the state have a primary interest in the conservation, control, and utilization of the water resources of the state, and that the quality of all the waters of the state shall be protected for use and enjoyment by the people of the state." (§ 13000.) The Act further declares "that activities and factors which may affect the quality of the waters of the state shall be regulated to attain the highest water quality which is reasonable, considering all demands being made and to be made on those waters and the total values involved, beneficial and detrimental, economic and social, tangible and intangible." (Ibid. ) Moreover, the Act declares "that the health, safety and welfare of the people of the state requires that there be a statewide program for the control of the quality of all the waters of the state; that the state must be prepared to exercise its full power and jurisdiction to protect the quality of waters in the state from degradation originating inside or outside the boundaries of the state ... and that the statewide program for water quality control can be most effectively administered regionally, within a framework of statewide coordination and policy." (Ibid. ; see also City of Burbank v. State Water Res. Control Bd. (2005) 35 Cal.4th 613, 619, 26 Cal.Rptr.3d 304, 108 P.3d 862 ( Burbank ); San Diego Gas & Electric Co. v. San Diego Regional Water Quality Control Bd. (2019) 36 Cal.App.5th 427, 434–435, 248 Cal.Rptr.3d 496 ( San Diego Gas & Electric ); Building Industry Assn. of San Diego County v. State Water Resources Control Bd. (2004) 124 Cal.App.4th 866, 875, 22 Cal.Rptr.3d 128 ( Bldg. Indus. Assn. of San Diego ).)

The Porter–Cologne Act directs the State Board to "formulate and adopt state policy for water quality control" and identifies and describes nine regional water quality control boards. (§§ 13140, 13200, 13201.) "[T]ogether the State Board and the regional boards comprise ‘the principal state agencies with primary responsibility for the coordination and control of water quality.’ (§ 13001.)" ( Burbank , supra , 35 Cal.4th at p. 619, 26 Cal.Rptr.3d 304, 108 P.3d 862.) Among the various powers of the regional boards is the power to issue a waste "cleanup and abatement order." ( § 13304.) Section 13304, subdivision (a) currently5 provides in part, "A person who has discharged or discharges waste into the waters of this state in violation of any waste discharge requirement or other order or prohibition issued by a regional board or the state board, or who has caused or permitted, causes or permits, or threatens to cause or permit any waste to be discharged or deposited where it is, or probably will be, discharged into the waters of the state and creates, or threatens to create, a condition of pollution or nuisance, shall, upon order of the regional board, clean up the waste or abate the effects of the waste, or, in the case of threatened pollution or nuisance, take other necessary remedial action, including, but not limited to, overseeing cleanup and abatement efforts." A "regional board may expend available moneys to perform any cleanup, abatement, or remedial work ... that, in its judgment, is required by the magnitude of the endeavor or the urgency for prompt action to prevent substantial pollution, nuisance, or injury to any waters of the state." ( § 13304, subd. (b)(1).) In that event, "the person or persons who discharged the waste, discharges the waste, or threatened to cause or permit the discharge of the waste ... are liable to that governmental agency to the extent of the reasonable costs actually incurred in cleaning up the waste, abating the effects of the waste, supervising cleanup or abatement activities, or taking other remedial action." ( § 13304, subd. (c)(1).)

The Porter–Cologne Act authorizes persons aggrieved by actions of a regional board to "petition the state board to review such action." (§ 13320, subd. (a); see also Barry , supra , 194 Cal.App.3d at p. 171, 239 Cal.Rptr. 349.) The State Board’s decision may be reviewed in the superior court by way of a petition for writ of mandate. (§ 13330.)

The Shopping Center and Dry Cleaner

The Moonlite Shopping Center (the Center) is located on El Camino Real in Santa Clara, California. The Center has several large tenant spaces and twenty-five smaller tenant spaces. Saratoga Creek is located to the east of the Center.

UATC (then United California Theaters, Inc.) began construction of the Center in 1960 and it opened in 1962. UATC owned the Center until 1975, and was the master lessor until 1978. Real party in interest Moonlite Associates, LLC (Moonlite) has owned the Center since 1977.

For 35 years, from 1962 until 1997, a drycleaner (Moonlite Cleaners) continuously operated at the Center, under a number of different owners. The dry cleaner used "transfer" machines that used perchlorethylene (aka "tetrachloroethylene" and "PCE") as the cleaning solvent. The machines, which were effectively banned in 1998,...

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