42 Cal.App.5th 851
Cal. Ct. App.2019Background:
- UATC developed and owned the Moonlite Shopping Center (opened 1962) and was master lessor until 1978; a dry cleaner operated on-site from 1962–1997 using PCE (a persistent chlorinated solvent).
- In 2009 Moonlite (current owner) reported PCE groundwater contamination; in 2013 the San Francisco Bay Regional Water Quality Control Board issued a Water Code §13304 cleanup order naming Moonlite and prior owner UATC.
- UATC petitioned the superior court; the trial court vacated UATC’s inclusion, holding §13304 requires actual or constructive knowledge of a specific discharge or specific dangerous condition at the site.
- The Regional Board appealed and UATC cross‑appealed, raising (1) the proper meaning of “permitted” in §13304 (what knowledge suffices for prior‑owner liability) and (2) whether the Regional Board’s cleanup claim was discharged in UATC’s Chapter 11 reorganization (effective date March 2, 2001).
- The Court of Appeal reversed the trial court: it adopted a middle standard (landlord liable if it knew or should have known the lessee’s activity created a reasonable possibility of discharge of wastes that could cause or threaten pollution/nuisance) and held the Regional Board’s claim was not discharged because it did not arise pre‑confirmation under the ‘‘fair contemplation’’ test.
Issues:
| Issue | Plaintiff's Argument (UATC) | Defendant's Argument (Regional Board) | Held |
|---|---|---|---|
| Meaning of “permitted” in Water Code §13304 — required knowledge level for prior‑owner liability | Requires actual or constructive knowledge of a specific discharge or specific dangerous condition at the site (heightened showing). | Requires only knowledge of the tenant’s general activity (e.g., leasing to a dry cleaner); broad construction consistent with deletion of "intentionally or negligently." | Adopted middle standard: prior owner may be named if it knew or should have known the lessee’s activity presented a reasonable possibility of discharge of wastes that could create or threaten pollution/nuisance. |
| Whether deletion of “intentionally or negligently” in 1980 converted §13304 into strict liability | Deletion does not eliminate knowledge requirement; statute should be harmonized with nuisance law. | Deletion indicates broader liability and supports minimal knowledge threshold (close to strict liability). | Rejected strict‑liability reading; legislative history supports expanded authority but still contemplates some awareness of risk. |
| Applicability of Laube v. Stroh definition of "permitted" (requiring specific knowledge) | Laube supports requiring specific knowledge; similar fairness concerns. | Laube arose in a different constitutional/public‑policy context (liquor licensees) and is not controlling here. | Laube is distinguishable; its high knowledge requirement is inappropriate in §13304 context. |
| Whether the Regional Board’s cleanup entitlement was discharged in UATC’s Chapter 11 (effective 2001) | Claim arose pre‑confirmation because UATC’s ownership and the dry‑cleaner operation were publicly knowable; therefore discharged. | Even if a §13304 right is a "claim," it did not arise pre‑confirmation because the Board lacked site‑specific notice until Moonlite’s 2009 report. | Held not discharged: under the ‘‘fair contemplation’’ test (Ninth Circuit), the claim was not fairly contemplated pre‑confirmation and thus survived bankruptcy. |
Key Cases Cited
- Laube v. Stroh, 2 Cal.4th 364 (Cal. Ct. App. 1992) (required actual or constructive knowledge to find a licensee "permitted" illegal conduct; relied on in trial court but distinguished).
- City of Modesto Redev. Agency v. Superior Court, 119 Cal.App.4th 28 (Cal. Ct. App. 2004) (Modesto I) (interpreting §13304’s "cause" in light of nuisance principles; limited liability for remote/passive actors).
- San Diego Gas & Electric Co. v. San Diego Regional Water Quality Control Bd., 36 Cal.App.5th 427 (Cal. Ct. App. 2019) (legislative changes reflect intent to broaden regional boards’ authority to name responsible parties under Porter–Cologne).
- In re Jensen, 995 F.2d 925 (9th Cir. 1993) (adopting the "fair contemplation" test for when environmental claims arise for bankruptcy discharge purposes).
- In re Chicago, Milwaukee, St. Paul & Pacific R. Co., 974 F.2d 775 (7th Cir. 1992) (similar approach: claim arises when creditor can tie debtor to known release and has conducted tests; used in fair‑contemplation analysis).
- Resolution Trust Corp. v. Rossmoor Corp., 34 Cal.App.4th 93 (Cal. Ct. App. 1995) (landlord nuisance liability typically turns on knowledge/negligence; discussed in relation to nuisance law and §13304 interpretation).