United Artists Theater etc. v. Cal. Regional Wat. Quality etc.

Filed 12/18/19 (unmodified opn. attached)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FIVE
UNITED ARTISTS THEATRE
CIRCUIT, INC.,
Plaintiff and Appellant A152988
v. ORDER MODIFYING OPINION
CALIFORNIA REGIONAL WATER AND DENYING REHEARING
QUALITY CONTROL BOARD, SAN [NO CHANGE IN JUDGMENT]
FRANCISCO REGION,
(Alameda County
Defendant and Appellant; Super. Ct. No. RG16811955)
MOONLITE ASSOCIATES LLC,
Real Party in Interest.
BY THE COURT:
It is ordered that the opinion filed November 27, 2019 be modified as follows:
(1) On page 2, replace the first sentence on the first complete paragraph with the
following:
As to the knowledge component of “permitted,” we adopt a standard that focuses
on the landlord’s awareness of a risk of discharge: a prior owner may be named in
a section 13304 cleanup order upon a showing the owner knew or should have
known that a lessee’s activity created a reasonable possibility of a discharge into
waters of the state of wastes that could create or threaten to create a condition of
pollution or nuisance.
1
(2) On page 2, replace footnote 2 with the following:
Section 13050, subdivision (d), broadly defines “waste” to include “sewage and
any and all other waste substances, liquid, solid, gaseous, or radioactive,
associated with human habitation, or of human or animal origin, or from any
producing, manufacturing, or processing operation. . . .”
(3) On page 2, replace the first sentence and citation in the “Statutory Background”
section with the following:
In 1967, the Legislature created the State Water Resources Control Board (State
Board) within the Resources Agency; the State Board now resides within the
California Environmental Protection Agency. (§ 175; Stats. 1967, ch. 284, § 2.4,
p. 1442, eff. Dec. 1, 1967; Governor’s Reorganization Plan No. 1 of 1991, § 192,
eff. July 17, 1991, 4 Stats.1991; see also Gov’t Code, § 12080 et seq.)
(4) On page 11, at the end of the first sentence of the first complete paragraph, replace
the words “of hazardous waste” with the “into waters of the state of wastes that could
create or threaten to create a condition of pollution or nuisance” so the sentence reads:
Rather than the standard adopted by the trial court or that proposed by the
Regional Board, we conclude a prior owner may be named in a cleanup order as
someone who has “permitted” a discharge if it knew or should have known that a
lessee’s activity presented a reasonable possibility of discharge into waters of the
state of wastes that could create or threaten to create a condition of pollution or
nuisance.
(5) On page 18, delete the word “hazardous” from the sentence “In 1980, the
Legislature enacted Assembly Bill 2700 (AB 2700), which amended provisions of the
Health and Safety Code and the Water Code to expand the authority of the State Director
of Health Services and of regional water quality control boards to address hazardous
waste control and cleanup.”
2
(6) On page 20, delete the word “hazardous” from the sentence “However, a true strict
liability statute would impose liability on an owner whose lessee discharged hazardous
waste into the state’s water supply whether or not the owner knew of the tenant’s
activities.”
(7) On page 20, footnote 17, delete the word “hazardous” from the sentence “In the
present case, UATC does not claim it took any steps to prevent discharges of hazardous
wastes from the dry-cleaning operation, so we have no occasion to consider whether any
such showing could provide a basis to avoid being named in a cleanup order.”
(8) On page 22, replace footnote 18 with the following:
The Regional Board refers to statements in a Department of Justice memorandum
and a Department of Fish and Game bill analysis that support their contention that
section 13304, as amended by AB 2700, imposes strict liability. It unclear
whether it is appropriate for this court to consider those analyses, absent any
indication they were available to the full Legislature. (See Quintano v. Mercury
Casualty Co. (1995) 11 Cal. 4th 1049, 1062; Hutnick, supra, 47 Cal.3d at p. 465,
fn. 7; but see Elsner v. Uveges (2004) 34 Cal. 4th 915, 934, fn. 19 [approving
consideration of enrolled bill reports].) In any event, even if it is appropriate to
consider them, they do not address the meaning of the word “permitted” in section
13304.
(9) On page 29, at the end of the first sentence of the first complete paragraph, replace
the words “hazardous wastes” with “wastes that could create or threaten to create a
condition of pollution or nuisance” so the sentence reads:
Contrary to the Regional Board’s contention that the term “permitted” in section
13304 imposes only the limited burden of showing an owner was aware of the
general activity that resulted in a discharge, Laube supports the position that
before an owner can be said to have “permitted” harm resulting from a lessee’s
conduct, there must be some basis to conclude that the owner was aware or should
3
have been aware of the reasonable possibility that harm would occur—in this case
the discharge of wastes that could create or threaten to create a condition of
pollution or nuisance.
(10) On page 29, footnote 20, delete the word “hazardous” from the sentence “The
section 13304 context differs and supports a construction of ‘permitted’ that permits a
Regional Board to name an owner in a cleanup order where, in the language of Laube, the
owner had ‘the obligation to be diligent’ because it knew or should have known that a
lessee’s activity made the discharge of hazardous wastes ‘reasonably possible.’ ”
(11) On page 30, delete the word “hazardous” from the sentence “To the contrary, the
public has a strong interest in preventing the discharge of hazardous wastes and would
benefit from greater vigilance on the part of property owners.”
(12) On page 31, in the first paragraph replace the sentence “The public has a strong
interest in the cleanup of hazardous wastes and relieving owners of liability shifts the
costs to others or, if there are no solvent other responsible parties, to the public.” with the
following:
The public has a strong interest in waste cleanup and relieving owners of liability
shifts the costs to others or, if there are no solvent other responsible parties, to the
public.
(13) On page 37, delete the word “hazardous” from the sentence “Thus, Stuart can be
read to require a showing that a prior owner or lessor knew or should have known about
the risk of hazardous waste discharge.”
(14) On page 39, replace the first sentence of the first complete paragraph with the
following:
We construe “permitted” in section 13304 to mean that a prior owner may be
named in a cleanup order if it knew or should have known that a lessee’s activity
created a reasonable possibility of discharge into waters of the state of wastes that
could create or threaten to create a condition of pollution or nuisance.
4
(15) On page 39, at the end of the first sentence of the second paragraph in the
“Conclusion” section, replace the words “hazardous wastes” with “wastes that could
create or threaten to create a condition of pollution or nuisance” so the sentence reads:
The Regional Board’s interpretation comes close to writing “permitted” out of the
statute by imposing liability under a cleanup order absent any knowledge, actual
or constructive, that a lessee’s activity created a risk of discharge of wastes that
could create or threaten to create a condition of pollution or nuisance.
(16) On page 40, delete the word “hazardous” from the sentence “Construing section
13304 to authorize regional boards to name such owners in cleanup orders elevates their
interest in mitigating the risk of discharges of hazardous wastes by lessees—and
landowners are in a position to prevent such discharges.”
(17) On page 40, in the last sentence of footnote 28, replace the word “hazardous” with
the word “waste” so the sentence reads:
It is more consistent with the Legislature’s goal of environmental protection to
encourage caution by and impose responsibility on landowners who should know
waste discharges are reasonably possible.
(18) On page 42, footnote 30, delete the word “hazardous” from the sentence
“Arguably, under Ohio v. Kovacs (1985) 469 U.S. 274 and its progeny, the Regional
Board’s Cleanup Order is a claim because it directs an entity no longer in possession of
the subject property to clean-up hazardous waste deposited before the bankruptcy
confirmation date.”
(19) On page 47, in the final paragraph on the page, replace the words “hazardous
waste discharges” with the “discharges of wastes that could create or threaten to create a
condition of pollution or nuisance” so the sentence reads:
The parties are not similarly situated: while it is reasonable to hold a landowner
responsible for what it permits to take place on its property, it is not reasonable to
expect the regional boards to track bankruptcy proceedings involving all
5
landowners who have leased to dry cleaners (and every other business that might
present a risk of discharges of wastes that could create or threaten to create a
condition of pollution or nuisance).
There is no change in the judgment.
Appellant’s petition for rehearing is denied.
Dated: , P.J.
6
Filed 11/27/19 (unmodified version)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FIVE
UNITED ARTISTS THEATRE
CIRCUIT, INC.,
Plaintiff and Appellant,
v. A152988
CALIFORNIA REGIONAL WATER
QUALITY CONTROL BOARD, SAN (Alameda County
FRANCISCO REGION, Super. Ct. No. RG16811955)
Defendant and Appellant;
MOONLITE ASSOCIATES LLC,
Real Party in Interest.
Under Water Code section 13304,1 a prior owner of property may be required to
participate in the cleanup of wastes discharged from its property that resulted in ground
water contamination, if that person “caused or permitted” the discharge. The San
Francisco Bay Regional Water Quality Control Board (Regional Board) named United
Artists Theatre Circuit, Inc. (UATC) in a section 13304 cleanup order addressing waste
discharges from dry cleaning operations at a shopping center owned by UATC in the
1960s and 1970s. UATC filed a petition challenging its inclusion in the order, and the
trial court concluded the Regional Board had erred.
On appeal, both the Regional Board and UATC agree that the word “permitted”
contains a knowledge component, but they disagree on the degree of knowledge required
1
All undesignated statutory references are to the Water Code.
1
to establish a prior owner’s liability for a cleanup resulting from a tenant’s activities.
Furthermore, UATC argues that even if it would otherwise be subject to a cleanup order,
its liability was discharged in a bankruptcy reorganization proceeding commenced in the
year 2000. Each of these matters are issues of first impression in California.
As to the knowledge component of “permitted,” we adopt a standard that focuses
on the landlord’s awareness of a risk of discharge: a prior owner may be named in a
section 13304 cleanup order upon a showing the owner knew or should have known that
a lessee’s activity created a reasonable possibility of a discharge of wastes into waters of
the state that could create or threaten to create a condition of pollution or nuisance
(hereafter “hazardous wastes”).2 This test is informed by the Legislature’s express intent
to “exercise its full power and jurisdiction to protect the quality of waters in the state.” (§
13000.) We further conclude that, even assuming the Regional Board’s entitlement to a
cleanup order was a claim within the meaning of bankruptcy law, it was not discharged in
UATC’s bankruptcy proceeding because it did not arise before confirmation of
reorganization.
BACKGROUND
Statutory Background
In 1967, the Legislature created the State Water Resources Control Board (State
Board) within what was then the Resources Agency and is now the California
Environmental Protection Agency. (§ 175; Stats. 1967, ch. 284, § 2.4, p. 1442, eff. Dec.
1, 1967.) In 1968, the Assembly Committee on Water suggested that the State Board
2
Because section 13304 uses the term “waste,” the waste discharged need not qualify as
a “hazardous substance” as defined in section 13050 in order to be the subject of a section
13304 cleanup order. Section 13050, subdivision (d), broadly defines “waste” to include
“sewage and any and all other waste substances, liquid, solid, gaseous, or radioactive,
associated with human habitation, or of human or animal origin, or from any producing,
manufacturing, or processing operation. . . .” Wastes are “hazardous” as used in this
decision for the purpose of section 13304 where an owner knows or should know that the
wastes can create or threaten to create a condition of pollution or nuisance if discharged
into waters of the state.
2
“establish a task force to develop a comprehensive review of the Water Quality Control
Act . . . .” (Assem. Daily J. (May 13, 1968) pp. 3003–3005.) The State Board responded
by convening a Study Panel that produced in March 1969 a report entitled
“Recommended Changes in Water Quality Control[:] Final Report of the Study Panel to
the California State Water Resources Control Board” (Study Panel Report). 3 The report
explained that the Study Panel was composed of leaders in relevant fields and
representatives of statewide organizations and state agencies “with responsibility or
interest in water quality or water quality control.” (Study Panel Report, at pp. iv–v.)
The Study Panel Report contained an “Appendix A” consisting of “recommended
changes” to several California codes, including the Water Code. (Study Panel Report,
March 1969, Appendix A.) Appendix A also included various explanatory notes with
respect to particular proposed provisions. In 1969, the Legislature adopted the Study
Panel’s recommendations in Assembly Bill 413 (1969 Reg Sess.). (See Stats. 1969, ch.
482, pp. 1045–1088.)4 The changes included replacing Division 7 of the Water Code
with a new Division 7, to be known as the Porter–Cologne Water Quality Control Act
(Porter–Cologne Act). (Stats. 1969, ch. 482, §§ 17–18, pp. 1051–1052, see § 13020.) An
entry in the Assembly Journal makes clear the Legislature’s reliance on the work of the
Study Panel. In particular, the Assembly Committee on Water reported that, “Except for
the comments set out below, the notes contained under the various sections of Assembly
Bill No. 413 as set out in corresponding sections in Appendix A [of the Study Panel
Report] reflect the intent of the Assembly Committee on Water in approving the various
3
We take judicial notice of the Study Panel Report. (Evid. Code, §§ 452, subd. (c), 459;
see also People ex rel. Cal. Regional Wat. Quality Control Bd. v. Barry (1987) 194
Cal. App. 3d 158, 174, fn. 12 (Barry) [taking judicial notice of same report].)
4
Section 36 of the enactment states, “This act is intended to implement the legislative
recommendations of the final report of the State Water Resources Control Board
submitted to the 1969 Regular Session of the Legislature entitled ‘Recommended
Changes in Water Quality Control,’ prepared by the Study Project-Water Quality
Control Program.” (Stats. 1969, ch. 482, p. 1088, § 36; see also Barry, supra, 194
Cal.App.3d at pp. 173–174.)
3
provisions of Assembly Bill No. 413.” (Assembly Journal, May 5, 1969, pp. 2677–
2678.)
The Porter–Cologne Act finds and declares “that the people of the state have a
primary interest in the conservation, control, and utilization of the water resources of the
state, and that the quality of all the waters of the state shall be protected for use and
enjoyment by the people of the state.” (§ 13000.) The Act further declares “that
activities and factors which may affect the quality of the waters of the state shall be
regulated to attain the highest water quality which is reasonable, considering all demands
being made and to be made on those waters and the total values involved, beneficial and
detrimental, economic and social, tangible and intangible.” (Ibid.) Moreover, the Act
declares “that the health, safety and welfare of the people of the state requires that there
be a statewide program for the control of the quality of all the waters of the state; that the
state must be prepared to exercise its full power and jurisdiction to protect the quality of
waters in the state from degradation originating inside or outside the boundaries of the
state . . . and that the statewide program for water quality control can be most effectively
administered regionally, within a framework of statewide coordination and policy.”
(Ibid.; see also City of Burbank v. State Water Res. Control Bd. (2005) 35 Cal. 4th 613,
619 (Burbank); San Diego Gas & Electric Co. v. San Diego Regional Water Quality
Control Bd. (2019) 36 Cal.App.5th 427, 434–435 (San Diego Gas & Electric); Building
Industry Assn. of San Diego County v. State Water Resources Control Bd. (2004) 124
Cal. App. 4th 866, 875 (Bldg. Indus. Assn. of San Diego).)
The Porter–Cologne Act directs the State Board to “formulate and adopt state
policy for water quality control” and identifies and describes nine regional water quality
control boards. (§§ 13140, 13200, 13201.) “[T]ogether the State Board and the regional
boards comprise ‘the principal state agencies with primary responsibility for the
coordination and control of water quality.’ (§ 13001.)” (Burbank, supra, 35 Cal.4th at p.
619.) Among the various powers of the regional boards is the power to issue a waste
4
“cleanup and abatement order.” (§ 13304.) Section 13304, subdivision (a) currently5
provides in part, “A person who has discharged or discharges waste into the waters of this
state in violation of any waste discharge requirement or other order or prohibition issued
by a regional board or the state board, or who has caused or permitted, causes or permits,
or threatens to cause or permit any waste to be discharged or deposited where it is, or
probably will be, discharged into the waters of the state and creates, or threatens to create,
a condition of pollution or nuisance, shall, upon order of the regional board, clean up the
waste or abate the effects of the waste, or, in the case of threatened pollution or nuisance,
take other necessary remedial action, including, but not limited to, overseeing cleanup
and abatement efforts.” A “regional board may expend available moneys to perform any
cleanup, abatement, or remedial work . . . that, in its judgment, is required by the
magnitude of the endeavor or the urgency for prompt action to prevent substantial
pollution, nuisance, or injury to any waters of the state.” (§ 13304, subd. (b)(1).) In that
event, “the person or persons who discharged the waste, discharges the waste, or
threatened to cause or permit the discharge of the waste . . . are liable to that
governmental agency to the extent of the reasonable costs actually incurred in cleaning
up the waste, abating the effects of the waste, supervising cleanup or abatement activities,
or taking other remedial action.” (§ 13304, subd. (c)(1).)
The Porter–Cologne Act authorizes persons aggrieved by actions of a regional
board to “petition the state board to review such action.” (§ 13320, subd. (a); see also
Barry, supra, 194 Cal.App.3d at p. 171.) The State Board’s decision may be reviewed in
the superior court by way of a petition for writ of mandate. (§ 13330.)
The Shopping Center and Dry Cleaner
The Moonlite Shopping Center (the Center) is located on El Camino Real in Santa
Clara, California. The Center has several large tenant spaces and twenty-five smaller
tenant spaces. Saratoga Creek is located to the east of the Center.
5
The relevant changes between the current version of section 13304 and the statute as
enacted in 1969 are addressed later in this decision.
5
UATC (then United California Theaters, Inc.) began construction of the Center in
1960 and it opened in 1962. UATC owned the Center until 1975, and was the master
lessor until 1978. Real party in interest Moonlite Associates, LLC (Moonlite) has owned
the Center since 1977.
For 35 years, from 1962 until 1997, a drycleaner (Moonlite Cleaners) continuously
operated at the Center, under a number of different owners. The dry cleaner used
“transfer” machines that used perchlorethylene (aka “tetrachloroethylene” and “PCE”) as
the cleaning solvent. The machines, which were effectively banned in 1998, required the
manual transfer of clothes soaked with PCE from the washer to the dryer.
PCE
In City of Modesto v. Dow Chemical Co. (2018) 19 Cal.App.5th 130 (Modesto II),6
Division Four of this District described PCE as follows: “PCE, also known as
tetrachloroethylene, is a molecule containing chlorine atoms and carbon atoms. It is also
characterized as a ‘volatile halogenated organic compound,’ a ‘halogenated
hydrocarbon’, a ‘chlorinated solvent’ or a ‘chlorinated hydrocarbon.’ As shorthand, it is
referred to as ‘perc’ or PCE. All chlorinated hydrocarbons, like all solvents other than
water, are ‘toxic.’ In 1978, the National Institute for Occupational Safety Hazards
(NIOSH) recommended that PCE be handled as if it were a human carcinogen. In 1980
the State of California began regulating PCE as a hazardous waste. In 1984, when the
6
Modesto II was preceded by the decision in City of Modesto Redevelopment Agency v.
Superior Court (2004) 119 Cal. App. 4th 28 (Modesto I). (See San Diego Gas & Electric,
supra, 36 Cal.App.5th at pp. 440–441.) In the Modesto cases, the City of Modesto and its
sewer district and redevelopment agency sued various dry cleaning businesses,
manufacturers of dry cleaning equipment, and manufacturers and distributors of dry
cleaning solvent. (Modesto II, supra, 19 Cal.App.5th at p. 135.) The plaintiffs “alleged
that defendants had caused the City’s groundwater, sewer system and easements, and the
soil . . . to become contaminated with [PCE]. . . . Plaintiffs sought recovery for the past,
present and future costs of investigation and remediation of the contamination at
numerous sites under multiple legal theories.” (Ibid.) The quotations from Modesto II
are for background purposes and are not material to the issues on appeal. The
administrative record below contains similar information about PCE, and the parties do
not claim there are any misstatements in the Modesto II decision.
6
Resource Conservation Recovery Administration (RCRA) was reauthorized, its
regulations brought ‘small dry cleaners’ under the same requirements as major hazardous
waste sources, with respect to PCE.” (Modesto II, at p. 137.)
“PCE is a colorless liquid, and is therefore difficult to see once released into soil.
[¶] . . . PCE is particularly ‘persistent’ and ‘long lived’ compared to other contaminants,
making it extremely difficult to accomplish complete remediation.” (Modesto II, supra,
19 Cal.App.5th at p. 137.)
The record indicates that the dangers of dry-cleaning solvents in general, and PCE
in particular, became gradually known during and after UATC’s ownership of the Center.
For example, in 1953, the Supreme Court made reference to a statute addressing “Dry
Cleaning Equipment Employing Volatile and Inflammable Solvents.” (State Bd. of Dry
Cleaners v. Thrift-D-Lux Cleaners (1953) 40 Cal. 2d 436, 440.) A 1961 State Fire
Marshal permit required the dry cleaner at the Center to take certain precautions against
vapors from unidentified dry-cleaning solvents. In 1965 the Legislature set a specific
maximum level for PCE vapor in former Health and Safety Code section 13399.5, above
which would be considered a “ ‘dangerous toxic concentration.’ ” (Stats. 1965, ch. 1781,
§ 13, p. 3974.) In 1975, the City of Santa Clara adopted an ordinance prohibiting the
discharge of a variety of pollutants into the sewer system, including chlorinated
hydrocarbons like PCE. In 1977, the Director of the National Institutes of Health
published in the Federal Register a summary of a study regarding the “possible
carcinogenicity” of PCE. (Report on Bioassay of Tetrachloroethylene for Possible
Carcinogenicity, 42 Fed.Reg. 55270–55271 (Oct. 3, 1977).) In early 1978, the
Environmental Protection Agency (EPA) published a list of toxic pollutants, including
PCE. (Publication of Toxic Pollutant List, 43 Fed.Reg. 4108–4109 (Jan. 25, 1978).) In
1980, the EPA recognized PCE as a potential human carcinogen and adopted water
quality standards for PCE. (Water Quality Criteria Documents, 45 Fed.Reg. 79318,
79340 (Nov. 28, 1980).) Other state and federal legislative and regulatory developments
followed.
7
It is also notable that the 1969 Study Panel Report that resulted in the enactment of
the Porter–Cologne Act recognized the danger of chlorinated hydrocarbons. (Study Panel
Report, at p. 41.) Specifically with reference to pesticides, the Report observed,
“Extensive studies of the use of pesticides, and particularly of the chlorinated
hydrocarbons, have shown alarming residual concentrations in fish and fowl across wide
areas of the earth, as well as here in California. Present accumulations of these toxic,
nondegradable chemicals are causing heavy mortality to some birds and perhaps in fish.
These concentrations do not seem to be dangerous to people in the amounts now found in
California, but there is legitimate concern for the future.” (Ibid.)
Underlying Proceedings
In 2004, Moonlite discovered PCE contamination in groundwater at the Center,
and, in 2009, Moonlite reported the contamination to the Regional Board. Subsequent
testing disclosed high PCE concentrations in soil gas, indoor air, and groundwater.
Regional Board staff commented that the levels “are very significant and warrant
aggressive oversight” and that the indoor air concentrations are “one of the worst we have
seen.”
In June 2013, the Regional Board issued a tentative cleanup and abatement order
naming both Moonlite and UATC. UATC had objected to being named in the order. In
September, following a hearing, the Regional Board issued a section 13304 cleanup and
abatement order (the Cleanup Order) finding, “UATC is named as a discharger because it
owned the Site during the time of the PCE discharges, had knowledge of the activities
that caused the discharge, and had the legal ability to prevent the discharge.”
In February 2016, UATC filed a petition for writ of mandate (Petition) in Santa
Clara County Superior Court, naming the Regional Board, the State Board, Moonlite, and
the City of Santa Clara.7 The case was moved to Alameda County and the parties agreed
7
The Petition stated that UATC had petitioned the State Board for relief from the
Cleanup Order in October 2013. The Petition further stated that the State Board did not
act on UATC’s petition and asserted it was “deemed dismissed by operation of law.”
8
to dismiss the State Board from the case. The Petition alleged four claims. First, UATC
alleged it should not have been named as a discharger for several reasons, including
because the evidence did not show that the contamination occurred while UATC owned
or leased the Center, that UATC had actual or constructive knowledge of any discharge,
or that UATC had legal authority to prevent a discharge. Second, UATC alleged the
Regional Board’s claim was discharged in a Chapter 11 bankruptcy proceeding initiated
by UATC in 2000.8 Third, UATC alleged the Regional Board should have named the
City of Santa Clara as a discharger. And, fourth, UATC alleged it did not receive a fair
hearing.
The trial court sustained the demurrer of the City of Santa Clara to the third cause
of action on the grounds that the Regional Board exercised discretion in deciding whom
to name in the Cleanup Order and that UATC could bring an action against the city for
contribution or indemnification. On September 29, 2017, after briefing on UATC’s
remaining claims, the trial court entered an order granting the Petition. The court rejected
the Regional Board’s definition of “permitted” under which a former landlord who knew
or should have known of the nature of the tenant’s activities may be named in a cleanup
order. The court concluded that, under section 13304, a discharger “must have had
contemporaneous actual or constructive knowledge of either a specific discharge or of a
dangerous condition that poses a reasonable suggestion of a discharge at the site.” The
trial court also concluded that the Regional Board’s cleanup order was not a claim that
could be discharged in UATC’s bankruptcy. On October 25, the court entered judgement
8
The bankruptcy court order confirming UATC’s reorganization provided: “[T]he Plan
shall bind all Holders of Claims and Equity Interests, and all Claims against, and Equity
Interests in, the Debtors and Debtors in Possession shall be satisfied, discharged and
released in full, and the Debtors’ liability with respect thereto shall be extinguished
completely . . . and (iii) all Persons and Entities shall be precluded from asserting against
the Debtors, the Debtors in Possession, the Estates, and the Reorganized Debtors, their
successors and assigns, their assets and properties, any other Claims or Equity Interests
based upon any documents, instruments, or any act or omission, transaction or other
activity of any kind or nature that occurred prior to the Effective Date.” The Petition
alleged the effective date was March 2, 2001.
9
pursuant to the September order, directing the Regional Board to vacate the Cleanup
Order and authorizing further proceedings consistent with the September order construing
section 13304.9
The Regional Board filed an appeal and UATC filed a cross-appeal.
DISCUSSION
I. The Trial Court Erred in Interpreting Section 13304
The trial court’s grant of UATC’s Petition was based on its interpretation of
section 13304, subdivision (a)—in particular, whether UATC could be treated as a person
who “permitted” the PCE discharges at the Center. The trial court concluded such a
finding would require evidence that UATC had “actual or constructive knowledge of
either a specific discharge or of a dangerous condition that poses a reasonable suggestion
of a discharge at the site.” We understand the trial court’s phrase “a dangerous condition
that poses a reasonable suggestion of a discharge at the site” to mean a specific condition
at a site that creates a risk of discharge, as contrasted to a risk of discharge generally
associated with an activity. (See Part I.B., post.) As explained below, although the trial
court properly construed the word “permitted” to require a showing of some knowledge
on the part of UATC beyond a simple awareness that its lessee was a dry cleaner, the trial
court erred in requiring knowledge or constructive knowledge of a specific discharge or
specific dangerous condition. Among other things, the principal case relied upon by the
trial court, Laube v. Stroh (1992) 2 Cal. App. 4th 364 (Laube), involved a very different
context with constitutional and policy considerations not present here.
On the other hand, we also reject the Regional Board’s interpretation of section
13304. The Regional Board’s position is that, in order to be responsible for “permitting”
9
The Regional Board lists a number of other issues that it asserts were raised below but
not addressed by the trial court, including “(1) whether UATC had an adequate remedy
precluding writ review; (2) whether the Regional Board had sufficient evidence to
conclude that discharges of PCE occurred at the site when UATC owned or leased it; (3)
whether UATC had the legal authority to prevent discharges; (4) whether UATC had a
fair hearing; and (5) whether the record should be augmented as requested by UATC.”
10
a discharge, a prior owner need only have knowledge of the general activity of the tenant
that resulted in the discharge. That is, unless a tenant deceives an owner regarding its
activities, if an owner leases to a tenant and a discharge occurs, the owner may be named
in a cleanup order, regardless of what the owner knew or should have known about the
possibility of discharges and the effects on water quality that might result from any
discharges. In the present case, the Regional Board argues it properly found UATC
permitted the discharges at the Center because it “developed property specifically to be
used as a dry cleaner business, and knowingly leased that property for more than two
decades to operators that caused those discharges.” Elsewhere, the Regional Board states
flatly that UATC was properly named in the Cleanup Order because it “leased property to
a dry cleaner whose operations resulted in a discharge.”
Rather than the standard adopted by the trial court or that proposed by the
Regional Board, we conclude a prior owner may be named in a cleanup order as someone
who has “permitted” a discharge if it knew or should have known that a lessee’s activity
presented a reasonable possibility of discharge of hazardous wastes. This standard gives
meaning to the word “permitted” without requiring that a regional board show a degree of
awareness of risk inconsistent with the Legislature’s purpose that the state “exercise its
full power and jurisdiction to protect the quality of waters in the state.” (§ 13000.)10
A. Standard of Review
“A party aggrieved by a final decision of the [State Board] may obtain review of
the decision by filing a timely petition for writ of mandate in the superior court.” (Bldg.
Indus. Assn. of San Diego, supra, 124 Cal.App.4th at p. 879, citing § 13330, subd. (a).)
In the present case, the review is of the Regional Board’s decision because the State
Board did not act on UATC’s petition seeking State Board review.
10
Section 13304, subdivision (a), encompasses past, present, and future discharges, and
thus refers to a person who “has caused or permitted, causes or permits, or threatens to
cause or permit” discharges. Because the present case involves past discharges, the
relevant term is “permitted,” but we see no basis to conclude that “permits” or “permit”
have a different meaning with respect to the knowledge requirement.
11
Under Code of Civil Procedure section 1094.5, “an abuse of discretion” is
established if the Regional Board did not proceed “in the manner required by law” in
adopting the Cleanup Order, or if the Cleanup Order “is not supported by the findings, or
the findings are not supported by the evidence.” (Code Civ. Proc. § 1094.5, subd. (b); see
also § 13330, subd. (e); Fukuda v. City of Angels (1999) 20 Cal. 4th 805, 810 (Fukuda).)
The trial court exercises its “independent judgment” in determining whether the Regional
Board’s findings are supported by the evidence. (§ 13330, subd. (e); Code Civ. Proc.
§ 1094.5, subd. (c).) Nevertheless, the trial court “must afford a strong presumption of
correctness concerning the administrative findings, and the party challenging the
administrative decision bears the burden of convincing the court that the administrative
findings are contrary to the weight of the evidence.” (Fukuda, at p. 817.) “On appeal,
this court ordinarily reviews the record to determine whether the trial court’s findings are
supported by substantial evidence. [Citation.] But where, as here, the determinative
question is one of statutory or regulatory interpretation, an issue of law, we may exercise
our independent judgment.” (Manriquez v. Gourley (2003) 105 Cal. App. 4th 1227, 1233;
see also Coastal Environmental Rights Foundation v. California Regional Water Quality
Control Bd. (2017) 12 Cal.App.5th 178, 190 [“we review [the trial court’s] factual
determinations under the substantial evidence standard and its legal determinations under
the de novo standard”].)
The statutory interpretation principles are well-established. “Our fundamental task
in interpreting a statute is to determine the Legislature’s intent so as to effectuate the
law’s purpose. We first examine the statutory language, giving it a plain and
commonsense meaning. We do not examine that language in isolation, but in the context
of the statutory framework as a whole in order to determine its scope and purpose and to
harmonize the various parts of the enactment. If the language is clear, courts must
generally follow its plain meaning unless a literal interpretation would result in absurd
consequences the Legislature did not intend. If the statutory language permits more than
one reasonable interpretation, courts may consider other aids, such as the statute’s
purpose, legislative history, and public policy.” (Coalition of Concerned Communities,
12
Inc. v. City of Los Angeles (2004) 34 Cal. 4th 733, 737; accord Bruns v. E-Commerce
Exchange, Inc. (2011) 51 Cal. 4th 717, 724.) “ ‘[T]he objective sought to be achieved by
a statute as well as the evil to be prevented is of prime consideration in . . . interpretation,
and where a word of common usage has more than one meaning, the one which will best
attain the purposes of the statute should be adopted . . . .’ ” (People ex rel. San Francisco
Bay Conservation & Development Com. v. Emeryville (1968) 69 Cal. 2d 533, 543–544;
accord San Diego Gas & Electric, supra, 36 Cal.App.5th at p. 434.)
Moreover, “[w]here the meaning and legal effect of a statute is the issue, an
agency’s interpretation is one among several tools available to the court. Depending on
the context, it may be helpful, enlightening, even convincing. It may sometimes be of
little worth. [Citation.] Considered alone and apart from the context and circumstances
that produce them, agency interpretations are not binding or necessarily even
authoritative. . . . ‘The standard for judicial review of agency interpretation of law is the
independent judgment of the court, giving deference to the determination of the agency
appropriate to the circumstances of the agency action.’ ” (Yamaha Corp. of America v.
State Bd. of Equalization (1998) 19 Cal. 4th 1, 7–8.) “Unlike quasi-legislative rules, an
agency’s interpretation does not implicate the exercise of a delegated lawmaking power;
instead, it represents the agency’s view of the statute’s legal meaning and effect,
questions lying within the constitutional domain of the courts. But because the agency
will often be interpreting a statute within its administrative jurisdiction, it may possess
special familiarity with satellite legal and regulatory issues. It is this ‘expertise,’
expressed as an interpretation (whether in a regulation or less formally . . .), that is the
source of the presumptive value of the agency’s views.” (Id. at p. 11.)
Because the Porter–Cologne Act is a law “ ‘providing for the conservation of
natural resources,’ ” it is “ ‘of great remedial and public importance and thus should be
construed liberally’ [citation] so as to promote the general object sought to be
accomplished.” (Coastside Fishing Club v. California Resources Agency (2008) 158
Cal. App. 4th 1183, 1202 (Coastside Fishing Club); see also § 13000 [finding and
declaring “that the people of the state have a primary interest in the conservation, control,
13
and utilization of the water resources of the state”]; Southern California Gas Co. v.
Southern Coast Air Quality Management Dist. (2011) 200 Cal. App. 4th 251, 268 [“Civil
statutes enacted to protect the public are generally broadly or liberally applied in favor of
that protective purpose.”]; U.S. v. HVI Cat Canyon, Inc. (C.D. Cal. 2016) 213 F. Supp. 3d
1249, 1273 [applying rule of liberal construction to Porter–Cologne Act].)
B. The Language of Section 13304 and the Trial Court’s Ruling
As noted previously, the critical issue on appeal as to section 13304, subdivision
(a) is whether UATC can be treated as a person who “caused or permitted . . . any waste
to be discharged or deposited where it is, or probably will be, discharged into the waters
of the state.” The issue turns on the degree of knowledge necessary to hold UATC
responsible under section 13304 as a person who permitted the discharges of PCE that
occurred at the Center.
In its September 2017 order, the trial court concluded the meaning of “permitted”
in section 13304 is ambiguous, and we agree. As the trial court pointed out, the Water
Code does not define “cause” or “permit.” The term “cause” clearly connotes direct
responsibility for a discharge, but the term “permit” encompasses a spectrum of conduct,
from giving formal authorization for a discharge to allowing the activity that caused the
discharge. That is because “permit” is defined as “To allow the occurrence of (an action,
etc.); to allow (something) be carried out or to take place; to give permission or
opportunity for.” (Oxford English Dictionary Online, http://www.oed.com, as of Nov.
21, 2019.) Similarly, the American Heritage Dictionary defines “permit” to include “[t]o
allow the doing of (something),” “[t]o grant consent or leave to (someone),” and “[t]o
afford opportunity or possibility for.” (American Heritage Dictionary Online,
http://ahdictionary.com, as of Nov. 21, 2019.)
The trial court stated it could “discern at least five possible interpretations of
‘permitted’ ” as used in section 13304, subdivision (a), as to “whether there is a
knowledge requirement.” The options identified by the court include: (1) “ ‘Permitted’ is
a strict liability standard with no knowledge requirement;” (2) “ ‘Permitted’ requires that
a landowner know or should have known of the activities at the location that caused the
14
discharge, even if the landowner had no knowledge of any discharge or heightened risk
of discharge;” (3) “ ‘Permitted’ requires that a landowner know or should have known
that the activities at the location are generally known to pose a reasonable suggestion of a
discharge but still allowed the activities;” (4) “ ‘Permitted’ requires that a landowner
know or should have known that the activities at the location specifically pose a
reasonable suggestion of a discharge but still allowed the activities;” and (5)
“ ‘Permitted’ requires that a landowner know or should have known that a specific
activity [at] a location caused a discharge at that specific location, failed to take
corrective action, and still allowed the activities.” We would word the third and fourth
options differently—and we ultimately do word our holding differently in selecting an
interpretation comparable to option three—but the trial court’s list fairly captures the
range of potential interpretations.
The trial court observed that the Regional Board used the second interpretation of
“permitted” in including UATC in the Cleanup Order and that UATC argued for the fifth
standard. The court reviewed the legislative history, past State Board decisions on the
subject, and cases from other contexts, including Laube, supra, 2 Cal. App. 4th 364—a
1992 decision from this court determining when a liquor licensee can be said to have
“permitted” criminality at an establishment. Ultimately, the trial court concluded the
fourth option was the proper interpretation of the statute, albeit with different wording—
asking whether UATC had “actual or constructive knowledge of either a specific
discharge or of a dangerous condition that poses a reasonable suggestion of a discharge at
the site.” The trial court stated it was following Laube in adopting that interpretation,
which closely parallels the definition of “permitted” in Laube (see Part I.D.2, post). As
noted previously, we understand the trial court’s reference to “a dangerous condition that
poses a reasonable suggestion of a discharge at the site” to mean a specific condition at a
site that creates a risk of discharge. This is consistent with the court’s articulation of the
third and fourth options as quoted above, which contrast a risk of discharge generally
associated with an activity with a risk arising from a specific aspect of a lessee’s
operation. We understand the trial court’s reference to activities that “specifically” pose a
15
risk of discharge to refer to the specific conditions at the site, in contrast to activities
“generally” known to present a risk of discharge without reference to the specific
conditions at the site. Further, that understanding is consistent with the cases relied upon
by the court in devising its standard, as explained below (Parts I.D. and I.E., post).
Viewing the facts in light of its test, the trial court summarized information in the
record about UATC’s knowledge of the specific dry cleaning operation at the Center,
including the evidence that UATC obtained a building permit for the dry cleaner in 1961,
was informed in 1962 the dry cleaner had taken occupancy, and was aware of a “Fire
Marshal permit disclosing that the dry cleaner used solvents, that the solvents had to be
processed in approved equipment, and that the solvents had to be transferred only in an
approved piping system.” The court continued, “The Fire [Marshal]’s issuance of a
special permit is evidence that UATC knew that the dry cleaner used solvents and that the
use of solvents is dangerous. It is also arguably evidence that UATC obtained all the
necessary permits and could reasonably conclude that this particular dry cleaner was in
compliance with all existing safety requirements. The issuance of a special permit is not
direct evidence that the activities at this particular dry cleaner posed a reasonable
suggestion of a discharge at the site. [¶] The [Regional Board’s] knowledge finding was
also based on evidence of a ‘historical record’ that ‘shows that UATC should have known
of the use of chemicals at the Site and its dangers, including the potential for
unauthorized discharges. [Citation.] The court cannot locate a relevant ‘historical
record’ in the Administrative Record. . . . Furthermore, general knowledge that dry
cleaners can discharge hazardous chemicals is not direct evidence that the activities at
this particular dry cleaner posed a reasonable suggestion of a discharge at the site.”
The trial court declined to determine whether the evidence supported naming
UATC in the Cleanup Order. Instead, the court stated it would “remand the matter to the
Regional Board for further proceedings under the correct definition of ‘permitted’ in
[section 13304].” The court’s October 2017 judgment states, “After the Regional Board
sets aside and vacates the [Cleanup] Order, the Regional Board may conduct further
proceedings consistent with applicable law, this court’s order dated 9/29/17, and this
16
judgment. The court does not limit or control in any way the discretion legally vested in
the Regional Board. (Code Civ. Proc. § 1094.5(f).)”11
As explained below, although the trial court properly concluded section 13304
requires some evidence of knowledge of the risk of a discharge on the part of a prior
owner named in a cleanup order, the court erred in requiring evidence that the prior
owner knew or should have known of a specific discharge or dangerous condition.
C. The Legislative History
As enacted in 1969, section 13304, subdivision (a) provided in relevant part that,
“Any person who . . . intentionally or negligently causes or permits any waste to be
deposited where it is discharged into the waters of the state and creates a condition of
pollution or nuisance, shall upon order of the regional board clean up such waste or abate
the effects thereof.” (Stats. 1969, ch. 482, § 18, p. 1066.) It appears that wording was
derived from former section 151 of the Harbors and Navigation Code, which was enacted
in 1968 to provide, in relevant part, “any person that intentionally or negligently causes
or permits any oil to be deposited in the water of this state, including but not limited to
navigable waters, shall be liable civilly in an amount not exceeding six thousand dollars
($6,000) and, in addition, shall be liable to any governmental agency charged with the
responsibility for cleaning up or abating any such oil for all actual damages, in addition to
the reasonable costs actually incurred in abating or cleaning up the oil deposit in such
waters.” (Stats. 1968, ch. 1259, § 1, pp. 2377–2378.)12
In 1970, section 13304, subdivision (a) was amended to include situations where
waste “probably will be” deposited or “discharged” and “threatens to create” a nuisance.
11
Thus, contrary to an assertion by UATC’s counsel at oral argument, the trial court did
not make findings regarding what knowledge UATC had or should have had regarding
the risk of PCE discharges.
12
Section 151 of the Harbors and Navigation Code is referenced in the Study Panel
Report that led to the enactment of section 13304. (Study Panel Report, Appendix A, at
p. 113.)
17
(Stats. 1970, ch. 918, § 5.3, p. 1669.) In 1971, section 13304 was further amended, but
not in any relevant respects. (Stats. 1971, ch. 1288, § 11, pp. 2525–2526.)
Thus, before 1980, section 13304, subdivision (a) provided, in relevant part, that
“Any person who . . . intentionally or negligently causes or permits any waste to be
discharged or deposited where it is, or probably will be, discharged into the waters of the
state and creates, or threatens to create, a condition of pollution or nuisance, shall upon
order of the regional board clean up such waste or abate the effects thereof or, in the case
of threatened pollution or nuisance, take other necessary remedial action.” (Former
§ 13304, subd. (a).) In 1980, the Legislature enacted Assembly Bill 2700 (AB 2700),
which amended provisions of the Health and Safety Code and the Water Code to expand
the authority of the State Director of Health Services and of regional water quality control
boards to address hazardous waste control and cleanup. (Stats. 1980, ch. 808, pp. 2537–
2540.) As to section 13304, the relevant language was changed to read, “A person who
. . . has caused or permitted, causes or permits, or threatens to cause or permit any waste
to be discharged or deposited where it is, or probably will be, discharged into the waters
of the state and creates, or threatens to create, a condition of pollution or nuisance, shall,
upon order of the regional board, clean up the waste or abate the effects thereof, or, in the
case of threatened pollution or nuisance, take other necessary remedial action.” (Stats.
1980, ch. 808, § 3, p. 2538; see also San Diego Gas & Electric, supra, 36 Cal.App.5th at
p. 435.)
As to the 1980 changes to the Water Code, the Legislative Counsel’s Digest to AB
2700 explained, “Existing law . . . authorizes a regional water quality control board to
order cleanup of waste which creates or threatens to create a condition of pollution or
nuisance, as specified, or to expend available moneys to take remedial action and recover
reasonable costs actually incurred in such remedial action. [¶] This bill would,
additionally, authorize a regional water quality control board to order cleanup or remedial
action for past discharge or deposit of waste, as specified.” (See Van Horn v. Watson
(2008) 45 Cal. 4th 322, 332, fn. 11 [“Although the Legislative Counsel’s summary digests
are not binding, they are entitled to great weight.”].) That summary focuses on the
18
expansion of authority to include past discharges, but the actual amendment did not only
add language to the statute encompassing those discharges. In addition, the Legislature
struck out the language limiting those subject to cleanup and abatement orders to those
who “intentionally or negligently” cause or permit waste discharges. (Stats. 1980,
ch. 808, § 3, p. 2358.) Under the AB 2700 changes, all persons who cause or permit,
past, present, or threatened discharges may be named in a cleanup order; the statute does
not expressly require a showing of intentional or negligent conduct with respect to the
discharge.13
Below, we briefly address the parties’ arguments about the legislative history to
the 1980 legislation, AB 2700. However, the most critical language—the phrase “causes
or permits”—was actually included in section 13304 when it was enacted in 1969,
apparently based on use of the phrase in section 151 of the Harbors and Navigation
Code.14 As explained previously, the 1969 enactment was based upon the work of a State
Board Study Panel. We have reviewed the Study Panel Report; the legislative history to
the 1969 enactment of section 13304; the legislative history to the 1970, 1971, and 1980
amendments to section 13304; and the legislative history to section 151 of the Harbors
and Navigation Code. None of those materials offer any insight regarding the meaning of
the term “permit” as used in section 13304.
1. The Regional Board’s Argument that AB 2700 Converted Section
13304 Into a Strict Liability Statute
The Regional Board argues that, in amending section 13304 in 1980, the
Legislature intended to impose strict liability on prior owners for discharges by lessees
13
AB 2700 also added language presently in section 13304, subdivision (j), providing,
“This section does not impose any new liability for acts occurring before January 1, 1981,
if the acts were not in violation of existing laws or regulations at the time they occurred.”
UATC does not argue that provision precludes its liability under the Cleanup Order.
14
In People ex rel. Younger v. Superior Court (1976) 16 Cal. 3d 30, 42, the California
Supreme Court observed that section 151 of the Harbors and Navigation Code is not a
strict liability statute because it requires a showing that oil deposits were intentional or
negligent, but the court did not address the meaning of the term “permits.”
19
because the Legislature removed from the statute a requirement to show persons named
in a cleanup order for permitting a discharge acted “intentionally or negligently.”15
However, a true strict liability statute would impose liability on an owner whose lessee
discharged hazardous waste into the state’s water supply whether or not the owner knew
of the tenant’s activities.16 The Regional Board does not construe the statute in that
manner. Instead, it recognizes that the term “permitted” requires some knowledge by the
owner of the lessee’s activities. The Regional Board’s strict liability position is properly
understood as an argument that “permitted” should be interpreted broadly, imposing only
a limited knowledge requirement—once an owner has the requisite knowledge, no steps
taken in response will protect it from liability. As the Regional Board states in its reply
brief, “a person can have knowledge, and act either intentionally, negligently, or without
fault . . . The question remains what the term ‘permit’ means . . . and what kind of
knowledge that might require.”17
2. The State Board’s Statement of Purpose and The Ways and Means
Staff Analysis
The legislative history shows the State Board requested the amendments to section
13304 enacted in AB 2700, emphasizing the need for clearer authority with respect to
15
At least one treatise supports the Regional Board’s interpretation, commenting that
“the position of the regional boards appears justified by the history of the section. . . .
The deletion of [‘intentionally or negligently’] strongly suggests that the state legislature
intended to impose strict liability.” (11 Miller & Starr, California Real Estate, § 39:57,
fn. 5 (4th ed. 2017); see also San Diego Gas & Electric, supra, 36 Cal.App.5th at p. 435.)
16
In fact, such a statute might well hold an owner liable for the acts of an unknown
trespasser. (See Leslie Salt Co. v. San Francisco Bay Conservation etc. Com. (1984) 153
Cal. App. 3d 605, 621 (Leslie Salt).)
17
“Permitted” may also require evidence of how a prior owner responded once it became
aware of the risk of harm. Phrased differently, may we conclude a party “permitted” a
discharge if it took all reasonable steps to prevent its occurrence? In the present case,
UATC does not claim it took any steps to prevent discharges of hazardous wastes from
the dry-cleaning operation, so we have no occasion to consider whether any such
showing could provide a basis to avoid being named in a cleanup order. The only issue
in the present appeal is the extent of the knowledge of the possibility of a discharge
required by the term “permitted” in section 13304.
20
past discharges. For example, the State Board’s “Request for Approval of Proposed
Legislation” identified as the problem to be remedied the circumstance that the Porter-
Cologne Act “address[es] only present or threatened future discharges.” The “Proposed
Solution” was an amendment to section 13304, subdivision (a) “to expressly provide for
issuance of cleanup and abatement orders for past and threatened future discharges
[which would] eliminate potential challenges to Regional Board authority to respond to
this type of occurrence by administrative order.”
The only legislative committee analysis that makes any reference to omission of
“intentionally or negligently” from section 13304 is the Ways and Means Committee
staff analysis. That analysis is an important part of the legislative history. As the
California Supreme Court explained, “it is well established that reports of legislative
committees and commissions are part of a statute’s legislative history and may be
considered when the meaning of a statute is uncertain” because “it is reasonable to infer
that those who actually voted on the proposed measure read and considered the materials
presented in explanation of it, and that the materials therefore provide some explanation
of how the measure was understood at the time by those who voted to enact it.” (Hutnick
v. U.S. Fidelity & Guaranty Co. (1988) 47 Cal. 3d 456, 465, fn. 7 (Hutnick); accord
People v. Johnson (2015) 60 Cal. 4th 966, 999.)
The Ways and Means Committee analysis states that AB 2700 “Authorizes the
regional quality control board to order cleanups and remedial action for past or threatened
future discharge of waste.” (Assem. Com. on Ways and Means, Analysis of Assem. Bill
2700 (1980 Reg. Sess.), as amended April 15, 1980.) The analysis describes in detail the
amendments to the Health and Safety Code and then briefly addresses the amendments to
the Water Code, stating “This bill would allow the regional boards to order cleanups for
past or threatened future discharges of waste. In addition, it would allow the board to
recover reasonable cleanup costs from responsible parties without having to prove
negligence.”
21
The legislative history to AB 2700 contains no other materials that are relevant to
determining the meaning of “permitted” as used in section 13304.18
3. Conclusions Regarding Legislative History
As summarized above, the legislative history to AB 2700 contains little direct
guidance regarding the meaning of “permitted” in section 13304. It does, however,
generally reflect an intent to expand the ability of regional boards to name prior owners
in cleanup orders. As the Fourth District recently observed in San Diego Gas & Electric,
supra, 36 Cal.App.5th at page 435, “changes made to the statute’s language over time
evince a legislative intent to expand the regional boards’ ability to name responsible
persons. For example, cleanup or abatement orders may be issued to past, present, and
future dischargers of waste; the boards need not prove a person’s intent in discharging
waste (the words ‘intentionally or negligently’ were deleted by the 1980 amendment);
and the Legislature empowered regional boards to issue orders to prevent and/or correct
threatened harm, that is, when waste has not yet even reached the state’s waters.”
The parties particularly focus on the Legislature’s elimination of the phrase
“intentionally or negligently” from section 13304. On appeal, UATC suggests this court
should decline to give significance to AB 2700’s elimination of the requirement of
showing negligence, given that it is not explained in the legislative history. The trial
court agreed, observing that the history did not address whether “the [L]egislature deleted
the phrase ‘intentionally or negligently’ because it was inconsistent with the additional
authority for ‘threatened’ discharges, to create strict liability, to eliminate redundancy
because it was duplicative when placed before ‘cause or permit’ . . . or something else.”
18
The Regional Board refers to statements in a Department of Justice memorandum and a
Department of Fish and Game bill analysis that support their contention that section
13304, as amended by AB 2700, imposes strict liability. It unclear whether it is
appropriate for this court to consider those analyses, absent any indication they were
available to the full Legislature. (See Quintano v. Mercury Casualty Co. (1995) 11
Cal. 4th 1049, 1062; Hutnick, supra, 47 Cal.3d at p. 465, fn. 7.) In any event, even if it
were appropriate to consider them, they do not address the meaning of the word
“permitted” in section 13304.
22
Like the trial court, UATC cites to the California Supreme Court’s decision in Jones v.
Lodge at Torrey Pines Partnership (2008) 42 Cal. 4th 1158 (Jones), in which the question
was, in the employment context, “whether personal liability exists where the statute
prohibits retaliation by ‘any employer, labor organization, employment agency, or
person.’ ” (Id. at p. 1163.) The court concluded the Legislature did not intend to impose
personal liability and stated that “the absence of legislative history, behind the inclusion
of the word ‘person’ ” supported its conclusion. (Id. at p. 1169.) The court observed it is
“ ‘highly unlikely that the Legislature would make such a significant change in the
potential liability of individuals without so much as a passing reference to what it was
doing.’ ” (Id. at p. 1171, brackets in quotation omitted.)
The Jones decision is distinguishable. The addition of the word “person” was one
among several changes. (Jones, supra, 42 Cal. 4th 1158 at p. 1169.) The Legislative
Counsel’s Digest described certain of the amendments but did not refer to the section at
issue in the case; “[i]nstead, it said only, ‘The bill would, in addition, make various
technical and conforming changes to the act.’ ” (Ibid.) The Supreme Court therefore
interpreted the addition of the word as a technical change to “conform[] to the use of the
word in describing some of the unlawful employment practices the retaliation provision
references.” (Id. at p. 1170.) A bill analysis from the department that prepared the
legislation described it as “ ‘a technical clean-up bill to clarify various sections . . . and
make standards . . . more consistent between subsections.’ ” (Jones, at p. 1170.) In
contrast, although the legislative history is largely silent regarding the elimination of the
requirement to show intent or negligence, the bill itself was described as substantive and
important to waste cleanup in the state. Furthermore, the significance of eliminating the
phrase “intentionally or negligently” would have been obvious to any legislator, as those
are well-recognized, meaningful concepts. Deletion of the phrase at issue is not the kind
of change we can treat as non-substantive, or one a legislator would have been likely to
overlook.
Accordingly, we decline UATC’s suggestion to treat the amendments as lacking
any substantive effect. (See People v. Dillon (1983) 34 Cal. 3d 441, 467 [“ ‘It is
23
ordinarily to be presumed that the Legislature by deleting an express provision of a
statute intended a substantial change in the law.’ ”].) Further, we agree with the Regional
Board to the extent it argues that the elimination of the phrase “intentionally or
negligently” in 1980 favors a broader interpretation of the term “permitted.” This
provides additional support for our decision to construe “permitted” more broadly than
did the trial court.
D. Other Authority Regarding the Meaning of the Term “Permitted”
1. Section 13305
Before turning to caselaw related to the term “permit,” we observe that section
13305, also enacted in 1969 by Assembly Bill No. 413 (Stats. 1969, ch. 482, § 18, pp.
1067–1068) upon recommendation of the Study Panel Report (Study Panel Report,
Appendix A at pp. 68–70, 118-119), provides support for this court’s conclusion that
“permit” in section 13304 requires a showing of an awareness of a risk of discharge
before a prior owner may be named in a cleanup order.
Section 13305 provides that property owners are broadly responsible for the cost
of cleanups associated with “nonoperating industrial or business location(s).” (§ 13305,
subd. (a).) Thus, under section 13305, subdivision (a), “[u]pon determining that a
condition of pollution or nuisance exists that has resulted from a nonoperating industrial
or business location within its region, a regional board may cause notice of the condition
to be posted upon the property in question. The notice shall state that the condition
constitutes either a condition of pollution or nuisance that is required to be abated by
correction of the condition, or a condition that will be corrected by the city, county, other
public agency, or regional board at the property owner’s expense.” Upon complying with
the notice requirements and considering any timely objections, and following the failure
of local governmental entities to perform cleanup, “the regional board shall cause the
condition to be abated.” (§ 13305, subd. (e)(2).)
Critically, section 13305, subdivision (f) provides, “The owner of the property on
which the condition exists, or is created, is liable for all reasonable costs incurred by the
regional board or any city, county, or public agency in abating the condition. The amount
24
of the cost for abating the condition upon the property in question constitutes a lien upon
the property so posted upon the recordation of a notice of lien.” (Emphasis added.)
Accordingly, in the section 13305 context, a property owner may be held responsible for
cleanup costs without any showing that the owner caused or permitted the discharges.
Thus, at the same time the Legislature enacted section 13304 requiring a showing
that a person caused or permitted a discharge to hold them responsible for cleanup, the
Legislature also enacted section 13305 holding a current property owner responsible for
cleanup associated with a nonoperating business without any showing that the owner
caused or permitted the discharges that created the condition of pollution or nuisance.19
If this court were to adopt the Regional Board’s proffered interpretation of section
13304—holding a past owner responsible for all discharges from activities the owner
knew about—it would come very close to the liability provided for in section 13305,
despite the absence of the cause or permit language in that section. Accordingly,
although section 13305 does not define “permit” as used in section 13304, it does offer
strong support for our conclusion that the Legislature intended that the term provide some
limitation on the scope of an owner’s liability for a tenant’s discharges beyond mere
knowledge of the nature of tenant’s business. (See Ivory Education Institute v. Dept. of
Fish & Wildlife (2018) 28 Cal.App.5th 975, 983 [“Statutes should be interpreted with
reference to the whole system of law of which they are a part, and sections relating to the
same subject must be read together and harmonized.”].) We do not believe the Regional
Board’s definition, which essentially exempts property owners from liability only where
19
The scope of application of section 13305 is not entirely clear. Section 13305,
subdivision (h) provides, “As used in this section, the words ‘nonoperating’ or ‘not in
operation’ mean the business is not conducting routine operations usually associated with
that kind of business.” The one published case that addresses section 13305 in any
detail—Barry, supra, 194 Cal. App. 3d 158—involved a non-operational copper mine, but
the language of section 13305 is not limited to any particular type of business. (See also
Stats. 1969, ch. 482, § 33, p. 1088 [Assembly Bill No. 413 statement of intent regarding
section 13305].)
25
they were deceived as to a tenant’s activities, provides any meaningful limitation on
liability.
We next turn our attention to pertinent caselaw for guidance in defining
“permitted.”
2. Cases in the Porter–Cologne Act Context
Cases in the Porter–Cologne Act context provide little guidance regarding the
meaning of the term “permitted.”
In Modesto I, supra, 119 Cal. App. 4th 28, the court of appeal considered whether
manufacturers of dry-cleaning equipment, and manufacturers and distributors of dry-
cleaning solvent “cause[d] wastes to be discharged or deposited” within the meaning of
section 13304. (Modesto I, at p. 35.) The court of appeal observed that the statute did
not make clear whether “cause” referred to “a party who was directly involved with a
discharge, to anyone whose actions were a substantial factor in causing the discharge, or
even . . . to anyone who places a hazardous substance into the chain of commerce.” (Id.
at p. 37.) Turning to nuisance law for guidance (see Part I.E., post), the court rejected the
defendants’ contention that “only those who are physically engaged in a discharge or
have the ability to control waste disposal activities” can be held liable for the nuisance
the discharge creates. (Id. at p. 41.) The court concluded that, “construing . . . section
13304, subdivision (a) ‘in light of the common law principles bearing upon [nuisance]’
[citation], we conclude that those who took affirmative steps directed toward the
improper discharge of solvent wastes—for instance, by manufacturing a system designed
to dispose of wastes improperly or by instructing users of its products to dispose of
wastes improperly—may be liable under that statute, but those who merely placed
solvents in the stream of commerce without warning adequately of the dangers of
improper disposal are not liable under that section of the Porter–Cologne Act.”
(Modesto I, at p. 43.)
The Modesto I decision thoughtfully applied section 13304 to the novel claims
before the court, but it focused on the meaning of the term “cause” and did not attempt to
define the independent term “permit.” (Modesto I, supra, 119 Cal.App.4th at pp. 36–37.)
26
The court did not consider under what circumstances an owner could be held responsible
for a tenant’s discharges under section 13304, characterizing its conclusion as “that the
Legislature did not intend the act to impose liability on those with no ownership or
control over the property or the discharge, and whose involvement in a discharge was
remote and passive.” (Id. at p. 43; see also San Diego Gas & Electric, supra, 36
Cal.App.5th at p. 442 [“The Modesto opinions discuss the issue of causation in the
context of whether defendants who had no physical control over the discharged waste . . .
could be found a ‘cause’ of the discharge based on the equipment they designed or
instructions they gave.”].)
The decision in TWC Storage, LLC v. State Water Resources Control Bd. (2010)
185 Cal. App. 4th 291, also provides little guidance regarding the meaning of “permit.”
There, a landowner challenged a $25,000 fine imposed by a regional board due to a
chemical spill (also PCE) on the owner’s property that resulted in groundwater
contamination. The spill occurred due to an error by someone working for a contractor
hired by the owner to perform demolition. (Id. at p. 293.) The fine was imposed in part
under section 13350, subdivision (b)(1), which provides for civil liability for “Any person
who, without regard to intent or negligence, causes or permits any hazardous substance
to be discharged in or on any of the waters of the state . . . .” (TWC Storage, at p. 295.)
The court of appeal concluded there was sufficient evidence the landowner “ ‘cause[d] or
permit[ted]’ the discharge to occur by engaging contractors to perform the demolition
activity that resulted in the discharge.” (Id. at p. 298.) TWC Storage is distinguishable
from the present case because the landowner there actually contracted for the work that
resulted in the discharge.
Finally, in San Diego Gas & Electric, supra, 36 Cal.App.5th 427, a power plant
operator that had discharged waste into San Diego Bay contended it could not be named
in a section 13304 cleanup order absent proof of causation under the common law
“substantial factor” test. (San Diego Gas & Electric, at p. 431.) The court of appeal
rejected that contention, in light of the Legislature’s intent “to expand the regional
boards’ ability to name responsible persons” (id. at p. 435) and caselaw from the nuisance
27
context enjoining dischargers even where there were other contributors to the pollution
(id. at pp. 436–439). The San Diego Gas & Electric decision is fully consistent with the
present decision, but it provides no direct guidance regarding the meaning of the term
“permit” because in that case it was “undisputed on appeal that [the company] directly
discharged and thus ‘caused or permitted’ waste to enter the Bay.” (Id. at p. 431.)
3. The Decision in Laube v. Stroh
As noted previously, the trial court followed a 1992 decision of this court, Laube,
supra, 2 Cal. App. 4th 364, in adopting its definition of “permitted,” requiring the
Regional Board to show that UATC had “actual or constructive knowledge of either a
specific discharge or of a dangerous condition that poses a reasonable suggestion of a
discharge at the site.” As explained below, Laube did not interpret a statute using the
term “permitted,” and the definition of “permitted” employed in Laube was due to
constitutional and policy considerations not present in the section 13304 context.
In Laube, supra, 2 Cal. App. 4th 364, this court considered the propriety of
suspending or revoking liquor licenses “because [the licensees] allegedly ‘permitted’
drug sales in their establishments,” despite the fact that “[n]either licensee knew or had
reason to know of the drug trafficking.” (Id. at p. 366.) The case did not involve a
statute that employed the term “permitted;” the revocation was under a provision
authorizing action “When the continuance of a license would be contrary to public
welfare or morals.” (Bus. & Prof. Code, § 24200, subd. (a).) Laube rejected imposition
of “strict liability on [every] licensee, even those running upscale establishments without
a hint of suspicion of illicit conduct on their premises, simply because a drug transaction
occurs.” (Laube, at p. 377.) The decision reasoned that “[t]he concept that one may
permit something of which he or she is unaware does not withstand analysis.” (Id. at p.
373.) Laube held that “a licensee must have knowledge, either actual or constructive,
before he or she can be found to have ‘permitted’ unacceptable conduct on a licensed
premises.” (Id. at p. 377.; see also Morillion v. Royal Packing Co. (2000) 22 Cal. 4th 575,
585 [an employer “suffers or permits” an employee to work within the meaning of
overtime laws where the “employer knows or has reason to believe that [the employee] is
28
continuing to work.”]; United States v. Launder (9th Cir. 1984) 743 F.2d 686, 689 [in the
context of a statute regarding out of control forest fires, stating, “[t]he legal terms
‘permitting’ and ‘suffering’ clearly require a willful act or a willful failure to act in the
face of a clear opportunity to do so”].)
Contrary to the Regional Board’s contention that the term “permitted” in section
13304 imposes only the limited burden of showing an owner was aware of the general
activity that resulted in a discharge, Laube supports the position that before an owner can
be said to have “permitted” harm resulting from a lessee’s conduct, there must be some
basis to conclude that the owner was aware or should have been aware of the reasonable
possibility that harm would occur—in this case the discharge of hazardous wastes. On
the other hand, we disagree with the trial court’s conclusion that the precise definition of
“permit” employed in Laube applies in the section 13304 context.20
Laube required specific knowledge of the prohibited activity, but that court’s
analysis makes it clear that different statutory and regulatory schemes call for different
standards of knowledge. In requiring a strenuous showing of knowledge to support a
finding that an owner permitted illegal activity, Laube relied upon the fact that “liquor
licensees . . . enjoy a constitutional standard of good cause before their license—and
quite likely their livelihood—may be infringed by the state.” (Laube, supra, 2
Cal.App.4th at p. 377.) That is, the court in Laube was determining what circumstances
constitute good cause for action against a licensee, and the court therefore adopted a
definition of “permitted” that only held licensees responsible for criminality in their
20
We observe that the Laube court recognized a licensee has “the obligation to be
diligent in anticipation of reasonably possible unlawful activity.” (Laube, supra, 2
Cal.App.4th at p. 379.) However, because of special considerations in the context of the
case, the court concluded a licensee could only be held responsible for unlawful activity
it actually knew about. The section 13304 context differs and supports a construction of
“permitted” that permits a Regional Board to name an owner in a cleanup order where, in
the language of Laube, the owner had “the obligation to be diligent” because it knew or
should have known that a lessee’s activity made the discharge of hazardous wastes
“reasonably possible.” (Laube, at p. 379.)
29
establishments where they acted in a blameworthy manner. Furthermore, the Laube court
was also concerned that holding licensees broadly responsible for criminality in their
establishments, without any prior awareness of illegal behavior, would lead owners to
implement “severe surveillance regime[s].” (Id. at pp. 378–379.) Thus, Laube observed
that the Alcoholic Beverage Control Appeals Board “would impose an Orwellian regime
of surveillance, polygraph testing and undercover spying in an establishment of
impeccable morals or of the finest nouvelle cuisine.” (Id. at p. 378.)
In contrast, in the present case this court is interpreting “permitted” as used in
section 13304, not a “good cause” provision that arguably requires heightened
blameworthiness as a predicate for liability. Furthermore, where in Laube the court
emphasized the potential negative consequences to the public that could result from
excessive vigilance on the part of licensees, UATC has identified no similar negative
consequences from such vigilance in the section 13304 context. To the contrary, the
public has a strong interest in preventing the discharge of hazardous wastes and would
benefit from greater vigilance on the part of property owners. In enacting the Porter–
Cologne Act, the Legislature found and declared “that the people of the state have a
primary interest in the conservation, control, and utilization of the water resources of the
state, and . . . [¶] . . . [¶] . . . the state must be prepared to exercise its full power and
jurisdiction to protect the quality of waters in the state from degradation originating
inside or outside the boundaries of the state . . .” (§ 13000.) We liberally construe
section 13304, including the word “permit,” to accomplish that objective. (Coastside
Fishing Club, supra, 158 Cal.App.4th at p. 1202.)21
21
UATC’s other cases are also distinguishable. Morillion cites only cases interpreting
the equivalent phrase (“suffer and permit”) in other employment cases; it does not
purport to define “permit” for all purposes. (Morillion v. Royal Packing Co., supra, 22
Cal.4th at pp. 584–585.) And, as the Regional Board points out, the relevance of
Launder is undermined by that decision’s reliance on the principle that “courts should
construe statutes so as to impose strict criminal liability only when Congress clearly
expresses its intent that such a standard prevail.” (United States v. Launder, supra, 743
F.2d at p. 690.)
30
In the section 13304 context, an owner cannot be said to permit a discharge simply
by allowing a lessee to operate a certain type of business, absent knowledge or
constructive knowledge that, in general, the business creates a reasonable possibility of
discharge. But if an owner, who necessarily profits from the activities of its lessees,
knows or should know of such a risk and chooses to lease to an operator of that type of
business, the owner may properly be held responsible for any discharges that occur.22
The public has a strong interest in the cleanup of hazardous wastes and relieving owners
of liability shifts the costs to others or, if there are no solvent other responsible parties, to
the public. To accept the trial court’s reasoning and require actual or constructive
knowledge of an actual discharge or specific dangerous conditions in a lessee’s operation
would excuse the owner from any obligation to mitigate the risk of discharge by, for
example, supervising the lessee’s activities or imposing contractual requirements on the
lessee with respect to any discharge. The trial court’s standard also encourages owners to
remain ignorant about tenants’ specific activities, which decreases their opportunities to
prevent discharges. We believe the standard we adopt is the proper construction of
“permit” in the context of section 13304.
E. Nuisance Law
UATC argues interpreting section 13304 to require knowledge of a discharge
before naming a prior owner is “consistent with the law of nuisance.” UATC points out
that section 13304, subdivision (a) references “nuisance,” authorizing a cleanup order as
to waste that “creates, or threatens to create, a condition of pollution or nuisance.”
(Italics added.) UATC further points out that, based on that reference and the definition
of nuisance in section 13050, subdivision (m), the court in Modesto I, supra, 119
Cal.App.4th at p. 38, concluded, “the Legislature not only did not intend to depart from
22
Again, we need not and do not decide whether an owner could avoid liability under a
cleanup order by showing it took reasonable steps to avoid a discharge. (See Part I.C.1,
ante.)
31
the law of nuisance, but also explicitly relied on it in the Porter–Cologne Act.”
(Modesto I, at p. 38.)
As explained above, in Modesto I, supra, 119 Cal. App. 4th 28, the court of appeal
considered when manufacturers and distributors of dry-cleaning equipment and solvent
can be held responsible as persons who “cause[d] wastes to be discharged or deposited”
within the meaning of section 13304. (Modesto I, at p. 35.) The court relied on nuisance
law to resolve that question, stating that the Porter–Cologne Act “appears to be
harmonious with the common law of nuisance.” (Modesto I, at p. 37.)
UATC argues that, under Modesto I, this court should construe section 13304 to
impose no greater liability on a landowner than would be imposed under the common law
of nuisance. However, UATC points to no definition of “permitted” in nuisance law.
Instead, UATC cites to Resolution Trust Corp. v. Rossmoor Corp. (1995) 34 Cal. App. 4th
93 (Rossmoor), for the proposition that landowners can only be held liable for a tenant’s
nuisance if the owner knows of the condition. In that case, the plaintiff sued the owner of
a neighboring parcel for “nuisance, trespass, and negligence” due to gasoline
contamination from a gas station operated on the defendant’s parcel. (Id. at pp. 98–99.)
The court of appeal agreed the fuel leaks constituted a continuing nuisance, and the court
held “[t]he defendant [landlord] must be aware of the specific dangerous condition and be
able to do something about it before liability will attach.” (Id. at p. 102.) The court
reasoned that “modern cases on landlord liability for hazards created by a tenant have
turned on negligence based on knowledge, or at least a reason to know, of the hazard.”
(Id. at p. 100, fn. 6; see also id. at p. 100 [noting that “when the nuisance is created by
another[, s]ome form of negligence by the landowner is required”].) Accordingly,
Rossmoor stands for the proposition that a landlord can be held liable for a tenant’s
nuisance upon a showing of negligence. (See also Lussier v. San Lorenzo Valley Water
Dist. (1988) 206 Cal. App. 3d 92, 104 [“proof of negligence may be essential to a claim of
nuisance where the alleged nuisance involves a failure to act”].)
In Rossmoor, the landlord’s potential liability turned on whether it acted
negligently, not on whether the landlord “permitted” the discharges resulting in the
32
nuisance. (Rossmoor, supra, 34 Cal.App.4th at pp. 100–101.) Therefore, the Rossmoor
court had no occasion to define “permit,” and it offers no direct guidance regarding the
meaning of the term in section 13304.23 Furthermore, in Rossmoor a regional water
board had issued a cleanup order against the landowner, presumably under section 13304,
based on a finding that the landowner “caused or permitted” the discharge. (Rossmoor, at
p. 105.) The court of appeal observed that the regional board “did not purport to find or
adjudicate whether the defendants had a duty to prohibit the leakage from reaching [the
plaintiff’s] property in the first place.” (Ibid.) Thus, in that case the landowner was
subject to a section 13304 cleanup order, but the owner was not held liable for the
neighbor’s damages from the nuisance. Our construction of section 13304 is consistent
with that result, while the trial court’s interpretation would be inconsistent with that
result—an owner that had sufficient knowledge to satisfy the trial court’s standard would
also have sufficient awareness of risk to give rise to a duty of care in the nuisance
context.
Finally, adopting a negligence test for “permitted” seems clearly inconsistent with
the Legislature’s 1980 amendment deleting “negligently” from section 13304.
F. The Relevant State Board Decisions Are Inconsistent but Support a Limited
Showing of Awareness of Risk of Discharge
The Regional Board argues that its interpretation of section 13304 is supported by
a number of State Board administrative decisions reviewing regional board actions.
Although we believe the decisions are due less deference than the Regional Board
contends, it ultimately makes no difference because the decisions fail to disclose a
consistent interpretation of “permitted” in section 13304. The decisions do, however,
support a conclusion that section 13304 requires some meaningful showing of awareness
of the risk of discharge to justify naming a prior owner in a cleanup order.
1. The State Board Decisions Are Due Only Limited Deference
23
Neither does the other case UATC cites, Reinhard v. Lawrence Warehouse Co. (1940)
41 Cal. App. 2d 741, 746, define “permit” or “permitted” in the nuisance context.
33
The Regional Board argues that this court “must defer” to the State Board’s
decisions “unless the interpretation flies in the face of the clear language and purpose of
the interpreted provision.” (Communities for a Better Environment v. State Water
Resources Control Bd. (2003) 109 Cal. App. 4th 1089, 1104 (Communities).) But, as the
California Supreme Court explained in Yamaha, supra, 19 Cal. 4th 1, “there are two
categories of administrative rules and . . . the distinction between them derives from their
different sources and ultimately from the constitutional doctrine of the separation of
powers. One kind—quasi-legislative rules—represents an authentic form of substantive
lawmaking: Within its jurisdiction, the agency has been delegated the Legislature’s
lawmaking power. [Citations.] Because agencies granted such substantive rulemaking
power are truly ‘making law,’ their quasi-legislative rules have the dignity of statutes.
When a court assesses the validity of such rules, the scope of its review is narrow. If
satisfied that the rule in question lay within the lawmaking authority delegated by the
Legislature, and that it is reasonably necessary to implement the purpose of the statute,
judicial review is at an end.” (Id. at pp. 10–11.) The court continued, “It is the other
class of administrative rules, those interpreting a statute, that is at issue in this case.
Unlike quasi-legislative rules, an agency’s interpretation does not implicate the exercise
of a delegated lawmaking power; instead, it represents the agency’s view of the statute’s
legal meaning and effect, questions lying within the constitutional domain of the courts.
But because the agency will often be interpreting a statute within its administrative
jurisdiction, it may possess special familiarity with satellite legal and regulatory issues. It
is this ‘expertise,’ expressed as an interpretation . . . that is the source of the presumptive
value of the agency’s views. An important corollary of agency interpretations, however,
is their diminished power to bind. Because an interpretation is an agency’s legal opinion,
however ‘expert,’ rather than the exercise of a delegated legislative power to make law, it
commands a commensurably lesser degree of judicial deference.” (Id. at p. 11.)
Review of quasi-legislative rules is limited “ ‘to a determination whether the
agency’s action is arbitrary, capricious, lacking in evidentiary support, or contrary to
procedures provided by law,’ ” but when an agency construes a statute, courts take
34
“ultimate responsibility for the construction of the statute” while according “great weight
and respect to the administrative construction.” (Yamaha, supra, 19 Cal.4th at p. 12.)
Because the State Board decisions involve the agency’s interpretations of section 13304
rather than quasi-legislative rulemaking, we apply the lesser level of deference described
in the Yamaha decision. Under Yamaha, the precise “ ‘weight’ [an agency interpretation]
should be given” is “fundamentally situational.” (Ibid.) The Supreme Court outlined a
number of factors, but the most important in the present case is whether “the agency ‘has
consistently maintained the interpretation in question.’ ” (Id., at p. 13.) “ ‘[A] vacillating
position . . . is entitled to no deference.’ ” (Ibid.)
If taken literally and applied in circumstances like those in the present case, the
rule articulated in Communities, supra, 109 Cal.App.4th at p. 1104—requiring deference
unless the agency “interpretation flies in the face of the clear language and purpose of the
interpreted provision”—would almost always require deference to any agency
interpretation of an ambiguous statute. That would be is inconsistent with this court’s
“ultimate responsibility for the construction of the statute.” (Yamaha, supra, 19 Cal.4th
at p. 12.) To the extent Communities is inconsistent with Yamaha, we of course follow
the California Supreme Court.24
2. The State Board Decisions Do Not Reflect a Consistent Rule
24
Communities and most of the other cases cited by the Regional Board involved the
issuance of permits and regulations. (Communities, at p. 1091 [review of discharge
permit]; Divers’ Environmental Conservation Organization v. State Water Resources
Control Bd. (2006) 145 Cal. App. 4th 246, 250 [same]; Mendoza v. Town of Ross (2005)
128 Cal. App. 4th 625, 632 [involving “regulations enacted by the Department of Fair
Employment and Housing”]; but see Arnold v. California Exposition & State Fair (2004)
125 Cal. App. 4th 498, 507 [deferring under Communities standard to Department of
General Services determination that a contract did not legally required competitive
bidding].) It is beyond the scope of this decision to opine whether those cases involved
quasi-legislative rulemaking within the meaning of Yamaha. In another case, Bernard v.
City of Oakland (2012) 202 Cal. App. 4th 1553, CalPERS’ interpretation of a new statute
was due deference as a contemporaneous administrative interpretation, which principle is
not applicable in the present case. (Id. at p. 1565.)
35
In any event, even if we were required to give great deference to a State Board
interpretation reflected in its decisions, we would be unable to do so in the present case
because the decisions cited by the Regional Board do not reflect a consistent
interpretation of section 13304 as to the knowledge required to hold a former owner
liable for permitting a discharge.
In the most recent decision cited by the Regional Board on the issue, In re
Wenwest, Inc. (Order No. WQ 92-13, Oct. 22, 1992) 1992 Cal. ENV LEXIS 19
(Cal.St.Wat.Res.Bd.), the State Board considered whether it was proper for a number of
parties that had some connection to the site of a former gasoline service station to be
named in a cleanup order, including the owner of the site during the period of operation
of the station (Phillips Petroleum Company), the current owners of the site, and a past
owner who did not own the property while it was a service station (Wendy’s
International). (Id. at pp. *1–2.) The State Board concluded it was proper to name the
current owners, who had “the obligation to prevent an ongoing discharge caused by the
movement of the pollutants on their property, even if they had nothing whatever to do
with putting it there.” (Id. at p. *6.) On the other hand, it was not proper to name
Wendy’s International because the corporation was “a former landowner who had no part
in the activity which resulted in the discharge of the waste and whose ownership interest
did not cover the time during which that activity was taking place.” (Ibid.)
As to Phillips Petroleum Company, the State Board stated, “Under precedent
established by this Board (see Petition of John Stuart[ (Order No. WQ 86-15, Sept. 18,
1986) 1986 Cal. ENV LEXIS 17 (Cal.St.Wat.Res.Bd.)]), we apply a three-part test to
former owners: (1) did they have a significant ownership interest in the property at the
time of the discharge?; (2) did they have knowledge of the activities which resulted in the
discharge?; and (3) did they have the legal ability to prevent the discharge?” (Wenwest,
Inc., supra, 1992 Cal. ENV Lexis 19 at p. *5.) Although the decision does not tie that
test to the language of section 13304, the test is apparently an interpretation of the
“caused or permitted” standard. The State Board concluded the regional board “properly
included Phillips Petroleum whose predecessor owned the property and leased it to a
36
service station operator during a time when leaks from the underground storage tanks
were clearly taking place.” (Wenwest, at p. *11.)
The decision in Wenwest supports the Regional Board’s position in the present
case, because the decision imposed liability on a prior owner based on evidence of
knowledge of the general activity alone. We disagree with the trial court’s view that the
State Board concluded Wendy’s International was not liable because it lacked actual or
constructive knowledge of the risk of discharges. Wenwest is clear that it did not impose
liability on Wendy’s International because it “never owned [the site] during the time the
tanks were actually leaking.”
Although Wenwest supports the Regional Board’s position, prior State Board
decisions do not. The decision in Petition of John Stuart, supra, 1986 Cal. ENV Lexis
17, is cited as the basis for the rule articulated in Wenwest, although Stuart does not
purport to articulate a “knowledge of the activities” test. (Wenwest, Inc., supra, 1992
Cal. ENV Lexis 19 at p. *5.) Stuart, involving a lessee named in a cleanup order arising
from a sublessee’s gasoline station discharges, appears to express two different views on
the knowledge required. In footnote two, the decision asserts, “The legislative intent to
provide strict liability in this section is clear, since the statute was amended in 1980 to
remove the requirement that intention or negligence be present where the discharge does
not violate a Regional Board order or prohibition.” (Petition of John Stuart, supra, 1986
Cal. ENV Lexis 17 at p. *7, fn. 2.) On the other hand, the decision also states, “Actual
knowledge of the contamination need not be shown where it is reasonable for a person to
be aware of the dangers generally inherent in the activity. In [Petition of Harold and
Joyce Logsdon (Order No. WQ 84–6, July 19, 1984) 1984 Cal. ENV LEXIS 14
(Cal.St.Wat.Res.Bd.)] we examined factors involving general knowledge of the operation
and normal dangers common to it and found that one who should have known is in the
same position as one who did know.” (Petition of John Stuart, supra, 1986 Cal. ENV
Lexis 17 at p. *9, fn. 3.) Thus, Stuart can be read to require a showing that a prior owner
or lessor knew or should have known about the risk of hazardous waste discharge.
37
In In re San Diego Unified Port District (Order No. WQ 89-12, Aug. 17, 1989)
1989 Cal. ENV LEXIS 14 (Cal.St.Wat.Res.Bd.), the State Board concluded a port district
permitted discharge from a copper ore operation where the record showed “that the Port
District knew of the potential for discharge of copper ore to San Diego Bay from [the
lessee’s] activities.” (Id. at p. *8.) Without acknowledging the difference, the decision
also articulated two other standards of knowledge. First, the decision asserted, “This
Board has consistently taken the position that a landowner who has knowledge of the
activity taking place and has the ability to control the activity has ‘permitted’ the
discharge within the meaning of Section 13304.” (San Diego Unified Port District, at p.
8.) Second, in a footnote the State Board referenced past decisions and asserted, “In each
case, the landowner did not take an active role in the discharge but, in each case, the
landowner was in a position to prevent the discharge and knew or should have known
that the discharge was taking place.” (Id. at p. 8, fn. 3.) Thus, the stated basis for the San
Diego Unified Port District decision is knowledge of a risk of discharge, but the decision
also references tests based on knowledge of activities and based on knowledge of actual
discharges.
Finally, in Petition of Harold and Joyce Logsdon, supra, 1984 Cal. ENV LEXIS
14, the State Board concluded it was proper to name in a cleanup order individuals who
were the prior owners of property where a wood treating and preserving facility operated.
The decision concluded the owners had permitted discharges at the site within the
meaning of section 13304 where they “either had or should have had knowledge of
discharges at the site. Given the hazardous nature of the waste, such discharges can be
presumed dangerous.”25 (Logsdon, at p. *17.)
In sum, close examination of the State Board decisions cited by the Regional
Board demonstrates that the State Board has not taken a consistent position on the type of
25
Another decision cited by UATC, In re Zoecon Corp. (Order No. WQ 86-2, Feb. 20,
1986) 1986 Cal. ENV LEXIS 4 (Cal.St.Wat.Res.Bd.), is inapposite because it does not
discuss section 13304.
38
knowledge required to hold an owner liable in a cleanup order for discharges by a lessee.
The Regional Board argues that the Wenwest decision supersedes any prior decisions.
While that may be the case with respect to decision making within the State Board and
regional boards, the Regional Board cites no authority that the most recent agency
interpretation is the only relevant one for the purpose of determining deference under
Yamaha, supra, 19 Cal. 4th 1.26 Thus, due to their inconsistency, we give the State Board
decisions little weight in construing section 13304. (Yamaha, at p. 13.) Nevertheless, the
decisions on the whole appear to recognize awareness of at least a risk of discharge is an
appropriate predicate to naming a landowner in a cleanup order.
G. Conclusion
We construe “permitted” in section 13304 to mean that a prior owner may be
named in a cleanup order if it knew or should have known that a lessee’s activity created
a reasonable possibility of discharge of hazardous wastes, meaning wastes an owner
knew or should have known could create or threaten to create a condition of pollution or
nuisance if discharged into waters of the state. We do not address the question whether
subsequent steps taken by such an owner to prevent discharges may preclude being
named in a cleanup order.27
The Regional Board’s interpretation comes close to writing “permitted” out of the
statute by imposing liability under a cleanup order absent any knowledge, actual or
constructive, that a lessee’s activity created a risk of discharge of hazardous wastes. Such
26
Given the inconsistencies in the State Board’s decisions, we also decline to give
significant weight to other agency materials highlighted by the Regional Board and
UATC, including 1987 and 1992 State Board counsel memoranda and Regional Board
orders in eight previous cases. Furthermore, we deny the Regional Board’s October 24,
2018 request for judicial notice of a 1996 State Board order.
27
As noted earlier in this decision, the State Board’s most recent decisions also inquire
whether the owner had “the legal ability to prevent the discharge.” (Wenwest, Inc.,
supra, 1992 Cal. ENV Lexis 19 at p. *5.) On that issue, the trial court held “as a matter
of statutory interpretation that ‘permits’ . . . has a control component” and observed
“[t]he parties agree on this legal issue.” We do not address the issue, which is not raised
in the briefs on appeal.
39
a construction of section 13304 would impose liability almost as broad as that imposed in
section 13305 on a current property owner with respect to a cleanup associated with a
nonoperating businesses, even though section 13305 does not require a showing that an
owner caused or permitted the discharges that created the condition of pollution or
nuisance. Furthermore, the State Board’s decisions, on the whole, recognize the
importance of at least awareness of that risk in imposing liability. On the other hand, the
trial court’s standard requires regional boards to make an excessively rigorous showing of
knowledge before naming a prior owner in a cleanup order. The court directly
incorporated the definition of “permitted” employed in the Laube decision, but that case
concerned a very different context in which the public interest had to be balanced against
the constitutional rights of licensees and where mandating vigilance on the part of
licensees risked serious adverse effects on the public from a “severe surveillance
regime.” (Laube, supra, 2 Cal.App.4th at p. 379.)
UATC argues it cannot be said to have permitted waste to be discharged if it did
not have knowledge of the discharge. But the term “permitted” is expansive enough to
encompass a situation where a landlord let a discharge occur by allowing an activity to
take place, where the landlord knew or should have known the general activity created a
reasonable possibility of discharge.28 Construing section 13304 to authorize regional
boards to name such owners in cleanup orders elevates their interest in mitigating the risk
28
At oral argument, UATC’s counsel appeared to suggest that, if we rejected UATC’s
position, our test should reference a “reasonable probability” of discharge rather than a
“reasonable possibility” of discharge. Counsel pointed out that section 13304,
subdivision (e) defines “threaten” as a “condition creating a substantial probability of
harm, when the probability and potential extent of harm make it reasonably necessary to
take immediate action to prevent, reduce, or mitigate damages to persons, property, or
natural resources.” (Italics added.) However, that relates to a regional board’s authority
to impose a cleanup order as to a threatened discharge, not the meaning of “permitted.” It
is more consistent with the Legislature’s goal of environmental protection to encourage
caution by and impose responsibility on landowners who should know hazardous
discharges are reasonably possible. (See Respect Life South San Francisco v. City of
South San Francisco (2017) 15 Cal.App.5th 449, 456 [“reasonable possibility” standard
in California Environmental Quality Act unusual circumstances exception].)
40
of discharges of hazardous wastes by lessees—and landowners are in a position to
prevent such discharges. (See Leslie Salt, supra, 153 Cal.App.3d at p. 617 [“a narrow
rendition of [appellant’s] authority ascribes no significance to a landowner’s ability to
prevent the placement of fill on his land by others and, if adopted by the courts, would
diminish the incentive for landowners to manage their properties so as to reduce the
prospect of illegal fill, a result that is also clearly repugnant to the legislative purpose”].)
Our construction of section 13304 also increases the likelihood that persons who profit
from discharges (directly or indirectly) will bear the cleanup costs. Accordingly, our
decision furthers the purposes of the Porter–Cologne Act, consistent with our obligation
to liberally construe section 13304 to accomplish the legislative ends. (Coastside Fishing
Club, supra, 158 Cal.App.4th at p. 1202.)29
We will remand and direct the trial court to conduct further proceedings consistent
with this decision, which may include directing the Regional Board to apply section
13304 as construed herein and determination of the other remaining issues (see fn. 9,
ante), as the court deems appropriate after hearing from the parties.
II. The Regional Board’s Claim Was Not Discharged in UATC’s Bankruptcy
UATC contends in the alternative that, even if the Cleanup Order was authorized
by section 13304, the Regional Board’s right to impose the order is a claim that was
released in UATC’s Chapter 11 bankruptcy. (See Johnson v. Home State Bank (1991)
501 U.S. 78, 85, fn. 5 [“a discharge under the [Bankruptcy Code] extinguishes the
debtor’s personal liability on his creditor’s claims”].) The 2001 bankruptcy confirmation
order stated that “all Persons and Entities shall be precluded from asserting against the
Debtors . . . any other Claims or Equity Interests based upon any documents, instruments,
or any act or omission, transaction or other activity of any kind or nature that occurred
29
UATC argues, “UATC’s lease of the Site ended in 1978, at a time when subsurface
investigations were uncommon and the risk of groundwater contamination from PCE
discharged from drycleaning operations was unknown, even among environmental
regulators in California.” That is a contested factual issue that the trial court left to the
Regional Board to address in the first instance on remand; we do the same.
41
prior to the Effective Date.” The Regional Board does not dispute UATC’s allegation the
effective date is March 2, 2001. The trial court rejected UATC’s bankruptcy argument
with little analysis, stating that “[a]n administrative order to clean up a hazardous waste
site is not a ‘claim’ that is discharged in bankruptcy.”
UATC’s contention presents two separate issues. The first is whether the
Regional Board’s entitlement to a cleanup order is a “claim” within the meaning of the
Bankruptcy Code. The second issue is whether the claim arose before the bankruptcy
confirmation date, such that the Regional Board forfeited the claim by failing to file in
the bankruptcy proceeding. We need not and do not address the first issue because we
conclude UATC’s argument fails under the second issue.30 In particular, assuming that
the cleanup order is a “claim,” the claim did not arise before the bankruptcy confirmation
date because it was not within the fair contemplation of the parties at that time.
“[T]he confirmation of a plan of reorganization ‘discharges the debtor from any
debt that arose before the date of such confirmation’ ”, so “the determination when a
claim arises” is critical to determining if it has been discharged. (In re Grossman’s Inc.
(3d Cir. 2010) 607 F.3d 114, 122; see also Flores v. Kmart Corp. (2012) 202 Cal. App. 4th
1316, 1327 [“Once a reorganization plan is confirmed, all of the debtor’s debts that arose
before the confirmation date are discharged.”].)31
30
The first issue presents a difficult question “at the intersection of bankruptcy law and
environmental law.” (In re Chateaugay Corp. (2d Cir. 1991) 944 F.2d 997, 999
(Chateaugay). Arguably, under Ohio v. Kovacs (1985) 469 U.S. 274 and its progeny, the
Regional Board’s Cleanup Order is a claim because it directs an entity no longer in
possession of the subject property to clean-up hazardous waste deposited before the
bankruptcy confirmation date. (See In re CMC Heartland Partners (7th Cir. 1992) 966
F.2d 1143, 1146 [“[t]o the extent [CERCLA] require[s] a person to pay money today
because of acts before or during the reorganization proceedings, [the statute] creates a
‘claim’ in bankruptcy”].) However, not all the post-Kovacs decisions can be reconciled
to that rule and it is unnecessary to resolve the issue to decide the present appeal.
31
“[T]he determination when a claim arises has significant due process implications. If
potential future tort claimants have not filed claims because they are unaware of their
injuries, they might challenge the effectiveness of any purported notice of the claims bar
42
The Bankruptcy Code itself does not address when claims can be said to arise such
that they are subject to discharge. We follow the Ninth Circuit’s decision in In re Jensen
(9th Cir. 1993) 995 F.2d 925, 927 (Jensen), which thoughtfully considered the issue in
order to “reconcile[]” the “conflicting objectives.” (Id. at p. 928.) In particular,
environmental cleanup laws “seek ‘to protect public health and the environment by
facilitating the cleanup of environmental contamination and imposing costs on the parties
responsible for the pollution,’ ” while federal bankruptcy law “is ‘designed to give a
debtor a “fresh start” by discharging as many of its “debts” as possible.’ ” (Id. at pp.
927–928.)
Jensen rejected the approach of courts that had concluded that “each element of a
. . . claim must be established, including the incurrence of response costs, before a
dischargeable claim arises.” (Jensen, supra, 995 F.2d at p. 928.) Jensen reasoned that
“[t]o hold that a claim for contribution arises only when there is an enforceable right to
payment appears to ignore the breadth of the statutory definition of ‘claim.’ ” (Id. at p.
929; see also Matter of Chicago, Milwaukee, St. Paul & Pac. R. (7th Cir. 1992) 974 F.2d
775, 786 (Chicago, Milwaukee).) Jensen also rejected the approach for which UATC
advocates on appeal, in which “the bankruptcy claim arises at the time of the debtor’s
conduct relating to the contamination.” (Jensen, at p. 929.) Jensen observed that “
‘nothing in the legislative history or the Code suggests that Congress intended to
discharge a creditor’s rights before the creditor knew or should have known that its rights
existed.’ ” (Id. at p. 930; see also Chicago, Milwaukee, at p. 784.)
The Jensen court also rejected a “relationship” test articulated in Chateaugay,
supra, 944 F.2d 997. There, the debtor filed a schedule of liabilities with its Chapter 11
date. Discharge of such claims without providing adequate notice raises questions under
the Fourteenth Amendment.” (In re Grossman’s Inc., supra, 607 F.3d at p. 122; see also
In re Savage Industries, Inc. (1st Cir. 1994) 43 F.3d 714, 720–721; In re Hexcel Corp.
(N.D. Cal. 1999) 239 B.R. 564, 566–572.) We observe that UATC does not cite to any
evidence it provided effective notice to the Regional Board regarding the 1991
bankruptcy proceeding.
43
bankruptcy petition including a list of “contingent” claims held by the EPA and state
enforcement officers. (Chateaugay, at p. 999.) Although the EPA did not know which
sites would require cleanup, it was thus provided an opportunity to file a proof of claim.
(Ibid.) Because the EPA was “acutely aware” of the debtor, it was fair to treat all claims
based on “pre-petition releases or threatened releases of hazardous substances” as
dischargeable contingent claims. (Id. at p. 1005.) The court stated, “The relationship
between environmental regulating agencies and those subject to regulation provides
sufficient ‘contemplation’ of contingencies to bring most ultimately maturing payment
obligations based on pre-petition conduct within the definition of ‘claims.’ ” (Ibid.) The
Jensen court rejected Chateaugay’s “ ‘relationship’ approach,” because it “adopts ‘so
broad a definition of claim so as to encompass costs that could not “fairly” have been
contemplated by the EPA or the debtor pre-petition.’ ” (Jensen, supra, 995 F.2d at p.
931, quoting In re National Gypsum Co. (Bankr. N.D.Tex.1992) 139 B.R. 397, 407
(National Gypsum).) As the bankruptcy court pointed out in National Gypsum, “[t]he
only meaningful distinction that can be made regarding CERCLA claims in bankruptcy is
one that distinguishes between costs associated with pre-petition conduct resulting in a
release or threat of release that could have been ‘fairly’ contemplated by the parties; and
those that could not have been ‘fairly’ contemplated by the parties.” (National Gypsum,
at pp. 407–408.)32
Instead of those tests or other variants, Jensen followed National Gypsum in
adopting, at least in the context of environmental cleanup claims, “[w]hat might be called
the ‘fair contemplation’ test [that] provides that ‘all future response and natural resource
damages cost[s] based on pre-petition conduct that can be fairly contemplated by the
parties at the time of [d]ebtors’ bankruptcy are claims under the [Bankruptcy] Code.’ ”
(Jensen, supra, 995 F.2d at p. 930, quoting National Gypsum, supra, 139 B.R. at p. 409.)
32
Notably, UATC’s argument regarding the date the Regional Board’s claim arose lacks
merit even under Chateaugay, because UATC fails to point to any evidence of a
relationship between UATC and the Regional Board prior to bankruptcy comparable to
the relationship between the EPA and the debtor in Chateaugay.
44
“[I]ndicia of fair contemplation” include knowledge of a site where a release occurred or
was threatened to occur, “ ‘commencement of investigation and cleanup activities, and
incurrence of response costs.’ ” (Ibid.) The test is “ ‘not meant to encourage or permit
dilatory tactics on the part of . . . any . . . relevant government agency.’ ” (Ibid.)
In Jensen, the debtors’ lumber business filed a Chapter 11 bankruptcy petition in
December 1983 and in January 1984 an inspector from a regional water quality control
board visited the inactive lumberyard and “observed a fungicide dip tank.” (Jensen,
supra, 995 F.2d at p. 931.) That board notified the debtors of the issue in February 1984,
stating in a letter “that any release of the solution ‘through accident or vandalism . . . .
would probably cause a major fish kill in the South Fork Trinity River and could possibly
affect the health of downstream water users.’ ” (Id. at p. 926.) The debtors’ attorney
informed the regional board that the debtor’s business was likely to go into Chapter 7
bankruptcy. (Ibid.) In March, the debtors filed a Chapter 7 personal bankruptcy petition
and the lumber business’ Chapter 11 proceeding was converted into a Chapter 7
liquidation. (Ibid.) That same month the regional board “brought the California DHS in
to assist in removing the fungicide,” and in May “a California DHS waste management
specialist supervised the removal of the solution . . . [and] noticed spillage inside the
building housing the tank, and evidence of leakage on the river side of the building. He
took soil samples, which revealed varying concentrations of PCP contamination . . . .”
(Id. at pp. 926–927.) The debtors’ bankruptcy case was closed in 1985, apparently
without any claim being filed by the State of California. (Id. at p. 927.) Eventually, the
California DHS performed cleanup and sought a contribution from the debtors. (Ibid.)
The debtors argued the claim was discharged in bankruptcy, and the Ninth Circuit agreed.
(Id. at pp. 927, 931.) The court reasoned that the regional board’s letter demonstrated it
“knew of the serious environmental hazard that existed at the site.” (Id. at p. 931.) The
court concluded the claim arose before the filing of the bankruptcy petition under the fair
contemplation test, reasoning, “[the regional board] and California DHS are agencies of
the same state, involved generally in many of the same capacities. . . . We will impute
the [the regional board’s] knowledge to California DHS. We conclude that the state had
45
sufficient knowledge of the Jensens’ potential liability to give rise to a contingent claim
for cleanup costs before the Jensens filed their personal bankruptcy petition on February
13, 1984. The claim filed by California DHS against the Jensens therefore was
discharged in the Jensens’ bankruptcy.” (Ibid.)
Jensen described the fair contemplation test as “kindred” (Jensen, supra, 995 F.2d
at p. 930) to the approach adopted by the Seventh Circuit in Chicago, Milwaukee, supra,
974 F.2d 775. There, the State of Washington knew of a spill of hazardous materials at a
site formerly owned by the debtor in a bankruptcy reorganization and took soil samples
and conducted tests concerning the possible contamination, but the state failed to file
proof of its claim in the bankruptcy proceeding. (Chicago, Milwaukee, at p. 778.) The
Seventh Circuit articulated the issue in the case as, “at what point does a party have a
CERCLA claim for purposes of bankruptcy so that the failure to raise the claim before
bankruptcy bar dates forever bars the claim from being brought against the successors to
a reorganized company?” (Chicago, Milwaukee, at p. 779.) The court held that, “when a
potential CERCLA claimant can tie the bankruptcy debtor to a known release of a
hazardous substance which this potential claimant knows will lead to CERCLA response
costs, and when this potential claimant has, in fact, conducted tests with regard to this
contamination problem, then this potential claimant has, at least, a contingent CERCLA
claim . . . .” (Id., at p. 786; see also id., at p. 787.)
We follow the approach of the Jensen and Chicago, Milwaukee courts regarding
when a dischargeable claim can be said to arise. On that point we agree with the
reasoning of the federal district court in Signature Combs, Inc. v. United States (W.D.
Tenn. 2003) 253 F. Supp. 2d 1028, 1038: “After reviewing the above theories, the Court
finds the fair contemplation standard to be the appropriate standard to apply in the case at
bar. It is the only test which tries to accommodate both the fresh start goal of bankruptcy
and the speedy cleanup and polluter accountability CERCLA goals. Moreover, unlike
other standards, the fair contemplation approach does not violate Fifth Amendment and
Bankruptcy Code notice requirements because creditors must be aware of potential
claims against debtors before such claims can be discharged.” (See also ibid. [“Courts
46
and commentators have offered little criticism for the fair contemplation approach.”];
Flores v. Kmart Corp., supra, 202 Cal.App.4th at pp. 1327–1328 [describing various
tests but declining to select among them].)
Under the fair contemplation test “a claim arises when a claimant can fairly or
reasonably contemplate the claim’s existence even if a cause of action has not yet accrued
under nonbankruptcy law.” (In re SNTL Corp. (9th Cir. 2009) 571 F.3d 826, 839.)
UATC argues the Regional Board’s claim arose before the bankruptcy proceeding
because “the Regional Board fairly could have contemplated well before UATC’s 2001
bankruptcy that it had a claim against the former owner of a property where a drycleaner
had operated since the 1960s.” The main thrust of UATC’s argument on appeal is that if
it can be held liable under section 13304 for permitting dry cleaning activities on its
property simply because it knew of the activities (or knew or should have known of a
reasonable risk of discharge from those activities), then the Regional Board’s claim arose
whenever it knew or should have known of those same activities (or the risk therefrom).
UATC points out it was a matter of public record that UATC owned the Center for a
lengthy period and that a dry cleaner operated there. It also argues the Regional Board
knew by the 1980s of the risk of PCE discharges into groundwater. UATC asserts, “The
Regional Board cannot have it both ways: it cannot assert that a movie theater company
should have known that drycleaners always cause contamination, while simultaneously
arguing that a state environmental agency could not have known the very same thing.”
UATC’s argument fails. The parties are not similarly situated: while it is
reasonable to hold a landowner responsible for what it permits to take place on its
property, it is not reasonable to expect the regional boards to track bankruptcy
proceedings involving all landowners who have leased to dry cleaners (and every other
business that might present a risk of hazardous waste discharges). Moreover, UATC’s
argument is based on a fundamental misconception that the “fair contemplation” test in
the bankruptcy context must mirror the definition of “permitted” in section 13304 with
respect to the knowledge required. The statutory schemes have different purposes that
justify different standards. Although knowledge or constructive knowledge that its
47
lessees’ dry-cleaning activities created a reasonable possibility of discharge would be
sufficient to hold UATC liable under section 13304 for the reasons explained in Part I,
such knowledge would not be enough to establish that the Regional Board should have
contemplated it would have a cleanup claim at the Center, among the vast number of sites
where dry cleaners have operated.
UATC cites no cases that find fair contemplation of the existence of a claim in
circumstances anywhere close to those in the present case. Instead, in all the cases it
cites, the claimant had specific reason to be on notice of the possibility of pollution by the
debtor or at a specific site. As noted previously, in Jensen, the Water Board had been in
communication with the debtors about the threat of discharge at the site prior to the filing
of the bankruptcy petition. (Jensen, supra, 995 F.2d at p. 926.) In the Chicago,
Milwaukee case, the State of Washington knew of a spill of hazardous materials at the
site and had conducted tests concerning the possible contamination prior to the bar date
for filing claims. (Chicago, Milwaukee, supra, 974 F.2d at pp. 777–778.) In another case
involving the same railroad, a subsequent owner of the site was found to have “sufficient
knowledge of its potential liability under CERCLA to require it to file a proof of claim.”
(Matter of Chicago, Milwaukee, St. Paul & Pac. R. Co. (7th Cir. 1993) 3 F.3d 200, 206.)
Among other things, the railyard at issue was “included in a Superfund site,” a report
available to the subsequent owner “described contamination at the railyard,” the owner’s
“own engineers had noted that the railyard might require extensive cleanup,” and the
owner “knew of EPA investigations in the area.” (Ibid.; see also In re Manville Forest
Products Corp. (2d Cir. 2000) 209 F.3d 125, 129 [“future environmental liability was
actually or presumedly contemplated by the parties upon their signing of the
indemnification agreements”]; In re Cool Fuel, Inc. (9th Cir. 2000) 210 F.3d 999, 1007
[State Board of Equalization’s claim arose before bankruptcy where Board had
knowledge of transactions that created tax liability and “the Board had contemplated a
claim by initiating an investigation and issuing a deficiency determination for the
disputed taxes”].)
48
Notably, UATC fails to discuss any of the specific factors identified in Jensen as
appropriate to consider in applying the fair contemplation test. Those factors include: (1)
“ ‘knowledge by the parties of a site in which’ ” there may be liability; (2) notification by
the creditor to the debtor of potential liability; (3) “ ‘commencement of investigation and
cleanup activities’ ”; and (4) “ ‘incurrence of response costs.’ ” (Jensen, supra, 995 F.2d
at p. 930.) The only one of those factors that has any application here is the site
knowledge factor, and only to the extent that the Regional Board could have determined
that UATC leased to a dry cleaner at the site. The Regional Board did not have the type
of knowledge present in the federal cases until approximately 2009, when Moonlite
reported the existence of PCE in groundwater at the Center. The list of factors in Jensen
is not exclusive, but UATC identifies no other considerations that suggest finding claim
accrual pre-bankruptcy would be appropriate.
To find the claim arose in the present case before the 2001 confirmation of
UATC’s bankruptcy, we would have to conclude it is reasonable to expect the Regional
Board to stay abreast of any bankruptcy filings by any entity or individual that owned or
owns any site where a dry cleaner is operating or has operated. By analogy, we would
also necessarily be concluding that the Regional Board is required to stay abreast of any
bankruptcy filings by any entity or individual that owns or owned any site where any
number of other businesses that carry a risk of waste discharges operate or operated.
Although it is appropriate to conclude the Regional Board can reasonably contemplate
the existence of a claim and be expected to participate in a bankruptcy proceeding where
the Regional Board has information regarding the likelihood of a discharge at a specific
site, it would render the test meaningless to apply it as broadly as UATC suggests.
Indeed, if the test were as broad as UATC suggests, the courts in the Jensen and Chicago,
Milwaukee cases would not have needed to discuss the evidence showing actual or
constructive notice, because the risk of pollution at railroad and lumber yards is
something the claimants in those cases should have been aware of.
49
In conclusion, UATC has presented no facts showing that the Regional Board’s
claim arose before the 2001 bankruptcy confirmation; accordingly, the claim was not
discharged in the bankruptcy proceeding.33
DISPOSITION
The trial court’s order is reversed. The matter is remanded for further proceedings
consistent with this decision. Costs on appeal are awarded to the Regional Board.
33
Remand for further proceedings on this issue is not appropriate. UATC had an
opportunity to present evidence below on the issue of when the claim arose and to discuss
that evidence in its briefs on appeal, and its showing fails as a matter of law.
50
SIMONS, J.
We concur.
JONES, P.J.
NEEDHAM, J.
(A152988)
51
Superior Court of Alameda County, No. RG16811955, Hon. Jennifer Madden, Judge.
Hogan Lovells US, Scott H. Reisch, Katherine B. Wellington, for Plaintiff and Appellant.
Xavier Becerra, Attorney General, Gavin G. McCabe, Mark W. Poole and Marc N.
Melnick, Deputy Attorneys General, for Defendant and Appellant.
52