New York Navigation Law Update.

The Court of Appeals of New York, this past summer, resolved for the first time the issue of whether a "faultless" landowner on whose property petroleum has discharged may be held liable for clean-up costs under the New York Navigation Law. State v. Green, 96 N.Y.2d 403 (2001). The decision helped clarify that the Navigation Law does not impose liability based on a person's status as an owner of land on which a discharge has occurred, id. at 405, Whitesell v. Walchli, 237 A.D.2d 953 (4th Dep't 1997), an issue that the Supreme Court of New York, Appellate Division, Third Department, had made unclear with at least two decisions suggesting to the contrary. Art-Tex Petroleum, Inc., v. New York State Dep't of Audit & Control, 248 A.D.2d 901, 902 (3d Dep't 1998); State v. Tartan Oil Corp., 219 A.D.2d 111, 114 (3d Dep't 1996). However, the decision also makes it clear that, as a practical matter, many landowners who lease their land to tenants who plan to use, store or dispense petroleum products on the land will have a difficult time avoiding liability under the Navigation Law for discharges that occur during the tenancy.

The facts of State v. Green were straightforward. Village at Lakeside, Inc. (Lakeside), owned a trailer park. Lakeside leased a trailer pad to Vanessa Green. Ms. Green owned and maintained a 275-gallon, above-ground kerosene storage tank, which she used to heat her mobile home. Reynolds & Sons, Inc., serviced the tank. In January 1992, the tank fell and spilled kerosene onto the ground. Neither Lakeside nor Ms. Green nor Reynolds & Sons took any measures to clean the resultant contamination. The state of New York intervened, remediated the discharge and, in turn, sought cost recovery against all defendants under the Navigation Law.

Lakeside moved for summary judgment on the grounds that it did not own, maintain or install the tank in question and, therefore, could not be held liable as a discharger under the Navigation Law. The state cross-moved contending that Lakeside was strictly liable for the clean-up costs under the Navigation Law as the owner of the property on which the discharged had occurred. The Supreme Court of New York, Albany County, granted summary judgment to the state.

The Third Department reversed, finding that the Supreme Court had misapplied (i) the two aforementioned cases that seemed to impose per se liability on landowners and (ii) a line of Third Department cases that did, in fact, impose per se liability on owners of systems, (e.g., underground storage tanks, from which discharges had occurred). The Supreme Court, according to the Third Department, had inappropriately extended the Third Department's precedent imposing per se liability on owners of systems from which discharges had occurred to impose per se liability on Lakeside, an owner of land on which a discharge had occurred. The Third Department held that an owner of land on which a discharge has occurred, unlike an owner of a system from which a discharge has occurred, is not liable per se for the cleanup costs under the Navigation Law. The Third Department recognized that circumstances could exist that would support the imposition of liability on a landowner who did not own the system on its land from which the discharge had occurred, but did not find any such circumstances in the case before it. The Third Department granted summary judgment to Lakeside.

The Court of Appeals reversed and reinstated the Supreme Court's decision, but made it clear that it was not imposing liability on Lakeside based on its status as an owner of contaminated land. It held that, when a landowner has the ability to control activities on its property and has reason to believe that petroleum products will be stored there, the landowner is liable as a discharger under the Navigation Law for cleanup costs stemming from discharges of the petroleum products. The court ultimately concluded that Lakeside's "failure, unintentional or otherwise, to take any action in controlling the events that led to the spill or to effect an immediate clean-up renders it liable as a discharger." The court, accordingly, reinstated summary judgment in favor of the state, holding Lakeside strictly liable for all of the state's cleanup costs.

State v. Green has some very serious implications for landowners who lease their land to tenants who plan to use, store or dispense petroleum products. Under State v. Green, any landowner who knowingly leases its property faces strict liability under the Navigation Law for any discharges that occur during the tenancy if the owner, despite the lease, or even pursuant to it, retains the ability to control activities at the property. Unfortunately, the extent of control required to impose liability on the landowner under the Navigation Law was not decided, or even discussed in any detail, in State v. Green. In an effort to avoid liability under the Navigation Law, the best approach for landowners who intend to lease their land to such tenants would be to draft lease provisions, to the greatest extent practical, possible and economically feasible, surrendering control of the property to the tenant along with ownership and control of all petroleum-related property (e.g., underground storage tanks and activities). This approach will be more feasible for landowners who lease their entire property to a single tenant (e.g., a landowner who leases its entire property to a tenant who plans to operate a gas station, than for landowners, like Lakeside, who lease portions of their property to multiple tenants while presumably retaining control over common areas). Landowners, of course, also would be well-advised to incorporate indemnification provisions into any such leases specifically dealing with Navigation Law liability.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Brendan Clifford

Holland & Knight LLP

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