State of Cal. Dtsc v. Westside Delivery LLC
888 F.3d 1085
9th Cir.2018Background
- Davis Chemical operated a solvent-recycling facility on property owned by various Davis entities; hazardous releases were discovered and investigated by EPA and California DTSC, which performed remediation and sought cost recovery under CERCLA.
- Davis defaulted on property taxes; Los Angeles County sold the site at a 2009 tax auction and issued a tax deed to Westside Delivery, LLC (Defendant), which never operated the Site.
- DTSC sued Defendant to recover cleanup costs under CERCLA after remediation; Defendant moved for summary judgment asserting CERCLA’s third-party defense (that contamination was caused solely by third parties with whom Defendant lacked a “contractual relationship”).
- The district court granted summary judgment for Defendant; the Ninth Circuit reviewed de novo whether a tax-sale purchaser has a “contractual relationship” with the pre-sale private owner under 42 U.S.C. § 9601(35) and whether the polluting acts occurred “in connection with” that relationship.
- The Ninth Circuit held that (1) a tax-deed purchaser does have a “contractual relationship” (directly or indirectly) with the pre-tax-sale private owner for purposes of CERCLA’s definition, and (2) the contamination occurred “in connection with” that relationship because the polluting acts occurred on the Site while Davis owned and operated it; thus Defendant cannot invoke the third-party defense.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a purchaser at a tax sale has a “contractual relationship” with the prior private owner under CERCLA’s definition | The tax deed creates a relationship within § 9601(35); definition is broad and includes transfers of title or possession, voluntary or involuntary | A tax-sale purchaser acquires a new title that severs any contractual relationship with prior private owners; no bilateral agreement or common-goal contract exists | Held: Yes. The tax deed (whether viewed as one or two transactions) falls within § 9601(35)’s broad definition; state-law title quirks do not control federal meaning. |
| Whether acquisition by tax sale qualifies as an "involuntary transfer" for purposes of CERCLA exceptions | Acquisition by tax delinquency is an involuntary acquisition and does not make the purchaser a government entity exempted by § 9601(35)(A)(ii) | The transfer breaks the chain of title and should exempt tax purchasers from a contractual-relationship characterization | Held: Acquisition by tax delinquency is an involuntary transfer when government is the acquirer, but that exception applies only to government defendants; it does not prevent a private tax-sale purchaser from having a contractual relationship with the prior owner. |
| Whether the acts causing contamination occurred "in connection with" the contractual relationship so as to bar the third-party defense | Davis’s contaminating acts occurred on-site while it owned and used the Site, so they were connected to its status as owner; thus Defendant cannot assert the third-party defense | The phrase "in connection with" should be narrowly read (per some Second Circuit precedent) to require a contract that relates to hazardous substances or control over polluting conduct; here no such relation exists | Held: The Ninth Circuit rejected the narrow Second Circuit rule in this context and held the contamination occurred "in connection with" Davis’s contractual relationship (ownership/use of the Site), so the third-party defense fails. |
| Whether state property-law characterizations control the federal meaning of "contractual relationship" | Federal statutory terms govern; Congress used broad language so state-law labels should not determine CERCLA consequences | State law on title and chain-of-title should determine whether a relationship exists | Held: Federal inquiry controls; state-law labels do not dictate CERCLA’s definition of "contractual relationship." |
Key Cases Cited
- Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599 (2009) (context on CERCLA’s retrospective liability scheme)
- Carson Harbor Vill., Ltd. v. Unocal Corp., 270 F.3d 863 (9th Cir. 2001) (statutory context and interpretation of CERCLA defenses)
- Quelimane Co. v. Stewart Title Guar. Co., 960 P.2d 513 (Cal. 1998) (California law recognizing that a tax deed conveys a new and complete title)
- Penn Terra Ltd. v. Dep’t of Envtl. Res., 733 F.2d 267 (3d Cir. 1984) (reading exceptions to broad statutory provisions as implying the normal inclusion of those categories)
- Buffalo Marine Servs. Inc. v. United States, 663 F.3d 750 (5th Cir. 2011) (discussion of indirect contractual relationships through chains of intermediaries)
- Barnhill v. Johnson, 503 U.S. 393 (1992) (federal characterization of transfers of state-law property interests)