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Pope Resources, LP v. Washington State Department of Natural Resources

Supreme Court of Washington, En Banc

May 24, 2018

POPE RESOURCES, LP, a Delaware limited partnership; OPG PROPERTIES, LLC, a Washington limited liability company, Respondents,

          STEPHENS, J.

         In concluding that the Department of Natural Resources (DNR) is a potentially liable party under Washington's Model Toxics Control Act (MTCA), ch. 70.105 RCW, the Court of Appeals below rejected the prior interpretation of that statute in Unigard Insurance Co. v. Leyen, 97 Wn.App. 417, 983 P.2d 1155 (1999) and Taliesen Corp. v. Razore Land Co., 135 Wn.App. 106, 144 P.3d 1185 (2006). See Pope Res., LP v. Dep't of Nat. Res., 197 Wn.App. 409, 422, 389 P.3d 699 (2016) ("Because the language of the provision in MTCA differs from the language in CERCLA [Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. §§ 9601-9675], Taliesen's and Unigard's holdings relying on an interpretation of CERCLA liability are not persuasive."). We granted review to resolve this split in the Court of Appeals and to provide guidance for interpreting MTCA.

         We reverse the Court of Appeals and hold that DNR is not an "owner or operator" of the Port Gamble Bay facility within the meaning of MTCA. As did the courts in Unigard and Taliesen, we recognize MTCA's affinity with CERCLA, under which the control retained by DNR is insufficient to support its liability for environmental contamination of the Port Gamble Bay facility.


         Between 1853 and 1995, the Port Gamble Bay facility in Kitsap County operated as a sawmill and forest products manufacturing facility by Pope & Talbot and its corporate predecessors. In 1890, some 37 years after Puget Mill Co., predecessor to Pope & Talbot, began operating the sawmill, the legislature authorized the disposal of certain occupied state-owned aquatic lands, including the tidal lands within Port Gamble Bay. Clerk's Papers (CP) at 249-55. In 1893 and 1913, Puget Mill Co. purchased tidelands around the mill facility and on the east and west sides of Port Gamble Bay from the State of Washington. CP at 266. DNR issued the first lease for Pope & Talbot's use of the Port Gamble Bay submerged lands in 1974. CPat103.

         In 1985, "Pope & Talbot's Board of Directors and shareholders approved a 'Plan of Distribution' ... to transfer 71, 363 acres of its timberlands, timber, land development, and resort businesses in the State of Washington ... to Pope Resources, a newly formed Delaware limited partnership." Pope & Talbot, Inc. v. Comm'r, 162 F.3d 1236, 1237 (9th Cir. 1999). "The Partnership paid no consideration for the Washington Properties, " id, although Pope Resources and Olympic Property Group (Pope/OPG) claim they assumed a $22.5 million mortgage in consideration. Appellants' Opening Br. at 5. However, the Ninth Circuit Court of Appeals affirmed the tax court's valuation of the transferred properties at between $46.7 and $59.7 million. Pope & Talbot, Inc., 162 F.3d at 1238, 1242. Pope Resources in turn leased the mill area to Pope & Talbot. CP at 77. Pope & Talbot ceased mill operations in 1995. CP at 231. The record indicates that Pope/OPG now seek to develop their Port Gamble holdings for a large, high-density community with a marina. CP at 153-55.

         Contamination of the Port Gamble site stems in part from the operation of sawmill buildings to saw logs for lumber, operation of chip barge loading facilities and a log-transfer facility, particulate sawmill emissions from wood and wood waste burning, in-water log rafting and storage, and creosote treated pilings placed throughout the bay to facilitate storage and transport of logs and wood products. "Logs were generally stored, rafted, and sorted in-water throughout the Bay." CP at 78. It is uncontested that

DNR did not control the finances of the facility at Port Gamble, manage the employees of the facility, manage the daily business operations of the facility, or have authority to operate or maintain environmental controls at the facility. DNR did not control Pope and Talbot's decisions regarding compliance with environmental laws or regulations, or Pope and Talbot's decisions regarding the presence of pollutants. DNR did not authorize the release of any hazardous substances on this site.

CP at 269.[1]

         After entering into a consent decree with the Washington Department of Ecology in 2013 "to provide for remedial action at a portion(s) of the facility . . . where there has been a release or threatened release of hazardous substances, " CP at 73, Pope/OPG filed a complaint in 2014 seeking a declaration that DNR is liable for natural resources damages and remedial costs, and for contribution of costs. CP at 3-10. The Kitsap County Superior Court granted summary judgment in favor of DNRin2016. CP at 368-70. The Court of Appeals reversed, holding that DNR is an "owner or operator" with potential liability under MTCA. Pope Res., 197 Wn.App. at 412. DNR appealed, and we granted review. Pope Res., LP v. Dep't of Nat. Res., 188 Wn.2d 1002, 393 P.3d 357 (2017).

         ANALYSIS MTCA imposes liability for environmental contamination on the "owner or operator" of a subject facility, or any person who owned or operated the facility at the time of the hazardous substance release or disposal. RCW 70.105D.040(1)(a), (b). MTCA "owner or operator" liability extends to the following "person[s], " as defined in RCW 70.105D.020(24): an "individual, firm, corporation, association, partnership, consortium, joint venture, commercial entity, state government agency, unit of local government, federal government agency, or Indian tribe." Each liable person "is strictly liable, jointly and severally, for all remedial action costs and for all natural resource damages resulting from the releases or threatened releases of hazardous substances." RCW 70.105D.041(2). Liable persons have a right to seek contribution from other potentially liable persons. RCW 70.105D.080.

         I. The Court of Appeals Conflated the Terms "Owner " and "Operator " under MTCA

         The Court of Appeals erroneously concluded "that DNR is liable under MTCA as an 'owner or operator' of the Site." Pope Res., 197 Wn.App. at 418. At the center of its error lies the conflation of these terms, leading the Court of Appeals to misconstrue DNR's delegated management authority as an "ownership interest" in the Port Gamble Bay facility. Then, relying on this faux ownership interest, the Court of Appeals mischaracterized DNR's leasing authority as indicating operational control over the Pope/OPG facility. Id. at 420-21. The result is a patchwork drawn from distinct legal doctrines that fails to adequately describe DNR's role at Port Gamble Bay.

         The plain language of MTCA states that an "owner" is "[a]ny person with any ownership interest in the facility." RCW 70. 105D.020(22)(a). An "operator" is any person "who exercises any control over the facility." Id. Although the terms "owner" and "operator" are joined in the phrase "owner or operator" in MTCA, this does not reduce their independent meaning, given the absence of express legislative intent to alter the distinct real property and business operation legal doctrines corresponding with these terms.

         Contrary to the Court of Appeals' view, MTCA follows CERCLA in defining who is liable for environmental contamination. The primary intent of MTCA is that "[p]olluters should pay to clean up their own mess. Initiative 97 would make them do that. Polluters are forced to clean up their wastes." State of Washington Voter's Pamphlet, General Election 6 (Nov. 8, 1988). MTCA assigns liability to the following persons "with respect to a facility: (a) [t]he owner or operator of the facility; [and] (b) [a]ny person who owned or operated the facility at the time of disposal or release of hazardous substances." RCW 70.105D.040(1). This is substantially the same language used in CERCLA with one exception. See 42 U.S.C. § 9607(a)(1) (persons liable include "the owner and operator of... a facility"). The parallel construction from the definition of "owner or operator" recurs throughout MTCA, which defines "facilities" by applying this dyad:

"Facility" means (a) [operational fixtures and assets such as] any building, structure, installation, equipment, pipe or pipeline (including any pipe into a sewer or publicly owned treatment works), well, pit, pond, lagoon, impoundment, ditch, landfill, storage container, motor vehicle, rolling stock, vessel, or aircraft, or (b) [real property locations and assets such as] any site or area where a hazardous substance, other than a consumer product in consumer use, has been deposited, stored, disposed of, or placed, or otherwise come to be located.

RCW 70. 105D.020(8). Other than adding vessels under MTCA, this is substantially the same definition for "facility" under CERCLA, 42 U.S.C. § 9601(9).

         The parent statute to MTCA, CERCLA, has consistently been interpreted to avoid fusing the separate legal doctrines that underlie the terms, "owner" and "operator." See Craig N. Johnston & Melissa Powers, Principles of Environmental Law 162-63 (2016) ("The prima facie elements of ownership liability are generally very straightforward: Does the defendant own the facility .... The question of who may qualify as an 'operator' under CERCLA is somewhat trickier."). Because MTCA was heavily patterned after CERCLA, Washington courts have recognized "federal cases interpreting similar 'owner or operator' language in the federal act are persuasive authority in determining operator liability." Taliesen, 135 Wn.App. at 127 (citing Unigard, 97 Wn.App. at 428).

         The Court of Appeals erroneously concluded that DNR has "owner or operator" liability by conflating these distinct statutory terms and entangling independent legal doctrines regarding real property ownership, statutory delegation, and business facilities operations. The court neglected to make concrete findings of any real property ownership interest or any facility-level operational control based on facts in the record. Its reasoning thereby creates the risk that persons with no ownership interest and who lack facility-level operational control may nonetheless be named potentially responsible parties under MTCA.[2] When MTCA is properly construed, it is clear that DNR, regardless of whether it is a person under MTCA, is neither an "owner" nor an "operator" subject to liability for the Port Gamble Bay facility.

         II. DNR Is Not Liable under MTCA as an "Owner " at Port Gamble Bay

         The Court of Appeals incorrectly held that DNR has an "ownership interest" in the Port Gamble Bay facility. Pope Res., 197 Wn.App. at 420. In so doing, the court interposed ownership attributes into the State's delegation of aquatic lands management to DNR. See id. at 419 (wrongly assuming that delegated responsibility to manage aquatic lands resembles a property right and, consequently, an "ownership interest" in the Pope/OPG facility). Despite a record bereft of any deeds, grants, patents, or other instruments conveying "any ownership interest" to DNR, the Court of Appeals deemed DNR an owner by mistaking its delegated management authority for a real property right, and then concluding that "DNR's authority includes those rights associated with an ownership interest." Id. at 420. This was error.

         It is undisputed that the State of Washington owns the aquatic lands at Port Gamble Bay. Indeed, Pope/OPG conceded as much and also acknowledged before the trial court that "the State of Washington cannot be liable under MTCA." CP at 308; see also Pope Res., 197 Wn.App. at 418 (noting parties' stipulation that the State owns lands at Port Gamble Bay). Pope/OPG nonetheless sued DNR, arguing that "DNR has every incident of ownership other than fee." Resp'ts' Suppl. Br. at 10. Not so; the legislature reserved for the State the full bundle of rights comprising an ownership interest when it declared that "the state owns these aquatic lands in fee and has delegated to the department the responsibility to manage these lands for the benefit of the public." RCW 79.105.010; see also RCW 79.105.020 (the purpose of the aquatic lands statutes "is to articulate a management philosophy to guide the exercise of the state's ownership interest and the exercise of the department's management authority"). DNR's interest is solely as the State's management agent. The limitation on DNR's role has constitutional roots because the State of Washington, not DNR, owns the beds and shores of all navigable waters in this state. Const, art. XVII, § 1. Upon entering the Union, the State of Washington obtained title to the beds of its navigable waters under the equal footing doctrine, U.S. Const. art. IV, § 3, cl. 1. Under this doctrine, "the people of each of the Thirteen Colonies at the time of independence 'became themselves sovereign; and in that character hold the absolute right to all their navigable waters and the soils under them for their own common use, subject only to the rights since surrendered by the Constitution to the general government.'" Idaho v. Coeur d'Alene Tribe,521 U.S. 261, ...

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