Ninth Circuit Clarifies Scope of Owner/Operator Liability Under CERCLA

July 30, 2010, by Sabrina Wolfson

On July 22, 2010, in State of California Department of Toxic Substances Control v. Hearthside Residential Corporation, the Ninth Circuit held that owner liability under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) is measured from the date cleanup costs are incurred rather than the date the lawsuit seeking reimbursement for cleanup costs is filed.

In this case, Hearthside Residential Corporation (Hearthside) purchased an undeveloped tract of wetlands in 1999 that it knew was contaminated with polychlorinated biphenyls (PCBs). Two years later, Hearthside entered into a consent order with the State of California Department of Toxic Substances Control (DTSC) under which it agreed to remediate its property. Hearthside, however, refused to remediate adjacent residential parcels that DTSC believed had been contaminated by the PCBs on Hearthside’s property. As a result, DTSC contracted to clean up the adjacent parcels itself and incurred cleanup costs between July 2002 and October 2003.

Hearthside completed the remediation of its property in December 2005, and then sold it to the California State Lands Commission that same month. In 2006, DTSC filed a lawsuit against Hearthside under CERCLA seeking reimbursement for the cleanup costs DTSC had incurred to remediate the adjacent parcels. DTSC alleged that Hearthside was liable as an “owner” under CERCLA because Hearthside’s former property was the source of the contamination and Hearthside owned the source property at the time DTSC incurred cleanup costs. Hearthside denied liability, arguing that it was not an “owner” under CERCLA because ownership status is determined at the time the lawsuit is filed, and Hearthside was not the owner of the source property at the time DTSC filed its complaint.

CERCLA is silent as to the date from which ownership is measured. Therefore, the Ninth Circuit looked to CERCLA’s statute of limitations and purpose to determine how ownership should be measured . The Ninth Circuit concluded that measuring ownership at the time cleanup costs are incurred is most consistent with CERCLA’s statute of limitations, which accrues from the time a removal action is completed or a remedial action is initiated on a site, and with CERCLA’s purposes of encouraging responsible parties to clean up property quickly and to achieve an early settlement with environmental regulators.

Since 2001, former property owners were deemed responsible parties under CERCLA only if they owned the property at the time the contamination occurred. Now, under the Ninth Circuit’s holding, former property owners may also be responsible parties if they owned the property at the time cleanup costs were incurred.

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