Washington Supreme Court Holds Investigation Costs Qualify As Remedial Costs Even When No Cleanup Is Required, But Prevailing Party Status Determination Was Premature

Posted by in Cost Recovery, Environmental Litigation, Remediation on January 22, 2018

In Douglass v. Shamrock Paving, Inc., 2017 Wash. LEXIS 1149 (December 21, 2017), the Washington Supreme Court held that soil testing conducted by a landowner qualified as a “remedial action” under the state’s Model Toxics Control Act (“MTCA”) (Wash. Rev. Code § 70.105D.020(33)), giving rise to a contribution claim.  However, the Supreme Court affirmed the appellate court’s ruling that landowner was not entitled to recover his soil removal costs because the contaminant concentrations did not exceed State cleanup standards.  The Supreme Court also reversed the appellate court’s ruling that defendant was the prevailing party, entitled to attorney fees, because it was premature to make that determination until after the trial court, on remand, applies equitable factors to determine the underlying award to which plaintiff was entitled for his investigation costs, as compared with his non-compensable remedial costs.

In Douglass, defendant Shamrock Paving Inc. spilled unknown amounts of lube oil on the Douglass property.  Douglass hired an environmental consulting firm to perform an investigation, which showed lube oil, a hazardous substance under the MTCA, present at levels ranging from 400 mg/kg to 2,000 mg/kg.  The Washington Department of Ecology (“Ecology”) cleanup level for lube oil is 2,000 mg/kg.  Ecology defines “cleanup level” as the “concentration of a hazardous substance … that is determined to be protective of human health and the environment.”  (Emphasis added.)  Nonetheless, Douglass subsequently directed the consulting firm to remove 68 tons of soil from the property and filed suit for trespass, nuisance and a contribution action under the MTCA.

The trial court denied the MTCA claim, including Douglass’ claims for both investigation and remediation costs, finding Douglass failed to prove that the lube oil was a threat to human health or the environment since the lube oil concentration detected did not exceed the DOE cleanup level which was protective of human health and the environment.  The judge designated Shamrock as the prevailing party pursuant to the MTCA’s attorney fee provision and awarded it attorney fees.  On appeal, the Court of Appeals concluded that the soil testing performed at Douglass’s request was a remedial action under the MTCA, but ruled the soil removal was not because the soil did not pose a threat or potential threat to human health or the environment based on the trial judge’s ruling.  However, because Douglass established the elements of his MTCA claim for investigative costs, the Court of Appeals designated him the prevailing party and therefore entitled to recover his attorney fees.  The Court of Appeals remanded the case to the trial court to complete the assessment of equitable factors to determine the exact recovery amount.

The Washington Supreme Court affirmed the Court of Appeals in part and reversed in part.  First, like the Court of Appeals, the Washington Supreme Court held that investigation activities fall within the MTCA’s definition of “remedial action” which constitutes “any action . . . including any investigative and monitoring activities.”  That the investigation results revealed no cleanup activity was required was not relevant: “investigations of hazardous substances are remedial actions because their purpose is to ‘discern whether such a threat exists.'” Second, the Washington Supreme Court affirmed the Court of Appeals’ remand to the trial court to apply appropriate equitable factors to determine the amount of investigation costs Douglass was entitled to recover, noting that if Shamrock had only spilled a drop of oil, but Douglass investigated the entire property, the recovery may be little to none.  Third, the Washington Supreme Court upheld the Court of Appeals’ affirmation of the trial court’s determination that no cleanup of the lube oil was required because the concentrations detected did not exceed Ecology’s soil cleanup level of 2,000 mg/kg.  While the Washington Supreme Court acknowledged that Ecology could require a more stringent cleanup level based on a site-specific evaluation, Ecology never performed such an evaluation at the Douglass property.  Finally, the Washington Supreme Court reversed the Court of Appeals’ designation of Douglass as the prevailing party.  The Washington Supreme Court held that while the statute does not define “prevailing party,” its meaning is clear.  “[T]he ‘prevailing party’ is the party that either recovers remedial action costs or successfully defends against a claim for such costs.”  The appellate court improperly based its decision solely on whether plaintiff satisfied the elements of a contribution claim, rather than waiting for the trial court’s assessment of whether monetary relief for plaintiff was warranted based on the application of equitable factors.  Thus, the equitable assessment of any recovery must occur prior to the designation of the prevailing party.  Only if the trial court awards remedial action costs for at least some of Douglass’ costs would Douglass be the prevailing party, entitled to attorney fees.

Federal Court’s Dismissal of Buyer’s Fraud Action in Allegedly Contaminated Gas Station Sale Highlights the Need for Land Purchasers to Conduct Independent Environmental Assessments

Posted by in Environmental Litigation, Land Use & Development, Remediation on October 1, 2012

A Washington federal district court denied purchaser Pyramid Gold, Inc.’s claim that it was misled as to the level of contamination present at the gas station it purchased from BP West Coast Products, LLC.   Pyramid Gold agreed to the sale after receiving an environmental baseline assessment conducted by BP West Coast that revealed contamination below reporting and remediation action levels imposed by Washington state law.  However, when Pyramid Gold entered into negotiations to sell the property five years later, its potential buyer discovered contamination exceeding levels requiring cleanup under Washington state law.   Ultimately the potential sale failed, and Pyramid Gold and its owner, Hatem M. Shalabi, filed suit against BP West Coast and other BP entities alleging fraud and negligent misrepresentation in the land sale transaction.  The defendants filed a motion to dismiss all defendants except BP West Coast (“non-party defendants”) as non-parties to the sales agreement, and seeking summary judgment in favor of BP West Coast on the elements of fraud and negligent misrepresentation.

The court granted the non-party defendants’ motion to dismiss based upon plaintiffs’ failure to plead any factual basis for their inclusion.  The court also granted BP West Coast’s motion for summary judgment on the fraud and negligent misrepresentation claims, finding that plaintiffs failed to prove at least one element common to both: “reliance on the truth of the representation of an existing fact.”  In fraud and negligent misrepresentation claims, reliance on a representation is only justified when reasonable under the circumstances, and requires that the plaintiff have exercised due care and diligence on his own part in ascertaining relevant facts at his disposal.  Here, the court found that reasonable minds could not differ that plaintiffs were not justified in their reliance on any alleged statement by BP West Coast that there was little or no contamination on the property.  The court considered that BP West Coast’s baseline environmental assessment report was conducted by a third party consultant and clearly stated that some contamination on the property existed.  Pyramid Gold received the report, but nevertheless agreed under the terms of the sales agreement that it was buying the property “solely in reliance on its own investigation” and acknowledged that BP West Coast was selling the property “as is.”  In fact, Pyramid Gold never conducted its own environmental assessment.  In the course of the transaction, Pyramid Gold further acknowledged that BP West Coast was making no representation or warranty as to the accuracy of the third party consultant’s environmental assessment.  While Pyramid Gold argued that it was ignorant as to the contents of the agreement on this issue, the court gave no weight to that argument.  It is well-settled under Washington law that a party who is afforded the opportunity to read a plain and unambiguous written instrument cannot claim to be ignorant of its contents.  Accordingly, the court granted BP West Coast’s motion for summary judgment, entering judgment for the defendant.

The Pyramid Gold case highlights the need for land purchasers to be well-informed of the environmental terms in land sale transactions and to conduct independent environmental assessments of subject properties out of an abundance of caution, even in the face of a seemingly reliable environmental assessment conducted by the seller or third-party consultants retained by the seller.

Shalabi and Pyramid Gold  v. Atlantic Richfield Co., et al., case no. 2:11-cv-00505-BHS (9/20/12 W.D. Wash.)

by Clare Bienvenu & John D. Edgcomb

Federal District Court Allows Chevron to Proceed with a CERCLA § 107 Cost Recovery Action to Attempt to Hold Non-Settling “Smaller Responsible Parties” Jointly and Severally Liable for All Response Costs

Posted by in CERCLA, Cost Recovery, Environmental Litigation, Remediation on September 11, 2012

By Clare Bienvenu & John D. Edgcomb

The United States District Court for the Eastern District of California denied defendants’ motion to dismiss in Chevron’s CERCLA § 107 cost recovery action against them in connection with the EPC Eastside Disposal Facility site outside of Bakersfield, CA.  In June 2005, Chevron, as one of several parties deemed responsible by the California Department of Toxic Substances Control (“DTSC”) for the presence of hazardous substances at the site, entered into a Consent Order with DTSC, under which it agreed to spearhead the cleanup activities at the site.  Chevron has settled with hundreds of companies and individuals in return for contribution to the substantial cleanup costs associated with the site’s remediation. However, several “smaller responsible parties,” as they characterize themselves in the motion, have declined to settle with Chevron, and, as a result, Chevron filed suit, seeking to hold them jointly and severally liable for all response costs under CERCLA § 107.

A CERCLA § 107 cost recovery action is reserved for potentially responsible parties (PRPs) that voluntarily incur response costs and allows the plaintiff PRP to hold a defendant PRP jointly and severally liable for all response costs, unless the defendant can show there is a reasonable basis for apportionment.  In contrast, a CERCLA § 113 contribution action is appropriate where a PRP has been sued under CERCLA §§ 106 or 107, or enters into a settlement to resolve its CERCLA liability to the United States or a state.  A CERCLA § 113 contribution action enables the plaintiff PRP to hold other defendant PRPs liable only for their equitable share of response costs. In this case, the “smaller responsible parties” argued in their motion to dismiss that Chevron was not entitled to bring its § 107 cost recovery claim against them because Chevron did not voluntarily incur response costs, based on its status as a party to the Consent Order with DTSC.  Instead, they argued, Chevron was limited to a CERCLA § 113 contribution action.

The court found that since Chevron has not been sued under CERCLA §§ 106 or 107 and has not entered into a “settlement” to resolve its CERCLA liability, a § 113 contribution claim was inappropriate. Further, the court found that the Consent Order the Chevron entered into with DTSC is neither “a satisfaction or release from liability” nor a mechanism barring Chevron from acting voluntarily in the response.  Accordingly, Chevron was entitled to bring a § 107 cost recovery action against the defendants.  The court also rejected defendants’ allegation that Chevron’s assertion of the § 107  cost recovery claim was overreaching in that it threatened the defendants with joint and several liability due to their inability to reach a settlement agreement. The court pointed out that CERCLA provides protection against inequitable results, because where PRPs, such as the defendants, are sued in a § 107 cost recovery action and held jointly and severally liable, those PRPs are entitled to seek contribution from the plaintiff and others under § 113 to attempt to recover their excess costs.

State of California v. Continental Insurance: California Supreme Court Ruling Paves the Way for “Stacking” Multiple Insurance Policy Limits in Response to Certain Environmental Cleanup Claims

Posted by in Environmental Litigation, Insurance & Liability, Remediation on August 30, 2012

by Clare Bienvenu & John D. Edgcomb

On August 9, 2012, in State of California v. Continental Insurance, S170506, the California Supreme Court applied the “all sums-with-stacking” rule to allow the State of California to “stack” the policy limits of several successive insurance policies to recover for continuous environmental property damage incurred over a twelve year period. This ruling, which was based on the plain language of the commercial general liability (CGL) policies involved, allows the State of California to recover the aggregate amount of the individual policy limits up to the entire amount of the property damage, instead of limiting the State’s recovery to the pro rata allocation scheme proposed by the insurers.

The case arose out of the court-mandated cleanup of the Stringfellow Acid Pits waste site in Riverside County, a waste disposal site designed and operated by the State from 1956 to 1972. Several different factors in the location and design of the site caused continuous groundwater contamination from 1964 through 1976, which the State estimates will cost as much as $700 million to clean up. The State sued each of the insurers that issued a CGL policy covering the site during the twelve-year period of groundwater contamination for indemnity.

This case involves, and the ruling directly affects, a particular kind of property damage referred to as a “long-tail” injury.  A “long-tail” injury is continuous and progressive property damage that is not attributable to one identifiable cause but, rather, to a continuing series of events. For that reason, identifying which insurance policy is responsible for covering a “long-tail” loss is difficult, if not impossible.  Such “long-tail” claims regularly arise in the context of environmental damage, products liability, and toxic tort actions. Thus, the Supreme Court’s decision will have significant ramifications in the litigation of such claims when based on insurance policies that contain similar language to the CGL policies at issue here.

The language of all of the CGL policies in Continental Insurance required the insurers to pay “all sums which the insured shall become obligated to pay . . . for damages . . . because of injury to or destruction of property” and limited the insurers’ liability to a specified dollar amount of the “ultimate net loss [of] each occurrence.” The court analyzed its prior decisions in Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, and Aerojet-General Corp. v. Transport indemnity Co. (1997) 17 Cal.4th 38, and found them to stand for the principle that where a policy contains such “all sums” language, and there is a continuous loss, any portion of which occurs during the policy period, an insurer’s indemnity obligations extend beyond the expiration of the policy period up until the point where the continuous loss terminates. The court pointed out that the plain language of the CGL policies in the case at hand did not restrict the insurer’s liability to sums expended or damage incurred solely “during the policy period,” and, thus, the Montrose and Aerojet principle applied. Therefore, since all of the CGL policies covered the risk of environmental damage to the Stringfellow site at some point during the continuous groundwater contamination, each insurer’s indemnity obligations were triggered as to the entirety of the damage, up to each policy’s limits.

After finding that the “all sums” language of the policies allowed each of the policies to cover up to the amount of the entire property damage, the court went on to find that the language of the CGL policies at issue did not limit “stacking” of the coverages. “Stacking” means that where several policies are triggered by one occurrence, each policy can satisfy the claim up to the full limits of that policy, and these policy limits can be “stacked” across several policy periods to cover the entire continuous loss. The court found the “all-sums-with-stacking” rule to be in keeping with its previous decisions in Montrose and Aerojet, as well as permitted by the insurance policy language involved – specifically, the insurance policies did not prohibit “stacking.” This, in effect, allowed the State to “stack” insurance coverage from the different policy periods during which the damage occurred creating coverage limits equal to the sum of all of the limits of the purchased insurance policies. The court opined that the “all-sums-with-stacking” rule is particularly appropriate to the “uniquely progressive nature of long-tail injuries that cause progressive damage throughout multiple policy periods.” Cont’l.  Ins. at 15.

The Supreme Court’s decision has definitive implications for the litigation of future “long-tail” claims, including environmental cleanup claims, arising under past insurance policies that contain the “all sums” language and that do not prohibit “stacking”: principally, the “all-sums-with-stacking” rule will apply to permit the insured to recover the full extent of each policy that was in force when some part of the continuous property damage occurred and to “stack” those policy limits up to the amount of the entire property damage.  The decision likely will affect future California insurance policies by encouraging insurers to incorporate policy language defeating the “all-sums-with-stacking” rule.  Future insureds should be watchful for policy language prohibiting stacking, limiting indemnity, and specifying pro rata coverage allocation rules.

Wind-Powered Remediation at the Massachusetts Military Reservation on Cape Cod, MA

Posted by in Emerging Issues, Remediation, Renewable Energy on April 30, 2010

 

In their Clean-Up Information website, the EPA reported that a wind turbine has recently begun operating at the Massachusetts Military Reservation (MMR) on Cape Cod, MA, and will produce 25-30% of the energy used by the remediation treatment.  The Air Force Center for Engineering and the Environment (AFCEE), which operates the wind turbine, is the lead agent for the Installation Restoration Program for the MRP.

The MMR is a military training facility which covers approximately 34 square miles.  It contains an industrial area where for over 60 years fuels, solvents and other chemicals were used and, especially during WWII, waste disposal, spills, and leaks were common.  The MMR sits atop the recharge area for the sole source aquifer known as the Sagamore Lens.  The towns of Bourne, Mashpee, Sandwich, and Falmouth all rely on this aquifer for their drinking water.

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