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Ontario: Environment Fine for Trucking Firm’s emissions control system

Derek Crosby Ltd., operating as D&J Transportation, was recently found guilty in an Ottawa court of violating the Ontario Environmental Protection Act and fined $20,000 plus victim surcharge of $5,000.  The convictions relate to causing a manufacturer installed system or device on a motor vehicle used to prevent or lessen the emission of any contaminant to not function in the manner in which it was intended to function when the motor vehicle was running.

D&J Transportation operates a heavy-duty transport trucking company and  also provides heavy-duty mechanical service to other trucking companies. Derek Crosby is the company’s sole director.

On September 5, 2018 a truck owned and operated by Thomas Cavanagh Construction Ltd., was stopped for a routine inspection of the vehicle’s environmental emission controls. The vehicle failed the inspection.  Ontario Environment Ministry staff contacted the fleet manager for Thomas Cavanagh Construction Ltd., which led the company self-identifying ten addition vehicles operating with faulty environmental emission controls.

On November 29, 2018 ministry staff met with the fleet manager for Thomas Cavanagh Construction Ltd. The Fleet Manager confirmed that the emission control tampering on all twelve Thomas Cavanagh Construction Ltd., vehicles was performed by Derek Crosby Ltd., operating as D&J Transport.  An investigation resulted in charges being laid which resulted in four convictions under the Ontario Environmental Protection Act..

Supreme Court of Canada finds two forest-product companies must pay for remedial work

Written by Peter Brady and Claire Seaborn, McCarthy Tétrault

On December 6, 2019, the Supreme Court of Canada (“SCC”) found in R v Resolute FP Canada Inc., 2019 SCC 60 (“Resolute”) that two forest-product companies, Resolute and Weyerhaeuser, are on the hook to pay for remedial work at a waste site in Northwestern Ontario.

Resolute and Weyerhaeuser are successors of the companies that abandoned the waste site decades ago. They sought to rely on an indemnity agreement from 1985 between the Government of Ontario and their predecessor companies to argue that they were not responsible for the site’s monitoring and maintenance.

The decision was split 4-3. The majority of judges found that the indemnity agreement did not protect the companies from the province’s remediation order. As a result, Resolute and Weyerhaeuser, and not the provincial government, were found to be responsible for the costs of compliance.

History of industrial activity, contamination and adverse health effects at the site

The history of this case dates back to the 1960s when a pulp and paper mill operated in Dryden, Ontario. The mill bleached paper using a process that involved mercury, which was dumped into the nearby English and Wabigoon rivers. The mercury waste flowed downstream, which resulted in harm to health of some local residents (including members of the Grassy Narrows and Islington First Nations) the closure of a commercial fishery and damage to the region’s tourism industry.[1]

In the mid-1970s, a company called Great Lakes Forest Products was interested in buying the properties where the pulp and paper mill were located from its owner, Reed Ltd. In an effort to ensure the mill remained operational and provided local jobs, the Government of Ontario entered into an indemnity agreement with Great Lakes Forest Products in 1979. Under the indemnity agreement, Great Lakes Forest Products agreed to spend $200 million to expand and upgrade the mill, and the Government of Ontario agreed to cover the costs of past pollution above $15 million.[2]

Meanwhile, the Grassy Narrows and Islington First Nations commenced litigation regarding the mercury contamination in 1977 that ended with a settlement in 1985. When the settlement was reached, the Government of Ontario granted a new 1985 indemnity agreement to Reed Ltd., Great Lakes Forest Products Limited and their successors and assigns for the mercury contamination.[3]

Ontario Ministry of the Environment issues a remediation order in 2011

Twenty-six years later, on August 25, 2011, Ontario’s Ministry of the Environment issued a remediation order for environmental monitoring and maintenance at the waste site where the mill had operated in Dryden, Ontario (“Remediation Order”).[4]

The Remediation Order was issued as a “Director’s Order” under what is now s. 18 of Ontario’s Environmental Protection Act, and imposed three main obligations:

  1. to repair certain site erosion, perform specific groundwater and surface water testing, and file annual reports containing specified information;
  2. deliver to the Ministry of the Environment the sum of $273,063 as financial assurance in respect of the waste disposal site; and
  3. to “take all reasonable measures to ensure that any discharge of a contaminant to the natural environment is prevented and any adverse effect that may result from such a discharge is dealt with according to all legal requirements.”[5]

The property’s ownership had changed several times in that period. The Remediation Order was issued to two former owners of the property: Bowater (which later became Resolute) and Weyerhaeuser.

Weyerhaeuser and Resolute successful in courts below

In May 2013, Weyerhaeuser sought a declaration from the Superior Court of Justice that the 1985 indemnity agreement required the Government of Ontario to compensate for all of the costs of complying with the Remediation Order.[6] Resolute intervened. Ontario submitted that it was not responsible for compliance costs.

All three parties moved for summary judgment. The motions judge held that the 1985 indemnity agreement applied to the Remediation Order and granted summary judgement in favour of Weyerhaeuser and Resolute.[7] Ontario appealed.

The Ontario Court of Appeal agreed that the 1985 indemnity agreement applied to the Remediation Order; however, it applied that decision only to Weyerhaeuser and found that Resolute had assigned its benefit under the agreement.[8]

SCC decision: the 1985 indemnity agreement does not cover the Remediation Order

By a narrow margin of 4-3, SCC overturned the courts below and found that the 1985 indemnity agreement did not apply to Remediation Order, thereby leaving Resolute and Weyerhaeuser on the hook to pay for remediation costs.

The majority’s key findings include:

  • The 1985 agreement only provided an indemnity for claims brought by “third parties.” The provincial government was a party to the 1985 agreement, and therefore cannot be considered a third party.
  • The 1985 agreement was intended to cover only “pollution claims” (a term defined in the agreement). The Remediation Order is not a “pollution claim” since it requires monitoring and maintenance to prevent more pollution, and is not intended to stop ongoing pollution.[9]
  • The 1985 agreement must be considered in the context of prior indemnities and the settlement with Grassy Narrows and Islington First Nations. This context indicates that the 1985 indemnity agreement should apply more narrowly and was not intended to provide protection against the costs of regulatory compliance.[10]

While the “polluter-pays principle” is not referenced explicitly in the decision, the SCC has interpreted the 1985 indemnity agreement in such a way as to hold successor companies liable for past environmental contamination, as opposed to requiring the provincial government to foot the bill.

Parallels to the recent decisions in Orphan Wells and HBBC

The Resolute decision comes less than a year after the SCC released its decision in Orphan Well Association v Grant Thornton Limited, 2019 SCC 5 (“Orphan Wells”), another case in which a successor entity was liable for historic environmental cleanup costs.

In Orphan Wells, the SCC held a bankrupt energy company’s estate liable for abandonment and reclamation obligations for certain old oil and gas wells. These environmental responsibilities were found to take priority over obligations to pay back creditors in the case of insolvency or bankruptcy. Like in Resolute, the SCC in Orphan Wells overturned the appellate court below and reached a decision ensuring that taxpayers were not left paying for environmental remediation.

Please refer to the article, “Redwater – SCC Delivers the Final Word”, for an in-depth summary and analysis of the Orphan Wells decision.

The issue of ongoing regulatory liability for contamination for “non polluters” and/or successor companies was also front and center in the Hamilton Beach Brands Canada, Inc.  v Ontario (Ministry of the Environment and Climate Change), 2018 ONSC 5010 (“HBBC”).

In HBBC the Ontario Ministry of Environment issued an Order to three parties to take steps to delineate and monitor (with the potential for future remediation) ground water contamination that had migrated from an industrial property to surrounding commercial, residential and municipal lands. The contamination had occurred decades early through actions of a prior lessee of the property. The Orderees were a corporate successor of a prior owner of the property, the current owner and the current Lessee of the property.

The Ontario Environmental Review Tribunal (“ERT”) dismissed the appeal of the Order, rejecting the argument that the Order under s. 18 of the Ontario’s Environmental Protection Act could not apply to off site contamination that was not caused by the Orderees.[11] The Ontario Divisional Court, on Review, upheld the ERT decision holding that there is no geographical constraint limiting orders to the source property of the contamination.[12] Leave to appeal to the Ontario Court of Appeal was sought and refused.[13]

What comes next

The Resolute decision has not quite ended the series of legal disputes that have plagued this Dryden, Ontario site for decades, but has provided clarity on how the 1985 indemnity agreement ought to be interpreted.

In a statement, Resolute indicated that it would continue its monitoring of the site and posting of financial assurance while an appeal of the Remediation Order proceeds to the ERT.

We can help

Our team at McCarthy Tétrault has experience navigating the legal and regulatory uncertainties that arise in environmental matters. If you would like more information on these developments and their potential impact on your business, we can help. Please contact Peter Brady or Claire Seaborn with any questions or for assistance.

[1] R v Resolute FP Canada Inc., 2019 SCC 60 at para 4.

[2] R v Resolute FP Canada Inc., 2019 SCC 60 at para 9.

[3] R v Resolute FP Canada Inc., 2019 SCC 60 at para 13.

[4] R v Resolute FP Canada Inc., 2019 SCC 60 at para 20.

[5] R v Resolute FP Canada Inc., 2019 SCC 60 at para 20.

[6] R v Resolute FP Canada Inc., 2019 SCC 60 at para 22.

[7] Weyerhaeuser Company Limited v Ontario (Attorney General), 2016 ONSC 4652.

[8] Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007. Note that in dissent, Justice Laskin had found that the 1985 indemnity agreement only applied to claims brought by third parties, and not regulatory claims by governments.

[9] R v Resolute FP Canada Inc., 2019 SCC 60 at para 14-28.

[10] R v Resolute FP Canada Inc., 2019 SCC 60 at para 30.

[11] Hamilton Beach Brands Canada Inc. v. Ontario (Environment and Climate Change), ERT Case No. 17-025.

[12] Hamilton Beach Brands Canada, Inc. v Ontario (Ministry of the Environment and Climate Change), 2018 ONSC 5010.

[13] The Ontario Court of Appeal refused leave on December 12, 2018: http://www.ontariocourts.ca/coa/en/leave/2018.htm#refused.

This article has been republished with the permission of the authors.  It was first published on the McCarthy Tétrault ‘s website.


About the Authors

Peter Brady  is a partner in McCarthy Tétrault ‘s Litigation and Mining Groups and co-head of the firm’s National Environmental, Regulatory & Aboriginal Group. He regularly advises and represents clients in all legal aspects of regulatory litigation, with particular emphasis in the areas of environmental law, occupational health & safety law, mining law, and extractive industry projects. Peter also has significant experience in anti-corruption compliance, investigations, and due diligence for transactions involving Canada, Indonesia, China, the USA, and Africa.

Claire Seaborn’s litigation practice focuses on commercial disputes, public law and regulatory matters. She draws from her experience in the public and private sectors in Canada, the United States and the United Kingdom. Claire’s involvement in high-profile and high-stakes files has sharpened her ability to advocate for her clients and provide sound legal advice.

Supreme Court of Canada denies Leave to Appeal in the latest dry cleaner Contamination Case

Written by Marc McAree, Willms & Shier Environmental Lawyers LLP

On April 11, 2019, the Supreme Court of Canada denied the dry cleaner’s application for leave to appeal from the Ontario Court of Appeal’s decision in Huang v Fraser Hillary’s Ltd. 1

Huang confirms that Ontario courts are inclined to measure and assess damages in contaminated land lawsuits based on the cost to remediate contamination and that the statutory cause of action in Ontario’s Environmental Protection Act (“EPA”), 2 s. 99(2) is alive-and-well. Huang is the latest decision in what we expect will be an increasing number of claims brought pursuant to EPA, s. 99(2).

Fraser Hillary’s Limited (“FHL”) owns a dry cleaning business in Ottawa that has operated since 1960 near two neighbouring commercial properties owned by Eddy Huang. David Hillary is the president and sole corporate director of FHL. Mr. Hillary also owns a residential property situated near the FHL property. 3

Spills of dry cleaning solvents containing tetrachloroethylene (“PCE”) and trichloroethylene (“TCE”) were known to have occurred between 1960 and 1974 at FHL’s dry cleaning business. In 1974, FHL bought new equipment and deployed new practices that the trial court and Court of Appeal held virtually eliminated any possibility of spills thereafter. 4

In 2002, Mr. Huang discovered TCE at his nearby commercial properties. He sued FHL and Mr. Hillary.5 Mr. Huang relied on five causes of action that plaintiffs typically plead in contaminated land lawsuits:

  • liability pursuant to EPA, s. 99(2)
  • nuisance
  • strict liability
  • negligence
  • trespass.

Trial Decision

At trial, the Ontario Superior Court of Justice found that

  • FHL was liable pursuant to EPA, s. 99(2) as the owner and controller of a spilled pollutant. The trial court held that EPA, s. 99(2) applies prospectively to permit compensation for spills that happened before the statutory cause of action was promulgated into law in 1985.6
  • FHL was liable in nuisance because the TCE present at Mr. Huang’s property caused an interference with Mr. Huang’s use and enjoyment of land that was both substantial and nontrivial.7
  • FHL was not liable in negligence, trespass or strict liability.
  • Mr. Hillary was not liable under any cause of action. 8

The trial court considered various clean up options in assessing and awarding damages to Mr. Huang based on the cost to remediate his commercial properties. 9

Court of Appeal Decision

FHL appealed the trial court decision to the Ontario Court of Appeal.

Mr. Huang cross-appealed specific aspects of the trial court decision including that: (i) FHL was not liable in negligence, trespass, or strict liability, and (ii) Mr. Hillary was not liable as a nearby residential property owner.

Footnote

1 Huang v Fraser Hillary’s Ltd, 2018 ONCA 527, leave to appeal to SCC refused, 38282 [Huang ONCA].

2 Environmental Protection Act, RSO 1990, c E19, s 99(2) [EPA].

3 Huang v Fraser Hillary’s Ltd, 2017 ONSC 1500 at paras 1-4 [Huang ONSC]

4 Huang ONSC at para 23; Huang ONCA at para 7.

5 The claim against Mr. Hillary was in his personal capacity as the owner of a nearby residential property at 36 Cameron Avenue, not as a corporate director and officer of FHL; Huang ONSC at para 19.

6 Huang ONSC at paras 84, 97

7 Huang ONSC at para 124

8 Huang ONSC at paras 52-55, 61, 103, 147, 169.

9 Huang ONSC at paras 185-93.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

This article has been republished with the permission of the author. It was first published on the Willms & Shier Environmental Lawyers LLP website and can be found here.


About the Author

Marc McAree, B.A. (Hons.), LL.B., M.E.S., is a partner at Willms & Shier Environmental Lawyers LLP and certified as an Environmental Law Specialist by the Law Society of Ontario. Marc provides advice and solutions to a wide range of clients to overcome their environmental law and litigation issues.  Marc has significant environmental law expertise in contaminated land/brownfields clean ups, transactions and litigation, and environmental compliance and approvals.  Marc also helps clients reduce and manage environmental risks and liabilities. Marc is
recognized for his excellence representing clients in environmental civil
litigation at all levels of Ontario Courts, defence of clients against
environmental regulatory prosecutions, and appearances before Ontario’s
Environmental Review Tribunal and other administrative law decision-makers on
appeals and other hearings.  Marc has
particular experience litigating soil and groundwater contaminant impacts,
nuisance and odour issues.

Disagreement on Human Health Impacts from former Wood Treatment Facility in Edmonton

On February 26th, the Alberta Environmental Appeals Board (AEAB) issued a Report with recommendations related to Orders issued by the Alberta Environment Ministry for the remediation of a former wood preservative facility in Edmonton.

The site had been owned by Domtar Inc. and had been used to treat wood with preservatives from 1924 through to 1987. The property was purchased by a Cherokee Canada Inc. in 2010. Cherokee planned on remediating the site and developing a residential neighbourhood.

The AEAB report deals with a dispute between Cherokee and the Alberta Environment Ministry on whether the property that housed the wood treated facility is remediated and if it poses a hazard to human health. The AEAB report concludes “there is no immediate risk to these residents and other people.”

The Board also concluded the Alberta Environment had no basis for issuing Enforcement Orders against Cherokee. The Board stated that more clean-up of the site is needed, but none of it is an emergency as claimed by the Alberta Environment Ministry.

John Dill, a managing partner at Cherokee, stated in an interview with Global News: “I’m pleased that the decision confirms that the site is safe for the neighbourhood and its residents. We’re anxious to put an end to any further uncertainty by following the process that’s been set out, suggested by the board and minister.”

If Cherokee had not appealed the Order and won, it would have faced a very significant cost in removing and disposing of the contaminated material. The company estimated the cost to conform to the Orders to be in the at least $52 million.

March 7th Alberta Environment Press Release

On March 7th, the Alberta Ministry of the Environment and Parks released the results of analytical tests performed on soil samples taken at the former wood treatment plant along with findings from a human health risk assessment. The risk assessment concludes that contamination at the site is hazardous to human health.

Officials from the Alberta Ministry of Alberta and Parks conducted sampling at analysis of the soil at site of the former wood treatment plant at various times between 2017 and 2018. The sampling program consisted of sampling surface soil and subsurface soils at more than 1,039 locations at the property and collecting/analyzing over 1,457 soil samples.

The results from the analysis of the soil samples indicate 183 samples have levels of contamination that exceed human health guidelines for dioxins and furans. Of these, 96 per cent are located in fenced-off areas. A number of other contaminants of concern for human health are identified in these reports. Remediation of those locations remains the responsibility of the companies previously ordered by Alberta Environment and Parks to clean up the site.

Google Maps view of the Site and Surrounding Properties

Dr. Deena Hinshaw, Chief Medical Officer of Health for Alberta stated: “Our highest priority is the health and safety of residents, and we will continue to work towards minimizing any potential health risks to local residents. While these reports show that there are hazards in the areas, these risks are being addressed through the protective measures already in place until remediation of the soil is undertaken.”

Human Health Risk Assessment

Alberta Health issued the finding of the Human Health Risk Assessment. It made a preliminary comparison of the rates of cancer, miscarriages and birth defects in the surrounding neighbourhoods. This initial analysis found no difference between rates in the area near the former Domtar site compared with other parts of the province, with the exception of three types of cancer.

Among people who had lived in the area for 10 or more years, there were:

  • 34 cases of breast cancer in women (16 to 31 cases would have been expected)
  • 14 cases of endometrial cancer in women (three to nine cases would have been expected)
  • 22 cases of lung cancer in men (six to 14 cases would have been expected)

No differences in any childhood cancers were found compared with other parts of the province.

This data on its own does not indicate why there are higher rates for these three types of cancer in the area. Many factors could contribute to an increased risk of cancer, including but not limited to medical history, medication use and tobacco use. Alberta Health will, therefore, be working immediately with federal experts to conduct a field epidemiology investigation to try and identify what population health factors might have contributed to higher rates of these three cancers.

The Alberta Environment press release states, as a precautionary measure, women who have lived in the area for 10 or more years should talk to their doctors about the risks and benefits of starting breast cancer screening at the age of 40. This is a precaution until the results of the field epidemiology study are available.

History of the Site

The site itself had been used as a wood preservative plant by Domtar Inc. from 1924 until 1987. The plant manufactured “treated” wood products such as railway ties and telephone poles. The wood products were treated with chemical preservatives, such as creosote, to prolong their lifespan.

Between 1987 and 2008, the plant was decommissioned and Domtar conducted a partial remediation of the property including soil testing. Contamination remains in the subsurface including creosote, polycyclic aromatic hydrocarbons, dioxins and furans.

Cherokee Canada Inc. bought the site from Domtar in 2010 for $1.8 million. The purchase of the property is made with the company fully aware of the contamination at the site and with the acknowledgement by the Alberta Environment Ministry of a remediation plan to clean-up the property prior to redeveloping it for residential use.

Between 2011 and 2016, Cherokee Canada Inc. works on its remediation plan. Part of the plan consists of constructing a berm with contaminated soil from the site and covering it with clean soil. Cherokee Canada Inc. claims the berm structure contains contamination and that natural attention of the organic contaminants in the soil will occur over decades.

A 2013 environmental risk assessment conducted by Cherokee Canada Inc.
concludes that the constructed berm should not lead to any adverse health or environmental outcomes. The Alberta Environment Ministry approves a remediation certificate for a parcel of the site and allows for construction of a residential housing development on the parcel.

By October 2014, the contamination berm is nearly complete. The Alberta Environment Ministry claims that it was the first it had heard of the berm’s construction. The company says the province knew about the project all along and even had representatives on-site from time to time.

In 2016, the Alberta Environment Ministry conducts its own environmental testing at the site and claims that there is evidence of naphthalene in most of the samples, and that the substance is not contained.

Late in 2016, Cherokee sues the Province of Alberta for $126 million, claiming Alberta Environment acted in bad faith by “recklessly” changing its position on the remediation plan after the company had already spent considerable money.

Also in 2016, Alberta Environment issues an Enforcement Order that requires Cherokee to conduct further environmental testing. It also issues an Environmental Enforcement Order against both Cherokee and Domtar requiring further environmental testing in other parcels at the site.

In 2018, the Alberta Environment Ministry said third-party testing at the site found chemicals dangerous to human health. It imposed five enforcement orders on Cherokee, requiring the company to remediate any contamination.

Cherokee appealed the decision, arguing it had already undertaken remediation efforts (as had Domtar), including isolating and protecting contaminated soil from exposure.

The February 26th, 2019 decision by the Alberta Environmental Appeals Board vindicated Cherokee as the Board stated the Orders were inappropriate.

Cherokee Canada Inc.’s Position

In response to the Alberta Environment’s March 7th announcement, Cherokee issued its own press release. In the release, the company claims that Alberta Environment March 7th publication provides unsubstantiated information to community members about potential health risks. It also states that the issue of health risk and the appropriate standards and scientific criteria for remediation for certain chemicals of concern were addressed in by the Environmental Appeals Board in 2018.

The press release also states “We are concerned that the Ministry’s approach is a veiled attempt to influence the Minister’s response to the Board’s independent Report and Recommendations or to attempt to discredit the Board’s findings.”

March 13th Alberta Environment Orders

On March 13, Alberta Environment and Parks Minister Shannon Phillips released her decision on the appeal of the orders issued to Cherokee Canada Inc., 1510837 Alberta Ltd. and Domtar Inc.

In the the newest order, the minister directs the both Cherokee and Domtar to undertake the work on the site within specific periods of time from the issuance of the order. This work includes:

  • Temporary dust control plans (within seven days)
  • Dust control plans (within 60 days)
  • Site delineation (sampling) plan (within 90 days)
  • Site delineation(sampling) (within 150 days)
  • Site modelling identifying all current and historical sampling (within 180 days)
  • Human health risk assessment (within 210 days)
  • Site-specific risk assessments (within 210 days)
  • Reclamation and remediation plans (within 240 days)
  • Long term site monitoring plans (within 240 days)
  • Completion of residential reclamation components (within 280 days)

The minister also issued two environmental protection orders:

  • An order to Cherokee Canada Inc. and 15120837 Alberta Ltd. to conduct sampling and remediation within the neighbouring community and for the berm to the south of the community to address the presence of dioxins and furans.
  • An order to Domtar Inc. to conduct sampling and remediation within the neighbouring community and for the Greenbelt to the south of the community to address the presence of naphthalene, dioxins and furans.

A spokesperson for the Province of Alberta pointed out the AEAB’s recommendations “did not take into consideration the new testing results and health outcomes issued by the chief medical officer of health, as this information was not before the board at the time of the hearings (see below).

Provincial Environmental Obligations Prevail Over Federal Bankruptcy Laws – Supreme Court of Canada

by Paul Manning, Manning Environmental Law

Recently, the Supreme Court of Canada released its decision in the case of Orphan Well Association, et al. v. Grant Thornton Limited, et al.Orphan Well Association, et al. v. Grant Thornton Limited, et al. 

The decision writes another chapter in the long running saga of whether a company’s environmental regulatory obligations survive bankruptcy and, in particular, whether the company’s trustee in bankruptcy can disclaim an asset so as to avoid environmental liability. (See our blog post The Non-Polluter Pays: Creditor Roulette and Director Liability)

The Supreme Court has now decided in Orphan Well that, after going bankrupt, an oil and gas company must  fulfill provincial environmental obligations before paying its creditors.

Background

Redwater was an Alberta oil and gas company, which owned over a hundred wells, pipelines, and facilities when it went bankrupt in 2015.

Alberta has provincial laws requiring oil and gas companies to obtain a licence to operate. As part of the licence, companies have to “abandon” wells, pipelines, and facilities when they are done. This means permanently taking these structures down. They also have to “reclaim” the land by cleaning it up. Companies cannot transfer licences without permission from the Alberta Energy Regulator (AER), which they won’t receive if they haven’t met their responsibilities.

Most of Redwater’s wells were dry when it went bankrupt. Dismantling the sites and restoring the land would have cost millions of dollars more than they were worth. To avoid paying those costs, the the trustee in Orphan Well decided to disclaim (i.e. not to take responsibility for) the redundant wells and sites under the BIA. The trustee wanted to sell the productive sites to pay Redwater’s creditors.

The AER said that this wasn’t allowed under the BIA or provincial law and ordered the trustee to dismantle the disowned sites. The trustee argued that even if the AER was correct, the provincial abandonment orders were only provable claims under the BIA. In this case, this meant the money would first go to pay Redwater’s creditors.

The Supreme  Court’s Decision

There were two main legal issues before the Supreme Court. The first was whether the BIA allowed the trustee disclaim the sites it didn’t want take responsibility for. The second was whether the provincial orders to remove structures from the land were provable claims under the BIA. If they were, that would mean the payment order set up in the BIA applied. Only money left, if any, after those payments were made, could be used to pay for taking the sites down.

The trial judge had ruled that the trustee was allowed to disclaim the disowned sites and the abandonment costs were only provable claims in the bankruptcy. The majority of judges at the Alberta Court of Appeal hearing had agreed.

The majority of judges at the Supreme Court disagreed. It ruled that the trustee could not disclaim  the disowned sites. It said the BIA was meant to protect trustees from having to pay for a bankrupt estate’s environmental claims with their own money. It did not mean Redwater’s estate could avoid its environmental obligations.

The majority also said the abandonment costs were not “provable claims”. These costs weren’t debts requiring payments; they were duties to the public and nearby landowners. This put the abandonment costs outside the BIA’s payment order scheme and as such, the majority ruled, there was no conflict between the federal and provincial laws.

(The minority of judges at the Supreme Court disagreed, arguing that there was a genuine conflict between the federal and provincial laws and the BIA being the federal law should prevail over the provincial regulations. Where a valid provincial law conflicts with a valid federal law, the federal law will normally prevail under the constitutional law “doctrine of paramountcy.”)

As the trustee had already sold or given up all of Redwater’s assets, the money from the sales was held “in trust” by the court during the lawsuit. This money must now be used to abandon and reclaim the land before anything is paid to any of Redwater’s creditors.

Click here for the full decision of the Supreme Court of Canada in Orphan Well.

_________________________________________________________________

Manning Environmental Law is a Canadian law firm based in Toronto, Ontario. Our practice is focused on environmental law, energy law and aboriginal law. 

Paul Manning is a certified specialist in environmental law. He has been named as one of the World’s Leading Environmental Lawyers and one of the World’s Leading Climate Change Lawyers by Who’s Who Legal. This article is only as a general guide and is not legal advice.

Pulp Mill in British Columbia fined $900K for releasing deleterious effluent

The Mackenzie Pulp Mill Corporation recently pleaded guilty, in the Provincial Court of British Columbia, to depositing a deleterious substance into water frequented by fish, in violation of the pollution-prevention provisions of the Fisheries Act.  The company was ordered to pay a penalty of $900,000, which will be directed to the federal Environmental Damages Fund.  This funding is to be used for the conservation of fish or fish habitat in the Omineca region of British Columbia. The company was also ordered to complete an independent audit of its operations to prevent future incidents of this kind.

The offence relates to incidents in July 2014 and September 2016, when effluent discharging from the Mackenzie Pulp Mill was found to be deleterious to fish. Environment and Climate Change Canada enforcement officers investigated the incidents, and their investigation revealed that the mill’s treatment system had not properly treated the effluent before discharging it, due in part to improper management of the wastewater entering the treatment system. The effluent was deposited into Williston Lake, which is frequented by fish.

As a result of this conviction, the company’s name will be added to the Environmental Offenders Registry.  The Environmental Offenders Registry contains information on convictions of corporations registered for offences committed under certain federal environmental laws.

U.S. Ninth Circuit Rules Military Contractor Liable on CERCLA Clean-up Costs

Written by: By Whitney Jones Roy and Whitney HodgesSheppard Mullin Richter & Hampton LLP

TDY Holdings, LLC brought suit for contribution under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) against the U.S. government relating to environmental contamination at TDY’s manufacturing plant. The district court granted judgment in favor of the government after a 12-day bench trial and allocated 100 percent of past and future CERCLA costs to TDY. On appeal, the Ninth Circuit held that the district court sharply deviated from the two most “on point” decisions regarding allocation of cleanup costs between military contractors and the U.S. government when it determined the cases were not comparable, clarified the applicability of those cases, and remanded the case to reconsider the appropriate allocation of cleanup costs between TDY and the U.S. government.

TDY (formerly known as Ryan Aeronautical Company) owned and operated a manufacturing plant near the San Diego airport

From 1939 through 1999, TDY (formerly known as Ryan Aeronautical Company) owned and operated a manufacturing plant near the San Diego airport. TDY’s primary customer was the U.S. government—99 percent of TDY’s work at the plant between 1942 and 1945, and 90 percent of the work thereafter was done pursuant to contracts with the U.S. military. The United States also owned certain equipment at the site from 1939 to 1979. Id. at 1006. Chromium compounds, chlorinated solvents, and polychlorinated biphenyls (PCBs) were released at the site as a result of their use during manufacturing operations. Id. In some cases, the government’s contracts required the use of chromium compounds and chlorinated solvents. Id. After passage of the Clean Water Act and other environmental laws classifying these chemicals as hazardous substances in the 1970s, TDY began environmental remediation and compliance at the site and billed the government for the “indirect costs” of that work, which the government paid. Id. at 1006–07. TDY incurred over $11 million in response costs at the site. Id. at 1007. Until the plant’s closure in 1999, the government reimbursed 90 to 100 percent of TDY’s cleanup costs at the site. Id. at 1007, 1010.

In 2004, the San Diego Unified Port District brought CERCLA claims against TDY. TDY and the Port District entered into a settlement agreement in March 2007 in which TDY agreed to cleanup releases at the site. TDY then brought suit for contribution under 42 U.S.C. § 9613(f)(1) and declaratory relief against the United States. Id. at 1007. The district court granted TDY’s motion for partial summary judgment declaring that the United States was liable as a past owner of the site under CERCLA. Id. After a 12-day bench trial on equitable allocation of costs, the district court held that the contamination caused by the hazardous substances at issue was attributable to TDY’s storage, maintenance, and repair practices, as well as spills and drips that occurred in the manufacturing process, rather than to the government’s directives to use the chemicals. Id. Accordingly, the district court allocated 100 percent of the past and future response costs for remediation of the three hazardous substances to TDY. Id. at 1008.

On appeal, TDY argued that the district court erred (1) when it allocated liability according to “fault”; (2) that the government’s role as owner rather than operator should not have been a dispositive factor in the court’s allocation, and (3) that the government should bear a greater share of response costs because it specifically required use of the chemicals at the site. Id. The court of appeals summarily rejected TDY’s first two arguments, but found that the district court did err in its analysis and application of binding authority on point: United States v. Shell Oil Co., 294 F.3d 1045 (9th Cir. 2002) and Cadillac Fairview/California, Inc. v. Dow Chem. Co., 299 F.3d 1019 (9th Cir. 2002). Id. at 1008–09. Shell Oil and Dow Chemical each produced products to support the U.S. military during World War II and incurred liability for contamination caused by hazardous chemicals that the government required to be used. In both cases, the Ninth Circuit affirmed the district courts’ allocation of 100 percent of cleanup costs to the government because “the contractors’ costs were ‘properly seen as part of the war effort for which the American public as a whole should pay.’” Id. at 1009.

The Ninth Circuit disagreed with the district court’s conclusion that Shell Oil and Cadillac Fairview were not comparable, but agreed that some deviation from their allocations were appropriate. Id. The Ninth Circuit agreed that the government exercised less control over TDY than it did over Shell Oil Co. or Dow Chemical. In support of this determination, the court noted that the government was an operator, rather than an owner, of TDY’s site, that the government-owned equipment was removed from the site 20 years before TDY ceased operations, and that TDY’s own practices at the site caused the contamination. Id. at 1010. Furthermore, the district court properly determined that “industrial operations undertaken for the purpose of national defense, standing alone, did not justify allocating all costs to the government.” Id.

However, the Ninth Circuit held that, in allocating 100 percent of cleanup costs to TDY, the district court failed to consider that the government required TDY to use two of the three chemicals at issue beginning in the 1940s, when the need to take precautions against environmental contamination from these substances was not known. Id. Furthermore, the Ninth Circuit determined that “[t]he court’s acknowledgement of the evolving understanding of environmental contamination caused by these chemicals, and TDY’s prompt adoption of practices to reduce the release of hazardous chemicals into the environment once the hazards became known, further undercuts the decision to allocate 100 percent of the costs to TDY.” Id. The district court also failed to consider the parties’ lengthy course of dealing through 1999, when the government paid between 90 and 100 percent of cleanup costs at the plant. Id. Although “a customer’s willingness to pay disposal costs . . . cannot be equated with a willingness to foot the bill for a company’s unlawful discharge of oil or other pollutants,” the Ninth Circuit nevertheless determined it should have been a relevant factor in the allocation analysis. Id.

This article was originally published on the Sheppard Mullin Real Estate, Land Use & Environment Law Blog

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About the Authors

Whitney Jones Roy is a litigation partner in firm’s Los Angeles office. Ms. Roy was recognized by Law360 as a “Female Powerbroker” and by the Daily Journal as one of the Top 100 Women Lawyers in California in 2014.  Ms. Roy has experience in all aspects of California and federal civil procedure through trial. She also defends her clients on appeal when necessary.  Ms. Roy also specializes in complex environmental litigation and related products liability litigation. Her expertise includes the Clean Air Act, CERCLA, RCRA, design defect, failure to warn, negligence, nuisance, and trespass.

Whitney Hodges is an associate in the Real Estate, Land Use and Natural Resources Practice Group in the firm’s San Diego office. She also serves on the firm’s Diversity and Inclusion Committee, Pro Bono Committee, Recruiting Committee, Energy, Infrastructure and Project Finance Team and Latin Business Team.  Ms. Hodges specializes in the representation of clients involved in real estate development. Her practice focuses on advising and representing major residential, industrial, commercial and mixed-use development projects, as well as Native American Indian tribes and renewable energy developers through all phases of the land use regulatory process and environmental compliance.

 

 

SJC Clarifies Statute of Limitations for Contaminated Property Damage Claims but Raises Questions of Application

by Marc J. Goldstein, Beveridge & Diamond PC

Plaintiffs with property damage claims under the Massachusetts cleanup law have more time to bring their claim than might be expected under the three-year statute of limitations according to a recent ruling by the top Massachusetts court. The Supreme Judicial Court ruled that the statute of limitations begins running when the plaintiff knows that there is damage to the property that is “permanent” and who is responsible for the damage, pointing to the phases of investigation and remediation in Massachusetts’ regulatory scheme as signposts for when a plaintiff should have that knowledge. Grand Manor Condominium Assoc. v. City of Lowell, 478 Mass. 682 (2018). However, the Court left considerable uncertainty about when the statute of limitations might begin for arguably more temporary property damages such as lost rent.

In this Google image, the Grand Manor condominium complex is visible at the center-right.

In this case, the City of Lowell owned property that it used first as a quarry and then as a landfill in the 1940s and 50s before selling the property in the 1980s to a developer. The developer constructed a condominium project on the site and created a condominium association soon thereafter. As part of work to install a new drainage system in 2008, the contractor discovered discolored soil and debris in the ground. Subsequent sampling indicated that the soil was contaminated and that a release of hazardous materials had occurred. The condo association investigated in early 2009, and MassDEP issued notices of responsibility to both the condo association as well as the city in May 2009. The city assumed responsibility for the cleanup and worked the site through the state regulatory process known as the Massachusetts Contingency Plan (MCP). In the city’s MCP Phase II and III reports in June 2012, it concluded that the contamination was from the city’s landfill operations, that it would not be feasible to clean up the contamination, and proposed a pavement cap and a deed restriction. Those affected by the contamination would be well served to talk to their home insurance providers. If they currently do not have one or wish to consider other home insurance options researching at websites similar to www.simplyinsurance.com/condo-insurance-quote/ can provide some insight.

The condo association and many of its members filed suit in October 2012 for response costs under Chapter 21E, § 4 and damage to their property under G.L. c. 21E, § 5(a)(iii). At trial, the jury awarded the plaintiffs response costs under Section 4 but found that the plaintiffs had failed to prove that their property damage claim was brought within the three-year statute of limitations for such claims under G.L. c. 21E, § 11A. The Supreme Judicial Court took the case on direct appellate review. If you would like some public liability insurance to help along with a law case, then you may be interested in companies such as Wealth Simple, they can help with personal finance and TFSAs.

Section 11A provides that an action to recover damage to real property “be commenced within three years after the date that the person seeking recovery first suffers the damage or within three years after the date the person seeking recovery of such damage discovers or reasonably should have discovered that the person against whom the action is being brought is a person liable…” Quoting Taygeta Corp. v. Varian Assocs., Inc., 436 Mass. 217, 226 (2002), the Court summarized this as a requirement that the claim must be brought within three years of when plaintiff “discovers or reasonably should have discovered [1] the damage, and [2] the cause of the damage.”

The Court quickly agreed that “the damage” referred to in Section 11A was, for these purposes, the property damages of Section 5 and moved on to the plaintiffs’ contention that the limitations period should not run until they discovered or reasonably should have discovered that the damage was “permanent” or, in other words, not reasonably curable. Until that time, they argued, they could not know if they had a property damage claim because the site could be fully remediated.

The Court examined the application of the statute of limitations in the context of the statutory scheme for investigating and remediating sites in Massachusetts. The Court found that the primary purpose of Chapter 21E is to clean up environmental contamination and to ensure responsible parties pay for the costs of that cleanup. As a result, the statute prioritizes “performance and financing of cleanup efforts, and then considers the calculation of property damage that cannot be cured by remediation and remediation cost recovery.”

In interpreting the statute of limitations, the Court crystalized the question as “whether the word ‘damage’ in § 11A(4) refers specifically to damage under § 5, that is, damage that cannot be cured and compensated by the cleanup and cleanup cost recovery processes defined by the MCP and §§ 4 and 4A, such that the limitations period does not begin to run until the plaintiff knows there is residual damage not subject to remediation and compensation.” In order to have knowledge that a plaintiff has suffered damage that is not curable by the MCP remediation process, the MCP process must have run sufficiently to know that § 5 damages exist – that there is contamination that will not be addressed through remediation leaving the property at a diminished value. Since the liable party is required to determine the extent of the damage in Phase II and evaluate available remedies in Phase III of the MCP, as the Court noted, “[i]t would make little sense to require the plaintiff to independently determine whether residual property damage exists prior to the completion of these reports.” As a result, the Court concluded that the statute of limitations did not start to run until the plaintiff became aware that the site would not be fully remediated in the Phase II and III reports in June 2012 months before they filed their lawsuit. Exactly what constitutes full remediation remains to explored in further cases, as the range of outcomes from achieving background conditions, implementing deed restrictions, reaching temporary solutions, or even leaving just a few molecules of contamination left behind could impact this analysis.

The Court contended that this interpretation of the statute of limitations provides a “prescribed and predictable period of time” within which claims would be time barred, given that there are timetables associated with the production and submission of MCP Phase II and III reports. Under normal circumstances, the Court expected that a plaintiff will know it has a claim within five years of notifying MassDEP of contamination.

Despite the Court’s pronouncement that it had provided predictability for these types of claims, the statute of limitations for non-permanent property damages, such as lost rental value, or for sites where there is a long-term temporary solution in place, remain uncertain. Lawyers and clients evaluating how and when to bring claims for temporary and permanent damages will need to carefully evaluate a range of potential options in pursuing a preferred single case for property damage without unacceptable risk that an uncertain statute of limitation may have run.

The article was first published at the Beveridge & Diamond website.

Beveridge & Diamond’s Massachusetts office assists parties at all phases of contaminated sites, guiding clients through the MCP investigation and remediation process and prosecuting and defending claims in court for cost recovery and property damage. For more information about this practice, contact Marc Goldstein or Jeanine Grachuk.

About the Author

Marc Goldstein helps clients resolve environmental and land use disputes and to develop residential, commercial, and industrial projects. He serves as the Managing Principal of Beveridge & Diamond’s Wellesley, Massachusetts office and the Chair of the firm’s Technology Committee.

Marc provides practical, cost-effective advice to clients with environmental contamination issues, whether those clients are cleaning up hazardous materials and seeking contribution from previous owners or adjacent landowners or facing claims under Chapter 21E or Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for their alleged role in contamination.

When Is a Discharge to Groundwater Subject to the U.S. Clean Water Act? Can You Say “Significant Nexus”?

By Seth Jaffe, Foley Hoag LLP

Whether the United States Clean Water Act regulates discharges to groundwater has been a topic of significant debate.  At this point, there seems to be something of a trend in the cases towards concluding it does, but it remains true that all of the courts of appeal that have addressed the issue have concluded that it does not.  As I have noted, the problem with the “yes” answer is that pretty much all groundwater eventually discharges to surface water, making all such discharges subject to the CWA.  How can that be, given that groundwater is not considered to be “waters of the United States?”

Chief Judge Waverly Crenshaw recently addressed the issue in Tennessee Clean Water Network v. TVA.  Judge Crenshaw’s solution was creative – meaning he pretty much made up out of whole cloth.  That doesn’t necessarily mean that it’s wrong, however.

The case involves coal ash management at the TVA’s Gallatin plant.  Some of the – unlined – ponds directly abut the Cumberland River.  The plaintiff citizen groups brought claims under the CWA, alleging that TVA was discharging pollutants to the River – via groundwater – without an NPDES permit.  They requested an injunction requiring that the TVA remove the coal ash from the ponds, at a cost of $2 billion.

Gallatin power plant, operated by the Tennessee Valley Authority in mid-Tennessee on the north bank of the Cumberland River. Location of the main coal-burning facility is indicated by the icon and label.

Judge Crenshaw was clearly frustrated by an absolutist position on either side.  Clearly, he does not think that any link between groundwater and surface water, no matter how attenuated, can be enough for jurisdiction to attach.  On the other hand, he was also trying to reckon with the specific case in front of him.  As he saw it, the Gallatin ash ponds were a complete environmental mess.  They immediately abut the Cumberland River, clearly a water of the United States.  Can the outcome really be different if the ponds discharge directly to the River than if they discharge to groundwater 10 feet from the River, where that groundwater then discharges to the river?

His solution?

the Court concludes that a cause of action based on an unauthorized point source discharge may be brought under the CWA based on discharges through groundwater, if the hydrologic connection between the source of the pollutants and navigable waters is direct, immediate, and can generally be traced.

I confess I like this solution, because it is practical and will generally yield reasonable results.  It avoids either effectively regulating all groundwater under the CWA or having to conclude that the CWA can’t reach situations such as the Gallatin ash ponds.

The problem?

There’s no textual support for this solution in the CWA.  To me, this test sounds a lot like Justice Kennedy’s “significant nexus in Rapanos.  There too, his position received a lot of support at a practical level, while many commentators noticed that the CWA says nothing about a “significant nexus.”

We all know how well that’s worked out.

This article was first published in Law and the Environment, a blog from Foley Hoag LLP.

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About the Authors

Seth D. Jaffe

A partner at Foley Hoag, Seth Jaffe is recognized by Chambers USA, The Best Lawyers in America and Massachusetts SuperLawyers as a leading… MORE

Kathleen Brill

Kathleen Brill is an Associate practicing in the Administrative Department of Foley Hoag’s Boston office. Before joining Foley Hoag, Kathleen had considerable experience…MORE

 

CERCLA Trumps As-Is Sales

By Steven L. Hoch, Attorney, Clark Hill

A federal court in Alaska assessed responsibility against the City of Fairbanks (City) for remediation costs found necessary to clean up property it previously owned.  The court concluded that the City should have mitigated the problem or at least warned the purchaser about the contamination, even though the property was sold “As-Is”.  Under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) liability is assessed without reference to cause.  Further, the court said that numerous courts have held that CERCLA liability cannot be defeated by contract, unless specifically and clearly addressed in the contract language.

In Gavora, Inc. v. City of Fairbanks , Case No. 4:15–cv-00015-SLG, BL 256894 (D. Alaska July 25, 2017), the City owned two parcels of land and Gavora held leasehold on one of the parcels. For a considerable length of time, a dry cleaning business operated in the shopping center located on their parcel.  Eventually, the contamination drew the attention of the State of Alaska, who told the City about the contamination and that they suspected the contamination migrated from that parcel to the other.  While the State did not verify the findings, the district court found it clear that the City knew or should have known that the first parcel was also contaminated.

Fairbanks Mall – Satellite Image showing borehole and monitoring well locations as well as PCE contamination levels

The City sold the first parcel to Gavora on an “As-Is, Where-Is” basis.  This sale occurred 10 years after the City first learned of the contamination on the second parcel.  When the purchase took place, Gavora did not perform its own environmental assessment.  Five years later, contamination was discovered on the first parcel owned by Gavora.  Lacking options, Gavora remediated the parcel and sued the City of Fairbanks for contribution.

Even though the sale was “As-Is”, the court nevertheless held the seller liable. Further, the court allocated 55% of the costs to the City and 45% of the costs to the current owner. The court rationalized that this allocation was appropriate because (1) the city knew or should have known of the contamination, yet failed to inform the purchaser; (2) the current owner made substantial corrective action efforts upon learning of the problem whereas the City took no action, and (3) it would be inequitable to hold the current owner responsible for contamination occurring prior to its master lease, but the court could not “effectively apportion the contamination”, but (4) the current owner would obtain a greater benefit than the prior owner from the remediation.

In the final analysis this case affirms that “As-Is” does not exculpate a seller from CERCLA liability, and that not disclosing contamination even when it did not make any representation to the contrary. As this was a district court opinion, it does not have significant legal value, but should not be dismissed out of hand when confronting similar issues.

 

This article was first published on the Clark Hill website.

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About the author

Steven Hoch has over 40 years of experience with both federal and state environmental laws and regulations in the context of permitting, regulatory proceedings, litigation, enforcement actions, water supply, public policy formation, and advice.  His work includes contamination of land and ground and surface water.  Steven has critical experience in the areas of environmental law and the federal and state Safe Drinking Water Acts, Title 23, water supply, and the mechanics of water distribution.  His experience also extends to groundwater modeling and water quality testing.  He also has significant experience in hazardous substances and waste handling practices, remediation, soil erosion, and claims of toxic exposures

Steven has in-depth experience working with numerous public water systems throughout the state.  He has also established a sterling reputation for his work with the Regional Water Quality Control Boards, the Department of Toxic Substance Control, and the United States Environmental Protection Agency both in the administrative and litigation.  His clients range from the country’s largest municipal water agency to individuals selling or buying contaminated sites.

Steven often takes primary roles in many environmental trials, and has served as liaison counsel for groups or parties at the request of fellow counsel.  He has been involved in several landmark cases, including acting as PG&E’s counsel in the case made famous by the movie Erin Brockovich.