State of Cal. Dtsc v. Westside Delivery LLCState of Cal. Dtsc v. Westside Delivery LLC
OPINION
SUMMARY*
Environmental Law
The panel reversed the district court‘s summary judgment in favor of the defendant in an action under the
The panel held that the defendant, a purchaser of real property at a tax sale, was not entitled to CERCLA‘s third-party defense to liability for cleanup costs. The panel concluded that the defendant had a “contractual relationship” with the pre-tax-sale owner of the property. In addition, the previous owner caused contamination “in connection with” its contractual relationship with the defendant. The panel remanded the case for further proceedings.
COUNSEL
James R. Potter (argued) and Brian J. Bilford, Deputy Attorneys General; Sarah E. Morrison, Supervising Deputy Attorney General; Xavier Becerra, Attorney General; Office of the Attorney General, Los Angeles, California; for Plaintiff-Appellant.
Emily L. Murray (argued) and Tim C. Hsu, Allen Matkins Leck Gamble Mallory & Natsis LLP, Los Angeles, California, for Defendants-Appellees.
GRABER, Circuit Judge:
This case presents a question of first impression in this circuit concerning the reach of the third-party defense in the
FACTUAL AND PROCEDURAL HISTORY1
From 1949 to 1990, the Davis Chemical Company recycled spent solvents at its facility in Los Angeles, California. One of the company‘s owners, Ernest A. Davis, owned the property at which the facility was located (the “Davis Chemical Site” or “Site“). In 1986, he conveyed the property to the Ernest A. Davis Separate Property Trust by quitclaim deed. Following Mr. Davis’ death, the property passed to the Davis Family Trust.2
In October 1990, Plaintiff, the California Department of Toxic Substances Control, ordered Davis to cease and desist all hazardous-waste-related activities. In 1992, the United States Environmental Protection Agency (“EPA“) conducted a preliminary assessment of the Davis Chemical Site and noted that there was “significant spillage.” The EPA referred the Site to Plaintiff for further investigation and remediation. A 1996 study conducted by a group of environmental consultants revealed that the soil at the Site contained elevated levels of several hazardous substances. Plaintiff then investigated further and identified former customers of Davis who might be liable for cleanup costs under CERCLA and state law. In 2002, Plaintiff reached an agreement with several of Davis’ former customers, requiring those customers to devise a plan to clean up the Site. Plaintiff approved the plan in 2008.
For reasons that are not readily apparent from the record, the plan was not put into effect in 2008. Instead, Plaintiff sought out additional parties that might be responsible for shouldering the cost of cleanup. However, those parties were either unable to pay or had viable legal defenses, forcing Plaintiff to seek out alternative funding for the cleanup effort.
In the meantime, Davis had failed to pay property taxes on the Site, prompting the Los Angeles County Tax Collector to sell the Site at a tax auction in 2009. The Site was not on the list of “Potentially Contaminated Parcels” included in the auction materials, but the list itself noted that it was not exhaustive, and the auction materials warned bidders that the onus was on them to investigate the properties. In August 2009, at the auction, Defendant submitted the highest bid on the Davis Chemical Site. On September 17, 2009, the Tax Collector executed a tax deed to Defendant, conveying title to the Site. Since purchasing the Site, Defendant has not conducted any operations there.
From 2010 through 2015, Plaintiff conducted cleanup efforts at the Site. After finishing the cleanup, Plaintiff sued Defendant under CERCLA, seeking to recover its cleanup expenses. Defendant asserted CERCLA‘s third-party defense, arguing that it was not liable because the release of hazardous substances at the Site was caused solely by third parties (including
STANDARD AND SCOPE OF REVIEW
We review de novo the district court‘s grant of summary judgment and the district court‘s interpretation of CERCLA. Carson Harbor Vill., Ltd. v. Unocal Corp., 270 F.3d 863, 870 (9th Cir. 2001) (en banc).
Our review of a district court‘s grant of summary judgment is ordinarily limited to “the record presented to the district court at the time [it granted] summary judgment.” Taylor AG Indus. v. Pure-Gro, 54 F.3d 555, 558–59 (9th Cir. 1995). Here, however, because we granted several requests for judicial notice, we consider the materials submitted by the parties in connection with those requests as well as the record before the district court. Lowry v. Barnhart, 329 F.3d 1019, 1024–25 (9th Cir. 2003).
DISCUSSION
Before answering the question whether the purchaser of real property at a tax sale has a “contractual relationship” with the previous private owner of the property within the meaning of CERCLA, we will briefly sketch the outlines of CERCLA and of California‘s tax-sale system. We also will discuss the role that state law plays in our analysis. We then will address the “contractual relationship” question and the related issue of whether Davis’ acts leading to contamination of the Site occurred “in connection with” its contractual relationship with Defendant.
A. Background
1. CERCLA (1980)
“In 1980, Congress enacted [CERCLA] in response to the serious environmental and health risks posed by industrial pollution.” Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 602 (2009) (citation omitted). Unlike the Clean Air Act or the Clean Water Act, CERCLA is not a forward-looking regulatory statute that governs regulated entities’ polluting activities. Rather, “CERCLA looks backward in time and imposes wide-ranging liability” on parties who are in some way responsible for contaminating a facility.3 Marsh v. Rosenbloom, 499 F.3d 165, 178 (2d Cir. 2007). Relevant to this case, CERCLA allows a state that has responded to a “release” or “threatened release”4 of hazardous substances at a facility to recoup its response costs from the owner of that facility, even if the owner had nothing to do with placing the hazardous substances at the facility. Chubb Custom Ins. Co. v. Space Sys./Loral, Inc., 710 F.3d 946, 956–57 (9th Cir. 2013). What matters is that the state responded to a release or threatened release at a time when the defendant-owner owned the facility. Cal. Dep‘t of Toxic Substances Control v. Hearthside Residential Corp., 613 F.3d 910, 911 (9th Cir. 2010).
CERCLA originally provided three affirmative defenses that otherwise-liable parties could assert to escape liability. The
There shall be no liability . . . for a person otherwise liable who can establish by a preponderance of the evidence that the release or threat of release of a hazardous substance and the damages resulting therefrom were caused solely by—
. . . .
(3) an act or omission of a third party other than an employee or agent of the defendant, or than one whose act or omission occurs in connection with a contractual relationship, existing directly or indirectly, with the defendant (except where the sole contractual arrangement arises from a published tariff and acceptance for carriage by a common carrier by rail), if the defendant establishes by a preponderance of the evidence that (a) he exercised due care with respect to the hazardous substance concerned, taking into consideration the characteristics of such hazardous substance, in light of all relevant facts and circumstances, and (b) he took precautions against foreseeable acts or omissions of any such third party and the consequences that could foreseeably result from such acts or omissions[.]
2. SARA (1986)
In 1986, Congress passed the Superfund Amendments and Reauthorization Act (“SARA“), Pub. L. No. 99-499, 100 Stat. 1613 (1986). SARA was “aimed at speeding cleanup and forcing quicker action by the EPA.” Carson Harbor Vill., 270 F.3d at 887. SARA added a new type of third-party defense known as the innocent-landowner defense.5
Congress added that defense in an odd way: it defined the previously undefined phrase “contractual relationship“—a phrase key to the applicability of the third-party defense—and then set out certain circumstances in which that definition would not be met. Id. The innocent-landowner defense provides as follows:
The term “contractual relationship,” for the purpose of section 9607(b)(3) . . . , includes, but is not limited to, land contracts, deeds, easements, leases, or other instruments transferring title or possession, unless the real property on which the facility concerned is located was acquired by the defendant after the disposal or placement of the hazardous substance on, in, or at the facility, and one or more of the circumstances described in clause (i), (ii), or (iii) is also established by the defendant by a preponderance of the evidence:
(i) At the time the defendant acquired the facility the defendant did not know and had no reason to know that any hazardous substance which is the subject of the release or threatened release was disposed of on, in, or at the facility.
(ii) The defendant is a government entity which acquired the facility by escheat, or through any other involuntary transfer or acquisition, or through the exercise of eminent domain authority by purchase or condemnation.
(iii) The defendant acquired the facility by inheritance or bequest.
In addition to establishing the foregoing, the defendant must establish that the
defendant has satisfied the requirements of section 9607(b)(3)(a) and (b) of this title, [and must also meet several other conditions].
Before SARA, there was some confusion as to whether the third-party defense could be asserted with respect to preexisting contamination—that is, whether a “third party” was necessarily someone whose acts or omissions occurred after a defendant acquired property. See New York v. Shore Realty Corp., 759 F.2d 1032, 1048 (2d Cir. 1985) (“It is doubtful that a prior owner could be [a third party] . . . since the acts or omissions referred to in the statute are doubtless those occurring during the ownership or operation of the defendant.“). SARA “clarified” that a previous owner or other entity whose acts or omissions occurred in the past can be a third party. Carson Harbor Vill., 270 F.3d at 887.
The fact that a previous owner may be a third party makes the word “indirectly” in § 9607(b)(3) very important. If the owner who immediately preceded defendant A—say, B—has a “direct” contractual relationship with A, and the owner before that—say, C—has a direct contractual relationship with B, then A has an “indirect” contractual relationship with C. See Buffalo Marine Servs. Inc. v. United States, 663 F.3d 750, 755, 758 (5th Cir. 2011) (describing a “contractual relationship . . . involving a chain of intermediaries” as “an indirect” contractual relationship within the meaning of the
3. California‘s Tax-Sale System
If the owner of non-exempt real property in California fails to pay property taxes, “a default is declared” and the property becomes “[t]ax-defaulted property.” Carloss v. County of Alameda, 194 Cal. Rptr. 3d 784, 791 (Ct. App. 2015); see also
Once the property is sold, the tax collector executes a deed to the tax-sale purchaser.
B. The Role of State Law
Before deciding what “contractual relationship” means and whether Defendant and Davis have a “contractual relationship” by virtue of the tax deed, we must determine what role state law should play in our analysis. Of course, the meaning of “contractual relationship” is “necessarily a federal question in the sense that its construction remains subject to . . . supervision” by federal courts. Miss. Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 43 (1989). But “Congress sometimes intends that a statutory term be given content by the application of state law.” Id. The “general assumption,” though, is that, “in the absence of a plain indication to the contrary, Congress when it enacts a statute is not making the application of the federal act dependent on state law.” Id. (internal quotation marks and alteration omitted).8
Here, we do not think that there is a “plain indication” that Congress intended for state law to answer the question whether a particular type of instrument or transaction is a “contractual relationship.” To be sure, the statutory definition refers to several instruments—such as deeds and easements—that are creatures of state property law. But Congress defined “contractual relationship” broadly to include both a catch-all (“other instruments transferring title or possession“) and a “not limited to” clause. Those provisions suggest that Congress was trying to capture a certain kind of instrument reflecting a certain kind of relationship between a defendant
There is a useful analogy to be drawn to tax and bankruptcy law—two areas in which Congress often attaches federal consequences to state-law-created property rights or transfers of rights. In both areas, it is generally true that state law determines whether a person has a property right and what the nature of that right is. But a federal standard governs the federal consequences of transferring that property right. See Barnhill v. Johnson, 503 U.S. 393, 397–98 (1992) (noting that, although property rights are “creatures of state law,” “‘[w]hat constitutes a transfer [of property for bankruptcy purposes] and when it is complete’ is a matter of federal law” (quoting McKenzie v. Irving Tr. Co., 323 U.S. 365, 369–70 (1945))); see also Burnet v. Harmel, 287 U.S. 103, 110 (1932) (“The state law creates legal interests, but the federal statute determines when and how they shall be taxed.“). And when Congress uses broad wording to define the types of property interests or transfers to which it seeks to attach consequences, it evinces an intent to use a uniform federal standard that does not depend on the particulars of state property law. See Britt v. Damson, 334 F.2d 896, 901–02 (9th Cir. 1964) (“The question of whether a particular occurrence is a ‘transfer’ within the meaning of the [Bankruptcy] Act is a matter of federal characterization. Therefore in deciding whether the occurrence in question was a ‘transfer’ we are not concerned with what label [state] law has placed upon occurrences of this kind.” (citation omitted)); Morrow, 116 F.2d at 19. So too here. State law determines what property interests, if any, Defendant and Davis possess or possessed in the Site; but whether the occurrences or transactions that created and destroyed those interests constitute a “contractual relationship” between Defendant and Davis does not turn on state law.
C. The Tax Deed Created a “Contractual Relationship” Between Defendant and Davis
The key question in this case is whether Defendant and Davis have a “contractual relationship,” direct or indirect, by virtue of the tax sale. It appears that, under the current California tax-sale system, the government never holds title to or acquires any possessory interest in tax-defaulted property sold to a private party at auction. See Carloss, 194 Cal. Rptr. 3d at 794 (“In 1984, tax default sale procedures were changed from the earlier practice of sales to the state to the current practice outlined above, in which tax-defaulted property is sold directly to a private party at auction.“). But it is not entirely clear—one could conceive of a tax deed as reflecting two separate transactions: one in which the government acquires an interest from the tax- defaulted owner and a second in which the government gives a new title to the tax-sale purchaser. Ultimately, we reach the same conclusion regardless of how we view a tax sale, so we analyze the question whether Defendant and Davis have a “contractual relationship” under both views.
We begin with the text of the statutory definition of “contractual relationship.” See Advocate Health Care Network v. Stapleton, 137 S. Ct. 1652, 1658 (2017) (“[We] [s]tart, as we always do, with the statutory language . . . .“). As noted earlier, the definition contains both an “includes, but is not limited to” clause and a “catch-all” clause. Taken together, those clauses suggest that the phrase “contractual relationship” should be construed broadly. See San Luis & Delta-Mendota Water Auth. v. Haugrud, 848 F.3d 1216, 1229 (9th Cir. 2017) (“The ‘including, but not limited to,’ language . . . indicates Congress‘s intent to provide a broad . . . directive.“); see also Fed. Mar. Comm‘n v. Seatrain Lines, Inc., 411 U.S. 726, 734 (1973) (noting that catch-all “clauses are to be read as bringing within a statute categories similar in type to those specifically enumerated“). Indeed, those clauses, when read in light of the specific examples listed in the statute, suggest that Congress intended to capture any instrument reflecting a voluntary transaction resulting in a change of ownership or possession.
But the scope of “contractual relationship” is even broader than that, as evidenced by the exception in
Keeping in mind that the definition of “contractual relationship” should be construed broadly and that it includes involuntary transfers, we think that a tax deed fits comfortably within the definition as an “instrument[] transferring . . . possession” from Davis to Defendant.
2. The Two-Transaction View of a Tax Sale
If we view a successful tax sale as a two-transaction procedure, Defendant and Davis still have a “contractual relationship”
Section 9601(35)(A)(ii) exempts from the definition of “contractual relationship” those transactions in which “[t]he defendant is a government entity which acquired the facility by escheat, or through any other involuntary transfer or acquisition, or through the exercise of eminent domain authority by purchase or condemnation.” As discussed above, that exception implies that the transactions and transfers described therein would otherwise create “contractual relationships.” But the exception applies only if the defendant is a government entity.
The question, then, is whether a government entity‘s acquisition of real property due to tax delinquency is an “involuntary transfer or acquisition” within the meaning of § 9601(35)(A)(ii). We conclude that it is. Section 9601(35)(A)(ii), read as a whole, is targeted at situations in which the government acquires property through methods that only the government can employ. Construed that way, the government‘s acquisition of tax-defaulted property fits within the exception when the government is the defendant. Moreover, § 9601(35)(A)(ii) was added to the statute at the same time as
We note that the EPA likewise has construed “involuntary transfer or acquisition” in § 9601(35)(A)(ii) to have the same scope as § 9601(20)(D) and, therefore, to include an acquisition through tax delinquency. See
3. Under Either View of a Tax Sale
Our conclusion that a tax-sale purchaser such as Defendant has a “contractual relationship” with the pre-tax-sale private owner of tax-defaulted property is bolstered by an examination of the definition in the context of CERCLA as a whole. See Carson Harbor Vill., 270 F.3d at 880 (explaining that “[n]o statutory provision is written in a vacuum” and that each provision of CERCLA must be read in light of the statute “as a whole, including its purpose and various provisions“); see also FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 (2000) (noting that the goal when construing a complex regulatory statute is to “interpret the statute as a symmetrical and coherent regulatory scheme and fit, if possible, all parts into an harmonious whole” (citations and internal quotation marks omitted)).
The definition of “contractual relationship” was added to CERCLA at the same time as the innocent-landowner defense. Indeed, it was through the definition that Congress added the innocent-landowner defense. “Congress intended the [innocent-landowner] defense to be very narrowly applicable, for fear that it might be subject to abuse.” Carson Harbor Vill., 270 F.3d at 883. A typical—that is, non-tax-sale—private purchaser who buys property contaminated by a previous owner or possessor is entitled to the innocent-landowner defense only if the purchaser bought the property without actual or constructive knowledge of contamination.
Relatedly, we note that Defendant‘s reading of the statute would lead to anomalous results. For example, consider the situation of a prospective purchaser who learns that there are tax liens on a contaminated property that he or she is interested in buying. Under Defendant‘s view, the buyer is better off waiting until the owner defaults on the tax liens and the property goes through the tax-sale procedure than buying the property from the owner and risking CERCLA liability or complying with the many requirements of the bona fide prospective purchaser defense: once the property has gone through the tax-sale procedure, the CERCLA liability is “scraped off” and the buyer is not responsible for clean-up costs. Defendant can point to nothing in the statute suggesting that Congress intended to give such an enormous advantage to private tax-sale purchasers. As the EPA stated, “there is no authority anywhere in CERCLA that would support the ‘laundering’ of liability” through a mechanism such as a tax sale. 57 Fed. Reg. at 18,372–73.
Given the breadth of the definition of “contractual relationship” and the stringent requirements that Congress set out for ensuring that only “truly ‘innocent‘” purchasers would be able to avoid liability, we think it likely that Congress intended for the innocent-landowner defense to be the sole defense available to a private purchaser of land contaminated by a previous owner or possessor.15 At the very least, we are confident that Congress did not mean to treat tax-sale purchasers differently from typical purchasers, which is why it defined “contractual relationship” broadly enough to include the relationship between a tax-sale purchaser and the pre-tax-sale owner of tax-defaulted property.
Both the plain text of the definition of “contractual relationship” and its place in the statutory scheme convince us that a tax-sale buyer such as Defendant has a “contractual relationship” with the pre-tax-sale owner of that property.
Defendant makes several arguments as to why it lacks a “contractual relationship” with Davis. We find none of them persuasive.
First, Defendant argues that it cannot have a “contractual relationship” with Davis because it has never had a “relationship” of any kind with Davis, nor did it enter into “any agreement in furtherance of a common goal” with Davis. That argument would have some force if “contractual relationship” were undefined in the statute, in which case we would “endeavor to give th[e] [phrase] its ordinary meaning.” United States v. Middleton, 231 F.3d 1207, 1210 (9th Cir. 2000). But Congress has defined “contractual relationship,” so the ordinary meaning of the words “contractual” and “relationship” do not control. See Stenberg v. Carhart, 530 U.S. 914, 942 (2000) (“When a statute includes an explicit definition, we must follow that definition, even if it varies from that term‘s ordinary meaning.“).
Next, Defendant argues that it lacks a “contractual relationship” with Davis because it received a “new” title through the tax deed. Phrased slightly differently, Defendant‘s argument is that it lacks a “contractual relationship” with Davis because Davis is not in its chain of title.16 But, as noted, state law does not govern. A break in the chain of title is the kind of “particular legal effect[] and consequence[] . . . attached to” a transaction by state law, Morrow, 116 F.2d at 19, that has no bearing on whether that transaction creates a “contractual relationship” for purposes of § 9601(35)(A).17
Finally, Defendant argues that interpreting “contractual relationship” to include the relationship between a tax-sale purchaser and previous owners of the property would render the “traditional” third-party defense “meaningless.” We disagree. The “traditional” third-party defense is available in cases in which a defendant-owner‘s property is contaminated by unrelated “third parties” after the defendant acquires the property.18 It is also possible that the defense might be available to a defendant that purchased property that was already contaminated if that contamination was caused solely by the acts of true “third parties“—vandals, “midnight dump[ers],” and the like. Superfund Program; De Minimis Landowner Settlements, Prospective Purchaser Settlements, 54 Fed. Reg. 34,235-01, 34,239 (Aug. 18, 1989).
D. Relevant Polluting Activities Occurred “In Connection With” the Contractual Relationship Between Defendant and Davis
The “traditional” third-party defense is unavailable to a defendant if the
We begin by observing that “[t]he phrase ‘in connection with’ is essentially indeterminate because connections, like relations, stop nowhere. So the phrase ‘in connection with’ provides little guidance without a limiting principle consistent with the structure of the statute and its other provisions.” Maracich v. Spears, 570 U.S. 48, 59–60 (2013) (citation, internal quotation marks, and brackets omitted). Reading the phrase “in connection with” in context, we conclude that it cannot have the meaning that Defendant proffers when a defendant seeks to avoid liability for contamination caused by a previous landowner or possessor. If the “in connection with” condition were construed so narrowly as to allow a defendant-purchaser to assert the third-party defense in all cases in which the relevant land contract, deed, or other instrument did not “relate to . . . hazardous substances,” there would have been little need for Congress to add the innocent-landowner defense,19 because most innocent purchasers would have been covered already by the “traditional” third-party defense. The innocent-landowner defense would be rendered largely superfluous. See United States v. Domenic Lombardi Realty, Inc., 204 F. Supp. 2d 318, 332 (D.R.I. 2002) (“To adopt the interpretation [of “in connection with“] set forth . . . in Westwood would render the explicit language of the statutory definition [of “contractual relationship“] inoperative” in cases involving a defendant that purchased contaminated property.); see also Craig N. Johnston, Current Landowner Liability Under CERCLA: Restoring the Need for Due Diligence, 9 Fordham Envtl. L.J. 401, 462 (1998) (“The Westwood approach makes no sense . . . in the context of preexisting contamination.“).20 As we have noted in a
However, we do not agree with Plaintiff that the “in connection with” condition is inapplicable in a case involving a defendant-owner seeking to avoid liability for contamination caused by previous owners or possessors.21 Though Defendant‘s proposed “limiting principle” does not comport with CERCLA as a whole, it does not follow that there is no limiting principle that can constrain the reach of “in connection with” in a manner that is consistent with the statute. Our “duty to give effect, if possible, to every clause and word of a statute,” Roberts v. Sea-Land Servs., Inc., 566 U.S. 93, 111 (2012) (internal quotation marks omitted), requires us to look hard for a construction of “in connection with” that fits in with the statute before concluding that the phrase should be ignored.
In the context of a defendant-landowner asserting a defense against liability for a previous owner or possessor‘s acts or omissions, the “in connection with” condition is intended to filter out those situations in which the previous owner‘s polluting acts or omissions were unrelated to its status as a landowner. Imagine, for instance, that an owner, A, sold uncontaminated land to B and that, years after the sale, a truck owned by A happened to overturn near the land, causing contamination with hazardous pollutants. If B were to be sued under CERCLA, it could assert a third-party defense notwithstanding its contractual relationship with A, because the truck‘s turning over was in no way related to A‘s status as the owner of the land—it occurred long after A had parted with its interest in the land, and it did not occur while A was using the land in its capacity as an owner.
Here, Davis’ actions that led to the release of hazardous pollutants occurred while it owned the Site, and those actions occurred on the Site. Accordingly, the acts or omissions of Davis that caused the contamination occurred “in connection with” its contractual relationship with Defendant. For that reason, Defendant is not entitled to the third-party defense.
REVERSED and REMANDED.