Federal Court Dismisses CERCLA Suit based on Lack of Necessary Response Costs

By Clare Bienvenu & John D. Edgcomb

In Stratford Holding, LLC v. Fog Cap Retail Investors, et al., Stratford Holding LLC (“Stratford”) sued its lessees, Fog Cap Retail Investors LLC (“Fog Cap”) and Foot Locker Retail Inc. (“Foot Locker”), under CERCLA §§ 107 and 113, seeking cost recovery for costs incurred in assessing alleged PCE contamination in the soil and groundwater of its property. Allegations of PCE contamination arose when Stratford, upon conducting a visual inspection, discovered poor housekeeping practices at a commercial dry cleaning business on the property. Since the commercial dry cleaning business subleased the property from Fog Cap and Foot Locker, Stratford made demand upon them as its direct lessees to investigate the potential contamination further. Fog Cap commissioned an environmental investigation in response, finding no PCE contamination. However, Stratford thereafter conducted another assessment that revealed PCE concentrations of 1200 ppb in the soil and 56 ppb in the groundwater. When Fog Cap and Foot Locker declined to reimburse Stratford for the costs of the assessment and refused to agree to restore the premises to its pre-lease condition, Stratford filed suit in federal court for cost recovery under CERCLA §§ 107 and 113, among other claims. Fog Cap and Foot Locker moved to dismiss the CERCLA claims under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim under which relief can be granted.

In order to establish a prima facie case for cost recovery under CERCLA, a plaintiff must show that: (1) the site is a CERCLA “facility”; (2) there was a release or threatened release of a hazardous substance; (3) the plaintiff incurred response costs consistent with the National Contingency Plan (NCP); and (4) the defendant is a potentially responsible party. The only point of contention in the motion to dismiss was whether the costs incurred by Stratford were “necessary” and incurred in a manner consistent with the NCP under CERCLA §107(a)(4)(B). According to well-established CERCLA jurisprudence, there must be an actual and real threat to human health or the environment in order for response costs to be “necessary.” Using a rationale that is somewhat novel in CERCLA litigation, the court agreed with Fog Cap and Foot Locker that the response costs were not “necessary” and dismissed Stratford’s claim.

First, the court reasoned that the determination by the state environmental agency, the Georgia Environmental Protection Division (GEPD), not to list the site on its Hazardous Site Inventory was a major indicator that Stratford’s investigation response costs were unnecessary. GEPD issued its decision not to list the site in a Release Notification, noting that it had conducted its own assessment and found no release exceeding a reportable quantity. GEPD neither compelled further investigation or remediation of the site nor issued a statement that no further investigation or remediation was required. Nevertheless, given that the agency is required to list a site on the Hazardous Site Inventory if the contamination poses a threat to human health or the environment, the court concluded that GEPD’s decision not to list the site was the equivalent of a government determination that the PCE contamination posed no threat to human health or the environment. Further, the court considered that Stratford proffered no additional facts to show that its response was necessary to prevent a real threat to human health or the environment.

CERCLA caselaw clearly establishes that agency enforcement action is not a prerequisite to private party cost recovery. Therefore, the absence of such agency action is not conclusive on the issue of whether any response costs incurred were “necessary.” Here, however, the court was faced with a slightly different scenario – an agency, presented with some evidence of contamination, chose not to take any action to compel remediation. The court cited its own decision, Southfund Partners III v. Sears, Roebuck & Co., 57 F.Supp.2d 1369 (N.D. Ga. 1999), in support of its conclusion. In Southfund, a plaintiff similarly sought recovery of response costs for remedial efforts to remove contamination following a determination by the George Department of Natural Resources that the contaminant release was under the reportable quantity. The court granted the defendant summary judgment in that matter, reasoning that upon considering that the state agency did not require remedial efforts to be undertaken, “no reasonable juror could find the response costs to be necessary.” Southfund, 57 F.Suppp.2d at 1378.

The federal district court for the Northern District of Georgia clearly follows the rationale that where an investigation reveals contamination, but a government agency determines the release to be under the reportable quantity and declines to require remediation, the recovery of response costs will not be allowed – except, perhaps, if the plaintiff offers convincing additional evidence showing that its response was necessary to prevent a real threat to human health or the environment. However, not all courts are willing to dismiss a CERCLA claim under such facts. The Ninth Circuit Court of Appeals has specifically reserved rendering an opinion on whether “response costs not required by state and local agencies may [] be necessary.” NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). The federal district court for the Northern District of California denied summary judgment on the issue of the necessity of response costs in connection with perchlorate levels in water supply wells that were below drinking water criteria. While the facts did not indicate the details of government agency determinations in connection with the response, the court was unwilling to grant summary judgment on the basis of contamination below applicable regulatory criteria, stating that “whether or not perchlorate contamination in the subbasin posed a threat to human health appears to be a dispute of material fact, and this issue is not resolvable on summary judgment.” Santa Clara Valley Water Dist. v. Olin Corp., 655 F. Supp. 2d 1066, 1072 (N.D. Cal. 2009).

Lastly, the Stratford Holdings court considered Stratford’s argument that because the NCP requires a Remedial Investigation and Feasibility Study (RI/FS) before determining whether a site is a threat to human health or the environment, it was still in the process of proving a threat to human health and the environment, and thus the claim should not be dismissed. The court opined that even if an RI/FS later revealed a threat, Stratford’s claim for cost recovery at this point in time was premature. In making this statement, the court may have been signaling that should Stratford complete its RI/FS and find a demonstrable threat to human health and or the environment, it could refile its claim for investigation costs at that time.

Based on these grounds, the court dismissed Stratford’s federal claims. After declining to exercise supplemental jurisdiction over Stratford’s remaining state law claims, the court terminated the action.

Stratford Holding LLC v. Fog Cap Retail Investors LLC et al., case no. 1:11-cv-03463 (9/17/12 N.D. Ga.)