Property Available at Tax Sale May Not Be a Bargain if Contaminated

by Pillsbury - Gravel2Gavel Construction & Real Estate Law
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On April 27, the U.S. Court of Appeals for the Ninth Circuit held, in the case of California Dep’t of Toxic Substances Control v. Westside Delivery, LLC, that a purchaser of land at a California tax sale was not entitled to the third party defense for clean-up costs contemplated by the Comprehensive Environmental Response, Compensation, and Liability Act’s (CERCLA), known also as Superfund. The Ninth Circuit concluded that The panel concluded that Westside Delivery, LLC (Westside) had a “contractual relationship” with the pre-tax-sale owner of the property and that the previous owner caused contamination of the site “in connection with” its contractual relationship with Westside. The case has been remanded for further proceedings.

The site is the Davis Chemical Site in Los Angeles, CA, where Davis Chemical recycled spent solvents for many years (1949 to 1990). After the plant closed, the local property taxes weren’t paid, and the Los Angeles County Tax Collector sold the site to Westside at tax auction in 2009. Since purchasing the site, Westside has not conducted any operations there. Meanwhile, the California Department of Toxic Substances Control (DTSC) conducted cleanup efforts at the site until 2015.

Seeking other potentially liable parties to share the cleanup costs, the DTSC filed a CERCLA cost recovery lawsuit against Westside. Westside argued that it was not liable because the release of hazardous substances was solely attributable a third party (Davis) with which it had no contractual relationship. The District Court agreed with Westside and granted summary judgment.

On appeal, the Ninth Circuit reversed, holding that Westside did have a “contractual relationship” under CERCLA with Davis by virtue of the tax sale, finding that a tax deed “fits comfortably within the definition of an ‘instrument transferring possession.” It found that the acts or omissions of Davis that caused the contamination occurred in connection with Davis’ contractual relationship with Westside, and the Ninth Circuit concluded that Westside was a “covered party” for CERCLA liability purposes.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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