Fireman's Fund Ins. Co. v. City of Lodi, Cal.

296 F.Supp.2d 1197

FIREMAN'S FUND INSURANCE COMPANY, Plaintiff, v. CITY OF LODI, CALIFORNIA, et. al., Defendants.

No. CIV.S 98-1489 FCD JFM.

United States District Court, E.D. California.

December 22, 2003.

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Terry J. Houlihan, Edward L. Strohbehn, Jr., Thomas S. Hixson, Bingham McCutchen LLP, San Francisco, CA, for Plaintiff Fireman's Fund Insurance Company.

Michael C. Donovan, Cecelia C. Fusich, Bret A. Stone, Envision Law Group, LLP, Lafayette, CA, for Defendant City of Lodi, Cal.

MEMORANDUM AND ORDER

DAMRELL, District Judge.

Plaintiff Fireman's Fund Insurance Company ("plaintiff") brought suit alleging that defendant City of Lodi's ("Lodi") ordinance, the Comprehensive Municipal Environmental Response and Liability Ordinance ("MERLO"), violates the Supremacy Clause of the United States Constitution because MERLO is preempted by the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601-9675.¹

This matter is before the court on plaintiff's motion for (1) partial summary judgment on its preemption claim asserted pursuant to 42 U.S.C. § 1983 and (2) a permanent injunction prohibiting Lodi from further enforcing MERLO. Plaintiff's motion follows a remand from the Ninth Circuit Court of Appeals. See Fireman's Fund Ins. Co. v. City of Lodi, 302 F.3d 928, 934-35 (9th Cir.2002), cert. denied, ___ U.S. ___, 123 S.Ct. 1754, 155 L.Ed.2d 512 (2003). The parties presented oral argument on October 10, 2003.

BACKGROUND²

A. Contamination Discovered within the City

In April, 1989, Lodi first detected tetrachloroethene ("PCE") in a water sample from a new water tank. Subsequent testing found PCE contamination in the groundwater and several Lodi water wells. In March, 1992, the Central Valley Regional Water Quality Control Board ("RWQCB") issued a report identifying a cleaning business insured by plaintiff as one potential source of PCE-contaminated wastewater discharged into Lodi's sewer lines and suspected as a source of the soil and groundwater contamination.

In 1993, the California State Department of Toxic Substance Control ("DTSC") commenced an investigation of the contamination. In 1994, DTSC initiated an administrative action against selected potentially responsible parties, including Lodi, to address the soil and groundwater contamination.

B. 1997 Cooperative Agreement

At a meeting on May 6, 1997, Lodi's City Council authorized the City Manager to execute a "Comprehensive Joint Cooperative Agreement" ("Cooperative Agreement" or "Agreement") with the DTSC concerning the investigation and abatement of hazardous substance contamination within the City. Fireman's Fund, 302 F.3d at 935. Under the Agreement, DTSC was required to act with Lodi in a consolidated effort, providing the oversight, consultation, and cooperation necessary and appropriate to ensure the contamination site was remediated in a timely, competent, and cost-effective manner. Id. at 950 n. 21. In exchange for DTSC's "ongoing and substantial services," the DTSC received in excess of one million dollars. Id.

Since the discovery of the contamination, Lodi has faced the issue of potential liability. Indeed, Agreement expressly stated that DTSC may have certain claims against Lodi for the design, construction, operation, and maintenance of its sewer system. Id. at 936. Despite this acknowledgment of potential liability, the Agreement specifically designated Lodi the "lead enforcement entity," in place of the DTSC, and obligated Lodi to "cause a prompt, comprehensive, and cost-effective investigation and remediation" of the ground and soil contamination. (Cooperative Agreement, in Ex. D to Decl. of Thomas Hixson ("Hixson Decl."), at 1); see Fireman's Fund, 302 F.3d at 935.

C. MERLO

To support Lodi's lead enforcement role, the Agreement also required the "prompt enactment and enforcement of a comprehensive municipal environmental response ordinance."³ (Cooperative Agreement, in Ex. D to Hixson Decl., at 5.) Just ninety days later, on August 6, 1997, Lodi's City Council enacted the Comprehensive Municipal Environmental Response Ordinance ("MERLO"), which sets forth a remedial liability scheme partially modeled on CERCLA. MERLO is the subject of plaintiff's preemption claim and present motion.

MERLO provides Lodi with municipal authority to investigate and remediate existing or threatened environmental nuisances affecting the City and to hold responsible parties or their insurers liable for the cost of Lodi's nuisance abatement activities. Id. MERLO incorporated many of CERCLA's standards. Id. Specifically, MERLO borrowed CERCLA's definition of (1) who may be considered a "potentially responsible party" ("PRP"),⁴ (2) who may avoid liability by proving certain affirmative defenses,⁵ and (3) who may impose joint and several liability on responsible parties.⁶ Id. However, in significant departures from CERCLA, MERLO's liability scheme did not provide a mechanism for responsible parties to impose costs upon Lodi for its share of any attributable costs but did provide Lodi recovery for a broad range of "action abatement costs," including attorney's fees. See id.

Plaintiffs Fireman's Fund Insurance Company and Unigard brought actions in this court to prevent Lodi from invoking or enforcing MERLO against its insureds. Id. at 934. Both insurers asserted MERLO was preempted by CERCLA based upon field and conflict preemption. In separate rulings, this court granted Lodi's motion to dismiss Unigard's federal preemption claim and denied Fireman's Fund's motion for partial summary judgment and permanent injunction. Both insurers appealed. The Ninth Circuit consolidated the appeals of the insurers and issued the Fireman's Fund decision on August 6, 2002.

ANALYSIS

I. The Remand

The Ninth Circuit described MERLO as a "comprehensive remedial liability scheme modeled on CERCLA and [state environmental law] ... [which] specifically provides Lodi with municipal authority to investigate and remediate existing or threatened environmental nuisances affected the City, and to hold PRPs or their insurers liable for the cost of the City's nuisance abatement activities." Id. at 936 (citing MERLO §§ 8.24.010-8.24.090). After a lengthy analysis of MERLO and its relationship to CERCLA, the Ninth Circuit concluded "several sections of MERLO are preempted by state and federal law under the doctrine of conflict preemption ..." Id. at 957. In particular, the Ninth Circuit remanded the two cases and instructed that, if Lodi is a PRP, portions of MERLO would be preempted "to the extent" it legislatively insulated Lodi (1) from contribution liability,⁷ or (2) from bearing its share of responsibility,⁸ and, (3) granted Lodi the right to recover "action abatement costs," including attorney's fees.⁹ See Fireman's Fund, 302 F.3d at 946, 947, 953.

II. Fireman's Fund and CERCLA Policy

A. PRP Status under CERCLA

CERCLA section 107(a) imposes strict, joint and several liability on parties falling within one of the four categories "subject only to the defenses set forth in subsection (b) of this section." 42 U.S.C. § 9607(a)¹⁰; see Morrison Enters. v. McShares, Inc., 302 F.3d 1127, 1132 (10th Cir.2002) ("Liability attaches to four categories of individuals [under CERCLA section 107(a)] ... [CERCLA 107(b)] provides very limited defenses to liability."). In other words, section 107(a) defines the "four classes of persons subject to the liability provisions" of CERCLA. Carson Harbor Village Ltd. v. Unocal Corp., 270 F.3d 863, 871 (9th Cir.2001) (en banc), cert. denied, 535 U.S. 971, 122 S.Ct. 1437, 152 L.Ed.2d 381 (2002); Centerior Serv. Co. v. Acme Scrap Iron & Metal Corp., 153 F.3d 344, 347 (6th Cir.1998); see Pinal Creek Group v. Newmont Mining Corp., 118 F.3d 1298, 1300 n. 1 (9th Cir.1997). Those persons are "potentially responsible parties" or "PRPs." Carson Harbor, 270 F.3d at 874 ("Those four categories of persons [subject to liability under 42 U.S.C. §§ 9607(a)] are `potentially responsible parties' or `PRPs.'"); Centerior, 153 F.3d at 347 n. 8 ("There are four categories of PRPs ... under 42 U.S.C. §§ 9607(a)(1)(4)"); Pinal Creek, 118 F.3d at 1300 n. 1; New Castle County v. Halliburton NUS Corp., 111 F.3d 1116, 1120 (3rd Cir.1997); accord 42 U.S.C. § 9613(f)(1)("Any person may seek contribution from any other person who is liable or potentially liable under section 9607(a) ..."); 40 C.F.R. § 304.12 (defining potentially responsible party, or PRP, as "any person who may be liable pursuant to section 107(a) of CERCLA."). Thus, determining PRP status under section 107(a) is wholly distinct from application of the narrowly-defined, causation-based affirmative defenses to CERCLA liability in section 107(b) or proving the elements of a claim for cost recovery or contribution under CERCLA.

B. Lodi's Interpretation of PRP Status

Lodi asserts that a municipal PRP with a claimed defense under section 107(b) may proceed as a party without CERCLA liability by enforcing its own municipal environmental ordinance.¹¹ However, Lodi has never articulated how this construction of PRP status is consistent with CERCLA's structure or policies. It appears such an approach is dramatically at odds with CERCLA's PRP cost allocation scheme, which encourages the prompt and voluntary cleanup of hazardous waste sites before protracted litigation by imposing, at a very early stage, the costs of cleanup on parties potentially responsible for the contamination.

Under CERCLA, Congress intended to impose strict joint and several liability upon PRPs because "their actions contribute to the release of contaminated material and increase the cost of remedial action." Kaiser Aluminum & Chem. Corp. v. Catellus Dev. Corp., 976 F.2d 1338, 1343 (9th Cir.1992) (citing H.R.Rep. No. 1016, 96th Cong., 2d Sess. 33 (1980), reprinted in 1980 U.S.C.C.A.N. 6119, 6136); see United States v....