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SMITH PROPERTY HOLDINGS v. U.S.

March 31, 2004.

SMITH PROPERTY HOLDINGS, 4411 CONNECTICUT L.L.C. Plaintiff,
v.
UNITED STATES OF AMERICA, et al., Defendants



The opinion of the court was delivered by: REGGIE B. WALTON, District Judge

MEMORANDUM OPINION

In this lawsuit, plaintiff seeks to recover the costs it incurred and profits it lost pursuant to the Oil Pollution Act, 33 U.S.C. § 2701 et seq. (2000), as a result of an oil spill that occurred on property it owned. Currently before the Court are the parties' cross motions for summary judgment. Plaintiff has also filed a motion to strike certain pleadings that have been filed by the defendants. For the reasons set forth below, the Court concludes that the defendants are entitled to summary judgment.

I. Background

  Because the applicability of the Oil Pollution Act to the facts of this case requires an understanding of the Act's statutory scheme, the Court will first provide a brief overview of the pertinent provisions of the Act before providing the factual background which underlies this lawsuit.

 A. The Oil Pollution Act and the Oil Spill Liability Trust Fund

  The Oil Pollution Act ("OPA" or the "Act"), was enacted by Congress "in the wake of the Exxon Valdez oil spill to provide a prompt, federally-coordinated response to oil spills in navigable waters of the United States and to compensate innocent victims." Gatlin Oil Co. v. United States, 169 F.3d 207, 209 (4th Cir. 1999). The OPA is Page 2 administered by the Coast Guard pursuant to an Executive Order. Memorandum in Support of the United States' Cross-Motion for Summary Judgment and in Opposition to Plaintiff's Motion for Summary Judgment ("Gov.'s Opp'n") at 3 (citing Executive Order 12777 (October 18, 1991)). The Act provides that
each responsible party for a vessel or a facility from which oil is discharged, or which poses the substantial threat of a discharge of oil, into or upon the navigable waters or adjoining shorelines . . . is liable for the removal costs and damages specified in subsection (b) of this section that result from such incident.
33 U.S.C. § 2702(a) (emphasis added). The Act explicitly defines an "incident" as "any occurrence or series of occurrences having the same origin, involving one or more vessels, facilities or any combination thereof, resulting in the discharge or substantial threat of discharge of oil[.]" 33 U.S.C. § 2701(14). A "responsible party" is defined in the Act to include a person or persons who owns a vessel, an onshore or offshore facility, a deepwater port, or a pipeline. Id. § 2701(32)(A)-(E). As to a vessel, onshore or offshore facility, deepwater port, or pipeline that has been abandoned, "the persons who would have been responsible parties immediately prior to the abandonment of the vessel or facility[,]" are deemed to be the responsible parties. Id. § 2701(32)(F).

  While a responsible party is strictly liable for any damages resulting from a discharge from its vessel or facility, liability can be avoided if the party can establish a third party defense. A third party defense is described in the Act as follows:

  [I]n any case in which a responsible party establishes that a discharge or threat of a discharge and the resulting removal costs and damages were caused solely by an act or omission or one or more third parties . . . (or solely by such an act or omission in combination with an act of God or an act of war), the third party or parties shall be treated as the responsible party or parties for purposes of determining liability under this subchapter. Page 3

 Id. § 2702(d)(A); see also 33 U.S.C. § 2703 ("Defenses to liability"). A party that establishes a defense to liability is entitled to be reimbursed for "uncompensated removal costs associated with its removal of a discharge of oil if such payment is consistent with the National Contingency Plan. . . ." and is for "uncompensated damages." Id. § 2712(4). Such reimbursement is paid from the Oil Spill Liability Trust Fund, established by the Act, and which is administered by the United States Coast Guard National Pollution Funds Center ("NPFC" or "Fund"). The Act required the President to establish regulations that would govern the use of the Fund. Id. § 2712(e). One of these regulations provides that when seeking recovery of a claim, "[t]he claimant bears the burden of providing all evidence, information, and documentation deemed necessary by the Director[ ] [of the] NPFC, to support the claim." 33 C.F.R. § 136.105.

 B. The Discharge in this Case

  Smith Property Holdings 4411 Connecticut LLC ("Smith"), "is a limited liability corporation incorporated under the laws of Delaware with its principal place of business [in] . . . Arlington, Virginia." Compl. ¶ 5.*fn1 Smith is a wholly owned subsidiary of Charles E. Smith Residential Realty, Incorporated ("CES"), which is in the business of "develop[ing] and manag[ing] luxury apartment buildings in Washington, D.C., Maryland, Northern Virginia, and other metropolitan areas across the country." Id. ¶ 11. Smith was formed by CES in 1997 for the specific purpose of developing "a new 142-unit apartment complex on a vacant 32,000 square lot at 4411 Connecticut Avenue, N.W., Washington, D.C. (the "Site")." ¶ Prior to purchasing the Site, Smith had a Page 4 Phase I Environmental Site Assessment ("ESA") conducted in May 1997 by Schnabel Engineering Associates ("Schnabel"). Id. ¶ 12. Schnabel issued a written report to Smith on June 3, 1997, in which Schnabel reported that there was no indication that there were any "recognized environmental conditions" present at the Site, and stating that there were insufficient concerns to warrant a Phase II investigation at that time. Id. ¶ 12. However, despite this representation, the ESA indicated that four of eight soil samples "clearly reflect[ed] the presence of oil in the soils." Administrative Record ("A.R."), at 6 (NPFC Final Determination dated October 3, 2002) ("NPFC Final Decision") (footnote omitted).*fn2 Thereafter, Smith purchased the Site from Kass Realty Company, which had owned the site since 1952, for a purchase price of $3.1 million. A.R. at 6 (NPFC Final Decision). Smith hired Clark Construction Group ("Clark") as its general contractor for the construction of the apartment building. Compl. ¶ 13.

  On July 1, 1998, at approximately 11:00 a.m., Clark employees "unearthed one end of a culvert/pipe[ ]" while performing excavation activities at the Site. NPFC Final Decision at 8; see also A.R. at 2110 (NPFC Form, Standard Claim dated October 13, 2000) ("Smith's Third Claim") ("On July 1, 1998, an excavation subcontractor ruptured an abandoned culvert buried beneath the Site."). As a result of the rupturing of the pipe, a "substantial quantity of oil-contaminated water [was released] onto the Site in the vicinity of Soapstone Creek, which is a `navigable water' under Section 502(7) of the [Clean Water Act], 33 U.S.C. § 1362 and a `natural resource' under Section 1001 of the Page 5 OPA, 33 U.S.C. § 2701(20)."*fn3 A.R. at 2110 (Smith's Third Claim). According to Smith, it "had no reason to know that the abandoned culvert beneath the Site contained an oil discharge." A.R. at 3367 (Supplemental Filing in Support of Claims Against the Oil Spill Liability Trust Fund Arising Out of the Release of Oil at 4411 Connecticut Avenue dated August 9, 2002) ("Smith's Supplemental Claim").*fn4

  Despite Smith's efforts to expeditiously contain the spill, five gallons of oil were discharged into the Creek. A.R. at 2110 (Smith's Third Claim); A.R. at 8 (NPFC's Final Decision). At approximately 2:31 p.m. on July 1, 1998, Ernest Ralston, a National Park Service Hazmat Officer, notified the National Response Center ("NRC") about the discharge. A.R. at 8 (NPFC's Final Decision). Less than fifteen minutes later, the NRC notified the United States Environmental Protection Agency's ("EPA") Region III Office about the spill. Id. An EPA Federal On-Scene Coordinator ("FOSC") visited the Site on July 6, 1998, at which time she received a copy of Smith's Emergency Petroleum Contaminated Soil and Water Recovery Plan, which had been prepared for Smith by Environmental Consultants and Contractors, Inc. ("ECC"). Id. On July 10, 1998, the EPA issued an Emergency Removal/Response Administrative Order pursuant to § 311(c) of the Clean Water Act. Plaintiff's Motion for Summary Judgment ("Smith's Mot."), Ex. G (Emergency Removal/Response Administrative Order Under Section Page 6 311(c) of the Clean Water Act, dated July 10, 1998).*fn5 The EPA's Administrative Order required Smith to, among other things,
1. Continue containment and recovery efforts on site on a continual basis. . . .
2. Continue method/measures to prevent any run-off and/or seepage containing oil from discharging or threatening to discharge onto the adjoining shoreline or into the Soapstone Creek.
3. Maintain boom [devices] at two locations. . . .
4. Dispose of and/or otherwise handle all recovered oil in an environmentally appropriate manner . . .
5. Remove and properly dispose of and/or treat all materials contaminated with oil. . . . [and]
6. Transport all oil contaminated materials designated for off-site disposal to an approved disposal facility. . . .
Id. at 5. In addition, Smith was instructed to "immediately, and every two (2) calendar days thereafter . . . submit progress reports for each preceding two (2) day period to the [On-Scene Coordinator]. . . ." Id. The EPA Order also indicated that Smith had to continue performance of all response actions until the EPA provided Smith with a notice of completion. Id. Smith received the notice of completion on October 25, 1999, wherein the EPA advised Smith that it had "demonstrated to the satisfaction of the EPA that all requirements relating to the performance of the response actions specified in . . . the . . . Order have been completed." Smith's Mot., Ex. I (Letter to Mr. Richard Smith from Deborah Carlson, On-Scene Coordinator, dated October 25, 1999). In total, Smith Page 7 expended $772,017.15 to comply with the terms of the EPRA Order and suffered $1,175,416.00 in lost profits as a result of "oil-related construction delays." A.R. at 3365 (Smith's Supplemental Claim).*fn6

 C. Smith's Claims

  On February 2, 1999, Smith submitted a reimbursement claim to the NPFC for $525,174.22. A.R. at 283 (Oil Spill Liability Trust Fund Reimbursement Claim dated February 2, 1999) ("First Claim"). A further claim was submitted on August 11, 1999, seeking an additional $259,749.88. A.R. at 767 (Oil Spill Liability Trust Fund Reimbursement Claim #2 dated August 11, 1999) ("Second Claim"). The Coast Guard considered these two claims, which totaled $784,924.10, and on May 8, 2000, it sent Smith a settlement offer, which offered to only reimburse Smith $192,084.72. A.R. at 31 (Letter to Smith Property Holdings from J.A. Abramson, Claims Manager, Coast Guard NPFC, dated May 8, 2000). The Coast Guard's letter of settlement indicated that it deemed only one of the five categories of recovery asserted by Smith to be compensable, namely, the costs incurred to clean "[o]il in, around, and leaking from the culvert, which discharged into and posed a substantial threat to continue to discharge into Soapstone Creek." Id. The Coast Guard concluded that reimbursement was appropriate for costs associated with this clean-up based on information it had received from Smith indicating that Smith was not aware that "the culvert held a mixture of oil and water. . . ." Id. Pursuant to the terms of the letter, Smith was informed that if the Page 8 Coast Guard did not receive "the signed original Acceptance/Release Form within 60 days of the date of this letter, [the] offer [would be] void." Id. at 32. In a letter dated May 18, 2000, Smith rejected the Coast Guard's offer, stating that it was "disappointed in the amount. . . ." and stating its intention to "prepare a response" that would "hopefully . . . result in an evaluation that will foster a fair settlement." Id. at 56 (Letter to J.A. Abramson from Darrell Hall, Vice President and Controller, Charles E. Smith Realty Companies dated May 18, 2000). Smith also stated its intention to submit two additional claims, "one for additional costs not previously submitted and one for lost profits." Id.

  Smith filed another Standard Claim form on October 13, 2000, with the Coast Guard that included claims for lost profits totaling $1,175,416, and sought reconsideration of the Coast's Guard's prior denial of the bulk of the expenses for which Smith sought reimbursement. A.R. at 2104 (Standard Claim dated October 13, 2000) (Smith's Third Claim). By April 18, 2001, the Coast Guard had not responded to Smith's most recent submission and, pursuant to applicable regulations, Smith treated the Coast Guard's lack of response as a final denial of the reconsideration request. See 33 C.F.R. § 136.115(d) (Coast Guard has 90 days to review and issue decision regarding claims for reconsideration). Smith filed the instant lawsuit in this Court on April 18, 2001.

 D. Prior Proceedings Before This Court and the NPFC's Final Determination

  On September 14, 2001, the defendants filed a motion to dismiss Smith's claims, which was granted in part and denied in part by the Court on May 20, 2002. Thereafter, the parties submitted and the Court approved an Order Granting Voluntary Remand on Page 9 June 11, 2002. This Order was designed to permit Smith to review the administrative record and to submit a supplemented written position to the Coast Guard regarding its entitlement to reimbursement. Order filed June 11, 2002 ("Remand Order"). The Order also required the Coast Guard to issue a decision regarding Smith's claim within 120 days after the issuance of the Order and, if the Coast Guard determined that Smith was entitled to compensation, to issue a further decision stating the precise amount Smith was entitled to recover. Id., On the other hand, if the Coast Guard determined that Smith was not entitled to compensation, the Order permitted Smith to file an amended complaint seeking review of that administrative decision. Smith submitted its supplemental claim to the NPFC on August 9, 2002. A.R. at 3364 (Smith's Supplemental Claim).

  In a letter dated October 3, 2002, the NPFC informed Smith that its claims were being denied. A.R. at 1 (Letter to Smith Property Holdings, 4411 Connecticut LLC from Linda Burdette, Chief, Claims Division, NPFC, dated October 3, 2002). The NPFC considered Smith's theory for why it was entitled to reimbursement, which the NPFC termed the "conduit theory," and rejected it. Specifically, Smith argued that "the culvert was an extension of the navigable waterway, not an OPA facility[,]" and that the only evidence in the record pointed to the University of the District of Columbia ("UDC")*fn7 as the source of the oil. A.R. at 17. Because, according to Smith's theory, the "culvert is not an OPA facility, Smith [could] not be responsible under the OPA, and . . . even if the Page 10 culvert is an OPA facility, Smith is not the responsible party because the culvert was abandoned." Id. at 17-18. Commenting on Smith's theory, the NPFC determined that to prevail, Smith would have to "establish that the oil discharged at the culvert originated offsite, that it traveled through the culvert and that the oil did not come from [Smith's] own property." Id. at 18. The NPFC determined that Smith did not establish that these events occurred because the evidence showed "that the oil discharged at the culvert was not the same oil as that [previously] discharged from the UDC tanks in January 1997." Id. at 18-19. Furthermore, Smith's environmental contractor had been unable to "identify a pathway for the UDC oil to reach the culvert." Id. at 19. Next, the NPFC concluded that Smith had not demonstrated "that the oil in fact traveled through the culvert and . . . did not originate on [Smith's] own property." Id. at 20. On this point, the NPFC noted that Smith had "present[ed] no evidence to support th[e] theory[ ]" that oil had originated elsewhere ...


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