Jenner & Block

Environmental Cost Recovery & Lender Liability Update Resource Center

As a service to Jenner & Block's clients and the greater legal community, the Firm's Environmental, Energy and Natural Resources Law practice maintains this online resource center that offers the latest case law and other developments in Environmental Cost Recovery & Lender Liability.

Please also visit the Firm's Corporate Environmental Lawyer Blog for current developments in this area.

Jenner & Block will update this web page with new developments and items of interest as they become available.  For further information, please contact Partner Gabrielle Sigel.

CERCLA Case Law Developments

Employer Not Responsible for Contamination Caused by Employee at Personal Property

On November 9, 2011, the United States District Court for the District of Minnesota dismissed claims brought by the current owners of contaminated property against the former employer of a person who caused contamination by removing PCB-containing materials from work and disposing of them on his personal property. Lancaster v. Northern States Power Co., 2011 U.S. Dist. LEXIS 130128 (D. Minn. Dec. 9, 2011). The court found that there was no basis to find the former employer liable under federal or state law.

Axicor Trihus worked for Xcel Energy as an electrical engineer and then retired. Trihus and his wife owned property located in Roseville, Minnesota and at some point, Mr. Trihus transported and disposed of PCB-containing capacitors onto this property. After Mr. Trihus died, Mrs. Trihus asked Xcel to remove electrical equipment, including the capacitors, from the property. In late 2009 or early 2010, Xcel removed the capacitors and took soil samples and pictures at the property. Xcel also contacted the police and reported that Mr. Trihus had removed capacitors from his workplace and stored them at his property. The police officer’s report listed Xcel as the “Responsible Party/Property Owner.”

The Lancasters purchased the property from Mrs. Trihus on January 4, 2010. The purchase agreement required Mrs. Trihus to complete a statement disclosing all material facts of which she was aware that could adversely and significantly affect the Lancasters’ use and enjoyment of the property. Mrs. Trihus did not mention the capacitors in her disclosure statement. After Xcel removed the capacitors from the property, Xcel wrote to the Lancasters indicating that during the removal it observed a tar-like substance, which it later determined to be PCBs, leaking from a capacitor. Additional testing revealed that PCBs were located in other areas of the property.

The Lancasters sued Xcel, alleging violations of CERCLA, the Minnesota Environmental Response and Liability Act (“MERLA”), and various state laws. The Lancasters alleged that the capacitors caused the property to lose substantial value and that they suffered substantial economic, physical, and emotional damages because of the presence of the PCB-laden capacitors on the property. Xcel argued that the Lancasters failed to plead sufficient facts to sustain any of their claims against Xcel and moved for dismissal.

The court noted that each of the Lancasters’ claims rests on the assertion that Xcel was responsible for the capacitors that Mr. Trihus transported to his property. The court found, however, that the Lancasters failed to allege facts indicating how Mr. Trihus came to possess the capacitors or supporting their assertion that Xcel knew about or was involved with the transport of the capacitors to the property. Furthermore, the court noted that the Lancasters failed to allege facts supporting their claims that Xcel owed a duty to them or that Mr. Trihus transported the capacitors in the scope of his employment with Xcel. For these reasons, the court found that the Lancasters failed to allege that Xcel is a “covered person” under CERCLA or MERLA. The court noted that, according to statute, the fact that the Minnesota public safety agency named Xcel as the Responsible Party/Property Owner is not conclusive evidence of Xcel’s liability. These factual deficiencies and failure to allege a duty by Xcel to the Lancasters led the court to dismiss all claims, including those alleging that Xcel failed to supervise or train Mr. Trihus.

RCRA Case Law Developments

RCRA and CWA Claims Can Be Based on Current Discharges and Hazards from Past Contamination

On November 14, 2011, the United States District Court for the Northern District of California denied motions to dismiss claims under the Resource Conservation and Recovery Act (“RCRA”) and the Clean Water Act (“CWA”) which alleged current liability solely arising from past operations and past disposals at a site, which allegedly led to current discharges and hazards. Northern California River Watch v. Honeywell Aerospace, 2011 U.S. Dist. LEXIS 131132 (N.D. Cal. Nov. 14, 2011).

Until 1972, property at 511 O’Neill Avenue in California was used by a solvent recycling and sales company. In 1985, it was purchased by a predecessor of Honeywell International, Inc. (“Honeywell”). In 1990, volatile organic compounds (“VOCs”) were found in the groundwater at the property. The members of the non-profit group Northern California River Watch (“NCRW”) live, work, own property or recreate in the vicinity of the property. NCRW contends that Honeywell previously discharged pollutants into the surface and groundwater at the property, and continue to discharge waste there without a CWA permit and caused contamination presenting an imminent and substantial endangerment. In October 2010, NCRW sent Honeywell two letters, one noticing non-compliance with RCRA and the other noticing non-compliance with the CWA, beginning October 2005 and continuing thereafter. The RCRA letter also included a notice of intent to commence litigation against Honeywell regarding its use and storage of solvents and operations at the site and alleged that Honeywell was “guilty of open dumping.” Honeywell, 2011 U.S. Dist LEXIS 131132 at *2. The CWA letter provided Honeywell with notice of NCRW’s intent to sue because “former point sources from the site continue to discharge pollutants to Belmont Creek” without a permit. Those point sources were tanks and other vessels removed from the site and hazardous waste previously disposed of on the site.

In July 2011, NCRW commenced this action alleging Honeywell’s violations of RCRA and CWA. Honeywell moved to dismiss the complaint for lack of subject matter jurisdiction and failure to state a claim. First, Honeywell argued that NCRW’s RCRA and CWA letters did not provide it with enough notice to conform its behavior to the law. The court noted, however, that the notice letters specifically stated that Honeywell’s activities at the property caused solvent contamination of soil and groundwater, identified chemicals of concern, and stated that the contaminating and unpermitted discharge activities occurred within a specific five year period and continues to occur.  The court found that the letters were adequate to put Honeywell on notice and give it an opportunity to cure the problems the letters described.

Next, Honeywell argued that NCRW failed to state RCRA and CWA claims, as a matter of law. As for the first RCRA claim, the court found that NCRW pled sufficient facts because it alleged that defendants were responsible for discharges of pollutants into soil, groundwater and surface water; that these discharges caused public danger; and that toxin levels remain high enough to continue to create danger. Because NCRW pled that the contamination and danger were ongoing, the court found that NCRW sufficiently alleged a condition which may present an imminent and substantial endangerment due to discharges from Honeywell’s past ownership or operation of pipes, sewer lines and other drainage systems, allegedly in violation of RCRA’s waste disposal requirements.

As for plaintiffs’ CWA claim, the court noted that NCRW incorporated its notice letter into the complaint, which specified pollutants and point sources and alleged ongoing discharges without an NPDES permit. Therefore, the court rejected Honeywell’s arguments that NCRW failed to allege ongoing discharges as required by the CWA and failed to provide facts to support its claim. The court specifically accepted plaintiffs’ assertion that waste discharged from old, now-removed point sources could be a current point source triggering potential CWA liability.

Therefore, the court determined that NCRW adequately pled its RCRA and CWA claims and denied Honeywell’s motion to dismiss.

State Case Law Developments

Government Responsible for Cleanup Costs Under State Laws For WWII Contamination

On October 31, 2011, the United States Court of Federal Claims held that the U.S. government is responsible for the costs of cleanup of World War II aviation gas (“avgas”), a “superfuel” used to provide speed and power to airplanes. Exxon Mobil Corp. v. United States, 2011 U.S. Claims LEXIS 2106 (Fed. Cl. Oct. 31, 2011).

During World War II, the United States required large amounts of 100-octane avgas and contracted with Baytown and Baton Rouge refineries, predecessors to ExxonMobil Corp. (“Exxon”), for the production and supply of avgas. Both refineries produced excess amounts of avgas, which resulted in waste and by-products. During the war, the Defense Supply Corporation (“DSC”) was charted by the U.S. government to oversee and enter into contracts for the production of avgas. The “Taxes” clause of those contracts called for the U.S. to pay any “new or additional taxes, fees or charges . . . which [the refineries] may be required by any . . . law to pay by reason of the production, manufacture, sale or delivery of the avgas.”

In February 1987, the Louisiana Department of Environmental Quality (“LDEQ”) issued a corrective action order directing Exxon to conduct environmental cleanup at the Baton Rouge refinery. On March 15, 1995, the Texas Natural Resources Conservation Commission (“TNRCC”) issued an agreed order instructing Exxon to clean up contaminated areas at the Baytown refinery. Exxon has incurred environmental cleanup costs for both sites and has submitted documents to the U.S. General Services Administration (“GSA”) for reimbursement of environmental cleanup costs incurred in the performance of the contracts. GSA has neither responded to Exxon’s claims nor reimbursed Exxon for any costs. Exxon and the U.S. cross-moved for summary judgment on the government’s liability for cleanup costs under these state programs.

The issue before the Court of Federal Claims was whether the government breached its contract with Exxon, specifically the “Taxes” section, by refusing to reimburse Exxon for environmental response charges incurred due to avgas production. Exxon argued that the government is liable for the costs because the court previously held that the term “charges” in the “Taxes” section includes environmental cleanup costs. See Shell Oil Co. v. United States, 93 Fed. Cl. 439 (Fed. Cl. 2010). The government claimed that it is not liable for the cleanup costs, raising the same arguments that it raised, and lost, in Shell. In addition, the court found that the government could not avoid summary judgment by raising an issue as to the excess amount of waste at these refineries because the government knew when it entered into the avgas contracts that waste would occur during production.

The court held in favor of Exxon, noting that environmental costs are exactly the type of charges that the “Taxes” section of the DSC’s contracts intended to cover. While Shell addressed indemnity for the manufacturer’s liability under CERCLA, the court found that the government’s same unlimited indemnity obligation applied to Exxon’s liability under state environmental laws.

New York: No Judicial Determination of Liability Necessary for Environmental Lien Under NY Oil Spill Law

On November 3, 2011, the Supreme Court of New York, Appellate Division, held that an environmental lien could be placed on contaminated property under the N.Y. Oil Spill Act prior to any judicial determination of liability against the property owner. State of New York v. Getty Petroleum Corp., 2011 N.Y. App. Div. LEXIS 7604 (N.Y. App. Div. Nov. 3, 2011).

In 2002, M & A Realty, Inc. (“M & A”) purchased a gas station property, which had been cleaned up by the state several decades earlier. In 2003, after M & A’s purchase, petroleum was detected in monitoring wells, which the state asserted was a new release but which M & A attributed to discharges from spills prior to its ownership. The state incurred cleanup costs from 2003 to 2009. The state then sued M & A for strict liability under the N.Y. Oil Spill Act.

M & A sought summary judgment on its counterclaim challenging the state’s lien procedures. The court first rejected M & A’s argument that the lien provisions, by their plain language, require a judicial determination of liability before a lien can be attached. The court found that the statute’s reference to “liability” as the basis for a lien, as opposed to “potential liability,” did not mean that a judge must first find that a property owner is liable before it can be subject to a lien. The court then rejected M & A’s argument that the lien was an unconstitutional violation of its due process rights. The court found that because M & A had an opportunity for prompt review of its liability, either in the state’s pending suit to recover costs or in a separate action to vacate the lien, the Oil Spill Act’s procedures for attaching a lien for the state’s cleanup costs are not a violation of M & A’s due process rights.

Insurance Case Law Developments

Insured Covered for Disposal at Recycling Center Because of Ambiguous Exclusion

On November 3, 2011, the United States District Court for the Eastern District of California held that an insured could get coverage for contaminated debris it deposited at a recycling center because the policy’s exclusion for non-owned site disposal was ambiguous. Sierra Recycling & Demolition, Inc. v. Chartis Specialty Insurance Company, 2011 U.S. Dist. LEXIS 127354 (E.D. Cal. Nov. 3, 2011).

Chartis Specialty Insurance Company (“Chartis”) issued a 2009-2010 policy to Sierra Recycling & Demolition, Inc. (“Sierra”) that provided coverage for damage resulting from pollution conditions caused by Sierra’s work. In the course of its work, Sierra transported construction debris to the Metropolitan Recycling Center (“MRC”). Sierra was responsible for removing hazardous substances from the debris before turning it over to MRC. In December 2009, sampling of the debris at MRC indicated elevated levels of lead and zinc, for which MRC blamed Sierra. Sierra submitted a claim for insurance coverage to Chartis, which the insurer denied. On February 10, 2011, Sierra filed a complaint against Chartis in the Superior Court of California for breach of contract and breach of the duty of good faith and fair dealing, which case was moved to federal court. Sierra and Chartis both moved for summary judgment on the breach of contract claim.

The legal issue for the court was whether an exclusion in the insurance policy, Exclusion u for Non-Owned Site Disposal, bars Sierra’s claim. Exclusion u states that the policy does not apply to “. . . damage arising from the final disposal of material and/or substances of any type (including but not limited to any waste) at any site or location which is not owned, leased or rented by [Sierra].” Sierra, 2011 U.S. Dist. LEXIS 127354 at *2. Sierra and Chartis disputed the meaning of the term “final disposal,” which is not defined in the policy. Sierra argued that the exclusion does not bar its claim because the term “final disposal” means only the final disposal of material such as in landfills, while Chartis argued that the exclusion bars Sierra’s claim because the term “final disposal” applies to location where, from Sierra’s perspective, it finally deposited materials, regardless of the final resting place of the materials after Sierra delivered them.

To resolve the dispute, the court considered whether Exclusion u is ambiguous. The court first found that both Sierra’s and its insurer’s different constructions of the exclusion were reasonable. The ambiguity created by these competing constructions was not eliminated by considering the objectively reasonable expectations of the insured. Because exclusionary clauses are interpreted narrowly against the insurer, the court found that Exclusion u cannot preclude Sierra’s claim for breach of contract. Thus, the insurer was required to provide coverage to Sierra for MRC’s claim. Still to be resolved is whether Chartis breached its duty of good faith and fair dealing by denying Sierra’s claim.
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