State of Cal. Dtsc v. Westside Delivery LLC , 888 F.3d 1085 ( 2018 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CALIFORNIA DEPARTMENT OF TOXIC No. 16-56558
SUBSTANCES CONTROL,
Plaintiff-Appellant, D.C. No.
2:15-cv-07786-
v. SVW-JPR
WESTSIDE DELIVERY, LLC; and
DOES 1 through 10, inclusive, OPINION
Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
Stephen V. Wilson, District Judge, Presiding
Argued and Submitted March 8, 2018
Pasadena, California
Filed April 27, 2018
Before: Susan P. Graber, William A. Fletcher,
and John B. Owens, Circuit Judges.
Opinion by Judge Graber
2 CAL. DTSC V. WESTSIDE DELIVERY
SUMMARY*
Environmental Law
The panel reversed the district court’s summary judgment
in favor of the defendant in an action under the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980.
The panel held that the defendant, a purchaser of real
property at a tax sale, was not entitled to CERCLA’s third-
party defense to liability for cleanup costs. The panel
concluded that the defendant had a “contractual relationship”
with the pre-tax-sale owner of the property. In addition, the
previous owner caused contamination “in connection with”
its contractual relationship with the defendant. The panel
remanded the case for further proceedings.
COUNSEL
James R. Potter (argued) and Brian J. Bilford, Deputy
Attorneys General; Sarah E. Morrison, Supervising Deputy
Attorney General; Xavier Becerra, Attorney General; Office
of the Attorney General, Los Angeles, California; for
Plaintiff-Appellant.
Emily L. Murray (argued) and Tim C. Hsu, Allen Matkins
Leck Gamble Mallory & Natsis LLP, Los Angeles,
California, for Defendants-Appellees.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
CAL. DTSC V. WESTSIDE DELIVERY 3
OPINION
GRABER, Circuit Judge:
This case presents a question of first impression in this
circuit concerning the reach of the third-party defense in the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (“CERCLA”): Does a defendant who
buys real property at a tax sale have a “contractual
relationship” with the previous owner of the property within
the meaning of CERCLA? We conclude that it does.
Because we also conclude that the previous owner caused
contamination “in connection with” its contractual
relationship with Defendant Westside Delivery, LLC, we
hold that Defendant is not entitled to CERCLA’s third-party
defense. We therefore reverse the district court’s grant of
summary judgment to Defendant and remand the case for
further proceedings.
FACTUAL AND PROCEDURAL HISTORY1
From 1949 to 1990, the Davis Chemical Company
recycled spent solvents at its facility in Los Angeles,
California. One of the company’s owners, Ernest A. Davis,
owned the property at which the facility was located (the
“Davis Chemical Site” or “Site”). In 1986, he conveyed the
property to the Ernest A. Davis Separate Property Trust by
1
Because we are reviewing a summary judgment, we view the facts
in the light most favorable to the non-moving party, which is Plaintiff. JL
Beverage Co. v. Jim Beam Brands Co., 828 F.3d 1098, 1105 (9th Cir.
2016). But here, the historical facts are undisputed.
4 CAL. DTSC V. WESTSIDE DELIVERY
quitclaim deed. Following Mr. Davis’ death, the property
passed to the Davis Family Trust.2
In October 1990, Plaintiff, the California Department of
Toxic Substances Control, ordered Davis to cease and desist
all hazardous-waste-related activities. In 1992, the United
States Environmental Protection Agency (“EPA”) conducted
a preliminary assessment of the Davis Chemical Site and
noted that there was “significant spillage.” The EPA referred
the Site to Plaintiff for further investigation and remediation.
A 1996 study conducted by a group of environmental
consultants revealed that the soil at the Site contained
elevated levels of several hazardous substances. Plaintiff
then investigated further and identified former customers of
Davis who might be liable for cleanup costs under CERCLA
and state law. In 2002, Plaintiff reached an agreement with
several of Davis’ former customers, requiring those
customers to devise a plan to clean up the Site. Plaintiff
approved the plan in 2008.
For reasons that are not readily apparent from the record,
the plan was not put into effect in 2008. Instead, Plaintiff
sought out additional parties that might be responsible for
shouldering the cost of cleanup. However, those parties were
either unable to pay or had viable legal defenses, forcing
Plaintiff to seek out alternative funding for the cleanup effort.
2
If Defendant has a “contractual relationship” with the Davis Family
Trust, which owned the Davis Chemical Site immediately before
Defendant’s tax-sale purchase, then Defendant has a “contractual
relationship” with all the Davis entities. For that reason, the Davis
Chemical Company, Ernest A. Davis, the Ernest A. Davis Separate
Property Trust, and the Davis Family Trust are, for purposes of this case,
one entity. We refer to that entity as “Davis.”
CAL. DTSC V. WESTSIDE DELIVERY 5
In the meantime, Davis had failed to pay property taxes
on the Site, prompting the Los Angeles County Tax Collector
to sell the Site at a tax auction in 2009. The Site was not on
the list of “Potentially Contaminated Parcels” included in the
auction materials, but the list itself noted that it was not
exhaustive, and the auction materials warned bidders that the
onus was on them to investigate the properties. In August
2009, at the auction, Defendant submitted the highest bid on
the Davis Chemical Site. On September 17, 2009, the Tax
Collector executed a tax deed to Defendant, conveying title
to the Site. Since purchasing the Site, Defendant has not
conducted any operations there.
From 2010 through 2015, Plaintiff conducted cleanup
efforts at the Site. After finishing the cleanup, Plaintiff sued
Defendant under CERCLA, seeking to recover its cleanup
expenses. Defendant asserted CERCLA’s third-party
defense, arguing that it was not liable because the release of
hazardous substances at the Site was caused solely by third
parties (including Davis) with whom it lacked a “contractual
relationship” within the meaning of the statute. The district
court agreed with that argument and granted summary
judgment to Defendant. Plaintiff timely appealed.
STANDARD AND SCOPE OF REVIEW
We review de novo the district court’s grant of summary
judgment and the district court’s interpretation of CERCLA.
Carson Harbor Vill., Ltd. v. Unocal Corp., 270 F.3d 863, 870
(9th Cir. 2001) (en banc).
Our review of a district court’s grant of summary
judgment is ordinarily limited to “the record presented to the
district court at the time [it granted] summary judgment.”
6 CAL. DTSC V. WESTSIDE DELIVERY
Taylor AG Indus. v. Pure-Gro, 54 F.3d 555, 558–59 (9th Cir.
1995). Here, however, because we granted several requests
for judicial notice, we consider the materials submitted by the
parties in connection with those requests as well as the record
before the district court. Lowry v. Barnhart, 329 F.3d 1019,
1024–25 (9th Cir. 2003).
DISCUSSION
Before answering the question whether the purchaser of
real property at a tax sale has a “contractual relationship”
with the previous private owner of the property within the
meaning of CERCLA, we will briefly sketch the outlines of
CERCLA and of California’s tax-sale system. We also will
discuss the role that state law plays in our analysis. We then
will address the “contractual relationship” question and the
related issue of whether Davis’ acts leading to contamination
of the Site occurred “in connection with” its contractual
relationship with Defendant.
A. Background
1. CERCLA (1980)
“In 1980, Congress enacted [CERCLA] in response to the
serious environmental and health risks posed by industrial
pollution.” Burlington N. & Santa Fe Ry. Co. v. United
States, 556 U.S. 599, 602 (2009) (citation omitted). Unlike
the Clean Air Act or the Clean Water Act, CERCLA is not a
forward-looking regulatory statute that governs regulated
entities’ polluting activities. Rather, “CERCLA looks
backward in time and imposes wide-ranging liability” on
parties who are in some way responsible for contaminating a
CAL. DTSC V. WESTSIDE DELIVERY 7
facility.3 Marsh v. Rosenbloom, 499 F.3d 165, 178 (2d Cir.
2007). Relevant to this case, CERCLA allows a state that
has responded to a “release” or “threatened release”4 of
hazardous substances at a facility to recoup its response costs
from the owner of that facility, even if the owner had nothing
to do with placing the hazardous substances at the facility.
Chubb Custom Ins. Co. v. Space Sys./Loral, Inc., 710 F.3d
946, 956–57 (9th Cir. 2013). What matters is that the state
responded to a release or threatened release at a time when
the defendant-owner owned the facility. Cal. Dep’t of Toxic
Substances Control v. Hearthside Residential Corp., 613 F.3d
910, 911 (9th Cir. 2010).
CERCLA originally provided three affirmative defenses
that otherwise-liable parties could assert to escape liability.
The defense relevant to this case is the third-party defense:
There shall be no liability . . . for a person
otherwise liable who can establish by a
preponderance of the evidence that the release
or threat of release of a hazardous substance
and the damages resulting therefrom were
caused solely by—
....
3
“Facility” is defined to include “any site or area where a hazardous
substance has been deposited, stored, disposed of, or placed, or otherwise
come to be located.” 42 U.S.C. § 9601(9)(B).
4
“The term ‘release’ means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
or disposing into the environment . . . .” Id. § 9601(22).
8 CAL. DTSC V. WESTSIDE DELIVERY
(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 (except where the sole
contractual arrangement arises from a
published tariff and acceptance for carriage by
a common carrier by rail), 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[.]
42 U.S.C. § 9607(b)(3).
2. SARA (1986)
In 1986, Congress passed the Superfund Amendments and
Reauthorization Act (“SARA”), Pub. L. No. 99-499, 100 Stat.
1613 (1986). SARA was “aimed at speeding cleanup and
forcing quicker action by the EPA.” Carson Harbor Vill.,
270 F.3d at 887. SARA added a new type of third-party
defense known as the innocent-landowner defense.5 Id.
5
The parties spar over the relationship between the third-party and
innocent-landowner defenses, with Defendant arguing that they are
“separate and distinct” defenses, and Plaintiff arguing that “the distinction
CAL. DTSC V. WESTSIDE DELIVERY 9
Congress added that defense in an odd way: it defined the
previously undefined phrase “contractual relationship”—a
phrase key to the applicability of the third-party defense—and
then set out certain circumstances in which that definition
would not be met. Id. The innocent-landowner defense
provides as follows:
The term “contractual relationship,” for
the purpose of section 9607(b)(3) . . . ,
includes, but is not limited to, land contracts,
deeds, easements, leases, or other instruments
transferring title or possession, unless the real
property on which the facility concerned is
located was acquired by the defendant after
the disposal or placement of the hazardous
substance on, in, or at the facility, and one or
more of the circumstances described in clause
(i), (ii), or (iii) is also established by the
defendant by a preponderance of the evidence:
(i) At the time the defendant acquired the
facility the defendant did not know and had no
reason to know that any hazardous substance
which is the subject of the release or
threatened release was disposed of on, in, or at
the facility.
(ii) The defendant is a government entity
which acquired the facility by escheat, or
between the two is not so clear.” We conceive of the innocent-landowner
defense as a flavor of third-party defense—it relies on the text of the
“traditional” third-party defense and incorporates some of the
requirements of that defense, but also includes additional criteria.
10 CAL. DTSC V. WESTSIDE DELIVERY
through any other involuntary transfer or
acquisition, or through the exercise of eminent
domain authority by purchase or
condemnation.
(iii) The defendant acquired the facility by
inheritance or bequest.
In addition to establishing the foregoing, the
defendant must establish that the defendant
has satisfied the requirements of section
9607(b)(3)(a) and (b) of this title, [and must
also meet several other conditions].
42 U.S.C. § 9601(35)(A).6 Note that the innocent-landowner
defense is available to a private purchaser of land only if that
purchaser did not have actual or constructive knowledge of
contamination at the time of purchase.7
Before SARA, there was some confusion as to whether
the third-party defense could be asserted with respect to pre-
existing contamination—that is, whether a “third party” was
6
This text is § 9601(35)(A) as it exists today. None of the changes
made since SARA was passed in 1986 is relevant to our analysis.
Defendant does not contend that it qualifies for the innocent-landowner
defense.
7
In 2002, Congress added the “bona fide prospective purchaser”
defense to CERCLA. Small Business Liability Relief and Brownfields
Revitalization Act, Pub. L. No. 107-118, § 222, 115 Stat. 2356, 2370–72
(2002) (codified at 42 U.S.C. §§ 9601(40), 9607(r)). That defense, unlike
the innocent-landowner defense, protects purchasers who knowingly buy
contaminated property. PCS Nitrogen Inc. v. Ashley II of Charleston LLC,
714 F.3d 161, 179–80 (4th Cir. 2013). Defendant does not contend that
it qualifies for the bona fide prospective purchaser defense.
CAL. DTSC V. WESTSIDE DELIVERY 11
necessarily someone whose acts or omissions occurred after
a defendant acquired property. See New York v. Shore Realty
Corp., 759 F.2d 1032, 1048 (2d Cir. 1985) (“It is doubtful
that a prior owner could be [a third party] . . . since the acts or
omissions referred to in the statute are doubtless those
occurring during the ownership or operation of the
defendant.”). SARA “clarified” that a previous owner or
other entity whose acts or omissions occurred in the past can
be a third party. Carson Harbor Vill., 270 F.3d at 887.
The fact that a previous owner may be a third party makes
the word “indirectly” in § 9607(b)(3) very important. If the
owner who immediately preceded defendant A—say, B—has
a “direct” contractual relationship with A, and the owner
before that—say, C—has a direct contractual relationship
with B, then A has an “indirect” contractual relationship with
C. See Buffalo Marine Servs. Inc. v. United States, 663 F.3d
750, 755, 758 (5th Cir. 2011) (describing a “contractual
relationship . . . involving a chain of intermediaries” as “an
indirect” contractual relationship within the meaning of the
Oil Pollution Act, which contains “a third-party defense
provision virtually identical to” CERCLA’s). The same logic
leads to the conclusion that a defendant-landowner has a
contractual relationship with all previous landowners—or, at
least, all previous landowners in the chain of title—unless the
defendant-landowner can qualify for the innocent-landowner
defense. See United States v. CDMG Realty Co., 96 F.3d
706, 716 (3d Cir. 1996) (noting that “[t]he [third-party]
defense is generally not available if the third party causing
the release is in the chain of title with the defendant” unless
“the person claiming the defense is an ‘innocent owner’”).
12 CAL. DTSC V. WESTSIDE DELIVERY
3. California’s Tax-Sale System
If the owner of non-exempt real property in California
fails to pay property taxes, “a default is declared” and the
property becomes “[t]ax-defaulted property.” Carloss v.
County of Alameda, 194 Cal. Rptr. 3d 784, 791 (Ct. App.
2015); see also Cal. Rev. & Tax. Code §§ 126, 3436. After
some period of time, “the tax collector shall have the power
to sell and shall attempt to sell . . . all or any portion of tax-
defaulted property that has not been redeemed.” Cal. Rev. &
Tax. Code § 3691(a)(1)(A). Under the current system, “tax-
defaulted property is sold directly to a private party at
auction.” Carloss, 194 Cal. Rptr. 3d at 794.
Once the property is sold, the tax collector executes a
deed to the tax-sale purchaser. Cal. Rev. & Tax. Code
§ 3708. The deed conveys to the tax-sale purchaser “a better
title than might otherwise be conveyed.” Quelimane Co. v.
Stewart Title Guar. Co., 960 P.2d 513, 528 (Cal. 1998). That
is because “a title granted by a tax deed pursuant to a valid
sale of the property for nonpayment of taxes, conveys not
merely the title of the person assessed, but a new and
complete title under an independent grant from the state.”
Helvey v. Sax, 237 P.2d 269, 271 (Cal. 1951). In California,
as in other states, the government derives its ability to provide
a tax-sale purchaser with a “fresh” title from its sovereign
authority to tax. See id. (“The state’s taxing power is derived
from its sovereign authority, not from any grant to it by the
owner of property.”); Cal. Loan & Tr. Co. v. Weis, 50 P. 697,
698 (Cal. 1897) (“The power of the legislature to make the
lien of taxes paramount to all other liens upon the land, so
that when sale is made the purchaser takes title freed from
incumbrance, is not questioned.”).
CAL. DTSC V. WESTSIDE DELIVERY 13
B. The Role of State Law
Before deciding what “contractual relationship” means
and whether Defendant and Davis have a “contractual
relationship” by virtue of the tax deed, we must determine
what role state law should play in our analysis. Of course, the
meaning of “contractual relationship” is “necessarily a federal
question in the sense that its construction remains subject to
. . . supervision” by federal courts. Miss. Band of Choctaw
Indians v. Holyfield, 490 U.S. 30, 43 (1989). But “Congress
sometimes intends that a statutory term be given content by
the application of state law.” Id. The “general assumption,”
though, is that, “in the absence of a plain indication to the
contrary, Congress when it enacts a statute is not making the
application of the federal act dependent on state law.” Id.
(internal quotation marks and alteration omitted).8
Here, we do not think that there is a “plain indication”
that Congress intended for state law to answer the question
whether a particular type of instrument or transaction is a
8
This is not a case in which we must decide how to fill a gap in a
detailed federal statutory scheme. See United States v. Gen. Battery
Corp., 423 F.3d 294, 311 n.14 (3d Cir. 2005) (Rendell, J., concurring in
part and dissenting in part) (explaining the distinction between cases in
which courts confront statutory gaps and cases in which courts “constru[e]
a word or phrase in [a] statute”). When we face such a gap, the
presumption is that state law should provide the rule of decision; we
fashion a uniform federal common law rule only in rare instances.
Atchison, Topeka, & Santa Fe Ry. Co. v. Brown & Bryant, Inc., 159 F.3d
358, 362–63 (9th Cir. 1998). But different considerations lead to the
opposite presumption when the question is the meaning of a federal
statutory term or phrase. See, e.g., NLRB v. Hearst Publ’ns, Inc., 322 U.S.
111, 120–24 (1944) (discussing the reasons for the presumption of a
uniform federal definition of the term “employee” in the National Labor
Relations Act).
14 CAL. DTSC V. WESTSIDE DELIVERY
“contractual relationship.” To be sure, the statutory
definition refers to several instruments—such as deeds and
easements—that are creatures of state property law. But
Congress defined “contractual relationship” broadly to
include both a catch-all (“other instruments transferring title
or possession”) and a “not limited to” clause. Those
provisions suggest that Congress was trying to capture a
certain kind of instrument reflecting a certain kind of
relationship between a defendant and a purported third party,
regardless of how state law might characterize that instrument
or that relationship. See Morrow v. Scofield, 116 F.2d 17, 19
(5th Cir. 1940) (“[W]e think the comprehensive language of
the federal statute makes it quite plain that it was the intention
of Congress to require the fixing of stamps to instruments of
this kind, instruments which in substance convey interests in
lands, tenements or other realty without regard to the
particular legal effects and consequences which may be
attached to them by the laws of a particular state.”).
There is a useful analogy to be drawn to tax and
bankruptcy law—two areas in which Congress often attaches
federal consequences to state-law-created property rights or
transfers of rights. In both areas, it is generally true that state
law determines whether a person has a property right and
what the nature of that right is. But a federal standard
governs the federal consequences of transferring that property
right. See Barnhill v. Johnson, 503 U.S. 393, 397–98 (1992)
(noting that, although property rights are “creatures of state
law,” “‘[w]hat constitutes a transfer [of property for
bankruptcy purposes] and when it is complete’ is a matter of
federal law” (quoting McKenzie v. Irving Tr. Co., 323 U.S.
365, 369–70 (1945))); see also Burnet v. Harmel, 287 U.S.
103, 110 (1932) (“The state law creates legal interests, but the
federal statute determines when and how they shall be
CAL. DTSC V. WESTSIDE DELIVERY 15
taxed.”). And when Congress uses broad wording to define
the types of property interests or transfers to which it seeks to
attach consequences, it evinces an intent to use a uniform
federal standard that does not depend on the particulars of
state property law. See Britt v. Damson, 334 F.2d 896,
901–02 (9th Cir. 1964) (“The question of whether a particular
occurrence is a ‘transfer’ within the meaning of the
[Bankruptcy] Act is a matter of federal characterization.
Therefore in deciding whether the occurrence in question was
a ‘transfer’ we are not concerned with what label [state] law
has placed upon occurrences of this kind.” (citation omitted));
Morrow, 116 F.2d at 19. So too here. State law determines
what property interests, if any, Defendant and Davis possess
or possessed in the Site; but whether the occurrences or
transactions that created and destroyed those interests
constitute a “contractual relationship” between Defendant and
Davis does not turn on state law.
C. The Tax Deed Created a “Contractual Relationship”
Between Defendant and Davis
The key question in this case is whether Defendant and
Davis have a “contractual relationship,” direct or indirect, by
virtue of the tax sale. It appears that, under the current
California tax-sale system, the government never holds title
to or acquires any possessory interest in tax-defaulted
property sold to a private party at auction. See Carloss,
194 Cal. Rptr. 3d at 794 (“In 1984, tax default sale
procedures were changed from the earlier practice of sales to
the state to the current practice outlined above, in which tax-
defaulted property is sold directly to a private party at
auction.”). But it is not entirely clear—one could conceive of
a tax deed as reflecting two separate transactions: one in
which the government acquires an interest from the tax-
16 CAL. DTSC V. WESTSIDE DELIVERY
defaulted owner and a second in which the government gives
a new title to the tax-sale purchaser. Ultimately, we reach the
same conclusion regardless of how we view a tax sale, so we
analyze the question whether Defendant and Davis have a
“contractual relationship” under both views.
1. The One-Transaction View of a Tax Sale
We begin with the text of the statutory definition of
“contractual relationship.” See Advocate Health Care
Network v. Stapleton, 137 S. Ct. 1652, 1658 (2017) (“[We]
[s]tart, as we always do, with the statutory language . . . .”).
As noted earlier, the definition contains both an “includes, but
is not limited to” clause and a “catch-all” clause. Taken
together, those clauses suggest that the phrase “contractual
relationship” should be construed broadly. See San Luis &
Delta-Mendota Water Auth. v. Haugrud, 848 F.3d 1216, 1229
(9th Cir. 2017) (“The ‘including, but not limited to,’ language
. . . indicates Congress’s intent to provide a broad . . .
directive.”); see also Fed. Mar. Comm’n v. Seatrain Lines,
Inc., 411 U.S. 726, 734 (1973) (noting that catch-all “clauses
are to be read as bringing within a statute categories similar
in type to those specifically enumerated”). Indeed, those
clauses, when read in light of the specific examples listed in
the statute, suggest that Congress intended to capture any
instrument reflecting a voluntary transaction resulting in a
change of ownership or possession.
But the scope of “contractual relationship” is even
broader than that, as evidenced by the exception in
§ 9601(35)(A)(ii). That exception necessarily implies that the
transactions and instruments described therein—acquisition
by a government entity through “escheat, or through any
other involuntary transfer or acquisition, or through the
CAL. DTSC V. WESTSIDE DELIVERY 17
exercise of eminent domain authority”—would otherwise
create “contractual relationships.” See, e.g., Penn Terra Ltd.
v. Dep’t of Envtl. Res., 733 F.2d 267, 272 (3d Cir. 1984)
(“[T]he fact that Congress created an exception to the
automatic stay for certain actions by governmental units itself
implies that such units are otherwise affected by the stay.”).
Applying that reasoning, even involuntary transfers can be
transfers of title or possession within the meaning of the
statute, and a “contractual relationship” can form even when
property is transferred without the consent of both parties.9
Keeping in mind that the definition of “contractual
relationship” should be construed broadly and that it includes
involuntary transfers, we think that a tax deed fits
comfortably within the definition as an “instrument[]
transferring . . . possession” from Davis to Defendant.
42 U.S.C. § 9601(35)(A). Before the execution of the tax
deed, Davis had the legal right to possess the Davis Chemical
Site. The tax deed divested Davis of its interest and vested
the right to possession in Defendant. That is the definition of
a “transfer” in the law of property. See Restatement (First) of
Property § 13 (Am. Law Inst. 1936) (“The word ‘transfer,’ as
it is used in this Restatement, when applied to interests in
land . . . , means the extinguishment of such interests existing
in one person and the creation of such interests in another
person.”). It does not matter that the tax collector effectuated
the transfer—that fact only made the transfer involuntary
from Davis’ perspective, and involuntary transfers can create
“contractual relationships.”
9
The exception in § 9601(35)(A)(iii)—which includes acquisition by
inheritance or bequest—also supports the conclusion that involuntary
transfers can create a “contractual relationship.”
18 CAL. DTSC V. WESTSIDE DELIVERY
2. The Two-Transaction View of a Tax Sale
If we view a successful tax sale as a two-transaction
procedure, Defendant and Davis still have a “contractual
relationship” through the tax deed, albeit a more indirect one.
The tax deed from the government to Defendant obviously
constitutes a direct “contractual relationship” between them.
The harder question under the two-transaction view is
whether the government and Davis have a “contractual
relationship” through the government’s acquisition of the Site
from Davis.
Section 9601(35)(A)(ii) exempts from the definition of
“contractual relationship” those transactions in which “[t]he
defendant is a government entity which acquired the facility
by escheat, or through any other involuntary transfer or
acquisition, or through the exercise of eminent domain
authority by purchase or condemnation.” As discussed
above, that exception implies that the transactions and
transfers described therein would otherwise create
“contractual relationships.” But the exception applies only if
the defendant is a government entity.
The question, then, is whether a government entity’s
acquisition of real property due to tax delinquency is an
“involuntary transfer or acquisition” within the meaning of
§ 9601(35)(A)(ii). We conclude that it is. Section
9601(35)(A)(ii), read as a whole, is targeted at situations in
which the government acquires property through methods
that only the government can employ. Construed that way,
the government’s acquisition of tax-defaulted property fits
within the exception when the government is the defendant.
Moreover, § 9601(35)(A)(ii) was added to the statute at the
CAL. DTSC V. WESTSIDE DELIVERY 19
same time as § 9601(20)(D),10 which exempts from the
definition of “owner or operator” any “unit of State or local
government which acquired ownership or control
involuntarily through bankruptcy, tax delinquency,
abandonment, or other circumstances in which the
government involuntarily acquires title by virtue of its
function as sovereign.” (Emphases added.) Both
§ 9601(20)(D) and § 9601(35)(A)(ii) are aimed at providing
protection to government entities that acquire contaminated
property by means available only to the sovereign. Hercules
Inc. v. EPA, 938 F.2d 276, 280–81 (D.C. Cir. 1991). That
common purpose strongly suggests that acquisition through
tax delinquency, which is an “involuntary acquisition” for
purposes of § 9601(20)(D), also is an “involuntary
acquisition” for purposes of § 9601(35)(A)(ii). See Envtl.
Def. v. Duke Energy Corp., 549 U.S. 561, 574 (2007)
(discussing the “presum[ption] that the same term has the
same meaning when it occurs here and there in a single
statute”).
We note that the EPA likewise has construed “involuntary
transfer or acquisition” in § 9601(35)(A)(ii) to have the same
scope as § 9601(20)(D) and, therefore, to include an
acquisition through tax delinquency. See 40 C.F.R.
10
Congress recently amended § 9601(20)(D) in a rider to an
appropriations act. See Consolidated Appropriations Act, 2018, Pub. L.
No. 115-141, div. N, § 2, __ Stat. __ (to be codified at 42 U.S.C.
§ 9601(20)(D)). The amendment to § 9601(20)(D) does not change our
analysis of the meaning of § 9601(35)(A), which Congress chose not to
amend. See Gross v. FBL Fin. Servs., Inc., 557 U.S. 167, 174 (2009)
(“When Congress amends one statutory provision but not another, it is
presumed to have acted intentionally.”); Robertson v. Seattle Audubon
Soc’y, 503 U.S. 429, 440 (1992) (“Congress . . . may amend substantive
law in an appropriations statute, as long as it does so clearly.”).
20 CAL. DTSC V. WESTSIDE DELIVERY
§ 300.1105(a) (“Governmental ownership or control of
property by involuntary acquisitions or involuntary transfers
within the meaning of [42 U.S.C. § 9601(20)(D)] or
[§ 9601(35)(A)(ii)] includes, but is not limited to:
(1) Acquisitions by or transfers to the government in its
capacity as a sovereign, including transfers or acquisitions . . .
as the result of tax delinquency . . .” (emphases added)).11
The EPA concluded, after a careful analysis of CERCLA and
SARA, that Congress’ use of similar terms in § 9601(20)(D)
and § 9601(35) evinced its intent “to refer to the same types
of transfers or acquisitions” in the two sections. National Oil
and Hazardous Substances Pollution Contingency Plan;
Lender Liability Under CERCLA, 57 Fed. Reg. 18,344,
18,380 (Apr. 29, 1992).12 Given the thoroughness of EPA’s
reasoning, we conclude that the agency’s interpretation is due
great respect. See United States v. Mead Corp., 533 U.S. 218,
235 (2001) (holding that an agency’s interpretation of a
statute that it administers “may surely claim the merit of its
writer’s thoroughness, logic, and expertness, its fit with prior
interpretations, and any other sources of weight,” even if it
does not qualify for Chevron deference).13
11
Title 40 C.F.R. § 300.1105 was promulgated well before Congress’
recent amendment to § 9601(20)(D).
12
In Kelley v. EPA, 15 F.3d 1100, 1108 (D.C. Cir. 1994), the D.C.
Circuit vacated the entire rule of which § 300.1105 was a part. But
Congress reinstated § 300.1105 in a rider to an appropriations bill.
Omnibus Consolidated Appropriations Act, 1997, Pub. L. No. 104-208,
§ 2504, 110 Stat. 3009.
13
We need not, and do not, decide whether the EPA’s interpretation
of § 9601(20)(D) and § 9601(35)(A)(ii) should be given deference under
Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S.
837 (1984), either because Congress itself reinstated the regulation or for
CAL. DTSC V. WESTSIDE DELIVERY 21
3. Under Either View of a Tax Sale
Our conclusion that a tax-sale purchaser such as
Defendant has a “contractual relationship” with the pre-tax-
sale private owner of tax-defaulted property is bolstered by an
examination of the definition in the context of CERCLA as a
whole. See Carson Harbor Vill., 270 F.3d at 880 (explaining
that “[n]o statutory provision is written in a vacuum” and that
each provision of CERCLA must be read in light of the
statute “as a whole, including its purpose and various
provisions”); see also FDA v. Brown & Williamson Tobacco
Corp., 529 U.S. 120, 133 (2000) (noting that the goal when
construing a complex regulatory statute is to “interpret the
statute as a symmetrical and coherent regulatory scheme and
fit, if possible, all parts into an harmonious whole” (citations
and internal quotation marks omitted)).
The definition of “contractual relationship” was added to
CERCLA at the same time as the innocent-landowner
defense. Indeed, it was through the definition that Congress
added the innocent-landowner defense. “Congress intended
the [innocent-landowner] defense to be very narrowly
applicable, for fear that it might be subject to abuse.” Carson
Harbor Vill., 270 F.3d at 883. A typical—that is, non-tax-
sale—private purchaser who buys property contaminated by
a previous owner or possessor is entitled to the innocent-
landowner defense only if the purchaser bought the property
without actual or constructive knowledge of contamination.
42 U.S.C. § 9601(35)(A)(i). That is, the purchaser must be
“truly ‘innocent.’” PCS Nitrogen Inc. v. Ashley II of
Charleston LLC, 714 F.3d 161, 185 (4th Cir. 2013). But
any other reason. We reach the same conclusion as the EPA even without
the benefit of its guidance.
22 CAL. DTSC V. WESTSIDE DELIVERY
under Defendant’s reading of the statute, a private purchaser
of tax-defaulted property contaminated by a previous owner
or possessor—who, if anything, should be more wary of pre-
existing contamination than a typical land purchaser14—need
not be “innocent” or unaware of the contamination to be
relieved of liability. Defendant’s reading thus creates, in
effect, a loophole that frustrates the defense’s purpose. To be
sure, Congress often includes exceptions in statutes that serve
to undermine broader statutory purposes; that is the natural
result of a legislative process that involves compromise and
difficult-to-reconcile policy preferences. When Congress
does so, though, it tends to speak clearly. See James v. City
of Costa Mesa, 700 F.3d 394, 403 (9th Cir. 2012) (“Congress
could not have intended to create such a capacious loophole,
especially through such an ambiguous provision.”). It did not
do so here. On the contrary, the breadth of the definition of
“contractual relationship” implies that the Congress that
enacted SARA intended the innocent-landowner defense to
be the sole defense available to private purchasers of land
contaminated by previous owners.
14
Contaminated properties form a substantial fraction of tax-
delinquent or tax-defaulted properties in many areas. See Grant R. Trigger
et al., Making Brownfields Green [Again]: How Efforts to Give Urban
Centers an Economic Facelift Have Changed the Face of Environmental
Policy, 76 Mich. B.J. 42, 42 (1997) (“Detroit was an early selection for a
brownfields pilot project because of its heavy industrial base and the
estimate that some 45,000 contaminated sites have been abandoned and
forfeited to the city due to unpaid taxes.”); see also Matthew D. Fortney,
Comment, Devolving Control Over Mildly Contaminated Property: The
Local Cleanup Program, 100 Nw. U. L. Rev. 1863, 1903 (2006)
(“Municipalities often gain title to brownfield property because of tax
delinquency.”).
CAL. DTSC V. WESTSIDE DELIVERY 23
Relatedly, we note that Defendant’s reading of the statute
would lead to anomalous results. For example, consider the
situation of a prospective purchaser who learns that there are
tax liens on a contaminated property that he or she is
interested in buying. Under Defendant’s view, the buyer is
better off waiting until the owner defaults on the tax liens and
the property goes through the tax-sale procedure than buying
the property from the owner and risking CERCLA liability or
complying with the many requirements of the bona fide
prospective purchaser defense: once the property has gone
through the tax-sale procedure, the CERCLA liability is
“scraped off” and the buyer is not responsible for clean-up
costs. Defendant can point to nothing in the statute
suggesting that Congress intended to give such an enormous
advantage to private tax-sale purchasers. As the EPA stated,
“there is no authority anywhere in CERCLA that would
support the ‘laundering’ of liability” through a mechanism
such as a tax sale. 57 Fed. Reg. at 18,372–73.
Given the breadth of the definition of “contractual
relationship” and the stringent requirements that Congress set
out for ensuring that only “truly ‘innocent’” purchasers would
be able to avoid liability, we think it likely that Congress
intended for the innocent-landowner defense to be the sole
defense available to a private purchaser of land contaminated
by a previous owner or possessor.15 At the very least, we are
confident that Congress did not mean to treat tax-sale
purchasers differently from typical purchasers, which is why
it defined “contractual relationship” broadly enough to
include the relationship between a tax-sale purchaser and the
pre-tax-sale owner of tax-defaulted property.
15
The bona fide prospective purchaser defense is also available to
such a purchaser, but that defense was not added to CERCLA until 2002.
24 CAL. DTSC V. WESTSIDE DELIVERY
Both the plain text of the definition of “contractual
relationship” and its place in the statutory scheme convince
us that a tax-sale buyer such as Defendant has a “contractual
relationship” with the pre-tax-sale owner of that property.
4. Defendant’s Arguments
Defendant makes several arguments as to why it lacks a
“contractual relationship” with Davis. We find none of them
persuasive.
First, Defendant argues that it cannot have a “contractual
relationship” with Davis because it has never had a
“relationship” of any kind with Davis, nor did it enter into
“any agreement in furtherance of a common goal” with
Davis. That argument would have some force if “contractual
relationship” were undefined in the statute, in which case we
would “endeavor to give th[e] [phrase] its ordinary meaning.”
United States v. Middleton, 231 F.3d 1207, 1210 (9th Cir.
2000). But Congress has defined “contractual relationship,”
so the ordinary meaning of the words “contractual” and
“relationship” do not control. See Stenberg v. Carhart, 530
U.S. 914, 942 (2000) (“When a statute includes an explicit
definition, we must follow that definition, even if it varies
from that term’s ordinary meaning.”).
Next, Defendant argues that it lacks a “contractual
relationship” with Davis because it received a “new” title
through the tax deed. Phrased slightly differently,
Defendant’s argument is that it lacks a “contractual
relationship” with Davis because Davis is not in its chain of
CAL. DTSC V. WESTSIDE DELIVERY 25
title.16 But, as noted, state law does not govern. A break in
the chain of title is the kind of “particular legal effect[] and
consequence[] . . . attached to” a transaction by state law,
Morrow, 116 F.2d at 19, that has no bearing on whether that
transaction creates a “contractual relationship” for purposes
of § 9601(35)(A).17
Finally, Defendant argues that interpreting “contractual
relationship” to include the relationship between a tax-sale
purchaser and previous owners of the property would render
the “traditional” third-party defense “meaningless.” We
disagree. The “traditional” third-party defense is available in
cases in which a defendant-owner’s property is contaminated
by unrelated “third parties” after the defendant acquires the
property.18 It is also possible that the defense might be
available to a defendant that purchased property that was
16
We assume, but need not decide, that Defendant is correct about the
effect of a tax sale on the chain of title under California law.
17
We acknowledge that the one district court to have addressed the
question before us concluded that a tax-sale purchaser does not have a
“contractual relationship” with the previous owner of the property because
the tax sale results in a new title. Cont’l Title Co. v. Peoples Gas Light &
Coke Co., No. 96 C 3257, 1999 WL 753933, at *2 (N.D. Ill. Sept. 15,
1999). A 2006 “recommended decision” issued by an EPA Regional
Judicial Officer reached the same conclusion using similar reasoning. See
Fla. Petroleum Reprocessors, Inc. (EPA recommended decision June 29,
2006) (Schub, Regional Judicial Officer, Region 4) (following the
reasoning of Cont’l Title). For the reasons given here, we do not find the
reasoning in either of those authorities persuasive.
18
Indeed, in the early days of CERCLA, the Second Circuit suggested
that the third-party defense could be asserted only with respect to acts or
omissions occurring after the defendant’s acquisition of property. Shore
Realty Corp., 759 F.2d at 1048–49.
26 CAL. DTSC V. WESTSIDE DELIVERY
already contaminated if that contamination was caused solely
by the acts of true “third parties”—vandals, “midnight
dump[ers],” and the like. Superfund Program; De Minimis
Landowner Settlements, Prospective Purchaser Settlements,
54 Fed. Reg. 34,235-01, 34,239 (Aug. 18, 1989).
D. Relevant Polluting Activities Occurred “In
Connection With” the Contractual Relationship
Between Defendant and Davis
The “traditional” third-party defense is unavailable to a
defendant if the purported third party’s polluting activities
occurred “in connection with a contractual relationship,
existing directly or indirectly, with the defendant.” 42 U.S.C.
§ 9607(b)(3). For the reasons discussed above, we hold that
Defendant and Davis have a “contractual relationship.”
Defendant’s final argument concerns the “in connection with”
condition in § 9607(b)(3): Defendant argues that it is entitled
to the third-party defense because Davis’ acts and omissions
that contaminated the Site did not occur “in connection with”
its contractual relationship with Defendant. Defendant points
to a line of Second Circuit cases in which that court held that,
“[i]n order for [a] landowner to be barred from raising the
third-party defense . . . , the contract between the landowner
and the third party must either relate to . . . hazardous
substances or allow the landowner to exert some element of
control over the third party’s activities.” Westwood Pharm.,
Inc. v. Nat’l Fuel Gas Distrib. Corp., 964 F.2d 85, 91–92 (2d
Cir. 1992); see also New York v. Lashins Arcade Co., 91 F.3d
353, 360 (2d Cir. 1996) (reaffirming the Westwood rule).
We begin by observing that “[t]he phrase ‘in connection
with’ is essentially indeterminate because connections, like
relations, stop nowhere. So the phrase ‘in connection with’
CAL. DTSC V. WESTSIDE DELIVERY 27
provides little guidance without a limiting principle consistent
with the structure of the statute and its other provisions.”
Maracich v. Spears, 570 U.S. 48, 59–60 (2013) (citation,
internal quotation marks, and brackets omitted). Reading the
phrase “in connection with” in context, we conclude that it
cannot have the meaning that Defendant proffers when a
defendant seeks to avoid liability for contamination caused by
a previous landowner or possessor. If the “in connection
with” condition were construed so narrowly as to allow a
defendant-purchaser to assert the third-party defense in all
cases in which the relevant land contract, deed, or other
instrument did not “relate to . . . hazardous substances,” there
would have been little need for Congress to add the innocent-
landowner defense,19 because most innocent purchasers
would have been covered already by the “traditional” third-
party defense. The innocent-landowner defense would be
rendered largely superfluous. See United States v. Domenic
Lombardi Realty, Inc., 204 F. Supp. 2d 318, 332 (D.R.I.
2002) (“To adopt the interpretation [of “in connection with”]
set forth . . . in Westwood would render the explicit language
of the statutory definition [of “contractual relationship”]
inoperative” in cases involving a defendant that purchased
contaminated property.); see also Craig N. Johnston, Current
Landowner Liability Under CERCLA: Restoring the Need for
Due Diligence, 9 Fordham Envtl. L.J. 401, 462 (1998) (“The
Westwood approach makes no sense . . . in the context of
19
More precisely, there would have been little need for Congress to
enact that portion of the innocent-landowner defense that applies to private
purchasers. See 42 U.S.C. § 9601(35)(A)(i).
28 CAL. DTSC V. WESTSIDE DELIVERY
preexisting contamination.”).20 As we have noted in a similar
context, it seems doubtful that, “even in the uncertain world
of CERCLA, . . . Congress went to the trouble of amending
the statute to create a defense that no one would need.”
Carson Harbor Vill., 270 F.3d at 883.
However, we do not agree with Plaintiff that the “in
connection with” condition is inapplicable in a case involving
a defendant-owner seeking to avoid liability for
contamination caused by previous owners or possessors.21
Though Defendant’s proposed “limiting principle” does not
comport with CERCLA as a whole, it does not follow that
there is no limiting principle that can constrain the reach of
“in connection with” in a manner that is consistent with the
statute. Our “duty to give effect, if possible, to every clause
and word of a statute,” Roberts v. Sea-Land Servs., Inc.,
566 U.S. 93, 111 (2012) (internal quotation marks omitted),
20
Westwood itself dealt with a third party whose polluting activities
took place after the defendant had sold the property. 964 F.2d at 86–87.
Perhaps the construction given to “in connection with” by the Second
Circuit is appropriate in that context. But Lashins Arcade’s extension of
Westwood to the context of pre-existing contamination is inconsistent with
the innocent-landowner defense and CERCLA as a whole. See Johnston,
supra at 463 (noting that “[t]he [Lashins Arcade] approach cannot be
squared with . . . the statute”); see also Lefebvre v. Cent. Me. Power Co.,
7 F. Supp. 2d 64, 71 n.3 (D. Me. 1998) (rejecting Lashins Arcade); Goe
Eng’g Co. v. Physicians Formula Cosmetics, Inc., No. CV 94-3576-WDK,
1997 WL 889278, at *10 n.7 (C.D. Cal. June 4, 1997) (rejecting Lashins
Arcade and Westwood).
21
Plaintiff’s precise argument is that “the ‘in connection with’
requirement cannot apply to defendants asserting the innocent purchaser
form of the third-party defense.” But the logic of Plaintiff’s argument
extends to cases such as this one in which a defendant asserts the
“traditional” third-party defense in the context of contamination caused by
previous owners or possessors.
CAL. DTSC V. WESTSIDE DELIVERY 29
requires us to look hard for a construction of “in connection
with” that fits in with the statute before concluding that the
phrase should be ignored.
In the context of a defendant-landowner asserting a
defense against liability for a previous owner or possessor’s
acts or omissions, the “in connection with” condition is
intended to filter out those situations in which the previous
owner’s polluting acts or omissions were unrelated to its
status as a landowner. Imagine, for instance, that an owner,
A, sold uncontaminated land to B and that, years after the
sale, a truck owned by A happened to overturn near the land,
causing contamination with hazardous pollutants. If B were
to be sued under CERCLA, it could assert a third-party
defense notwithstanding its contractual relationship with A,
because the truck’s turning over was in no way related to A’s
status as the owner of the land—it occurred long after A had
parted with its interest in the land, and it did not occur while
A was using the land in its capacity as an owner.
Here, Davis’ actions that led to the release of hazardous
pollutants occurred while it owned the Site, and those actions
occurred on the Site. Accordingly, the acts or omissions of
Davis that caused the contamination occurred “in connection
with” its contractual relationship with Defendant. For that
reason, Defendant is not entitled to the third-party defense.
REVERSED and REMANDED.