Keller and Heckman LLP: Ninth Circuit Holds Railway Companies Not Liable for Contamination Under Nuisance Theory and California's Polanco Act

Keller and Heckman LLP: Ninth Circuit Holds Railway Companies Not Liable for Contamination Under Nuisance Theory and California's Polanco Act

By Daniel J. Herling and Leila N. Qutami

In Redevelopment Agency of the City of Stockton v. BNSF Railway Company, 2011 U.S. App. LEXIS 13135 (June 28, 2011)1, the Ninth Circuit Court of Appeals addressed the liability of BNSF Railway Company and Union Pacific Railroad Company (the "Railroads") for the contamination of a parcel of land. Under a 1968 agreement, the Railroads installed a french drain on the parcel of land to improve soil stability. The Railroads then laid track on the land and agreed to maintain the railroad tracks, roadbed, and drainage. In 1983, the State of California transferred the deed to the underlying land to the Railroads. The Railroads sold their interest in the land to the Redevelopment Agency of the City of Stockton ("Redevelopment Agency") in 1988.

When the petroleum contamination was discovered in 2004, tests indicated that the contamination was at least twenty years old and that the likely source was a nearby petroleum facility where there had been several spills in the 1970s. It was undisputed that "the french drain served as a preferential pathway through which the petroleum contamination migrated underground onto the Property." In 2007, the United States District Court for the Eastern District of California ruled that the Railroads were liable for the contamination.

The Ninth Circuit reversed, holding that the Railroads were not liable for the contamination under the law of nuisance or under California's Polanco Redevelopment Act, Cal. Health & Safety Code § 33459 et. seq. As such, the Ninth Circuit found that the Railroads were entitled to summary judgment. There was no evidence that the Railroads "actively or knowingly caused or permitted the contamination as required for nuisance liability and liability under the Polanco Act's Water Code provision. Nor were the Railroads 'owners' of the property under the Polanco Act's CERCLA provision when the contamination occurred."

Nuisance

While it was undisputed that the contamination of the land constituted a nuisance, the Railroads were not held liable because they did not "create or assist in the creation" of the nuisance. The district court had concluded that the contamination of the land would not have occurred but for the french drain, and the french drain would not have been there but for the Railroads.

The Ninth Circuit did not agree "that such passive but-for causation is sufficient for nuisance liability to attach. Under California law, conduct cannot be said to 'create' a nuisance unless it more actively or knowingly generates or permits the specific nuisance condition." The Railroads did not spill the petroleum or knowingly permit it to migrate onto the parcel of land. The court explained that the installation of the french drain "was wholly unrelated to the contamination."

Furthermore, although possessors of land can be liable for a nuisance on the land even if they did not create the nuisance, the court found that the Railroads were not liable on that ground because there was "no basis on which to conclude that the Railroads knew or should have known of the contamination . . . "

Polanco Act

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.' " (citations omitted).

Under the Polanco Act, liability is imposed on persons described in Section 13304(a) of California's Water Code - "[a]ny person . . . who has caused or permitted, causes or permits, or threatens to cause or permit any waste to be discharged or deposited where it is, or probably will be, discharged into the waters of the state and creates or threatens to create, a condition of pollution or nuisance . . . " The Railroads were not found liable under the Water Code provision because "[j]ust as but-for causation is insufficient to impose liability for a nuisance, it is insufficient to impose liability for a discharge under section 13304. . . . The Railroads' involvement with the petroleum spill was not only remote, it was nonexistent; and their involvement with the emission of contamination from the french drain was entirely passive and unknowing."

Liability is also imposed under the Polanco Act on persons described in the federal Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") at 42 U.S.C. § 9607(a), which, in relevant part, 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 upheld the district court's finding that the Railroads were not owners or operators at the time of the contamination. The court noted that the petroleum release occurred in the 1970s, well before 1983 when the Redevelopment Agency transferred the deed to the land to the Railroads. The court rejected arguments that the Railroads were equitable owners of the land at the time of the contamination and that they held an easement or license to operate trains over the land.

The court explained that even assuming the Railroads had an easement, that would not have been enough to make them owners for purposes of CERCLA liability. If the Railroads' use of an easement resulted in the contamination then they could be liable as operators, but that was not at issue since the "petroleum spill was entirely unrelated to the Railroads' use of the easement, and the french drain was not installed or operated for any purpose related to the petroleum contamination."


[1] http://www.ca9.uscourts.gov/datastore/opinions/2011/06/28/09-16585.pdf

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