Barg Coffin Lewis & Trapp, LLP Articles

January 2004

Toto, We Are Not In Kansas Any More: Four Common Tools Used By California Plaintiffs In Water Contamination Cases To Expand Standing, Increase The Number Of Target Defendants, and Improve The Likelihood Of Recovery

By Rick Coffin

I. Introduction

For decades, individual property owners, consumers and environmental enforcement agencies have brought claims under traditional tort theories (negligence, nuisance, trespass and strict liability for ultrahazardous activities) and environmental laws against businesses whose acts caused pollution of water resources. However, in more recent years, new categories of plaintiffs -- citizen groups, municipalities, water districts, private water suppliers and redevelopment agencies -- have used new theories to expand standing for plaintiffs and expand the number and nature of target defendants in water contamination cases. Some of those theories are unique to California law; some are not. This paper very briefly reviews four tools California plaintiffs now use to expand the scope of water contamination claims.

II. Four Legal Theories Used by California Plaintiffs To Expand Standing And The Number And Nature Of Target Defendants In Water Contamination Litigation

A. Product Liability Claims

While product liability claims are a long-standing component of American tort law, the use of product liability law to target chemical manufacturers in water contamination cases is a relatively new phenomenon. Traditionally, water contamination claims were brought against the businesses that caused the discharge or release of the contaminant in controversy -- manufacturing plants or other businesses using chemicals such as individual dry cleaners, gasoline stations or pesticide applicators. Plaintiffs now regularly use product liability law to attempt to impose liability on manufacturers of chemical products even though others in the chain of distribution cause the discharge in controversy.

1. An Overview Of Product Liability Claims And Applicable California Law.

Under established California law, a manufacturer, and all others in the chain of distribution of a product, are strictly liable for personal injury or property damage caused by a "defective product" (Barker v. Lull Engineering Co., 20 Cal. 3d 413 (1978)), or if the marketers of the product failed to adequately warn of the product's dangers and potential for harm ("failure to warn"). Anderson v. Owens-Corning Fiberglas Corp., 53 Cal. 3d 987, 996 (1991). Product defects, in turn, are divided into two categories -- manufacturing defects and design defects. Barker, supra, at 429-30. A manufacturing defect exists when a product is manufactured in substandard condition or does not meet specifications. Id. at 429. A design defect exists when a product is manufactured in accordance with its intended specifications, but the design is itself inherently defective. Id. at 429. California recognizes two tests for proving a design defect. The first test, referred to as the "consumer expectation" test, permits a plaintiff to prove a design defect by demonstrating that the product failed to perform as safely as the ordinary consumer would expect when used in an intended and reasonably foreseeable manner. Id. at 427. Rooted in theories of contract and warranty, the consumer expectation test is reserved for those cases in which the everyday experience of the product's user permits a conclusion that the product's design violated minimum safety assumptions. Id. at 430; Soule v. General Motors Corp., 8 Cal. 4th 548, 562 (1994). [e.g., a car should not explode while idling at a stoplight. Soule at 566 n.3.] Where expert opinions on the merits of the design are necessary to explain "... obscure components ... under ... complex circumstances …" outside the ordinary experience of consumers, the consumer expectation test does not apply. Soule at 570; Morson v. Superior Court, 90 Cal.App.4th 775, 793-95 (2001). Instead, the courts apply the "risk-benefit test" to determine if the product design embodies an excessive, preventable danger that led to plaintiffs' alleged personal injury or property damage. Barker, 20 Cal.3d at 430; Soule, 8 Cal. 4th at 567. Under the risk-benefit test, a product is not defective if the benefits of the challenged design, when balanced against such factors as the feasibility and cost of alternative designs, outweigh the inherent risk of harm.

2. Defenses To Product Liability Claims

a. Specific Defenses To Failure To Warn Claims

Like any other tort claim, product liability claims require the plaintiff to establish duty, causation and damages. Chemical manufacturers facing product liability claims can defeat product liability claims based on a failure to warn if the product they supplied to intermediaries in the chain of distribution was accompanied by adequate warnings to those intermediaries who were reasonably expected to pass those warnings to others in the chain of commerce. Groll v. Shell Oil Co., 148 Cal.App.3d 444, 449 (1983). When a manufacturer sells its product in bulk, its duty is to provide adequate warnings to the distributor that subsequently packages, labels and markets the product. The manufacturer does not have a duty to warn ultimate consumers because "... [t]o hold otherwise would impose an onerous burden on the bulk sales manufacturer to inspect the subsequent labeling of the packaged product. In addition, the manufacturer would have severe enforcement problems if the bulk product purchaser failed to adhere to the recommended warnings." Groll, 148 Cal.App.3d at 448-449.

Similarly, if a plaintiff alleges injury from a product in a manner that was primarily caused by a defendant other than the chemical manufacturer (e.g., a retailer or distributor) and the harm suffered was not reasonably foreseeable to the manufacturer, the "intervening" or "superceding" cause can cut the chain of causation with regard to manufacturers. See, Martinez v. Vintage Petroleum, Inc., 68 Cal.App.4th 695, 700-701 (1998); BAJI 3.79. However, if the plaintiff can persuade a trier of fact that a manufacturer's conduct is a "substantial factor" in the chain of causation, product liability against the manufacturer may be established. BAJI 3.76, 3.77; Mitchell v. Gonzales, 54 Cal.3d 1041 (1991).

b. Specific Defenses To Product Defect Claims

Most product defect claims against chemical manufacturers are not appropriate for the application of the consumer expectation test. See, Soule, supra, at 570; Morson, supra, at 793-95. Therefore, defenses to product defect claims will be expert intensive and will focus on:

why the product is not causally related to plaintiffs' claimed damages; and
why the product meets the risk-benefit test for defeating a defective design claim.

Both of these defenses are expensive to prepare and complicated to explain to lay juries. As a result, chemical manufacturers attempt to use federal preemption, where applicable, to preclude plaintiffs from using state product liability law to impose liability for their products in water resources. (See, e.g., Etcheverry v. Tri-Ag Service, Inc., 22 Cal.App.4th 316 (2000); Arnold v. Dow Chemical Co., 91 Cal.App.4th 698 (2001); "Senate Blocks Energy Bill: MTBE Preemption Not Acceptable," November 22, 2003 New York Times, National Desk).

B. Claims Under Business & Professions Code § 17200.

California's Unfair Competition Law ("UCL") Business and Professions Code §§ 17200 et seq., provides a unique and powerful tool for plaintiffs in water contamination litigation. Under the UCL, a private plaintiff that has itself suffered no injury may file an action for "restitution" of money or property or injunctive relief against any person or business entity alleged to be engaged in any "unlawful, unfair or fraudulent business act or practice ..." Business & Professions Code § 17200.

1. An Overview Of The UCL

The UCL conveys very broad standing to bring claims alleging that a business practice is "... unlawful, unfair or fraudulent." Business & Professions Code § 17200. An action alleging violation of the UCL may be brought by business competitors, the Attorney General, district attorneys, most city attorneys and any private individual "... acting for the interests of itself, its members or the general public." Business & Professions Code § 17204. Under established law, an individual has standing to assert a UCL action even if that individual has suffered no injury and is seeking solely to obtain relief for others. Stop Youth Addiction v. Lucky Stores Inc., 17 Cal.4th 553, 561-62 (1998). In essence, the UCL gives standing to any member of the public to litigate any business' alleged violation of California law by "borrowing" the provisions of that law and asserting it as an unlawful business practice. Klein v. Earth Elements, Inc., 59 Cal.App.4th 965, 969 (1997). Standing requirements under the predicate statute are not applicable under the UCL. Committee on Children's Television, Inc. v. General Foods Corp., 35 Cal.3d 197, 210-211 (1983) 211. The UCL also serves as a vehicle for any member of the public to assert "unfair or fraudulent" business practices that are not unlawful. Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal.4th 163, 180 (1999). In asserting an unfair or fraudulent business practice, the UCL does not require that the plaintiff plead and prove the elements of the tort of fraud. The representative plaintiff need only show that members of the public are likely to be deceived. "Allegations of actual deception, reasonable reliance and damage are unnecessary." Committee on Children's Television, Inc., supra at 211.

Remedies in a UCL action are limited. A UCL claim is equitable in nature and traditional tort damages are not recoverable. Bank of the West v. Superior Court, 2 Cal.4th 1254, 1256 (1992). However, Section 17203 allows the Court to enter "... such orders or judgments ... as may be necessary to prevent the use or employment ... of any ... unfair competition ... or as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition." In addition, a public enforcer under the UCL (Attorney General, district attorney or city attorney) may obtain civil penalties under Section 17206. A successful private plaintiff may also seek attorneys' fees as a private attorney general under Code of Civil Procedure § 1021.5.

By allowing individuals to serve as private attorneys general and pursue equitable relief on behalf of the general public, the UCL, in effect, creates a "non-class" class action mechanism. In response to defendants' due process concerns raised in a series of UCL cases, the California Supreme Court has recently interpreted the remedies available under the statute in a way that attempts to allay constitutional concerns. In three cases since 2000 -- Kraus v. Trinity Management Services Inc., 23 Cal 4th 116 (2000), Cortez v. Purolator Air Filtration Products Co., 23 Cal.4th 163 (2000), and Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134 (2003) -- the Supreme Court has interpreted Section 17203 of the UCL as follows:

Unless a UCL action is brought as a class action, monetary relief under the UCL is available "... only to the extent that it compels restitution to those ... who timely appear to collect restitution." The UCL does not allow a trial court to order disgorgement of profits into a fluid recovery fund if no class has been certified. Kraus, 23 Cal.4th at 125-26, 137.
A restitution order requires that the plaintiffs have an "ownership interest" in any money or property to be restored. Korea Supply, 29 Cal.4th at 1148.
Injunctive relief under the UCL should be addressed to "preventing" unfair practices or "restoring" money or property acquired through unfair practices. Korea Supply, 29 Cal.4th at 1147-48.

2. Defenses To UCL Claims

While recent Supreme Court decisions address some of defendants' objections to the UCL, they are certainly not a comprehensive response to those objections. Some language in Kraus, Cortez and Korea Supply suggests that defendants may be able to successfully assert due process objections to several aspects of enforcement of the UCL. For example, in Cortez the Supreme Court was careful to require that trial courts consider a defendant's equitable defenses in crafting a remedy under the UCL, including defenses of laches, good faith waiver and estoppel. Kraus, 23 Cal.4th at 180-181. Consideration of equitable remedies is required independent of the remedies associated with violations of the predicate statute upon which the UCL claim is based. Id. Moreover, a defense to the claim under the underlying "borrowed" statute is also a defense to a UCL claim. Schnall v. Hertz Corp., 78 Cal.App.4th 1144, 1160-61 (2000). Similarly, in Kraus, the Supreme Court said:

Because a UCL action is one in equity, in any case in which a defendant can demonstrate a potential for harm or show that the action is not one brought by a competent plaintiff for the benefit of [the] injured parties, the court may decline to entertain the action as a representative suit.

Kraus, 23 Cal.4th at 138.

No further guidance was provided by the Court, but defendants will certainly attempt to convince trial courts that the Supreme Court wants to rein in the universal standing afforded by the UCL.

C. Proposition 65

The Safe Drinking Water and Toxic Enforcement Act of 1986 ("Proposition 65;" Health and Safety Code §§ 25249.5 through 25249.12) was passed as an initiative in California in November 1986. Proposition 65 did three basic things:

It required the Governor to set up a mechanism for the State to determine what chemicals cause cancer or reproductive toxicity and list those chemicals.
It prohibited any person in the course of doing business from "knowingly" releasing or discharging a listed chemical into water or onto land where such chemical passes or probably will pass to a source of drinking water. Section 25249.5.
It prohibited any person in the course of doing business from "knowingly and intentionally" exposing any individual to a listed chemical without first giving a clear and reasonable warning to such individual. Section 25249.6.

The only enforcement mechanism for Proposition 65 is litigation. Actions may be brought by the Attorney General, any district attorney and most city attorneys. Actions may also be brought by "... any person in the public interest ..." if a 60-day notice of the alleged violation has been served as required by the statute, and the Attorney General, a district attorney or a city attorney has not commenced prosecution regarding the alleged violation. Section 25249.7(d).

Available remedies for violation of Proposition 65 are:

civil penalties of up to $2500 per day for each violation in addition to any other penalty established by law; and
injunctive relief. Section 25249.7(a).

The first decade after enactment of Proposition 65 was spent primarily litigating warning claims that were unrelated to water contamination. More recently, however, the focus of a number of citizen enforcement groups has shifted to the "discharge prohibition" of the statute and its impact on water contamination claims. Discharge prohibition cases have been filed against a wide array of defendants - from manufacturers of plumbing devices regarding lead leached into public water systems to petroleum refiners regarding leaks from underground storage tanks and lines. In 1996, the California Supreme Court interpreted the discharge prohibition broadly and held that Section 25249.11(d) of the statute (defining a "source of drinking water") meant that a discharge into "... any water currently destined to be used as drinking water, as well as any water officially designated as suitable for drinking water ..." was within the ambit of Proposition 65. People v. Superior Court (American Standard), 14 Cal.4th 294 (1996). Therefore, the Court concluded that lead (a listed Proposition 65 chemical) discharged from brass faucets into public water systems could be the subject of prosecution under the statute.

American Standard was used by environmental activists to extend the use of the discharge prohibition of Proposition 65 into various water resources in California. As indicated above, Proposition 65 defines a source of drinking water to include "... water which is identified or designated in a water quality control plan adopted by a regional board as being suitable for domestic or municipal uses." Health and Safety Code § 25249.11(d). As part of the water quality control plans adopted by the nine Regional Water Quality Control Boards in California, the Boards are required to designate "beneficial uses" for surface and groundwater resources, including domestic and municipal water supply. Water Code § 13060(f) and (j). However, in May 1988, the State Water Resources Control Board ("State Board") adopted Resolution 88-63, known as the "Source of Drinking Water Policy." In Resolution 88-63, the State Board designated, by default, all surface and groundwater resources in California as suitable "… or potentially suitable …" for municipal or domestic supply and directed the Regional Boards to make such designations in their water quality plans with specified narrow exceptions. As a result, Proposition 65, read broadly, applies to any discharge to soil or water where the chemical passes or probably will pass into any surface or groundwater in the state not explicitly designed as "non-beneficial" by a Regional Board.

Using that broad interpretation, several citizen's groups filed Proposition 65 actions regarding thousands of sites against all of the major petroleum refiners in 1999, alleging discharges of benzene and toluene (listed Proposition 65 chemicals) to groundwater from petroleum tanks and lines. Those lawsuits are still being litigated, but have already provided some guidance from the appellate courts with regard to the scope of Proposition 65's discharge prohibition.

In Consumer Advocacy Group v. Exxon Mobil Corporation, 104 Cal.App.4th 438 (2002), the Court of Appeal addressed whether the "passive migration" or "continued presence" of a Proposition 65 chemical in soil or groundwater constituted an ongoing "discharge or release" of the chemical within the meaning of the statute. The Court concluded the answer was "no." The only discharge or release addressed by Proposition 65 is the active movement of chemicals from a place of confinement (e.g., a tank or pipe) into land or water. The subsequent presence of those chemicals in land or water, or passive migration of chemicals through soil or water after having been discharged, is not an ongoing violation of Proposition 65.

The Court acknowledged a "... panoply of state and federal statutory schemes ..." which afford cleanup of petroleum in soil and groundwater. Consumer Advocacy Group, 104 Cal.App.4th at 449, n. 14. While the Court did not decide whether Proposition 65's injunctive relief could be construed as requiring environmental cleanup of a prior discharge, the Court declined to construe Proposition 65 "... as a blank slate upon which any environmental remedy can be written." Consumer Advocacy Group, 104 Cal.App.4th at 450.

D. The Polanco Act

The Polanco Act (Health & Safety Code §§ 33459.1 et seq.) ("Polanco") provides another powerful tool under California law for redevelopment agencies seeking recovery of environmental cleanup costs from private parties. Polanco "imports" the same scope and standard of liability for cost recovery as the federal Comprehensive Environmental Response, Compensation and Liability Act 42 U.S.C. § 9601 et seq. ("CERCLA"), except that it expands the definition of hazardous substances to include petroleum products. Health & Safety Code § 33459.4(c). Moreover, the California Court of Appeal has recently ruled that a redevelopment agency need not comply with the national contingency plan ("NCP") (as required by CERCLA) to recover under Polanco. In Redevelopment Agency v. Salvation Army, 103 Cal.App.4th 755, 766 (2002) the Court of Appeal held:

We construe the reference [in Section 33459.4(c)] in the Polanco Act to CERCLA's scope of liability as simply incorporating CERCLA's definitions of who is liable for remedial costs …. Similarly, we construe the Polanco Act's reference to CERCLA's standard of liability as merely incorporating the liability standards applied by Courts in CERCLA cases, to wit, strict liability regardless of knowledge or intent [citations omitted]; joint and several liability [citations omitted] and retroactive liability [citation omitted]. In doing so, we reject Army's contention that the Polanco Act adopted various procedural requirements of the national contingency plan as an element of a cause of action under the Polanco Act.

The Court also stated that the Polanco Act is broader than CERCLA because it authorizes a redevelopment agency to take "... any actions that the agency determines are necessary and that are consistent with other state and federal laws to remedy or remove a release of hazardous substances on, under, or from property within a project area, whether the agency owns that property or not…." Redevelopment Agency v. Salvation Army, supra at 765. Finally, Polanco explicitly authorizes recovery of attorneys' fees by redevelopment agencies. Health & Safety Code §§ 33459.4(a).

Thus, Polanco is another weapon in the arsenal for cleanup of soil and groundwater within redevelopment project areas. Any defendant that falls within the broad parameters of a CERCLA-liable party can be held strictly and jointly and severally liable based on any historical activities without NCP compliance and with no petroleum exclusion, but with the agency recovering its attorneys' fees and costs.

III. Conclusion

Water contamination litigation in California is made more complex by several unique statutes that expand standing and remedies available to litigants bringing actions "for the public interest." This paper has briefly examined some of the tools used by California plaintiffs in water contamination cases to expand target defendants and the likelihood of recoveries.

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This article was presented at Mealey's Water Contamination Conference, Pasadena, California, January 26-27, 2004.

These materials are provided for information purposes only and are not intended as and cannot be considered legal advice. Before taking action based upon this information, you should consult your legal counsel.

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