Environmental Law Insight

Updates and Analysis from Taft's Environmental Trial Lawyers

Landowners – Environmental Liability for Tenants’ Misdeeds

Geoffrey Slaughter Posted in Environmental Litigation, Insurance

Landowners who know their properties are contaminated may be liable for damages, even if they didn’t contribute directly to the pollution, according to a recent appellate decision. In JDN Properties, LLC v. VanMeter Enterprises, Inc., the Indiana Court of Appeals reversed summary judgment for the seller and remanded the case for trial on the buyer’s claim for damages under Indiana’s Environmental Liability Act. Under the Act, a person may recover removal or remediation costs involving hazardous substances or petroleum against a person that “caused or contributed to the release”.

The court recognized that the Act does not permit claims against landlords “who by all counts …were not involved in the alleged release of hazardous substances and had no knowledge of the release.” But a landlord who knows of pollution on the property may be liable. “We conclude that a landlord who has knowledge that a tenant’s use of land is causing environmental contamination, but does nothing to halt or remediate such contamination and goes on to sell that property to a third party without disclosing the property’s condition, may fairly be said to ‘share responsibility’ for or contribute to such contamination.”

The implications of this decision are most likely to fall on property owners with commercial or industrial tenants, such as dry-cleaners or manufacturers that use hazardous substances in their operations. But residential landlords also may be on the hook. As just one example, a residential property owner could face liability under the Act if a tenant is using his apartment as a meth lab. The costs to remediate environmental contamination can be substantial, potentially running in the tens (or even hundreds) of thousands of dollars.

You should consult with legal counsel about potential liability under the Act. Knowledgeable counsel can also assess whether existing insurance coverage, such as a   conventional CGL (commercial general liability) policy, will cover the costs of defending and indemnifying against any such claims.

This article originally appeared in INSites magazine, a publication of the Indiana Apartment Association (IAA). The article is re-published on Taft’s web site with permission from the IAA.   

Executive Order Issued to Encourage Sustainability Changes Across the Federal Supply Chain

Bradley R. Sugarman Posted in Sustainability

On March 15, 2015, President Obama issued Executive Order 13693 (the “Order”) with the goal of reducing the Federal government’s greenhouse gas (“GHG”) emissions while increasing clean energy consumption. The Order applies to all Federal agencies by definition and details a 3-tiered scope of applicability to encourage parallel changes “across the Federal supply chain.”

I invite you to read an article that I recently published, which includes a summary of the Order’s key provisions and definitions.

Taft Environmental Lawyer Brad Sugarman Appointed to Indianapolis Air Pollution Control Board

Posted in Community Involvement

Congratulations to Taft partner Brad Sugarman for being appointed by Indianapolis Mayor Greg Ballard to serve on the Indianapolis Air Pollution Control Board. The board is responsible for enhancing and improving the air quality for the city of Indianapolis and Marion County.

Brad is a partner in Taft’s Environmental group and a frequent contributor to this blog. He represents clients in all areas of environmental law, from administrative enforcement to litigation and from regulatory counseling to environmental due diligence.Brad has extensive experience in complex civil litigation involving toxic torts allegedly caused by environmental contamination. He also has represented numerous corporations in CERCLA 107 and 113 actions, as well as administrative and judicial appeals of enforcement actions taken by EPA and IDEM. His regulatory practice includes providing advice to corporations and individuals regarding the Clean Water Act, the Clean Air Act, RCRA, CERCLA, rulemaking, hazardous materials transportation and Brownfield remediation.

Indiana Court of Appeals upholds trial victory for Taft client in environmental contamination suit

Bradley R. Sugarman Posted in Indiana Environmental Legal Action

In a case that examines the limits of liability for environmental cleanup costs under Indiana’s Environmental Legal Action Statute (“ELA”), the Indiana Court of Appeals recently upheld a trial judgment finding that a film-processing company and its owner had no liability for environmental cleanup costs of a commercial property located in Indianapolis under the ELA. The Court of Appeals upheld the trial court’s determination that the plaintiff and current property owner failed to prove that the previous owner caused or contributed to the site’s contamination.

Taft attorneys Brad Sugarman, Tom O’Gara and Jeff Stemerick represented the previous property owner and The Indiana Lawyer covered the case in a recent article.

Cyprus Decision Opens Door for Indirect Successor Liability Under CERCLA

Julian Harrell Posted in CERCLA / RCRA

In Cyprus Amax Minerals Co. v. TCI Pacific Comm. Inc., the U.S. District Court for the Northern District of Oklahoma addressed a successor-in-interest issue in an environmental cleanup case where plaintiff Cyprus Amax Minerals Company (“Cyprus”) sought contribution payments from defendant TCI Pacific Communications, Inc. (“Pacific”). The court examined Cyprus’s claim that Pacific was the successor-in-interest to New Jersey Zinc Company (“N.J. Zinc”) and that Tulsa Fuel and Management Company (“Tulsa”) was a subsidiary of N.J. Zinc. Cyprus alleged that Tulsa was the alter ego of N.J. Zinc and that Pacific had assumed responsibility for N.J. Zinc’s liabilities. Based on this argument, Cyprus sought to hold Pacific liable for environmental harms caused by one of Tulsa’s smelting operations. As discussed below, the court accepted Cyprus’s alter ego argument; however, it did not actually determine Pacific’s CERCLA liability.

The court’s decision in Cyprus is important because it demonstrates the potential pitfall of over-emphasizing a parent corporation’s control of its subsidiaries. Although N.J. Zinc’s arguments in the ICC Hearing prevented Tulsa’s formal complaint from being blocked by the statute of limitations, N.J. Zinc’s repeated assertions of broad and overarching control resurfaced in a harmful way such that its successor-in-interest, Pacific, could face indirect liability for costs of cleanup and investigation under CERCLA. The court’s analysis suggests that N.J. Zinc likely could have succeeded in persuading the ICC that it had limited authority to file a complaint on Tulsa’s behalf. Nevertheless, N.J. Zinc rejected that course of action and chose to demonstrate its utter control of Tulsa. Thus, Cyprus shows the potential danger of not evaluating how today’s decision could affect tomorrow’s outcome.

To date, the court’s ruling has not been appealed, and the parties are engaged in settlement discussions.

To learn more about this decision and its implications, I invite you to read a recent article that I published.

California Federal District Court Uses Burlington Northern Holding to Limit “Arranger” Liability

Jayna M. Cacioppo Posted in CERCLA / RCRA

Recently, a federal district court in California used the opinion from Burlington Northern to limit liability under a California statute with a CERCLA-like liability scheme. See City of Merced Redevelopment Agency v. Exxon Mobil Corp., 2015 WL 471672 (E.D. Cal. Feb. 4, 2015).

In 2009, the U.S. Supreme Court issued an opinion that fundamentally changed the scope of liability for “arrangers” under CERCLA. See Burlington Northern & Santa Fe Railway Co. v. United States, 556 U.S. 599 (2009). Since then, a number of federal courts have applied the Burlington Northern holding, in varying degrees, to limit CERCLA liability.

I recently published an article on the City of Merced decision as well as more background on the Burlington Northern ruling and its impact since 2009.

U.S. Supreme Court Ruling: Interpretive Rules Issued by Federal Agencies Are Not Subject to Public Notice and Comment

Katherine Grgic Posted in Environmental Litigation

On March 9, 2015, the U.S. Supreme Court determined that interpretive rules issued by federal agencies are not subject to notice-and-comment procedures under the APA. Perez v. Mortgage Bankers Ass’n, 135 S. Ct. 1199 (2015). The court held that the Paralyzed Veterans doctrine requiring agencies to undergo notice-and-comment rulemaking procedures for interpretations that “deviate[] significantly” from previous interpretations was “contrary to the clear text of the APA’s rulemaking provisions, and it improperly imposes on agencies an obligation beyond the ‘maximum procedural requirements’ specified in the APA. . . .” Id. at 1206 (internal citations omitted).

As a result, as was the case in Perez, an agency can issue an interpretation of its regulations and then later change its mind and issue a contrary interpretation even if parties have detrimentally relied on the previous interpretation. See id. at 1204.

Perhaps the most interesting aspect of the decision, however, comes from the concurring opinions of Justices Thomas, Scalia and Alito. Justices Thomas and Scalia called into question the validity of the Seminole Rock doctrine — which required deference to agencies’ administrative interpretations of regulations — and signaled their willingness to reconsider the doctrine in an appropriate case. Justice Alito, referencing the reasons offered by Justices Thomas and Scalia, echoed their desire for the case that will allow for reconsideration of the doctrine. Taft will monitor upcoming cases for such developments.

I invite you to click here to read an article I recently published on this ruling.

Sixth Circuit Decision Applies Clean Water Act’s Permit Shield to Protect General Permit Holders From Liability

Devin Parram Posted in Water

The 6th Circuit recently ruled that facilities holding a Clean Water Act (“CWA”) Section 402 general permit — one of two types of National Pollutant Discharge Elimination System (“NPDES”) permits — can use the CWA’s “permit shield” provision (33 U.S.C. § 1342(k)) to protect themselves from liability for certain discharges of pollutants that the general permit does not mention. See Sierra Club v. ICG Hazard, LLC, App. No. 13-5086 (6th Cir. Jan. 27, 2015).

ICG Hazard is important because it is the first circuit court decision that extends the permit shield defense to general permits. However, the court’s conclusion was based largely on the facts of the case and the particular language of the Kentucky Division of Water’s (“KDOW”) general permit. Although the ICG Hazard court extended the permit shield to general permits, some courts have refused to do the same. The 9th Circuit recently held that the permit shield could not be applied to protect the holder of a general permit from liability. These cases show that some courts may find that generic language within a general permit can make the permit holder liable for discharges of certain pollutants even though these pollutants are not specifically delineated in the general permit. While the ICG Hazard decision should provide some comfort to general permit holders that the permit shield may be applied, it is important for permit holders to strictly comply with all requirements of the permitting authority and conditions of their general permits.
 
I invite you to read more about this decision in an article I recently published.

Seventh Circuit Applies Indiana Choice of Law Rules to Deny Insurance Coverage for Contamination at an Indiana Manufacturing Facility

Jeffrey Stemerick Posted in Insurance

Hoosier land owners sleep well at night knowing that they are insured against liability for environmental contamination because Indiana does not enforce the standard pollution exclusion clauses found in many insurance policies. State Automobile Mut. Ins. Co. v. Flexdar, Inc., 964 N.E.2d 845 (Ind. 2012); Am. States Ins. Co. v. Kiger, 662 N.E.2d 945 (Ind. 1996). However, just because an insured’s contaminated site is located in Indiana does not necessarily mean that the pollution exclusion will be void.

In a recent case, the 7th Circuit applied Michigan law to an insurance policy covering Visteon’s Connersville, Ind., facility to foreclose coverage. Visteon Corp. v. National Union Fire Insurance Company of Pittsburgh, 777 F.3d 415 (7th Cir. 2015). Michigan law enforces the standard pollution exclusion in insurance policies; thus, Visteon was left holding the bag for the millions of dollars it spent cleaning up TCE contamination and settling lawsuits with its neighbors.

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Multi-Million Dollar Insurance Bad Faith Claim in Environmental Contamination Case Affirmed on Appeal

William C. Wagner Posted in Insurance

An environmental contamination case resulting in a $3.4 million award for emotional distress and punitive damages due to unfair claims settlement practices by the insurer was recently affirmed on appeal in Indiana Insurance Company v. Demetre, Case No. 2013-CA-338 (Ky. Ct. App. Jan. 30, 2015). In the case, the policyholder sought to insure two pieces of property with Indiana Insurance, in addition to $2.5 million of liability insurance coverage that the policyholder already had with the company. Indiana insurance decided to insure both properties. 

Several months later, the policyholder received notice of claims by neighbors related to injuries resulting from contamination of one of the properties and promptly notified Indiana Insurance.  Instead of taking any action to protect the policyholder and investigate the neighbors’ claims, Indiana Insurance appeared to have decided to protect itself and assigned a field investigator to determine whether the policyholder was aware of the loss prior to insuring the property. Approximately two years after receiving the neighbors’ claims, Indiana Insurance sued the policyholder seeking a declaration that it did not owe coverage because the policyholder may have known of the contamination on the property prior to buying insurance.

To learn more about this case, I invite you to read more here.