UNITED ARTISTS THEATRE CIRCUIT, INC., Plaintiff and Appellant, v. REGIONAL WATER QUALITY CONTROL BOARD, SAN FRANCISCO REGION, Defendant and Appellant; MOONLITE ASSOCIATES LLC, Real Party in Interest.
A152988
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION FIVE
Filed 11/27/19
CERTIFIED FOR PUBLICATION; (Alameda County Super. Ct. No. RG16811955)
On appeal, both the Regional Board and UATC agree that the word “permitted” contains a knowledge component, but they disagree on the degree of knowledge required to establish a prior owner‘s liability for a cleanup resulting from a tenant‘s activities. Furthermore, UATC argues that even if it would otherwise be subject to a cleanup order, its liability was discharged in a bankruptcy reorganization proceeding commenced in the year 2000. Each of these matters are issues of first impression in California.
As to the knowledge component of “permitted,” we adopt a standard that focuses on the landlord‘s awareness of a risk of discharge: a prior owner may be named in a section 13304 cleanup order upon a showing the owner knew or should have known that a lessee‘s activity created a reasonable possibility of a discharge of wastes into waters of the state that could create or threaten to create a condition of pollution or nuisance (hereafter “hazardous wastes“).2 This test is informed by the Legislature‘s express intent to “exercise its full power and jurisdiction to protect the quality of waters in the state.” (
BACKGROUND
Statutory Background
In 1967, the Legislature created the State Water Resources Control Board (State Board) within what was then the Resources Agency and is now the California Environmental Protection Agency. (
The Study Panel Report contained an “Appendix A” consisting of “recommended changes” to several California codes, including the
The Porter–Cologne Act finds and declares “that the people of the state have a primary interest in the conservation, control, and utilization of the water resources of the state, and that the quality of all the waters of the state shall be protected for use and enjoyment by the people of the state.” (
The Porter–Cologne Act directs the State Board to “formulate and adopt state policy for water quality control” and identifies and describes nine regional water quality control boards. (
The Porter–Cologne Act authorizes persons aggrieved by actions of a regional board to “petition the state board to review such action.” (
The Shopping Center and Dry Cleaner
The Moonlite Shopping Center (the Center) is located on El Camino Real in Santa Clara, California. The Center has several large tenant spaces and twenty-five smaller tenant spaces. Saratoga Creek is located to the east of the Center. UATC (then United California Theaters, Inc.) began construction of the Center in 1960 and it opened in 1962. UATC owned the Center until 1975, and was the master lessor until 1978. Real party in interest Moonlite Associates, LLC (Moonlite) has owned the Center since 1977.
For 35 years, from 1962 until 1997, a drycleaner (Moonlite Cleaners) continuously operated at the Center, under a number of different owners. The dry cleaner used “transfer” machines that used perchlorethylene (aka “tetrachloroethylene” and “PCE“) as the cleaning solvent. The machines, which were effectively banned in 1998, required the manual transfer of clothes soaked with PCE from the washer to the dryer.
In City of Modesto v. Dow Chemical Co. (2018) 19 Cal.App.5th 130 (Modesto II),6 Division Four of this District described PCE as follows: “PCE, also known as tetrachloroethylene, is a molecule containing chlorine atoms and carbon atoms. It is also characterized as a ‘volatile halogenated organic compound,’ a ‘halogenated hydrocarbon‘, a ‘chlorinated solvent’ or a ‘chlorinated hydrocarbon.’ As shorthand, it is referred to as ‘perc’ or PCE. All chlorinated hydrocarbons, like all solvents other than water, are ‘toxic.’ In 1978, the National Institute for Occupational Safety Hazards (NIOSH) recommended that PCE be handled as if it were a human carcinogen. In 1980 the State of California began regulating PCE as a hazardous waste. In 1984, when the Resource Conservation Recovery Administration (RCRA) was reauthorized, its regulations brought ‘small dry cleaners’ under the same requirements as major hazardous waste sources, with respect to PCE.” (Modesto II, supra, 19 Cal.App.5th at p. 137.)
“PCE is a colorless liquid, and is therefore difficult to see once released into soil. [¶] . . . PCE is particularly ‘persistent’ and ‘long lived’ compared to other contaminants, making it extremely difficult to accomplish complete remediation.” (Modesto II, supra, 19 Cal.App.5th at p. 137.)
The record indicates that the dangers of dry-cleaning solvents in general, and PCE in particular, became gradually known during and after UATC‘s ownership of the Center. For example, in 1953, the Supreme Court made reference to a statute addressing “Dry Cleaning Equipment Employing Volatile and Inflammable Solvents.” (State Bd. of Dry Cleaners v. Thrift-D-Lux Cleaners (1953) 40 Cal.2d 436, 440.) A 1961 State Fire Marshal permit required the dry cleaner at the Center to take certain precautions against vapors from unidentified dry-cleaning solvents. In 1965 the Legislature set a specific maximum level for PCE vapor in former
It is also notable that the 1969 Study Panel Report that resulted in the enactment of the Porter–Cologne Act recognized the danger of chlorinated hydrocarbons. (Study Panel Report, at p. 41.) Specifically with reference to pesticides, the Report observed, “Extensive studies of the use of pesticides, and particularly of the chlorinated hydrocarbons, have shown alarming residual concentrations in fish and fowl across wide areas of the earth, as well as here in California. Present accumulations of these toxic, nondegradable chemicals are causing heavy mortality to some birds and perhaps in fish. These concentrations do not seem to be dangerous to people in the amounts now found in California, but there is legitimate concern for the future.” (Ibid.)
Underlying Proceedings
In 2004, Moonlite discovered PCE contamination in groundwater at the Center, and, in 2009, Moonlite reported the contamination to the Regional Board. Subsequent testing disclosed high PCE concentrations in soil gas, indoor air, and groundwater. Regional Board staff commented that the levels “are very significant and warrant aggressive oversight” and that the indoor air concentrations are “one of the worst we have seen.”
In June 2013, the Regional Board issued a tentative cleanup and abatement order naming both Moonlite and UATC. UATC had objected to being named in the order. In September, following a hearing, the Regional Board issued a
In February 2016, UATC filed a petition for writ of mandate (Petition) in Santa Clara County Superior Court, naming the Regional Board, the State
The trial court sustained the demurrer of the City of Santa Clara to the third cause of action on the grounds that the Regional Board exercised discretion in deciding whom to name in the Cleanup Order and that UATC could bring an action against the city for contribution or indemnification. On September 29, 2017, after briefing on UATC‘s remaining claims, the trial court entered an order granting the Petition. The court rejected the Regional Board‘s definition of “permitted” under which a former landlord who knew or should have known of the nature of the tenant‘s activities may be named in a cleanup order. The court concluded that, under
The Regional Board filed an appeal and UATC filed a cross-appeal.
DISCUSSION
I. The Trial Court Erred in Interpreting Section 13304
The trial court‘s grant of UATC‘s Petition was based on its interpretation of
On the other hand, we also reject the Regional Board‘s interpretation of
Rather than the standard adopted by the trial court or that proposed by the Regional Board, we conclude a prior owner may be named in a cleanup order
A. Standard of Review
“A party aggrieved by a final decision of the [State Board] may obtain review of the decision by filing a timely petition for writ of mandate in the superior court.” (Bldg. Indus. Assn. of San Diego, supra, 124 Cal.App.4th at p. 879, citing
Under
Moreover, “[w]here the meaning and legal effect of a statute is the issue, an agency‘s interpretation is one among several tools available to the court. Depending on the context, it may be helpful, enlightening, even convincing. It may sometimes be of little worth. [Citation.] Considered alone and apart from the context and circumstances that produce them, agency interpretations are not binding or necessarily even authoritative. . . . ‘The standard for judicial review of agency interpretation of law is the independent judgment of the court, giving deference to the determination of the agency appropriate to the circumstances of the agency action.’ ” (Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 7–8.) “Unlike quasi-legislative rules, an agency‘s interpretation does not implicate the exercise of a delegated lawmaking power; instead, it represents the agency‘s view of the statute‘s legal meaning and effect, questions lying within the constitutional domain of the courts. But because the agency will often be interpreting a statute within its administrative jurisdiction, it may possess special familiarity with satellite legal and regulatory issues. It is this ‘expertise,’ expressed as an interpretation (whether in a regulation or less formally . . .), that is the source of the presumptive value of the agency‘s views.” (Id. at p. 11.)
Because the Porter–Cologne Act is a law ” ‘providing for the conservation of natural resources,’ ” it is ” ‘of great remedial and public importance and thus should be construed liberally’ [citation] so as to promote the
B. The Language of Section 13304 and the Trial Court‘s Ruling
As noted previously, the critical issue on appeal as to
In its September 2017 order, the trial court concluded the meaning of “permitted” in
The trial court stated it could “discern at least five possible interpretations of ‘permitted’ ” as used in
The trial court observed that the Regional Board used the second interpretation of “permitted” in including UATC in the Cleanup Order and that UATC argued for the fifth standard. The court reviewed the legislative history, past State Board decisions on the subject, and cases from other contexts, including Laube, supra, 2 Cal.App.4th 364—a 1992 decision from this court determining when a liquor licensee can be said to have “permitted” criminality at an establishment. Ultimately, the trial court concluded the fourth option was the proper interpretation of the statute, albeit with different wording—asking whether UATC had “actual or constructive knowledge of either a specific discharge or of a dangerous condition that poses a reasonable suggestion of a discharge at the site.” The trial court stated it was following Laube in adopting that interpretation, which closely parallels the definition of “permitted” in Laube (see Part I.D.2, post). As noted previously, we understand the trial court‘s reference to “a dangerous condition that poses a reasonable suggestion of a discharge at the site” to mean a specific condition at a site that creates a risk of discharge. This is consistent with the court‘s articulation of the third and fourth options as quoted above, which contrast a risk of discharge generally associated with an activity with a risk arising from a specific aspect of a lessee‘s operation. We understand the trial court‘s reference to activities that “specifically” pose a risk of discharge to refer to the specific conditions at the site, in contrast to activities “generally” known to present a risk of discharge without reference to the specific conditions at the site. Further, that understanding is consistent with the cases relied upon by the court in devising its standard, as explained below (Parts I.D. and I.E., post).
Viewing the facts in light of its test, the trial court summarized information in the record about UATC‘s knowledge of the specific dry cleaning operation at the Center, including the evidence that UATC obtained a building permit for the dry cleaner in 1961, was informed in 1962 the dry cleaner had taken occupancy, and was aware of a “Fire Marshal permit disclosing that the dry cleaner used solvents, that the solvents had to be processed in approved equipment, and that the solvents had to be transferred only in an approved
The trial court declined to determine whether the evidence supported naming UATC in the Cleanup Order. Instead, the court stated it would “remand the matter to the Regional Board for further proceedings under the correct definition of ‘permitted’ in [
As explained below, although the trial court properly concluded
C. The Legislative History
As enacted in 1969,
In 1970,
Thus, before 1980,
As to the 1980 changes to the
Below, we briefly address the parties’ arguments about the legislative history to the 1980 legislation, AB 2700. However, the most critical language—the phrase “causes or permits“—was actually included in
1. The Regional Board‘s Argument that AB 2700 Converted Section 13304 Into a Strict Liability Statute
The Regional Board argues that, in amending
However, a true strict liability statute would impose liability on an owner whose lessee discharged hazardous waste into the state‘s water supply whether or not the owner knew of the tenant‘s activities.16 The Regional Board does not construe the statute in that manner. Instead, it recognizes that the term “permitted” requires some knowledge by the owner of the lessee‘s activities. The Regional Board‘s strict liability position is properly understood as an argument that “permitted” should be interpreted broadly, imposing only a limited knowledge requirement—once an owner has the requisite knowledge, no steps taken in response will protect it from liability. As the Regional Board states in its reply brief, “a person can have knowledge, and act either intentionally, negligently, or without fault . . . The question remains what the term ‘permit’ means . . . and what kind of knowledge that might require.”17
2. The State Board‘s Statement of Purpose and The Ways and Means Staff Analysis
The legislative history shows the State Board requested the amendments to
past discharges. For example, the State Board’s “Request for Approval of Proposed Legislation” identified as the problem to be remedied the circumstance that the Porter-Cologne Act “address[es] only present or threatened future discharges.” The “Proposed Solution” was an amendment to section 13304, subdivision (a) “to expressly provide for issuance of cleanup and abatement orders for past and threatened future discharges [which would] eliminate potential challenges to Regional Board authority to respond to this type of occurrence by administrative order.”
The Ways and Means Committee analysis states that AB 2700 “Authorizes the regional quality control board to order cleanups and remedial action for past or threatened future discharge of waste.” (Assem. Com. on Ways and Means, Analysis of Assem. Bill 2700 (1980 Reg. Sess.), as amended April 15, 1980.) The analysis describes in detail the amendments to the Health and Safety Code and then briefly addresses the amendments to the Water Code, stating “This bill would allow the regional boards to order cleanups for past or threatened future discharges of waste. In addition, it would allow the board to recover reasonable cleanup costs from responsible parties without having to prove negligence.”
The legislative history to AB 2700 contains no other materials that are relevant to determining the meaning of “permitted” as used in section 13304.18
3. Conclusions Regarding Legislative History
As summarized above, the legislative history to AB 2700 contains little direct guidance regarding the meaning of “permitted” in section 13304. It does, however, generally reflect an intent to expand the ability of regional boards to name prior owners in cleanup orders. As the Fourth District recently observed in San Diego Gas & Electric, supra, 36 Cal.App.5th at page 435, “changes made to the statute’s language over time evince a legislative intent to expand the regional boards’ ability to name responsible persons. For example, cleanup or abatement orders may be issued to past, present, and future dischargers of waste; the boards need not prove a person’s intent in discharging waste (the words ‘intentionally or negligently’ were deleted by the 1980 amendment); and the Legislature empowered regional boards to issue orders to prevent and/or correct threatened harm, that is, when waste has not yet even reached the state’s waters.”
The parties particularly focus on the Legislature’s elimination of the phrase “intentionally or negligently” from section 13304. On appeal, UATC suggests this court should decline to give significance to AB 2700’s elimination of the requirement of showing negligence, given that it is not explained in the legislative history. The trial court agreed, observing that the history did not address whether “the [L]egislature deleted the phrase ‘intentionally or negligently’ because it was inconsistent with the additional authority for ‘threatened’ discharges, to create strict liability, to eliminate redundancy because it was duplicative when placed before ‘cause or permit’ . . . or something else.”
Like the trial court, UATC cites to the California Supreme Court’s decision in Jones v. Lodge at Torrey Pines Partnership (2008) 42 Cal.4th 1158 (Jones), in which the question was, in the employment context, “whether personal liability exists where the statute prohibits retaliation by ‘any employer, labor organization, employment agency, or person.’ ” (Id. at p. 1163.) The court concluded the Legislature did not intend to impose personal liability and stated that “the absence of legislative history, behind the inclusion of the word ‘person’ ” supported its conclusion. (Id. at p. 1169.) The court observed it is ” ‘highly unlikely that the Legislature would make such a significant change in the potential liability of individuals without so much as a passing reference to what it was doing.’ ” (Id. at p. 1171, brackets in quotation omitted.)
The Jones decision is distinguishable. The addition of the word “person” was one among several changes. (Jones, supra, 42 Cal.4th 1158 at p. 1169.) The Legislative Counsel’s Digest described certain of the amendments but did not refer to the section at issue in the case; “[i]nstead, it said only, ‘The bill would, in addition, make various technical and conforming changes to the act.’ ” (Ibid.) The Supreme Court therefore interpreted the addition of the word as a technical change to “conform[] to the use of the word in describing some of the unlawful employment practices the retaliation provision references.” (Id. at p. 1170.) A bill analysis from the department that prepared the legislation described it as ” ‘a technical clean-up bill to clarify various sections . . . and make standards . . . more consistent between subsections.’ ” (Jones, at p. 1170.) In contrast, although the legislative history is largely silent regarding the elimination of the requirement to show intent or negligence, the bill itself was described as substantive and important to waste
Accordingly, we decline UATC’s suggestion to treat the amendments as lacking any substantive effect. (See People v. Dillon (1983) 34 Cal.3d 441, 467 [” ‘It is ordinarily to be presumed that the Legislature by deleting an express provision of a statute intended a substantial change in the law.’ “].) Further, we agree with the Regional Board to the extent it argues that the elimination of the phrase “intentionally or negligently” in 1980 favors a broader interpretation of the term “permitted.” This provides additional support for our decision to construe “permitted” more broadly than did the trial court.
D. Other Authority Regarding the Meaning of the Term “Permitted”
1. Section 13305
Before turning to caselaw related to the term “permit,” we observe that section 13305, also enacted in 1969 by Assembly Bill No. 413 (Stats. 1969, ch. 482, § 18, pp. 1067–1068) upon recommendation of the Study Panel Report (Study Panel Report, Appendix A at pp. 68–70, 118-119), provides support for this court’s conclusion that “permit” in section 13304 requires a showing of an awareness of a risk of discharge before a prior owner may be named in a cleanup order.
Section 13305 provides that property owners are broadly responsible for the cost of cleanups associated with “nonoperating industrial or business location(s).” (
Critically,
Thus, at the same time the Legislature enacted section 13304 requiring a showing that a person caused or permitted a discharge to hold them responsible for cleanup, the Legislature also enacted section 13305 holding a current property owner responsible for cleanup associated with a nonoperating business without any showing that the owner caused or permitted the discharges that created the condition of pollution or nuisance.19
If this court were to adopt the Regional Board’s proffered interpretation of section 13304—holding a past owner responsible for all discharges from activities the owner knew about—it would come very close to the liability provided for in section 13305, despite the absence of the cause or permit language in that section. Accordingly, although section 13305 does not define “permit” as used in section 13304, it does offer strong support for our conclusion that the Legislature intended that the term provide some limitation on the scope of an owner’s liability for a tenant’s discharges beyond mere knowledge of the nature of tenant’s business. (See Ivory Education Institute v. Dept. of Fish & Wildlife (2018) 28 Cal.App.5th 975, 983 [“Statutes should be interpreted with reference to the whole system of law of which they are a part, and sections relating to the same subject must be read together and harmonized.“].) We do not believe the Regional Board’s definition, which essentially exempts property owners from liability only where they were deceived as to a tenant’s activities, provides any meaningful limitation on liability.
We next turn our attention to pertinent caselaw for guidance in defining “permitted.”
2. Cases in the Porter–Cologne Act Context
Cases in the Porter–Cologne Act context provide little guidance regarding the meaning of the term “permitted.”
The Modesto I decision thoughtfully applied section 13304 to the novel claims before the court, but it focused on the meaning of the term “cause” and did not attempt to define the independent term “permit.” (Modesto I, supra, 119 Cal.App.4th at pp. 36–37.) The court did not consider under what circumstances an owner could be held responsible for a tenant’s discharges under section 13304, characterizing its conclusion as “that the Legislature did not intend the act to impose liability on those with no ownership or control over the property or the discharge, and whose involvement in a discharge was remote and passive.” (Id. at p. 43; see also San Diego Gas & Electric, supra, 36 Cal.App.5th at p. 442 [“The Modesto opinions discuss the issue of causation in the context of whether defendants who had no physical control over the discharged waste . . . could be found a ‘cause’ of the discharge based on the equipment they designed or instructions they gave.“].)
The decision in TWC Storage, LLC v. State Water Resources Control Bd. (2010) 185 Cal.App.4th 291, also provides little guidance regarding the meaning of “permit.” There, a landowner challenged a $25,000 fine imposed by a regional board due to a chemical spill (also PCE) on the owner’s property that resulted in groundwater contamination. The spill occurred due to an error by someone working for a contractor hired by the owner to perform demolition. (Id. at p. 293.) The fine was imposed in part under
Finally, in San Diego Gas & Electric, supra, 36 Cal.App.5th 427, a power plant operator that had discharged waste into San Diego Bay contended it could not be named in a section 13304 cleanup order absent proof of causation under the common law “substantial factor” test. (San Diego Gas & Electric, at p. 431.) The court of appeal rejected that contention, in light of the Legislature’s intent “to expand the regional boards’ ability to name responsible persons” (id. at p. 435) and caselaw from the nuisance context enjoining dischargers even where there were other contributors to the pollution (id. at pp. 436–439). The San Diego Gas & Electric decision is fully consistent with the present decision, but it provides no direct guidance regarding the meaning of the term “permit” because in that case it was “undisputed on appeal that [the company] directly discharged and thus ‘caused or permitted’ waste to enter the Bay.” (Id. at p. 431.)
3. The Decision in Laube v. Stroh
As noted previously, the trial court followed a 1992 decision of this court, Laube, supra, 2 Cal.App.4th 364, in adopting its definition of “permitted,” requiring the Regional Board to show that UATC had “actual or constructive knowledge of either a specific discharge or of a dangerous condition that poses a reasonable suggestion of a discharge at the site.” As explained below, Laube did not interpret a statute using the term “permitted,” and the definition of “permitted” employed in Laube was due to constitutional and policy considerations not present in the section 13304 context.
In Laube, supra, 2 Cal.App.4th 364, this court considered the propriety of suspending or revoking liquor licenses “because [the licensees] allegedly ‘permitted’ drug sales in their establishments,” despite the fact that “[n]either licensee knew or had reason to know of the drug trafficking.” (Id. at p. 366.) The case did not involve a statute that employed the term “permitted;” the revocation was under a provision authorizing action “When the continuance of a license would be contrary to public welfare or morals.” (
Contrary to the Regional Board’s contention that the term “permitted” in section 13304 imposes only the limited burden of showing an owner was aware of the general activity that resulted in a discharge, Laube supports the position that before an owner can be said to have “permitted” harm resulting from a lessee’s conduct, there must be some basis to conclude that the owner was aware or should have been aware of the reasonable possibility that harm would occur—in this case the discharge of hazardous wastes. On the other hand, we disagree with the trial court’s conclusion that the precise definition of “permit” employed in Laube applies in the section 13304 context.20
Laube required specific knowledge of the prohibited activity, but that court’s analysis makes it clear that different statutory and regulatory schemes call for different standards of knowledge. In requiring a strenuous showing of knowledge to support a finding that an owner permitted illegal activity, Laube relied upon the fact that “liquor licensees . . . enjoy a constitutional standard of good cause before their license—and quite likely their livelihood—may be infringed by the state.” (Laube, supra, 2 Cal.App.4th at p. 377.) That is, the court in Laube was determining what circumstances constitute good cause for action against a licensee, and the court therefore adopted a definition of “permitted” that only held licensees responsible for criminality in their establishments where they acted in a blameworthy manner. Furthermore, the Laube court was also concerned that holding licensees broadly responsible for criminality in their establishments, without any prior awareness of illegal
In contrast, in the present case this court is interpreting “permitted” as used in section 13304, not a “good cause” provision that arguably requires heightened blameworthiness as a predicate for liability. Furthermore, where in Laube the court emphasized the potential negative consequences to the public that could result from excessive vigilance on the part of licensees, UATC has identified no similar negative consequences from such vigilance in the section 13304 context. To the contrary, the public has a strong interest in preventing the discharge of hazardous wastes and would benefit from greater vigilance on the part of property owners. In enacting the Porter–Cologne Act, the Legislature found and declared “that the people of the state have a primary interest in the conservation, control, and utilization of the water resources of the state, and . . . [¶] . . . [¶] . . . the state must be prepared to exercise its full power and jurisdiction to protect the quality of waters in the state from degradation originating inside or outside the boundaries of the state . . .” (
In the section 13304 context, an owner cannot be said to permit a discharge simply by allowing a lessee to operate a certain type of business, absent knowledge or constructive knowledge that, in general, the business creates a reasonable possibility of discharge. But if an owner, who necessarily profits from the activities of its lessees, knows or should know of such a risk and chooses to lease to an operator of that type of business, the owner may properly be held responsible for any discharges that occur.22
The public has a strong interest in the cleanup of hazardous wastes and relieving owners of liability shifts the costs to others or, if there are no solvent other responsible parties, to the public. To accept the trial court’s reasoning and require actual or constructive knowledge of an actual discharge or specific dangerous conditions in a lessee’s operation would excuse the owner from any obligation to mitigate the risk of discharge by, for example, supervising the lessee’s activities or
E. Nuisance Law
UATC argues interpreting section 13304 to require knowledge of a discharge before naming a prior owner is “consistent with the law of nuisance.” UATC points out that
As explained above, in Modesto I, supra, 119 Cal.App.4th 28, the court of appeal considered when manufacturers and distributors of dry-cleaning equipment and solvent can be held responsible as persons who “cause[d] wastes to be discharged or deposited” within the meaning of section 13304. (Modesto I, at p. 35Id. at p. 37.)
UATC argues that, under Modesto I, this court should construe section 13304 to impose no greater liability on a landowner than would be imposed under the common law of nuisance. However, UATC points to no definition of “permitted” in nuisance law. Instead, UATC cites to Resolution Trust Corp. v. Rossmoor Corp. (1995) 34 Cal.App.4th 93 (Rossmoor), for the proposition that landowners can only be held liable for a tenant’s nuisance if the owner knows of the condition. In that case, the plaintiff sued the owner of a neighboring parcel for “nuisance, trespass, and negligence” due to gasoline contamination from a gas station operated on the defendant’s parcel. (Id. at pp. 98–99.) The court of appeal agreed the fuel leaks constituted a continuing nuisance, and the court held “[t]he defendant [landlord] must be aware of the specific dangerous condition and be able to do something about it before liability will attach.” (Id. at p. 102Id. at p. 100, fn. 6; see also id. at p. 100 [noting that “when the nuisance is created by another[, s]ome form of negligence by the
In Rossmoor, the landlord’s potential liability turned on whether it acted negligently, not on whether the landlord “permitted” the discharges resulting in the nuisance. (Rossmoor, supra, 34 Cal.App.4th at pp. 100–101.) Therefore, the Rossmoor court had no occasion to define “permit,” and it offers no direct guidance regarding the meaning of the term in section 13304.23
Furthermore, in Rossmoor a regional water board had issued a cleanup order against the landowner, presumably under section 13304, based on a finding that the landowner “caused or permitted” the discharge. (Rossmoor, at p. 105.) The court of appeal observed that the regional board “did not purport to find or adjudicate whether the defendants had a duty to prohibit the leakage from reaching [the plaintiff’s] property in the first place.” (Ibid.) Thus, in that case the landowner was subject to a section 13304 cleanup order, but the owner was not held liable for the neighbor’s damages from the nuisance. Our construction of section 13304 is consistent with that result, while the trial court’s interpretation would be inconsistent with that result—an owner that had sufficient knowledge to satisfy the trial court’s standard would also have sufficient awareness of risk to give rise to a duty of care in the nuisance context.
Finally, adopting a negligence test for “permitted” seems clearly inconsistent with the Legislature’s 1980 amendment deleting “negligently” from section 13304.
F. The Relevant State Board Decisions Are Inconsistent but Support a Limited Showing of Awareness of Risk of Discharge
The Regional Board argues that its interpretation of section 13304 is supported by a number of State Board administrative decisions reviewing regional board actions. Although we believe the decisions are due less deference than the Regional Board contends, it ultimately makes no difference because the decisions fail to disclose a consistent interpretation of “permitted” in section 13304. The decisions do, however, support a conclusion that section 13304 requires some meaningful showing of awareness of the risk of discharge to justify naming a prior owner in a cleanup order.
The Regional Board argues that this court “must defer” to the State Board’s decisions “unless the interpretation flies in the face of the clear language and purpose of the interpreted provision.” (Communities for a Better Environment v. State Water Resources Control Bd. (2003) 109 Cal.App.4th 1089, 1104 (Communities).) But, as the California Supreme Court explained in Yamaha, supra, 19 Cal.4th 1, “there are two categories of administrative rules and . . . the distinction between them derives from their different sources and ultimately from the constitutional doctrine of the separation of powers. One kind—quasi-legislative rules—represents an authentic form of substantive lawmaking: Within its jurisdiction, the agency has been delegated the Legislature’s lawmaking power. [Citations.] Because agencies granted such substantive rulemaking power are truly ‘making law,’ their quasi-legislative rules have the dignity of statutes. When a court assesses the validity of such rules, the scope of its review is narrow. If satisfied that the rule in question lay within the lawmaking authority delegated by the Legislature, and that it is reasonably necessary to implement the purpose of the statute, judicial review is at an end.” (Id. at pp. 10–11.) The court continued, “It is the other class of administrative rules, those interpreting a statute, that is at issue in this case. Unlike quasi-legislative rules, an agency’s interpretation does not implicate the exercise of a delegated lawmaking power; instead, it represents the agency’s view of the statute’s legal meaning and effect, questions lying within the constitutional domain of the courts. But because the agency will often be interpreting a statute within its administrative jurisdiction, it may possess special familiarity with satellite legal and regulatory issues. It is this ‘expertise,’ expressed as an interpretation . . . that is the source of the presumptive value of the agency’s views. An important corollary of agency interpretations, however, is their diminished power to bind. Because an interpretation is an agency’s legal opinion, however ‘expert,’ rather than the exercise of a delegated legislative power to make law, it commands a commensurably lesser degree of judicial deference.” (Id. at p. 11.)
Review of quasi-legislative rules is limited ” ‘to a determination whether the agency’s action is arbitrary, capricious, lacking in evidentiary support, or contrary to procedures provided by law,’ ” but when an agency construes a statute, courts take “ultimate responsibility for the construction of the statute” while according “great weight and respect to the administrative construction.” (Yamaha, supra, 19 Cal.4th at p. 12.) Because the State Board decisions involve the agency’s interpretations of section 13304 rather than quasi-legislative rulemaking, we apply the lesser level of deference described in the Yamaha decision. Under Yamaha, the precise ” ‘weight’ [an agency interpretation] should be given” is “fundamentally situational.” (Ibid.) The Supreme Court outlined a number of factors, but the
If taken literally and applied in circumstances like those in the present case, the rule articulated in Communities, supra, 109 Cal.App.4th at p. 1104—requiring deference unless the agency “interpretation flies in the face of the clear language and purpose of the interpreted provision“—would almost always require deference to any agency interpretation of an ambiguous statute. That would be is inconsistent with this court’s “ultimate responsibility for the construction of the statute.” (Yamaha, supra, 19 Cal.4th at p. 12.) To the extent Communities is inconsistent with Yamaha, we of course follow the California Supreme Court.24
2. The State Board Decisions Do Not Reflect a Consistent Rule
In any event, even if we were required to give great deference to a State Board interpretation reflected in its decisions, we would be unable to do so in the present case because the decisions cited by the Regional Board do not reflect a consistent interpretation of section 13304 as to the knowledge required to hold a former owner liable for permitting a discharge.
In the most recent decision cited by the Regional Board on the issue, In re Wenwest, Inc. (Order No. WQ 92-13, Oct. 22, 1992) 1992 Cal. ENV LEXIS 19 (Cal.St.Wat.Res.Bd.), the State Board considered whether it was proper for a number of parties that had some connection to the site of a former gasoline service station to be named in a cleanup order, including the owner of the site during the period of operation of the station (Phillips Petroleum Company), the current owners of the site, and a past owner who did not own the property while it was a service station (Wendy’s International). (Id. at pp. *1–2.) The State Board concluded it was proper to name the current owners, who had “the obligation to prevent an ongoing discharge caused by
As to Phillips Petroleum Company, the State Board stated, “Under precedent established by this Board (see Petition of John Stuart[ (Order No. WQ 86-15, Sept. 18, 1986) 1986 Cal. ENV LEXIS 17 (Cal.St.Wat.Res.Bd.)]), we apply a three-part test to former owners: (1) did they have a significant ownership interest in the property at the time of the discharge?; (2) did they have knowledge of the activities which resulted in the discharge?; and (3) did they have the legal ability to prevent the discharge?” (Wenwest, Inc., supra, 1992 Cal. ENV Lexis 19 at p. *5.) Although the decision does not tie that test to the language of section 13304, the test is apparently an interpretation of the “caused or permitted” standard. The State Board concluded the regional board “properly included Phillips Petroleum whose predecessor owned the property and leased it to a service station operator during a time when leaks from the underground storage tanks were clearly taking place.” (Wenwest, at p. *11.)
The decision in Wenwest supports the Regional Board’s position in the present case, because the decision imposed liability on a prior owner based on evidence of knowledge of the general activity alone. We disagree with the trial court’s view that the State Board concluded Wendy’s International was not liable because it lacked actual or constructive knowledge of the risk of discharges. Wenwest is clear that it did not impose liability on Wendy’s International because it “never owned [the site] during the time the tanks were actually leaking.”
Although Wenwest supports the Regional Board’s position, prior State Board decisions do not. The decision in Petition of John Stuart, supra, 1986 Cal. ENV Lexis 17, is cited as the basis for the rule articulated in Wenwest, although Stuart does not purport to articulate a “knowledge of the activities” test. (Wenwest, Inc., supra, 1992 Cal. ENV Lexis 19 at p. *5.) Stuart, involving a lessee named in a cleanup order arising from a sublessee’s gasoline station discharges, appears to express two different views on the knowledge required. In footnote two, the decision asserts, “The legislative intent to provide strict liability in this section is clear, since the statute was amended in 1980 to remove the requirement that intention or negligence be present where the discharge does not violate a Regional Board order or prohibition.” (Petition of John Stuart, supra, 1986 Cal. ENV Lexis 17 at p. *7, fn. 2.) On the other hand, the decision also states, “Actual knowledge of the
In In re San Diego Unified Port District (Order No. WQ 89-12, Aug. 17, 1989) 1989 Cal. ENV LEXIS 14 (Cal.St.Wat.Res.Bd.), the State Board concluded a port district permitted discharge from a copper ore operation where the record showed “that the Port District knew of the potential for discharge of copper ore to San Diego Bay from [the lessee’s] activities.” (Id. at p. *8.) Without acknowledging the difference, the decision also articulated two other standards of knowledge. First, the decision asserted, “This Board has consistently taken the position that a landowner who has knowledge of the activity taking place and has the ability to control the activity has ‘permitted’ the discharge within the meaning of Section 13304.” (San Diego Unified Port District, at p. 8.) Second, in a footnote the State Board referenced past decisions and asserted, “In each case, the landowner did not take an active role in the discharge but, in each case, the landowner was in a position to prevent the discharge and knew or should have known that the discharge was taking place.” (Id. at p. 8, fn. 3.) Thus, the stated basis for the San Diego Unified Port District decision is knowledge of a risk of discharge, but the decision also references tests based on knowledge of activities and based on knowledge of actual discharges.
Finally, in Petition of Harold and Joyce Logsdon, supra, 1984 Cal. ENV LEXIS 14, the State Board concluded it was proper to name in a cleanup order individuals who were the prior owners of property where a wood treating and preserving facility operated. The decision concluded the owners had permitted discharges at the site within the meaning of section 13304 where they “either had or should have had knowledge of discharges at the site. Given the hazardous nature of the waste, such discharges can be presumed dangerous.”25 (Logsdon, at p. *17.)
In sum, close examination of the State Board decisions cited by the Regional Board demonstrates that the State Board has not taken a consistent position on the type of knowledge required to hold an owner liable in a
G. Conclusion
We construe “permitted” in section 13304 to mean that a prior owner may be named in a cleanup order if it knew or should have known that a lessee’s activity created a reasonable possibility of discharge of hazardous wastes, meaning wastes an owner knew or should have known could create or threaten to create a condition of pollution or nuisance if discharged into waters of the state. We do not address the question whether subsequent steps taken by such an owner to prevent discharges may preclude being named in a cleanup order.27
The Regional Board’s interpretation comes close to writing “permitted” out of the statute by imposing liability under a cleanup order absent any knowledge, actual or constructive, that a lessee’s activity created a risk of discharge of hazardous wastes. Such a construction of section 13304 would impose liability almost as broad as that imposed in section 13305 on a current property owner with respect to a cleanup associated with a nonoperating businesses, even though section 13305 does not require a showing that an owner caused or permitted the discharges that created the condition of pollution or nuisance. Furthermore, the State Board’s decisions, on the whole, recognize the importance of at least awareness of that risk in imposing liability. On the other hand, the trial court’s standard requires regional boards to make an excessively rigorous showing of knowledge before naming a prior owner in a cleanup order. The court directly incorporated the definition of
UATC argues it cannot be said to have permitted waste to be discharged if it did not have knowledge of the discharge. But the term “permitted” is expansive enough to encompass a situation where a landlord let a discharge occur by allowing an activity to take place, where the landlord knew or should have known the general activity created a reasonable possibility of discharge.28 Construing section 13304 to authorize regional boards to name such owners in cleanup orders elevates their interest in mitigating the risk
of discharges of hazardous wastes by lessees—and landowners are in a position to prevent such discharges. (See Leslie Salt, supra, 153 Cal.App.3d at p. 617 [“a narrow rendition of [appellant‘s] authority ascribes no significance to a landowner‘s ability to prevent the placement of fill on his land by others and, if adopted by the courts, would diminish the incentive for landowners to manage their properties so as to reduce the prospect of illegal fill, a result that is also clearly repugnant to the legislative purpose“].) Our construction of
We will remand and direct the trial court to conduct further proceedings consistent with this decision, which may include directing the Regional Board
II. The Regional Board‘s Claim Was Not Discharged in UATC‘s Bankruptcy
UATC contends in the alternative that, even if the Cleanup Order was authorized by
UATC‘s contention presents two separate issues. The first is whether the Regional Board‘s entitlement to a cleanup order is a “claim” within the meaning of the Bankruptcy Code. The second issue is whether the claim arose before the bankruptcy confirmation date, such that the Regional Board forfeited the claim by failing to file in the bankruptcy proceeding. We need not and do not address the first issue because we conclude UATC‘s argument fails under the second issue.30 In particular, assuming that the cleanup order is a “claim,” the claim did not arise before the bankruptcy confirmation date because it was not within the fair contemplation of the parties at that time.
“[T]he confirmation of a plan of reorganization ‘discharges the debtor from any debt that arose before the date of such confirmation’ “, so “the determination when a claim arises” is critical to determining if it has
The Bankruptcy Code itself does not address when claims can be said to arise such that they are subject to discharge. We follow the Ninth Circuit‘s decision in In re Jensen (9th Cir. 1993) 995 F.2d 925, 927 (Jensen), which thoughtfully considered the issue in order to “reconcile[]” the “conflicting objectives.” (Id. at p. 928.) In particular, environmental cleanup laws “seek ‘to protect public health and the environment by facilitating the cleanup of environmental contamination and imposing costs on the parties responsible for the pollution,’ ” while federal bankruptcy law “is ‘designed to give a debtor a “fresh start” by discharging as many of its “debts” as possible.’ ” (Id. at pp. 927-928.)
Jensen rejected the approach of courts that had concluded that “each element of a . . . claim must be established, including the incurrence of response costs, before a dischargeable claim arises.” (Jensen, supra, 995 F.2d at p. 928.) Jensen reasoned that “[t]o hold that a claim for contribution arises only when there is an enforceable right to payment appears to ignore the breadth of the statutory definition of ‘claim.’ ” (Id. at p. 929; see also Matter of Chicago, Milwaukee, St. Paul & Pac. R. Co. (7th Cir. 1992) 974 F.2d 775, 786 (Chicago, Milwaukee).) Jensen also rejected the approach for which UATC advocates on appeal, in which “the bankruptcy claim arises at the time of the debtor‘s conduct relating to the contamination.” (Jensen, at p. 929.) Jensen observed that ” ‘nothing in the legislative history or the Code suggests that Congress intended to discharge a creditor‘s rights before the creditor knew or should have known that its rights existed.’ ” (Id. at p. 930; see also Chicago, Milwaukee, at p. 784.)
The Jensen court also rejected a “relationship” test articulated in Chateaugay, supra, 944 F.2d 997. There, the debtor filed a schedule of liabilities with its Chapter 11 bankruptcy petition including a list of “contingent” claims held by the EPA and state enforcement officers. (Chateaugay, at p. 999.) Although the EPA did not know which sites would require cleanup, it
Instead of those tests or other variants, Jensen followed National Gypsum in adopting, at least in the context of environmental cleanup claims, “[w]hat might be called the ‘fair contemplation’ test [that] provides that ‘all future response and natural resource damages cost[s] based on pre-petition conduct that can be fairly contemplated by the parties at the time of [d]ebtors’ bankruptcy are claims under the [Bankruptcy] Code.’ ” (Jensen, supra, 995 F.2d at p. 930, quoting National Gypsum, supra, 139 B.R. at p. 409.) “[I]ndicia of fair contemplation” include knowledge of a site where a release occurred or was threatened to occur, ” ‘commencement of investigation and cleanup activities, and incurrence of response costs.’ ” (Ibid.) The test is ” ‘not meant to encourage or permit dilatory tactics on the part of . . . any . . . relevant government agency.’ ” (Ibid.)
In Jensen, the debtors’ lumber business filed a Chapter 11 bankruptcy petition in December 1983 and in January 1984 an inspector from a regional water quality control board visited the inactive lumberyard and “observed a fungicide dip tank.” (Jensen, supra, 995 F.2d at p. 931.) That board notified the debtors of the issue in February 1984, stating in a letter “that any release of the solution ‘through accident or vandalism . . . . would probably cause a major fish kill in the South Fork Trinity River and could possibly affect the health of downstream water users.’ ” (Id. at p. 926.) The debtors’ attorney
Jensen described the fair contemplation test as “kindred” (Jensen, supra, 995 F.2d at p. 930) to the approach adopted by the Seventh Circuit in Chicago, Milwaukee, supra, 974 F.2d 775. There, the State of Washington knew of a spill of hazardous materials at a site formerly owned by the debtor in a bankruptcy reorganization and took soil samples and conducted tests concerning the possible contamination, but the state failed to file proof of its claim in the bankruptcy proceeding. (Chicago, Milwaukee, at p. 778.) The Seventh Circuit articulated the issue in the case as, “at what point does a party have a CERCLA claim for purposes of bankruptcy so that the failure to raise the claim before bankruptcy bar dates forever bars the claim from being brought against the successors to a reorganized company?” (Chicago, Milwaukee, at p. 779.) The court held that, “when a potential CERCLA claimant can tie the bankruptcy debtor to a known release of a hazardous substance which this potential claimant knows will lead to CERCLA response costs, and when this potential claimant has, in fact, conducted tests with regard to this contamination problem, then this potential claimant has, at least, a contingent CERCLA claim . . . .” (Id., at p. 786; see also id., at p. 787.)
Under the fair contemplation test “a claim arises when a claimant can fairly or reasonably contemplate the claim‘s existence even if a cause of action has not yet accrued under nonbankruptcy law.” (In re SNTL Corp. (9th Cir. 2009) 571 F.3d 826, 839.)
UATC argues the Regional Board‘s claim arose before the bankruptcy proceeding because “the Regional Board fairly could have contemplated well before UATC‘s 2001 bankruptcy that it had a claim against the former owner of a property where a drycleaner had operated since the 1960s.” The main thrust of UATC‘s argument on appeal is that if it can be held liable under
UATC‘s argument fails. The parties are not similarly situated: while it is reasonable to hold a landowner responsible for what it permits to take place on its property, it is not reasonable to expect the regional boards to track bankruptcy proceedings involving all landowners who have leased to dry cleaners (and every other business that might present a risk of hazardous waste discharges). Moreover, UATC‘s argument is based on a fundamental misconception that the “fair contemplation” test in the bankruptcy context must mirror the definition of “permitted” in
UATC cites no cases that find fair contemplation of the existence of a claim in circumstances anywhere close to those in the present case. Instead, in all the cases it cites, the claimant had specific reason to be on notice of the possibility of pollution by the debtor or at a specific site. As noted previously, in Jensen, the Water Board had been in communication with the debtors about the threat of discharge at the site prior to the filing of the bankruptcy petition. (Jensen, supra, 995 F.2d at p. 926.) In the Chicago, Milwaukee case, the State of Washington knew of a spill of hazardous materials at the site and had conducted tests concerning the possible contamination prior to the bar date for filing claims. (Chicago, Milwaukee, supra, 974 F.2d at pp. 777-778.) In another case involving the same railroad, a subsequent owner of the site was found to have “sufficient knowledge of its potential liability under CERCLA to require it to file a proof of claim.” (Matter of Chicago, Milwaukee, St. Paul & Pac. R. Co. (7th Cir. 1993) 3 F.3d 200, 206.) Among other things, the railyard at issue was “included in a Superfund site,” a report available to the subsequent owner “described contamination at the railyard,” the owner‘s “own engineers had noted that the railyard might require extensive cleanup,” and the owner “knew of EPA investigations in the area.” (Ibid.; see also In re Manville Forest Products Corp. (2d Cir. 2000) 209 F.3d 125, 129 [“future environmental liability was actually or presumedly contemplated by the parties upon their signing of the indemnification agreements“]; In re Cool Fuel, Inc. (9th Cir. 2000) 210 F.3d 999, 1007 [State Board of Equalization‘s claim arose before bankruptcy where Board had knowledge of transactions that created tax liability and “the Board had contemplated a claim by initiating an investigation and issuing a deficiency determination for the disputed taxes“].)
Notably, UATC fails to discuss any of the specific factors identified in Jensen as appropriate to consider in applying the fair contemplation test. Those factors include: (1) ” ‘knowledge by the parties of a site in which’ ” there may be liability; (2) notification by the creditor to the debtor of potential liability; (3) ” ‘commencement of investigation and cleanup activities’ “; and (4) ” ‘incurrence of response costs.’ ” (Jensen, supra, 995 F.2d at p. 930.) The only one of those factors that has any application here is the site knowledge factor, and only to the extent that the Regional Board could have determined that UATC leased to a dry cleaner at the site. The Regional Board did not have the type of knowledge present in the federal cases until
To find the claim arose in the present case before the 2001 confirmation of UATC‘s bankruptcy, we would have to conclude it is reasonable to expect the Regional Board to stay abreast of any bankruptcy filings by any entity or individual that owned or owns any site where a dry cleaner is operating or has operated. By analogy, we would also necessarily be concluding that the Regional Board is required to stay abreast of any bankruptcy filings by any entity or individual that owns or owned any site where any number of other businesses that carry a risk of waste discharges operate or operated. Although it is appropriate to conclude the Regional Board can reasonably contemplate the existence of a claim and be expected to participate in a bankruptcy proceeding where the Regional Board has information regarding the likelihood of a discharge at a specific site, it would render the test meaningless to apply it as broadly as UATC suggests. Indeed, if the test were as broad as UATC suggests, the courts in the Jensen and Chicago, Milwaukee cases would not have needed to discuss the evidence showing actual or constructive notice, because the risk of pollution at railroad and lumber yards is something the claimants in those cases should have been aware of.
In conclusion, UATC has presented no facts showing that the Regional Board‘s claim arose before the 2001 bankruptcy confirmation; accordingly, the claim was not discharged in the bankruptcy proceeding.33
DISPOSITION
The trial court‘s order is reversed. The matter is remanded for further proceedings consistent with this decision. Costs on appeal are awarded to the Regional Board.
SIMONS, J.
We concur.
JONES, P.J.
NEEDHAM, J.
(A152988)
Superior Court of Alameda County, No. RG16811955, Hon. Jennifer Madden, Judge.
Hogan Lovells US, Scott H. Reisch, Katherine B. Wellington, for Plaintiff and Appellant.
Xavier Becerra, Attorney General, Gavin G. McCabe, Mark W. Poole and Marc N. Melnick, Deputy Attorneys General, for Defendant and Appellant.