Opinion
No. 02-CV-6032 CJS
November 4, 2002
For the plaintiff: David L. Cook, Esq., Nixon Peabody LLP Rochester, New York.
For defendant United States Small Business Administration: Eileen T. McDonough, Esq., U.S. Department of Justice Civil Division, Torts Branch Washington, D.C.
For defendants Richard Atkins and June Atkins: Thomas W. Reed, II, Esq. Corning, New York.
DECISION AND ORDER
INTRODUCTION
In this action, plaintiff Aces Eights Realty LLC ("Aces") is asserting a claim against the United States Small Business Administration ("SBA") pursuant to New York's Navigation Law. Defendants Richard Atkins and June Atkins ("the Atkinses") are also asserting a cross-claim [#4] against SBA, pursuant to a covenant contained in a real property deed given to them by SBA. Now before the Court is SBA's motion [#12] to dismiss both claims, and Aces' cross-motion [#16] for leave to amend its amended complaint. For the reasons that follow, SBA's motion is denied, and Aces' cross-motion is granted.
At the outset, however, the Court wishes to clarify the scope of SBA's motion to dismiss under Fed.R.Civ.P. 12(b)(6). SBA's motion states that, "[t]o the extent that the complaint and cross-claims rely upon the [deed] covenant, they fail to state a claim." (SBA Motion to Dismiss [#12], p. 2) (emphasis added). Thus, the Court understands SBA's 12(b)(6) motion as being directed only at claims based on the deed covenant. Aces does not assert such a claim, but instead relies only on New York Navigation Law. As for cross-claims, the Atkinses' cross-claim is the only one which expressly states a claim pursuant to the deed covenant. A cross-claim by Ronald Hartman, Richard Hartman, and Hartman Lynch ("the Hartmans"), against all of the other defendants, states only that, "[t]he alleged injuries and/or damages, if any, set forth in the Complaint were caused in whole or in part by the breach of contract, negligence and/or other culpable conduct of them in whole or in part, through no fault, neglect or culpable conduct on the part of these Answering Defendants." (Hartman Answer with Cross — Claim and Counterclaim [#8], ¶ 26). The Court does not read that cross-claim as necessarily asserting a claim pursuant to the deed covenant. None of the other defendants have filed cross-claims with this Court. Moreover, except for the Atkinses, none of the cross-claimants filed a response to SBA's motion. Nonetheless, the Court's discussion of the Atkinses' claim involving the deed covenant would be applicable to any similar claims by any other cross-claimants seeking to enforce the deed covenant as the Atkinses' successors and/or assigns.
Although certain documents in the record refer to cross-claims by Elmira Savings Loan, F.A. and Edward Kauffman, neither of those defendants have filed answers or cross claims with this Court.
The Hartmans submitted a letter to the Court, along with a copy of a court decision. However, the Court's Motion Scheduling Order instructed the parties that the Court would not consider papers which fail to comply with Rules 7.1 and 5.2 of the Local Rules of Civil Procedure. Hartmans' submission does not comply with these Rules, particularly Rule 7.3(e), which requires that responses to motions under Federal Rule 12 include an answering memorandum and supporting affidavit.
As will be clear from the description of the deed below, the covenant is one that runs with the land. See, Stasyszyn v. Sutton East Assocs., 555 N.Y.S.2d 297, 299-300 (1st Dept. 1990).
APPLICABLE STANDARDS
It is well settled that,
[a] case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to adjudicate it. In resolving a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), a district court . . . may refer to evidence outside the pleadings. A plaintiff asserting subject matter jurisdiction has the burden of proving by a preponderance of the evidence that it exists.
Makarova v. U.S., 201 F.3d 110, 113 (2d Cir. 2000) (citations omitted). On the other hand, when determining a motion to dismiss under Fed.R.Civ.P. 12(b)(6) for "failure to state a claim upon which relief can be granted," a district court must accept the allegations contained in the complaint as true and draw all reasonable inferences in favor of the nonmoving party. Burnette v. Carothers, 192 F.3d 52, 56 (2d Cir. 1999), cert. denied, 531 U.S. 1052 (2000). The Court "may dismiss the complaint only if it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Id. (internal quotations omitted) (citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).
BACKGROUND
The following facts are taken from the Amended Complaint. This action concerns environmental contamination of a parcel of land known as 201-207 South Walnut Street in Elmira, New York. Prior to 1978, the property was owned by an oil company which used the property for the sale and storage of petroleum products. Some time prior to 1931, the owner of the property installed several underground storage tanks in the northwest corner of the property. An insurance map of the property prepared in 1937 suggests that, at some time between 1931 and 1937, a building was erected over the underground tanks. At some point prior to 1978, the owners of the property also installed, underground, a 1000-gallon fuel oil storage tank.
There may also have been additional underground petroleum storage tanks. (See, Amended Complaint, Exhibit K) ("It is our understanding that there were formerly underground storage tanks also located on the south side of the site and that these were removed circa the late 1980's.") It is unclear whether or not this reference is to the single fuel storage tank which was removed by the SBA in 1992.
For purposes of this motion, it is sufficient to note that on November 9, 1990, SBA purchased the property. On February 19, 1992, SBA reported to the New York State Department of Environmental Conservation that a spill of fuel oil had occurred on the premises. On October 9, 1992, SBA conveyed a warranty deed for the premises to defendants and cross-claimants the Atkinses, as well as their "heirs or successors and assigns . . . forever." That deed contains the following language:
Notice and covenants pursuant to 42 U.S.C.S § 9620(h)(3)(A) (B):
Part A: Hazardous substances stored on the property conveyed herein for one year or more, know to have been released, or disposed of: A 1,000-gallon heating oil underground storage tank was removed from the premises on February 29, 1992. Four 55-gallon drums containing sludge taken from the tank were removed on or about April 23, 1992.
Part B: Grantor covenants and warrants that:
(1) All remedial action necessary to protect human health and the environment with respect to any such substance identified in the Notice contained in Part A remaining on the property has been taken before the date of transfer herein and,
(2) Any additional remedial action found to be necessary with respect to any such substance shall be conducted by the U.S. Small Business Administration in accordance with 42 U.S.C.S § 9620(h).
(Amended Complaint, Exhibit E) The warranty deed was executed on behalf of SBA by James J. Cristofaro, Branch Manager of SBA's Elmira Branch Office, "pursuant to the Delegation of Authority No. 30-II (Revision 2) in 39 Federal Register Page 8683, on March 6, 1974." (Id.) Thereafter the property was conveyed several times, by and to various defendants in this action.
This delegation of authority provides, in relevant part, that SBA Branch Managers have authority "[t]o take all necessary actions in connection with the administration, servicing, collection, and liquidation of all loans, exclusive of matters in litigation, and to do and perform and to assent to the doing and performance of, all and every act and thing requisite and proper to effectuate the granted powers, including without limiting the generality of the foregoing . . . the execution and delivery of contracts of sale or of lease or sublease, quitclaim, bargain and sale of special warranty deeds, bills of sale, leases, subleases, subordinates, releases (in whole or part) of liens, satisfaction pieces, affidavits, and such other instruments in writing as may be appropriate and necessary to effectuate the foregoing." Federal Register, Vol 39, No. 45 — Wednesday, March 6, 1974, pp. 8683-85.
On May 18, 2000, Aces purchased the property at a foreclosure sale. In or about August of 2000, Aces demolished the building on the northwest corner of the property, which is apparently when it learned of the existence of the other underground storage tanks. Aces removed the tanks, but tests have revealed unacceptably high levels of contaminants in the soil and ground water. As a result, the New York Department of Environmental Conservation is now seeking to compel Aces to clean up the site.
Aces commenced this action in New York State Supreme Court, Chemung County, and the SBA removed the action to this Court, pursuant to 28 U.S.C. § 1442(a)(1). Aces is asserting only one cause of action against SBA, namely, a claim under New York Navigation Law § 181, which states that, "[a]ny person who has discharged petroleum shall be strictly liable, without regard to fault, for all cleanup and removal costs and all direct and indirect damages, no matter by whom sustained, as defined in this section," and that, "[a]ny claim by any injured person for the costs of cleanup and removal and direct and indirect damages based on the strict liability imposed by this section may be brought directly against the person who has discharged the petroleum." N.Y. Navigation Law § 181(1)(5) (McKinney 1989 Supp. 2002). Under the Navigation Law, a "person" is defined as "public or private corporations, companies, associations, societies, firms, partnerships, joint stock companies, individuals, the United States, the State of New York and any of its political subdivisions or agents." Id. § 172(14). The term "petroleum" is defined as "oil or petroleum of any kind and in any form including, but not limited to, oil, petroleum, fuel oil, oil sludge, oil refuse, oil mixed with other wastes and crude oils, gasoline and kerosene." Id. § 172(15). Aces is also suing the Atkinses, and the Atkinses have asserted a cross-claim against SBA, to enforce the deed covenant. (Atkins Answer with Cross-claim [#4], ¶¶ 19-23)
Along with its claim under New York Navigation Law, Aces had originally various tort causes of action against SBA. However, by Notice of Voluntary Dismissal [#10] filed on April 5, 2002, Aces voluntarily discontinued the tort claims, leaving only its Navigation Law claim.
On April 12, 2002, SBA moved to dismiss Aces' claim pursuant to Fed.R.Civ.P. 12(b)(1), citing sovereign immunity, and the Atkinses' cross claim pursuant Rule 12(b)(6). Both Aces and the Atkinses oppose the motion. In addition, Aces has cross-moved for leave to amend its amended complaint, to include an allegation that this Court has jurisdiction over the Navigation Law claim against SBA pursuant to 15 U.S.C. § 634. Oral argument was originally scheduled for August 8, 2002, but was rescheduled twice, first at plaintiff's request, and second due to the Court's involvement with a lengthy criminal trial. On October 25, 2002, counsel appeared before the undersigned. The Court has thoroughly considered the parties' submissions and the arguments of counsel.
As discussed further herein, 15 U.S.C. § 634(b)(1) provides that SBA may "sue and be sued in any court of record of a State having general jurisdiction, or in any United States district court to determine such controversies without regard to the amount in controversy."
ANALYSIS
Sovereign Immunity
SBA contends that this Court lacks subject matter jurisdiction, since SBA, as an agency of the United States, enjoys sovereign immunity. It is clear that, "[a]bsent a waiver, sovereign immunity shields the Federal Government and its agencies from suit," and that, "[s]overeign immunity is jurisdictional in nature." Federal Deposit Ins. Corp. v. Meyer, 510 U.S. 471, 114 S.Ct. 996, 1000 (1994) (citations omitted). However, although SBA did not see fit to mention this fact in its motion to dismiss, 15 U.S.C. § 634(b)(1) provides that SBA may "sue and be sued in any court of record of a State having general jurisdiction, or in any United States district court to determine such controversies without regard to the amount in controversy." This omission by SBA is highly significant, and in fact, is largely dispositive of its motion, since numerous decisions of the United States Supreme Court have recognized that such statutory language effects a "broad waiver" of sovereign immunity. See, Federal Deposit Ins. Corp., 114 S.Ct. at 1000 ("When Congress created FSLIC [Federal Savings and Loan Insurance Corporation] in 1934, it empowered the agency "to sue and be sued, complain and defend, in any court of competent jurisdiction. By permitting FSLIC to sue and be sued, Congress effected a `broad' waiver of FSLIC's immunity from suit.") (citations and internal quotations omitted); Franchise Tax Bd. of California v. United States Postal Serv., 467 U.S. 512, 104 S.Ct. 2549, 2552-2553 (1984) ("Sue and be sued" language waived U.S. Postal Service's sovereign immunity). In fact,
such waivers by Congress of governmental immunity should be liberally construed. Hence, when Congress establishes such an agency, authorizes it to engage in commercial and business transactions with the public, and permits it to `sue and be sued,' it cannot be lightly assumed that restrictions on that authority are to be implied. Rather if the general authority to `sue and be sued' is to be delimited by implied exceptions, it must be clearly shown that certain types of suits are not consistent with the statutory or constitutional scheme, that an implied restriction of the general authority is necessary to avoid grave interference with the performance of the governmental function, or that for other reasons it was plainly the purpose of Congress to use the `sue and be sued' clause in a narrow sense. In the absence of such a showing, it must be presumed that when Congress launched a governmental agency into the commercial world and endowed it with authority to `sue or be sued,' that agency is not less amenable to judicial process than a private enterprise under like circumstances would be.
Loeffler v. Frank, 486 U.S. 549, 108 S.Ct. 1965, 1969 (1988) (quoting FHA v. Burr, 309 U.S. 242, 245 (1940) (other citations and internal quotations omitted). The Court therefore finds that, in enacting 15 U.S.C. § 634(b)(1), Congress presumptively waived SBA's sovereign immunity.
In order to overcome this presumption, SBA has the burden of "clearly showing" that one of the factors referred to above in Loeffler applies in this case. That is, SBA must clearly show that "an implied restriction of the general authority is necessary to avoid grave interference with the performance of the governmental function, or that for other reasons it was plainly the purpose of Congress to use the `sue and be sued' clause in a narrow sense." As noted, SBA did not address the "sue and be sued" waiver in its motion to dismiss. Rather, it merely noted that "[m]ost claims against federal agencies related to the cleanup of environmental contaminations" are brought pursuant to three federal statutes, the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), the Resource Conversation and Recovery Act ("RCRA"), and the Clean Water Act ("CWA"), and that none of those statutes contain a waiver of sovereign immunity. That is irrelevant, however, since Congress waived SBA's sovereign immunity by enacting 15 U.S.C. § 634(b)(1). Moreover, SBA does not claim that anything in CERCLA, RCRA, or CWA limits Section 634(b)(1)'s waiver of sovereign immunity. See, Loeffler v. Frank, 108 S.Ct. at 1973 ("[W]hen Congress intends the waiver of sovereign immunity in a new cause of action directed against federal entities to be exclusive, — in effect, to limit the force of `sue-and-be-sued' clauses — it has said so expressly.")
Alternatively, SBA argues that, even if 15 U.S.C. § 634(b)(1) waives SBA's sovereign immunity, Aces' claim must still fail, since New York's Navigation Law is not a valid source of "substantive law." In fact, SBA claims that "sue-and-be-sued" federal agencies are not subject to suits arising under state laws, and may only be sued where the cause of action arises under federal substantive law. (See, SBA's Reply Memo [#21], pp. 3-4: "[C]ourts have rejected arguments that a "sue and be sued" clause waives sovereign immunity from claims arising under state law.") For support, SBA cites four cases, Davric Maine Corp. v. United States Postal Serv., 238 F.3d 58 (1st Cir. 2001), Global Mail Ltd. v. Unites States Postal Serv., 142 F.3d 208 (4th Cir. 1998), Federal Express Corp. v. United States Postal Serv., 151 F.3d 536 (6th Cir. 1998), and United States v. Q Int'l Courier, Inc., 131 F.3d 770 (8th Cir. 1997).
SBA failed to provide page citations to any of these four cases.
However, as counsel for SBA conceded during oral argument, none of these four cases expressly stands for the proposition asserted by SBA. For example, the Davric case involved a suit against the Postal Service for defamation and tortious interference, intentional torts under state law. Davric, 238 F.3d at 60. The First Circuit held that the Postal Service was immune from suit, not because the claims arose under state law, but because they were torts, which, pursuant to a specific provision of the Postal Reorganization Act, were governed by the Federal Tort Claims Act. Id. at 61. The Court then concluded that intentional torts under state law were excepted from the FTCA's waiver of sovereign immunity. Id. at 62. In the instant case, since Aces' claim does not fall under the FTCA, the Davric decision is inapplicable. SBA's reliance on the Global Mail Limited, Federal Express Corp., and Q International Courier decisions is similarly misplaced, since those cases all involved federal claims, and the interplay between the Lanham Act, Postal Reorganization Act, and Federal Tort Claims Act. None of them hold, or even suggest, that "sue-and-be-sued" federal agencies are immune from suits asserting state-law causes of action. That is plainly not the case in any event. For example, in Franchise Tax Bd., the Supreme Court held that the U.S. Postal Service was not immune from garnishment orders issued pursuant to California's Revenue and Taxation Code. 104 S.Ct. at 2554 ("[T]he order to withhold has precisely the same effect on [the Postal Service] . . . as it does on that of any other employer subject to the California statute.")
Finally, SBA asserts that, in Federal Deposit Insurance Corp. v. Meyer, the Supreme Court "expressly rejected" the contention that "sue-and-be-sued" federal agencies "are subject to the same level of liability as private enterprises. Once again, SBA is incorrect, since, in Meyer, the Supreme Court noted that the plaintiff in that case did "not seek to hold FSLIC liable just like any other business. Indeed, he seeks to impose on FSLIC a form of tort liability — tort liability arising under the Constitution — that generally does not apply to private entities." 114 S.Ct. at 482 (emphasis added). Nor did the Court otherwise make the statement attributed to it by SBA. On the contrary, the Supreme Court held that it "stands to reason" that a "sue-and-be-sued" federal agency cannot "escape the liability a private enterprise would face in similar circumstances." Id. For all of the foregoing reasons, SBA's motion to dismiss Aces' cause of action under New York Navigation Law is denied. Further, other than its arguments in support of its motion to dismiss, which the Court has rejected, SBA has not opposed Aces' motion to amend the amended complaint. Accordingly, Aces' cross-motion for leave to amend its amended complaint is granted.
In this regard, SBA cites to page 482 of the Meyer decision.
Failure to State a Claim
It is well settled that, "[a] covenant is a promise to do or refrain from doing certain things with respect to real property." Suffolk Bus. Ctr., Inc. v. Applied Digital Data Sys., Inc., 78 N.Y.2d 383, 576 N.Y.S.2d 65, 67 (1991) (citations omitted). Here, it is undisputed that SBA promised that it had removed a fuel oil tank and sludge from the premises, and that it would perform any additional remedial action later found to be necessary. Nonetheless, SBA seeks dismissal the cross claims against it, pursuant to Fed.R.Civ.P. 12(b)(6), on the theory that the deed covenant made by SBA "does not apply where the claim is based on remediation of petroleum contamination." (SBA Motion to Dismiss [#12], p. 11). Specifically, SBA contends that, "[b]ecause the only hazardous substance identified in the complaint and cross-claims is petroleum, which is expressly excluded from CERCLA's definition of hazardous substances, the covenant is not applicable to the costs at issue in this matter." (Id., p. 13).
Congress, in 42 U.S.C. § 9620(h), directed that the United States include a deed covenant such as the one at issue here whenever it transferred property, "on which any hazardous substance was stored for one year or more, known to have been released, or disposed of." CERCLA defines a "hazardous substance" as
(A) any substance designated pursuant to section 1321(b)(2)(A) of Title 33, (B) any element, compound, mixture, solution, or substance designated pursuant to section 9602 of this title, (C) any hazardous waste having the characteristics identified under or listed pursuant to section 3001 of the Solid Waste Disposal Act [ 42 U.S.C.A. § 6921] (but not including any waste the regulation of which under the Solid Waste Disposal Act [ 42 U.S.C.A. § 6901 et seq.] has been suspended by Act of Congress), (D) any toxic pollutant listed under section 1317(a) of Title 33, (E) any hazardous air pollutant listed under section 112 of the Clean Air Act [ 42 U.S.C.A. § 7412], and (F) any imminently hazardous chemical substance or mixture with respect to which the Administrator has taken action pursuant to section 2606 of Title 15.42 U.S.C. § 9601(14). However, "[t]he term does not include petroleum, including crude oil or any fraction thereof which is not otherwise specifically listed or designated as a hazardous substance under subparagraphs (A) through (F) of [§ 9601(14)]." Id. Courts have held that, "`petroleum' includes hazardous substances normally found in refined petroleum fractions but does not include either hazardous substances found at levels which exceed those normally found in such fractions or substances not normally found in such fractions." City of New York v. Exxon Corp., 766 F. Supp. 177, 186 (S.D.N.Y. 1991). Moreover, "hazardous substances which are added to petroleum or which increase in concentration solely as a result of contamination of the petroleum during use are not part of the `petroleum' and thus are not excluded from CERCLA under the exclusion." Id. at 186-87 (emphasis in original). Accordingly, courts have concluded that some petroleum waste falls outside CERCLA's petroleum exclusion "because contaminants present in the wastes are not indigenous to petroleum or refined petroleum products, or are present at elevated levels." Id. at 187.
The Court finds that dismissal at this stage of the litigation would be premature. All that is known is that SBA removed a fuel oil tank and approximately 220 gallons of sludge. The Atkinses contend that some of the substances found on the property are, or at least may be, hazardous substances within the meaning of CERCLA, and they refer to a report, attached to the amended complaint, which states that, "[d]issolved petroleum hydrocarbons at levels in excess of NYSDEC . . . values were detected in each of the six samples." (Amended Complaint, Exhibit K, GeoLogic letter to David Cleary, p. 2). Laboratory results attached to the report appear to indicate the presence of up to twelve different pollutants. The Atkinses maintain that because there has been no discovery in this action, they cannot specify which of these substances qualify as hazardous substances under CERCLA. SBA has not gone through the laboratory report, substance by substance, but instead, merely alleges that the pollution is "petroleum," and therefore falls outside the definition. Therefore, the Court finds that SBA has not shown beyond doubt that the Atkinses can prove no set of facts in support of their claim which would entitle them to relief. The motion to dismiss under Fed.R.Civ.P. 12(b)(6) is denied.
Contribution Claim Under 42 U.S.C. § 9613(f)
Finally, SBA has argued that the Atkinses may not pursue a contribution claim against the SBA pursuant to CERCLA, 42 U.S.C. § 9613(f). SBA correctly notes that the Atkinses' cross-claim does not presently assert such a claim. Rather, it appears that the Atkinses' cross-claim only seeks indemnification, under state law, based upon the deed covenant. However, because the Atkinses referred to 42 U.S.C. § 9613 in their brief in opposition to the motion to dismiss, SBA now seeks a ruling from this Court that any attempt by the Atkinses to amend their cross claim to assert such a claim would be futile. However, since the Atkinses are not presently asserting such a claim, and since they have not made a motion to amend their cross claim to include such a claim, the Court declines to make such a ruling.
In their cross-claim, the Atkinses assert only that, because of the deed covenant, "any and all liability for remedial action required for the subject property as alleged in the Complaint that may be adjudicated to be the responsibility of the Defendants, Richard W. Atkins and June Atkins, herein, shall be the Defendant, United States Small Business Administration's, sole responsibility and the Defendant, Richard W. Atkins and June Atkins, are entitled to a judgment over and against said Defendant as a result thereof." (Atkins Answer with Cross Claim [#4], ¶ 23).
CONCLUSION
Small Business Administration's motion to dismiss [#12] is denied in its entirety. Aces Eights' cross-motion [#16] for leave to amend its amended complaint is granted.
So Ordered