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Developers May be Liable for Neighbors' Contamination

By: Byron P. Gee
03/19/08

Developers who grade soil contaminated by a neighbor may be liable for clean up costs.  A recent ruling extending this liability highlights the need for landowners to perform due diligence before developing their property.

In a recent case, a federal district court in California rejected a developer's innocent landowner defense under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") because the court found that the developer contributed to an existing contamination problem by grading and excavating undeveloped land that had been contaminated by runoff from an adjacent property.  United States v. Honeywell International, Inc. et al., (E.D. Cal. Case No. 2:06-cv-00387-MCE-JFM).  The court held that the developer, who was a former owner of a contaminated site, was liable under CERCLA in light of the fact that the developer moved contaminated soil around the property in the course of development.

In Honeywell, the site had been contaminated as a result of erosion of mine tailings from a neighboring property.  A developer purchased the site and began developing it into a residential subdivision.  Over 20 years later, the soil in the subdivision was tested and arsenic levels were found to be at levels in excess of the relevant standards.  The developer asserted that the innocent landowner defense applied because the mining operation was the sole cause of the contamination and that the developer had "no reason to know" of the contamination.  The court rejected that argument because the developer actively engaged in movement of the soil and because the release of hazardous materials was a foreseeable consequence of the development of the site.  The Honeywell court distinguished this situation from prior cases, such as Carson Harbor Village, Ltd. v. Unocal Corp., 270 F.3d 863 (9th Cir. 2001), where the Court dealt with the issue of passive migration of hazardous substances:

"In this case, there is nothing passive about the affirmative steps Third-Party Defendant took to develop his property.  The critical point here … is that in order to rely on [the innocent landowner] defense, Third Party-Defendant must actually be wholly innocent.  If he contributed to the release of the hazardous substance, then it is irrelevant that he was unaware that the substance was there in the first place."

This case has implications for owners and developers of potentially contaminated sites, even if such sites have never been previously developed and were not known to be contaminated at the time of development. The Court's ruling demonstrates the importance of conducting a thorough investigation of the site and of the neighboring properties before commencing development activities.

In 2002, CERCLA was amended to provide certain categories of persons with protection from cost recovery and contribution claims for cleanup of contaminated sites provided those persons comply with certain requirements, including requirements to cooperate with respect to any clean-up action make all appropriate inquiries into the prior uses and ownership of the property, and exercise appropriate care with respect to the contamination.  42 U.S.C. §§ 9607(r)(1); 9601(40); 9607(q)(1).

Conclusion:  The recent ruling may be alarming to developers, but the Brownfields Amendments provide significant protection from CERCLA liability to certain owners of contaminated sites, but only where those owners take care to meet all requirements, including by conducting sufficient due diligence before purchasing and developing property.

Byron Gee is a partner that specializes in environmental and water law.  He assists clients to resolve site contamination issues and is an experienced CERCLA litigator. He can be reached at (213) 612-7843 or bgee@nossaman.com.

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