Business Owner Ordered to Pay $1.3 Million for Leaking UST

The Arizona Department of Environmental Quality (ADEQ) obtained a judgment against William Arnett for $1.3 million for underground storage tank (UST) law violations that stem back to the late 1980s. A Maricopa County Superior Court held that Arnett, the owner of property in Tucson that contained a UST, was liable to ADEQ for remediation costs associated with cleaning up the property, a civil penalty for his failure to comply with UST laws, and ADEQ’s litigation costs associated with bringing the enforcement action. State of Ariz. v. Arnett, No. CV2010-027249 (Sup. Ct., Maricopa County, orders issued on Apr. 24, 2013, Oct. 14, 2015, Dec. 18, 2015).

ADEQ issued a press release following the judgment in favor of ADEQ and touted the case as being significant because:

• It is the first leaking UST case to result in a judicial judgment since the state’s UST laws were overhauled in 1997;
• It establishes that defendants in civil actions brought by ADEQ for violations of state environmental laws are not entitled to a trial by jury; and
• It establishes that defendants cannot misrepresent the true owner of a use to block ADEQ from seeking sanctions against that owner at a later date.

While this case could be viewed as indicative of a new approach or a change in the UST laws, the case is very fact intensive so the precedential impact of this case remains uncertain.

Background

Arnett and his wife owned a piece of property in Tucson, which happened to have a UST.  Arnett leased the property to Yellow Cab Company of Tucson (“Yellow Cab”), which was wholly owned by Arnett and his wife.  Despite a series of test failures on the UST in the late 1980s, Arnett failed to report these to ADEQ.  Finally, in 1990, Arnett reported a failed tank tightness test to ADEQ and identified Yellow Cab as the “Responsible Party.”  The UST was removed from the property shortly thereafter, and in May 1993, ADEQ and Yellow Cab entered into a Consent Order for remediation of the property.  Following a lawsuit filed by ADEQ against Yellow Cab alleging violations of the Consent Order, ADEQ and Yellow Cab resolved the lawsuit by a Consent Decree in July 1995.  Despite signing the Consent Decree as President of Yellow Cab, Arnett was not a named party.

Yellow Cab filed for bankruptcy in 2003 and was administratively dissolved in 2004.  Around this time, ADEQ became aware that Arnett, and not Yellow Cab, might own the property and UST.  In 2010, ADEQ filed an action against Arnett, personally, for liability associated with violations of UST laws.  Arnett claimed that the 2010 action by ADEQ was barred by res judicata (claim preclusion).

Trial Court’s Holding and Court of Appeals Affirmation

The trial court held that because Arnett was a privy of Yellow Cab, the doctrine of res judicata would bar ADEQ from bringing the subsequent action asserting the same claim against Arnett as it had previously brought against Yellow Cab, unless an exception applied.  One such exception involves a defendant’s own misrepresentation that prevented the plaintiff from suing him in the first place.  The court held that Arnett misrepresented Yellow Cab as the owner of the UST, that ADEQ relied on this misrepresentation in bringing suit against Yellow Cab and that ADEQ’s reliance was reasonable. Arnett argued that ADEQ’s reliance was not reasonable because it could have discovered the ownership information in the public record.  The court, however, rejected this argument on the grounds that the statute Arnett cited did not apply outside the real estate transaction context, and that the court, as the finder of fact, determined that ADEQ’s reliance was reasonable and consistent with Title 49’s self-reporting scheme. Therefore, the court held that this exception applied and denied Arnett’s claim that the lawsuit was barred by res judicata.  The Court of Appeals affirmed this decision.

The Court of Appeals also affirmed the trial court’s denial of a right to a jury trial.  The right to a jury trial is only available if that right existed prior to statehood or if a statute expressly provides so.   Here, these statutory claims did not exist prior to statehood and they do not provide for a right to a jury trial.  Therefore, there is no right to a jury trial for violations of UST laws.

Remediation Costs, Penalties and Litigation Costs Assessed Against Arnett

Following the Court of Appeals’ affirmation on the issue of liability, the trial court addressed the issue of the amount Arnett’s liability.  The trial court found that Arnett would be liable for the following costs, which total just over $1.3 million:

• Remediation costs: $534,440
• Penalties: $595,642
• Litigation costs: $204,007

Conclusion

While this case serves as a warning to UST owners regarding the importance of self-reporting and ADEQ’s ability to judicially-enforce violations of UST laws, any precedential impact beyond this is uncertain.  ADEQ’s press release indicates that it may use this case as precedent to claim that defendants in civil actions brought by ADEQ for violations of state environmental laws (not just UST laws) are not entitled to a jury trial.  Also, ADEQ may try to utilize the exception to the application of the res judicata doctrine regarding misrepresentation outside the UST context as well.