Cleanup Liability: When Can an Owner Claim the Innocent Landowner Defense

The recent decision in California Department of Toxic Substances v Westside Delivery, LLC, 2018 WL 1973715 (9th Cir., April 27, 2018) provides an interesting analysis of the “contractual relationship” element of the “so-called” innocent landowner defense.  And I say “so-called” because although the ASTM standard for site assessments is aimed at establishing that defense, the defense is so difficult to establish that some commentators question whether it exists at all.

Westside Delivery purchased a property in a tax sale from the Los Angeles Tax Collector.  The Tax Collector took the property from the Davis Family Trust and the Trust received the property from Davis Chemical Company, the party who caused the contamination.  CERCLA provides an affirmative defense for someone who can prove that the contamination was “caused solely by   . . . an act or omission of a third party other than an employee or agent of the defendant, or other than whose act or omission occurs in connection with a contractual relationship, existing directly or indirectly, with the defendant . . . “   That means that Westside should have a defense unless the contamination occurred in connection with a contractual relationship between Westside and Davis Chemical Company.

The question before the court was whether the contamination occurred “in connection with a contractual relationship” between Davis Chemical Company and Westside?  Westside never dealt with Davis and when Davis contaminated the property, it did so many years before the Tax Collector sold the property to Westside.  Nevertheless, the court held that there was no defense because the contamination by Davis was in connection with a contractual relationship with Westside Delivery.

How?  First, the court noted the importance of the word “indirectly” in the statute.  Anyone who owns a property, the court reasoned, has an indirect contractual relationship with all prior owners of the property.  Then the court said that any contamination by a landowner is in connection with the contractual relationship with all subsequent owners.  The court seemed to recognize that it had more or less written the “in connection with” phrase out of the statute but felt that its conclusion was more consistent with the intent of CERCLA than the defendant’s alternative.  In other words, the defendant has no defense because the statute cannot mean what it says.