In Redevelopment Agency of the City of Stockton v. BNSF Railway Company, (— F.3d —-, C.A.9 (Cal.), June 28, 2011), the United States Court of Appeals for the Ninth Circuit considered whether railroad companies were liable for contamination of the property where they maintained tracks, which resulted from a petroleum spill from a nearby industrial site that migrated onto the property through an underground drain that the railroads had installed. The court of appeals held that the construction of the drain was not sufficient to make the railroads liable under the law of nuisance or the Polanco Redevelopment Act for contamination released by the neighbors.
The Redevelopment Agency of the City of Stockton (“Agency”) brought a lawsuit against BNSF Railway Company and Union Pacific Railroad Company (“Railroads”) to recover the cost of remediation of property on which the Railroads previously maintained tracks. The predecessors in interest to the Railroads had made an agreement with the State of California in 1968 to relocate existing track to the location where the contamination occurred. Under that agreement, the Railroads planned drainage and grading improvements at the new site (“Property”), which included a french drain under the new roadbed to help improve soil stability by promoting drainage. After the improvements were finished, the Railroads laid track on the Property. The State agreed to convey to the Railroads all of the rights-of-way needed to operate the track and the Railroads agreed to maintain the track, roadbed and drainage. Although the Railroads began running trains over the track on the Property in 1970, the State waited until 1983 to transfer the deed to the underlying land to the Railroads.
The Railroads sold their interest to the Property to Agency in 1988. The Agency had plans to develop the site. The Agency sold part of the Property in 2004 to a commercial developer. The Agency agreed to indemnify the developer for any costs incurred for contamination on the site. When the site was excavated, petroleum contamination was discovered in the groundwater and in the soil along the path of the french drain. The contamination was at least 20 years old and it was determined the likely source of contamination was the nearby L&M bulk petroleum facility, which had been the site of several spills in the early 1970s, including a spill in which 6,000 gallons of diesel fuel was released. The parties do not dispute “that the french drain served as a preferential pathway through which the petroleum contamination migrated underground onto the property.”
The Agency incurred over $1.3 million in costs to remediate the area it sold to the developer and approximately $500,000 to remediate other portions of the Property. The Agency sued the Railroads to recover the funds spent for remediation and to require the Railroads to remediate any remaining contamination. The federal district court ruled the Railroads were liable for the contamination under both the law of nuisance and the provision of the Polanco Act imposing liability for release of waste into state waters. The court did not find the Railroads liable under the provision of the Polanco Act imposing liability for violations of the federal CERCLA Act.
The court of appeals reversed the decision of the district court finding the Railroads liable for the contamination of the property. First, the court found the Railroads were not liable under California’s law of nuisance. Under California law nuisance is defined as “[a]nything which is injurious to health . . . or is indecent or offensive to the sense, or an obstruction to the free use of property, so as to interfere with the comfortable enjoyment of life or property.” The interference must be both substantial and unreasonable before it can be classified as a nuisance. The court found that it was undisputed that the oil’s contamination of the groundwater and soil constitutes a nuisance but the question before the court was whether the Railroads are liable for that nuisance. The court held they are not.
If the Railroads either created or assisted in the creation of the nuisance by installing and maintaining the french drain on the Property, they would be liable whether or not they installed and maintained the french drain in a reasonable manner. However, if the Railroads neither created nor assisted in creating the nuisance, the Agency can only hold them liable “if they acted unreasonably as possessors of the Property in failing to discover and abate the nuisance.”
The appellate court rejected the district court’s “but-for” causation analysis. The district court held that the Railroads “‘created or assisted in the creation’ of the nuisance because they were a but-for cause of the contamination of the Property.” The contamination would never have “migrated onto the Property but for the existence of the french drain, and the french drain would not have been installed but for the Railroads.” The appellate court found that “[u]nder California law, conduct cannot be said to ‘create’ a nuisance unless it more actively or knowingly permits the specific nuisance condition.” The appellate court found no precedent that suggests “that but-for causation suffices for nuisance liability” and it refused to adopt “such an expansive interpretation of California law.”
The court held that “[b]ecause the Railroads’ conduct with regard to the specific nuisance condition—the contamination—was not active, affirmative, or knowing, the Railroads simply did not ‘create or assist in the creation’ of the nuisance on the Property.” The Railroads did not spill or otherwise release the petroleum, and they did not direct the flow of the petroleum or knowingly allow it to migrate onto the Property through the french drain. The court declined to hold “that an otherwise innocent party who builds or installs a conduit or structure for an unrelated purpose which happens to affect the distribution of contamination released by someone else is nonetheless liable for ‘creating or assisting in the creation’ of a nuisance.'” The court opined that “[s]uch a result defies semantics, the law, and common sense.”
The court further found the Railroads were not liable for the nuisance as possessors of the Property at the time the contamination occurred. A possessor of a land may be liable for a nuisance if he or she knew or should have known of the nuisance and failed to take reasonable steps to abate the condition. There was no evidence the Railroads knew of the contamination while they were still in possession of the property.
The court further found the Railroads did not have a duty to inspect for the contamination. The Agency asserted the Railroads had a duty to inspect the subsurface of the Property for contamination because it was near a potential source of hazardous waste and the Railroads were obligated to maintain the railroad tracks and drainage pursuant to their agreement with the State. The court found that neither of these conditions was sufficient to establish a duty on the part of the Railroads to inspect the subsurface for contamination. Also, the court opined that “it is untenable that a possessor of land, simply because his neighbor is a potential polluter, thereby becomes responsible for investigating the subsurface in order to discover and control his neighbor’s pollution.” Holding a property owner liable for his or her neighbor’s actions “would shift too much of the cost of pollution control away from the parties who actually have the ability to affect whether a hazardous substance is released into the environment in the first place, and onto the innocent parties who have the misfortune of being ‘downstream.'”
The Railroads’ agreement with the State required them to maintain the track and drainage. This obligation did not include a duty to investigate the subsurface for contamination. The court concluded, “Because there is no basis on which to conclude that Railroads knew or should have known of the contamination, they cannot be liable for nuisance by virtue of their status as possessors of the Property.”
Pursuant to California’s Polanco Act, a local redevelopment agency can recover the costs it incurs for contamination remediation within a redevelopment project area from any “responsible party.” A responsible party under that Act is defined as “as any person described in either: (1) California Health and Safety Code section 25323.5 (which, in turn, refers to persons described in the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)); . . . or (2) California Water Code section 13304(a).”
The Polanco Act imposes liability on parties described in Water Code section 13304(a), which refers to any person who causes or permits any waste to be discharged or deposited into the waters of the State. The district court held the Railroads were liable because the french drain’s channeling and emission of the petroleum was a discharge and the Railroads were responsible for the drain’s design, installation and maintenance. The court of appeals disagreed with the lower court’s conclusion. The drain merely acted as a conduit for the waste that was actually discharged by the neighboring L&M facility. The Railroads had nothing to do with the initial discharge of the petroleum. The Railroads were not involved with the spill and “their involvement with the emission of contamination from the french drain was entirely passive and unknowing.” The Railroads did not engage in any “active, affirmative or knowing conduct with regard to the passage of contamination through the french drain and into the soil.” The Railroads did not “’cause or permit’ the discharge under section 13304, and they are not liable under the Water Code provision of the Polanco Act.”
The Polanco Act also imposes liability on persons described in CERCLA, which refers to “any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of.” The court of appeals found the Railroads were not owners or operators within the meaning of CERCLA. The Railroads did not receive the deed to the property until well after the petroleum spill. The court rejected Agency’s argument that the Railroads were equitable owners of the property prior to the time the State deeded the property on the ground that the agreement between the State and the Railroads did not sufficiently describe the land that was to be transferred. Even if the Railroads had an easement, that fact alone would not make them an owner for CERCLA purposes because the petroleum spill was not related to the Railroads’ use of the easement. The Railroads also were not operators within the meaning of “CERCLA because they did not ‘manage, direct, or conduct operations specifically related to [the] pollution, that is, operations having to do with the leakage or disposal of [the] hazardous waste.'”
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