Atlantic Richfield v. Central Valley Regional Water Quality etc. ( 2019 )

Filed 9/13/19; Modified and certified for publication 10/15/19 (order attached)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Sacramento)
----
ATLANTIC RICHFIELD COMPANY, C086745
Plaintiff and Respondent, (Super. Ct. No.
34201480001875CUWMGDS)
v.
CENTRAL VALLEY REGIONAL WATER
QUALITY CONTROL BOARD,
Defendant and Appellant.
The storied history of mining in California has adverse consequences, among them
the discharge of toxic residues from mining sites. Plaintiff Atlantic Richfield Company
(ARCO) filed a petition in June 2014 to overturn a March 2014 order of defendant
Central Valley Regional Water Quality Control District1 (Water Board) that sought to
1 We have amended the title of this action to reflect the Water Board’s own style for its
name rather than the style used in the trial court. (See
[as of Sept. 12, 2019].)
1
impose liability for remediation of metallic and acidic water pollution from an abandoned
mine, the owner of which was the subsidiary of ARCO’s predecessors in interest. The
trial court granted the petition in January 2018. The Water Board appeals.
The Water Board contends the trial court applied the wrong legal standard to
determine whether the ARCO predecessors incurred direct liability for control over
activities resulting in the hazardous waste that the mine discharges. We agree that the
trial court employed too restrictive a standard in evaluating the evidence, and therefore
will reverse and remand for reconsideration of the record under the proper standard.2
In light of this disposition, we do not need to address the Water Board’s claim that the
evidence did not support absolving ARCO even under the narrower standard, or the claim
that the evidence established that the ARCO predecessors engaged in mining on their
own at the mine before acquiring an interest in the mining company.
FACTUAL AND PROCEDURAL BACKGROUND
Given that we find the evidence was filtered through the wrong legal standard, we
do not summarize the entirety of the evidence in the record. We provide a few historical
facts before providing the details of the trial court’s ruling.
J. R. Walker began developing the Walker Mine in 1909, located to the north of
Quincy and Portola in Plumas County. It is within the drainage of a watershed feeding
ultimately into the north fork of the Feather River.
2 In the event of a subsequent appeal, the parties might want to bear in mind that the CD
format in which they submitted the nearly 10,000-page administrative record—while a
laudable effort in preserving forests—is extremely difficult to navigate because the tabs
exist as individual PDFs on the CD that cannot be cross-navigated directly and are each
individually paginated, so finding a page within the tab requires calculating the math
from the first Bates-numbered page of the tab. Combining the individual PDFs into a
single document does not help, because the resulting overall pagination is at odds with
the Bates numbering. (Their joint appendix does not suffer from these problems.)
2
The Walker Mining Company took title in 1915 and commenced mining in 1916.
At one point in the 1930s, this was the largest copper mine in California.
International Smelting and Refining Company was a wholly owned subsidiary of
the Anaconda Copper Mining Company, which later swallowed International in a merger.
International/Anaconda acquired a controlling interest in the Walker Mining Company
in 1918. Ultimately, ARCO became a successor through Anaconda’s merger with an
ARCO subsidiary in 1977 and the subsidiary’s merger with ARCO in 1981. (See Hudson
Riverkeeper Fund, Inc. v. Atlantic Richfield Co. (S.D.N.Y. 2001) 138 F. Supp. 2d 482,
484.)
The mine ceased production in 1941 and ceased all operations in 1943, after
producing six-million tons of ore. The assets of the Walker Mining Company were sold
in bankruptcy proceedings in 1945 and transferred to subsequent owners over the
decades; the Water Board reached a settlement with the current owner of the property in
2004, which at present appears to be an inactive and insolvent corporation. By virtue of
this and an earlier settlement against a previous owner, the Water Board has a right of
access to the property under which it can authorize ARCO to conduct remediation
activities.
The mine has 13 miles of flooded underground workings, comprising a total void
volume estimated at 543 million gallons. The mine openings and tailings on the site
discharge soluble copper and acidic mine drainage into surface waters, at times
eliminating aquatic life 10 miles downstream from the mine. In 1987, the Water Board
installed a concrete plug at a mine opening that was a primary source of mine leakage,
which has eliminated most of the direct discharge but is causing a buildup of
contaminated water inside the mine that is leaching into groundwater, and the mining
waste on the surface also continues to be a source of water pollution.
3
The Water Board concluded that the mine and its tailings “have discharged metals
and acid mine drainage” into the watershed “from at least the time production ceased in
1941, if not earlier.” The ARCO predecessors “concurrently managed, directed, or
conducted operations specifically related to the leakage or disposal of waste” in tandem
with the Walker Mining Company. The activities “included exploration, ore location,
mine development work . . . , and removal of ore, all of which directly resulted in the
condition of discharge . . . at the mine and tailings.” This involvement “went well
beyond what is normally expected of a . . . corporate parent.” The Water Board also
concluded that the ARCO predecessors directly discharged waste from their own mining
activities from 1916 to 1918. It therefore ordered ARCO to investigate and remediate the
hazardous waste associated with the Walker Mine.
The trial court stated that the parties had agreed that “United States v. Bestfoods
(1998) 524 U.S. 51 [141 L. Ed. 2d 43] [(Bestfoods)] is controlling with respect to potential
liability in a parent-subsidiary relationship under the . . . federal statutory scheme
[analogous] to the water quality and remediation statutes in California . . . law.” The trial
court applied a six-category paradigm to the evidence of mining activity: (1) exploration
and ore reserves development; (2) mine development; (3) ore extraction; (4)
concentration of desired minerals; (5) new product distribution; and (6) waste disposal.
“[ARCO] contends [that its predecessors were] involved in the first two phases of
mining, and potentially the third, but [the evidence] falls far short of participati[on] in
phase six. [ARCO] argues that because it did not participate in phase six, it cannot be
held liable pursuant to Bestfoods. [Water Board] argues any participation in any of the
six phases of mining is sufficient to satisfy Bestfoods, and that the evidence here
demonstrates that [ARCO] engaged in at least phases one through three, and even
supports a finding of participation in phase six.” After reviewing several cases applying
Bestfoods, the trial court concluded that it must find that the parent corporation
4
“participated in or directed activities specifically involving hazardous waste disposal or
environmental regulation compliance,” which was limited to evidence connected with
category six activities.
Turning to the evidence, the trial court first found insufficient evidence that the
ARCO predecessors directly engaged in ore extraction in 1916-1918 and were focused
only on “exploration or mine development.” With respect to any evidence in connection
with the first three categories, “these phases of mining are insufficient to reach Bestfoods
liability,” and thus the court would “not discuss” such evidence. “Instead, the Court
focuse[d] on [Water Board’s] arguments that [the ARCO predecessors] directed waste
disposal.” The court then rejected the Water Board’s assertion that the disposal of mine
tailings “equates to disposal of hazardous waste,” or that the ARCO predecessors directed
disposal of this waste or disregarded the contaminated nature of water leaking from the
mine. “[ARCO] was not involved in the sixth phase of mining, therefore [ARCO] was
not involved in any sort of waste disposal.”
DISCUSSION
Central to this case is Bestfoods. Perforce, we digest Bestfoods at some length.
Interpreting the comparable (but not necessarily congruent)3 federal statutory
scheme for the abatement of hazardous waste, Bestfoods first discussed derivative
liability of a parent corporation for the remediation of a subsidiary’s hazardous waste.
It noted a parent corporation is ordinarily not liable for the acts of a subsidiary in which
it holds stock. (Bestfoods, supra, 524 U.S. at p. 61.) The parent nevertheless is subject
to derivative liability for discharge of hazardous waste where circumstances are present
3 See Santa Clara Valley Water Dist. v. Olin Corp. (N.D. Cal. 2009) 655 F. Supp. 2d
1066, 1079 (discussing recoverable costs); cf. City of Modesto Redevelopment Agency
v. Superior Court (2004) 119 Cal. App. 4th 28, 37-38 (Water Code section 13304 must be
construed as incorporating law of public nuisance in identifying responsible parties).
5
that would traditionally allow the application of the doctrine of piercing the corporate
veil. (Id. at p. 62.) A parent may also have direct liability for hazardous waste if it is
found to “operate” the activities of the facility responsible for the waste, which is not
premised merely on its status as parent. (Id. at pp. 64-66 & fn. 12, 68.) In this regard,
courts must distinguish between ordinary oversight of the subsidiary and control of its
facility’s operations. (Id. at p. 71.) Actions consistent with an ordinary investor status,
such as the monitoring of performance, supervision of finances, or the articulation of
general policies are not sufficient. (Id. at p. 72.) Under one of the more unusual
standards to apply, the degree and detail of the control of the facility must be “eccentric”
under the norms of parent control of a subsidiary. (Ibid.) The focus is on activities
“specifically related to pollution, that is, operations having to with the leakage or
disposal of hazardous waste.” (Id. at pp. 66-67, italics added.)
Water Board contends the trial court erred in narrowing its focus to evidence of
eccentric control of category six activities under Bestfoods. We agree.4 This disregards
the highlighted language in the above quote and undermines the purpose of statutory
efforts to remediate hazardous waste: If a parent corporation had its fingerprints all over
the activities of a facility that resulted in the spewing of hazardous waste, it does not
make sense to insulate it from liability because it eschewed the direction of any efforts
the subsidiary might have made otherwise to dispose of hazardous waste. Otherwise, the
disjunctive use of leakage or disposal becomes nugatory. “Leakage” bespeaks results
that are not intended, in contrast with disposal.
4 As we agree that the trial court misinterpreted Bestfoods, we do not need to consider
the alternative argument of the Water Board that eccentric control of actions that result
in leakage is required under California law concepts of public nuisance, or ARCO’s claim
that forfeiture precludes the Water Board from raising this issue on appeal. However, we
note that if the Water Board believes that the Bestfoods definition of the type of activities
giving rise to liability is indeed inconsistent with California law, it should not stipulate
on remand to applying the Bestfoods definition.
6
A recent Court of Appeals case makes this patently clear in connection with a
pollution statute with language that parallels that interpreted in Bestfoods. (United States
v. Nature’s Way Marine, L.L.C. (5th Cir. 2018) 904 F.3d 416, 420.) The corporation had
control over the navigation of a barge that crashed into a bridge and spilled oil into the
river. “Nature’s Way directed precisely the activity that caused the pollution—it literally
was the party that crashed the barge into the bridge.” (Id. at p. 421, italics added.) This
liability was not premised on eccentric control over either compliance with regulations
for hazardous waste or its disposal; it was control over the activity resulting in pollution.
And Litgo New Jersey, Inc. v. Commissioner New Jersey Dept. of Environmental
Protection (3d Cir. 2013) 725 F.3d 369, 382, noted that a “plaintiff need only show that
the party engaged in operations related to pollution and that a ‘release’ of hazardous
substances occurred, a requirement that can be met by showing that there was a passive
migration of waste.” (Italics added; cited with approval in Orange County Water Dist. v.
Sabic Innovative Plastics US, LLC (2017) 14 Cal.App.5th 343, 377, noting all that is
necessary is involvement in operations having to do with leakage or disposal of
hazardous waste.)
In limiting its consideration of evidence of eccentric control to category six mining
activities, the trial court evaluated four cases: United States v. Kayser-Roth Corp. (1st
Cir. 2001) 272 F.3d 89 (Kayser-Roth), Browning-Ferris Industries of Illinois, Inc. v. Ter
Maat (7th Cir. 1999) 195 F.3d 953 (Browning-Ferris), Basic Management, Inc. v. United
States (D. Nev. 2008) 569 F. Supp. 2d 1106 (Basic Management), and Schiavone v. Pearce
(D. Conn. 1999) 77 F. Supp. 2d 284 (Schiavone). These cases do not support its
conclusion.
In Kayser-Roth, the trial court found that the parent company essentially made all
of the operational decisions for the subsidiary through agents who did not even have
official positions at the subsidiary, including the selection of the pollution-generating
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process and any interaction with governmental agencies on environmental matters.
(Kayser-Roth, supra, 272 F.3d at pp. 102-103.) The parent’s agent “played a central role
in decisions about environmental compliance . . . and specifically the decision to
implement the [polluting] cleaning process [for the mill’s fabrics].” (Id. at p. 104.) This
was sufficient under the Bestfoods standard for direct control over operations having to
do with leakage or disposal of hazardous waste. (Ibid.) The decision does not sever the
control of pollution-generating activities from control over waste disposal. Its analysis is
premised on its interpretation that “pollution-related focus is controlling” (italics added),
citing cases that find liability either for waste disposal or pollution control (id. at p. 102),
and agreeing with the trial court that it was the parent’s control of the facility’s choice to
use the polluting agent that subjected it to liability for remediation. (Id. at p. 103.)
Browning-Ferris is not a particularly instructive decision, as it involves a landfill
and thus any of the operations necessarily implicate choices that can have environmental
consequences, so an analytic distinction between operations in general and waste disposal
is not present. (Browning-Ferris, supra, 195 F.3d at p. 954.) However, Judge Posner
noted in general that had the defendant “merely direct[ed] the general operations of [his
corporations] . . . or specific operations unrelated to pollution,” (italics added) that would
not be sufficient for his personal liability, but he instead “supervised the day[-]to-day
operations of the landfill . . . designing or directing measures for preventing toxic
substances in the wastes from leeching into the ground.” (Id. at p. 956, italics added.)
Ultimately, the matter required remand because the trial court did not apply this standard
in its analysis of the defendant’s liability. (Ibid.) As a result, this case is not authority for
insulating the ARCO predecessors for the pollution consequences of general mining
activities that they may have controlled.
Basic Management has the fortuity of involving an ARCO predecessor. “Due to
problems with Basic Magnesium’s management of the facility . . . Anaconda . . . [was
8
recruited] to take[ ]over Basic Magnesium and its construction and operation of the
facility.” (Basic Management, supra, 569 F.Supp.2d at pp. 1110-1111.) “Anaconda’s
involvement in building, engineering design, and daily operations of the facility, and [its]
involvement in the design and funding of waste management and disposal systems” were
“sufficient[ly] . . . beyond the norms of parental supervision to establish that Anaconda
was an operator of the facility, thereby rendering [ARCO] directly liable.” (Id. at
p. 1116, italics added.) The case did not distinguish in its analysis between the control of
overall operations that resulted in hazardous waste and the conscious management of
hazardous waste.
The factual complexities of Schiavone are fortunately beyond the scope of our
focus. What is pertinent is the conclusion that there was a complete absence of any
evidence of eccentric control over the operations of the subsidiary. “What is in dispute
is whether this involvement . . . reflects an exercise of control by [the parent] sufficient
to render it directly liable for the environmental harm caused.” (Schiavone, supra, 77
F.Supp.2d at p. 290, italics added.) On summary judgment, the trial court concluded that
the relationship was only oversight typical of a parent corporation: “Th[e] evidence is
insufficient to establish that [the parent] managed . . . operations specifically related to
the pollution at the . . . plant, or had anything to do with the leakage or disposal of
creosote.” (Id. at p. 291, italics added.) Once again, the case is not authority for drawing
a division between eccentric control of operations that result in the discharge of
hazardous waste and the conscious management of hazardous waste.
ARCO cites additional authority in support of the trial court’s interpretation of
Bestfoods. However, Trinity Industries, Inc. v. Greenlease Holding Company (3d Cir.
2018) 903 F.3d 333 states that direct liability arises from the general “ ‘participation in
the activities of the’ ” polluting facility to an eccentric degree. (Id. at p. 363.) Because
the evidence showed the subsidiary’s employees were responsible for waste disposal and
9
the underlying waste-generating activities, the parent corporation was not liable. (Id. at
p. 364.) The case does not single out waste disposal as the sine qua non for liability. As
for Redevelopment Agency of the City of Stockton v. BNSF Railway Company (9th Cir.
2011) 643 F.3d 668, it applies the California law of public nuisance under statutory law
that ARCO itself otherwise contends does not apply to this appeal (fns. 3 and 4, ante) and
therefore does not concern us, as it is focused on whether the defendant “created or
assisted in the creation of the nuisance on the Property by installing and maintaining the
[F]rench drain” or “acted unreasonably as possessors of the Property in failing to
discover and abate the nuisance.” (BNSF Railway, supra, at pp. 671, 673.) Finally, the
purpose of alluding to Control Data Corp v. S.C.S.C. Corp. (8th Cir. 1995) 53 F.3d 930
eludes us. Not only does the case antedate Bestfoods, it asserts as a broad proposition
that a responsible party is one that “releases hazardous materials into the environment”
(id. at p. 936, italics added) without further elaboration on the type of activity having that
result, and found that the defendant was an operator of the facility that “released”
pollution (without specifying the manner), with “authority over . . . delivery, storage,
handling, and transportation of dry-cleaning chemicals.” (Id. at pp. 933, 937.)
In short, we do not find any basis for the trial court’s limitation of Bestfoods to
eccentric control over the disposal of waste, as opposed to eccentric control over the
general operations of a facility that result in the generation of toxic waste. Neither party
contends that the evidence of whether the ARCO predecessors exercised eccentric control
over the operations of the Walker Mine is undisputed such that we could resolve the
question as a matter of law, and ARCO disputes the Water Board’s finding that its
predecessors actively engaged independently in mining at the Walker site. We are
therefore compelled to remand the matter to the trial court for it to make a determination
of ARCO’s liability under the proper standard of eccentric control over any category of
10
mining activity resulting in toxic discharge, including the Water Board’s claim that the
activity itself of disturbing the rock strata can generate toxic waste.
DISPOSITION
The judgment is reversed and the matter remanded for reconsideration of the
record in light of the proper legal standard explained in this opinion. The Water Board
shall recover costs of appeal. (Cal. Rules of Court, rule 8.278(a)(1), (2).)
/S/
BUTZ, Acting P. J.
We concur:
/S/
DUARTE, J.
/S/
RENNER, J.
11
Filed 10/15/19
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Sacramento)
----
ATLANTIC RICHFIELD COMPANY, C086745
Plaintiff and Respondent, (Super. Ct. No.
34201480001875CUWMGDS)
v.
ORDER MODIFYING OPINION
CENTRAL VALLEY REGIONAL WATER AND CERTIFYING OPINION
QUALITY CONTROL BOARD, FOR PUBLICATION
Defendant and Appellant. [NO CHANGE IN JUDGMENT]
APPEAL from a judgment of the Superior Court of Sacramento County,
Michael P. Kenny, Judge. Reversed with directions.
Xavier Becerra, Attorney General, Robert W. Byrne, Assistant Attorney General,
Tracy L. Winsor and Russell B. Hildreth, Deputy Attorneys General, for Defendant and
Appellant.
Farella Braun + Martel, James H. Colopy, Caroline E. Lee, Russell E. Taylor;
Davis Graham & Stubbs and Benjamin B. Strawn for Plaintiff and Respondent.
1
THE COURT:
It is ordered that the opinion filed herein on September 13, 2019, be modified as
follows:
On page 1, the second sentence referencing the “Central Valley Regional Water
Quality Control District” the word “District” should be replaced with the word “Board.”
This modification does not change the judgment.
The opinion in the above-entitled matter was not certified for publication in the
Official Reports. For good cause it now appears that the opinion should be published in
the Official Reports and it is so ordered.
FOR THE COURT:
/s/
Butz, Acting P.J.
/s/
Duarte, J.
/s/
Renner, J.
2