CA Dept. of Toxic Substances Control v. Jim Dobbas, Inc.

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 CALIFORNIA DEPARTMENT OF TOXIC No. 2:14-cv-00595 WBS EFB SUBSTANCES CONTROL, et al., 13 Plaintiffs, 14 MEMORANDUM AND ORDER RE: v. MOTION TO DISMISS 15 COUNTERCLAIMS AND MOTION TO JIM DOBBAS, INC., a California STRIKE 16 corporation, et al., 17 Defendants. 18 19 ----oo0oo---- 20 Plaintiffs Department of Toxic Substances Control and 21 the Toxic Substances Control Account (collectively “DTSC”) seek 22 recovery of costs and declaratory relief under the Comprehensive 23 Environmental Response, Compensation, and Liability Act 24 (“CERCLA”), 42 U.S.C. § 9601 et seq., in connection with the 25 cleanup of a wood preserving operation in Elmira, California. 26 (First Am. Compl. (“FAC”) ¶ 19 (Docket No. 77).) Intervenors 27 Century Indemnity Company, The Continental Insurance Company, 28 Allianz Underwriters Insurance, Chicago Insurance Company, and 1 Fireman’s Fund Insurance Company (collectively, “Intervenors”), 2 acting behalf of their insured, C&A Products, LLC (“C&A”),1 have 3 filed an answer in intervention and counterclaims against DTSC. 4 (Docket No. 271.) Specifically, Intervenors filed counterclaims 5 for cost recovery under CERCLA § 107, 42 U.S.C. § 9607; 6 contribution under CERCLA § 113(f); declaratory relief under 7 CERLCA § 113(g), 42 U.S.C. § 9613(g); and contribution and 8 indemnity under the California Hazardous Substance Account Act 9 (“HSAA”), California Health and Safety Code § 25300, et seq. 10 (Docket No. 271.) Intervenors also included certain affirmative 11 defenses within their answer and have requested a jury trial. 12 DTSC has moved to dismiss the counterclaims, strike 13 Intervenors’ affirmative defense for contributory and comparative 14 negligence, and strike the jury demand. (Docket No. 279.) The 15 court held a hearing on the motion on July 24, 2023. 16 I. Motion to Dismiss Counterclaims 17 When considering a motion to dismiss a counterclaim 18 under Federal Rule of Civil Procedure 12(b)(6), the court uses an 19 identical standard as that for dismissal of a claim. See, e.g., 20 AirWair Int’l Ltd. v. Schultz, 84 F. Supp. 3d 943, 949 (N.D. Cal. 21 2015). The court must accept the allegations in the claim as 22 true and draw all reasonable inferences in favor of the claimant. 23 See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on 24 other grounds by Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. 25 Beto, 405 U.S. 319, 322 (1972). To survive a motion to dismiss, 26 a claimant must plead “only enough facts to state a claim to 27 1 C&A Products is the successor to Wickes Corporation, 28 one of the former owners and operators of the site. 1 relief that is plausible on its face.” Bell Atl. Corp. v. 2 Twombly, 550 U.S. 544, 570 (2007). This “plausibility standard,” 3 however, “asks for more than a sheer possibility that a defendant 4 has acted unlawfully,” and where a counterclaim pleads facts that 5 are “merely consistent with a defendant’s liability,” it “stops 6 short of the line between possibility and plausibility.” 7 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 8 U.S. at 557). 9 The Intervenors’ first and second counterclaims seek 10 cost recovery and contribution from DTSC pursuant to CERCLA §§ 11 107 and 113. In order to assert such claims, the Intervenors 12 must allege that DTSC was (1) “the owner and operator of a vessel 13 or a facility,” (2) a “person who at the time of disposal of any 14 hazardous substance owned or operated any facility at which such 15 hazardous substances were disposed of,” (3) a “person who . . . 16 arranged for disposal or treatment . . . of hazardous 17 substances,” or (4) a “person who accepts or accepted any 18 hazardous substances for transport . . . .” 42 U.S.C. § 9607(a). 19 The Intervenors assert their counterclaims on the theory that 20 DTSC mismanaged cleanup efforts at the remediation site and is 21 liable as an “operator” under § 9607(a)(2). (Intervenors 22 Countercls. ¶¶ 7-34.) 23 This court previously addressed similar counterclaims 24 brought by defendant Jim Dobbas, Inc. (“Dobbas”) in deciding a 25 similar motion to dismiss brought by DTSC. (Docket No. 43 at 5- 26 12.) The court noted that while a government entity may be 27 considered an operator under CERCLA, there was some dispute among 28 courts about the level of control necessary to support operator 1 liability. Specifically, some courts have applied a narrower 2 “actual control standard,” requiring affirmative acts from a 3 purported operator to support liability, with other courts 4 applying a broader “authority to control” standard. (Docket No. 5 43 at 6-7 (citations omitted).) 6 This court recognized that cases from the Ninth and 7 Fourth Circuits had applied the narrower actual control 8 definition, requiring that the entity “play an active role in 9 running the facility, typically involving hands-on, day-to-day 10 participation in the facility’s management.” See Long Beach 11 Unified Sch. Dist. v. Dorothy B. Godwin Cal. Living Tr., 32 F.3d 12 1364, 1367 (9th Cir. 1994); see also United States v. Dart 13 Indus., Inc., 847 F.2d 144, 146 (4th Cir. 1988). The court 14 further noted that several courts had dismissed claims against 15 state agencies where there were no allegations that the state 16 agency had any involvement with the facility other than remedial 17 cleanup efforts. (Docket No. 43 at 7 (citing Dart Indus., 847 18 F.2d at 146 (requiring “hands on” activities that contributed to 19 the release of hazardous waste); Stilloe v. Almy Bros., 782 F. 20 Supp. 731, 735-36 (N.D.N.Y. 1992); United States v. W. Processing 21 Co., 761 F. Supp. 725, 730-31 (W.D. Wash. 1991).) 22 However, this court also noted that those cases pre- 23 dated the Supreme Court’s decision in United States v. Bestfoods, 24 524 U.S. 51, 66 (1998), and held they were not persuasive. The 25 court explained that “Bestfoods does not require an operator to 26 play an active role. It requires only that an entity ‘manage, 27 direct, or conduct . . . operations having to do with the leakage 28 or disposal of hazardous waste, or decisions about compliance 1 with environmental regulations.’” (Docket 43 at 9 (quoting 2 Bestfoods, 524 U.S. at 66-67).) 3 The court also noted, among things, (1) agreements 4 between DTSC or its predecessor agency and C&A or its 5 predecessor, which set forth the agencies’ approval of remedial 6 action at the Elmira site and which were attached to Dobbas’ 7 counterclaims; and (2) the allegations of the complaint that DTSC 8 performed “response actions” at the facility, including “efforts 9 to repair and restart the groundwater extraction and treatment 10 system, completion of a remedial investigation for site soils, 11 preparation of the Removal Action Workplan, implementation of the 12 Removal Action Workplan in October and November 2011, groundwater 13 monitoring, and other tasks.” (Docket No. 43 at 8-9 (citing 14 Compl. ¶¶ 21-29; Exs. A & B (Docket No. 1).)2 Ultimately, the 15 court determined that the pleadings sufficiently pled DTSC’s 16 liability as an operator under CERCLA, and the court denied 17 DTSC’s motion to dismiss Dobbas’ counterclaims for cost recovery 18 and contribution. (Docket No. 43 at 9-10.) 19 Here, Intervenors’ allegations regarding operator 20 liability are similar to those asserted by Dobbas. Nevertheless, 21 notwithstanding the court’s prior ruling, DTSC argues that 22 Intervenors have not sufficiently alleged its liability as an 23 2 DTSC filed an amended complaint in December 2014, after 24 the court issued its order regarding Dobbas’ counterclaims. (Docket No. 77.) DTSC amended the complaint to add C&A Products 25 as a defendant after investigation revealed that C&A might have insurance coverage which could be a source of funds to reimburse 26 DTSC’s response costs. (Docket No. 68-1 at 3.) The amended 27 complaint’s allegations regarding DTSC’s response actions are identical, and the amended complaint also attaches the same 28 documents as the original complaint, in addition to others. 1 operator. Specifically, DTSC argues that the Ninth Circuit’s 2 recent decision in United States v. Sterling Centrecorp Inc., 977 3 F.3d 750 (9th Cir. 2020), decided after this court’s order ruling 4 on plaintiff’s motion to dismiss Dobbas’s counterclaims, now 5 requires allegations that a party play an active role to held 6 liable as an operator, and there are no such allegations here. 7 In Sterling, the Ninth Circuit examined whether the 8 United States could be held liable as an operator because of its 9 issuance of an order during World War II shutting down gold 10 mines, including the mine at issue in the case. The panel 11 explained that Bestfoods “clarifies that actual participation in 12 decisions related to pollution is necessary for a finding of 13 operator liability,” and noted that it had previously stated in 14 Long Beach, 32 F.3d at 1367, that “[t]o be an operator of a 15 hazardous waste facility, a party must do more than stand by and 16 fail to prevent the contamination. It must play an active role 17 in running the facility, typically involving hands-on, day-to-day 18 participation in the facility’s management.” 977 F.3d at 758. 19 The panel continued, explaining that “[t]he Bestfoods 20 standard confirms that operator status has a nexus requirement. 21 That is, it requires that an operator’s relationship to the 22 facility at issue must, at least in part, focus on ‘operations 23 specifically related to pollution.’” Id. (quoting Bestfoods, 524 24 U.S. at 66). The panel reiterated that “operator liability 25 requires something more than general control over an industry or 26 facility. It requires some level of direction, management, or 27 control over the facility’s polluting activities.” Id. 28 In light of the additional guidance provided by the 1 Ninth Circuit in Sterling, the court determines that Intervenors 2 have not sufficiently alleged that DTSC was an operator under 3 CERCLA. While this court previously expressed doubt about 4 whether the Ninth Circuit’s narrower definition of an operator in 5 Long Beach applied after the Supreme Court’s decision in Best 6 Foods, the Ninth Circuit has once again after Best Foods noted in 7 Sterling that a party “must play an active role in running the 8 facility, typically involving hands-on, day-to-day participation 9 in the facility’s management.” 10 Here, Intervenors’ allegations repeat the First Amended 11 Complaint’s allegations regarding DTSC’s response actions and add 12 additional allegations that “DTSC actively operated the 13 groundwater extraction and treatment system despite its 2001 14 report stating the ‘ground water pump and treat system would 15 likely be unsuccessful in meeting the remedial action 16 objections’” and “[a] Site inspection in 2010 also revealed there 17 were ‘numerous cracks in the asphalt cap’ that DTSC contracted to 18 maintain in 2007.” (Counterclaims at 16 (citations omitted).) 19 However, a vague allegation that DTSC “actively operated” a 20 groundwater system and DTSC’s alleged knowledge of its 21 contractor’s failure to maintain a remedial structure on the site 22 do not sufficiently allege that DTSC’s involvement with the site 23 rose to the level of active control with hands-on, day-to-day 24 participation in managing the Elvira site. Accordingly, the 25 court will dismiss the first and second counterclaims based on 26 the failure to properly allege DTSC was an operator under CERCLA. 27 Further, even assuming that DTSC’s management of the 28 site rose to the level that it could be considered an operator, 1 there is no plausible allegation that DTSC operated the Elvira 2 site when any hazardous materials were “disposed”, as defined by 3 CERCLA. As stated above, Section 107(a)(2) provides for 4 liability of “any person who at the time of disposal of any 5 hazardous substance owned or operated any facility at which such 6 hazardous substances were disposed of,” (emphasis added). As 7 explained by the Ninth Circuit in Carson Harbor Village, Ltd. v. 8 Unocal Corp., 270 F.3d 863, 874-87 (9th Circ. 2001), the gradual 9 passive migration of contamination through soil during a former 10 owner’s ownership of a property was not a “disposal” under 11 CERCLA. Yet that appears to be the Intervenors’ allegation here 12 -- that DTSC has not properly managed existing contamination as 13 it passively migrates through the soil, due to inadequate 14 remedial measures. While Intervenors assert the conclusory 15 allegation that DTSC’s actions “contributed to or caused the 16 leakage or disposal of hazardous waste,” (Countercls. ¶ 14), 17 there is no allegation how anything DTSC did could be considered 18 disposal under CERCLA § 107. Accordingly, Intervenors’ failure 19 to sufficiently allege disposal of hazardous materials during 20 DTSC’s alleged operation of the site is a second and independent 21 ground for dismissal of the first and second counterclaims. 22 Because Intervenors have not properly alleged DTSC’s 23 liability as an operator or disposal under § 107 and § 113, the 24 court will dismiss their counterclaims for cost recovery and 25 contribution. Further, the court will also dismiss the § 113(g) 26 counterclaim for declaratory relief and the counterclaim under 27 the HSAA. See Coppola v. Smith, 19 F. Supp. 3d 960, 977 (E.D. 28 Cal. 2014) (claim for declaratory relief under § 113(g)(2) is 1 dependent on a valid § 107 claim); Adobe Lumber, Inc. v. Hellman, 2 658 F. Supp. 2d 1188, 1192-93 (E.D. Cal. 2009). (California’s 3 HSAA provides for civil actions for indemnity and contribution 4 and expressly incorporates CERCLA’s liability standards and 5 defenses). 6 II. Motion to Strike Affirmative Defense 7 Federal Rule of Civil Procedure 12(f) authorizes the 8 court to “strike from a pleading an insufficient defense or any 9 redundant, immaterial, impertinent, or scandalous matter.” Fed. 10 R. Civ. P. 12(f). “[T]he function of a [Rule] 12(f) motion to 11 strike is to avoid the expenditure of time and money that must 12 arise from litigating spurious issues by dispensing with those 13 issues prior to trial.” Sidney-Vinstein v. A.H. Robins Co., 697 14 F.2d 880, 885 (9th Cir. 1983). 15 DTSC moves to strike Intervenors’ seventh affirmative 16 defense for contributory and comparative negligence, which reads 17 in part:

18 Any and all injury or damage was caused, in whole or in part, by Plaintiffs’ own negligence, carelessness, 19 lack of due care and fault, or by the negligence, carelessness, lack of due care and fault of 20 Plaintiffs’ predecessors in interest, their agents, employees or tenants and/or third parties, excluding 21 Collins & Aikman.

22 (Docket No. 271 at 12.) 23 This court previously addressed similar affirmative 24 defenses asserted by defendant Dobbas. The court first noted 25 that CERCLA § 107(b) provides an exclusive list of defenses 26 available in cost recovery actions under CERCLA. (Docket No. 43 27 at 18-19 (citing, inter alia, Cal. ex rel. Cal. Dep’t of Toxic 28 Substances Control v. Neville Chem. Co., 358 F.3d 661, 672 (9th 1 Cir. 2004);3 Levin Metals Corp. v. Parr-Richmond Terminal Co., 2 799 F.2d 1312, 1317 (9th Cir. 1986)).) The court further noted 3 that while DTSC also asserted a claim for civil penalties under 4 the HSAA, that statute “expressly incorporates CERCLA’s liability 5 standards and defenses,” and thus Dobbas could not assert 6 defenses to the HSAA that it could not assert under § 107(a) of 7 CERCLA. (Docket No. 43 at 19-20 (citing, inter alia, Adobe 8 Lumber, Inc. v. Hellman, 658 F. Supp. 2d 1188, 1192 (E.D. Cal. 9 2009); Coppola v. Smith, 935 F. Supp. 2d 993, 1011 (E.D. Cal. 10 2013).) 11 This court then looked to Dobbas’s affirmative defenses 12 that DTSC’s claims were barred or should be reduced because 13 DTSC’s own actions caused or aggravated the release of hazardous 14 substances. The court struck those defenses, explaining:

15 [C]ourts have consistently “rejected negligence on the part of the government as a defense to liability in 16 CERCLA actions.” Cal. Dep’t of Toxic Substances Control v. Alco Pac., Inc., 217 F. Supp. 2d 1028, 1037 17 (striking contributory fault defense and citing cases); see also United States v. Shell Oil Co., Civ. 18 No. 91-589, 1992 WL 144296, at *9 (C.D. Cal. Aug. 9, 1992) (“[C]omparative fault and contributory 19 negligence are not defenses to CERCLA actions.” (citations omitted)). Section 9607(b) requires a 20 defendant to prove that damages were “solely caused” by a third party, 42 U.S.C. § 9607(b), preventing 21 Dobbas from asserting these kinds of comparative 22 3 As explained by this court previously, the Neville 23 court held that this exclusive list of defenses did not apply to suits for contribution under § 113(f) of CERCLA, but DTSC has not 24 asserted a CERCLA claim for contribution in this case – it only asserts CERCLA claims for cost recovery and declaratory relief, 25 in additional to the HSAA claim, which is not asserted against C&A Products. (Docket No. 43 at 19 (citing Neville, 358 F.3d at 26 672).) Further, “because declaratory relief claims are 27 derivative of cost recovery,” see Neville, 358 F.3d at 672, § 107(b)’s limitation on defenses applies to DTSC’s claim for 28 declaratory relief as well. (Docket No. 43 at 19). 1 negligence defenses.”

2 (Docket No. 43 at 23.) 3 Intervenors provide no authority calling into question 4 this prior determination, but rather argue for a different 5 interpretation of the authorities relied on the court. The court 6 sees no reason to depart from its prior determination regarding 7 the availability of comparative fault or contributory negligence 8 affirmative defenses. Because negligence by the government is 9 not a defense to CERCLA, and correspondingly not a defense under 10 the HSAA, the court will strike Intervenors’ seventh affirmative 11 defense.4 12 III. Motion to Strike Jury Demand 13 The Seventh Amendment entitles a party to a jury trial 14 in all “[s]uits at common law” in which the amount in controversy 15 exceeds twenty dollars, U.S. Const. amend. VII, but does not 16 require a jury trial for claims that are exclusively equitable in 17 nature, see Tull v. United States, 481 U.S. 412, 417-18 (1987). 18 DTSC requests to strike Intervenors’ demand for a jury trial, 19 arguing that its claims are exclusively equitable in nature. 20 The court previously denied DTSC’s similar motion to 21 22 4 At oral argument, intervenors stated that their main 23 reason for opposing the motion to strike their contributory and comparative negligence affirmative defense was their desire to 24 fully assert their theory that C&A was not the cause of the contamination at the Elvira site. However, as the court noted in 25 its 2014 decision, CERCLA does not bar defenses related to whether a defendant’s conduct was the proximate cause of any 26 release of hazardous substances. (Docket No. 43 at 20-21 27 (citations omitted).) Moreover, DTSC has not moved to strike Intervenors’ other affirmative defenses, most of which pertain to 28 causation. 1 strike the jury trial demand asserted by defendant Jim Dobbas, 2 Inc. (Docket No. 43 at 12-14.) The court explained that there 3 was substantial authority that CERCLA cost recovery actions 4 provided restitution and were thus equitable in nature because 5 they seek to restore parties who incur cleanup costs to the 6 position they previously occupied. Accordingly, these courts 7 have held that there is no right to a jury trial in CERCLA cost 8 recovery actions. (Docket No. 43 at 13 (citing Cal. Dep’t of 9 Toxic Substances Control v. Alco Pac., Inc., 217 F. Supp. 2d 10 1028, 1046 (C.D. Cal. 2002) (collecting cases); Wehner v. Syntex 11 Corp., 682 F. Supp. 39, 40 (N.D. Cal. 1987)).) 12 However, the court noted that those authorities were 13 called into question by the Supreme Court’s statement in Great– 14 West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 15 (2002), in which it cautioned that “not all relief falling under 16 the rubric of restitution is equity.” Id. at 212. Moreover, the 17 Second Circuit has held that “in light of [Great–West], it is by 18 no means clear that the restitution provided by § 9607(a) is 19 equitable, rather than legal, in nature.”5 AMW Materials 20 Testing, Inc. v. Town of Babylon, 584 F.3d 436, 452 (2d Cir. 21 2009). 22 Given this uncertainty and the need to err on the side 23 of preserving the right to a jury, see Granite Rock Co. v. 24 International Brotherhood of Teamsters, 649 F.3d 1067, 1069 (9th 25

26 5 This court also noted the split among courts whether there was a right to a jury trial for § 9613(f) contribution 27 claims. (Docket No. 43 at 13-14 (citing Hatco Corp. v. W.R. Grace & Co. Conn., 59 F.3d 400, 412 n.9 (3d Cir. 1995)(collecting 28 cases).) 1 Cir. 2011), the undersigned determined that disposing of Dobbas’ 2 jury demand as to the CERCLA claims was inappropriate on a motion 3 to strike. The court also denied the motion to strike the jury 4 demand as to DTSC’ claim under the HSAA because the civil 5 penalties authorized under the HSAA are essentially legal in 6 nature, as they go beyond restitution. (Docket No. 43 at 14-15 7 (citations omitted).) 8 DTSC argues that Intervenors’ jury demand should be 9 stricken given the authorities finding that cost recovery actions 10 are in fact equitable in nature. DTSC also seeks to distinguish 11 this court’s prior denial of the motion to strike Dobbas’ jury 12 demand by noting that while it asserted an HSAA claims against 13 Dobbas, it has not asserted a claim under the HSAA against C&A 14 Products. However, the court’s 2014 order addressed DTSC’s HSAA 15 claim separately from the CERCLA cost recovery and declaratory 16 relief claims when discussing whether Dobbas was entitled to a 17 jury. In the court’s view, the uncertainty raised by Great-West 18 and ANW Materials Testing alone was sufficient to warrant denial 19 of the motion to strike the jury demand. Moreover, DTSC has 20 provided no authorities decided after Great-West and ANW 21 Materials Testing establishing that CERCLA cost recovery actions 22 are strictly equitable in nature. 23 Here, Intervenors are defending the same CERCLA claims 24 for cost recovery asserted by DTSC against Dobbas, and they also 25 assert a counterclaim for cost recovery similar to Dobbas’. In 26 light of the continued uncertainty as to whether CERCLA cost 27 recovery actions are equitable in nature, the court will deny 28 DTSC’s motion to strike Intervenors’ jury demand. ee nee en nn nn EE IE IIE OSE IEE

1 IT IS THEREFORE ORDERED that DTSC’s motion to dismiss 2 and motion to strike (Docket No. 279) are GRANTED IN PART. 3 Intervenors’ counterclaims are DISMISSED. Intervenor’s seventh 4 affirmative defense for contributory and comparative negligence 5 is hereby STRICKEN. DTSC’s motion to strike Intervenors’ jury 6 demand is DENIED. 7 Intervenors have twenty days from the date of this 8 Order is signed to file amended counterclaims, if they can do so 9 | consistent with this Order. 10 | Dated: July 31, 2023 Abbe an~ Ve 2d. bE 11 WILLIAM B. SHUBB UNITED STATES DISTRICT JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14