The Third Department Reaffirms Expansive View of Liability for Petroleum Spills in New York

The Third Department Reaffirms Expansive View of Liability for Petroleum Spills in New York

In State v. C.J. Burth Services, Inc., ___ A.D.2d __ (3rd Dept., 2010), the Appellate Division reaffirmed a very expansive view of liability for petroleum spills in New York. In Burth, the Third Department ruled on whether a party which purchased property without knowledge of leaking underground petroleum storage tanks could be held liable for the cleanup under Article 12 of the New York Navigation Law.

The defendants, Carlton Burth and James Stasaitis, purchased property in Utica, New York in 1987 and operated an auto repair business. At the time of the purchase, there were no gasoline tanks, pumps or other evidence of past petroleum storage and they had no knowledge that the property had been so used. In 1992, however, the defendants learned that the property had been a service station and that underground petroleum storage tanks were still located at the property. The tanks were subsequently found to be full of holes and the surrounding soil was contaminated by petroleum. The Department of Environmental Conservation (DEC) ordered the defendants to clean up the contamination. The defendants refused but DEC incurred cleanup costs.

In 2002, the State commenced a lawsuit against the defendants, pursuant to Article 12 of the Navigation Law, seeking to recover its cleanup costs. The Supreme Court dismissed the State’s complaint, finding that because the defendants had no knowledge of the underground tanks at the time they purchased the property, they were not liable for the spill. (A complete summary of this decision can be found in my September, 2009 Environmental Update). The State appealed.

The defendants argued on appeal that they had no liability under the Navigation Law because they had no knowledge of either the tanks or the contamination at the time of the purchase, they did not cause the spill and did not control the property when the spill occurred. The Third Department rejected this argument, concluding that the defendants were strictly liable under the Navigation law.

The Court affirmed that strict liability under the Navigation Law does not depend on fault or knowledge. Instead, they ruled that liability of a “faultless” owner of contaminated property or a leaking storage system depended on the owner’s capacity to prevent a spill or to clean up the resulting contamination, citing to the Court of Appeals ruling in State v. Speonk Fuels, 3 NY3d 720 (2004). The Court reaffirmed that Navigation Law liability is triggered “even in the absence of any evidence that the owner caused or contributed to the discharge.” Citing numerous earlier Navigation Law decisions, the Court reiterated that this broad liability scheme is premised on the idea that when a spill is discovered, the owner of the leaking system at that time is in the best position to prevent, halt or cleanup the discharge.

Moreover, the Court relied on the rationale in State v. Green, 96 NY2d 403 (2003), which found a mobile home park owner liable for a kerosene spill by his tenant, in order to ensure that responsible parties were available to reimburse the State for its cleanup costs. The rule otherwise, the court stated, would discourage landowners from promptly cleaning up contamination while the State searched for the party which actually caused the spill.

Of note, the Third Department’s view of Navigation Law liability focused heavily on an owner’s “ability to clean up contamination” after the spill is discovered. The Court found that the defendants, upon learning that the tanks on their land had discharged petroleum and contaminated the environment, chose to do nothing. As owners of both the contaminated site and the leaking storage systems, the Court found that they were the best parties to carry out the cleanup. The Court reasoned that finding the defendants not liable because the spill occurred before they owned the tanks was “inconsistent with the statutory purpose of promoting prompt cleanups.” Furthermore, the Court held that this view of strict liability was, “in view of the benefit derived from the cleanup efforts” by the State, consistent with legislative policy.

Interestingly, the Court made no mention of the recently enacted 3rd party liability defense in Navigation Law § 181(4). Also, while this ruling was not an entirely unexpected one, the Court’s emphasis on the defendants’ ability to “effectuate a cleanup” after the spill is discovered is troubling. This is particularly so in light of the fact that the defendants had no knowledge of the tanks or of the past use of the property as a filling station. While encouraging “prompt cleanups” is a laudable goal, this ruling is destined to hinder the return of petroleum-contaminated sites in New York back to productive use. Parties, both private and public entities, will be too concerned about costs associated with cleaning up contamination due to unknown conditions (even after conducting a due diligence investigation) to take the risk of purchasing and/or foreclosing on these types of sites. Thus, rather than encouraging cleanups, this decision will likely result in more former petroleum sites remaining abandoned and contaminated for years to come.