Opinion
NO. CIV. S-07-142 LKK/GGH.
April 26, 2007
ORDER
Plaintiff Seven Springs has brought an action for past and future response costs related to contamination at a shopping center in South Lake Tahoe, California. Plaintiff contends that defendant Fox, as the former partner of a prior owner to the site, is liable pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §§ 9601 et seq. ("CERCLA"), and pursuant to an indemnity agreement. Pending before the court is defendant's motion to dismiss. Defendant argues that (1) plaintiff has failed to plead sufficient facts to support its innocent land owner defense, (2) plaintiff cannot maintain a claim for contribution under CERCLA, and (3) plaintiff is not entitled to indemnity under the terms of the agreement. The court resolve the matter upon the parties' papers and after oral argument. For the reasons set forth below, the motion to dismiss is granted in part and denied in part.
I. Background
Plaintiff Seven Springs owns the South Y Shopping Center in South Lake Tahoe, California, which is site of alleged perchloroethylene (PCE) contamination. Plaintiff has brought four claims in the present action: (1) cost recovery under CERCLA Section 107, (2) contribution under CERCLA Section 107 (in the alternative), (3) declaratory judgment, and (4) express contractual indemnity.
Defendant Fox was the general partner of the now defunct Century Properties Equity Fund 73 ("Century 73"), which owned the site from 1974 to 1985. Compl. ¶ 18. During this period, plaintiff alleges that hazardous substances were disposed of at the site, causing the contamination at issue in this lawsuit. Specifically, plaintiff alleges that PCE was released to the soil and potentially the groundwater through cracks and holes in the sidewalk, parking lot, and/or driveway during delivery of PCE (a cleaning solvent) to a coin-operated dry-cleaning unit. Compl. ¶¶ 14, 17.
Plaintiff alleges that Century 73 sold the site in 1985 to Dorothy Lyddon. Compl. ¶ 24. At the time, Century 73 entered into an agreement with Lyddon to indemnify her for losses with respect to any breaches by Century 73 of its obligations as landlord, including an alleged duty to maintain the sidewalks of the premises. Compl. ¶ 30. In 1996, Lyddon transferred ownership of the site to plaintiff Seven Springs; at the time, she owned 100% of Seven Springs' limited partner interest and 70.01% of its 1% general partner interest. Compl. ¶ 32-35.
II. Standard
On a motion to dismiss, the allegations of the complaint must be accepted as true. See Cruz v. Beto, 405 U.S. 319, 322 (1972). The court is bound to give the plaintiff the benefit of every reasonable inference to be drawn from the "well-pleaded" allegations of the complaint. See Retail Clerks Intern. Ass'n, Local 1625, AFL-CIO v. Schermerhorn, 373 U.S. 746, 753 n. 6 (1963). Thus, the plaintiff need not necessarily plead a particular fact if that fact is a reasonable inference from facts properly alleged. See id.; see also Wheeldin v. Wheeler, 373 U.S. 647, 648 (1963) (inferring fact from allegations of complaint).
In general, the complaint is construed favorably to the pleader. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). So construed, the court may not dismiss the complaint for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of the claim which would entitle him or her to relief. See Hishon v. King Spalding, 467 U.S. 69, 73 (1984) (citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). In spite of the deference the court is bound to pay to the plaintiff's allegations, however, it is not proper for the court to assume that "the [plaintiff] can prove facts which [he or she] has not alleged, or that the defendants have violated the . . . laws in ways that have not been alleged." Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526 (1983).
III. Analysis
A. Cost Recovery under CERCLA Section 107
First, defendant argues that plaintiff has failed to plead a defense to liability, which is a prerequisite to bringing a Section 107 cost recovery action against other potentially responsible parties ("PRPs") under CERCLA. The innocent land owner defense requires, among other things, that the defendant lack knowledge of the hazardous substance at the time of acquisition, carry out all appropriate inquiries regarding previous ownership, and exercise due care with respect to the hazardous substances. See 42 U.S.C. §§ 9607(b), 9601(35)(A)-(C) (requiring total of seven elements). Plaintiff alleges that it is entitled to the innocent landowner defense based on two theories: that Lyddon qualified for the defense when she acquired the site and that Seven Springs independently satisfies the requirements. The first theory is untenable as a matter of the law, and the second theory has not been sufficiently pled.
With regard to the first theory, even if Lyddon could establish that she was entitled to the defense, that would be of little assistance to Seven Springs. Simply put, Lyddon is not Seven Springs. Although Lyddon may own over 99% of the interest in Seven Springs, the two are still separate legal entities, with separate rights and responsibilities. See Cal. Corp. Code § 16201 ("[a] partnership is an entity distinct from its partners."); Chesapeake and Potomac Telephone Co. v. Peck Iron Metal Co., Inc., 814 F. Supp. 1269, 1280-81 (E.D. Va. 1992) (analyzing availability of innocent landowner defense separately for partnership and general partners).
Moreover, to allow a subsequent owner to shelter under the defense of a former owner would defeat the purpose of the defense. For instance, Seven Springs would be able to claim the defense even if it performed no inquiry at all into existing environmental conditions at the time that it acquired the site. Accordingly, to the extent that plaintiff relies on the conduct of "Seven Springs, through Ms. Lyddon," Compl. ¶¶ 50-54, this fails to state a claim as a matter of law.
With regard to the second theory, Seven Springs has not sufficiently pled that it independently satisfies the elements of the innocent landowner's defense. The complaint contains allegations pertaining to only a subset of the required elements of the defense, such as whether defendant took reasonable steps to stop any continuing release. See Compl. ¶ 55; M M Realty Co. v. Eberton Terminal Corp., 977 F. Supp. 683, 687 (M.D. Pa. 1997) (finding that plaintiff had not adequately pled all elements of the innocent landowner defense). Nevertheless, because the defects are easily cured, the court grants the motion to dismiss with respect to plaintiff's first claim, with leave to amend.
The draft amended complaint attached to plaintiff's opposition appears to have cured the defects in the original complaint. Despite defendant's assertions to the contrary, plaintiff need not plead more than this. Rule 8 only requires that the pleader provide a short and plain statement of the grounds for relief.
B. Contribution under Section 107
Second, defendant argues that plaintiff cannot maintain a contribution action under Section 107 because it cannot meet the requirements set forth in Section 113, which defendant maintains is a prerequisite to any claim for contribution. Plaintiff concedes that, at present, it may not satisfy the requirements of Section 113, which permits a contribution action only where the plaintiff has first been sued under CERCLA, or has entered into a qualifying settlement. Accordingly, the only issue is whether a plaintiff may proceed with a contribution action under Section 107, when it has not satisfied the requirements of Section 113.
Section 113 permits "any person [to] seek contribution from any other person who is liable or potentially liable . . . during or following any civil action under [Sections 106 or 107(a)]. 42 U.S.C. § 9613(f)(1). It also provides that "[a] person who has resolved its liability to the United States or a State for some or all of a response action . . . in an . . . approved settlement may seek contribution from any person who is not party to a settlement." 42 U.S.C. § 9613(f)(3)(B).
Section 107 of CERCLA provides that a PRP "shall be liable to (A) all costs of removal or remedial action incurred by the United States Government or a State of an Indian tribe not inconsistent with the national contingency plan; (and) (B) any other necessary costs of response incurred by any other person consistent with the national contingency plan." 42 U.S.C. § 9607(a).
The state of the law on this issue is in flux, and is the subject of pending appeals before the Ninth Circuit, as well as the Supreme Court. See City of Rialto v. U.S. Dep't of Defense, No. 05-56749 (9th Cir. Nov. 5, 2005); Koutros v. Gross-Jewett Co., No. 05-80120 (9th Cir. Oct. 21, 2005); Atlantic Research Corp. v. United States, 459 F.3d 827 (8th Cir. 2006), cert. granted, 127 S. Ct. 1144 (Jan. 19, 2007) (No. 06-562). Nevertheless, three of the four circuit courts to have considered the issue — the Second, Seventh, and Eighth Circuits — have found that there is an independent action under Section 107.Compare Atlantic Research, 459. F.3d at 827, Metropolitan Water Reclamation Dist. of Greater Chicago v. North American Galvanizing Coatings, Inc., 473 F.3d 824 (7th Cir. 2007), and Schaefer v. Town of Victor, 457 F.3d 188, 198-202 (2d Cir. 2006),with E.I. Dupont de Nemours Co. v. United States, 460 F.3d 515 (3d Cir. 2006).
Similarly, the majority of district courts, including three courts within this district, have also found that plaintiffs may proceed under Section 107 without first satisfying the requirements of Section 113. See Adobe Lumber, Inc. v. Taecker, 2005 U.S. Dist. LEXIS 15374 (E.D. Cal. May 24, 2005); Kotrous v. Goss-Jewett Co. of N. Cal., 2005 U.S. Dist. LEXIS 18013 (E.D. Cal. June 16, 2005); Adobe Lumber v. Hellman, 415 F. Supp. 2d 1070 (E.D. Cal. 2006). But see City of Rialto v. United States Dep't of Defense, 2005 U.S. Dist. LEXIS 26941 (C.D. Cal. Aug. 16, 2005); AMCAL Multi-Housing, Inc. v. Pacific Clay Prods., 457 F. Supp. 2d 1016 (C.D. Cal. 2006).
In 1986, the Superfund Amendments and Authorization Act amended CERCLA to include an express right to contribution under Section 113(f). Previously, several courts had found that PRPs could recover their costs under Section 107. See, e.g., Key Tronic Corp. v. United States, 511 U.S. 809, 816 n. 7 (1994) (collecting cases). In 2004, however, the Supreme Court held that PRPs who voluntarily cleaned up contaminated property could not use Section 113(f) to seek contribution from other PRPs without either having first been sued under CERCLA or having entered into a qualifying settlement. See Cooper Indus., Inc. v. Aviall Servs., Inc., 543 U.S. 157, 165-68 (2004). Nevertheless, Cooper Industries left open the issue of whether a PRP may sue another PRP under Section 107 (for joint and several liability or otherwise), or whether an implied right of contribution survived the 1986 amendments. Id. at 169-71.
The court finds that PRPs may independently pursue contribution under Section 107. First, and most importantly, Section 107's plain language commands such a result. It provides that a PRP "shall be liable for . . . any other necessary costs of response incurred by any other person." 42 U.S.C. § 9607(a). The statute does not read: "by any other person with the exception of a potentially responsible party." Rather, the term "person" is defined broadly under CERCLA. 42 U.S.C. § 9601(21).
Furthermore, in Key Tronic, the Supreme Court characterized the 1986 amendments as "appear[ing] to endorse the judicial decisions recognizing a cause of action under § 107 by presupposing that such a cause of action existed." 511 U.S. at 816. The Court went on to state that CERCLA "now expressly authorizes a cause of action for contribution in § 113 and impliedly authorizes a similar and somewhat overlapping remedy in § 107." Id.
In Cooper Industries, the Court clarified that the remedies "are similar at a general level in that they both allow private parties to recoup costs from other private parties. But the two remedies are clearly distinct." 543 U.S. at 582 n. 3.
Defendant responds that reading Section 107 to permit contribution actions would nullify or render redundant Section 113. The savings clause in Section 113(f)(1), however, expressly preserves any preexisting state and federal causes of action for contribution. Because courts prior to the 1986 amendments had held that PRPs could pursue contribution from other PRPs under Section 107, those holdings were left intact by the savings clause.
The relevant Ninth Circuit cases are not to the contrary. First, defendant cites Pinal Creek for the proposition that "a claim asserted by a PRP under § 107 requires the application of § 113." Pinal Creek v. Newmont Mining Corp., 118 F.3d 1298, 1306 (9th Cir. 2004); see also W. Props. Serv. Corp. v. Shell Oil Co., 358 F.3d 678, 685 ("a claim for contribution requires the `join operation' of both Sections"). Section 107 has similarly been described as creating the right of contribution, whereas Section 113 is the machinery that governs and regulates such actions. Pinal Creek, 118 F.3d at 1302. But this language is not inconsistent with plaintiff's interpretation: Section 113 still has force in contribution actions based wholly upon Section 107 because "the court may allocate response costs among liable parties using such equitable factors as the court determines are appropriate." 42 U.S.C. § 9613(f)(1). This is the core of the "machinery" to which Pinal Creek was referring. See Aggio v. Estate of Aggio, 2005 U.S. Dist. LEXIS 37428, at *15 (N.D. Cal. Sept. 19, 2005).
Finally, allowing PRPs to sue under Section 107 when a Section 113 action is unavailable advances CERCLA's polluter-pays objective. Under defendant's interpretation, where a PRP voluntarily incurs response costs, it would be barred from recovering those costs from other PRPs, even if the other PRPs were substantially responsible for the contamination. This result would clearly be inconsistent with CERCLA's objectives. Accordingly, the court denies the motion to dismiss plaintiff's second and third claims.
C. Indemnity Agreement
Last, defendant moves to dismiss the claim for indemnity on the grounds that the Indemnity Agreement has expired. As quoted in the complaint, the Indemnity Agreement between Century 73 and Lyddon provided that:
[Century 73] hereby agrees to indemnify Lyddon against and to hold Lyddon harmless from any loss, damage, liability, cost or expense including attorney's fees incurred as a consequence of any act or occurrence which occurred or is alleged to have occurred with respect to [Century 73's] obligations as landlord under the Leases before the date hereof expect as otherwise provided in the Agreement.
Compl. ¶ 73. The parties agree that the "Agreement" referenced in the last sentence of this provision is the Agreement for Purchase and Sale dated December 19, 1985 ("Purchase Agreement"). Decl. of Scott Reisch, Ex. E.
Lyddon is bound by the Purchase Agreement. See Purchase Agreement §§ 4.1 (binding "exchanger" to limitations section), 3.1(b)(I) (defining "exchanger" to mean Lyddon).
First, to the extent that Fox owes a duty to indemnify, it owes that duty to Lyddon, not Seven Springs. As noted above, Lyddon and Seven Springs are separate legal entities. See also Wilshire-Dohency Associates, Ltd. v. Shapiro, 83 Cal. App. 4th 1380, 1396 (2000) ("The extent of the duty to indemnify is determined from the contract."). Second, the Indemnity Agreement was incorporated into the Purchase Agreement as an exhibit, which provided a twelve month expiration date that has since passed:
[T]he Seller's covenants, warranties and representations contained in this Agreement and in any document executed by Seller pursuant to the forms attached hereto as exhibits . . . shall survive . . . only for a period of twelve months (12) after the Closing Date (the "Limitation Period").
Purchase Agreement, § 4.5.
Plaintiff responds in two ways, neither availing. First, plaintiff maintains that the Purchase Agreement is extrinsic evidence that cannot be evaluated on a motion to dismiss. This general rule is subject to an exception, however, which applies when the plaintiff's claim necessarily relies on the extrinsic evidence. Parrino v. FHP, Inc., 146 F.3d 699, 705-06 (9th Cir. 1998). "A court may consider evidence on which the complaint `necessarily relies' if: (1) the complaint refers to the document; (2) the document is central to the plaintiff's claim; and (3) no party questions the authenticity of the copy attached to the 12(b)(6) motion." Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006).
Here, the complaint references the Indemnity Agreement, which was attached to the complaint and in turn references the Purchase Agreement. Moreover, the latter document is central to the plaintiff's claim (as it sets forth when the indemnity agreement would expire), and its authenticity is not in question. Accordingly, it is appropriately before the court.
Second, defendant contends that the "except as otherwise provided in the [Purchase] Agreement" provision refers to only certain obligations and liabilities that were carved out of the Purchase Agreement (in Section 5.5), but not the expiration provision (in Section 4.5). There is no basis for this distinction. A plain reading of the Purchase Agreement indicates that any "covenants, warranties and representations" in the attached forms and documents would expire in twelve months. Because this provision carried over to the Indemnity Agreement, the indemnity has since expired. Accordingly, the court grants the motion to dismiss with respect to plaintiff's fourth claim.
IV. Conclusion
As set forth above, the motion to dismiss is granted in part and denied in part. Plaintiff is granted 20 days to file an amended complaint.
IT IS SO ORDERED.