CLEAR RULES FOR OIL SPILLS

By: Jay Hollander
Date: August 2001

Jay Hollander, Esq. is the principal of Hollander and Company LLC, www.hollanderco.com, a New York City law firm concentrating its efforts in the protection and development of property interests relating to real property, intellectual property and commercial interests, as well as related litigation.

The content of this article is intended to provide general information relating to its subject matter. Providing it does not establish any attorney-client relationship and does not constitute legal advice. Personal advice in the context of a mutually agreed attorney-client relationship should be sought about your specific circumstances.

Article

One of the more dangerous areas of the law from the standpoint of property owners in New York State has been the state's Navigation Law, commonly called the Oil Spill Act, specifically its provisions with respect to oil spills on land.  The purpose of the law is simple: to enable the State to take quick action to clean up oil leaks and spills so as to protect the environment. It's a strict liability law, meaning that property owners can be found liable as a "discharger" under the statute (responsible for the spill and its cleanup) even if they did not cause the contamination themselves, that is, even if they are “faultless” within the meaning of the Statute.

Because the Law allows the State to file a lien against the property of dischargers and to seek reimbursement for cleanup costs, property owners have good reason to be motivated to comprehend the nuances of the law. Truly, caveat emptor has great meaning in the context of the Oil Spill Act, for landowners can be at great financial risk should an oil spill or leak occur as the costs of cleanup can be steep.  The Navigation Law is new enough that the courts had not, until recently, determinatively decided two issues of great concern to property owners - first, whether owners in all instances can be held liable as "dischargers" under the law simply by virtue of their ownership of the land on which an oil leak or spill occurs; and second, whether a faultless discharger can seek reimbursement from whoever caused the contamination of the land that they own. For example, if you rent or lease your property to someone and they spill oil, are they responsible, or are you, or are both of you? Equally importantly, if someone unknown to you dumps petroleum products on your property in the middle of the night, do you have the responsibility to pay to clean it up? All of these question have now been answered definitively in the case of the State of New York v. Vanessa Green, et al., which New York’s highest court decided early in July, 2001.

While the case was widely reported in the media as heralding an expansion of landowners' liability for oil spills because it made the landowner liable for a spill caused by a tenant, a careful reading of the Court's decision shows a clear roadmap establishing not just when landowners are liable but also when they are not. The decision also clarifies what remedies are available to those like the Landlord in Green, who are found to be “faultless dischargers” under the statute. 

THE FACTS OF THE CASE
Village at Lakeside, Inc., owned a trailer park and leased a space to Vanessa Green. She owned an above-ground kerosene tank, which tipped over one day and spilled kerosene on the ground. The tank held 275 gallons when full, so as spills go, it was a relatively small spill.

Still, no one bothered to clean up the spill until the State intervened six years later and did so at a cost of approximately $15,000.00 . After doing so, New York State then brought an action against the tenant, Green, the landlord, Lakeside, and the company that serviced the tank, H. Reynolds & Sons, seeking reimbursement of its costs under Article 12 of the Navigation Law.  The Tenant never appeared in the case and moved away before it was finally decided. The Landlord and contractor originally cross-claimed against each other and against the Tenant, but eventually, after claims were dropped and actions discontinued, the only defendant remaining was the Landlord. In its defense, the Landlord argued that since it neither owned nor serviced the tank, it could not be liable for clean up costs related to spillage. The State, on the other hand, argued that the Landlord was simply by virtue of being the owner of the contaminated land.

Interestingly, the Court of Appeals did not fully agree with either party. The Court, while finding the Landlord liable, did not do so as a matter of strict liability or simply because the Landlord was the landowner.

Instead, the Court reasoned, the Landlord was liable under a quasi negligence theory because it had control over the land and over the tenant's use of the land, and it failed to take any steps to prevent a spill even though it should have known that its tenants were likely to use petroleum products to heat their trailers. As the Court put it:

"While we refuse to impose liability based solely on ownership of contaminated land, we nonetheless conclude that where, as here, a landowner can control activities occurring on its property and has reason to believe that petroleum products will be stored there, the landowner is liable as a discharger for the cleanup costs."

THE COURT'S REASONING
The Court, construing the statutory term “discharger” liberally to effect the law's legislative purpose, first noted that Section 172(8) defines a discharge as "any intentional or unintentional action or omission resulting in the releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping of petroleum into the waters of the state or onto lands from which it might flow or drain into said waters...", a definition which they pointed out does not require proof of knowledge or fault. The Landlord was thus a “discharger” even though it didn't itself spill the kerosene or even own the tank. But Lakeside's liability, they ruled, did not come about simply by virtue of being the owner of the polluted land in question. It was liable because "it had the ability to control potential sources of contamination on its property" and its failure "to take any action in controlling the events that led to the spill or to effect an immediate cleanup renders it liable as a discharger."  Limiting liability just to the Tenant, the court said, "would discourage landowners from promptly cleaning up their contaminated land, leaving the State to shoulder the entire cost of the cleanup while it searches for the party at fault." Moreover, Lakeside was not without redress according to the Court: because the Landlord was found to be a “faultless discharger” under the Navigation Law, it could go after contribution from the Tenant, the party who actually caused the spill.  Clearly, the Court prefers that landowners initially shoulder the burden of cleanup and then seek reimbursement from the party actually at fault, so as to spare the State the expense and annoyance of litigation.

But the Court’s allocation of this initial burden to landlords was not unlimited. As the Court noted,:

"(b)y predicating liability on a landowner's control over the contaminated premises, we ensure that landowners are not in all instances liable for spills occurring on their property." (emphasis added)

Thus, the Green Court made it clear that property owners aren't liable just because they are unfortunate enough to own land unforeseeably contaminated by strangers.

WHAT DOES THE CASE MEAN FOR PROPERTY OWNERS?
If you are a property owner looking to figure out what to do, what lessons can you learn from the Court’s ruling in Green?

First and foremost, it means that you aren’t automatically liable for an oil spill or leak just because you happen to own land on which contamination unforeseeably occurs at the hands of unknown parties over whom you have no control.

For example, as the court spelled out, if you are the victim of a "midnight dumper" or "an errant oil truck" that spills fuel on your property, you can't be found to be a discharger under the law, because you can't control such events. That's good news for property owners. But if, like Lakeside, you are "in a position to control the site and source of the discharge" and you fail to take steps to exercise that control, you can expect to be found liable for cleanup costs in the first instance if an accident occurs and you don’t take steps to have it remedied, by the Tenant or otherwise. This means landlords must now take affirmative steps to control their property any time petroleum products can reasonably be expected to be used on that property by foreseeable parties, either by forbidding the use of such products outright, or by strictly regulating and monitoring their use. When you consider that petroleum products are used not only by gas stations, but for electricity generation, operating machinery, heating, and by factories for making such things as paints, pesticides, inks, plastics, medicines, wax, and asphalt, the Oil Spill Act clearly impacts a great many property owners. 

HOW CAN PROPERTY OWNERS PROTECT THEMSELVES? 
The logical and usual defenses you might expect property owners to be able to utilize do not avail against the Oil Spill Act.

For example, as long as the foresee ability and control aspects cited by the Court in Green exist, it won't help landlords who own the contaminated land to say they didn't cause the problem.

Some may conclude that it would be best to prevent the use of such holding tanks by tenants entirely, although, depending upon the historical use of the property, this may not always be practically possible.

Where prohibition is not practicable, leases, post Green, will no doubt need to be crafted to incorporate the principles articulated in Green.

While the provisions in a lease will have no initial bearing on whether a property owner can be found liable as a discharger under the Navigation Law, they can be modified to provide for certain indemnities, making it easier to collect from a tenant, if provisions are carefully written in such a way as to leave that door not only open, but funded as well. For example, depending on the precise circumstances, a lease can provide that an oil spill by a tenant be deemed a nuisance and an automatic violation of the lease. It should also stipulate that costs of cleanup are the tenant's responsibility but allow the Landlord to use self help after notice, and provide that the tenant will indemnify and hold the landlord harmless for any such costs of cleanup.

Additionally, it should permit the landlord access to inspect tanks regularly and can require the tenant to immediately remove any tank discovered to be leaking tank at the tenant’s sole expense.

The lease should further make it clear that any costs incurred by the landlord for cleanup costs will be recoverable from the tenant as additional rent.

Most importantly, the lease should require that tenants procure suitable insurance, being careful to avoid the customary pollution exclusion, in amount deemed prudent to the landlord, subject to increase over time, in accordance with marketplace evaluations of the risk. As with other insurance, the Landlord must be named as an additional insured and be given adequate advance notice of any modification or cancellation of the policy. This insurance is, of course, in addition to any environmental liability insurance that the Landlord may, itself, wish to carry.

If you are already in the middle of a lease, all is not lost, by the way: you do have a common law right to sue a tenant for nuisance, but on renewal, or with a new tenant, a well-written lease can do a great deal to bolster your position and enhance your likelihood of prevailing in any dispute.  So, before you renew any lease, speak to your attorney about how the Navigation Law applies to your situation, particularly with respect to this new case.

The Green case has greatly clarified the law with respect to landlords, tenants and liability for oil spills under the Oil Spill Act. If owners take steps immediately to respond to the direction the court has provided, they may more effectively plan to reduce or eliminate any financial liability from an oil spill or leak, even if it is not possible to totally prevent them from taking place.

Copyright © Jay Hollander, 1998. All Rights Reserved.