Several new liability theories have emerged in litigation over leaking underground storage tanks ("LUSTs"). In light of these new theories, LUST parties in Illinois now must make several strategic decisions before following the litigation trail. These issues include whether to begin cleanup before filing suit, or delaying it until the close of litigation; whether the appropriate forum is federal / state court, or the Illinois Pollution Control Board; whether to add any common law, state or federal statutory claims which should be added; and whether to file a motion to dismiss or for summary judgment in response to a Resource Conservation and Recovery Act (RCRA) cost recovery complaint.
These issues continue to cause concern for current and former property owners facing the prospect of LUST litigation. Current liability issues likely arise from the fact that USTs can be difficult to locate, and before regulation owners commonly abandoned USTs in place, rather than removing them. [See, e.g., Grube v. Daun, 213 Wis.2d 533, 570 N.W.2d 851, 856 (Wis. 1997).] Long term property owners who purchased before mandated disclosures fear liability for unidentified USTs. Current owners have attempted to pass liability for tanks back to a prior owner, who may be more responsible for the presence of the tank. The United States Supreme Court was faced with such a scenario in Meghrig v. KFC Western, Inc., 516 U.S. 479, 116 S.Ct. 1251, 134 L.Ed.2d 922 (1996). The plaintiff in Meghrig discovered petroleum contamination while attempting to obtain a building permit. To complete construction on the property, the plaintiff was required to clean it up. Three years after later, the plaintiff sought reimbursement from the prior owner under the Resource Conservation and Recovery Act, 42 U.S.C. §6901 et seq. Former owners mistakenly believe themselves insulated from liability for activities they may have engaged in long before current environmental statutes existed.
Recent LUST litigation between former and current owners in Illinois has demonstrated that the courts have narrowed current property owners' options to impose liability on prior UST owners. Federal courts, interpreting RCRA, have refused to permit cost recovery under its citizen suit provision. Because petroleum contamination is not defined as hazardous waste under CERCLA, private parties have been unable to bring suit under CERCLA's contribution section. Lacking a federal cost recovery mechanism, plaintiffs have turned to state law claims, leading one court to note: "The large, lingering, and often hidden legal consequences of environmental pollution have fostered some imaginative attempts to expand the scope of some common law tort doctrines." [Lilly Indus., Inc. v. Health-Chem Corp., 974 F.Supp. 702, 703 (N.D. Ind. 1997)(dismissing nuisance and trespass claims against prior owner alleged to have left contamination).]
Illinois courts have resisted expanding common law claims, which often conflict with the doctrine of caveat emptor, and the economic loss doctrine. However, both former and current property owners are potentially liable for contamination caused by LUSTs. Careful evaluation of litigation strategy will increase chances of prevailing in LUST lawsuits.
No RCRA Cost Recovery
Property owners with LUSTs have relied upon both state and federal law for remedies that permit them to pass removal and remediation costs back to the prior tank owner. Because the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) contains a petroleum exclusion, private parties have attempted to use RCRA as a cost recovery mechanism. RCRA's is even more attractive because it permits the recovery of attorney's fees, which creates increased leverage for the plaintiff and a corresponding increase in risk for a potentially liable party in a RCRA action.
Unfortunately for self-described "innocent landowners," courts have almost uniformly denied any cost recovery under RCRA. Until the ninth circuit's KFC Western decision, a number of courts had held that RCRA was not a cost recovery statute and that private parties, acting as "private attorneys general," could not benefit from RCRA relief. [See Furrer v. Brown, 62 F.3d 1092 (8th Cir. 1995).] The ninth circuit's opinion provided the United States Supreme Court an opportunity to interpret RCRA's citizen suit provision, and determine whether it permitted cost recovery.
The Meghrig Court reversed the Ninth Circuit, and held that because a private party is unable to allege an imminent and substantial endangerment, it cannot file suit under RCRA to recover remediation costs once the cleanup had been completed. Meghrig seemingly left open, however, whether RCRA would permit cost recovery if a property owner had incurred cleanup costs after the filing of a complaint.
In the wake of Meghrig, district courts, including the Northern District of Illinois, have held that a property owner cannot recover costs incurred even after filing a RCRA complaint. [Agricultural Excess & Surplus Ins. Co. v. A.B.D. Tank & Pump Co., No. 95 C 3681, 1996 WL 515088, at *3 (N.D. Ill. Sept. 6, 1996); Andritz Sprout-Bauer, Inc. v. Beazer East, Inc., 174 F.R.D. 609 (M.D. Pa. 1997); Express Car Wash Corp. v. Irinaga Bros., Inc., 967 F.Supp. 1188 (D. Or. 1997); Cross Oil Co. v. Phillips Petroleum Co., 944 F.Supp. 787 (D. Mo. 1996).] These post-Meghrig opinions have applied the United States Supreme Court's approach to interpreting RCRA, and have concluded that Congress did not intend RCRA to be a cost recovery statute. These opinions have held that a private party cannot rely upon RCRA to recover LUST remediation costs that it has incurred or will incur in the future.
Therefore, a property owner that discovers USTs on its property can only use RCRA to seek injunctive relief. A property owner typically has two major concerns about seeking injunctive relief:
- the delay caused by waiting for a court to order remedial action, and
- the inherent loss of control in having a third party conducting a cleanup under an order from the court.
For these reasons, injunctive relief under RCRA may not be desirable. However, unless the current owner seeks injunctive relief, a federal court might not be willing to retain jurisdiction over state law claims for which the court may have had supplemental jurisdiction. [Express Car Wash Corp., 967 F.Supp. at 1194.]
Claims Against Prior Owner Under Illinois Statutes and Common Law
Because the federal environmental statutes do not provide reimbursement for LUST remediation, a current landowner will need to bring a state law claim against the prior owner to recover costs incurred remediating LUST contamination. Illinois courts have recently clarified the types of state law actions that can be used to recover against prior owners.
A property owner may attempt to recover response costs from a prior landowner under a number of state law claims including:
1. tort actions such as:
- false representation;
- negligent misrepresentation;
- failure to disclose;
- nuisance / trespass; and
- strict liability;
2. contract claims, if available; and
3. statutory claims.
Recent cases have reviewed a plaintiff's ability to recover from a prior landowner under a number of these theories and have exposed pitfalls in these actions.
A landowner has some measure of protection under Illinois statutes, specifically the Contribution Act, and the Illinois Environmental Protection Act ("IEPA"). Recovery under Illinois statutes, however, can be limited because these statutes are not retrospective and would not assist a current landowner who has discovered a LUST that was left by a prior owner far back in the chain of title.
The Responsible Property Transfer Act which proported to protect recent property purchasers by requiring that the seller disclose any known hazardous wastes or underground tanks associated with the property was repealed in 2001. However, the repeal does not alter the disclosure requirements of the Illinois Residential Real Property Disclosure Act. Nor does the repeal change the requirements of Hazardousn Waste Disposal statutes of Illinois Residential Real Property Disclosure Act (415 ILCS 5/21 and 415 ILCS 5/39) which mandate that, "no person may transfer intereset in any land that has been used as a hazardous waste disposal site. . . "
IEPA: Illinois Pollution Control Board has Asserted Authority to Award Cleanup Costs to Private Parties
In Lake County Forest Preserve District v. Ostro, PCB No. 92-80, 1994 Ill. Env. LEXIS 484 (Ill. Pollution Control Bd. Mar. 31, 1994, the Illinois Pollution Control Board held that the Illinois Environmental Protection Act authorized the Board to order a private party to reimburse another party for its remediation expenses. The Board based its opinion upon People v. Fiorini, in which the Illinois Supreme Court held that a court may have the authority to award response costs in a third party claim arising in an IEPA enforcement action.21 The Ostro decision appeared to create a relatively quick way for property owners to clean up LUSTs and pass the costs back to prior owners.
More recently, the Illinois Pollution Control Board has limited the reach of Ostro by holding that IEPA cannot be enforced retroactively to conduct that ended prior to the July 1, 1970 enactment of the IEPA. [Casanave v. Amoco Oil Co., PCB No. 97-84, 1997 Ill. Env. LEXIS 653 (Nov. 20, 1997).] In Casanave, the Board dismissed a claim against a defendant that allegedly left USTs on the property after it sold the land in 1952. The Board indicated that for liability to arise under the IEPA, a party would need to have owned or operated the UST after the enactment of the IEPA.
Further, a concurring opinion in Casanave had suggested that, based upon NBD Bank v. Krueger Ringier, Inc., the PCB may not have the authority to award cleanup costs. The NBD Bank court held that the IEPA does not create a private right of action for cost recovery as a tort claim, and that the statute was not designed to protect parties to a real estate transaction. The court thereby distinguished both Fiorini and Brockman, which permitted third party claims in enforcement actions brought by the State. For a brief time, the Casanave decision appeared to present a basis to challenge the Board's authority to award response costs.
Shortly after Casanave, the Board responded to the assertion that NBD Bank may have foreclosed its ability to award cleanup costs to a private party bringing an enforcement action under the IEPA. In Malina v. Day, the owner of a former gasoline station brought an action against a prior property owner, alleging that the respondent left LUSTs on the property in violation of 415 ILCS 5/21.29 The complainant sought reimbursement for remediation costs that had been incurred at the site.
The Board noted that while NBD Bank may preclude an implied tort action under the IEPA, the decision did not affect the remedies available in an action properly before the Board pursuant to its statutory authority. The Board stated that it "has consistently held that such [cleanup] costs are a potential remedy" and that it "finds nothing in the NBD court's decision which affects" these holdings. Therefore, an action before the Board appears to remain a viable mechanism to recover cleanup costs from a post-1970 owner of a LUST.
Claim under Illinois Contribution Act
Illinois courts have traditionally permitted parties to bring environmental cost recovery claims under the Illinois Contribution Act. [People v. Brockman, 143 Ill.2d 351, 574 N.E.2d 626 (Ill. 1991).] These cases demonstrate that Contribution Act claims are not limited to third-party actions attendant to enforcement actions brought by the State. Rather, these claims merely require potential liability under the IEPA. Because these claims can be brought in voluntary cleanups, they will likely be a popular method for parties seeking reimbursement from prior landowners.
However, one limitation on a Contribution Act claim is that by the terms of the statute, the conduct creating the liability must have occurred after March 1, 1978. Therefore, unless a plaintiff can show that its cause of action accrued after this date, he or she cannot bring a claim under the Act. [See, e.g., Village of Fox River Grove v. Grayhill, Inc., 806 F.Supp. 785, 795 (N.D. Ill. 1992)(no claim against party that disposed of chemicals on property in 1972).
Limitation on tort claims: Caveat Emptor Doctrine Prevents Tort Suits Against Prior Owners
When a current owner suspects that USTs were left by a party too far back in the chain of title to permit a statutory claim, and no contract existed with the prior owner, the current owner may attempt to recover through a tort based claim. Recent opinions from state and federal courts in Illinois provide guidance regarding various common law claims and potential successful defenses to defeat a tort claim by a current landowner.
Illinois courts do not permit a current owner to state a claim for either nuisance or trespass against a prior owner. Although California's nuisance statute has been interpreted to permit a current owner to claim that hazardous substances left by the prior owner are a current "nuisance," Illinois courts have rejected similar arguments. Because the California courts permitted such a claim under a California negligence statute, rather than the common law, at least one court has held that the California opinion is not persuasive in support of a common law nuisance claim. Therefore, it appears that Illinois courts will not alter their position that a current owner cannot bring a nuisance action for a UST left by a prior owner.
Furthermore, a current landowner cannot bring a negligence action against a prior landowner simply because the prior owner left USTs on the property. Illinois courts have made clear that a prior owner has no common law duty to remove tanks for the benefit of a future owner. Recently, an Illinois Appellate Court has held that a duty to not contaminate the environment was not intended to protect purchasers of real estate, thereby limiting the scope of opinions including Brockman, where the Illinois Supreme Court intimated that such a duty existed. [NBD Bank, at 697, 686 N.E.2d at 709. The Brockman court held that the potential tort liability that permitted a contribution claim arose from breaching "a duty to not contaminate the environment", for which the State "could maintain an action for damages." Brockman, at 372, 574 N.E.2d at 634.]
As these opinions demonstrate, the common law required the purchaser of real estate to bear the risk of defects. Courts have resisted attempts to shift that burden further than environmental statutes permit. Therefore plaintiffs cannot base a negligence claim against a prior landowner on the fact that the prior owner left tanks on the property.
Even if a current owner could plead a duty owed by the prior owner, he or she still might be unable to state a claim for recoverable damages. Illinois has adopted the Restatement of Torts (Second) section 352, which limits liability of the seller to physical harm caused by undisclosed and undiscovered hazardous conditions existing at time of sale. Illinois courts have therefore concluded that a plaintiff does not have a claim for tort damages for an undisclosed condition, e.g., a leaking underground storage tank left by the prior owner. Courts have categorized contamination left by a prior owner as a claim for inadequate value or a failure to perform as anticipated, and remediation costs to be a cost or repair or replacement.
Illinois courts have noted that the injury claimed in LUST actions are really economic losses not accompanied by physical harm or harm to "other property," which cannot be recovered in tort. [Singer v. Bulk Petroleum Corp., No. 97 C 7789, 1998 WL 314599, at *5-6 (N.D. Ill. June 11, 1998). ] The economic loss doctrine is premised upon limiting tort liability in the absence of personal injury or property damage by excluding consequential damages. However, Illinois courts have made clear, the economic loss doctrine is not limited by a privity requirement; it can be applied even when the plaintiff has no other recourse against the defendant. [2314 Lincoln Park West Condominium Ass'n v. Mann, Gin, Ebel, & Frazier, LTD., 136 Ill.2d 302, 317, 555 N.E.2d 346, 353 (Ill. 1990.] Therefore, the economic loss doctrine can properly be applied to bar a claim between a prior owner and a remote vendee. [See, e.g., G.J. Leasing Co. v. Union Elec. Co., 825 F.Supp. 1363 (S.D. Ill. 1993).]
Current Landowner's Duty to Remediate May Prevent Unjust Enrichment Claim
Unjust enrichment claims are premised upon the notion that a current landowner, by disposing of abandoned USTs and remediating contamination, is performing the duty of the prior owner who created the problem. However, courts have held that when a current landowner has been compelled to clean up its property (for example, by an EPA order), he or she cannot bring an unjust enrichment claim against prior owners. [In re Energy Coop., No. 92 C 2392, 1995 WL 330876, at *8 (N.D. Ill. May 30, 1995).]
Illinois courts have adopted section 106 of the Restatement of Restitution, which denies an unjust enrichment claim against a party that was an incidental beneficiary of the current landowner's duty to act. Therefore, a current property owner's duty to remediate LUST contamination would preclude a claim for unjust enrichment. In addition to situations in which the current landowner remediates the property pursuant to an administrative order, section 106 may be applicable when a current landowner has created a contractual obligation to remediate the property through a purchase agreement.
Recent judicial opinions demonstrate that a current property owner must carefully consider the available options when faced with liability for a past owner's LUST. Although recent opinions do not offer complete immunity for prior owners, some avenues for cost recovery, such as RCRA, appear to be foreclosed. Because RCRA cost recovery appears to be unavailable, parties will need to rely upon state court actions in most instances. As the Illinois Appellate Court demonstrated in NBD Bank, potential recoveries also may be limited by the economic loss and caveat emptor doctrines.
The scope of recovery for a current property owner faced with a LUST problem continues to be defined by LUST litigation. In Illinois, property owners must be apprised of these developments before deciding how to approach a LUST problem.