CONTRACTUAL RELATIONSHIPS UNDER CERCLA: RESTORING CERCLA'S INNOCENT LANDOWNER DEFENSE, ONE CIRCUIT AT A TIME.
INTRODUCTION 1077 II. BACKGROUND 1079 A. CERCLA and SARA Amendments 1080 B. Third Party Defense 1081 C. Innocent Landowner Defense 1082 III. CIRCUIT SPLIT 1084 A. Second Circuit 1085 B. Ninth Circuit 1089 1. Westside Delivery Analysis 1090 2. So Does a Tax Deed Really Create a "Contractual 1091 Relationship"? a. One-Transaction View 1092 b. Two-transaction View 1093 c. Ninth Circuit Finds the Existence of Contractual 1093 Relationship Regardless of One or Two Transactions 3. Should a Tax Sale Create the Requisite Contractual 1094 Relationship? IV. NINTH CIRCUIT VIEW IS CORRECT 1096 A. Overview 1096 B. Argument 1098 V. WHY "IN CONNECTION WITH A CONTRACTUAL RELATIONSHIP" 1100 SHOULD NOT BE LIMITED TO ONLY THOSE RELATED DIRECTLY TO CONTAMINATION A Basic Statutory Construction Supports the Ninth Circuit 1101 Reasoning 1. Plain Meaning 1101 2. Purpose 1102 3. Statute as a Whole 1102 B. Loopholes and Anomalous Results Created by the Second 1103 Circuit's Interpretation and Westside Delivery's Reading of CERCLA VI. CONCLUSION 1104 I. INTRODUCTION
The Comprehensive Environmental Response, Compensation, and Liability Act, (1) as amended by the Superfund Amendments and Reauthorization Act (2) (collectively CERCLA), is arguably the closest thing to capitalistic environmental justice in our modern scheme of environmental legislation. Liability is draconian and exceptions are specific and limited. (3) This scheme is supported by the statute's purpose: "to provide for liability, compensation, cleanup, and emergency response for hazardous substances released into the environment and the cleanup of inactive hazardous waste disposal sites." (4) Liability is thus designed to generate remediation and cost recovery, which often exceeds millions of dollars. (5) By forcing polluters to supply considerable funds to remedy their contamination, this statute aims to hit polluters where it counts--in the proverbial pocketbook. Companies have thus sought to avoid CERCLA's reach, and one of the last undecided grounds involves what sort of property acquisition could lead to liability.
CERCLA liability centers on contaminated property and an entity's relationship to that contamination or property. (6) Because property ownership, including acquisition, is the groundwork for liability, several affirmative defenses revolve around the context behind property acquisition. This article will focus on the third party liability defense from CERCLA liability, for when contamination of the property occurs after acquisition, (7) and the innocent landowner defense, for when the property was already contaminated at the time of purchase. (8) The innocent landowner defense in particular asks if the purchase of the contaminated property involved a contractual relationship between the former, polluting landower and the present owner. (9) Following the Ninth Circuit's recent opinion in California Department of Toxic Substances Control [upsilon]. Westside Delivery, (10) a clear, if perhaps subtle, circuit split arose on the issue of what satisfies the "in connection with a contractual relationship" language under CERCLA's often unforgiving structure of strict liability. (11) This language is important because it establishes whether a defendant landowner has the requisite relationship to a previous polluting landowner such that the current owner is liable for the previous owner's contamination. (12) The Ninth Circuit opinion directly and openly refuted the Second Circuit's holding in Westwood Pharmaceuticals, Inc. v. National Fuel Gas Distribution Corp. (13) The Second Circuit's holding had gone undisturbed for over 20 years. (14) Unlike the Second Circuit's cases, which involved traditional property contracts, the Ninth Circuit faced a much narrower issue in Westside Delivery. In that case, the previous owner was a government entity that transferred the property through a state-run tax sale. (15) This is important because of an express carveout for government entities that acquire contaminated property involuntarily. (16) This carveout exempts government entities from status liability as a landowner based on the involuntary nature of its acquisition of contaminated property. (17) One could thus interpret the Westside Delivery rationale to apply only in those circumstances. However, the language of the Westside Delivery opinion is much broader and would clearly reach both involuntary and voluntary transfers. (18)
In finding that the property transaction at issue in Westside Delivery did not qualify for the third party liability defense, the Ninth Circuit correctly determined that the Second Circuit's holding was untenable. (19) The Second Circuit essentially rendered the "innocent landowner" defense superfluous based on its interpretation of the statutory language "in connection with a contractual relationship." (20) The innocent landowner defense is an alternative type of third party liability defense because it applies in limited circumstances to a current owner whose land was contaminated by a previous owner. (21) The "in connection with a contractual relationship" language found in CERCLA should be interpreted to mean that this language applies to the general relationship of the parties to the transaction, not the presence of contamination, per the Ninth Circuit's reasoning in Westside Delivery. (22)
In this paper, I aim to show the Ninth Circuit's reasoning regarding the "in connection with a contractual relationship" language is both a proper reading of the statutory language and follows the plain meaning and purpose of CERCLA. (23) In Part II, I introduce the relevant statutory language of CERCLA. Because CERCLA is an incredibly complex statute, looking first at the plain language of the statute helps set the groundwork for an in-depth analysis of this circuit split. Part III then delves into the circuit split and where exactly the Second and Ninth circuits stand on this issue. Part IV advocates for future courts to apply the logic and reasoning of the Ninth Circuit in Westside Delivery over that of the Second Circuit. Finally, Part V concludes with a review of the arguments in favor of the Ninth Circuit's holding and encourages future courts to follow this same rationale. This paper does not tackle the additional question of indirect transfers, such as the tax sale transfer at issue in Westside Delivery.
This section is designed to elucidate the relevant statutory language for CERCLA's traditional third party liability defense and the innocent landowner defense. Although these defenses share similarities and are borne out of the concept of third party culpability, they operate and attach differently. The traditional third party liability defense is available where a truly innocent landowner's property is contaminated solely by acts or omissions of an unrelated third party. (24) The innocent landowner defense, on the other hand, applies where a landowner purchases property that was contaminated by a previous owner. (25) The innocent landowner defense is thus an alternative form of third party exoneration but it only applies to past pollution, and, importantly, the purchaser must have failed to discover the contamination while undertaking due care prior to purchase. (26)
CERCLA and SARA Amendments
In 1980, Congress enacted CERCLA in response to the serious environmental and health risks posed by industrial pollution and contamination. (27) CERCLA was thus the manifestation of Congress's goal that hazardous waste contamination be cleaned up and that those responsible for the contaminated site bear the costs. (28) CERCLA imposes strict liability for cleanup costs on four classes of potentially responsible parties (PRPs). (29) Further, CERCLA often imposes joint and several liability, meaning that a responsible party may be held liable for the entire cost of cleanup even where other parties contributed to the contamination. (30) The party saddled with the cleanup costs may, in turn, sue other PRPs for contribution or cost recovery. (31)
In 1986, Congress passed the Superfund Amendments and Reauthorization Act (SARA), the first major amendments to CERCLA. (32) The legislative history of SARA shows SARA's passage was fueled by a desire to clarify perceived ambiguities in CERCLA liability. (33) For example, members of Congress expressed unease on the question of whether an innocent purchaser could be held liable for a previous owner's contamination. (34) To answer this question, SARA added the innocent landowner defense by introducing the definition of "contractual relationship" as it relates to third party liability. (35) The addition of the "contractual relationship" definition was designed to provide a defense for purchasers of contaminated property who could not have reasonably discovered the contamination prior to purchase. (36) The traditional third party liability defense relates to the first clause of 42 U.S.C. [section] 9607(b)(3) while the innocent landowner defense is embodied in the definition of "contractual relationship" found in the second clause of the section. (37)
As the Ninth Circuit described in Chubb Custom Insurance Co. v. Space Systems/Loral, Inc., (38) the United States Environmental Protection Agency (EPA) may, on its own initiative, clean up a polluted site or it may compel responsible parties to either perform cleanups or reimburse the government for EPA-led cleanups. (39) Just as private parties have the right to seek cost recovery, so too does the government. (40) In the Westside Delivery case, the government sought contribution from the current landowner of a contaminated chemical recycling plant, as will be discussed more fully below. (41)
Third Party Defense
Section 107(b)(3) of CERCLA (42) provides a defense for current owners of contaminated property where the contamination was caused solely by acts of a completely unrelated third party. (43) This section reads:
There shall be no liability...
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