California’s Polanco Redevelopment Act Survives First Appellate Challenge En Route to Brownfield Ballpark in San Diego

Thomas P. Redick

California’s Polanco Redevelopment Act for redeveloping brownfields (properties with contamination that render them hard to market and develop, due to environmental liabilities) has survived its first court challenge. This challenge was filed by a fairly sympathetic plaintiff – the Salvation Army – in a case involving substantial “orphan share” of toxic waste liability that was left for the Salvation Army to clean up. The Polanco Redevelopment Act (California Health & Safety Code § 33459 et seq.) was enforced and thoroughly endorsed as a brownfields cleanup mechanism by a California Court of Appeal in Redevelopment Agency of the City of San Diego v. Salvation Army (2002) 103 Cal. App. 4th 755, 127 Cal.Rptr. 30. This decision confirmed that California’s legislature clearly intended to incorporate the “scope of liability” from CERCLA, making the Salvation Army jointly and severally liable for cleaning up all the contamination on its property, the majority of which was an orphan share attributable to unknown parties. This article will review that case and the potential implications it may have for potentially responsible parties (PRPs) in California. Students of brownfields statutes in other states should follow the California program and consider whether this model would be a fair one to apply in other states.

The Salvation Army Story – A Charity Pays for the “Orphan” Share

The Salvation Army appealed a decision ordering it to pay for the cleanup of its property in downtown San Diego, which was within a redevelopment zone the city of San Diego had designated for its new baseball ballpark. The city condemned this $550,000 property, offering only $100 in payment due to the presence of a leaking underground storage tank (UST) at the site. The cost of the remediation was minimal by CERCLA standards (not including charges for interest and attorneys fees, the cost was about $180,000 with only about $30,000 directly attributable to the Salvation Army’s UST). For such a relatively small remediation, the consultants involved did not see any need to follow the detailed requirements of the federal National Contingency Plan (NCP) to the letter. This alleged failure was the core issue appealed by the Salvation Army, which hoped that CERCLA defenses would limit the CERCLA scope of liability that is incorporated into the Polanco Redevelopment Act.

The Polanco Redevelopment Act provides redevelopment agencies and their chosen buyer-developers with powerful liability standards to impel sellers in condemnation proceedings to participate financially in the remediation of their property. California’s Legislature incorporated the broad scope of liability encoded in the federal “Superfund” Act (CERCLA) into the Polanco Redevelopment Act, making liability retroactive, joint and several, and attaching to owner-operator-generators and other “responsible parties.” This broad scope provides the ideal “hammer” for the Polanco Redevelopment Act to achieve its statutory objective of restoring old contaminated land (brownfields) to a productive position in society.

The Salvation Army objected to being held liable for the entire remediation costs of materials it had not dumped at the site – including burn ash that had been deposited on its property by unknown actors many years before. (San Diego has pockets of burn ash in various places in the downtown area, due to the long-past practice of burning trash and using fill dirt from burn sites throughout the downtown area.) While the Salvation Army might have had some “contribution” rights to recover against any responsible party it could locate, the parties responsible for this historical contamination were nowhere to be found.

This refusal by the court to second-guess cleanup decisions may be a reasonable approach to adapting CERCLA to the state redevelopment setting, but the possibility of having other CERCLA defenses rejected should be troubling to potential potentially responsible parties (PRPs) in California.

Scrutinizing the Polanco Redevelopment Act, As Enforced

The Polanco Redevelopment Act’s broad joint and several, retroactive liability holds any PRP liable for the orphan shares of other PRPs that cannot be located. This raises some very interesting questions of law, policy and fairness. The biblical parable “old wine in new skins” comes to mind when CERCLA liability is applied to a contaminated property in a typical redevelopment zone (e.g., minimally contaminated industrial zones with long chains of long-lost owners, occupiers, transporters and other PRPs). The chain of orphan shares may reach back many years in time, with hundreds of possible PRPs but only a few actual PRPs remaining in business and traceable to past disposal practices on the property.

Is Polanco Fair to the “Daddy Warbucks” PRP?

CERCLA operates relatively fairly when it brings all the responsible parties to the table. When there are significant orphan shares, moreover, the EPA can pay those shares from the CERCLA Trust Fund (Superfund). This rarely used fund gave the CERCLA statute its most commonly used nickname. This is ironic, given how rarely orphan shares have been paid from the Superfund. (One common criticism of Superfund is the scanty use of that fund to cover orphan shares.) The EPA has responded to this criticism over time, however, with pilot allocation projects that give consideration to orphan shares. Since October 1995, the EPA has compensated parties for a limited portion of orphan shares in future cleanup settlements. See, e.g., Interim Guidance on Orphan Share Compensation for Settlers of RD/RA and Non-Time Critical Removals http://www.em.doe.gov/em75/sprfund.html#oct.

In the Redevelopment Agency case, however, the charity defending itself was made into an involuntary “Daddy Warbucks” for all the little orphan shares of mystery polluters from early 20th century activities in downtown San Diego. Over 70 percent of the remediation costs represented burn ash that had been deposited by unknown parties many years before. Under the Polanco Redevelopment Act, unlike the CERCLA statute, there was no fund to cover orphan shares. This is a potential gap in the “fairness” protections of the Polanco Redevelopment Act that could be raised by future litigants.

The Polanco Redevelopment Act may find most of its deep pockets to be relatively innocent present and former landowners – not the typical general chemical companies and waste transporters or storage companies at CERCLA sites. This scattered group of nearly innocent former owners could end up fighting enterprise-threatening litigation before a state judge, who could award 100 percent of costs against a party minimally at fault.

Policy arguments for “fairness” might find a receptive ear in the trial judges who have the power to order Polanco Redevelopment Act cleanups. The Polanco Redevelopment Act gives the power of injunctive relief – an equitable remedy. A brownfields developer who has “unclean hands” will encounter this defense even when wielding the powerful Polanco Redevelopment Act liability. Cities who historically contributed to the pollution they are ordering other PRPs to clean up might face this defense, which could bar use of the Polanco Redevelopment Act.

In future cases with appropriate factual settings, the courts of California presumably would also “do equity” and apply other more factually and equitably applicable state law defenses (e.g., “unclean hands”) so that federal lender liability and innocent landowner defenses might resurface under the guise of doing equity. This remains an open question, however, for future litigants to resolve. Last but not least, redevelopment agencies are public agencies whose board actions are monitored by local news outlets, and fairness concerns that do not meet the legal standard might still gain a public hearing.

Is the Polanco Redevelopment Act Silent on Liability Scope for Contribution Claims?

In a multi-party case, the Polanco Redevelopment Act would appear to provide little guidance regarding the proper law to apply for settling parties who need to allocate their liability. The allocation of liability arguably should follow federal standards, but this could be problematic in actual cases that arise. The Polanco Redevelopment Act could be interpreted as giving the right to sue with CERCLA’s full scope only to redevelopment agencies and their buyers – not to sellers whose ox was gored by that broad liability. The seller might find its state law claim for contribution challenged with all the state law defenses that CERCLA would have preempted (the biggest one being “fault-based” liability; California law may also vary on successor corporation immunity from suit), but the Polanco Redevelopment Act may silently allow such state law defenses in contribution claims.

The question is whether CERCLA allocation rules and methodology – a finely tuned process subject to 20 years of hard work – should be applied to contribution claims arising from Polanco sites. State courts may be more likely to use familiar allocation statutes under state law. While it is beyond the scope of this newsletter to compare CERCLA’s 113 bar of claims against settling parties with the comparable California “good faith settlement” statute, that is one of the many issues that attorneys involved in Polanco Redevelopment Act contribution cases may have to resolve.

Precedential Value of Redevelopment Agency v. Salvation Army?

Given fairness concerns, and given the ambiguity on the issue of whether there was actual consistency with the NCP, the decision in Redevelopment Agency should be limited in its precedential value. First, while the court in Redevelopment Agency cited numerous federal cases on NCP consistency in reaching its decision, it appears to have concluded that the city followed the NCP. The court appeared not to directly resolve the Salvation Army’s argument that the Polanco Redevelopment Act also had to incorporate all CERCLA defenses and safeguards (in particular, consistency with the National Contingency Plan (“NCP consistency”)). In fact, the remediation work in this particular case appears to have been adequate and the expenses reasonable, even under federal standards, preparatory studies (Phase I and Phase II) the city used for remediation planning.

As a result, the decision in Redevelopment Agency could be considered obiter dictum (not a true holding with strong precedential value) by other California Courts of Appeal on the question of whether the Polanco Redevelopment Act actually intended to incorporate CERCLA limitations on liability along with CERCLA’s broad scope of liability.

At a minimum, litigators taking on the Polanco Redevelopment Act should ask that this decision be strictly limited to its ambiguous facts by “distinguishing” the case on its facts. The trial court’s findings are arguably too ambiguous to indicate that NCP consistency would not be required in the future.

The Road Ahead: Polanco and other Brownfield Sites

To the extent that Redevelopment Agency is followed by other cities engaging in brownfields remediation, such reliance upon the Redevelopment Agency decision should not induce cities to exercise less diligence and efficiency in remediation. A city should assume future scrutiny of its actions. Given the limited immunity that the Polanco Redevelopment Act provides for buyer liability (immunity only for known contamination), there are strong incentives to conduct a thorough investigation. With remediations overseen by a neutral, third party regulatory agency with no financial stake in the cleanup, regulators can ensure that redevelopment consultants listen to the input from the developer’s consultants, who generally provide a balanced opinion, even where they are spending the money of the seller and other responsible parties.

It appears certain that future litigants seeking to challenge the Polanco Redevelopment Act will raise the policy implications of reviving the draconian and widely criticized CERCLA statute in the factual context that typically arises in brownfields, particularly if cross-defendants argue that the statute only gives that CERCLA power to municipalities, not to the PRPs that have paid all the costs. With the large share of orphan liability (over 70 percent found in the Salvation Army case), and the apparent lack of other PRPs, this fairness argument may need to be raised again in similar cases (given the arguably limited precedential value of the Redevelopment Agency opinion).

Thomas P. Redick is a member of the litigation department of Gallop, Johnson & Neuman, L.C. in St. Louis and is a vice-chair of the Section’s Committee on Toxic Tort and Environmental Litigation. For further information, contact Tom Redick at tpredick@gjn.com.