A Redevelopment Agency’s Perspective
By Audrey Winters, Attorney at Law
Mike Milich, City Attorney, City of Modesto
Roland Stevens, Assistant City Attorney, City of Modesto
Mike Milich and Roland Stevens, attorneys for the Modesto Redevelopment Agency, faced the brownfields’ equivalent of the perfect storm. Environmental investigation and testing in the already beleaguered Modesto Redevelopment Project Area revealed a final factor that threatened to sink redevelopment efforts all together. This investigation and testing found groundwater contamination in the form of perchloroethylene (PERC), solvents used by dry cleaners. The estimated cost for the cleanup is $200 million.
Milich and Stevens were dealing with brownfield sites that were hopelessly upside down. The Polanco Redevelopment Act (the Act) has proven to be a useful tool and compelling owners and operators – the “moms and pops” of dry cleaning businesses – to pay for environmental damage. However, the magnitude of the problem overwhelmed its usefulness. Under the circumstances, even if each owner/operator assisted in paying for cleanup and the Agency provided financing, the price of cleanup was well beyond the value of the land, and beyond the financial capabilities of the owner/operator and the Agency. Clearly, a new approach as required
With assistance of outside counsel, Modesto decided to apply the Act in a new way. Instead of suing the dry cleaning businesses under the Health and Safety provisions of the Act, the team decided to sue the chemical manufacturers and suppliers, as well as the equipment manufacturers and installers, under the Act’s Water Code provisions.
In 1999, the Agency issued Corrective Action Notices to Dow Chemical Company, PPG Industries, Inc., and others (Defendants). A Corrective Action Noticed may be served upon a “responsible party” when the redevelopment agency knows or suspects a release of hazardous substances has occurred1. In this case Defendants did not comply with the notices, so the Agency filed suit to require them to comply. Defendants denied being a responsible party under the meaning of the Act. They maintain that only owners and/or operators could be responsible parties.
The Agency disagreed and maintained that the Defendants knew, or should have known, that PERC causes serious health hazards and that it regularly passed through sewer pipes and concrete floors, in turn contaminating soil and migrating into groundwater. Furthermore, the Defendants negligently and carelessly issued instructions that PERC could be discharged into the sewers and designed machines to facilitate and promote disposal of PERC into the sewer system. The Agency further maintained that the Defendants failed to recall and/or warn the users of dangers of groundwater contamination as a result of disposal of this toxic chemical in the sewer system, notwithstanding that they knew the identity of the purchasers.
As the case wound its way up through the courts, the Defendants asserted that they were not responsible parties under the Act, but the Court of Appeal disagreed.
On the one hand, the court expressly rejected the idea that only owners and operators can be a responsible party. On the other hand, it recognized that simply placing PERC in the stream of commerce, without warning of the dangers of improper disposal, does not automatically make one a responsible party.
The answer to the question – who is a responsible party under the Water Code provisions of the Polanco Act? – lies somewhere between the two extremes. The appellate court provided an “affirmative steps” test for the trial court to apply to the facts presented in this case. Under this test, the appellate court held that anyone who took affirmative steps directed toward the discharge of solvent wastes may be liable under the statute. Affirmative steps may include, but are not limited to, the manufacture of equipment designed to result in unlawful discharges or instructions to dispose of waste improperly.
This opinion has broad implications. By affirming that manufacturers and suppliers may be held responsible for damage to properties located within a project area under the Act, redevelopment agencies have an effective tool for dealing with their most difficult brownfield sites. The ruling has tremendous value in addressing sites polluted by mom and pop operations such as dry cleaners and independent gas stations.
A Manufacturer’s Perspective
By Alfred Fraijo, Jr., Associate, Beveridge & Diamond
In City of Modesto Redevelopment Agency v. The Superior Court of San Francisco County (119 Cal.App.4th 28 (2004), the first District Court of Appeal found that, under limited circumstances, manufacturers and distributors of dry cleaning solvents and equipment may be liable for the cleanup of soil and ground water contamination under the Polanco Redevelopment Act (Polanco). Such liability might arise if solvent suppliers engage in “affirmative acts” resulting in improper disposal of their solvents.
Despite the decision’s potential reach to new responsible parties, the Court refused to apply an overly broad interpretation of nuisance. Rather, the Court carefully analyzed the scope of potential Polanco liability against established nuisance principles and cautioned against the (ab)use of Polanco as a substitute for bringing standard negligence and products liability actions. Key elements of the decision favor a narrow interpretation and suggest that Polanco practitioners and redevelopment agencies, alike, should be cautious about the windfall some commentators are predicting.
First, the Court narrowed its decision by focusing on those manufacturers and distributors who actively influence disposal activities at retail sites. According to the decision, a party must take “affirmative steps” toward the improper discharge of solvents or solvent wastes in order to be potentially liable under Polanco. For example, manufacturers of equipment used for dry cleaning must have manufactured a system “designed to dispose of wastes improperly” or, in the case of manufacturers of solvents, the manufacturer must have “specifically instructed” users of the products to dispose of wastes improperly.
Second, the Court noted that the legislative history of the Porter-Cologne Act and Polanco demonstrate that Polanco was not intended to impose liability on an of the following patties that: (1) have no ownership or control over the property or the discharge, (2) involvement in a discharge [or spill] was remote and passive, and (3) have no active involvement in activities leading to a discharge [or spill].
Third, and most important, the Court held that merely failing to provide adequate warnings is not enough to create liability under Polanco. The Court asserted that such acts are not directly connected with the disposal of solvents at the site. The Court rejected a suggestion to the contrary in Selma Pressure Treating Co., v Osmose Wood Preserving Co. (221 Cal.App.3d 1601 (1990) (Selma). In Selma, the state sued the operators of a wood treatment facility. In response the operators, or Defendants, sued the manufacturers of the equipment and the wood treatment chemicals. The Defendants were seeking equitable indemnity. If they were to be found liable, then the equipment and chemical manufacturers should share in that responsibility. The Modesto plaintiffs argued that Selma stands for the proposition that a chemical manufacturer who fails to warn of the dangers of improper disposal of hazardous materials may be liable for a nuisance. The Court was not sold on the argument. It refused to adopt such an expansive interpretation of nuisance law, one that could extend liability to “those who merely placed solvents in the stream of commerce without warning adequately of the dangers of improper disposal.”
Finally, in crafting its narrow ruling, the Court was mindful of the notion supported by case law that the law of nuisance is not intended to serve as a surrogate for ordinary products liability. This view is consistent with the decision in City of San Diego v. U.S. Gypsum Co, (30 CalApp.4th 575 (1994)), which held that a nuisance claim cannot be maintained for what is essentially a products liability action. Failure to warn – a liability “hook” commonly alleged by plaintiffs in products liability cases – is not an activity directly connected with the disposal of solvents and, therefore, does not fall within the scope of Polanco liability. Rather, it is better analyzed through the law of negligence or products liability. The Court in Modesto cautioned, “while the liability for nuisance is broad, it is not unlimited.”
It is not yet clear how the Court’s decision, including the phrase “affirmative acts,” will be applied. We should have a better understanding after the factual record is reviewed in the trial court in accordance with the instruction of the appellate court and after other cases like the Modesto case are heard on appeal. The point to be taken, however, is that the basis for the Court’s decision points to a less expansive view of Polanco liability than hoped for by the current (and, perhaps, future) plaintiffs. Regardless, Polanco practitioners on both sides of the bench are likely to cite the Modesto case to the benefit of their clients.
1Ca Health & Safety Code section 33459.1, subd (b)(2)
2City of Modesto Redevelopment Agency v. The Dow Chemical Company, et al, (Super. Ct San Francisco County, 2001, No. 999345) Third Amended Complaint for Toxic Tort Damages and Other Relief.
3A unanimous Court of Appeal granted the Agency’s petition for relief and directed the trial court to reconsider Defendants’ motions in accordance with guidelines it provided for identifying “responsible parties” under the Act. City of Modesto Redevelopment Agency v. The Superior Court of San Francisco County (1st District, May 28, 2004, No. A104367) ___ Cal.App.4th ___ 2004WL1179297. The California Supreme Court denied Defendant’s petition for review and request to have the appellate court’s opinion depublished.
4Defendant, Hoyt Corporation, has filed a petition for review with the California Supreme Court. City of Modesto Redevelopment v. S. C. Dow Chemical, Case Number S126118. The Court will grant or deny petition and request on October 5, 2004.