Combined Properties/Reseda Associates v. Kechichian

No. CV 91-0272-DWW(JRx) (C.D. Cal. February 18, 1993)

The court holds that the past and current operators of a dry cleaning store, the former owner of the shopping center in which the dry cleaning store is located, and the former property manager of the shopping center, are liable under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for response costs related to the cleanup of perchlorethylene (PCE) contamination at the store site. The current owner of the shopping center claims that PCE, a chemical used in dry cleaning, leaked through the floor of the store into the sewer drain and into the soil and groundwater in levels 2000 times the accepted limit.

The court first denies a defendant's cross-claim against the current and past operators of the dry cleaning store for contractual and equitable indemnity, and the defendant's third-party complaint against the current owner of the shopping center. The defendant, not named in plaintiff's action, has known of evidence relevant to bringing its motions for at least 18 months, and its excuse that it was engaged in settlement negotiations is not convincing. Thus, the defendant's delay prejudices plaintiff, is undue, and is denied.

Turning to the merits of determining the CERCLA liability of the defendants, the court notes that the defendants do not dispute three of the four elements for determining CERCLA liability. The defendants do not dispute that the shopping center is a "facility," that PCE is a hazardous substance, or that a release of PCE occurred. Defendants do, however, question the consistency of the plaintiff's response costs with the national contingency plan (NCP). The court holds that consistency with the NCP is not a defense to CERCLA liability, although it could be relevant to the issue of damages.

The court next holds that the former property manager of the shopping center is liable for CERCLA response costs as an owner and operator of the facility. The former manager handled day-to-day operations, maintenance, control of common areas, insuring compliance with government rules and regulations, and other similar responsibilities. It also received 4 percent of the rents in compensation for carrying out those duties. The court holds that the former manager may not raise the affirmative defense of unclean hands to its CERCLA liability, because CERCLA does not provide for that defense. The court also holds that the former manager cannot assert CERCLA's third-party defense, because it has a contractual relationship with other defendants connected with the handling of hazardous substances. CERCLA's third-party defense is available only where a totally unrelated third party is the sole cause of the release or threatened release of a hazardous substance. Finally, the court holds that plaintiff is entitled to a declaratory judgment to establish liability for future response costs under CERCLA § 113(g)(2) as to the named defendants.

Counsel for Plaintiff
Jeffrey D. Dintzer
Gibson, Dunn & Crutcher
333 S. Grand Ave., Los Angeles CA 90071
(213) 229-7000

Counsel for Defendants
Holly Burgess
Selman, Breitman & Burgess
11766 Wilshire Blvd., Ste. 600, Los Angeles CA 90025
(310) 445-0800

[23 ELR 20810]

Williams, J.:

Nature of the Action

Plaintiff, Combined Properties/Reseda Associates owns the Loehmann's Plaza (["]Plaza") in Reseda, California. Defendants are Rafi and Ani Kechichian ("Kechichians"), dba A Company Cleaners; Murray Feldman ("Feldman"), the operator of A Cleaning Company before the Kechichians; Rosenberg Real Estate Equity Fund-II ("R-II"), the former owner of the Plaza; and Rosenberg Real Estate Equity Fund-MC ("MC"), the former property manager of the Plaza. Plaintiff brought this action under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C.A. § 9601 et seq. Plaintiff contends that perchloroethylene ("PCE"), a chemical used in dry cleaning, leaked through the floor of the dry cleaners into the sewer drain and into the soil and groundwater in levels 2000 times that which is acceptable.

Nature of Motions

Defendants TOPA Management moves to file a cross-claim against the Kechichians and Feldman for contractual and equitable indemnity. TOPA also seeks to file a third party complaint against Combined Properties, Inc., plaintiffs' property manager for indemnity and contribution under 42 U.S.C. § 9613(f) and for equitable indemnity.

Plaintiff moves for summary adjudication of the liability of defendants and for attorneys fees.¹ Plaintiff contends that defendants are jointly and severally liable for response costs under 42 U.S.C.A. § 9607(a)(2) as either the owners or operators of the dry cleaner and the Plaza when the PCE was released and that no defenses apply. Plaintiff also filed evidentiary objections in response to defendants' oppositions.

Discussion

TOPA's Motion to File a Cross-Claim and Counterclaim

In determining whether to grant TOPA's motion, the court must consider undue delay, bad faith, futility of the underlying claims and whether there is prejudice to any other party. Hurn v. Retirement Fund Trust, 648 F.2d 1252, 1254 (9th Cir. 1981). In the instant case, TOPA has been aware of evidence relevant to bringing these motions for at least eighteen months. TOPA's excuse for not bringing this motion sooner is that it was attempting to engage in settlement of the case. The court does not find this argument convincing. Further, plaintiff has alleged prejudice to itself and to CPI because the discovery cut-off is March 1, 1993; the case is two years old; and plaintiff has incurred significant expenditures, which it seeks to recoup as soon as possible. Accordingly, the court denies TOPA's motion on the grounds that plaintiff and CPI would be prejudiced by TOPA's delay and that the delay was undue.

Summary Judgment

Under FRCP 56(c) the court will issue a judgment if the papers "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." See also British Airways Board v. Boeing Co., 585 F.2d 946, 951 (9th Cir. 1978).

Establishing Liability Under CERCLA

42 U.S.C.A. § 9607(a) provides in pertinent part:

Notwithstanding any other provision or rule of law, and subject only to the defenses set forth in subsection (b) of this section —

(2) 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, . . . shall be liable for —

(B) any other necessary costs of response incurred by any other person consistent with the national contingency plan.

Thus, in order to establish liability under CERCLA, plaintiff must show the following:

(1) the establishment of a particular landfill or disposal site as a "facility";

(2) the existence of a "release" or "threatened release" of a "hazardous substance";

(3) the release or threatened release caused the incurrence of "response costs"; and

(4) the identity of the party sought to be assessed with response costs as a person liable under section 107(a).

U.S. v. New Castle County, 727 F. Supp. 854 [20 ELR 20499] (D. Del. [23 ELR 20811] 1989); accord U.S. v. Stringfellow, 661 F. Supp. 1053, 1059 [17 ELR 21134] (C.D. Cal. 1987).

Defendants do not dispute that the Plaza is a facility. Nor do they contest the fact that PCE is a hazardous substance and that a release of PCE occurred. As to response costs, defendants question whether all of the costs incurred by plaintiffs were necessary and consistent with the NCP. As to coverage by the statute, defendants, the Kechichians, Feldman, and R-II do not dispute that they are covered by the statute. However, MC contends that it is neither an operator nor an owner since it is merely R-II's agent.

Response Costs — Necessity and Consistency With the NCP

In Stringfellow supra, plaintiff moved for partial summary judgment on the issue of liability, like plaintiff in the instant case. As here, the defendants in Stringfellow raised several affirmative defenses, including: failure to comply with the National Contingency Plan. The court found that the affirmative defenses raised by the defendants were not defenses to liability, although they could be relevant to the issue of damages. Stringfellow, 661 F. Supp. at 1062. The court stated that, based on the clear language of the statute, "the only affirmative defenses that can be asserted to liability under section 107(a) are those listed in section 107(b)." Id. See also Lincoln Properties, Ltd v. Higgins, Civ. No. 91-760 (E.D. Cal. 1993). Following the rationale in Stringfellow and Lincoln Properties, plaintiff's compliance or non-compliance with the NCP and the necessity of its response costs are not relevant to a determination of defendants' liability.

Mc Qualifies as an Owner or Operator

CERCLA defines "owner" and "operator" as "any person owning or operating a facility." 42 U.S.C.A. § 9601(20). Defendants rely primarily on A & N Cleaners supra for the contention that MC is an "owner" or "operator" of the facility for the purposes of CERCLA. In A & N Cleaners, at 1332, the court found that a lessee was the owner of the facility where a hazardous substance was released under CERCLA. In coming to this conclusion, the court looked to the degree of "site control" exercised by the lessee.

The lessee in A & N Cleaners leased the entire property for twenty years and acquired rights and obligations consistent with that of ownership. The lessee was obligated to keep the entire premises in good condition and repair; to comply with all government rules and regulations; to handle all nuisances; to collect rent; to insure that the sublessees complied with the terms of the leases; and to perform all of its lease obligations to the owner at all times. Id.

MC's management duties included: handling day-to-day operations, maintenance, control of the common areas, insuring compliance with government rules and regulations, and insuring that tenants maintained insurance, paid rent, and complied with the lease provisions. (See Pltf's pap. pp. 15-16). MC also received 4% of the rents in compensation for its duties. Thus, there are a good many similarities between the degrees of control exercised by MC and the lessee in A & N Cleaners. Accordingly, MC may be considered an owner of the facility under CERCLA.

In New Castle County, the court sought to determine operator liability for individuals involved in the day-to-day operations of a facility which generated hazardous waste. The court also discussed the liability of the State. The court examined several factors, including: control of the finances of the facility, management of the employees of the facility, management of daily business operations, responsibility for the maintenance of environmental control, conferring or receiving of commercial or economic benefit from the facility other than taxes. New Castle, 727 F. Supp. at 869. Using this test, the court found that the State was not liable, but that the chief executive officer who planned the site, set up waste management systems, and was highly involved in the day-to-day decision-making processes of the defendant company was liable as an operator. Id.

As property manager, MC exercised a high degree of control over the facilities as a whole, when the release occurred. In addition, MC was responsible for insuring that the tenants obeyed the lease provisions, one of which was not to store and to adequately dispose of hazardous wastes. MC also received compensation for its services in the form of 4% of the rents received. Thus, it benefitted economically. Accordingly, MC, like the chief executive officer in New Castle was an operator of the facilities under CERCLA.

MC's Defenses to Liability

Unclean Hands

CERCLA, 42 U.S.C. § 9607(a), states that liability is "subject only to the defenses set forth in subsection (b) of this section." (emphasis added). Unclean hands is not one of the defenses listed. The language of the statute indicates that unclean hands is not available as a defense to liability. In Stringfellow 661 F. Supp. at 1061, the court found that the plain language of the statute was controlling, stating that "the only affirmative defenses that can be asserted to liability under section 107(a) are those listed in section 107(b)." Accordingly, MC may not assert unclean hands as a defense to CERCLA liability.

Third Party Defense

42 U.S.C. § 9607(b) provides defenses to liability under CERCLA. That section provides, in pertinent part, that

there shall be no liability under subsection (a) of this section for a person otherwise liable who can establish by a preponderance of the evidence that the released or threatened release of a hazardous substance and the damages resulting therefrom were caused solely by —

(3) an act or omission of a third party other than an employee or agent of the defendant, or than one whose act or omission occurs in connection with a contractual relationship, existing directly or indirectly, with the defendant . . ., if the defendant establishes by a preponderance of the evidence that (a) he exercised due care with respect to the hazardous substance concerned, taking into consideration the characteristics of such hazardous substance, in light of all relevant facts and circumstances, and (b) he took precautions against foreseeable acts or omissions of any such third party and the consequences that could foreseeably result from such acts or omissions.

Section 9607(b)(3) is applicable only where "a totally unrelated third party is the sole cause of the release or threatened release of a hazardous substance." Stringfellow at 1061. In the instant case, MC and plaintiff dispute the existence of a direct or indirect contractual relationship with the Kechichians and Feldman, who are the alleged third parties responsible for the release.

As to the existence of a direct contractual relationship, officers of MC signed the lease document on behalf of R-II, the landlord. See Pltf's Exh. H p. 340. Although each side construes the meaning of this arrangement differently, MC's knowledge of the terms of the contract makes it clear that the release was not induced by a "totally unrelated third party" and removes MC from the class sought to be protected by the statute. An indirect contractual relationship may also exist between the Kechichians and MC because MC receives 4% of the rents collected from tenants at the Plaza.

Although MC has a direct or indirect contractual relationship with the Kechichians, it could still assert the third party defense if the release did not occur in connection with the contractual relationship. See A & N Cleaners at 1335. In the instant case as in A & N Cleaners, the lease specifically provided that the space was to be used as a dry cleaner. Accordingly, as the court in A & N Cleaners stated, the dry cleaner "used hazardous substances as a matter of course in conducting its business. Thus 'the contract . . . somehow is connected with the handling of hazardous substances.'" Id. (citations omitted). Accordingly, MC cannot assert the third party defense because it has a contractual relationship connected with handling hazardous substances.

Availability of Future Response Costs

Defendant is entitled to a declaratory judgment to establish liability for future response costs under 42 U.S.C. § 9613(g)(2). That right is affirmed in Stanton Road Associates v. Lohrey Enterprises, 93 Daily Journal D.A.R. 1287, 1291 (January 29, 1993). (See Pltf's Rep. p. 12). In Stanton Road Associates the court declined to order an escrow account for payment of future response costs before they were incurred, finding that such a requirement went beyond the scope of CERCLA. In the instant case, however, plaintiff merely seeks a declaratory judgment under 42 U.S.C. § 9613(g)(2) that defendants are liable for response costs as they accrue, rather than an escrow account.

There are no genuine issues of material fact as to the elements required to prove liability under CERCLA against defendants' [sic] [23 ELR 20812] the Kechichians, Feldman R-II and MC. Accordingly, the court grants plaintiff's motion as to all defendants.

1. Plaintiff withdrew its motion for attorneys fees reserving the right to refile at a later date.