Holders of Possessory Interests in Land are not “Owners” Under CERCLA

March 15, 2011, by Sabrina Wolfson

The Ninth Circuit held yesterday in City of Los Angeles v. San Pedro Boat Works that permittees, easement holders, licensees and other holders of mere possessory interests are not “owners” for purposes of liability under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”).

CERCLA imposes liability for environmental contamination on four classes of persons, including any person who owned or operated the facility at the time the hazardous substances were disposed. In City of Los Angeles, the City sued BCI Coca-Cola Bottling Company of Los Angeles ("BCI") for contamination caused by the operation of a boatworks facility in the Port of Los Angeles. The City alleged that BCI’s predecessor-in-interest was liable as an owner under CERCLA because it had held revocable permits to operate the boatworks facility.

As in past CERCLA cases, the Ninth Circuit looked to common law to determine whether BCI’s predecessor-in-interest was an owner under CERCLA. The Court found that under California common law, the holder of a revocable permit holds merely a possessory interest in real property, similar to that of an easement holder or licensee. Because possessory interests are distinct from ownership interests under common law, the Court held that BCI’s predecessor-in-interest was not a former owner of the boatworks, and BCI was not liable for the City’s cleanup costs under CERCLA.

While it is clear from the Court’s holding that owner liability under CERCLA does not extend to easements, licenses and permits, the Court left open the question as to whether owner liability may extend to leases or other property interests less than fee title.

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