Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_07-cv-00142/USCOURTS-caed-2_07-cv-00142-3/pdf.json

Nature of Suit Code: 893
Nature of Suit: Environmental Matters
Cause of Action: 42:9607 Real Property Tort to Land

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UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

SEVEN SPRINGS LIMITED

PARTNERSHIP, a Missouri

limited partnership,

NO. CIV. S-07-142 LKK/GGH

Plaintiff,

v.

O R D E R

FOX CAPITAL MANAGEMENT

CORPORATION, a California

corporation,

Defendant.

 /

Plaintiff Seven Springs has brought an action for past and

future response costs related to contamination at a shopping

center in South Lake Tahoe, California. Plaintiff contends that

defendant Fox, as the former partner of a prior owner to the site,

is liable pursuant to the Comprehensive Environmental Response,

Compensation, and Liability Act, 42 U.S.C. §§ 9601 et seq.

(“CERCLA”), and pursuant to an indemnity agreement. Pending

before the court is defendant’s motion to dismiss. Defendant

argues that (1) plaintiff has failed to plead sufficient facts to

support its innocent land owner defense, (2) plaintiff cannot

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maintain a claim for contribution under CERCLA, and (3) plaintiff

is not entitled to indemnity under the terms of the agreement.

The court resolve the matter upon the parties’ papers and after

oral argument. For the reasons set forth below, the motion to

dismiss is granted in part and denied in part.

I. Background

Plaintiff Seven Springs owns the South Y Shopping Center in

South Lake Tahoe, California, which is site of alleged

perchloroethylene (PCE) contamination. Plaintiff has brought four

claims in the present action: (1) cost recovery under CERCLA

Section 107, (2) contribution under CERCLA Section 107 (in the

alternative), (3) declaratory judgment, and (4) express

contractual indemnity.

Defendant Fox was the general partner of the now defunct

Century Properties Equity Fund 73 (“Century 73"), which owned the

site from 1974 to 1985. Compl. ¶ 18. During this period,

plaintiff alleges that hazardous substances were disposed of at

the site, causing the contamination at issue in this lawsuit.

Specifically, plaintiff alleges that PCE was released to the soil

and potentially the groundwater through cracks and holes in the

sidewalk, parking lot, and/or driveway during delivery of PCE (a

cleaning solvent) to a coin-operated dry-cleaning unit. Compl. ¶¶

14, 17.

Plaintiff alleges that Century 73 sold the site in 1985 to

Dorothy Lyddon. Compl. ¶ 24. At the time, Century 73 entered

into an agreement with Lyddon to indemnify her for losses with

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respect to any breaches by Century 73 of its obligations as

landlord, including an alleged duty to maintain the sidewalks of

the premises. Compl. ¶ 30. In 1996, Lyddon transferred ownership

of the site to plaintiff Seven Springs; at the time, she owned

100% of Seven Springs’ limited partner interest and 70.01% of its

1% general partner interest. Compl. ¶ 32-35.

II. Standard

On a motion to dismiss, the allegations of the complaint must

be accepted as true. See Cruz v. Beto, 405 U.S. 319, 322 (1972).

The court is bound to give the plaintiff the benefit of every

reasonable inference to be drawn from the "well-pleaded"

allegations of the complaint. See Retail Clerks Intern. Ass'n,

Local 1625, AFL-CIO v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963).

Thus, the plaintiff need not necessarily plead a particular fact

if that fact is a reasonable inference from facts properly

alleged. See id.; see also Wheeldin v. Wheeler, 373 U.S. 647, 648

(1963) (inferring fact from allegations of complaint).

In general, the complaint is construed favorably to the

pleader. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). So

construed, the court may not dismiss the complaint for failure to

state a claim unless it appears beyond doubt that the plaintiff

can prove no set of facts in support of the claim which would

entitle him or her to relief. See Hishon v. King & Spalding, 467

U.S. 69, 73 (1984) (citing Conley v. Gibson, 355 U.S. 41, 45-46

(1957)). In spite of the deference the court is bound to pay to

the plaintiff's allegations, however, it is not proper for the

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court to assume that "the [plaintiff] can prove facts which [he or

she] has not alleged, or that the defendants have violated the .

. . laws in ways that have not been alleged." Associated General

Contractors of California, Inc. v. California State Council of

Carpenters, 459 U.S. 519, 526 (1983).

III. Analysis

A. Cost Recovery under CERCLA Section 107

First, defendant argues that plaintiff has failed to plead

a defense to liability, which is a prerequisite to bringing a

Section 107 cost recovery action against other potentially

responsible parties (“PRPs”) under CERCLA. The innocent land

owner defense requires, among other things, that the defendant

lack knowledge of the hazardous substance at the time of

acquisition, carry out all appropriate inquiries regarding

previous ownership, and exercise due care with respect to the

hazardous substances. See 42 U.S.C. §§ 9607(b), 9601(35)(A)-(C)

(requiring total of seven elements). Plaintiff alleges that it

is entitled to the innocent landowner defense based on two

theories: that Lyddon qualified for the defense when she

acquired the site and that Seven Springs independently satisfies

the requirements. The first theory is untenable as a matter of

the law, and the second theory has not been sufficiently pled.

With regard to the first theory, even if Lyddon could

establish that she was entitled to the defense, that would be of

little assistance to Seven Springs. Simply put, Lyddon is not

Seven Springs. Although Lyddon may own over 99% of the interest

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in Seven Springs, the two are still separate legal entities,

with separate rights and responsibilities. See Cal. Corp. Code

§ 16201 (“[a] partnership is an entity distinct from its

partners.”); Chesapeake and Potomac Telephone Co. v. Peck Iron &

Metal Co., Inc., 814 F. Supp. 1269, 1280-81 (E.D. Va. 1992)

(analyzing availability of innocent landowner defense separately

for partnership and general partners).

Moreover, to allow a subsequent owner to shelter under the

defense of a former owner would defeat the purpose of the

defense. For instance, Seven Springs would be able to claim the

defense even if it performed no inquiry at all into existing

environmental conditions at the time that it acquired the site. 

Accordingly, to the extent that plaintiff relies on the conduct

of “Seven Springs, through Ms. Lyddon,” Compl. ¶¶ 50-54, this

fails to state a claim as a matter of law. 

With regard to the second theory, Seven Springs has not

sufficiently pled that it independently satisfies the elements

of the innocent landowner’s defense. The complaint contains

allegations pertaining to only a subset of the required elements

of the defense, such as whether defendant took reasonable steps

to stop any continuing release. See Compl. ¶ 55; M&M Realty Co.

v. Eberton Terminal Corp., 977 F. Supp. 683, 687 (M.D. Pa. 1997)

(finding that plaintiff had not adequately pled all elements of

the innocent landowner defense). Nevertheless, because the

defects are easily cured, the court grants the motion to dismiss

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 The draft amended complaint attached to plaintiff’s 1

opposition appears to have cured the defects in the original

complaint. Despite defendant’s assertions to the contrary,

plaintiff need not plead more than this. Rule 8 only requires that

the pleader provide a short and plain statement of the grounds for

relief.

 Section 113 permits “any person [to] seek contribution from 2

any other person who is liable or potentially liable . . . during

or following any civil action under [Sections 106 or 107(a)]. 42

U.S.C. § 9613(f)(1). It also provides that “[a] person who has

resolved its liability to the United States or a State for some or

all of a response action . . . in an . .. approved settlement may

seek contribution from any person who is not party to a

settlement.” 42 U.S.C. § 9613(f)(3)(B).

 Section 107 of CERCLA provides that a PRP "shall be liable 3

to (A) all costs of removal or remedial action incurred by the

United States Government or a State of an Indian tribe not

inconsistent with the national contingency plan; (and) (B) any

other necessary costs of response incurred by any other person

consistent with the national contingency plan." 42 U.S.C. §

9607(a).

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with respect to plaintiff’s first claim, with leave to amend.1

B. Contribution under Section 107

Second, defendant argues that plaintiff cannot maintain a

contribution action under Section 107 because it cannot meet the

requirements set forth in Section 113, which defendant maintains

is a prerequisite to any claim for contribution. Plaintiff

concedes that, at present, it may not satisfy the requirements

of Section 113, which permits a contribution action only where

the plaintiff has first been sued under CERCLA, or has entered

into a qualifying settlement. Accordingly, the only issue is 2

whether a plaintiff may proceed with a contribution action under

Section 107, when it has not satisfied the requirements of

Section 113. 

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The state of the law on this issue is in flux, and is the

subject of pending appeals before the Ninth Circuit, as well as

the Supreme Court. See City of Rialto v. U.S. Dep’t of Defense,

No. 05-56749 (9th Cir. Nov. 5, 2005); Koutros v. Gross-Jewett

Co., No. 05-80120 (9th Cir. Oct. 21, 2005); Atlantic Research

Corp. v. United States, 459 F.3d 827 (8th Cir. 2006), cert.

granted, 127 S. Ct. 1144 (Jan. 19, 2007) (No. 06-562). 

Nevertheless, three of the four circuit courts to have

considered the issue -- the Second, Seventh, and Eighth Circuits

-- have found that there is an independent action under Section

107. Compare Atlantic Research, 459. F.3d at 827, Metropolitan

Water Reclamation Dist. of Greater Chicago v. North American

Galvanizing & Coatings, Inc., 473 F.3d 824 (7th Cir. 2007), and

Schaefer v. Town of Victor, 457 F.3d 188, 198-202 (2d Cir.

2006), with E.I. Dupont de Nemours & Co. v. United States, 460

F.3d 515 (3d Cir. 2006).

Similarly, the majority of district courts, including three

courts within this district, have also found that plaintiffs may

proceed under Section 107 without first satisfying the

requirements of Section 113. See Adobe Lumber, Inc. v. Taecker,

2005 U.S. Dist. LEXIS 15374 (E.D. Cal. May 24, 2005); Kotrous v.

Goss-Jewett Co. of N. Cal., 2005 U.S. Dist. LEXIS 18013 (E.D.

Cal. June 16, 2005); Adobe Lumber v. Hellman, 415 F. Supp. 2d

1070 (E.D. Cal. 2006). But see City of Rialto v. United States

Dep’t of Defense, 2005 U.S. Dist. LEXIS 26941 (C.D. Cal. Aug.

16, 2005); AMCAL Multi-Housing, Inc. v. Pacific Clay Prods., 457

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F. Supp. 2d 1016 (C.D. Cal. 2006). 

In 1986, the Superfund Amendments and Authorization Act

amended CERCLA to include an express right to contribution under

Section 113(f). Previously, several courts had found that PRPs

could recover their costs under Section 107. See, e.g., Key

Tronic Corp. v. United States, 511 U.S. 809, 816 n.7 (1994)

(collecting cases). In 2004, however, the Supreme Court held

that PRPs who voluntarily cleaned up contaminated property could

not use Section 113(f) to seek contribution from other PRPs

without either having first been sued under CERCLA or having

entered into a qualifying settlement. See Cooper Indus., Inc.

v. Aviall Servs., Inc., 543 U.S. 157, 165-68 (2004). 

Nevertheless, Cooper Industries left open the issue of whether a

PRP may sue another PRP under Section 107 (for joint and several

liability or otherwise), or whether an implied right of

contribution survived the 1986 amendments. Id. at 169-71.

The court finds that PRPs may independently pursue

contribution under Section 107. First, and most importantly,

Section 107's plain language commands such a result. It

provides that a PRP “shall be liable for . . . any other

necessary costs of response incurred by any other person.” 42

U.S.C. § 9607(a). The statute does not read: “by any other

person with the exception of a potentially responsible party.” 

Rather, the term “person” is defined broadly under CERCLA. 42

U.S.C. § 9601(21).

Furthermore, in Key Tronic, the Supreme Court characterized

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In Cooper Industries, the Court clarified that the remedies 4

“are similar at a general level in that they both allow private

parties to recoup costs from other private parties. But the two

remedies are clearly distinct.” 543 U.S. at 582 n.3.

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the 1986 amendments as “appear[ing] to endorse the judicial

decisions recognizing a cause of action under § 107 by

presupposing that such a cause of action existed.” 511 U.S. at

816. The Court went on to state that CERCLA “now expressly

authorizes a cause of action for contribution in § 113 and

impliedly authorizes a similar and somewhat overlapping remedy

in § 107.” Id. 4

Defendant responds that reading Section 107 to permit

contribution actions would nullify or render redundant Section

113. The savings clause in Section 113(f)(1), however,

expressly preserves any preexisting state and federal causes of

action for contribution. Because courts prior to the 1986

amendments had held that PRPs could pursue contribution from

other PRPs under Section 107, those holdings were left intact by

the savings clause.

The relevant Ninth Circuit cases are not to the contrary. 

First, defendant cites Pinal Creek for the proposition that “a

claim asserted by a PRP under § 107 requires the application of

§ 113.” Pinal Creek v. Newmont Mining Corp., 118 F.3d 1298,

1306 (9th Cir. 2004); see also W. Props. Serv. Corp. v. Shell

Oil Co., 358 F.3d 678, 685 (“a claim for contribution requires

the ‘join operation’ of both Sections”). Section 107 has

similarly been described as creating the right of contribution,

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whereas Section 113 is the machinery that governs and regulates

such actions. Pinal Creek, 118 F.3d at 1302. But this language

is not inconsistent with plaintiff’s interpretation: Section 113

still has force in contribution actions based wholly upon

Section 107 because “the court may allocate response costs among

liable parties using such equitable factors as the court

determines are appropriate.” 42 U.S.C. § 9613(f)(1). This is

the core of the “machinery” to which Pinal Creek was referring. 

See Aggio v. Estate of Aggio, 2005 U.S. Dist. LEXIS 37428, at

*15 (N.D. Cal. Sept. 19, 2005).

Finally, allowing PRPs to sue under Section 107 when a

Section 113 action is unavailable advances CERCLA’s polluterpays objective. Under defendant’s interpretation, where a PRP

voluntarily incurs response costs, it would be barred from

recovering those costs from other PRPs, even if the other PRPs

were substantially responsible for the contamination. This

result would clearly be inconsistent with CERCLA’s objectives. 

Accordingly, the court denies the motion to dismiss plaintiff’s

second and third claims.

C. Indemnity Agreement

Last, defendant moves to dismiss the claim for indemnity on

the grounds that the Indemnity Agreement has expired. As quoted

in the complaint, the Indemnity Agreement between Century 73 and

Lyddon provided that: 

[Century 73] hereby agrees to indemnify Lyddon against

and to hold Lyddon harmless from any loss, damage,

liability, cost or expense including attorney’s fees

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 Lyddon is bound by the Purchase Agreement. See Purchase 5

Agreement §§ 4.1 (binding “exchanger” to limitations section),

3.1(b)(I) (defining “exchanger” to mean Lyddon).

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incurred as a consequence of any act or occurrence which

occurred or is alleged to have occurred with respect to

[Century 73's] obligations as landlord under the Leases

before the date hereof expect as otherwise provided in

the Agreement.

Compl. ¶ 73. The parties agree that the “Agreement” referenced

in the last sentence of this provision is the Agreement for

Purchase and Sale dated December 19, 1985 (“Purchase

Agreement”). Decl. of Scott Reisch, Ex. E. 5

First, to the extent that Fox owes a duty to indemnify, it

owes that duty to Lyddon, not Seven Springs. As noted above,

Lyddon and Seven Springs are separate legal entities. See also

Wilshire-Dohency Associates, Ltd. v. Shapiro, 83 Cal. App. 4th

1380, 1396 (2000) (“The extent of the duty to indemnify is

determined from the contract.”). Second, the Indemnity

Agreement was incorporated into the Purchase Agreement as an

exhibit, which provided a twelve month expiration date that has

since passed:

[T]he Seller’s covenants, warranties and representations

contained in this Agreement and in any document executed

by Seller pursuant to the forms attached hereto as

exhibits . . . shall survive . . . only for a period of

twelve months (12) after the Closing Date (the

“Limitation Period”).

Purchase Agreement, § 4.5.

Plaintiff responds in two ways, neither availing. First,

plaintiff maintains that the Purchase Agreement is extrinsic

evidence that cannot be evaluated on a motion to dismiss. This

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general rule is subject to an exception, however, which applies

when the plaintiff’s claim necessarily relies on the extrinsic

evidence. Parrino v. FHP, Inc., 146 F.3d 699, 705-06 (9th Cir.

1998). “A court may consider evidence on which the complaint

‘necessarily relies’ if: (1) the complaint refers to the

document; (2) the document is central to the plaintiff's claim;

and (3) no party questions the authenticity of the copy attached

to the 12(b)(6) motion.” Marder v. Lopez, 450 F.3d 445, 448

(9th Cir. 2006). 

Here, the complaint references the Indemnity Agreement,

which was attached to the complaint and in turn references the

Purchase Agreement. Moreover, the latter document is central to

the plaintiff’s claim (as it sets forth when the indemnity

agreement would expire), and its authenticity is not in

question. Accordingly, it is appropriately before the court.

Second, defendant contends that the “except as otherwise

provided in the [Purchase] Agreement” provision refers to only

certain obligations and liabilities that were carved out of the

Purchase Agreement (in Section 5.5), but not the expiration

provision (in Section 4.5). There is no basis for this

distinction. A plain reading of the Purchase Agreement

indicates that any “covenants, warranties and representations”

in the attached forms and documents would expire in twelve

months. Because this provision carried over to the Indemnity

Agreement, the indemnity has since expired. Accordingly, the

court grants the motion to dismiss with respect to plaintiff’s

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fourth claim.

IV. Conclusion

As set forth above, the motion to dismiss is granted in

part and denied in part. Plaintiff is granted 20 days to file

an amended complaint.

IT IS SO ORDERED.

DATED: April 26, 2007.

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