Union Pacific Railroad Company v. Robert E. Hill

Background

Union Pacific alleged that it owns property at 725 Chestnut Street in San Jose, California, and that businesses affiliated with Robert E. Hill, Robert W. “Rocky” Hill, Privette Inc., and Mobile Mini Inc. previously leased or used the property. The alleged activities included painting, stripping, degreasing, and priming portable toilets, electrical panels, power poles, sheds, and containers, as well as using underground storage tanks. Union Pacific alleged that the property became contaminated with numerous pollutants in soil, groundwater, and soil vapor, and that the contamination continues to spread.

Union Pacific asserted claims for cost recovery and declaratory relief under the Comprehensive Environmental Response, Compensation, and Liability Act; injunctive relief and litigation costs under the Resource Conservation and Recovery Act; contribution and indemnity under California law; private and public continuing nuisance; and continuing trespass. It also sought damages and punitive damages.

Hills’ Motion to Dismiss

The Hills and Privette moved under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint adequately states a legally recognized claim. They sought dismissal of both parts of Union Pacific’s Resource Conservation and Recovery Act claim and all requests for punitive damages. Mobile Mini joined the motion.

For the Act’s first type of citizen suit, Union Pacific alleged that the Hills were statutory owners of an underground storage tank and remained in violation of continuing cleanup obligations, even though they had abandoned the property and the tank had been removed. The court held that these allegations were sufficient at the pleading stage. It concluded that the claim was based on an alleged continuing failure to perform required corrective actions, rather than solely on the historical leak.

For the Act’s second type of citizen suit, Union Pacific had to allege that the defendants had contributed to handling or disposal of waste that may present an imminent and substantial endangerment to health or the environment. The court found the allegations sufficient because Union Pacific identified contaminants in soil, groundwater, and soil vapor, alleged that concentrations exceeded federal and state standards, and alleged that one compound was present at a concentration 68,000 times higher than the federal maximum limit. The court also denied the Hills’ request for judicial notice of documents that were subject to reasonable dispute.

The court separately held that Union Pacific had adequately supported its requests for punitive damages at the pleading stage. It relied on allegations that the Hills unlawfully removed an underground storage tank deemed an explosion hazard, left the property without completing required remediation, and caused or contributed to continuing contamination. The court therefore denied the Hill motion to dismiss.

Mobile Mini’s Motion to Strike

Mobile Mini moved to strike all claims against it based on alleged successor or agency liability. The court treated the motion to strike as a motion to dismiss for purposes of evaluating the sufficiency of the complaint.

As to successor liability, the court explained that an asset purchaser generally does not assume the seller’s liabilities, subject to exceptions including express or implied assumption of liabilities, a de facto merger or consolidation, continuation of the selling corporation, or a transaction entered into to avoid liability. The court found that Union Pacific had pleaded enough facts to support an implied assumption of liability. Among other allegations, Union Pacific alleged that the businesses using the property operated under the name ZZZ Sanitation Co., that Tote-A-Shed and Privette were not formally added to the leases, and that the entities continued the predecessor businesses. The court denied Mobile Mini’s motion as to this theory.

As to agency liability, the court found that Union Pacific had not adequately alleged a principal-agent relationship that would make Mobile Mini liable for the acts of Tote-A-Shed or the other defendants. The complaint used a conclusory allegation grouping the defendants together and expressly described the Hills as principals of Tote-A-Shed and Privette, rather than as agents of those companies. The court held that Union Pacific could not amend the complaint by reversing that alleged relationship and therefore denied leave to amend the agency allegations.

Disposition

Judge Beth Freeman ordered that the Hill motion to dismiss was denied. The Mobile Mini motion to strike was granted in part as to Union Pacific’s theory of agency liability, without leave to amend, and denied in all other respects. The court ordered all defendants to file answers to the complaint by January 14, 2022.