|State Water Resources Control Board Order Improves
Recently, the State Water Resources Control Board (the "Board") affirmed that oil companies may advance cleanup costs to higher priority claimants to the State’s Underground Storage Tank Cleanup Fund ("Fund") without violating the Fund's priority scheme. The Board overturned decisions by Fund Staff and by the Division Chief of the Clean Water Programs which had denied Fund reimbursement to parties to such "loan" arrangements. The Board’s Order (No. WQ 99-02-UST, 4/29/99) ratified two settlement agreements under which the oil companies had advanced cleanup costs to the higher priority claimants in return for the claimants repaying the companies any money they were reimbursed by the Fund.
By way of background, the Fund was established by statute in 1989 in order to provide a source of funding for the cleanup of thousands of leaking underground storage tank ("UST") sites in the State. The law restricts access to the Fund to owners and/or operators of leaking tanks who are required by local agencies to clean up the contamination. Claimants to the Fund are placed in one of four Priority Classes depending on the financial size of the claimant. Because the Legislature found it was in the public interest for the State to provide financial assistance to small businesses, claimants with less financial resources have higher priority and are reimbursed by the Fund first. In contrast, claimants with greater financial resources are placed in the lower priority classes and receive money later. A claimant accepted by the Fund may receive reimbursement of up to $1 million for certain corrective action costs actually incurred by the claimant.
Although the Fund in theory provides a disincentive to the filing of lawsuits, in practice many smaller claimants find it quite difficult financially to clean up their properties because the Fund does not pay for certain significant costs such as UST removal. In addition, individual claimants often do not have the technical expertise or the financial resources to begin the cleanup process before they receive reimbursement from the Fund. Consequently, many smaller claimants file lawsuits against larger companies seeking assistance with their cleanup costs. Some of this litigation settles quickly, however, through the use of innovative agreements in which a large company agrees to loan the costs of corrective action to the Fund claimant, and, in effect, incurs the costs of corrective action "on behalf of" the claimant. In exchange, the claimant repays the company with proceeds received from the Fund.
The consolidated petitions before the Board (one of which was prepared by McCutchen, Doyle) involved two contaminated properties and numerous potentially responsible parties, including several large oil companies. The parties had spent years disputing causation and liability for the contamination before settling their claims. Through the use of "on behalf of" agreements, the companies agreed to advance the corrective action costs to the Fund claimants. The Fund rejected these arrangements, concluding in part that the large companies, not the small claimants, were the only responsible parties, and thus were not incurring costs "on behalf of" the claimants, but on behalf of themselves.
The Board reversed on the grounds that: (1) the regulatory agencies had named the claimants, as well as the companies, responsible parties; (2) liability was disputed and unresolved; and (3) all responsible parties had been required by local agencies to clean up the contamination. Under these circumstances, the Board found that the agreements attempted to resolve "what would otherwise be difficult issues of causation and liability." Furthermore, the agreements advanced the Fund's purposes both by assisting small businesses in cleaning up contamination they had caused, and by ensuring that small businesses undertook corrective action promptly with the resources provided by the oil companies. The Board therefore concluded that there was no Priority Class circumvention, and required the Fund staff to honor the "on-behalf of" settlement agreements.
The Board cautioned, however, that the Division should not honor all "on behalf of" agreements, and gave the following examples of situations where such agreements would not be allowed: (1) a judicial or comparable action (such as arbitration) results in a definitive apportionment of liability; (2) a person has previously released another person from liability at a site; and (3) a person has previously agreed to indemnify another person. The Board’s Order is important because it reduces the need for litigation, facilitates faster cleanup of properties, and clarifies under what circumstances an "on-behalf of" agreement will be accepted by the Fund.
For more information on UST Fund issues, please contact Christopher Berka (email@example.com or 650/849-4866) in Palo Alto, Jill Cooper (firstname.lastname@example.org or 213/680-6422) in Los Angeles, or Kathleen McDonald (email@example.com or 925/975-5329) in Walnut Creek.
Original source: Yahoo
Submit by CEIN News on 7/2/1999