Source: https://cslaterlaw.com/2016/05/05/petroleum-liability-and-cost-recovery/
Timestamp: 2019-04-26 00:13:47+00:00

Document:
By Craig A. Slater, Esq.
The Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”)(Section 9607(a)(1)-(4)(B)) creates a private right to recover response costs associated with remediating contaminated sites. CERCLA’s private recovery provisions are intended to “assure an incentive for private parties, including those who may themselves be subject to liability under the statute, to take a leading role in cleaning up hazardous waste facilities as rapidly and completely as possible.” New York v. Exxon Corp., 633 F.Supp. 609, 617 (S.D.N.Y. 1986).
CERCLA: Broad Remedial Statute: “CERCLA is a broad remedial statute” and is to be given a broad and liberal construction and should not be narrowly interpreted to limit the liability of responsible parties. Prisco, supra, at 602; Betkowski, supra, at 514; and B. F. Goodrich, supra, at 1197. “As a remedial statute, CERCLA should be construed liberally to give effect to its purposes.” Shiavone v. Pierce, 79 F.3d 248, 253 (2d Cir. 1996).
CERCLA Liability Scheme: A person is strictly liable for the costs of cleaning up a disposal site under CERCLA if: (1) the disposal site is a “facility” as defined in CERCLA §101(9), 42 U.S.C. §9601(9); (2) a “release” or “threatened release” of a hazardous substance on the site has occurred; (3) the release has caused response costs to be incurred; and (4) the person is responsible under §107(a)(1) in CERCLA §107(a)(1)-(4), 42 U.S.C. §9607(a))(1)-(4). B. F. Goodrich v. Betkowski, 99 F.3d 505 (2d Cir. 1996), cert. denied, Zollo Drum v. B.F. Goodrich Co., 524 U.S. 926, 141 L.Ed.2d 274, 1185 S.Ct. 2318 (U.S. 1998); General Elec. Co. v. Aamco Transmissions, Inc., 962 F.2d 281, 285 (2d Cir. 1992) (citing B. F. Goodrich Company v. Murtha, 958 F.2d 1192, 1198 (2d Cir. 1992)); Idylwoods Assocs. v. Mader Capital, Inc., 915 F.Supp. 1290 (W.D.N.Y. 1996); see also New York v. Almy Bros., Inc. 866 F.Supp. 668, 671 (N.D.N.Y. 1994); City of New York v. Chemical Waste Disposal Corp., 836 F.Supp. 968 (E.D.N.Y. 1993).
CERCLA Responsible Parties: In order to establish a prima facie CERCLA case, the plaintiff must establish that the defendant falls within one of four categories of potentially responsible parties set forth in CERCLA §107(a), 42 U.S.C. §9607(a). Betkowski, supra, at 514. The categories include: (1) the owner and operator of the facility; (2) any person who at the time of the disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of; (3) any person who, by contract, agreement or otherwise, arranged for disposal or treatment of a hazardous substance at the facility; and (4) any person who accepted any hazardous substance for transport to the facility. 42 U.S.C. §9607(a).
Article 12 of the New York State Navigation Law is a potent tool used to impose or share liability for oil spill remediation costs on a broad range of parties. The Navigation Law scheme of liability rivals that of CERCLA and sweepingly imposes retroactive, joint and several liability while at the same time also providing legal defenses of little value. Navigation Law imposes liability upon any party responsible for the discharge that has been broadly interpreted to include a variety of parties (owners, transporters, oil delivery services, brokers, seller and installers of UST’s, and even firemen and others).
The battle continues as to whether simple ownership of property where an oil spill has occurred, now or sometime in the past, is sufficient to result in liability under the Navigation Law. The battle focuses on the criteria used to determine who is an “innocent” party and who is not. Predictably, the State takes a more expansive view of who is responsible for a petroleum spill. A truly innocent party they have seldom seen. For the moment, a passive, non-discharging landowner may be potentially liable under the Navigation Law. See, White v. Regan, 171 A.D.2d 197 (3d Dept. 1991), leave denied, 68 N.Y.2d 555 (1992); White v. Long, 85 N.Y.2d 564 (1995); Race Oil Corporation v. Eastman, 623 N.Y.S.2d 965 (3d Dept. 1995); and Drouin v. Ridge Lumber, Inc., 209 A.D.2d 957 (4th Dept., 1994). The new Third Party Defense, discussed below, may change that.
Liability imposed for all “direct and indirect damages, no matter by whom sustained.
Retroactive Liability: Navigation Law liability applies to spills that occurred before the statute was enacted. Navigation Law §190-9; Leone v. Leewood Service Station, 212 A.D.2d 669, 624 N.Y.2d 610, lv. denied, 86 N.Y.2d 709 (2d Dept. 1995).
“Direct and Indirect Damages”: Broad categories of damages are available under this section, including attorney fees.
Navigation Law §173(1)(Prohibition): The discharge of petroleum is prohibited. This section is the basis upon which DEC levels penalties. BEWARE of this section when considering representations and warranties in a sale contract.
4. The only defenses that may be raised by a person responsible for discharge of petroleum are: an act or omission caused solely by (1) war, sabotage, and governmental negligence or (ii) a third party other than a contractual relationship resulting from a loan, mortgage or conduit financing from the person responsible if the person responsible establishes by a preponderance of evidence that the person responsible (A) exercised due care with respect to the petroleum concerned, taking into consideration the characteristics of petroleum and in light of all relevant facts and circumstances; and (B) took precautions against the acts or omissions of any such third party and the consequences of those acts or omissions, these defenses shall not apply to a person responsible who refuses or fails to (A) report the discharge, or (B) provide a reasonable cooperation and assistance in cleanup and removal activities undertaken on behalf of the fund by the department. In any case, where a person responsible for a discharge is established by a preponderance of the evidence that a discharge and the resulting cleanup and removal costs were caused solely by an act or omission of one or more third parties as described above, the third party or parties shall be treated as the person or persons responsible for the purposes of determining liability under this article.
While this appears to be a bit of mixed mumbo jumbo, the clear intent of the legislation was to try to create a “CERCLA-like” innocent landowner defense under the Navigation Law. Frankly, until statutory amendments are made to the third-party defense making it clear what its provisions are intended to do, the full intent and meaning of the provision actually will not be known. The comptroller office counsel and DEC’s Oil Spills Program counsel had promised to “weigh in” on this issue, although we have not heard anything to date. As of today, our discussions with regional spill staff indicate that they have received no policy directives in this regard. However, as originally drafted, we have concluded that the third-party defense added to the Navigation Law statute is intended to protect innocent landowners (particularly the sentence outlined in bold above) from liability.
Landowners: Any owner, without regard to fault, who owns the property at the time of discharge, is strictly liable under the Navigation Law if (1) the landowners could have reasonably “expected” petroleum was being used at the property; and (2) the landowner was “ . . . in a position to control the site and source of the discharge (‘the ability to control potential sources of contamination’).” State v. Green, 96 N.Y.2d 403, 729 N.Y.S.2d 420 (2001)(owner of mobile home park liable for kerosene spill when 275-gallon tank, owned by mobile home park tenant fell and discharged kerosene onto the ground). Owners of property at time the discharge was discovered are liable under Navigation Law. Popolozio v. City of Schenectady, 269 A.D.2d 670, 701 N.Y.S2d 755 (3d Dept. 2000). Landowner held liable for petroleum contamination caused by service station operator who was leasing the property. Roosa v. Campbell, 737 N.Y.S.2d 461 (4th Dept. 2002); and White v. Regan, 171 A.D.2d 575 N.Y.S.2d 375, lv. denied, 79 N.Y.2d 754 (1982).
Unity of Ownership: Liability is imposed on current owners of UST’s, despite evidence that the discharges may have taken place before they took title to the property, based upon their ownership of the buried tanks. Where there is no unity of ownership between the property owner and the owner of the system, liability is properly imposed on the system owner, not on the faultless property owner. There was, however, no evidence here that the purchase of the property did not include the tanks, pipes and other fixtures (and it did not matter that the tanks had been removed prior to purchase). State v. Speonk Fuel, Inc., 273 A.D.2d 281, 710 N.Y.S.2d 652 (3d Dept. 2000).
UST System Operators: The operator of a facility which leaked petroleum will generally be strictly liable for cleanup costs under the Navigation Law. State v. King Service, 167 A.D.2d 777, 563 N.Y.S.2d 331 (3d Dept. 1990). Roosa v. Campbell, supra.
UST System Owners: Liability imposed solely on tank owners for spill at gas station where tanks were owned by one party and the land by another (where tanks removed before owner purchased). State v. Speonk. Liability is properly imposed on the system owner. Leone v. Leewood Service Station, 212 A.D.2d 669, 624 N.Y.S.2d 610, lv. denied, 86 N.Y.2d 709 (2d Dept. 1995).
CERCLA: Arranger Liability: The Second Circuit holds that where a party possesses the ability to control or influence the disposition of a hazardous waste a does nothing, Nexus can exist only if inaction violates a duty or obligation to exercise control. GE v. AAMCO, 962 F2d 281 (2d Cir., 1992). The Eighth Circuit found there is no need to show an arranger owned or possessed hazardous substance if it exercised sufficient control over disposal (pesticide companies supplying raw materials to pesticide formulator, but retain no ownership, held liable). US v. Aceto, 872 F2d 1373 (8th Cir., 1989).
Successor Liability: “Substantial continuity” test (continuity of enterprise test) accepted by Second Circuit as appropriate legal test for successor liability under CERCLA (Goodrich v. Betkowski, supra).
Parent – Subsidiary Liability: U.S. v. Bestfoods, 118 S.Ct. 1206 (1996). Supreme Court held that the corporate veil may be pierced if parent managed, directed or conducted operations which specifically related to the release of hazardous substances can in-fact operator.
Shareholder Liability: Courts have looked at the individual’s actual acts of oversight and operation and the authority over the company’s operations, and particularly authority to prevent the contamination at the facility. NY v. Shore Realty, 759 F2d 1032 (2d Cir., 1985)and Donahey v. Bogle, 987 F2d 1250 (6th Cir., 1993) . See, Alcon v. Beazer E., Inc., 124 F3d 551 (3d Cir., 1997) where the Third Circuit here found that the fact that shareholders elected 47 members of a wood treatment corporation’s board of directors and then allowed them to perform their duties is “entirely consistent” with an investment relationship and insufficient to establish their actual control of treatment facilities for purposes of operator liability under CERCLA. The Court affirmed the “actual control” tests articulated in Lansford-Coaldale Joint Water Auth. v. Tonolli Corp, 4 F3d 1209 (3d Cir., 1993), which was devised to define “operator” in a way that would affect Congress’ intent to “hold a corporation liable for the environmental violations of its subsidiaries and sister corporations, if it is otherwise determined to have operated the facility in question.” In this case, a corporation cannot be held liable unless it made the operations decisions or controlled the policy-making of the corporation.
CERCLA: The Elusive Third Party Defense.
The academic reason why environmental due diligence is conducted by a potential purchaser prior to purchase is to (1) reduce the odds that the purchaser will be held liable “in status” as an “owner” of a contaminated parcel (and, in that event, be strictly liable for any remedial costs) or, in the alternative (2) be able to meritoriously raise the third-party defense found under CERCLA §107(b)(3), thus barring responsibility for cleanup costs.
The third party defense was Congress’ attempt at providing an escape to a party for liability for remedial costs if the party can establish that the contamination was caused “solely by” a third-party with no contractual relationship to the defendant. In addition to showing that the contamination was caused soley by a third-party, the defendant must also establish that he exercised due care with respect to hazardous substances concerned, taking into consideration the characteristics of such hazardous substance in light of all relevant facts and circumstances.
The third-party defense has experienced little success in the courts. Those few examples where the defense has carried the day can be more associated with the luck and fortitude of the defendant than with prevailing case law.
Hopefully, with the passing of the Small Business Liability Relief and Brownfields Revitalization Act of 2002 amending the key provisions governing the innocent landowner or third party defense (42 U.S.C. §9601(35)), the contiguous property exemption (42 U.S.C. §9607(q)); and the bona fide prospective purchaser defense land owner (42 U.S.C. §§9607(r)(1) and 9601(40)), discussed in more detail below, there will be less question about the availability of this defense.
ECL Article 27, Title 13: The New York State Superfund provisions are found at ECL Article 27, Title 13. The State may proceed with remediation of a contaminated property under the Superfund Program, the Commissioner’s plenary powers under ECL Article 1 and 3, or in response to an emergency, immediate public health threat, or any imminent danger. See, ECL §27-1313 and 6 NYCRR Part 375 and ECL §71-0301, for example. The heart of the State Superfund, however, authorizes DEC to independently proceed with a remedial program if DEC determines that disposal of hazardous wastes at a site pose a “significant threat to the environment”. There are nuances and quirks to the Program which will be discussed.
Navigation Law Article 12 Environmental Protection and Spill Compensation Fund: DEC has the power to issue orders prohibiting violations of the law, require offenders to take remedial actions, and to seek civil penalties and cost recovery. ECL §71-4305. DEC has the ability to incur remedial costs on its own and pursue any responsible parties under the Navigation Law.
In addition to federal and state environmental laws, parties also may be held responsible for activities resulting in environmental harm under U.S. common law theories of nuisance, trespass, negligence and strict liability. Most actions brought under these common law theories are adjudicated in state courts.
B. CONDUCTING ENVIRONMENTAL SITE ASSESSMENTS – HOW TO DO IT RIGHT.
1. Why is due diligence required?
You have heard many times about the alphabet soup of environmental strict liability statutes that can imperially and arbitrarily, it seems, impose significant liability upon the unwary purchaser or property owner who is involved with contaminated property. The key statutes driving due diligence in real estate transactions is, as stated above, Gorilla One, CERCLA, governing hazardous substances, and its petroleum cousin, Gorilla Two, the NYS Navigation Law. As discussed already, both statutory schemes can and will swiftly and without seeming escape, broad, strict, and retroactive liability upon property owners. Whining that the laws are not fair or that your client had nothing to do with the contamination, as you already know, will not avail you.
On August 26, 2004, EPA “published its “all appropriate inquiries” rule which was intended to set out the standards and practices for pre-acquisition environmental due diligence (Phase I Environmental Site Assessments) sufficient to establish entitlement to the liability defenses (innocent land owner – unknowing purchase – defense, contiguous property owner protection, and bona fide prospective purchaser – knowing purchase – defense) available under the Small Business Liability Relief and Brownfields Revitalization Act of 2002 (which amended CERCLA). See, 69 Fed. Reg. 52,542 and 40 CFR Part 312. If the appropriate inquiries are made as required by statute, the person or business acquiring the property will have a statutory defense to any claims for cost recovery associated with later-discovered contamination. This policy, then, establishes the standards for environmental due diligence that will be acceptable to both your typical buyer (without price or contract accommodations) and any lenders.
AAI Standard: Landowner did not know or have reason to know that any release of threatened release of a hazardous substance had occurred on-site before acquisition.
“All Appropriate Inquires”: ASTM E1527-00 and AAI sets out 10 criteria necessary to satisfy the AAI requirements.
Interviews with past and present owners, operators, and occupants.
Review historical sources (aerials, building records, title, Polk Directories, Sanborn maps, LUST, EDR, records, etc.).
Searches for recorded environmental cleanup lines filed by any government.
Review government spill and disposal records.
Review any specialized knowledge of landowner.
Relationship of purchase price to value if the property were not contaminated.
Degree of obviousness of presence or likely presence of contamination.
The decision of the Commissioner of the New York State Department of Environmental Conservation affirmed the imposition of a significant civil penalty upon an environmental consulting firm for a failure to report evidence of a petroleum spill to the DEC. In the Matter of Middleton, Kontoskosta Associates (DEC File No. R1-6039), 1998 WL 939495 (NYDEC, 12/98). The circumstances and implications of Middleton are scary, potentially applicable to attorneys, and will chill the waters of due diligence.
In Middleton, an engineering firm received an administrative complaint from DEC for failing to inform DEC within 2 hours of a spill, leak, or discharge of petroleum. Here, the environmental consultant was observing the performance of a contractor hired to install soil borings. While observing this process, he observed that the soil from the borings looked and smelled as though it might be contaminated with petroleum.
Brownfield: A “brownfield” is any real property, redevelopment or re-use which may be complicated by the presence or potential presence of a hazardous waste, petroleum pollutant, or contaminant.
Applicant: An “applicant” is a person whose request to participate in the Brownfield Cleanup Program has been approved by the Department.
Participant: An applicant who was the owner of the site at the time of disposal of hazardous waste or discharge of petroleum, or who is otherwise liable for the site, except one whose liability arises solely from post-disposal/discharge ownership.
Volunteer: Any other applicant, that is, one who is not liable for disposal of hazardous waste or discharge of petroleum at the site or whose liability arises solely from post-disposal/discharge ownership.
Site Eligibility: All sites are eligible to participate, except Federal National Priority List (NPL) sites, Class 1 NYS Registry sites, Class 2 NYS Registry sites (note: sites owned by volunteers are eligible through July 1, 2005), permitted RCRA sites (note: interim status sites are eligible), sites subject to an enforcement action, sites subject to an enforcement action, sites subject to a cleanup order under Article 12 of the Navigation Law; and sites subject to any other federal or state environmental enforcement action.
Eligible Parties: All parties are eligible to participate, unless there is an action or proceeding related to the site against a person requesting participation that is pending in any civil or criminal court or before any state or federal administrative agency where the state or federal government seeks the investigation, removal or remediation of hazardous wastes or petroleum; the person requesting participation is subject to an outstanding spill fund claim; or the Department determines that the public’s interest would not be served.
The Department must notify the applicant within ten (10) days if the application is complete.
Once the application is determined to be complete, the Department will commence a 30-day comment period; provide notice in local newspaper and Environmental Notice Bulletin, and in writing to other interested government officials, individuals and groups.
The Department must use its best efforts to approve or deny the application within forty-five (45) days.
Payment of state costs: Participants must pay for costs incurred before effective date of payment.
Once Certificate of Completion issued, applicant not liable to the state for any liability or claim arising out of the presence of any hazardous waste or petroleum in, on or emanating from the site.
EXCEPTION: Participant will not receive a release for Natural Resource Damages.
Extends to successors and assigns except a responsible party that was not a party to the Agreement.
Release transferable to future owners, developers and occupiers of the site provided they act in good faith to follow the Agreement’s requirements.
Contribution protection from third parties.
Failure to comply with the Agreement, work plan or Certification of Compliance.
Changes in environmental standards or criteria on which the work plan or no further action was based, rendering the remedial program no longer protective of public health or the environment.
Environmental contamination at, on, under, or migrating from the site such that the site is no longer protective of public health or the environment.
Change of land use of the site unless the remedy taken also meets the standard of protection of public health and environment for the new use.
After certification of completion, failure to make substantial progress toward proposed development within three (3) years.
There is unreasonable delay and failure to complete the proposed development in a reasonable time, considering size, scope and nature of the development.
Any conduct that may or will significantly interfere with an ongoing or completed remedial program at the site.
Three (3) Components: Site preparation, tangible property, on-site groundwater remediation.
Site preparation: Includes demolition, excavation, remediation, and capital improvements, cost of acquiring site excluded.
Based on number of jobs on site.
See, NYSDEC Brownfield Cleanup Program – Program Summary found at http://www.dec.state.ny.us/website/der/bcp/bcp.html.
Remedial Action Plan and Escrow Agreements.
Terms of escrow; termination of escrow.
Assessing remedial cost; business cost; time delay cost; certainty; risk routes and migration potential; barriers (pavement, berms, encapsulation); type, concentration, and volume of contamination; groundwater impacts; soil characteristics; site conditions; permanency; and community acceptance (neighbors).

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