Because the lead levels exceeded the state’s reporting limits, Carson’s environmental consultants informed the appropriate governmental agencies of their findings. The Regional Water Quality Control Board (RWQCB) assumed the role of lead agency and Carson coordinated its efforts with the RWQCB’s personnel. Carson completed its cleanup of the property and received a closure letter from the RWQCB.

Carson subsequently filed a suit against the Partnership Defendants, the Government Defendants and Unocal seeking to recover the costs of the remedial action as well as the damages arising from its inability to refinance the property.

Active/Passive Disposal

In Carson Harbor, the district court ruled that there was no evidence of a “disposal” during the time the Partnership Defendants owned the property. To reach this conclusion, the district court rejected Carson’s claim that the relatively passive spread of contamination from the tar and slag material into the surrounding soil constituted a “disposal.” In so doing, the district court implied that some active participation in the contamination on the part of the defendants would be necessary in order for liability to be imposed.

The 9th Circuit reversed the district court’s decision and held that the term “disposal” includes passive migration of hazardous waste. As stated above, under CERCLA, former property owners are liable for clean up costs if they owned or operated the property “at the time of disposal of any hazardous substance.” Therefore, the 9th Circuit’s decision hinged on the definition of “disposal” under CERCLA, which incorporates the definition of this term in the Resource Conservation and Recovery Act, 42 U.S.C. Section 6903(3) (RCRA).

As defined in RCRA, the term “disposal” means:

The discharge, deposit, injection, dumping, spilling, leaking or placing of any solid wastes or hazardous waste into or on any land or water so that such solid waste or hazardous waste or any constituent thereof may enter the environment or be emitted into the air or discharged into any waters, including ground water.

In reaching its decision, the 9th Circuit first noted that at least three of these listed terms have well-recognized passive meanings. A hazardous waste may plainly “discharge,” “spill” or “leak” without any active human participation.

The 9th Circuit went on to state its reluctance to adopt a “strained reading” that would limit disposal to active human conduct. In this regard, the 9th Circuit then noted its holding in Kaiser Aluminum & Chemical Co. v. Catellus Development, 976 F.2d 1338 at 1342, (9th Cir. 1992) that ‘disposal’ should not be limited solely to the initial introduction of hazardous substances on a property. Rather, the court stated that, consistent with the overall remedial purpose of CERCLA, ‘disposal’ should be read broadly to include the subsequent movement, dispersal, or release of hazardous substances.

Finally, the court noted that a definition of “disposal” that extends liability to passive migration would be consistent with the wide-liability net cast by CERCLA. The court observed that the categories of potentially responsible parties (also referred to herein as PRPs) under CERCLA are correspondingly broad, “sweeping in parties who may have done nothing affirmatively to contribute to contamination at a site and forcing them to disprove causation as an affirmative defense.” The 9th Circuit concluded that “including as PRPs owners who held land while waste passively migrated through the property is entirely consistent with this liability regime.”

The 9th Circuit further observed that there was very little to distinguish the current owner-plaintiff from the Partnership Defendants, both of whom came into ownership long after the tar and slag material was “actively” disposed on the property. Moreover, the court observed that, if anything, the Partnership Defendants might have a greater duty of care, as they were the property owners while Unocal engaged in its operations on the property. However, under an active reading of the phrase, “at the time of disposal,” the Partnership Defendants would be completely exempt from liability.

A Jurisdictional Split

A jurisdictional split has developed between several Federal Circuit Courts of Appeal regarding the appropriate definition of the word “disposal.” Several Circuits (the 2nd, 3rd and 6th) have developed a definition of the term which does not include the passive migration of wastes, while another (the 4th) has held that even passive migration of hazardous wastes during ownership or operation of a property can constitute “disposal.” The 9th Circuit chose to align itself with the minority view of the 4th Circuit.

In 1996, the 3rd Circuit in United States v. CDMG Realty Co., 96 F. 3d 706 (3d Cir. 1996), found that the definition of “disposal” does not encompass the gradual spreading of hazardous materials already on a property. The 3rd Circuit noted that, in determining the definition of “disposal,” courts have focused on the words “leaking” and “spilling,” which terms should be read to require affirmative human conduct. Therefore, the court concluded that passive migration could not constitute disposal.

A similar result followed in 1997, when the 2nd Circuit in ABB Industrial Systems, Inc. v. Prime Technology, Inc., et al., 120 F. 3d 351 (2d Cir. 1997), held that prior property owners are not liable for the passive migration of waste. The court interpreted the word “disposal” as being “limited to spilling, discharging, leaking etc., and not to passive migration.” In reaching its conclusion, the 2nd Circuit relied heavily on the 3rd Circuit’s decision in CDMG Realty Co.

More recently, in January of 2000, the 6th Circuit in United States v. 150 Acres of Land, 204 F. 3d 698, (6th Circuit 2000), reasoned that the word “disposal” stands for activity that precedes the entry of the hazardous material into the environment. The word “disposal” was compared to the word “release,” which the court stated stands for the actual entry of substances into the environment. The 6th Circuit in 150 Acres held that the term “disposal” therefore requires active human conduct.

These cases contrast dramatically with the 4th Circuit’s 1992 decision in Nurad Inc. v. William Hooper and Sons Company, 966 F. 2nd 837 (4th Cir. 1992), which held that the term “disposal” includes passive migration and held that past owners of contaminated property could be held liable for clean up costs if the contamination passively migrated during their ownership. In Nurad, Hooper, a previous owner of the property in question, placed underground storage tanks (which contained hazardous substances) on a property. The property subsequently changed hands several times. An investment company purchased property knowing of these underground storage tanks and subsequently sold the property to the plaintiff. The Nurad court held that liability could be imposed upon intervening landowners that held the property, but had been involved in neither the original installation or nor in the utilization of the storage tanks.

Conclusion

In adopting a “disposal” standard, which includes passive migration of materials, the 9th Circuit places a much higher burden upon prior landowners and prospective landowners (who are acquiring property for resale) than would have been the case had the 9th Circuit limited the term “disposal” to the “active” conduct of participants. The “passive” standard adopted by the 9th Circuit is broader and potentially will implicate more prior landowners as PRPs than an active standard. This will assist those shopping center owners who are seeking to recover environmental cleanup costs from prior owners.

Further, as passive conditions are often more difficult to identify than “active” events (such as leaking and spilling), the decision makes it more likely that landowners will acquire properties that may (after a subsequent transfer) make them subject to potential liability under CERCLA. Therefore, in light of this decision, even greater caution must be exercised during due diligence prior to purchasing real property for resale.

The 9th Circuit is now considering the decision for en banc review. It is possible that, due to the split between the circuits on this issue, the matter may be appealed to the U.S. Supreme Court.

Mr. Clary is Senior Counsel Los Angeles office. He can be reached at 213-896-2473 or at dclary@hklaw.com

Ms. Mallen is an Associate in our Los Angeles office. She can be reached at 213-896-2454 or at tmallen@hklaw.com