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Understanding CERCLA’s Petroleum Exclusion


Posted on - 08/29/2007
by JHP

You are the owner and founder of Clean Platers, Inc. You recently moved the company location to a twelve-acre parcel of ground that you purchased in 1993. You formerly operated the company on an eight-acre parcel of land purchased from a company called Tower Oil Company. Tower Oil Company was a local distributor of gasoline from your former location from 1951 through 1973. Tower Oil Company operated exclusively on your company's former location. Tower Oil Company would purchase refined petroleum products from other oil companies, store the refined petroleum products in above ground bulk storage tanks on site, and distribute the products to service stations in its service area.

Eventually, Tower Oil Company's share of the market declined to the point that the owner of Tower Oil Company decided to cease operations in 1973. In 1973, Tower Oil Company dismantled the tanks located on the property it owned, liquidated all of its other assets, and sold your company the real estate on which the tanks were formerly located. In 1993, your company expanded and needed a larger facility. It sold the eight-acre location where Tower Oil Company was formerly located to Stucko Industries, Inc. and purchased its current twelve-acre location two miles away.

In 1994, the local town of Clean Water detected high levels of benzene, toluene, ethyl benzene and xylene in the city water wells. The city of Clean Water performed a groundwater study and traced the contamination as coming from the former Tower Oil Company Property two miles away. Stucko Industries, Inc., the new owner of the former Tower Oil Company property, put a groundwater monitoring well on the property and found that a two-foot thick layer of gasoline is floating on top of the shallow groundwater under the property. Investigations revealed that the groundwater contamination is from your former property, but is unrelated to your former business. Investigations further reveal that your former location is heavily contaminated with gasoline from Tower Oil Company's operations and will require extensive efforts to remove the gasoline from the property and to protect the City of Clean Water's drinking water wells. Apparently, the source of the gasoline was the above ground bulk storage tanks used by Tower Oil Company during its twenty-two year ownership and operation of the property. Current estimates are that over three million gallons of gasoline are floating on the groundwater beneath your former location.

Stucko Industries, Inc. and the City of Clean Water approach you and demand that you pay for the cost of removing the gasoline contamination from the site. As the former owner and operator of the property, the City of Clean Water and the owner of Stucko Industries, Inc. demand that you pay for the cost of the removal. Since Tower Oil Company is out of business, and since you were on the property from 1973 until 1997, and since Stucko Industries, Inc. has only been on the site for a few months, the City of Clean Water and the owner of Stucko Industries, Inc. demand that you pay the entire cost of removal. However, in an attempt to be amicable, the owner of Stucko Industries, Inc. offers to pay five percent of the cost of removal and the City of Clean Water offers to pay five percent of the cost of removal. According to Stucko Industries, Inc. and the City of Clean Water, they are being generous.

Being in a cash flow crisis from your recent expansion, you decline the offer to pay for ninety percent of the cleanup, and the next thing you know, Stucko and the City of Clean Water are suing you. You were served yesterday with a complaint that names your company as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § § 9601, et seq.). Now you think that maybe you should have accepted the offer to pay only ninety percent of the cost of removing the gasoline from the property. You expect to pay more than ninety percent of the cost of removal plus legal expenses that go along with any lawsuit. Regardless, you decide to turn the defense over to an environmental attorney.

The environmental attorney that you contact asks you to bring in your documents and information on the property. You truthfully tell your attorney that you had no idea the property was contaminated with gasoline prior to selling it to Stucko, and you provide him with copies of all documentation showing what chemicals you kept on the property, and what information you had regarding the environmental condition of the property. Nothing indicates that you knew or should have known of the property's contaminated condition. You ask your attorney if there is any way to shift more of the liability to either Stucko or the City of Clean Water since you simply do not have the money to pay for such an extensive removal effort.

Your attorney asks you what percentage of the removal cost you would be willing to pay and still be happy. You explain that you would be happy if you could keep your company's share of the responsibility to less than one-third of the cost of the removal. Your attorney smiles sheepishly and says that you should be ecstatic then, because you will not have to pay for any of the cost of the removal. You are puzzled and ask for an explanation.

Your attorney explains that Stucko and the City of Clean Water are suing you under CERCLA due to releases of "hazardous substances" into the environment thereby entitling Stucko and the City of Clean Water to relief under the liability provisions of CERCLA § 107, 42 U.S.C. § 9607. However, in order for liability to exist under CERCLA, a "hazardous substance" or a "pollutant or contaminant" as defined in the statute must have been released. Section 9601(14) of 42 U.S.C. defines the term "hazardous substance." The term "hazardous substance" means:

    1. any substance designated pursuant to section 311(b)(2)(A) of the Federal Water Pollution Control Act [33 USCS § 1321(b)(2)(A)],
    2. any element, compound, mixture, solution, or substance designated pursuant to section 102 of this Act [42 USCS § 9602],
    3. any hazardous waste having the characteristics identified under or listed pursuant to section 3001 of the Solid Waste Disposal Act [42 USCS § 6921] (but not including any waste the regulation of which under the Solid Waste Disposal Act [42 USCS § § 6901 et seq.] has been suspended by Act of Congress),
    4. any toxic pollutant listed under section 307(a) of the Federal Water Pollution Control Act [33 USCS § 1317(a)],
    5. any hazardous air pollutant listed under section 112 of the Clean Air Act [42 USCS § 7412], and
    6. any imminently hazardous chemical substance or mixture with respect to which the Administrator has taken action pursuant to section 7 of the Toxic Substances Control Act [15 USCS § 2606].

The term does not include petroleum, including crude oil or any fraction thereof which is not otherwise specifically listed or designated as a hazardous substance under subparagraphs (A) through (F) of this paragraph, and the term does not include natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas)

. (Emphasis added).

42 U.S.C. § 9601(14).

Section 9601(33) of 42 U.S.C. defines the term "pollutant or contaminant." The term "pollutant or contaminant" means:

. . . any element, substance, compound, or mixture, including disease-causing agents, which after release into the environment and upon exposure, ingestion, inhalation, or assimilation into any organism, either directly from the environment or indirectly by ingestion through food chains, will or may reasonably be anticipated to cause death, disease, behavioral abnormalities, cancer, genetic mutation, physiological malfunctions (including malfunctions in reproduction) or physical deformations, in such organisms or their offspring; except that the term "pollutant or contaminant" shall not include petroleum, including crude oil or any fraction thereof which is not otherwise specifically listed or designated as a hazardous substance under subparagraphs (A) through (F) of paragraph (14) and shall not include natural gas, liquefied natural gas, or synthetic gas of pipeline quality (or mixtures of natural gas and such synthetic gas). (Emphasis added).

42 U.S.C. § 9601(33).

Your attorney explains that the underlined portions of the above definitions are more commonly referred to as CERCLA's "Petroleum Exclusion." According to your attorney, the above-cited definitions unequivocally show Congress' intent to exclude petroleum products from the liability provisions of CERCLA. "What Congress means, and what the Courts hold are two different things," you tell your attorney. You ask, "How have the Court's interpreted the statute?"

Your attorney explains that in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), the Supreme Court of the United States proclaimed, "If the intent of Congress is clear, that is the end of the matter; for the court . . . must give effect to the unambiguously expressed intent of Congress." Id. at 842-843. On this premise the lead case on the petroleum exclusion was Wilshire Westwood Associates v. Atlantic Richfield Company, 881 F.2d 801 (9th Cir. 1989). In Wilshire, the Ninth Circuit Court of Appeals faced the issue of whether the presence of benzene, toluene, ethyl benzene, and xylene in the groundwater, all individually listed hazardous substances under CERCLA and components of gasoline, could be considered eligible for the Petroleum Exclusion under CERCLA.

The Wilshire court noted that petroleum was a mixture of other chemicals, which if not a part of a petroleum product, would individually be considered "hazardous substances" or "pollutants or contaminants" under CERCLA. For example, the Wilshire court noted that benzene, toluene, ethyl benzene and xylene are all indigenous of crude oil. Id. At 803. The Wilshire court further recognized that if the petroleum exclusion was to have meaning, all of the "fractions" of petroleum, including these individual chemicals which would otherwise cause CERCLA liability to be imposed, must be excluded under CERCLA's petroleum exclusion.

You ask your attorney if U.S. EPA agrees with the court's interpretation of the petroleum exclusion. Your attorney explains that much of what the court in Wilshire relied upon in reaching its conclusion was based upon U.S. EPA documentation and interpretation. For example, U.S. EPA has stated that "EPA interprets the petroleum exclusion to apply to materials such as crude oil, petroleum feedstocks, and refined petroleum products, even if a specifically listed or designated hazardous substance is present in such products." 50 Fed. Reg. 13460 (April 4, 1985).

You are amazed. You ask your attorney what will happen next. Your attorney states that he will file a motion with the court to have you dismissed as a party from the lawsuit since a) you no longer own the property where the spill exists, b) there is no dispute that the gasoline was released by someone else, and c) gasoline is not a "hazardous substance" or "pollutant or contaminant" under CERCLA subjecting a former land owner to liability because of the petroleum exclusion found in the statute. You are amazed that the petroleum exclusion in CERCLA exists, and it actually prevented you from incurring liability.

Whenever a party faces CERCLA liability, it is important to understand what CERCLA covers and does not cover. The above facts were taken from a case that I personally handled several years ago. In that case, the defendant avoided CERCLA liability by proving that the chemicals released at the site were from petroleum products. Furthermore, since the releases were not attributable to my client who had already sold the property, no liability attached, except for legal fees - which were gladly paid under the circumstances.

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