A state appellate court has gutted a City of Lodi ordinance governing cleanup of hazardous materials. The court ruled that the city ordinance exceeded the authority provided to local governments by the state’s Hazardous Substance Account Act (HSAA).
Specifically, the court rejected the portion of the local ordinance that permitted the city to take the role of lead agency and issue an administrative action order directing a “responsible party” to clean up a site listed as polluted by the Department of Toxic Substances Control. Only the state can issue such a cleanup order.
Lodi’s administrative action order issued under the city’s Comprehensive Municipal Environmental Response and Liability Ordinance (MERLO) “is preempted by HSAA because the City of Lodi is a site listed by the Department of Toxic Substances Control for which the state has exclusive jurisdiction over all remedial response actions,” the Third District Court of Appeal ruled.
In 2002, the Ninth U.S. Circuit Court of Appeals ruled that the only portions of MERLO that could stand were those not in conflict with the federal Comprehensive Environmental Response Compensation and Liability Act (CERCLA, or the Superfund law). The ruling in that case, Fireman’s Fund Ins. Co. v. City of Lodi, 302 F3d 928, placed the city within the confines of CERCLA.
The new ruling by the state appellate court “is the nail in the coffin for the MERLO ordinance,” said John A. Taylor Jr., an attorney who represented a now-defunct manufacturing company in the case.
City Attorney D. Stephen Schwabauer, who inherited the case, did not bicker with Taylor’s assessment. The court said state law pre-empts the city’s ordinance, Schwabauer conceded. And without the ordinance, “we are just another PRP [potentially responsible party]. We are not the lead enforcement entity. We are no longer a government entity that is trying to enforce a cleanup,” the city attorney said.
Although no other cities have tried to establish themselves as lead enforcement agencies in such matters, the ruling is important because it ensures other localities will not copy Lodi’s approach, Taylor said. “All it did was create years of litigation and it did not result in any cleanup at all,” he said.
William Wick, an attorney with the Oakland environmental law firm of Wactor & Wick, which is not involved with the Lodi cases, agreed that no one would emulate Lodi’s ordinance now. “Sometimes,” said Wick, “creative approaches don’t work.”
Lodi’s approach has definitely been creative — so creative that the city has become bogged down in unusually complex and expensive litigation for a city of 60,000 people, not to mention a growing public controversy. Meanwhile, the contamination from dry cleaning fluids and solvents used in manufacturing remains. Since 1989, the city has known that about 600 acres in the central business district are contaminated with carcinogenic solvents. That pollution threatens the groundwater, which is the city’s sole source of water.
In 1997, Lodi convinced the Department of Toxic Substances Control (DTSC) that the city should be allowed to assume the role of lead agency with the authority to prosecute actions against potentially responsible parties. After signing the agreement with DTSC, the city adopted MERLO, which created, according to the Third District, “environmental investigatory tools and a remedial environmental response and liability scheme.” The city started issuing abatement orders and soon found itself in court with landowners and their insurance companies. They contended the city was at least as responsible as the businesses because a leaky city sewer system had allowed the contaminants to leach into the ground.
The litigation was sucking the city’s utility reserve fund dry. So in 1999, then-City Attorney Randy Hays and outside counsel Michael Donovan convinced the City Council to approve what might have been an unprecedented deal with Lehman Brothers. The New York financial house agreed to loan the city $16 million at roughly 25% annual interest, to be repaid with money from the owners of contaminated properties and their insurers. The loan provided cash for the city to continue its enforcement and litigation activities.
Although the city did win $1 million from one insurance company, and the state Supreme Court upheld part of MERLO allowing the City Council to issue legislative subpoenas, Connecticut Indemnity v. Superior Court, 98 Cal.Rptr. 2d 221 (2001), the city also accumulated a string of legal setbacks. In late 2003, the entire scheme unraveled.
On December 9, 2003, the city hired Barger & Wolen law firm to audit seven years worth of bills submitted by Donovan and his associates. Shortly before Christmas, theSacramento Bee published an expose that questioned Lodi’s unorthodox approach to environmental remediation, including the Lehman Brothers deal. The Bee also reported that the city had paid Donovan, who had begun working as Envision Law Group during the late 1990s, more than $14 million over seven years, with another $2 million apparently owed to Envision. Donovan was the architect of MERLO and continued to represent the city. It was also revealed that the city and its lawyers had run up more than $5 million worth of consulting expenses.
In January, U.S. District Court Judge Frank Damrell Jr. — who was handling the Fireman’s Fund case on remand — warned the city’s lawyers from that their case was doomed. “While you move to vacate trial, I’m going to suggest that you consider vacating your litigation strategy,” Damrell said from the bench.
What the City Council did immediately was vacate its lawyers. Both Donovan and Hays were fired that night.
Now, the Fireman’s Fund case is on hold. The city and Lehman Brothers have sued each other. New city attorney Schwabauer said he wants to settle all of those cases. In recent weeks, Envision has filed a claim against the city for old legal fees, and the city’s audit of Envision has stalled while the city figures out how to pay for the audit, which could cost more than $900,000.
In the midst of all this came the Third District’s decision. The case began in November 1998, when the city issued an administrative abatement order to Randtron regarding the manufacturing company’s Sacramento Street property. The order directed Randtron to clean up the pollution and reimburse the city for abatement, monitoring and oversight costs. Randtron did not comply, so the city sued. Sacramento County Superior Court Judge John Lewis ruled for the city, ordered Randtron to comply and to pay the city $723,000 in attorneys’ fees and $541 in costs. Randtron appealed the entire decision, while the city, which had sought more than $1 million, appealed the award.
The unanimous three-judge panel of the Third District overturned Lewis and said Randtron owed the city nothing.
Under HSAA (Health & Safety Code §§ 25300-25395.40), DTSC is required to compile a list of sites that pose a substantial threat to public health or safety, or to the environment. The list is updated annually, and since the 1993-94, the list has included “Lodi groundwater site.” For sites on that list, the state is in charge of cleanup, the court ruled.
“We hold that HSAA pre-empts local regulation in response actions on sites listed pursuant to § 25356 because it vests the state with sole jurisdiction over removal and remedial actions of all listed sites,” Presiding Justice Coleman Blease wrote for the court.
“HSAA does not authorize a city to issue an administrative abatement action order pursuant to its own ordinance,” the court held, nor can DTSC authorize a city to do so.
A city does have “limited authority to initiate and implement cleanup action of a listed site,” but must first obtain DTSC’s approval for the action. In this case, Lodi did not seek DTSC approval and, in fact, directed Randtron to prepare and implement a work plan that satisfied the city.
Randtron attorney Taylor said the city was using the scheme to insulate itself from liability, which arose because of the leaky sewer system. State and federal law make clear the city must pay its share, Taylor said.
City Attorney Schwabauer said he was unsure if the city would ask the state Supreme Court to review the ruling. “I think the implication of the decision is, don’t take lead agency status,” he said.
City of Lodi v. Randtron, No. C037445, 04 C.D.O.S. 3890, 2004 DJDAR 5402. Filed May 5, 2004.
For Lodi: D. Stephen Schwabauer, city attorney, (209) 333-6701.
For Randtron: John A. Taylor Jr., Horvitz & Levy, (818) 995-0800.