Dry Cleaner Equipment Financer Settles CERCLA Claim

Dry cleaners may be small businesses but they have a disproportionate impact on the environment. Studies suggest that at least 75% of the dry cleaners in operation prior to 2000 have probably had releases of PCE which means lots of strip malls and shopping centers may have been contaminated by PCE.

Not surprisingly, dry cleaner contamination has spawned lots of litigation that has ensnared property owners, family trusts, property managers, equipment manufacturers, franchisors, equipment financiers, PCE suppliers and even local governments that owned the sewer systems from which the PCE may have leaked. A recent example is Lewis v Russell, 2012 U.S. Dist. LEXIS 26393 (E.D.Ca. 2/29/12).

In this case, the plaintiffs had operated a dry cleaner business in Davis,California from 1975 to 1996. After the California Regional Water Quality Control Board (“RWQCB”) discovered PCE in the soil and groundwater, the agency issued a Cleanup and Abatement Order in 2002 to the current and past owners and operators of the Property to investigate the extent of the PCE contamination and to prepare work plans to address the contamination.

The plaintiffs filed a complaint in 2003 seeking cost recovery and contribution from a variety of former owners and operators of the property including a number of family trusts, equipment manufacturers, PCE suppliers and the City ofDavisas owner of the sewer system under CERCLA and state common law theories.

The plaintiffs alleged that one of the defendants, Ben Newitt, had operated the dry cleaning business from 1971 to 1975. Mr. Newitt asserted that his now-deceased brother, Philip, had operated the business. Mr. Newitt said his only role with the business was to provide his brother with a loan and that because he held title to the dry cleaning equipment as security for the loan, he was entitled to secured creditor exemption.

An equipment financer of a plating operation had asserted the secured creditor exemption in U.S. v. Saporito, 684 F. Supp. 2d 1043 (N.D.Ill. 2010). In that case, the defendant has stated that his purchase and leasing of the equipment was “part of his efforts to get his money back”. However, the court said there was no evidence to supports his bare assertion that he owned the equipment primarily to protect a security interest.

In the instant case, the parties notified the court that they had agreed to a proposed settlement where Newitt would pay the plaintiffs $25K. In their motion asking the court to approve the settlement, the parties said that the settlement was within the reasonable range of Newitt’s potential liability and ability to pay, that he was elderly, in ill health, uninsured, and his was only affiliated with the Property for four of the approximately forty-one years it used as a dry cleaning facility.

When reviewing CERCLA settlements, courts evaluate if the settlement is fair, reasonable, and adequate. The court said that although the parties did not explain how the $25K settlement payment compared to the total clean-up costs. However, the court said that the fact that the plaintiff would bear the risk if the settlement proves inadequate and that the parties contend that the amount was reasonable suggested that the settlement should be approved.

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