Oil companies may be liable for storage tank leaks at independent gas stations.

Oil companies that have "the authority to control" underground storage tanks at independently owned gas stations can be held liable for damage caused by leaking tanks, according to a recent decision by the Indiana Court of Appeals. (Shell Oil Co. v. Meyer, No. 79A04-9512-CV-470, 1997 WL 473236 (Inc. Ct. App. Aug. 19, 1997).)

The decision could cost big oil companies hundreds of millions of dollars in groundwater pollution cleanup costs nationwide, because Indiana's Underground Storage Tank Act (USTA) is modeled on a federal law that was adopted by many states.

According to plaintiffs' cocounsel Peter Racher of Indianapolis, the decision gives plaintiffs in other states "new leverage" to sue oil companies in groundwater contamination cases. (Arthur S. Hayes, Big Oil Firms Tied to Tank Leak Liability, NAT'L L. J., Sept. 1, 1997, at B1.)

Meyer concerned a gas station in West Point, Indiana, that was owned and operated by Fred Smith from 1946 until his death in 1979 and by his widow until 1981. For most of that time, Smith ran the facility as a Shell station. He transported Shell gasoline in a tank truck from a bulk plant and filled three underground tanks at his station. He wore a Shell uniform, displayed Shell signs, and attended Shell sales meetings and conferences. When the bulk plant switched to Union 76 gasoline in 1971, so did Smith.

In 1989, residents of West Point began noticing a petroleum smell in their drinking water. Tests revealed that their groundwater was contaminated with benzene and other gasoline constituents. The contamination was traced to the former Shell/Union 76 gas station, and landowners sued the companies for cleanup costs.

The parties agreed to allow the court to rule on the USTA complaint and for a jury to decide complaints of negligence, trespass, nuisance, and operating an abnormally dangerous entity. The jury returned a verdict in favor of the oil companies.

On the USTA complaint, the trial court ordered Shell and Union 76 to share cleanup costs and plaintiff attorney fees based on the duration of their respective operations at the site--70 percent Shell, 30 percent Union 76.

The companies appealed, arguing that they were merely wholesale suppliers of gasoline and did not exercise sufficient control to be deemed operators under the USTA.

Judge Donald Johnson, writing for the appeals court, noted that "operator" is defined in the law as a person "in control of, or having responsibility for, the daily operation of an underground storage tank." He determined that the oil companies, although they conducted inspections and enforced rules--such as prohibiting the sale of leaded gasoline in compliance with EPA regulations--did not control daily operations at the station.

Johnson sought, however, to define "responsibility for" daily operations. He noted that lawmakers had specified this group of operators in addition to those who were "in control of" operations. "Thus, under the USTA, a person who is not in control . . . may still be liable for cleanup if that person has responsibility for daily operations," Johnson wrote.

The distinction is made relative to the two federal laws from which the state USTA is derived. The USTA's definitions of owner and operator were taken directly from the federal Resource Conservation and Recovery Act (RCRA), which is primarily concerned with preventing contamination at operating sites.

The USTA's cost recovery provision, however, more closely resembles the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), which specifically focuses on cleaning up contaminated sites.

"The most commonly adopted yardstick for defining whether a party is an owner-operator under CERCLA," Johnson wrote in the opinion, "is the degree of control that a party is able to exert over the activity causing the pollution."

The unanimous appellate panel noted that this definition does not absolve from liability a party "who possessed the authority to abate the damage caused by dispersal of hazardous substances but who declined to actually exercise that authority."

Evidence had proven that Shell and Union 76 knew that

* steel tanks corrode and leak,

* detection and prevention of these leaks are beyond the resources of most gas station owners, and

* small amounts of gasoline leaking into groundwater can pollute an entire community's drinking water.

Furthermore, evidence proved that the oil companies had taken steps during the 1970s and 1980s to discover, prevent, and remediate tank leaks at stations they owned but had provided no similar training or technology for independently owned stations.

Recalling the oil companies' success at forcing independent stations to stop selling leaded gasoline, the appeals court affirmed for the trial court, declaring, "We agree that Shell and Union had the authority and ability to control the USTs. . . . Consequently, they had the responsibility, or accountability, for daily operations of the USTs."

The decision is likely to be appealed to the state supreme court. Meanwhile, it sends a message that oil companies that used branded but independently owned service stations may have to share cleanup costs.