A recent decision by the U.S. District Court for the Eastern District of California may re-energize plaintiffs who hope to recover contamination clean-up costs from public agency sewer system owners. In Adobe Lumber, Inc. v. Hellman (2009 WL 2913415), the court held the City of Woodland liable under CERCLA for contamination of the City’s sewer system with the solvent perchloroethylene (PCE), which was improperly disposed of by a dry cleaning business located above the City’s sewer.

Prior to Adobe, several court decisions served to discourage plaintiffs from seeking to recover clean-up costs from public agency sewer system owners—notably Fireman’s Fund Ins. Co. v. City of Lodi, 302 F.3d 928 (9th Cir. 2002) and Lincoln Properties, Ltd. v. Higgins, 823 F. Supp. 1528 (E.D. Cal. 1992). For example, in Fireman’s, the Court found it doubtful that a city would be considered responsible for contamination, simply because it operated a municipal sewer system. Now, with the Adobe decision, the District Court has extended CERCLA liability to the owners and operators of sewer systems.

Adobe Lumber Inc. brought its suit against the City of Woodland and several other defendants under CERCLA, the California Hazardous Substance Account Act (HSAA) and California common law. At the outset, the Court noted that HSAA expressly incorporates CERCLA’s liability and defense standards, and therefore the City’s arguments under CERCLA would apply with equal force under HSAA.

In support of its motion for summary judgment, the City argued that Adobe Lumber could not makes its prima facie case that the City is liable for the contamination under CERCLA because: (1) the City’s sewer is not a “facility” under CERCLA, and (2) the City does not fall within the classes of persons subject to liability under CERCLA. The City further argued that it is absolved from liability by CERCLA’s innocent-party defense. Relying on decisions by several other courts, the Court rejected the first two of these arguments. It also found that the City failed to meet the standard for summary judgment with its third argument.

In finding that the City’s sewer was a facility under CERCLA, the Court relied primarily upon the Fourth Circuit case Westfarm Assoc. Ltd. P’ship v. Wash. Suburban Sanitary Comm’n, 66 F.3d 669 (4th Cir. 1995). In Westfarm, the Fourth Circuit found that CERCLA, taken as a whole, did not intend to exclude sewers or publicly owned treatment works from liability.

In finding that the City was both a present and former “owner or operator” of a facility under CERCLA, the Court relied in part upon the Sixth Circuit case United States v. Twp. of Brighton, 153 F.3d 307 (6th Cir. 1998). In Brighton, the Court found that an area may be “reasonable or naturally divided into multiple parts and functional units,” each constituting a separate facility for the purposes of CERCLA liability. Id. at 313. The Adobe Court found that the City owned the sewer main beneath the dry cleaning business, which may be considered a separate facility under CERCLA pursuant to Brighton and several other cases.

The Court also found that the City failed to meet the standard for summary judgment in order to successfully assert CERCLA’s innocent-party defense. Specifically, the Court found that genuine issues of material fact existed as to whether the City could meet the elements of the innocent-party defense, namely: (1) that the dry cleaning business was the sole cause of the contamination, and (2) that the City exercised due care and took appropriate precautions against contamination resulting from third-party acts or omissions.

Although the Adobe decision is likely to be appealed, the case serves as an important reminder that arguments are available to plaintiffs to find sewer system owners liable for contamination caused by third parties under CERCLA and HSAA. In light of this, the Adobe decision should also serve to reiterate the importance of taking proactive measures to prevent contamination resulting from the acts or omission of third parties. Such measures may include instituting maintenance and replacement programs and adopting zero discharge ordinances or other restrictive measures. These precautions and proactive measures are particularly important in the case of PCE and other long-lasting solvents and chemicals, which can remain in soil for many years after the third party originally disposes of them.