State of Cal. Dtsc v. Westside Delivery LLC
888 F.3d 1085 (2018)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A purchaser of real property at a tax sale has a "contractual relationship" with the previous owner within the meaning of CERCLA's third-party defense, and thus cannot assert the defense if the previous owner caused contamination on the property while acting as owner.
Facts:
- From 1949 to 1990, the Davis Chemical Company operated a solvent recycling facility on a property in Los Angeles owned by entities connected to Ernest A. Davis (collectively "Davis").
- In October 1990, the California Department of Toxic Substances Control (Plaintiff) ordered Davis to cease hazardous-waste-related activities, and subsequent investigations in 1992 and 1996 revealed significant hazardous substance contamination at the Site.
- Davis failed to pay property taxes on the contaminated Site.
- In August 2009, the Los Angeles County Tax Collector sold the property at a tax auction to Westside Delivery, LLC (Defendant), which submitted the highest bid and received a tax deed in September 2009.
- Defendant has not conducted any operations on the property since its purchase.
- From 2010 through 2015, Plaintiff conducted cleanup efforts at the Site.
Procedural Posture:
- The California Department of Toxic Substances Control (Plaintiff) sued Westside Delivery, LLC (Defendant) under CERCLA in the United States District Court for the Central District of California.
- Defendant asserted CERCLA’s third-party defense, arguing it was not liable because the release of hazardous substances was caused solely by third parties with whom it lacked a 'contractual relationship'.
- The District Court granted summary judgment in favor of Defendant, agreeing with its argument that it lacked a 'contractual relationship' and was not liable.
- Plaintiff timely appealed the district court's grant of summary judgment to the United States Court of Appeals for the Ninth Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a defendant who buys real property at a tax sale have a “contractual relationship” with the previous owner of the property within the meaning of CERCLA, thereby precluding the use of the third-party defense against liability for cleanup costs?
Opinions:
Majority - Graber, Circuit Judge
Yes, a defendant who buys real property at a tax sale has a “contractual relationship” with the previous owner of the property within the meaning of CERCLA. The court reasoned that CERCLA’s definition of “contractual relationship” in 42 U.S.C. § 9601(35)(A) is to be construed broadly due to its “includes, but is not limited to” clause and catch-all provisions, encompassing various instruments transferring title or possession. This broad interpretation suggests an intent to capture any instrument reflecting a voluntary transaction resulting in a change of ownership or possession, and even involuntary transfers, as implied by the exception for government entities acquiring property by “involuntary transfer or acquisition.” A tax deed, by divesting the previous owner of interest and vesting the right of possession in the purchaser, constitutes such an instrument transferring possession, regardless of state law characterizations of title as “new.” The court emphasized that the innocent-landowner defense (added with the definition of “contractual relationship”) is narrowly intended for “truly innocent” purchasers, and allowing tax-sale purchasers to broadly escape liability without meeting those stringent conditions would create an unwarranted loophole and frustrate CERCLA’s purpose of holding responsible parties liable for cleanup. Furthermore, the court clarified that the “in connection with” condition in § 9607(b)(3) is meant to prevent the defense only when the previous owner's polluting acts were unrelated to their status as landowner. Here, Davis's contamination occurred while it owned and operated on the Site, making it clearly “in connection with” its contractual relationship with Defendant.
Analysis:
This Ninth Circuit ruling significantly clarifies the scope of CERCLA's third-party defense, preventing a 'laundering' of environmental liability through tax sales. By confirming that a tax-sale purchaser has a 'contractual relationship' with prior owners, the decision ensures that such purchasers are subject to the same stringent requirements as other private buyers under the innocent-landowner defense. This reinforces CERCLA's broad remedial purpose of assigning cleanup costs to responsible parties and emphasizes the critical importance of conducting environmental due diligence for all property acquisitions, regardless of the method of purchase, to avoid unexpected liability.
