Real Property Sublessors Escape CERCLA Owner Liability in the Second Circuit

AuthorAlison Shlom
PositionJuris Doctor Candidate, May 2019, American University Washington College of Law; B.A. Environmental Studies, University of Colorado at Boulder. A special thank you to my fantastic editors for their time and dedication assisting on this piece, Professor Amanda Leiter and Professor Barry Breen for their wisdom and guidance, and my family for...
Pages15-21
15
Fall 2018
real property SubleSSorS eScape cercla
owner liability in the SeconD circuit
By Alison Shlom*
I. INTRODUCTION
Under federal law, a tenant who subleases a property to a
sublessee who contaminates the site may be liable for
cleanup costs depending on which federal court hears
the case.1 The Comprehensive Environmental Response, Com-
pensation, and Liability Act’s (CERCLA) circular denition of a
property “owner” has resulted in a circuit split on this issue.2 In
the Second Circuit, courts rely on a ve-factor test to determine
owner liability.3 In sharp contrast, the Ninth Circuit incorpo-
rates state-specic law to assign owner liability.4
The Second Circuit recently decided Next Millennium, LLC
v. Adchem Corp.,5 where Pufahl Realty, which changed its name
to NSR Corp. and assigned all of its assets to NSR Company
(NSR), leased a building located at 89 Frost Street, North
Hempstead, New York.6 NSR subleased the property from 1973
to 1976 without the landlord’s consent or notice.7 The subles-
see, Lincoln, installed a commercial dry cleaner that used large
amounts of perchloroethylene (PCE) in its daily operations,
which resulted in groundwater contamination and required on-
site remediation.8 Twenty years later, between 1997 and 1998,
Next Millennium and 101 Frost (Next Millennium) purchased
the contaminated property, condent that they could recover
upcoming cleanup expenses from the previous sublessor and
sublessee as liable parties.9
Next Millennium claimed that NSR was a de facto owner
at the time of contamination under a site control theory of
ownership.10 The Court of Appeals rejected all claims, refer-
ring to the precedent set in Commander Oil v. Barlo Equipment
Corporation,11 the controlling ownership test at the time of the
decision.12 In Commander Oil, the Second Circuit established
a ve-factor test to determine ownership.13 The ve factors
are: (1) the length of the lease and rights of the owner/lessor to
determine use of the property; (2) the terms of the lease allowing
the owners to terminate the lease before it expires; (3) the right
of the lessee to sublet the property without notifying the owner;
(4) the lessee’s responsibility to pay taxes, assessments, insur-
ance, and operation and maintenance costs; and (5) the lessee’s
responsibility to make repairs.14 The court found that NSR was
not an owner under the Commander Oil test, and Lincoln, the
original tenant corporation, had dissolved by the time of suit.15
Therefore, the sublessor and sublessee escaped contribution and
joint and several liability.16
Next Millennium led a petition for certiorari with the
Supreme Court, challenging the Commander Oil ve-factor
test.17 The petitioners argued that a sublessor should be liable
for costs of cleaning up contamination when the sublessor satis-
es the state-specic common law denition of “owner,” had
exclusive site control, and polluted the site through its opera-
tions.18 The Supreme Court denied certiorari.19
The Commander Oil test diverges from use of state-specic
common law in assigning owner liability under CERCLA,
yet it remains the law in the Second Circuit.20 Consequently,
a subsequent buyer such as Next Millennium—which had no
site control at the time of the polluting event, did not sublease
the property to polluting sublessees, and did not prot from the
contamination—potentially bears the burden of paying for all
cleanup costs without contribution from other parties.21
This comment argues that the Second Circuit’s divergence
from the state-specic common law regarding owner liability
under CERCLA is inconsistent with Congress’s clear intent,
unlike the Ninth Circuit’s approach, because it does not incor-
porate state-specic common law and it separates “owner” from
“operator.” Part II describes Congress’s intent for CERCLA lia-
bility.22 Part II also explains the creation of the Second Circuit’s
ownership test, the Ninth Circuit’s state-specic common law
approach to ownership, and the common law in New York and
California, respectively, regarding ownership.23 Part III argues
that the Second Circuit ownership test is inconsistent with
Congress’s intent for strict owner liability by deviating from the
state common law denition of “owner,” while the Ninth Circuit
approach provides a clear guideline, using state common law to
assign owner liability under CERCLA.24 Part IV recommends
that the Supreme Court or Congress overturn the Second Circuit
ownership test because it is inconsistent with the remedial pur-
poses of CERCLA.25 This comment concludes that the Second
Circuit ownership test deters investors from purchasing con -
taminated land due to the likelihood of litigation on the indicia
of ownership.26
II. BACKGROUND
Hazardous waste sites pose a serious threat to the environ-
ment and human health.27 In 1980, prior to an administrative
change, Congress acknowledged the signicance of these harms
and enacted CERCLA.28
*Juris Doctor Candidate, May 2019, American University Washington College
of Law; B.A. Environmental Studies, University of Colorado at Boulder. A spe-
cial thank you to my fantastic editors for their time and dedication assisting on
this piece, Professor Amanda Leiter and Professor Barry Breen for their wisdom
and guidance, and my family for their support.
16 Sustainable Development Law & Policy
a. cercla
1. Background and congressional intent
Congress enacted CERCLA in 1980 to facilitate prompt
cleanup of hazardous waste sites and place the nancial bur-
den of environmental contamination on those responsible and
benetting from the externalized cost of the waste.29 Congress
enacted CERCLA to impose liability for clean-up of land and
water retroactively, lay out a process for identifying priority
sites, and determine the appropriate response actions.30
Under CERCLA, the government is authorized to respond
to a release of a hazardous substance and then recover cleanup
costs from potentially liable parties.31 Congress intended that
courts hold liable those who are responsible for the contamina-
tion so long as the interpretation is supported expressly by the
statute or by the legislative history.32
CERCLA lacked clarity, and in 1986, Congress claried
CERCLA with the Superfund Amendments and Reauthorization
Act (SARA).33 Ten years later, in 1996, Congress made a
second attempt at clarication with the Asset Conservation,
Lender Liability, and Deposit Insurance Protection Act (ACA).34
However, neither set of amendments claried the basic meaning
of the word “owner.” 35
For three decades, plaintiffs persuaded the courts that
CERCLA’s remedial purpose mandates a liberal interpretation
and broad application of the statute.36 However, in CTS Corp. v.
Waldburger,37 the Supreme Court explicitly urged lower courts
to honor the statutory text.38 It is still unclear, however, whether
lower courts are ready to accept Waldburger as the proverbial
nail in CERCLA’s broad remedial purpose’s cofn.
2. liaBle Parties under section 107
CERCLA liability under Section 107 extends to four classes
of potentially liable parties (PRPs).39 These classes include cur-
rent owners and operators of a property, certain past owners and
operators, arrangers of disposal of hazardous waste, and trans-
porters of hazardous waste.40 Congress rejected a general causa-
tion formula that would assign liability for contamination based
on a party’s connection to the site.41 This distinction holds own-
ers and operators liable for contaminated facilities and facilities
that show a threat of contamination regardless of whether the
owner or operator caused the contamination.42
The statutory language is circular and vaguely denes
an owner and operator as “any person owning or operating”
contaminated property.43 The circular denition of owner and
operator gave courts the discretion to assign meaning to the
statutory language and therefore govern CERCLA liability.44
Congress intended that courts decide the circumstances under
which a holder of a less-than-fee-simple interest in real property
is subject to owner liability, but the denition remains indeter-
minate and creates confusion in the enforcement of the statute.45
Ownership of land under CERCLA is a property issue, and
property law questions are traditionally a matter of state law.46
The Supreme Court established that state courts determine prop-
erty interests based on their own rules.47 The Supreme Court
claried in United States v. Bestfoods48 that when Congress gave
the word “operator” a circular denition, the denition should
be based on the plain meaning of the word and state common
law.49 The Second Circuit interpreted Bestfoods to distinguish
“owner” and “operator,” while the Ninth Circuit interpreted
Bestfoods as direction to follow the state common law denition
of “owner.”50
3. Joint and several liaBility under cercla
CERCLA is a strict liability statute and imposes liability
on some parties who may not have acted culpably.51 By the
time Congress enacted CERCLA, courts had established that in
pollution cases where two or more defendants cause indivisible
harm, the defendant could seek contribution from their joint
tortfeasors.52 Harm at a CERCLA site is usually indivisible,53
and therefore courts hold defendants jointly and severally liable
under CERCLA.54
Congress deleted CERCLA’s original joint and several
liability section, saying that the standard should be the same as
the Clean Water Act Section 311.55 However, Courts have deter-
mined that Congress intended that courts incorporate joint and
several liability principles in judicial interpretation.56 Congress
envisioned that doctrines of federal common law govern liabil-
ity issues of federal government interest that are not resolved
expressly in CERCLA.57
The Second Restatement of Torts makes joint and several
liability the presumption.58 When the Environmental Protection
Agency (EPA) immediately cleans up a CERCLA site, courts
assign joint and several liability to the liable parties.59 On the
other hand, when the harm is less immediate, a private party
may clean up the CERCLA site, and courts assign either joint
and several or several liability to parties who are liable.60
4. the right to seek contriBution under section 113(f)
Congress amended CERCLA in 1986 with SARA to permit
private persons to sue to recover at least some of their cleanup
costs from other PRPs under Section 113(f).61 This amendment
created a separate federal cause of action and eased the burden
of the original defendant sued by the EPA.62 A defendant who is
found liable under Section 107 is entitled to relief under Section
113(f) by seeking contribution from other PRPs if the defen-
dant can demonstrate divisibility of the environmental harm.63
The court may allocate costs as it determines appropriate.64 In
Cooper Industries, Inc. v. Aviall Services, Inc.65 and United
States v. Atlantic Research Corp,66 the Supreme Court held that
a private party who has not been sued under CERCLA 106 or
107(a) may not obtain contribution under 113(f)(1) from other
liable parties.67 These cases modied the extent of contribu-
tion rights and limited the ability of private parties to recover
response costs.68
5. the Bona fide ProsPective Purchaser defense to
cercla liaBility
Investors that conduct Environmental Site Assessments
may be exempt from CERCLA liability under the “bona de
prospective purchaser” (BFPP) exemption.69 The application
17
Fall 2018
of the BFPP provision became clearly enforceable for ten-
ants under the Brownelds Utilization, Investment, and Local
Development Act of 2018.70 A tenant whose lease of a property
began after January 11, 2002 can establish a BFPP defense to
CERCLA owner liability, and thereby escape liability when
leasing previously-contaminated property.71
b. circuit Split in approaching owner liability
unDer cercla
The circular definition of a property “owner” under
CERCLA has resulted in a circuit split.72 In the Second Circuit,
courts depend on a ve-factor test to determine owner liability.73
The Ninth Circuit, on the other hand, incorporates state-specic
law to assign owner liability.74
1. the second circuit ownershiP test
Under New York common law, tenants (and not landlords)
are held responsible for injury caused by the condition of use
of leased property.75 To interpret state environmental statutes,
New York courts follow the principle that tort liability concern-
ing property depends on occupation and control.76 However, the
Second Circuit framework for CERCLA owner liability does not
follow this principle.77
In Commander Oil, the Second Circuit generated a new
ve-factor factor test to determine de facto ownership of a lessee
under CERCLA.78 Commander Oil owned a lot that Barlo sub-
leased to Pasley.79 The subleased lot housed petroleum storage
tanks, and Pasley used the lot to repackage solvents purchased in
bulk and to reclaim and revitalize used solvents.80 The EPA dis-
covered contamination and remediated the site, and Commander
Oil agreed to reimburse the EPA for costs.81 Commander Oil
sought contribution under CERCLA from Barlo and Pasley as
potentially liable parties.82 The court found that Barlo did not
possess sufcient “attributes of ownership” because all factors
showed that Barlo did not have the rights and obligations of an
owner.83
The Second Circuit’s denition of “owner” is not deter-
mined by state law.84 In Bestfoods, the Supreme Court dif-
ferentiated “owner” from “operator.”85 As the Supreme Court
claried, Congress intended that the court use plain meaning
of the word “operator” and state common law as bedrock prin-
ciples.86 The Second Circuit interpreted Bestfoods to dene
“owner” and “operator” as disjunctive.87 Disjunctive denitions
lead to a limited interpretation of liability and the Second Circuit
framework incentivizes litigation.88
2. the ninth circuit common law ownershiP test
By contrast, the Ninth Circuit follows the Supreme Court’s
guidance in Bestfoods and uses state common law to determine
owner liability under CERCLA.89 California common law
distinguishes between possessory interests, such as revocable
permits and ownership interests.90
The Ninth Circuit used state common law when examining
whether an easement constitutes ownership for CERCLA liabil-
ity in Long Beach Unied School District v. Dorothy B. Goodwin
California Living Trust.91 The easement holders (M&P) ran
a non-polluting pipeline across a parcel of land.92 The local
school district sued the tenant who maintained a waste pit that
contaminated the land, and the tenant settled.93 The local school
district also sued M&P under CERCLA for contribution, even
though the pipeline had no connection to the waste pit.94 The
court found that holding an easement does not itself constitute
“ownership” in relevant civil state property law because an ease-
ment is merely a limited right to use property that is possessed
by another entity.95
In City of Los Angeles v. San Pedro Boat Works,96 Pacic
American, whose successor-in-interest was BCI Coca-Cola,
possessed revocable permits from the City of Los Angeles for
Berth 44 boat works.97 The City found contamination on the site
and claimed that BCI Coca-Cola was liable as an owner under
CERCLA.98 The Ninth Circuit held that BCI Coca-Cola merely
held possessory interests and therefore was not an owner.99 The
court limited owner liability to those who hold the “sticks in the
bundle of rights.” 100
In El Paso Natural Gas Co. v. United States,101 the District
Court of Arizona recognized that a party holding a fee title could
have less than absolute ownership.102 However, it also held that
a fee title holder with plenary and supervisory powers is liable
as an owner under CERCLA.103 The United States maintained
power over the reservation land at the time of the contamination
and thus was deemed liable under CERCLA as an owner.104
III. ANALYSIS
a. the SeconD circuit DivergeD from
congreSSional intent by creating a feDeral teSt
for ownerShip anD Separating “ownerfrom
“operator.”
When enacting CERCLA, Congress empowered courts to
interpret liability.105 However, a court must follow Congress’s
intent to develop the common law for CERCLA ownership
liability, place the nancial burden of environmental contamina-
tion on those responsible and benetting from the activities that
caused the waste, and interpret the statute broadly and liberally
so long as the interpretation is supported expressly in the statute
or through legislative history.106 The Second Circuit’s ve-
factor test for determining ownership does not follow state com-
mon law and does not allow Congress’s goals for CERCLA to
manifest.107 In contrast, the Ninth Circuit uses the state-specic
property law denition of “ownership.”108 The Ninth Circuit’s
interpretation of CERCLA liability offers clear guidelines for
investors in land and therefore incentivizes early settlements, as
intended by Congress.109
1. the second circuits ownershiP test factors
are suscePtiBle to maniPulation in litigation which
creates a Barrier for investment.
The Second Circuit created a ve-factor ownership test to
limit the site control ownership test and to separate “owner”
from “operator.”110 The judge-made test for ownership applies
to both Section 107 and Section 113(f) of CERCLA, which
allow the government to recoup nancial losses and for private
18 Sustainable Development Law & Policy
parties to split the costs of contamination cleanup among other
PRPs.111 The Commander Oil test is an expanded version of the
site-control test, which Second Circuit courts rejected for being
overbroad.112
While the Ninth Circuit follows a state common law
approach, as instructed by both legislative history and the
Supreme Court in Bestfoods, the Second Circuit diverged from
the state common law denition of ownership when deciding
Commander Oil by creating this ve-factor ownership test.113
Congress’s remedial goals in enacting CERCLA were to facili-
tate prompt cleanup of hazardous waste sites and to hold parties
liable who were ultimately responsible for the contamination,
dependent on the facts of the case.114 In particular, Congress
intended the principles of state common law govern liability
issues not resolved expressly in CERCLA because common
law principles are traditional and evolving.115 While presenting
the nal, compromised CERCLA bill, Senator Randolph and
Representative Florio expressly encouraged the development of
common law in determining the liability of joint tortfeasors who
are responsible for the costs of cleanup under CERCLA, which
would, in turn, promote uniformity of interpretation of the stat-
ute.116 The Second Circuit’s ve-factor test expands on the site
control test rather than following the state-specic denition of
“owner,” and therefore, the Second Circuit’s method for dening
ownership under CERCLA is inconsistent with Congressional
intent.117
In addition to applying state common law, Congress
intended that CERCLA incentivize quick clean-up of con-
taminated land, which requires that courts grant incentives for
investors to buy and clean contaminated land efciently, such as
a streamlined path to receive contribution from other PRPs.118
The Second Circuit’s ve-factor Commander Oil ownership test
is easily manipulated, thereby incentivizing litigation.119 Due
to this manipulation, a party who seeks contribution from other
PRPs may not be able to obtain such contribution.120 This test
goes against the purpose of CERCLA and does not provide a
sufcient incentive to avoid contamination of land.121 As evi-
denced in Next Millennium, the Second Circuit holds a subse-
quent purchaser solely liable based on a federal judge-made law
that contradicts the state property law, which may have required
contribution from the prior lessee that sublet the facility to a
contaminating sublessee.122
Congress enacted CERCLA to place the nancial burden of
environmental contamination on those responsible and benet-
ting from the activities that caused the waste.123 As a result of
the Commander Oil ownership test, a subsequent owner in the
Second Circuit who had no site control, did not sublease the
property to the polluting sublessees, and did not prot from the
contamination bears the burden of providing all cleanup costs.124
Meanwhile, sublessors who had site control and occupation of
the facility at the time of contamination escape ownership liabil-
ity because the lease is designated as typical and does not trans-
fer ownership to the lessee.125 The Commander Oil ownership
test does not follow the Congressional intent to put the nancial
burden of cleanup on all parties who are responsible for the land
contamination.126 Additionally, Commander Oil diverges from
congressional intent because the test relieves sublessors from
owner liability despite acting as an owner.127 The Ninth Circuit
has discredited and rejected Commander Oil as improper in
determining ownership liability under CERCLA, demonstrating
the Second Circuit’s divergence from the intended common law
application of owner liability.128
Rather than dening “owner” under CERCLA as deter-
mined by state law, the Second Circuit’s federal judge-made
law merely expanded the site-control test.129 Under New
York Common Law, tenants and not landlords are gener-
ally held responsible for injury caused by leased property.130
Additionally, New York courts follow the principle that liability
in tort concerning property generally depends on occupation and
control.131 In Commander Oil, the Second Circuit declined to
follow the settled principles of New York common law, which
provide an easy standard to meet “ownership” and therefore
is a more expansive approach and holds more PRPs liable for
cleanup costs.132 The Second Circuit’s approach to ownership
liability has more factors to consider, which results in a narrower
framework for owner liability under CERCLA.133
In addition to its inconsistency with Congressional intent to
follow state common law, the Second Circuit’s interpretation of
CERCLA liability in Commander Oil limits the reach of owner
liability by dening “owner” as separate from “operator.”134 In
determining whether Barlo was an “owner” and therefore liable
for contribution, the Second Circuit’s Commander Oil owner-
ship test rejected the common law site control test for ownership
liability, reasoning that this denition of “owner” is too similar
to “operator.”135 The Second Circuit looked to Bestfoods, and
interpreted the Supreme Court’s decision to mean that courts
should distinguish “owner” and “operator.”136 In Commander
Oil, the court reasoned that control over a facility could establish
operation, so if site control could also establish ownership, then
operation would be merely a subset of ownership.137 However,
the rule of decision for the term “operator” in Bestfoods is analo-
gous to the term “owner” because Congress gave both terms cir-
cular denitions in CERCLA.138 Therefore, the Second Circuit
did not follow the Supreme Court’s precedent and rely on state
common law to dene “owner” when the statute provides a cir-
cular denition of the term.139 The Second Circuit’s ownership
test does not support the New York common law principle in
determining ownership under CERCLA and is inconsistent with
legislative history.140
Furthermore, the Second Circuit misinterprets Sections
107(a)(1) and (2) of CERCLA by separating owner and operator
liability.141 Congress assigns liability to owners, operators, or
both under CERCLA.142 Sections 107(a)(1) and (2) of CERCLA
use “and” and “or” interchangeably.143 Owner and operator sub-
stantially overlap in the language of the statute; thus courts are
instructed by the language to interpret them overlapping rather
than as alternatives.144 If Congress intended owners and opera-
tors to be separate and not overlapping, they would always use
“or” or would write “the owner and the operator” rather than
“the owner and operator.”145
19
Fall 2018
2. the ninth circuits construction of owner
liaBility holds liaBle Both the Passive title owner
of real ProPerty who acquiesces in anothers
contamination and the active oPerator of the
facility.
Congress intended for courts to develop a state common
law denition of “owner.”146 The Ninth Circuit applies the
common law denition of “owner” to determine whether to
assign liability under CERCLA Sections 107 and 113(f).147 The
Ninth Circuit, but not the Second Circuit, has uniformly applied
CERCLA owner liability as intended by Congress by developing
the state common law denition of “owner.”148
The Ninth Circuit has followed legislative intent by incor-
porating the state-specic denition of “owner” from relevant
property law cases.149 The Ninth Circuit focuses on case law
rather than the immediate and unique facts of each case, and
questions the role of “indicia of ownership.”150 The Ninth
Circuit courts continue to develop a consistent common law def-
inition of “owner” to determine owner liability under CERCLA
by relying on principles such as expansions and adaptations of
the site control test to determine ownership.151
The Ninth Circuit has developed the common law distinc-
tion of whether an easement holder is an owner, thereby honor-
ing Congressional intent to apply the state-specic denition
of “owner.”152 The Ninth Circuit’s potential “bundle of rights”
exception to the common law distinction between possessory
and ownership rights differs from the Commander Oil test
because the bundle of rights exception limits liability to those
who enjoy the rights of ownership, while the Commander Oil
test is an expanded version of the site control test.153
The Ninth Circuit’s framework for assigning owner liability
has developed by incorporating state common law, as Congress
intended.154 In Long Beach, the Ninth Circuit looked to both
federal and California common law to determine the denition
of “owner” in regards to CERCLA liability.155 The court noted
that circular denitions within a statute show Congressional
intent for courts to apply “ordinary meanings” rather than
unusual or technical alternative meanings.156 The common
law clearly states that there is a distinction between holding an
easement and owning the contaminated land.157 Therefore, the
court applied this denition and found that merely holding an
easement is not sufcient to constitute “ownership” for purposes
of CERCLA liability.158 In San Pedro, which also took place
in California, the court continued to build upon the California
common law, including the holding from Long Beach, and fur-
ther distinguished between ownership interests and possessory
interests.159 In San Pedro, the court found that site control was
not enough, and built upon the site control test with state com-
mon law regarding a fee title owner ’s control over a permittee’s
use of the property.160
Unlike the Second Circuit, the Ninth Circuit follows state
common law and thus imposes liability only on parties respon-
sible under state law providing clear guidelines for investors
in land.161 In enacting CERCLA, Congress intended to place
the nancial burden of contamination on those who were actu-
ally responsible, based on the four categories under CERCLA
Section 104 rather than by causation.162 In El Paso Natural
Gas, the Ninth Circuit recognized that a party holding the fee
title could have less than absolute ownership, but that a fee
title holder with plenary and supervisory powers constitutes an
owner that is liable under CERCLA, and therefore the court held
the supervisor of the facility liable for the contamination.163 The
defendants, who held fee title and substantial powers over the
land, contributed to the costs of cleanup.164 This interpretation
of CERCLA liability under Sections 107 and 113(f) supports
the statute’s remedial purpose of holding liable those who were
ultimately responsible and who may have benetted from the
externalized cost of contamination, or who were otherwise con-
nected with the contaminated site.165
The Ninth Circuit has taken an approach that focuses on
applying state common law and fullling the remedial purposes
of the CERCLA statute.166 By following the state common law
denition of “owner,” a sublessor in the Ninth Circuit who has
site control and otherwise acts as an owner of the facility is
likely to be liable as an owner under CERCLA for the remedial
costs of contamination by their sublessees.167
b. the SubleSSor in next millennium woulD have
been helD liable if the SeconD circuit uSeD the
ninth circuit frameworK for cerlca owner
liability.
In Department of Toxic Substances Control v. Hearthside
Residential Corp.,168 the Ninth Circuit dened current owner
and operator status under CERCLA at the time cleanup costs are
incurred rather when a recovery lawsuit seeking reimbursement
is led.169 Subsequent purchasers who incur the cost of cleanup,
therefore, are considered current owners of a property.170
Following this precedent, Next Millennium was held liable as
the current owner in Next Millennium rather than the original
polluter.171 However, Next Millennium could have sought con-
tribution from the previous owners under Section 113(f).172
The Second Circuit tried Next Millennium and, as a result,
the subsequent purchaser of the property—who had no site
control at the time of the contamination, did not sublease the
property, and did not prot from the contamination—bore the
burden of providing all cleanup costs.173 Next Millennium
sought contribution from the sublessors for cleanup costs of the
contamination to 89 Frost Street under CERCLA Sections 107
and 113(f).174 The Second Circuit did not have the authority to
overrule the Commander Oil test, and as a result, the tenants,
who sublet the property to a contaminating subtenant, escaped
ownership liability.175
When Congress enacted CERCLA, it intended the statute
to facilitate prompt cleanup of hazardous waste sites and place
the nancial burden of environmental contamination on those
responsible for and benetting from the activities that caused
the waste.176 Furthermore, Congress intended that courts con-
sider legislative history while interpreting the plain language
of the statute.177 If the Second Circuit ruled consistently with
20 Sustainable Development Law & Policy
congressional intent and applied New York’s common law in
Next Millennium, the sublessor may have been held liable as an
owner.178
The Second Circuit misinterpreted the statutory language of
CERCLA Sections 107(a)(1) and 107(a)(2) in Next Millennium
by dening “owner” and “operator” as completely separate
terms.179 The court would not have distinguished between
owner and operator if it had followed Congress’s intent and the
language of the statute because the statute uses “owners and
operators” and “owners or operators” interchangeably.180 By
using these terms interchangeably, Congress intended that the
terms overlap.181
The Next Millennium sublessor would have likely passed
the common law test for ownership because the sublessor leased
to the sublessee without notice or consent of the landowner.182
San Pedro Boat Works shows that the “bundle of rights” excep-
tion in the Ninth Circuit covers this type of control over land.183
Under New York common law, courts generally look to occupa-
tion and control of the site.184 The sublessor in Next Millennium
exercised control over the facility at 89 Frost Street at the time
that the sublessee contaminated the facility, and therefore the
Second Circuit would have likely held the sublessor liable if it
applied New York common law to assess the sublessor’s owner-
ship status.185 This is unlike 3550 Stevens Creek Associates v.
Barclays Bank,186 where the Ninth Circuit did not extend owner
liability to past and present owners of commercial buildings
containing asbestos.187 However, contamination of PCE is com-
monly tried in CERCLA cases and is at the heart of CERCLA.188
The limitation in 3550 Stevens Creek Associates would likely
not apply to Next Millennium because there was more relevant
common law regarding PCE contamination than there was com-
mon law for commercial buildings containing asbestos.189 The
Second Circuit did not follow a state common law approach and
instead followed the Commander Oil ve-factor test, which is
judge-made law.190 Despite there being no authority that lim-
its ownership to one party, the Second Circuit’s interpretation
focused on whether the sublessor was either an operator or an
owner.191
It is likely that the Ninth Circuit would distinguish Next
Millennium from other Ninth Circuit cases that nd easement
holders are not held liable as owners under CERCLA.192 In San
Pedro Boat Works, Pacic American, whose successor-in-inter-
est was BCI Coca-Cola, possessed revocable permits from the
City of Los Angeles for ten months for Berth 44 boat works and,
after the city investigated the site, found that it was contaminat-
ed.193 The city claimed that BCI Coca-Cola was liable as an
owner under CERCLA during the contamination.194 The court
followed Long Beach and looked to the common law denition
of “owner,” including California common law which said that
there is a distinction between holding an easement and owning
the contaminated land.195 The court distinguished between own-
ership interests and possessory interests and held that because
Pacic American was a holder of mere possessory interests,
BCI Coca-Cola was not an owner and therefore not held liable
as an owner.196 San Pedro Boat Works and Long Beach would
be distinguished from Next Millennium because common law
differs from New York to California, and New York common
law regarding property typically holds tenants liable for tort
caused by actions on a property.197 Unlike in San Pedro Boat
Works and Long Beach, the defendants in Next Millennium held
ownership interests because they subleased the property without
notice or consent from the landlord and were, therefore, owners
in effect.198 The Ninth Circuit rejected the Second Circuit inter-
pretation of owner liability, further showing the contrast of the
likely outcome if the Second Circuit tried Next Millennium using
the Ninth Circuit’s reasoning.199 The Second Circuit, using the
same approach as the Ninth Circuit, should have applied New
York common law standard when deciding Next Millennium by
using an occupation and site control test.200
The Ninth Circuit would have likely held the sublessor
liable as an owner under CERCLA because Congress intended
that the courts would broadly and liberally apply CERCLA lia-
bility.201 Setting precedent that holds a sublessor liable would
be considered a liberal interpretation of the statute.202 The
Ninth Circuit would have prioritized liberal interpretation of the
statute because it follows the Congressional intent for CERCLA
liability.203 This nding would be similar to El Paso Natural
Gas because the defendants were found liable as owners despite
having granted signicant property interests to another party.204
In both cases, the defendants held substantial powers over the
property.205 However, the Second Circuit’s Commander Oil test
narrowly interprets CERCLA liability.206
The Ninth Circuit’s approach does not focus on the unique
facts of a case, unlike the Second Circuit.207 Therefore, the
Ninth Circuit’s approach to CERCLA owner liability in Next
Millennium would have focused on the relevant common law
regarding subleases rather than the Commander Oil ve-factor
test.208 This nding would have turned out differently if tried in
the Ninth Circuit; if a court looks to the common law rather than
to the unique facts of the case, then the ve-factors may not be
addressed in considering whether the sublessor is an “owner.”209
In New York, common law for liability in tort generally depends
on occupation and control.210 The sublessor in Next Millennium
had control over the property, and therefore, the Ninth Circuit
would have likely found that the sublessor was an owner under
CERCLA Sections 104 and 113(f) to contribute to cleanup costs
of the contamination.211
The court would have likely placed the nancial burden
on the sublessor because the sublessor was ultimately respon-
sible for the contamination.212 Congress intended to hold those
responsible for contamination liable to pay for the cleanup.213
The Ninth Circuit’s interpretation of CERCLA liability focuses
on the remedial aspect of the statute.214 The sublessor in Next
Millennium would ultimately be responsible for the contamina-
tion because it subleased the facility to contaminating sublessees
without the consent or notice of the landlord and had full control
over the facility.215 Additionally, the sublessor proted substan-
tially from the sublease, which is a signicant indicator that it
would bear the nancial burden of cleanup if the Second Circuit
had followed the Ninth Circuit’s correct interpretation of the
21
Fall 2018
statute.216 The original purpose behind CERCLA was to hold
parties liable for contamination who are ultimately responsible
for the contamination, and so looking to who had control of the
site at the time of the contamination is an acceptable means of
determining who is liable as an owner under CERCLA.217
The Ninth Circuit also would have likely held the subles-
sors liable as owners, so that the landowner could receive
contribution because the Ninth Circuit has previously provided
an incentive for private parties to pay for cleanup or to settle
with the condence that they can be recuperated by other poten-
tially liable parties.218 The Second Circuit’s holding in Next
Millennium sets a precedent for future potentially liable parties
to refuse to remediate a site and encourages litigation on the
Commander Oil ve-factor test rather than settlement.219 The
Ninth Circuit knowingly rejected the Commander Oil ve-factor
test and therefore avoided these legislative issues for a statute
that is already heavily litigated.220
IV. POLICY RECOMMENDATION
The disposal of hazardous waste endangers public health
and the environment.221 The United States has many con-
taminated sites, and Congress enacted CERCLA to quickly and
effectively clean these sites by encouraging private parties to
voluntarily clean up contaminated sites.222 The Supreme Court
of the United States declined the opportunity to correct the
Second Circuit’s Commander Oil test by denying certiorari in
Next Millennium.223 As a result, confusion remains as to what
land investors can expect when buying contaminated property in
the Second Circuit.224
The Commander Oil factor test provides an unpredict-
able outcome which incentivizes litigation rather than early
settlement, and this is against CERCLA’s remedial purpose.225
Investors are more likely to buy land if they can be condent
that other PRPs will share the nancial burden of cleanup.226
If litigation is required to ensure contribution of other PRPs,
investors are less likely to invest, and the contaminated sites will
remain contaminated.227 The Second Circuit’s Commander Oil
test to determine owner liability is exible and nebulous, creat-
ing an unpredictable barrier for investors and therefore investors
are less likely to invest in contaminated land.228
The Ninth Circuit adhered to the interpretation of owner
as found in California common law, which provides clear
expectations for investors of land.229 Unlike the Second Circuit,
the Ninth Circuit reached a proper interpretation of CERCLA
ownership liability by placing those liable who were responsible
for the contamination, because it follows state common law and
thus provides clear guidelines for investors in land.230
The Second Circuit has stated that it does not have the
authority to overturn the Commander Oil ownership test itself, so
the Supreme Court or Congress must overturn the Commander
Oil ownership test.231 Congress quickly drafted the language
of CERCLA, and Congress could x its mistake by amending
the statute to set a clear path for establishing CERCLA liability
against a tenant of a facility.232 An easy solution that would
still allow states to incorporate state-specic denitions of com-
mon law would be to add “and/or” when discussing “owner
and operator” and “owner or operator.”233 This solution would
clarify Congress’s intent to extend liability and would invalidate
the Second Circuit’s current approach.234 Alternatively, the
Supreme Court should overturn the ve-factor test in favor of
a denition of “owner” based on state-specic property law.235
V. CONCLUSION
Despite a divergence from use of state-specic common law
in assigning owner liability under CERCLA, Commander Oil
remains the law in the Second Circuit.236 Consequently, a sub-
sequent buyer who has no site control at the time of the polluting
event, does not sublease the property to polluting sublessees,
and does not prot from the contamination may bear the burden
of providing all cleanup costs and may not receive contribu-
tion from other potentially liable parties if bringing their case
in the Second Circuit.237 On the other hand, the Ninth Circuit,
which follows a clear state denition of “owner” that can predict
whether PRPs will settle, fullls Congress’s intent and continues
to incentivize private cleanup of contaminated sites.238
After Next Millennium, it is likely that lawyers in the Second
Circuit will advise their clients to beware of purchasing con-
taminated land due to the likeliness of litigation on the indicia
of ownership.239 As a result, contaminated sites in the Second
Circuit on the National Priorities List will remain stagnant, and
contamination will continue to damage the environment and cre-
ate further risks for public health.240
enDnoteS
1 See Petition for Writ of Certiorari at 3–4, Next Millennium Realty, LLC v.
Adchem Corp., 138 S. Ct. 510 (2017) (No. 17-468) (arguing that the Second
Circuit’s interpretation of ownership liability does not accomplish the remedial
goals of the statute to hold those responsible that created the contamination).
2 See 42 U.S.C. § 9601 (2012) (dening “owner or operator” as any person
owning or operating); see generally Petition for Writ of Certiorari, supra note
3 See Petition for Writ of Certiorari, supra note 1, at 7–8, (casting doubt on
the ve-factor test for ownership).
4 See City of Los Angeles v. San Pedro Boat Works, 635 F.3d 440, 448 (9th
Cir. 2011) (looking to California property law); see also Next Millennium
Realty, LLC v. Adchem Corp., No. CV 03-5985(GRB), 2016 WL 1178957
(E.D.N.Y. Mar. 23, 2016), aff’d sub nom. Next Millennium Realty, LLC v.
Adchem Corp., 690 F. App’x 710 (2d Cir. 2017), cert. denied, 138 S. Ct. 510
(2017) (describing a circuit divergence in interpretation of the denition of
“owner” regarding CERCLA liability for sublessors).
5 690 F. App’x 710 (2d Cir. 2017), cert. denied, 138 S. Ct. 510 (2017).
6 Id. at 712.
7 See Next Millennium Realty, LLC, 2016 WL 1178957 at *2 (failing to
address the lack of notice or consent by the landlord in nding the sublessor not
liable as an owner).
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