As we have commented in past columns,
one of the most perplexing and frustrating problems which arises in
connection with the acquisition of petroleum contaminated property has
been the inability of the courts to agree on just who qualifies as a
“discharger” with strict liability under the Navigation Law and whether
purchasers after-the-fact are strictly liable under the statute to pay
for remediation.
A
decade ago the Fourth Department Appellate Division rejected strict
liability for landowners simply by virtue of their status as
landowners. The Court found that classification as a “discharger”
under the Navigation Law should be a function of a person’s conduct,
not his status as a landowner. (Drouin v. Ridge Lumber, 209 A.D.2d 957
(4th Dept. 1994)). In 2000, the Third Department Appellate Division
struck a different course, concluding that liability attaches to the
current owner of the petroleum “system,” i.e. tanks and piping, which
was the source of the discharge, even if the owner acquired the system
after the leak had been repaired. (State v. Speonk Fuel, Inc., 273
A.D.2d 681 (3d Dept. 2000)). This holding encouraged prospective
purchasers to conduct pre-purchase investigations to discover not only
whether property was contaminated, but also whether the petroleum
system which was the source of the discharge had been removed or merely
repaired.
In
2001, the Court of Appeals reviewed one of the Third Department’s
decisions, State v. Green (96 N.Y.2d 403), and appeared to set a course
which took the analysis of strict liability under the Navigation Law a
step away from ownership, of either the land or the petroleum system,
as the basis for liability, and toward an emphasis on conduct.
Vanessa
Green leased space, a trailer pad, from Village at Lakeside, Inc. On
that pad she had a mobile home heated with kerosene stored in an
above-ground tank which she owned and maintained. Village at Lakeside
owned the land, but neither owned nor operated the tank. The tank
collapsed, spilling kerosene on the ground, which no one cleaned up
until the Department of Environmental Conservation (“DEC”) stepped in
to perform the work. In time the State sued Lakeside, Green and her
kerosene supplier for reimbursement under the Navigation Law. Supreme
Court granted the State summary judgment against Lakeside based solely
on Lakeside’s ownership of the contaminated property. The Third
Department reversed on the ground that while Lakeside owned the land,
it did not own the tank and was not a “discharger” strictly liable for
the cleanup costs. The Court of Appeals reversed and reinstated
summary judgment against Lakeside.
The
Court of Appeals concluded that liability under the Navigation Law is
predicated on the ability to prevent the discharge. As the owner and
lessor of the mobile home park the Court reasoned that Lakeside had
actual or implied notice that its tenants used fuel to heat their
homes, received the benefit of their lease payments, and had the
ability to control potential sources of contamination on its property,
including Green’s maintenance of her kerosene tank.
The
Court of Appeals’ reasoning was complementary to the reasoning of the
Fourth Department in Drouin, but broadened the bases for liability to
include authority and opportunity to prevent the discharge, in addition
to direct conduct.
If
liability is predicated on conduct related to the discharge rather than
status, then subsequent purchasers should be able to purchase property
free of statutory strict liability regardless of whether any
non-leaking tanks remain on the property. A subsequent purchaser would
never have the critical opportunity to prevent the discharge which
caused contamination.
In
a sharp reassessment of this position, which focuses squarely on the
subsequent purchaser, the Court of Appeals has concluded in State v
Speonk Fuel, Inc. (Memorandum issued October 19, 2004), that a
subsequent purchaser who fails to see to it that known contamination is
cleaned up by the seller can be sued as a “discharger” with strict
liability for the original spill.
The
DEC learned of a leaking tank on the property while it was owned by
Local Wrench Service Station, Inc., but the company failed to take
action to remedy groundwater contamination attributable to the spill.
Shortly after the leaking tank was removed, Speonk Fuel bought the
property from Local Wrench.
The
Third Department found Speonk Fuel liable because it owned the “system”
which had leaked. The Court of Appeals abandoned this link to the
original discharge, finding Speonk Fuel liable not because of ownership
or any ability to prevent the discharge, but because Speonk Fuel knew
of the leak and the need for remediation at the time of purchase, but
did nothing. The State argued that Speonk Fuel should have required
Local Wrench to pay for a cleanup as a condition of closing. The Court
of Appeals “decline[d] to specify any particular action that Speonk
Fuel might have undertaken,” but found Speonk liable for doing nothing.
In
a lone dissent Judge Robert Smith objected that Speonk “had nothing
whatsoever to do with causing petroleum to be discharged” and that it
was one thing to fasten liability on a landlord who could have
prevented a discharge, as in State v. Green, but “quite another to
apply the words ‘person who has discharged petroleum’ to a company in
the position of Speonk, which had no interest in or control over either
the real property or the petroleum storage system at the time the
discharge occurred.”
“While
failing to prevent a petroleum discharge may in a sense be the
equivalent of discharging petroleum, failure to clean up the discharge
afterwards is not,” Judge Smith wrote in dissent. “If the Legislature
had intended to impose liability for failure to clean up, it would have
said so.”
The
logic of the dissent is appealing, but the reality is quite different.
Apparently, a purchaser must either assume the role of private attorney
general and require the seller to perform a clean up, or risk assuming
the seller’s liability for itself.
Suddenly,
there is a new impetus for prospective purchasers to discover not only
whether property is contaminated and whether the system has been
removed or repaired, but whether the seller has remediated the
contamination to the satisfaction of the DEC, and perhaps any affected
landowner who might incur response costs and a cause of action under
the Navigation Law. At the very least, the Court’s expansion of the
Navigation Law appears to run counter to the efforts to clear the way
for redevelopment of Brownfields by increasing the burdens on
prospective purchasers.