The Ninth Circuit reversed summary judgment for defendants where plaintiffs sought recovery of cleanup costs and money damages for an inability to refinance polluted land. The court held that summary judgment was improper because genuine issues of material fact remained with respect to whether the pollution was an environmental threat, whether plaintiff's response costs were necessary, and whether the term "disposal" includes passive migration of hazardous waste under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).[1]

Carson Harbor Village (Carson Harbor) owned and operated a mobile home park in Carson, California, which it acquired from a general partnership, Carson Harbor Village Mobile Home Park (Carson Partnership). In 1993, Carson Harbor sought to refinance the property. An environmental assessment of the land, commissioned by Carson Harbor's lender, revealed slag and tar-like material in a wetland area of the property. Further investigation by private environmental consultants revealed that: 1) the materials covered a 30 foot by 160 foot area of the wetlands and had been on the property for several decades; 2) the materials were a form of waste or by-product of petroleum production and contained high levels of petroleum hydrocarbons (TPH) and lead; and 3) soil samples upgradient of the material also contained elevated levels of TPH and lead. After the appropriate state agencies were informed, the Regional Water Quality Control Board (Water Board) took the lead role in the case. Prior to proposing a cleanup and submitting a remedial action plan (RAP),[2] Carson Harbor requested a letter from the Water Board stating that no further action was required on the property. The agency refused to issue the letter, but approved Carson Harbor's RAP, conditioned on greater reductions in contamination levels than those proposed in the RAP. Carson Harbor cleaned up the contaminated site, and the Water Board sent a no further action letter after performing site inspection and independent testing.

After receipt of the letter, Carson Harbor filed suit against the Carson Partnership, the City of Carson, the City of Compton, the County of Los Angeles (collectively the "government defendants"), and Unocal[3] to recover damages for an inability to refinance the property and for the cost of cleanup. Carson Harbor sought relief under CERCLA; common law claims of nuisance, trespass, and injury to easement; and a claim for express indemnity under the purchase agreement with the Carson Partnership. The district court rejected all of Carson Harbor's theories and granted summary judgment to the defendants. On appeal, the Ninth Circuit held that: 1) the district court improperly granted summary judgment to the Carson Partnership on the CERCLA claim because there were genuine issues of material fact as to whether there was sufficient evidence of an environmental threat and whether the response costs incurred by Carson Harbor were "necessary" under section 107 of CERCLA; 2) the statutory definition of "disposal" includes the passive migration of hazardous waste; 3) a California statute precluded Carson Harbor's common law claims; and 4) the district court improperly granted summary judgment to the Carson Partnership on Carson Harbor's claim for indemnity under the purchase agreement.

The Ninth Circuit began its analysis by rejecting the district court's finding that Carson Harbor's removal costs were not "necessary" as Congress used the term in CERCLA.[4] Costs are "necessary" under CERCLA if the party "show[s] 1) that the costs were incurred in response to a threat to human health or the environment, and 2) that the costs were necessary to address that threat."[5] The court found three flaws in the district court's analysis.

First, in finding that the response costs were unnecessary, the district court placed undue significance on Carson Harbor's subjective motivations for cleaning up the property. Instead of factoring in Carson Harbor's subjective motivations, the focus should have been on the objective circumstances of the case. If there is evidence that the costs were incurred in response to a threat to human health or the environment and the response action addresses that threat, the court stated the subjective motives of the party are immaterial.

Second, the district court incorrectly inferred that failure by the Water Board to order cleanup "is dispositive on the question of whether contamination presents an environmental risk worthy of response."[6] The court cited two previous Ninth Circuit cases in support of the proposition that agency inaction is not fatal to a cost-recovery suit.[7] In NL Industries, Inc. v. Kaplan, the court held that response costs can still be "necessary" when the agency that required cleanup never approved the response actions taken.[8] In Cadillac Fairview/California Inc. v. Dow Chemical Co., the Ninth Circuit held that an action can be "necessary" without significant prior state or local government action.[9]

Finally, the Ninth Circuit examined the record and concluded that the existence of genuine issues of material fact precluded summary judgment. Specifically, the parties disputed whether the Water Board had ordered the cleanup and whether the contamination posed a legitimate threat. At trial, the Water Board's project leader testified that the agency would not have required cleanup if Carson Harbor had not approached the agency with a remediation plan. However, Carson Harbor's environmental consultant contradicted the project leader's statements in testimony that the district court excluded as hearsay. The Ninth Circuit determined that the district court improperly excluded the testimony because it fell within the "basic rule of evidence . . . that prior inconsistent statements may be used to impeach the credibility of a witness."[10] Therefore, because the project leader's prior statements called his deposition into doubt, whether he ordered the cleanup or perceived an environmental threat was a question for the jury. The court found the project leader's testimony even more questionable in light of other evidence that had Carson Harbor acted at the direction of the Water Board according to the general standards of the Water Board, the contamination levels present at the property would have required Carson Harbor to take action. Further, the agency indicated that remedial action was necessary by withholding the no further action letter originally requested by Carson Harbor and by conditioning site closure on contamination levels lower than those proposed by Carson Harbor in the original RAP. Finally, before issuing a no further action letter, Water Board staff visited the site to verify that the cleanup met the conditions of the RAP. Therefore, the agency's actions and the evidence that contradicted the project leader's testimony indicated that Carson Harbor's cleanup costs were necessary. As a result, the Ninth Circuit held that the district court erred in granting summary judgment on this issue.

The Ninth Circuit next addressed the issue of whether the statutory definition of "disposal"[11] under CERCLA includes the passive migration of hazardous wastes. The district court had determined that passive migration is not "disposal", and therefore, the Carson Partnership was not a potentially responsible party (PRP)[12] because there was no evidence of "disposal" when it owned the property. Noting the split in the courts of appeal,[13] the Ninth Circuit held that "disposal" does encompass passive migration of hazardous waste.

First, the statutory definition of "disposal" includes three terms that are considered passive: discharge, spill, and leak. The Ninth Circuit found that because discharge, spill, and leak can occur passively, the district court erred in requiring active human participation as a prerequisite to liability. Therefore, the court gave the definition a passive effect because it includes passive migration by its own terms. Second, the Ninth Circuit cited a Fourth Circuit decision that refused to limit the reading of disposal under the Resource Conservation and Recovery Act (RCRA)[14] to active human conduct,[15] and noted a previous Ninth Circuit opinion that held the term disposal should not be limited to the initial introduction of hazardous waste onto the property.[16] Finally, the court found that including passive migration of waste as "disposal" is entirely consistent with the broad liability scheme of CERCLA. The court noted that Congress enacted CERCLA not only to impose the costs of cleanup on responsible parties, but also to create a mechanism for quick cleanup. CERCLA is a strict liability statute that does not contain traditional causation requirements. In addition, the statute's broad liability provisions may make parties liable who did not affirmatively contribute to contamination. The court held that given the strict liability scheme and the broad liability provisions of CERCLA, "including as PRPs owners who held land while waste passively migrated through the property is entirely consistent with this liability regime."[17]

Next, the Ninth Circuit addressed Carson Harbor's common law claims against the government defendants. Carson Harbor brought the claims because two storm drains controlled by the government emptied into the wetlands. The Ninth Circuit upheld the district court's determination that California law precludes common law claims against statutorily authorized conduct.[18] The government defendants operated the storm drains under a National Pollution Discharge Elimination System[19] permit, making the conduct statutorily authorized. As a result, the Ninth Circuit held that the district court properly granted summary judgment.

Finally, the Ninth Circuit reversed the district court's grant of summary judgment on Carson Harbor's claim for indemnity under the purchase agreement. The district court had granted summary judgment to the Carson Partnership because it concluded that the cleanup performed by Carson Harbor was not necessary and the indemnity provision of the purchase agreement only applied if the Carson Partnership would have been required to remove the hazardous substances in 1983. In light of the Ninth Circuit's determination that the district court improperly granted summary judgment as to whether the cleanup costs were necessary, genuine issues of fact remained as to whether the Carson Partnership was obliged to remove the hazardous substances in 1983. Therefore, the appellate court also reversed summary judgment on this issue.

Judge Weiner dissented from the majority's holding that CERCLA liability extends to the passive migration of waste, agreeing instead with the Second, Third, and Sixth Circuits, which require active human conduct--not passive migration of waste--to demonstrate disposal under CERCLA. In contrast to the majority, Judge Weiner determined that the words given passive effect by the majority--discharge, spill, and leak--cannot be interpreted to have a passive meaning. First, the dictionary definitions of discharge, spill, and leak reveal that all three require active human conduct. While conceding that "discharge" can be a naturally occurring event, Judge Weiner argued that once the term is read in the context of the surrounding verbs in the statutory definition and the purposes of CERCLA to place strict liability on the polluters, the term "discharge" is meant to be limited to active conduct.

Judge Weiner also supported his conclusion by comparing the statutory definitions of disposal and release. According to Judge Weiner, by including disposal in the definition of "release,"[20] Congress intended release to be the broader term. As a result, Judge Weiner concluded that disposal is the activity that precedes the substance's entry into the environment, while release is the actual entry of the substance into the environment. Furthermore, he thought it noteworthy that the definition of release includes the passive term "leaching," and the definition of disposal does not include such an obviously passive word. In addition, Judge Weiner considered it significant that Congress failed to include the term "release" in the definition of PRP. He reasoned that if Congress intended to impose liability on owners of land where waste passively migrated, it could have included "release" as well as "dispose" in the definition of PRP. Therefore, the failure of Congress to include "release" in the definition supports the position that active human conduct is necessary for disposal. The dissent concluded that the passive migration theory accepted by the majority does not agree with the legislative intent to hold those who created the pollution strictly liable. As a result, Judge Weiner would have upheld the district court's grant of summary judgment to the defendants on the CERCLA claim.