§13.3 Hazardous Substances

§13.3 HAZARDOUS SUBSTANCES

It is standard due diligence practice for project backers to perform some form of environmental review. Usually a Phase I environmental site assessment is conducted as part of the pre-closing due diligence. If the Phase I identified "Recognized Environmental Conditions," a further Phase II investigation also may have been conducted to delineate the extent of contamination. Depending on the scope and magnitude of contamination, it may be necessary to perform a more detailed remedial investigation (RI) and feasibility study (FS), as well as develop a cleanup action plan (CAP). In many cases, the causes of contamination pre-dated the current ownership and, therefore, cost recovery may be pursued against responsible parties.

Where there is identified hazardous substance contamination, it must be reported to the applicable agency, usually the Washington Department of Ecology, for entry on the state hazardous sites list. Hazardous substance releases that affect federal lands, some tribal lands, and in waters of the United States are reported to the federal Environmental Protection Agency.

(1) Applicable statutes

The two primary environmental statutes that concern releases of hazardous substance are the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C. §§ 9601 -9675, and the Washington Model Toxics Control Act (MTCA), Chapter 70.105D RCW

(a) CERCLA

Under CERCLA, liability is strict and joint and several if a party falls within one of four classes—the owner or operator of a facility, the prior owner or operator of a facility at the time of disposal or release of hazardous substances, any person who arranged for disposal or treatment, and anyone who transported a hazardous substance for disposal or treatment. 42 U.S.C. § 9607(a)(1)-(4). CERCLA defines "hazardous substance" by reference to substances listed in various federal statutes: 15 U.S.C. § 2606; 33 U.S.C. §§ 1317(a), and 1321(b)(2) (A); and 42 U.S.C. §§ 6921, 7412, and 9602.

CERCLA, however, expressly excludes petroleum, including crude oil or any fraction thereof, from the definition of "hazardous substance." 42 U.S.C. § 9601(14). The courts and the Environmental Protection Agency (EPA) have clarified that the exclusion applies to petroleum products even "[i]f a specifically listed hazardous substance is

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indigenous to [such products]... unless it is present at a concentration level that exceeds the concentration level that naturally occurs in the petroleum product." Cose v. Getty Oil Co., 4 F.3d 700, 704 (9th Cir. 1993) (citing EPA General Counsel Memorandum, Subject: Scope of the CERCLA Petroleum Exclusion Under Sections 101(14) and 104(a) (2)5 (July 31,1987)); see also Wilshire West wood Assocs. v. Ail. Richfield Co., 881 F.2d 801, 803 (9th Cir. 1989); United States v. W. Processing Co., 761 F. Supp. 713, 722 (W.D. Wash. 1991). Thus, courts have held the following come within the CERCLA petroleum exclusion:

The following have been held not to come under the CERCLA petroleum exclusion:

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CERCLA covers hazardous substance releases pre-dating passage of the statute. See Millipore Corp. v. Travelers Indem. Co., 115 F.3d 21, 24 (1st Cir. 1997) ("CERCLA cost allocation scheme may operate retroactively as well: a PRP may be held responsible for actions taken before CERCLA was enacted and before the PRP was aware that its actions might lead to environmental liability."). Liability is for all costs of removal or remedial action incurred by the federal and state governments and an Indian tribe, as well as any necessary response costs, damages to natural resources, and health assessment costs. 42 U.S.C. § 9607(a), (f).

The defenses to CERCLA's strict joint and several liability are very narrow. There is no liability for a hazardous substance release caused by an act of God or act of war. 42 U.S.C. § 9607(b)(1), (2). There also is a defense if a third party caused the release, unless that third party is an employee or someone in a contractual relationship and the defendant establishes that it exercised due care with respect to the hazardous substance. 42 U.S.C. § 9607(b)(3). CERCLA also provides for a right of contribution from other liable or potentially liable parties, using equitable allocation as a court deems appropriate. 42 U.S.C. § 9613(f)(l).

(b) MTCA

Washington voters in 1988 adopted MTCA as Initiative 97, now codified at Chapter 70.105D RCW. MTCA uses much of the same language found in CERCLA. MTCA provides for the same strict joint and several liability of the same four classes of persons as CERCLA (with an additional category for any person who both sells a hazardous substance and is responsible for written instructions for its use), the same limited defenses, the same categories of damages, and a right of contribution. RCW 70.105D.040, .080.

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Because of the similarities between CERCLA and MTCA, Washington courts look to CERCLA case law for guidance on the interpretation of MTCA. See City of Seattle v. State Dep't of Transp., 98 Wn.App. 165, 169, 989 P.2d 1164 (1999). MTCA, however, has some important distinctions from CERCLA—MTCA does not have a "petroleum" exclusion, and it provides for a prevailing party to recover its attorney fees and costs. The latter is what drives many MTCA cases to settle because the prospect of having to pay two sets of attorney fees—the defendant's and the claimant's—can be daunting, particularly when the cost of a cleanup is added.

Under MTCA, an "owner or operator" is "any person with any ownership interest in the facility or who exercises any control over the facility." RCW 70.105D.020(22). A "person" for MTCA purposes is an "individual, firm, corporation, association, partnership, consortium, joint venture, commercial entity, state government agency, unit of local government, federal government agency, or Indian tribe." RCW 70.105D.020(24).

In Pope Resources, L.P. v. State Department of Natural Resources, 190 Wn.2d 744, 418 P.3d 90 (2018), the Washington Supreme Court reversed Division IP's holding that the Washington Department of Natural Resources (DNR) was liable under MTCA as an "owner or operator" of aquatic lands that were contaminated by its lessee's log storage and rafting. In resolving a split between divisions of the Court of Appeals, the Supreme Court said Division II erroneously interposed ownership attributes into the state's delegation of aquatic lands management to DNR, despite the absence of any deeds, grants, patents, or other instruments conveying "any ownership interest" to DNR. The court distinguished between the state's ownership of aquatic lands and DNR's responsibility as the state's management agent, which did not result in "owner" liability under MTCA. On the "operator" issue, the court held that DNR did not exercise the requisite control, because it only entered into leases that expressly assigned operational control to the lessee. In so ruling, the court followed prior cases applying the "control" test under CERCLA to MTCA. See Unigard Ins. Co. v. Leven, 97 Wn.App. 417, 983 P.3d 1155 (1999), review denied, 140 Wn.2d 1009 (2000); Taliesen Corp. v. Razore Land Co., 135 Wn. App. 106, 144 P.3d 1185 (2006).

"Arranger" liability can arise under MTCA for disposal of a hazardous substance even if there is no proof that a defendant had a specific intent to dispose of the hazardous substance. PacifiCorp Envtl. Remediation Co. v. State Dep't of Transp., 162 Wn.App. 627, 662-63,

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259 P.3d 1115 (2011) (highway construction released contaminants into waterway); City of Seattle, 98 Wn.App. at 172-73.

In its discussion of the arranger liability under MTCA, the court in PacifiCorp said it was not required to follow the CERCLA interpretation of "arranger" adopted by the U.S. Supreme Court in Burlington Northern and Santa Fe Railway v. United States, 556 U.S. 599, 129 S. Ct. 1870, 173 L. Ed. 2d...