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In
1988, Hardee's Food Systems, Inc. ("Hardee's") investigated
the possibility of leasing a site in Kansas City, Missouri owned
by K.C. 1986 Limited Partnership ("K.C. 1986").
The site had previously been leased by U.S. Borax ("Borax")
from Reade Manufacturing ("Reade"). Both Borax
and Reade had used the site to store and blend chemicals used
in herbicides. The site had also been used by Habco Inc.
("Habco"), a manufacturer of herbicides. On June
15, 1989 Hardee's and K.C. 1986 entered into a "ground lease."
The lease was subject to several conditions precedent, including
a right to terminate if Hardee's soil test, performed at Hardee's
expense, established the site was not free of contamination.
Hardee's engaged Terracon Environmental, Inc. ("Terracon")
to conduct an investigation of the site including the drilling
of three monitoring wells. The result of Terracon's investigation
showed that the site contained elevated levels of several contaminants.
After forwarding a copy of Terracon's report to K.C. 1986, Hardee's
terminated the ground lease. Terracon's on-site investigation
lasted approximately ten days.
In September 1993, K.C. 1986 entered into a consent decree with
the Missouri Department of National Resources requiring K.C. 1986
to prepare and implement a remediation action plan for the site.
On March 20, 1995, K.C. 1986 sent Borax a notice of claim under
RCRA. Thereafter, Borax and K.C. 1986 made RCRA and CERCLA
claims against both Terracon and Hardee's.
Hardee's and Terracon brought separate motions for summary judgment.
Hardee's argued that it was not liable under CERCLA for response
costs incurred in cleaning up hazardous substances at the site
because it never owned or operated the site. Hardee's also
argued that, even if it were a "covered persons" under
the act, no hazardous substances were disposed of during its "ownership"
or "operation" of the site.
The court first concluded that a question of fact existed as to
whether hazardous waste was "disposed of" by the acts
of Terracon. The court ruled that the allegations in K.C.
1986's and Borax's complaints, that Terracon's construction of
monitoring wells increased the rate of contaminant migration,
if true could constitute a disposal of hazardous substances.
Citing Tanglewood East Homeowners v. Charles-Thomas Inc.,
849 F.2d 1568, 1573 (5th Cir. 1988).
The court then found that the lease agreement between K.C. 1986
and Hardee's permitted Hardee's to take temporary possession of
the property to conduct an environmental assessment and gave Hardee's
a lease option should it be satisfied with the assessment.
A question of fact existed, therefore, as to whether Hardee's
had an equitable interest in the property at the time Terracon
performed its investigation. Such an interest could form
the basis for imposing CERCLA liability. Citing United
States v. Wedzeb Centers, Inc., 809 F.Supp. 646, 652 (S.D.
Inc. 1962).
Alternatively, the court held that the work performed by Terracon,
including the drilling of the monitoring wells, was done under
a scope of work prepared by Hardee's. As a result, a trier
of fact could conclude that Hardee's sufficiently directed the
work of Terracon to be considered an operator.
In response to Borax's argument that Hardee's was vicariously
responsible for the acts of Terracon, Hardee's argued that Terracon
was an independent contractor, not an agent of Hardee's.
The court, however, concluded that the drilling of monitoring
wells which allegedly exacerbated existing contamination could
constitute an inherently dangerous activity which could impose
a non-delegable duty on Hardee's.
As to Terracon, it sought summary judgment on the grounds that
it could not be strictly liable under CERCLA. The court
held, however, that control over its own activities could subject
it to liability under CERCLA as an operator. Citing United
States v. Gurley, 43 F.3d 1188, 1193 (8th Cir. 1994), the
court also dismissed Terracon's reliance on the innocent landowner
defense.
The District Court's rationale for denying the motions for summary
judgment should raise concern among potential lessees and/or buyers
of land and their environmental consultants. A lessee or buyer
may face liability even if the transaction is terminated before
possession. An environmental consultant may find itself
strictly liable under CERCLA for performing tasks intended to
limit the client's liability. Indeed, the same task may
impose liability on the client under the non-delegable duty doctrine.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-848-4996 or at paulberning@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©1999 Howrey LLP
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