Overview
In City of Los Angeles v. San Pedro Boat Works, (9th Cir. March 14, 2011) No. 08-56163, the 9th U.S. Circuit Court of Appeals addressed whether the holder of a revocable permit to use real property is an "owner" of that real property for purposes of imposing liability under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). A common sense reading of the statute along with existing California law persuaded the court to rule that a holder of a possessory interest in certain real property cannot be considered an "owner" under CERCLA.
Background
In 1995, the City of Los Angeles discovered that Berth 44 in Los Angeles Harbor was contaminated with a variety of hazardous substances. The city removed the contaminated sediments from the property. The city then sued BCI Coca-Cola Bottling Company of Los Angeles, among others, under CERCLA to recover its cleanup costs. The city alleged that BCI Coca-Cola was an "owner" of the property because the company held a revocable permit to use the property at the time the property was contaminated by others.
CERCLA imposes liability on "any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of." 42 U.S.C. § 9607(a)(2). However, Congress did not clearly define the word "owner" in CERCLA. In short, Congress defines an "owner" as "any person owning a facility." See 42 U.S.C. § 9607(a)(2). In interpreting whether the meaning of the term "owner" under CERCLA included the holder of a possessory interest, the 9th Circuit looked to its decision in Long Beach Unified Sch. Dist. v. Dorothy B. Godwin Cal. Living Trust, 32 F.3d 1364, 1368 (9th Cir. 1994). The decision in Long Beach held that (1) the court should look to the common law – including the law of the state where the land at issue is located – in determining whether a party is an "owner" for purposes of CERCLA liability; and (2) in looking at California case law, the common law definition of "owner" did not include an easement holder.
The Decision
In looking at California case law, the court noted that the state's courts distinguish an ownership interest from a possessory interest and that the holder of a revocable permit has only a possessory interest in the real property governed by the permit. Thus, in applying the common law, the court held that "owner" liability under CERCLA "does not extend to holders of mere possessory interests in land, such as permittees, easement holders, or licensees, whose possessory interests have been conveyed to them by the owners of real property, which owners continued to retain power to control the permittee's use of the real property." The court determined that its construction of "owner" liability best serves Congress' intent in enacting CERCLA because the CERCLA framework holds liable both the passive title owner of real property who acquiesces in another's contamination and the active operator of the facility. As such, "given the permissive standard for operator liability adopted by [the 9th Circuit], 'owner' liability need not be unduly expanded to resolve situations the other liability hook was intended to address."
In so holding, the court rejected the "nebulous and flexible analytical frameworks" applied in the 2nd and 4th Circuits for determining "ownership," which do not "clearly call out what an investor in land can expect and which factors are themselves susceptible to endless manipulation in litigation."
Comment
This decision will decrease the number of owner-defendants that can be named in CERCLA actions in the 9th Circuit. Now, an entity holding a mere possessory interest in a contaminated property is not liable for cleanup costs as an owner of the property. Furthermore, this decision is the first to apply a bright-line rule regarding the definition of an "owner," as opposed to the multifactor tests used in the 2nd and 4th Circuits. Other circuits may begin to follow the 9th Circuit's example.
It is important to note that San Pedro Boat Works did not address CBI Coca-Cola's potential "operator" liability under CERCLA, because it was undisputed that CBI Coca-Cola was not an "operator" of the property. Thus, any operator of a contaminated property that was responsible for the contamination can still be held liable, regardless of its ownership interest.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.