Home » Case Summaries » 2011 » City of Los Angeles v. San Pedro Boat Works, 635 F.3d 440 (9th Cir. 2011)

 
 

City of Los Angeles v. San Pedro Boat Works, 635 F.3d 440 (9th Cir. 2011)

 

Topics: ,

The City of Los Angeles (the City) brought suit against BCI Coca-Cola Bottling Company of Los Angeles (Coca-Cola) under the Comprehensive Environmental Response, Compensation, and Liability Act[1] (CERCLA) and California state nuisance law.[2] The City sought reimbursement of environmental cleanup costs at Berth 44 in the Port of Los Angeles (Berth 44) arising from environmental contamination caused by the operation of San Pedro Boat Works. The United States District Court for the Central District of California granted partial summary judgment in favor of Coca-Cola, and the City appealed. The United States Court of Appeals for the Ninth Circuit affirmed the district court’s grant of summary judgment in favor of Coca-Cola because Coca-Cola was not liable as an “owner” under CERCLA, and because the City did not raise a triable issue of fact on its California state law nuisance claims. The Ninth Circuit also held that the district court did not err in denying the City leave to amend its complaint to add a breach of contract claim.

Berth 44, located within the Port of Los Angeles in Los Angeles Harbor, is owned by the City of Los Angeles and run by the Board of Harbor Commissioners (the Board).[3] In 1965, the Board, who is responsible for issuing land use permits at Los Angeles Harbor, issued Revocable Permit No. 936 (Permit No. 936) to the Los Angeles Harbor Marine Corporation (LAHMC), granting possession of a small area of land and water at Berth 44 for the limited purpose of operating a boatworks. In the late 1960s, Pacific American began negotiations with LAHMC to purchase the permit. Meanwhile, Pacific American incorporated San Pedro Boat Works as a wholly owned subsidiary corporation.

In August 1969, Pacific American purchased the permit from LAHMC with the City’s approval.

In closing the sale, Pacific American conveyed all of its interest in LAHMC’s physical assets––but not Permit No. 936––to San Pedro Boat Works. As a result, Pacific American never owned the boatworks’ assets. While San Pedro Boat Works became the sole owner of the facilities and machinery at Berth 44, it did not assume immediate responsibility for every aspect of the boatworks. On August 4, 1969, Pacific American accepted an assignment of Permit No. 936 from LAHMC. Pacific American later obtained Revocable Permit No. 1076 from the Board to replace Permit No. 936, and in June 1970 assigned Permit No. 1076 to San Pedro Boat Works with the Board’s approval. During this period, Pacific American was the named permittee of Permit Nos. 936 and 1076 for operation of the boatworks for roughly ten months. In 1993, Coca-Cola purchased Pacific American, including its remaining assets and liabilities. In 1995, the City discovered a variety of contaminated sediments at Berth 44, which the City removed in 2003.

The City filed its initial action against Coca-Cola, Pacific American, and San Pedro Boat Works in 2002, alleging the defendants were liable for the contamination. In its fourth amended complaint, the City alleged claims against Coca-Cola under CERCLA[4] and California state nuisance law.[5] The City asserted four theories of CERCLA liability against Coca-Cola: that Pacific American was a CERCLA “owner”[6] because (1) it held title to assets used at Berth 44, and because (2) it held the Revocable Permits from the City to do business at Berth 44; that Pacific American was a CERCLA “operator”[7] because (3) as Pacific American’s alter-ego, San Pedro Boat Works was a liable “operator,” thus making Pacific American derivatively liable as an “operator,” and because (4) Pacific American was itself an “operator” of the boatworks.[8]

The City moved for summary judgment on the CERCLA claims, and the district court found in favor of Coca-Cola on theories (2) through (4). The district court then submitted theory (1) to the jury without specific instruction as to the definition of “ownership” under CERCLA. The jury returned a special verdict finding that Pacific American did not own the assets of the boatworks, so the district court dismissed the City’s CERCLA claims sua sponte. The district court then granted Coca-Cola’s motion for summary judgment on the City’s nuisance claims, entered final judgment in favor of Coca-Cola, and held that Coca-Cola did not own the boatworks’ assets as a result of its ownership of Pacific American.

The City appealed on the ground that Pacific American was an “owner” of the boatworks for purposes of CERCLA liability since it held the revocable permit to operate the boatworks at Berth 44 for ten months from 1969 to 1970. The City also appealed both the district court’s grant of summary judgment for Coca-Cola on the nuisance claims and the district court’s denial of the City’s motion for leave to amend its complaint to add a breach of contract claim against Pacific American. On appeal, the Ninth Circuit reviewed the district court’s grant of summary judgment de novo[9] and the district court’s denial of a motion for leave to amend a complaint for abuse of discretion.[10] 

The Ninth Circuit first addressed the City’s CERCLA claims. The City contended that Coca-Cola was liable for cleanup of Berth 44 because Pacific American possessed Revocable Permits from the City for ten months, and was thus an “owner” of the physical assets of the boatworks when the pollution was discharged, and that Coca-Cola assumed Pacific American’s CERCLA “owner” liability when it purchased Pacific American’s assets and liabilities in 1993. The Ninth Circuit first noted that because CERCLA imposes liability on “any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of,”[11] Coca-Cola is liable under CERCLA as a successor-in-interest to Pacific American only if Pacific American was an “owner” of the boatworks facility. The Court then pointed out that Congress did not clearly define the word “owner” in CERCLA,[12] and that the United States Supreme Court has recognized that this definition is entirely tautological, and thus useless.[13]

Turning to its own jurisprudence, the court invoked the single Ninth Circuit case that examined the meaning of the term “owner” under CERCLA, where it held that holding an easement for a non-polluting pipeline was not sufficient to be considered an owner or operator under CERCLA.[14] In Long Beach Unified School District v. Dorothy B. Godwin California Living Trust (Long Beach), the court read CERCLA to incorporate the common law definition of its terms,[15] and found that the common law definition of “owner” under California state case law did not include an easement holder.[16] The Ninth Circuit then observed that Long Beach demonstrates that there is a relevant distinction between absolute title ownership to real property and mere possessory interests in real property for the purposes of CERCLA owner liability.

The Ninth Circuit then explained that other courts have not followed Long Beach’s methodology,[17] and that the only circuit court to address the liability of a lessee under CERCLA’s owner provision determined that lessees could be liable as owners only in the rare case where the lessee was a de facto owner, such as in the case of the “proverbial ninety-nine year lease.”[18] The Ninth Circuit declined to follow the Second Circuit’s “nebulous and flexible” five-factor balancing test from Commander Oil Corp. v. Barlo Equipment Corp. Instead, the court relied on its own precedent in Long Beach, finding that the holder of a permit for specific use of real property is not the “owner” of that real property, but that such a permittee holds a possessory interest in the land. The court likened the possessory interest of a permittee to that of a licensee or easement holder because the fee title owner retains power to control the use of the real property.

The Ninth Circuit supported this finding by reviewing California state case law that consistently distinguishes between possessory (and non-possessory) interests and title ownership, and noted that other courts have ruled similarly.[19] Further, the court cited the plain language of CERCLA and explained that in establishing “owner” liability, Congress used the unmodified term “owner” which, “when used alone, imports an absolute owner.”[20] Turning to the present case, the court observed that the “narrow bundle of rights” that Pacific American enjoyed during its ten-month possession of the Revocable Permits to operate the boatworks did not include the “core attributes” of ownership.[21] Finally, the court stressed that its finding was consistent with the legislative intent of CERCLA, which holds liable both the passive title owner of real property and the active or negligent operator of the facility. The Ninth Circuit concluded that Pacific American as a holder of the Revocable Permits was not an “owner” of the boatworks for the purposes of CERCLA liability. Accordingly, the court held Coca-Cola was not liable to the City for the costs of environmental cleanup.

The Ninth Circuit next addressed the City’s public and private nuisance claims under California state law. The City contended that Pacific American was liable under the Restatement approach, which California adopted, because it knew or should have known of the pollution at Berth 44.[22] The City first argued that testimony by a San Pedro Boat Works employee that toxic paint scrapings from boat hulls were routinely discharged into Berth 44 during the period that Pacific American held the Revocable Permits meant that Pacific American had actual knowledge that San Pedro Boat Works was discharging pollutants. The court rejected this argument because the record did not reflect that anyone had told Pacific American of this practice or that any agents or employees of Pacific American had observed the practice. The court further noted that the knowledge of a San Pedro Boat Works employee could not be imputed to Pacific American, but only to San Pedro Boat Works. Because the City did not provide a reason to deviate from this rule, and did not challenge the district court’s finding that San Pedro Boat Works was not an alter-ego of Pacific American, the Ninth Circuit held that the district did not err when it held that the City produced no evidence that Pacific American had actual knowledge of the pollution caused by San Pedro Boat Works.

The City next argued that Pacific American should have known that the boatworks was polluting Berth 44 because the Revocable Permit imposed a duty to keep and maintain the premises, which translated into a duty to investigate.[23] The court rejected this theory because section 839 of the Restatement only applies when the defendant is “in possession” of the property, and Pacific American had only the right to possess, but was not in fact in possession of the boatworks. Finding section 838 applicable, which refers to land leased by a third party, the court observed that the City did not proffer any evidence that Pacific American would have had a “reason to know” of the pollution. Accordingly, the Ninth Circuit held that Pacific American could not be liable for public or private nuisance.  

Finally, the Ninth Circuit addressed the district court’s denial of the City’s 2006 motion for leave to file a fourth amended complaint to add another cause of action for breach of contract. The court noted that although “[t]he court should freely give leave [to amend a pleading] when justice so requires,”[24] the district court’s discretion to deny leave is “particularly broad where [a] plaintiff has previously amended the complaint.”[25] The court found that, at a minimum, the City delayed amending the complaint for three years, and that the City did not sufficiently refute the district court’s finding that a breach of contract claim would require Coca-Cola to redo extensive discovery, thus causing undue prejudice. Therefore, the court concluded that the district court did not abuse its discretion in denying the City’s motion for leave to amend its complaint.

In summary, the Ninth Circuit affirmed the district court’s grant of summary judgment to Coca-Cola on the CERCLA and California state nuisance law claims, and held that the district court did not abuse its discretion in denying the City leave to amend its complaint to add a breach of contract claim.


[1] Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. §§ 9601–9675 (2006).

[2] The City brought common law tort claims of public and private nuisance. See People ex rel. Gallo v. Acuna, 929 P.2d 596, 604 (Cal. 1997) (noting California law mirrors the Restatement (Second) of Torts definition of public nuisance: substantial and unreasonable interference with a public right); San Diego Gas & Elec. Co. v. Super. Ct., 920 P.2d 669, 696–97 (Cal. 1996) (noting private nuisance requires substantial and unreasonable interference with plaintiff’s enjoyment of the land).

[3] Los Angeles Charter and Administrative Code art. VI, § 651 (2011).

[4] 42 U.S.C. § 9607(a)(2) (2006).

[5] See People ex rel. Gallo, 929 P.2d at 604; see also San Diego Gas and Elec. Co., 920 P.2d at 696–97.

[6] 42 U.S.C. §§ 9601(20)(A)(ii), 9607(a)(2) (2006); see also United States v. Bestfoods, 524 U.S. 51, 56 (1998).

[7] 42 U.S.C. § 9601(20)(A)(ii) (2006) (describing an owner or operator as “any person owning or operating [a] facility”).

[8] See City of L.A. v. San Pedro Boat Works, 635 F.3d 440, 446 (9th Cir. 2011).

[9] Kendall–Jackson Winery, Ltd., v. E. & J. Gallo Winery, 150 F.3d 1042, 1046 (9th Cir. 1998).

[10] DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987).

[11] 42 U.S.C. § 9607(a)(2) (2006) (emphasis added).

[12] Id. § 9601(20)(A)(ii).

[13] United States v. Bestfoods, 524 U.S. 51, 56, 66 (1998).

[14] See Long Beach Unified Sch. Dist. v. Dorothy B. Godwin Cal. Living Trust, 32 F.3d 1364, 1370 (9th Cir. 1994).

[15] Id. at 1368.

[16] Id. at 1368–69.

[17] See United States v. S.C. Recycling & Disposal, Inc., 653 F. Supp. 984, 1002–03 (D.S.C. 1986), aff’d in part, vac’d in part sub nom. United States v. Monsanto Co., 858 F.2d 160, 176 (4th Cir. 1988).

[18] Commander Oil Corp. v. Barlo Equip. Corp., 215 F.3d 321, 330–31 (2d Cir. 2000).

[19] See, e.g., Mesa Verde Co. v. Montezuma Cnty. Bd. of Equalization, 898 P.2d 1, 11 (Colo. 1995); Spanish River Resort Corp. v. Walker, 497 So. 2d 1299, 1301 (Fla. Dist. Ct. App. 1986); Stansbury v. MDR Dev., L.L.C., 871 A.2d 612, 620–21 (Md. Ct. Spec. App. 2005); Peoples Gas, Light, and Coke Co. v. Harrison Cent. Appraisal Dist., 270 S.W.3d 208, 212–13 (Tex. App. 2008).

[20] Dirs. of Fallbrook Irrigation Dist. v. Abila, 39 P. 794, 796 (Cal. 1895) (citation omitted).

[21] City of L.A. v. San Pedro Boat Works, 635 F.3d 440, 451 (9th Cir. 2011).

[22] See People ex rel. Gallo, 929 P.2d 596, 604 (Cal. 1997); Restatement (Second) of Torts §§ 838, 839 (1979); see also San Diego Gas & Elec. Co. v. Super. Ct., 920 P.2d 669, 696–97 (Cal. 1996). 

[23] See Restatement (Second) of Torts § 839 cmt. i (1979).

[24] Fed. R. Civ. P. 15(a)(2).

[25] Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989).

Print this pageEmail this to someoneTweet about this on TwitterShare on Facebook

Comments are closed

Sorry, but you cannot leave a comment for this post.