March 27th, 2012
In Carolyn Vickers Inc. v. Unocal Corp., 2011 Cal. App. Unpub. LEXIS 9642 (Ct. App-2nd Dist. 12/19/11), Alan Little Ventures (ALV) purchased a 4.1 acre tract of land in San Luis Obispo in 2005. The land had been subdivided into 17 lots by the sellers, Phyllis and Alex Madonna (the “Madonnas”), and was zoned for single family residences.
Four oil pipelines ran across portions of the tract. Back in 1981, an employee of the Madonnas had struck one of the pipelines while operating a backhoe, causing an unknown release of oil. The oil spill was not properly remediated. The Madonnas did not disclose the presence of the pipelines or the oil spill when they sold the land to ALV.
In 2006, ALV sold lots, ALV sold lots 5 and 9 to Carolyn Vickers Inc. (CVI). One year later, ALV and CVI discovered that soil and groundwater beneath several lots was contaminated, including lot 5. ALV subsequently assigned any rights it had regarding contamination of lots 2 and 4 to CVI who then filed a 69-page complaint containing 16 causes of action for the contamination of the four lots against the companies alleged to have owned or operated the pipelines, namely Unocal Corporation, Union Oil Company of California, Unocal Pipeline Company and Chevron Corporation, Conoco Phillips Company and Conoco Phillips Pipeline Company. The damages sought by CVI included accrued interest on the purchase mortgages, lost business opportunities and profits, cleanup costs and legal fees.
The defendants moved to dismiss the complaint, asserting the claims stemmed from 1981 and were therefore barred by the three-year statute of limitations. CVI responded that statute of limitations did not begin to run until May 2007 when it learned of the contamination. CVI also argued that even if the discovery rule was inapplicable, the contamination constituted ongoing nuisance and trespass so the statute of limitations had not run for those two causes of action.
The trial court agreed with the defendants that statute of limitations for injury to real property had expired but allowed CVI to amend its continuing nuisance and trespass claims. To expedite an appeal, CVI opted to dismiss its nuisance and trespass claims. This highly risky maneuver proved to be fatal when the appeals court affirmed the ruling of the trial court. The appeals court said that the three-year statute of limitation began to run when the Madonnas first became aware of the oil spill in 1981 and expired in 1984. The court said that statute of limitation was not revived and that ALV or CVI were not entitled to the benefit of the discovery rule because the Madonnas had immediately aware of the oil spill.
This case is yet another example of why environmental due diligence should consider potential impacts from pipelines. Many pipelines were constructed on property that was formally rural but it now prime land for development. Much of the pipeline network is aging, has not been well-maintained and is not well marked. As development encroaches upon pipeline easements, accidents like what happened in this case in 1981 are becoming more frequent.
Unfortunately, due diligence practice has not kept up with this growing concern and phase 1 reports frequently tend to ignore or downplay potential risks about contamination from pipelines. However, in the wake of a number of high profile pipeline leaks during the past few years, pipelines are coming under increasing regulatory scrutiny. Indeed, the GAO issued a report just last week about the potential risks and regulatory gaps for the 250,000 miles of gathering pipelines dispersed across the rural parts of our country. See http://www.gao.gov/assets/590/589514.pdf?goback=%2Egmp_3607181%2Eanp_3607181_1332819145827_1%2Egmp_3607181%2Egde_3607181_member_103597960 . We are only beginning to understand the potential risks from pipelines and I suspect that pipelines will become the USTs of the 21st century.