Who is an “Owner or Operator” under MTCA? The Washington Supreme Court Just Narrowed the List of Candidates

Andy Rigel and Lisa Chaiet Rahman*

Originally Submitted Summer 2018

On May 24, 2018, the Washington Supreme Court issued its highly-anticipated opinion analyzing the scope of “owner or operator” liability under Washington’s Model Toxics Control Act (“MTCA”). In Pope Resources, LP v. Washington State Department of Natural Resources,[1] the Court considered whether the Department of Natural Resources (“DNR”) was an “owner or operator” of contaminated aquatic lands that it managed on behalf of the State of Washington. The Court held that (1) a state agency’s delegated land management authority does not constitute an “ownership interest” under MTCA and (2) “an operator must manage, direct, or conduct operations specifically related to the pollution” in order to trigger MTCA liability.[2] This case has significant implications because it provides definitive guidance regarding who is liable as an owner or operator, which is perhaps the most fundamental aspect of MTCA’s liability framework.

From 1853 to 1995, Pope & Talbot (“Pope”) and its predecessors operated a sawmill and forest products manufacturing facility at Port Gamble Bay in Kitsap County.[3] Between 1974 and 2001, Pope leased from DNR state-owned aquatic lands adjacent to its facility for log storage.[4] Pope’s installation of creosote pilings in the bay, log storage and rafting, and wood waste burning resulted in contamination, including areas of the leased aquatic lands. The Washington Department of Ecology (“Ecology”) named Pope and DNR as “potentially liable persons” under MTCA.[5] Pope entered into a consent decree with Ecology and undertook significant remedial actions at the site. Pope then filed a complaint against DNR seeking a declaration that DNR is liable for natural resources damages and remedial action costs.[6] Kitsap County Superior Court granted summary judgment in favor of DNR and the Court of Appeals reversed, holding that DNR was an “owner or operator” under MTCA.[7]

The list of potentially liable persons that are strictly, jointly, and severally liable under MTCA starts with the “owner or operator of the facility.”[8] Pope Resources hinged on interpreting and applying the terms “owner” and “operator.” MTCA’s statutory definitions are circular and not particularly helpful for litigants or the courts. An “owner” is “[a]ny person with any ownership interest in the facility,” but the embedded phrase “ownership interest” is not defined.[9] The definition of “operator” is similarly vague and includes any person “who exercises any control over the facility.” [10] But the statute provides no guidance regarding what “control” means. In practice, Ecology’s application of the “any control” standard focuses on the “any” aspect of the phrase and casts a wide net to identify potentially liable parties.

The Division 2 Court of Appeals in Pope Resources found that DNR’s authority to lease state-owned aquatic lands and ensure such lands were used in the public interest created an ownership interest under property law doctrine sufficient to trigger MTCA owner liability.[11] The court also held that DNR’s leasing authority constituted “control” making DNR liable as an “operator” under MTCA.[12] Citing “definitional differences” between the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and MTCA,[13] the court declined to follow prior Division 1 Court of Appeals case law on MTCA operator liability. Both of those cases, Taliesen Corp. v. Razore Land Co.[14] and Unigard Insurance Co. v. Leven,[15] relied upon federal CERCLA precedent interpreting “operator” liability to require evidence of “operational control” or “business management” authority.[16]

The Washington Supreme Court reversed the Court of Appeals on both of its “owner” and “operator” holdings. First, the Court evaluated DNR’s enacting statute and the constitutional origins of its land management authority to determine that “DNR’s interest is solely as the State’s management agent.”[17] It reasoned that “the legislature reserved for the State the full bundle of rights comprising an ownership interest” in the state’s aquatic lands.[18] Without evidence of “any deeds, grants, patents, or other instruments conveying ‘any ownership interest,’” the Court concluded that no “real property right” existed.[19]

Second, the Court resolved the split between Divisions 1 and 2 regarding MTCA operator liability, holding that “an operator is simply someone who directs the workings of, manages, or conducts the affairs of a facility. . . . [A]n operator must manage, direct, or conduct operations specifically related to pollution, that is operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations.”[20] Reasoning that DNR’s lease expressly assigned operational control to Pope, the Court found that “DNR did not fulfill this sort of business management role directly over the facility.”[21]

The Court also examined the Taliesen and Unigard cases. It noted that CERCLA cases interpreting provisions similar to those of MTCA are persuasive authority even if the language differs between the two statutes. [22] Both Taliesen and Unigard followed United States v. Bestfoods,[23] in which the United States Supreme Court held that a corporate parent must actively participate in and exercise control over the aspect of a facility’s operations involved in a release in order to be held liable as an operator under CERCLA. Taliesen held that a contractor who pierced an underground storage tank had “mechanical control over the drilling facility” but did not have “any control in the decision-making sense intended by [MTCA]” and therefore did not have liability as an operator.[24] Unigard also relied upon Best Foods in the context of individual shareholder liability in analyzing whether the shareholder had the requisite involvement in actual business operations to trigger operator liability.[25]

The Pope Resources decision unequivocally adopts a tighter standard for determining operator liability under MTCA. The ramifications of the decision are far reaching, including giving property managers and lessors strong arguments to limit or avoid MTCA liability where no evidence of “operational control” or “business management” authority exists.[26] The decision will provide an opportunity for prospective buyers and developers of contaminated sites to structure transactions to avoid ownership and control through creative use of long-term leases, condominiums, easements, and other property interests that are short of fee simple ownership.

This case also raises important questions regarding MTCA liability of the state and of state agencies. Under Pope Resources, a state agency’s land management authority is now not enough to impart owner or operator liability. Something more, such as fee ownership, must be present. MTCA expressly includes state agencies in the definition of persons that can be named as liable parties, but MTCA does not include the state itself. Since the state is the fee simple owner of numerous contaminated properties and submerged lands in Washington, future litigation may emerge to resolve whether the state can ever be liable under MTCA and, if not, how should the courts allocate the state’s share of cleanup liability among other liable parties.

*Andy Rigel is a principal at Hillis Clark Martin & Peterson P.S. He is the leader of HCMP’s environmental practice team and focuses his practice on counseling clients regarding the risks and opportunities of buying, selling, and redeveloping contaminated property.

*Lisa Chaiet Rahman is an attorney at Northwest Resource Law PLLC. She handles a broad range of environmental litigation matters, including cost recovery actions and insurance disputes. In addition, she assist clients in analyzing, drafting, and negotiating commercial real estate transactions.

[1] Pope Res., LP v. Dep’t of Nat. Res., 190 Wn.2d 744, 418 P.3d 90 (2018) (“Pope II”).

[2] Id. at 761 (quoting Taliesen Corp. v. Razore Land Co., 135 Wn. App. 106, 144 P.3d 1185 (2006)).

[3] Id. at 747–48.

[4] Pope Resources, LP v. Washington State Department of Natural Resources, 197 Wn. App. 409, 413, 389 P.3d 699 (2016) (“Pope I”).

[5] Id. at 414.

[6] Pope II, 190 Wn.2d at 749.

[7] Id.

[8] RCW 70.105D.040(1)(a).

[9] RCW 70.105D.020(22)(a).

[10] Id.

[11] Pope I, 197 Wn. App. at 419–20.

[12] Id. at 420.

[13] Id. at 422.

[14] 135 Wn. App. 106, 144 P.3d 1185 (2006).

[15] 97 Wn. App. 417, 983 P.2d 1155 (1999).

[16] Pope II, 190 Wn.2d at 762.

[17] Id. at 753.

[18] Id.

[19] Id.

[20] Id. at 761 (quoting Taliesen, 135 Wn. App. at 128).

[21] Id. (quoting Taliesen, 135 Wn. App. at 128).

[22] Id.

[23] 524 U.S. 51, 55, 118 S. Ct. 1876, 141 L. Ed. 2d 43 (1998).

[24] Taliesen, 135 Wn. App. at 128.

[25] Unigard, 97 Wn. App. at 429.

[26] Pope II, 190 Wn.2d at 761.