Case Law Update–CERCLA, OSHA Rulemaking, Prop 65, Unconstitutional Taking

Natasha L. Drew

Fairchild Holding Corp. v. Revere Copper and Brass Inc., 01-3935, 2003
U.S. Dist. LEXIS 161 (S.D.N.Y. Jan. 7, 2003)

The U.S. District Court for the Southern District of New York ruled that a bankruptcy court erred in denying a claim for environmental cleanup costs because it failed to consider possible future residential use of the contaminated industrial site. The district court reinstated a $3.5 million CERCLA contribution claim for cleanup costs in a suit filed by Fairchild Holding Corp. (Fairchild), the owner of a former brass manufacturing site in Commerce City, California, against the site’s former owner, Revere Copper and Brass Inc. (Revere). This holding reveals that stringent remediation standards will be upheld based upon risks to hypothetical dirt-eating children. From 1949 to 1975, Revere operated a mill and factory for the production of brass and copper tubing on a 12-acre site in Commerce City, California. Revere’s production process involved the use of a number of toxic substances, including copper, zinc and lead. Greer Hydraulics, Inc., Fairchild Holding’s predecessor in interest, purchased the site in 1975 and produced hydraulics devices there until 1988. In October 1982, Revere, along with a number of its affiliates, filed petitions for bankruptcy.

In 1982, a waste spill prompted the California Department of Health Services (DHS) to require Fairchild to perform soil sampling and submit a cleanup plan. In 1987, Fairchild and DHS entered into a remedial action consent agreement. The resulting Remedial Action Plan (RAP) found high levels of copper, zinc, and lead and recommended removal of over 5000 cubic yards of soil. The RAP found Revere 70.5 percent responsible; Fairchild was responsible for the remainder. After Fairchild completed the cleanup by mid-1990, it sought contribution from Revere in bankruptcy court, under CERCLA.

In 2001, the bankruptcy court disallowed the corporation’s proof of claim, finding that the DHS’ approval of the RAP was arbitrary and capricious. The bankruptcy court found that the RAP bore “no relation to reality,” being based upon the possibility that a child might wander onto the site and ingest contaminated soil.

The district court held that the bankruptcy court erred in treating the risk of chronic ingestion by children of contaminated soil as a “finding of fact.” Pointing out that DHS never made such a finding, the district court declared that “under these circumstances, this Court must consider alternative analyses, rooted in the factual record, that would justify DHS’ approval of the Fairchild’s RAP.” Fairchild suggested future residential use and the district court agreed that “[i]f future residential land use is assumed, a safety standard based on the risk of children ingesting small amounts of contaminated soil would be entirely reasonable.” As a result, DHS’ decision was not arbitrary and capricious.

Public Citizen Health Research Group v. Chao, 314 F.3d 143, (3d Cir. 2002)

On Dec. 24, 2002, the U.S. Court of Appeals for the Third Circuit ordered the Occupational Safety and Health Administration (OSHA) to proceed expeditiously with a hexavalent chromium rulemaking.

Public Citizen Health Research Group (Public Citizen) sued OSHA under 5 U.S.C.S. § 706(1) of the Administrative Procedure Act (APA) to compel OSHA to commence rulemaking with respect to standards for hexavalent chromium, a known lung carcinogen. The groups asked the court to find that the agency had unreasonably delayed in responding to their requests that it lower the limit, and the court concurred.

Nine years ago OSHA announced a rulemaking to revise the permissible exposure limit for hexavalent chromium, a known human carcinogen (via respiration). OSHA blamed its delay in commencing rule-making on scientific uncertainties, technical complexities, competing agency priorities, and the events of Sept. 11, 2001. While the case was pending, OSHA announced that it had instituted the rulemaking process. This did not moot the case because Public Citizen asked the court to order OSHA to issue a proposed rule within 90 days.

The court found that the nine-year delay was unreasonable pursuant to § 706(1) and that OSHA’s explanations did not justify such an “excessive” delay. The court granted Public Citizen’s motion to compel OSHA to proceed expeditiously with hexavalent chromium rulemaking. On the suggestion of the parties, the court deferred its specific remedial order pending a 60-day mediation period to allow the parties to agree upon a mutually satisfactory timetable for promulgation.

Consumer Advocacy Group, Inc. v. Exxon Mobile Corporation, B153817, 2002 Cal. App. LEXIS 5172 (Cal. App. 2d Dist. 2002)

On Dec. 17, 2002, the California Court of Appeal held that under Proposition 65, California’s Safe Drinking Water and Toxic Enforcement Act, “passive migration” or “continued presence” of a prohibited chemical in the soil does not constitute a “discharge or release” within the meaning of Health and Safety Code § 25249.5.

At issue were 17 gas stations owned by Exxon. In August 1999, four years after the most recent date of operation of the gas stations, the Consumer Advocacy Group (CAG) filed an action against Exxon alleging that chemical constituents from gasoline (namely benzene, lead, and toluene) that were present in the soil and ground beneath the former gas stations 1) constituted a discharge or release of prohibited chemicals into sources of drinking water in violation of section 25249.5 and 2) constituted an unfair business practice in violation of Bus. & Prov. Code § 17200 et seq. CAG alleged that it was entitled to “ill-gotten gains, including but not limited to, money and falsely obtained … goodwill of unknowing and misled consumers.”

In interpreting the language of Proposition 65, the court applied the “plain meaning” rule. Consulting several dictionaries, the court concluded that all the definitions of “discharge” and “release” referred to actively moving chemicals from a previously confined to a place without confinement. Thus, the court held that any subsequent passive migration of chemicals through the soil or water after having been so discharged or released by a party would not constitute another “discharge” or “release” within the meaning of Proposition 65.

Philip Morris, Inc. v. Reilly, 312 F.3d 24 (1st Cir. 2002)

On Dec. 2, 2002, the First Circuit affirmed the federal district court ruling that the Massachusetts Disclosure Act (MDA), which required cigarette manufactures selling their products in the state to disclose the ingredients in their cigarettes whenever such disclosure “could reduce the risks to public health,” created an unconstitutional regulatory taking.

In 1996, Massachusetts enacted MDA in order to study more accurately the health effects of tobacco products on consumers. The state’s additional goal was to publicize the ingredient lists of various brands to “help consumers make more informed choices about the tobacco products they choose to consume” and ensure “greater public awareness about the health effects of tobacco additives.”

The tobacco companies claimed that their ingredient lists are trade secrets and, as such, are property protected by the Takings Clause. Additionally, they argued that the public disclosure of these trade secrets would destroy their value, thereby effecting a taking.

The court weighed the Penn Central factors and found that the tobacco companies had at least some reasonable investment-backed expectation that their trade secrets would remain secret and that the economic impact of revelation was likely to be great. See Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104, 124 (1978). It further found that, under MDA, the tobacco companies would lose their trade secrets, entirely, and that the state had no convincing public policy rationale to justify the taking. Instead, the court found state only pointed to a general, albeit laudable, goal which, could not justify the taking. The court concluded that Massachusetts could not condition the right to sell tobacco on the forfeiture of any constitutional protections that the tobacco companies had to their trade secrets, and the Act was held invalid.

Natasha L. Drew is an attorney at Keller and Heckman LLP, 1001 G St., N.W., Washington, D.C. 20001. She can be reached at 202/434-4265, drew@khlaw.com