UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

FIREMAN’S FUND INSURANCE

COMPANY, a California corporation,

Plaintiff-Appellant,

v.

CITY OF LODI, California, JACK

SIEGLOCK; in his capacity as Mayor of the

City of Lodi; RICHARD PRIMA, JR., in his

capacity as Enforcing Officer of Lodi

Ordinance No. 1650; RANDALL A. HAYS,

individually and in his capacity as Lodi City

Attorney; MICHAEL C. DONOVAN,

individually and in his capacity as Lodi

Assistant City Attorney; ADAM L. BABICH,

individually and in his capacity as Lodi

Assistant City Attorney; STEVEN H. DOTO,

individually and in his capacity as Lodi

Assistant City Attorney; BRET A. STONE,

individually and in his capacity as Lodi

Assistant City Attorney; JOHN R. TILL,

individually and in his capacity as Lodi

Assistant City Attorney; ZEVNICK,

HORTON, GUIBORD AND McGOVERN,

LLP, individually and in their capacity as

Lodi Assistant City Attorneys; FRAN E.

FORKAS, in his capacity as Enforcing

Officer of Lodi Ordinance No. 1650;

Defendants-Appellees.

No. 99-15614

D.C. No. CV-98-01489-FCD

Southern District of California, sitting by designation.

2

UNIGARD INSURANCE COMPANY, a

Washington corporation; UNIGARD

SECURITY INSURANCE COMPANY, a

Washington corporation,

Plaintiffs-Appellants,

v.

CITY OF LODI,

Defendant-Appellee.

No. 99-15802

D.C. No. CV-98-01712-FCD

OPINION

Appeal from the United States District Court

for the Eastern District of California

Frank C. Damrell, Jr., District Judge, Presiding

Argued and Submitted April 7, 2000

Seattle, Washington

Filed October 30, 2001

Before: PREGERSON, D.W. NELSON, Circuit Judges and MOSKOWITZ,

Opinion by Judge Harry Pregerson

PREGERSON, Circuit Judge:

This consolidated appeal of two separate actions requires us to consider the

constitutionality of an innovative municipal ordinance enacted by the City of Lodi,

Substance Account Act, also known as the California Superfund, became

inoperative on January 1, 1999. HSAA, Cal. H & S Code § 25395. The reenacted

HSAA went into effect on May 26, 1999, without a sunset clause. Actions and

agreements pursuant to the previous version of HSAA are governed by the

reenacted law. See 1999 Ch. 23 § 3.

3

California (“Lodi” or “the City”) to remedy hazardous waste contamination within

its borders. Fireman’s Fund Insurance Company (“Fireman’s Fund”), Unigard

Insurance Company, and Unigard Security Insurance Company (“Unigard”)

(collectively “the Insurers”) appeal from the district court’s judgments in favor of

Lodi in the Insurers’ separate but related actions for declaratory and injunctive

relief. Both Fireman’s Fund and Unigard filed suit to prevent Lodi from enforcing

a local ordinance, the Comprehensive Municipal Environmental Response and

Liability Ordinance (“MERLO” or “the Ordinance”), an ordinance which permits

the City to investigate and remediate the hazardous waste contamination of its soil

and groundwater.

The Insurers allege that MERLO is preempted by the federal Comprehensive

Environmental Response, Compensation and Liability Act (“CERCLA”), 42 U.S.C.

§§ 9601-9675, and by various state laws including California’s Carpenter-Presley-

Tanner Hazardous Substance Account Act, (“HSAA”), Cal. Health & Safety (“H &

Major Source of PCE in Ground Water,” pp. 20-21, March 27, 1992.

municipal wells: Chico, Oroville, Roseville, Sacramento, Elk Grove,

Lodi, Stockton, Modesto, Patterson, Turlock, Merced, Los Banos, Fresno, Visalia,

Porterville, and Bakersfield.

4

and we affirm in part, reverse in part, and remand for further proceedings

consistent with this opinion.

Lodi first detected the presence of tetrachloroethylene (“PCE”), in its

groundwater in April 1989. PCE is a known carcinogen that is often used as a drycleaning

primary source of water for agricultural use in California’s Central Valley.

Three years later, in 1992, the Central Valley Regional Water Quality Control

Board (“RWQCB”) issued a report entitled “Dry Cleaners -- A Major Source of PCE

in Ground Water.” The report concluded that the source of the contamination was

“the discharge of PCE-containing wastewater i[n]to the sewer lines” by local dry

5

Control (“DTSC”) of the California Environmental Protection Agency began

investigating the PCE contamination. DTSC is the state agency responsible for

ensuring that California’s public health and environment are protected from the

harmful effects of hazardous substances. See Cal. H & S Code §§ 25312, 25313,

25350-25359.8. DTSC is authorized to oversee the cleanup of hazardous waste sites

by issuing remedial orders and by entering into agreements with “potentially

responsible parties” (“PRPs” or “RPs”) to facilitate remediation.

DTSC’s investigation revealed that four small dry cleaning businesses were

potentially responsible for the PCE-contaminated wastewater that migrated

throughout Lodi by land disposal, sewer lines, and city water wells. One of the dry

cleaning businesses -- Lustre-Cal Nameplate Corporation (“Lustre-Cal”) -- is

insured by defendant Fireman’s Fund. A second dry cleaning business -- Busy Bee

Laundry & Cleaners (“Busy Bee”) -- was a tenant of M & P Investments, which is

insured by defendant Unigard. As a result of its investigation, DTSC listed the

“Lodi Groundwater Site” as a state hazardous waste site beginning in fiscal year

standards, and other requirements” of HSAA. Cal. H & S Code § 25356(d). After

it listed the Lodi Groundwater Site, DTSC began an HSAA-authorized

Protection Agency (“EPA”) has never employed federal resources to initiate a

comparable administrative proceeding at the federal level. The EPA has also never

listed the Lodi Groundwater Site on the National Priorities List (“NPL”), a list of

those sites that the EPA has determined are most in need of remediation. See 42

U.S.C. § 9605(a)(8)(B) (2001). As discussed infra at Section III.A., only NPL listed

sites are eligible to receive federal Superfund dollars.

declare what constitutes a nuisance.”

6

administrative action against selected PRPs, including Lodi, to address the soil and

In January 1997, Lodi retained the law firm of Zevnik, Horton, Guiboird &

McGovern, LLP to assist the City in developing a strategy for the investigation and

remediation of the PCE contamination. Lodi next initiated a series of events that

culminated in the adoption of MERLO.

First, in April 1997, Lodi adopted Ordinance No. 1647, which declared the

presence of any unpermitted hazardous substance in the environment a per se

Joint Cooperation Agreement” (“Cooperative Agreement” or “Agreement”). Under

the Agreement, DTSC and Lodi agreed to “coordinate and cooperate in a single and

consolidated effort” to timely investigate and remediate the hazardous substance

contamination affecting the City. Consistent with this joint effort, DTSC designated

7

Lodi the “lead enforcement entity” in the cleanup of hazardous substances in and

around the City. In exchange, Lodi agreed to “actively seek the input . . . of DTSC

in the settlement of any environmental enforcement actions” brought by the City

pursuant to the Cooperative Agreement, and DTSC agreed “not to independently

prosecute any claims [against PRPs] without the full cooperation of . . . Lodi.”

Lodi also agreed either to clean up the contamination itself or to compel PRPs to do

so.

The Agreement further states that DTSC retains its authority under HSAA to

oversee Lodi’s investigation and remediation efforts, and to review and approve

any remediation plan developed by the City. The Agreement also states that Lodi

acknowledges that DTSC “may have certain claims against the City of Lodi relating

to the released Hazardous Substances, which arise from or relate to the City of

Lodi’s design, construction, operation or maintenance of the commercial, industrial

and residential storm and sanitary sewer systems operated by the City.”

In light of this acknowledgment, Lodi agreed to reimburse DTSC for past and

future response costs not to exceed $1,024,549.55, if those costs were not

reimbursed by PRPs as a result of Lodi’s investigation and remediation efforts.

Nevertheless, Lodi continues to deny being a PRP. Indeed, the Cooperative

Agreement between DTSC and Lodi specifically includes a section entitled “No

8

Admission of Liability,” in which Lodi expressly disclaims any admission of

liability “arising from or relating to the City of Lodi’s design, construction,

maintenance, or operation of sanitary and storm sewer systems . . . .”

In consideration for Lodi’s agreement to reimburse DTSC, DTSC granted

Lodi a “covenant not to sue with respect to claims arising from . . . Lodi’s design,

construction, operation or maintenance of any storm or sanitary sewer systems.”

DTSC also agreed to protect Lodi from contribution actions under CERCLA, 42

U.S.C. § 9613(f)(2), and California’s contribution statute, Cal. Code Civ. Pro. §

877, for “matters addressed” in the Cooperative Agreement.

The third event that preceded Lodi’s adoption of MERLO occurred a month

after the City entered into the Cooperative Agreement with DTSC. In June 1997, in

accordance with the federal Resource Conservation and Recovery Act (“RCRA”),

42 U.S.C. § 6972(b)(2)(A), Lodi issued “Notices of Endangerment” to various

PRPs, including Lustre-Cal, which is insured by Fireman’s Fund. Notices of

Endangerment may be issued by any citizen and are a condition precedent to filing

suit under RCRA’s citizen suit provision. See 42 U.S.C. § 6972(b)(2)(A). The

notice to Lustre-Cal stated that “the City of Lodi requires that potentially responsible

parties, including Lustre-Cal, perform a prompt, comprehensive and cost-effective

environmental investigation and remediation of the Site.” The notice also stated

9

that Lustre-Cal and the other PRPs were jointly and severally liable for investigation

and remediation costs, and that Lodi intended to commence a civil or administrative

action against Lustre-Cal unless it settled with the City. Fireman’s Fund Ins. Co. v.

City of Lodi, 41 F. Supp. 2d 1100, 1105 (E.D. Cal. 1999).

Finally, on August 6, 1996, Lodi’s City Council enacted the “comprehensive

municipal environment response ordinance” as required by the Cooperative

Agreement. Ordinance 1650 -- commonly known as MERLO -- sets forth a

comprehensive remedial liability scheme modeled on CERCLA and HSAA.

MERLO specifically provides Lodi with municipal authority to investigate and

remediate existing or threatened environmental nuisances affecting the City, and to

hold PRPs or their insurers liable for the cost of the City’s nuisance abatement

activities. See generally MERLO §§ 8.24.010-8.24.090.

In order to facilitate this effort, MERLO: (1) authorizes Lodi to demand the

production of documents related to environmental contamination or to any PRP’s

ability to pay for investigation and abatement, id. § 8.24.050; (2) creates an

administrative hearing process subject to judicial review to resolve liability issues,

id. at § 8.24.060; (3) authorizes Lodi to initiate municipal enforcement actions

against PRPs, id. at § 8.24.080; (4) authorizes Lodi to bring direct actions against

insurers of insolvent PRPs that would resolve the PRP’s liability and the insurers’

appeals were pending before this court, neither party has moved to dismiss the

present appeals as moot. Moreover, our analysis of the two versions of MERLO

reveals that Ordinance No. 1684 is substantially similar to the original version of

MERLO. Indeed, with two exceptions, the Insurers argue that Lodi has merely

repealed one preempted ordinance and replaced it with a second ordinance that is

similarly preempted. Cf. Public Serv. Co. of Colorado v. Shoshone- Bannock

Tribes, 30 F.3d 1203, 1205-06 (9th Cir. 1994). Thus, the core disputes between the

parties remain.

Furthermore, the reenacted MERLO specifically provides that any action

taken under the original MERLO “shall remain in effect” under the reenacted

version of the Ordinance. The reenacted MERLO also provides that any changes

made to the Ordinance as a result of the amendments apply retroactively to all

proceedings initiated under the original MERLO. Finally, the general “savings

clause”in Lodi Municipal Code § 1.01.080, which was enacted in 1985 well before

Lodi adopted either version of MERLO, further establishes the continuing viability

of any remedial enforcement actions initiated by Lodi before it repealed and

reenacted MERLO.

Accordingly, we hold that the controversy between the Insurers and Lodi is

10

coverage obligations in one proceeding, id. at § 8.24.090(B); and (5) creates a

“Comprehensive Environmental Response Fund” to be used for the investigation

and abatement of environmental nuisances in and around Lodi, id. at § 8.24.070.

On November 17, 1999, Lodi’s City Council repealed Ordinance 1650 and

reenacted an amended version of MERLO as Ordinance No. 1684. The amended

version of MERLO became effective on December 17, 1999. Because we apply the

law in effect at the time of decision, we must decide the issues raised in these

related appeals based on the current version of MERLO. See Bradley v. Richmond

still “live” and that the repeal and reenactment of MERLO did not moot the

Insurers’ claims at issue in this appeal. We express no opinion, however, on

whether the reenacted version of MERLO may moot or otherwise impact some of

the issues to be considered by the district court for the first time on remand.

11

As set forth above, this consolidated appeal involves two separate but related

challenges to MERLO – one brought by Unigard, and a second brought by

Fireman’s Fund. Because the two lawsuits raise many of the same issues, including

the question whether MERLO is preempted by CERCLA or HSAA, we have

consolidated the cases for purposes of this appeal. Nevertheless, the cases have

distinct procedural histories and come to us on appeal from separate rulings by the

district court.

Shortly after enacting MERLO, and pursuant to its authority under MERLO

section 8.24.050, Lodi served Unigard with certain Information Gathering Demands

(“Demands”). The Demands stated that Unigard is the insurer of M & P

Investments, which may have incurred liability for the PCE contamination as a

result of dry cleaning business operations on Lodi property. The Demands ordered

Unigard to produce documents related to endorsements in the policy that Unigard

issued to M & P Investments.

12

Unigard responded to the Demands with various objections, and the City

responded to Unigard’s objections by filing a criminal complaint against Unigard in

state court. Unigard responded, in turn, by filing a writ petition in Superior Court,

requesting a stay of the criminal proceeding. The Superior Court granted Unigard’s

petition and issued a stay to provide Unigard the opportunity to challenge the

legality of MERLO in a non-criminal proceeding. Because the writ proceeding

provided Lodi with an adequate forum to litigate its claims against Unigard, the state

court dismissed Lodi’s criminal complaint against Unigard in May 1998.

Also in May 1998, Lodi filed an abatement action pursuant to its authority

under MERLO against Unigard’s insured, M & P Investments. Three weeks later,

on May 21, 1998, Unigard filed the present action in United States District Court for

the Northern District of California. In its complaint, Unigard alleges that Lodi

adopted MERLO in order to shift its own liability for the PCE contamination to the

insurers of other PRPs. Unigard’s complaint further alleges that MERLO: (1)

violates the Supremacy Clause of the United States Constitution because it is

preempted by CERCLA; (2) violates Article 11 of the California State Constitution

because it is preempted by HSAA and California Insurance Code § 11580; and (3)

violates the Contracts Clause of the United States Constitution.

After abstaining from deciding certain claims unrelated to this appeal, the

and Adam L. Babich were dismissed without prejudice by stipulation of the parties

on September 21, 1998.

13

district court issued an order to show cause why Unigard’s action should not be

transferred to the Eastern District of California. The district court ultimately found

that Unigard’s remaining claims “have an insufficient connection to the Northern

District of California” and transferred the action to the Eastern District of

California. All of Unigard’s claims were dismissed prior to the transfer, with the

exception of the federal and state preemption claims, and the federal contracts

clause claim.

Meanwhile, on August 6, 1998, Fireman’s Fund filed a similar declaratory

and injunctive relief action against Lodi in the United States District Court for the

Eastern District of California. In addition to naming Lodi as a defendant, Fireman’s

Fund also named: (1) Lodi’s Mayor, Jack Sieglock, in his official capacity; (2)

MERLO Enforcement Officers Richard C. Prima, Jr. and Fran E. Forkas in their

official capacities; (3) Lodi City Attorney Randall A. Hays in his official and

individual capacities; and (4) Michael C. Donovan and Zevnik Horton Guibord &

McGovern, LLP (collectively, the “Law Firm”), private attorneys acting as assistant

complaint, the Fireman’s Fund complaint alleges, inter alia, that MERLO: (1)

varied and difficult issues raised in this highly complex case.

14

violates the Supremacy Clause of the United States Constitution; (2) violates Article

11 of the California State Constitution because it is preempted by HSAA and

California Insurance Code § 11580; and (3) impairs Fireman’s Fund’s right to

contract under both the United States Constitution and the California State

Constitution.

On August 24, 1998, Fireman’s Fund, joined by Unigard, moved for a

preliminary injunction prohibiting Lodi from enforcing MERLO. While the

Insurers’ preliminary injunction motion was pending, Lodi and its officers moved,

in both actions, to dismiss the Insurers’ complaints pursuant to Federal Rule of

Civil Procedure 12(b)(1) for lack of subject matter jurisdiction, and Federal Rule of

Civil Procedure 12(b)(6) for failure to state a claim. At the same time, Fireman’s

Fund filed a motion for partial summary judgment and for a permanent injunction

to enjoin Lodi from enforcing MERLO.

After extensive briefing by all parties, the district court held a joint hearing

on all motions in both cases on December 4, 1998. Following the hearing, the

district court issued two written decisions – one in the Unigard action and a second

Commission of Texas v. Pullman Co., 312 U.S. 496 (1941), and is “an equitable

doctrine that allows federal courts to refrain from deciding sensitive federal

constitutional questions when state law issues may moot or narrow the

constitutional questions.” The San Remo Hotel v. City of San Francisco, 145 F.3d

1095, 1104 (9th Cir. 1998). Pullman abstention is discussed in greater detail at

Section IV. A. infra.

15

In an unpublished decision filed on March 5, 1998, the district court found

Unigard’s claims ripe for review because “the content of [MERLO] is clear as are

the City’s intentions to enforce the Ordinance against Unigard.” Unigard Ins. Co. v.

City of Lodi, No. Civ. S. 98-1712-FCD-JFM at *5 (E.D. Cal. Mar. 5, 1998). The

district court also found that Unigard has standing to bring the present action, id. at

6, and that MERLO is not preempted by CERCLA, id. at 6-13. Finally, the district

MERLO was preempted by state law. Id. at 14-15. Based on these rulings, the

district court granted Lodi’s motion to dismiss Unigard’s federal preemption claim

and dismissed without prejudice Unigard’s state preemption and federal contracts

clause claims. Unigard timely appeals the district court’s ruling concerning only the

federal preemption issue.

In a published opinion filed on February 24, 1999, the district court

16

dismissed Fireman’s Fund’s claims against the individual defendants in their

official capacities as “duplicative of the claims against the City.” Fireman’s Fund

Ins. Co. v. City of Lodi, 41 F. Supp. 2d 1100, 1106 (E.D. Cal. 1999). The district

court also held that the defendants sued in their individual capacities are entitled to

qualified immunity. Id. at 1107. The rulings on the remaining issues -- including

ripeness, standing, and federal and state preemption -- were identical to those

rulings in the Unigard action. Id. at 1107-13. The district court found that: (1)

Fireman’s Fund’s claims are ripe; (2) Fireman’s Fund has standing to bring the

instant action; and (3) MERLO is not preempted by CERCLA. Again, the district

court abstained from deciding whether MERLO is preempted by HSAA based on

the doctrine of Pullman abstention.

Based on these rulings, the district court denied Fireman’s Fund’s motion for

partial summary judgment and a permanent injunction, dismissed the individual

defendants and the Law Firm from the action, dismissed the federal preemption

claim against Lodi, and abstained from ruling on the state preemption claim. The

district court dismissed the state preemption and remaining constitutional claims

without prejudice.

Fireman’s Fund timely appeals the district court’s rulings concerning federal

and state preemption, and the district court’s dismissal of the official capacity

the state law preemption question, Fireman’s Fund also urges us to certify the state

preemption issue to the California Supreme Court. Because we reverse the district

court’s invocation of the Pullman abstention doctrine, we need not consider

whether certification is appropriate.

17

We review de novo a district court’s decision to grant or deny a motion to

dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Gonzalez v.

Metropolitan Transp. Auth., 174 F.3d 1016, 1018 (9th Cir. 1999). In reviewing the

complaint, all factual allegations “are taken as true and construed in the light most

favorable to [p]laintiffs.” Epstein v. Washington Energy Co., 83 F.3d 1136, 1140

(9th Cir. 1999).

Similarly, we review de novo whether this case meets the requirements of the

Pullman abstention doctrine. Martinez v. Newport Beach City, 125 F.3d 777, 780

(9th Cir. 1997). The district court has no discretion to abstain in cases that do not

meet the requirements of the abstention doctrine being invoked. Id. If the

requirements for Pullman abstention are satisfied, we review for an abuse of

discretion the district court’s decision to abstain from deciding the state law

18

preemption question. Id.

Before reaching the merits of the Insurers’ arguments on appeal, because of

the complexity of the claims involved in this case, it is useful to review briefly the

three statutory schemes that are germane to this lawsuit: (1) CERCLA, the primary

federal statute dealing with the cleanup of hazardous waste; (2) HSAA, the primary

state statute dealing with the cleanup of hazardous waste in the State of California;

and (3) MERLO, the Lodi ordinance at issue in this case.

Congress enacted CERCLA in 1980 “to provide a mechanism for the prompt

and efficient cleanup of hazardous waste sites.” United States v. City of Denver,

100 F.3d 1509, 1511 (10th Cir. 1996). CERCLA has two overriding objectives:

facilitating the timely cleanup of hazardous waste sites and making polluters pay for

the damage that they caused. Stanton Road Assoc. v. Lohrey Enter., 984 F.2d 1015,

1019 (9th Cir. 1993).

CERCLA directs the EPA to produce a National Priorities List (“the List”),

which contains those sites that the EPA has determined are most in need of

[B]ased upon the criteria set forth in [the National Contingency Plan or

NCP], the President shall list as part of the plan national priorities among the

known releases or threatened releases throughout the United States and shall

revise the list no less often than annually. [E]ach State shall establish and

submit for consideration by the President priorities for remedial action

among known releases and potential releases in that State based upon the

criteria set forth in [the NCP]. In assembling or revising the national list, the

President shall consider any priorities established by the States . . . .

42 U.S.C. § 9605(a)(8)(B).

19

L.L.C v. Dep’t of Health and Envtl. Quality, 213 F.3d 1108, 1111 n.2 (9th Cir.

2000). Only listed sites are eligible to receive federal Superfund dollars. See State

date of this opinion, the EPA has not included the Lodi Groundwater site on the

List.

Once the EPA includes a certain hazardous waste site on the List, CERCLA

directs the EPA to prepare a Remedial Investigation and Feasibility Study to “define

the nature and extent of the threat . . . and to evaluate proposed remedies.” United

States v. Akzo Coatings of Am., Inc., 949 F.2d 1409, 1417 (6th Cir. 1991). If the

EPA determines that CERCLA requires remediation of the site, “it must publish a

20

proposed remedial action plan . . . and provide an opportunity for [public]

comment. The EPA then issues a Record of Decision . . . setting forth the remedy

selected for the site.” Id. (citations omitted).

CERCLA permits the cleanup efforts to be financed in one of two ways:

First, the PRPs are usually given the option of entering into a settlement

agreement with the EPA. . . . The agreement, which is in the form of a

consent decree, consists of a promise by the settling PRPs to perform and

finance the cleanup action themselves. . . . Second, in situations where the

the PRPs fail to settle with the EPA, the EPA may then intervene and

commence the cleanup itself. The EPA's cleanup action is financed through

the use of monies allocated to the Superfund. After the response action has

been completed, the EPA seeks recovery of all the cleanup costs from the

PRPs under the cost recovery provisions of CERCLA.

Peter F. Sexton, Super Fund Settlements: The EPA’s Role, 20 Conn. L. Rev. 923,

925 (1988) (footnotes omitted); see also 3550 Stevens Creek Assoc. v. Barclays

Bank of California, 915 F.2d 1355, 1357 (9th Cir. 1990).

“In order to be held liable for cleanup costs under CERCLA, a party must fall

within one of the four classes of PRPs identified in 42 U.S.C. § 9607(a)(1)-(4)”: (1)

current owners and operators of hazardous waste facilities; (2) former owners and

operators of hazardous waste facilities; (3) any person who arranged or arranges for

the disposal or treatment of hazardous waste; and (4) any person who accepted or

accepts hazardous waste for the purpose of transporting it to a disposal facility.

Bancroft-Whitney, California Civil Practice, Environmental Litigation, § 3:28

21

(1993); 42 U.S.C. § 9607(a)(1)-(4); 40 C.F.R. § 35.6015(a)(32).

We have interpreted CERCLA to hold PRPs strictly liable for the

investigation and remediation of hazardous waste sites. Moreover, like many of our

sister circuits, we have also held that CERCLA liability is joint and several.

Atchison Topeka & Santa Fe Ry. Co. v. Brown & Bryant, Inc., 159 F.3d 358, 362

(9th Cir. 1998). This means that

all PRPs are assigned liability for the whole amount of the cleanup costs, and

then permitted to allocate the costs amongst themselves, and other unnamed,

but responsible parties. The rationale for joint and several liability is to create

an incentive for named PRPs to search out other PRPs, so as to make all

responsible polluters pay for cleanups.

Sarah W. Rubinstein, CERCLA’s Contribution to the Federal Brownfields Problem:

A Proposal for Federal Reform, 4 U. Chi. Sch. Roundtable 149, 152 (1997).

Although there are circumstances under which municipalities may be considered

PRPs under CERCLA’s liability scheme, see, e.g., City of Fresno v. NL Indust.,

1995 WL 641983 (E.D. Cal. 1995), it is not clear whether a municipality may be

considered a PRP solely as a result of operating a municipal sewer system.

Compare Lincoln Prop., Ltd. v. Higgins, 823 F. Supp. 1528, 1538, 1539-44 (E.D.

Cal. 1992) (holding that a municipal sewer system that leaked hazardous waste

could rely on a third-party defense to avoid liability under CERCLA), with

Westfarm Assoc. Ltd. P’ship v. Washington Suburban Sanitary Comm’n, 66 F.3d

Subject to Liability Under the Comprehensive Environmental Response,

Compensation, and Liability Act, 5 S.C. Envtl. L.J. 98 (1996); Robert M. Frye, Note,

Municipal Sewer Authority Liability Under CERCLA: Should Taxpayers be Liable

for Superfund Cleanup Costs? Westfarm Associates Limited Partnership v.

International Fabric Institute, 14 Stan. Envtl. L.J. 61 (1995).

22

669, 675-80 (4th Cir. 1995) (holding that a municipal sewer system is liable for the

Under CERCLA, the cleanup of listed hazardous waste sites must be

consistent with the National Contingency Plan (“NCP”). The NCP is promulgated

by the EPA, and “specifies the roles of the federal and state governments in

responding to hazardous waste sites, and establishes the procedures for making

cleanup decisions.” City of Denver, 100 F.3d at 1511. The burden of establishing

that the cleanup process is consistent with the NCP depends on whether the plaintiff

in a CERCLA action is the government or a private party: “While the United States

government, or a [S]tate or Indian tribe, can obtain ‘all costs of removal or

remedial action . . . not inconsistent with the [NCP],’ any other person can obtain

“other necessary costs of response . . . consistent with the [NCP].”

Washington State Dep’t of Transp. v. Washington Natural Gas Co., 59 F.3d 793,

799 (9th Cir.1995) (citing 42 U.S.C. § 9607(a)(2), (a)(4)(A)-(B)) (emphasis added).

In other words, where “the United States government, a [S]tate, or an Indian tribe is

23

seeking recovery of response costs, consistency with the NCP is presumed,” and

the burden is on the defendant to rebut the presumption of consistency by

establishing that the plaintiff’s response action was arbitrary and capricious. Id.

However, “any ‘other person’ seeking response costs under [CERCLA] must prove

that its actions are consistent with the NCP.” Id.

CERCLA was amended in 1986 by the Superfund Amendments and

Reauthorization Act of 1986 (“SARA”), 42 U.S.C. §§ 9601-9675. SARA

strengthened CERCLA in two significant ways. First, SARA codified a statutory

right of contribution among PRPs. Under SARA, “[a]ny person may seek

contribution from any other person who is liable or potentially liable under

[CERCLA as a PRP].” 42 U.S.C. § 9613(f)(1). “In resolving contribution claims,

the court may allocate response costs among liable parties using such equitable

factors as the court determines are appropriate.” Id.

Second, SARA codified various incentives to encourage PRPs to settle

quickly with the EPA. See Bedford Affiliates v. Sills, 156 F. 3d 416, 427 (2d Cir.

1998). Under SARA, PRPs “who choose to settle are granted protection from

contribution actions being asserted against them under [CERLCA], but retain the

right to bring contribution actions against other non-settling parties.” Id. (citing 42

U.S.C. § 9613(f)(3)(B)). “[SARA] further provides that the amount recoverable

the United States under this subsection shall not be liable for claims for contribution

regarding matters addressed in the settlement. Such settlement shall not discharge

any of the other potentially liable persons unless its terms so provide, but it reduces

the potential liability of the others by the amount of the settlement.”

24

from the remaining non-settling parties is reduced only by the amount of the

settlement.” Id. (citing 42 U.S.C. § 9613(f)(2)). “Hence, [PRPs] who choose to

settle gain protection from contribution, enjoy potentially favorable settlement

terms, and retain the ability to seek contribution from other defendants. Those

responsible parties who choose not to settle are barred from seeking contribution

from the settling parties and thereby face potentially disproportionate liability.” Id.

(citing In re Reading Co., 115 F.3d 1111, 1119 (3rd Cir. 1997)); see also 42 U.S.C. §

HSAA, which is commonly referred to as the “State Superfund Law,” mirrors

CERCLA in many respects. Acme Fill Corp. v. Althin CD Med., Inc., 1995 WL

822665 at *5 (N.D. Cal. 1995). Like CERCLA, HSAA “imposes cleanup obligations

and provides private cost recovery rights substantially identical to those obligations

imposed and rights granted under CERCLA.” Donna R. Black, Potential

Environmental Liabilities in Corporate Acquisitions, 894 PLI/Corp 543, 546 (June-

July 1995). HSAA also relies on CERCLA’s definition of PRPs. Bruce P. Howard,

25

et al., CERCLA and Similar State Laws: Overview and Recent Developments, 832

PLI/Corp 531, 551(Dec.-Jan. 1993). However, HSAA differs from CERCLA in that

“HSAA liability may be apportioned according to fault,” whereas liability under

CERCLA is joint and several. Id.

HSAA is administered by DTSC, which employs a listing process similar to

that used by the EPA at the federal level. As discussed above, DTSC listed the Lodi

Groundwater Site as a hazardous waste site beginning in fiscal year 1993-94.

MERLO is modeled on both CERCLA and HSAA, and was adopted by Lodi

with the full cooperation and encouragement of the Department of Toxic

Substances Control (“DTSC”). MERLO incorporates many of the standards

employed by CERCLA and HSAA. For example, MERLO utilizes the CERCLA and

HSAA definition of who may be considered a PRP, see MERLO § 8.24.040(A)(1),

and, like CERCLA, the scope of liability under MERLO is joint and several, see

MERLO § 8.24.040(F).

Lodi asserts that it enacted MERLO to empower the City -- the governmental

entity most intimately connected with the soil and groundwater contamination -- to

facilitate and oversee the remediation of its soil and groundwater. The Insurers

allege, however, that Lodi enacted MERLO to avoid paying its fair share as a PRP

26

for remediating the PCE contamination. According to the Insurers, Lodi is properly

considered a PRP because the City’s poorly designed and maintained sewer system

allowed the PCE-contaminated wastewater to migrate easily throughout the region.

Lodi disputes these assertions. According to Lodi, “the City does not concede that

it is a potentially responsible party at this site merely because hazardous substances

discharged into its sewers by other parties leaked out into the environment.”

On appeal, Fireman’s Fund asserts that the district court erred in abstaining

from deciding whether MERLO is preempted by various state laws, and Fireman’s

Fund and Unigard argue that MERLO is in fact preempted by state and federal law.

We find that the district court erred in abstaining from deciding whether MERLO is

preempted by state law. Because the state law preemption analysis resembles the

federal preemption analysis, we consider whether MERLO is preempted by federal

law in conjunction with the state law preemption question. We conclude by finding

that although a few sections of MERLO are preempted by state and federal law

under the doctrine of conflict preemption, the majority of the Insurers’ preemption

arguments lack merit.

27

In addition, Fireman’s Fund appeals the district court’s decision dismissing

its official capacity claims against three individual defendants. We agree with

Fireman’s Fund and reinstate those claims.

Fireman’s Fund first argues that the district court erred in abstaining from

deciding its state preemption claim, and in dismissing its remaining federal and state

constitutional claims on this basis. We agree.

The district court decided sua sponte not to exercise its jurisdiction over

Fireman’s Fund’s state law preemption claim under the doctrine of Pullman

abstention. First articulated by the Supreme Court in Railroad Comm’n of Tex. v.

Pullman Co., 312 U.S. 496 (1941), “Pullman abstention is an equitable doctrine that

allows federal courts to refrain from deciding sensitive federal constitutional

questions when state law issues may moot or narrow the constitutional questions.”

The San Remo Hotel, 145 F.3d at 1104. Like all abstention doctrines, Pullman

abstention “is an extraordinary and narrow exception to the duty of a district court

to adjudicate a controversy” properly before it. Canton v. Spokane Sch. Dist. #81,

498 F.2d 840, 845 (9th Cir. 1974) (citing Allegheny County v. Frank Mashuda Co.,

360 U.S. 185, 188 (1959)).

Three factors must be present before a district court may abstain under the

question at stake is one of federal preemption because preemption is not considered

a “constitutional issue.” Hotel Employees and Rest. Employees Int’l Union v.

Nevada Gaming Comm’n, 984 F.2d 1507, 1512 (9th Cir. 1993) (“Pullman abstention

is not appropriate because preemption is not a constitutional issue.”). But see

International Bhd. of Elec. Workers, Local Union No. 1245 v. Public Serv. Comm’n

of Nev., 614 F.2d 206 (9th Cir. 1980) (invoking Pullman abstention in a case

involving preemption under the National Labor Relations Act). In this case,

however, the district court properly addressed the merits of the Insurers’ federal

preemption claims, and invoked Pullman abstention only to avoid reaching

Fireman’s Fund’s additional claims for relief based on the Due Process, Equal

Protection, and Contracts Clauses of the U.S. Constitution.

err in abstaining, it erred in dismissing the Fireman’s Fund’s remaining federal and

state constitutional claims; the district court instead should have stayed the action

and retained jurisdiction over the remaining federal claims pending resolution of

the relevant state law issues in state court. See International Bhd. of Elec. Workers,

28

Pullman doctrine: “(1) the complaint must involve a ‘sensitive area of social policy’

that is best left to the states to address; (2) ‘a definitive ruling on the state issues by

a state court could obviate the need for [federal] constitutional adjudication by the

law issue is uncertain.’” Cedar Shake and Shingle Bureau v. City of Los Angeles,

997 F.2d 620, 622 (9th Cir. 1993) (quoting Kollsman v. City of Los Angeles, 737

F.2d 830, 833 (9th Cir.1984)). If a court invokes Pullman abstention, it should stay

the federal constitutional question “until the matter has been sent to state court for a

determination of the uncertain state law issue.” Erwin Chemerinsky, Federal

614 F.2d at 213.

29

The district court concluded that all three Pullman factors were present in this

case. Upon careful review, however, we find that both the first and third factors

are lacking. Because there is no discretion to abstain in cases that do not meet the

requirements of the abstention doctrine being invoked, Martinez, 125 F.3d at 780,

we hold that the district court erred in abstaining from ruling on Fireman’s Funds’

state law preemption claim.

As set forth above, the first Pullman factor requires us to find that “the

complaint . . . involve[s] a sensitive area of social policy that is best left to the states

to address.” Cedar Shake and Shingle Bureau, 997 F.2d at 622 (internal quotation

omitted). The district court found that this factor was satisfied because this case

involves “an area of serious local concern about which the DTSC has expressed no

opinion and into which federal intrusion is undesirable.” Fireman’s Fund, 41 F.

Supp. 2d at 1112. We respectfully disagree. Although “the interpretation of a local

ordinance which enables the City to pay for hazardous waste remediation it could

not otherwise afford” is undoubtably an area of “serious local concern,” it cannot

truly be said that “federal intrusion is undesirable.” Id. Indeed, the federal

government has definitively entered the field of hazardous waste remediation by

enacting CERCLA. Moreover, the text of CERCLA makes clear that Congress

CERCLA in many respects. It therefore seems inconsistent to consider the Insurers’

federal preemption claims, while at the same time abstaining from the related state

law preemption claims. Cf. Wisconsin v. Constantineau, 400 U.S. 433, 439 (1971)

(holding that Pullman abstention should not be invoked to avoid interpreting state

law constitutional questions when the provision of the state constitution at issue

mirrors a provision of the federal constitution). But see Fields v. Rockdale County,

785 F.2d 1558 (11th Cir. 1986) (finding that Pullman abstention is proper if the state

constitution provides greater protections than exist under the federal Constitution,

even if the state and federal provisions at issue are mirror images of each other).

30

envisioned a partnership between various levels of government in addressing the

complex and costly problems associated with hazardous waste remediation. See,

In addition, although DTSC has not issued a formal written opinion

regarding MERLO, it cannot truly be said that “DTSC has expressed no opinion”

about the Lodi ordinance. Fireman’s Fund, 41 F. Supp. 2d at 1112. On the

contrary, by entering into the Cooperative Agreement with Lodi, DTSC implicitly

approved of the City’s efforts to enact MERLO. Indeed, the Cooperative

Agreement itself obligated Lodi to adopt MERLO as part of its municipal

remediation strategy. Specifically, under the terms of the Agreement, Lodi agreed

to:

utiliz[e], as appropriate, the full range of its remedial and regulatory

injunctive and cost recovery authority under federal, state and

municipal law, to compel the complete, timely, competent, costeffective

performance of the Work in full compliance with federal,

As the Agreement itself states, DTSC entered into the Agreement “pursuant to its

authority as set forth in Chapters 6.5 and 6.8 of the California Health and Safety

Code [the HSAA], as well as its inherent governmental authority to resolve claims

within its jurisdiction.” See also Cal. H & S Code § 25355.5(a)(1)(C) (authorizing

DTSC to enter into “agreements” with PRPs or “other parties”); Cal. H & S Code §

25358.3.

31

state and local law, specifically including the NCP, as appropriate.

These enforcement efforts will include . . . the prompt enactment and

authorities to appropriately supplement the City of Lodi’s already

extensive environmental response authority under federal, state and

local law. . . .

(emphasis added). Thus, MERLO was enacted with the full cooperation and

concluding that the first Pullman abstention factor has been satisfied in this case.

Although our finding that the first Pullman factor has not been satisfied is

sufficient to support our decision to reverse the district court on this issue, we note

that the third Pullman abstention factor is also lacking in this case. As set forth

above, the third Pullman factor requires us to find that “the proper resolution of the

potentially determinative state law issue is uncertain.’” Cedar Shake and Shingle

Bureau, 997 F.2d at 622 (internal quotation and citation omitted). The district court

concluded that the determinative state law issue in this case is whether MERLO is

preempted by state law because it duplicates or contradicts HSAA. Fireman’s Fund,

32

41 F. Supp. 2d at 1112-13. The district court ultimately found that because

“California courts have not spoken definitively in this matter,” the third Pullman

factor has been satisfied. Id. at 1113. Again, we respectfully disagree.

The fact that a state court has not ruled on the precise issue at stake in this

case does not mean that the proper resolution of the state law issue is “uncertain.”

Constantineau, 400 U.S. at 439; see also Pearl Invest. Co. v. City & County of San

abstention means that a federal court cannot predict with any confidence how a

state’s highest court would decide an issue of state law). On the contrary,

California has left several guideposts to assist us with the state law preemption

analysis. First, the California Supreme Court has provided us with guidance in

determining when a local regulation is preempted by state law. See, e.g., People ex

rel. Deukmejian v. County of Mendicino, 36 Cal.3d 476, 485 (1984). Second,

HSAA itself provides us with substantial guidance by expressly recognizing the

continuing viability of supplementary municipal legislation. See, e.g., Cal. H & S

Code § 25356.6(a).

Finally, we also have the additional benefit of a recent decision by the

California Supreme Court that relates to the present litigation. On July 24, 2000,

after the district court’s decision in the present case, the California Supreme Court

33

decided Connecticut Indemnity Co. v. Superior Court, 98 Cal. Rptr. 2d 221 (2001),

a case in which Fireman’s Fund and other insurers of PRPs challenged Lodi’s

decision to issue legislative subpoenas pursuant to its authority under MERLO. Id.

at 226-28. Specifically, Fireman’s Fund argued that Lodi exceeded its authority

under state law in issuing the subpoenas. Fireman’s Fund also argued that Lodi

issued the subpoenas for an improper purpose, i.e., as a tool to gather sufficient

information to file suit against the PRPs and their insurers.

The California Supreme Court upheld Lodi’s authority under MERLO to

issue the legislative subpoenas. Speaking for a unanimous court, Chief Justice

George stated that:

[C]ontrolling authority establishes that a city may issue legislative

subpoenas when it has been authorized by ordinance or similar

enactment to do so, when issuance of the subpoenas serves a valid

legislative purpose, and when the witnesses or material subpoenaed

are pertinent to the subject matter of a legislative investigation. We

conclude . . . that the city satisfied these requirements in this case.

Id. at 223. In so holding, the California Supreme Court specifically found that:

The subject matter of the [City’s] investigation, an environmental

public nuisance amounting to, as the trial court put it, “a tremendous

and serious groundwater contamination problem” within Lodi's city

limits, obviously is an area over which the city council has authority

and responsibility both to legislate and to appropriate.

* * *

As has been observed, “‘[i]t is difficult to imagine any interest that

[a legislative entity] could have that would be more compelling . . . than its

interest in determining the availability of funds for the cleanup of hazardous

is related to the present litigation. On October 11, 2000, the Superior Court for the

County of Sacramento issued a decision in People v. Randtron, Case No.

99AS02335. As in the present case, the court was asked to determine whether

MERLO is preempted by CERCLA or HSAA. With respect to the federal

preemption question, the court “adopt[ed] and [found] persuasive” the district

court’s analysis in the present case. The court therefore held that MERLO is not

preempted by CERCLA.

Significantly, the Sacramento Superior Court also went on to conclude that

MERLO is not preempted by HSAA. Indeed, the court found that HSAA does not

expressly preempt municipal ordinances, that HSAA does not preempt the field by

implication, and that under the circumstances of this case, there is also no conflict

preemption and no duplication. Randtron is currently pending before the

California Court of Appeals.

34

substances located within its boundaries.’” We find Lodi's asserted

legislative interests to be legitimate, and not mere pretext or sham.

Id. at 226-27 (quoting Ford Motor Co. v. Insurance Co. of North Am., 41 Cal. Rptr.

2d 342, 348 (Cal. Ct. App. 1995)). Thus, the California Supreme Court has

acknowledged the serious nature of Lodi’s groundwater contamination problem

and has generally affirmed the authority and responsibility of Lodi to regulate this

Because we are not without guidance from the state courts in addressing the

state law preemption question, we find that the third Pullman abstention factor is

not satisfied in this case. What is more, the third Pullman factor is not satisfied for

the additional reason that we cannot say that there is a “reasonable possibility that

the state court’s clarification of state law might obviate the need for the federal

because the question whether there is a “reasonable possibility that the state

court’s clarification of state law might obviate the need for the federal constitutional

ruling” anticipates the merits of the preemption analysis. Chemerinsky, supra, at

742-43.

35

constitutional ruling.” Chemerinsky, supra, at 742-43. On the contrary, we are

confident that a definitive decision from the state court on the state-law preemption

question would do little to relieve us of our duty to resolve the federal

constitutional issues in this case.

First, as discussed in Section IV.B.3. infra, it is fairly clear that MERLO as a

whole is consistent with state law, and that municipalities in California may enact

local ordinances which allow them to take an active role in remediating local

we do infra, that a few specific provisions of MERLO are preempted, such a

finding would only invalidate those specific provisions. The bulk of MERLO

would remain in effect, as would our obligation to consider Fireman’s Funds’

federal constitutional claims. Pullman abstention is therefore inappropriate.

In sum, because we find that both the first and the third Pullman factors are

lacking, we reverse the district court’s decision to abstain from deciding Fireman’s

Fund’s state law preemption claim. We proceed now to the merits of the federal

and state preemption analysis.

Fund’s state law preemption claim. “Although we ordinarily do[ ] not consider an

issue not passed upon below, the decision to resolve a question for the first time on

appeal is one left primarily to the discretion of the courts of appeals." City of

Auburn v. Qwest Corp., 2001 WL 823718 at * 12 (9th Cir. 2001). We have

recognized an exception to the general rule that we will not consider an issue for the

first time on appeal if “the issue presented is purely one of law and either does not

depend on the factual record developed below, or the pertinent record has been

fully developed.” Bolker v. Commissioner of the Internal Revenue Serv., 960 F.2d

1039, 1042 (9th Cir. 1985); see also Franklin v. Foxworth, 31 F.3d 873, 878-79 (9th

Cir. 1994) (Reinhard, J., concurring). Because that exception applies in this case,

we proceed to the merits of Fireman’s Fund’s state preemption claim.

36

Fireman’s Fund argues that MERLO is preempted by state law. In addition,

both Fireman’s Fund and Unigard argue that MERLO is preempted by federal law.

After briefly reviewing the doctrines of federal and state preemption, we consider

Under the Supremacy Clause of the United States Constitution, state laws that

“interfere with, or are contrary to the laws of Congress” are preempted and are

therefore invalid. Gibbons v. Ogden, 22 U.S. (9 Wheat) 1, 211 (1824).

“Congressional intent governs our determination of whether federal law preempts

state law. If Congress so intends, ‘[p]re-emption . . . is compelled whether

Congress’ command is explicitly stated in the statute’s language or implicitly

37

contained in its structure and purpose.” Boyes v. Shell Oil Prods. Co., 199 F.3d

1261, 1267 (11th Cir. 2000) (quoting Gade v. National Solid Waste Mgmt. Ass’n,

505 U.S. 88, 96 (1992) (plurality)).

The Supreme Court has recognized three types of federal preemption:

(1) express preemption, where the statute contains “explicit pre-emptive

language,” (2) field preemption, “where the scheme of federal regulation is

so pervasive as to make reasonable the inference that Congress left no room

for the States to supplement it,” and (3) conflict preemption, “where

compliance with both federal and state regulations is a physical impossibility,

or where state law stands as an obstacle to the accomplishment and execution

of the full purposes and objectives of Congress.”

Id. (citing Gade, 505 U.S. at 96 (emphasis added)). “Although these categories

provide a useful analytic framework, they are not ‘rigidly distinct.’” Industrial

Truck Ass’n v. Henry, 125 F.3d 1305, 1309 (9th Cir. 1997).

“When considering [preemption], ‘we start with the assumption that the

historic police powers of the States were not to be superseded by the Federal Act

unless that was the clear and manifest purpose of Congress.’” Wisconsin Pub.

Intervenor v. Mortier, 501 U.S. 597, 604 (1991) (quoting Rice v. Santa Fe Elevator

Corp., 331 U.S. 218, 230 (1947)). Moreover, we are “highly deferential” to local

legislation in areas such as environmental regulation, which “traditionally has been

a matter of state authority.” Exxon Mobile Corp. v. United States Env’t Prot.

Agency, 217 F.3d 1246, 1255 (9th Cir. 2000). Finally, “for [] purposes of the

Supremacy Clause, the constitutionality of local ordinances is analyzed the same

38

way as that of statewide laws.” Hillsborough County v. Automated Med. Labs.,

Inc., 471 U.S. 707, 713 (1985) (internal citations omitted).

California preemption doctrine is based on Article XI, section 7 of the

California Constitution, which states that “[a] county or city may make and enforce

within its limits all local, police, sanitary, and other ordinances and regulations not

in conflict with general laws.” Cal. Const., art. XI, § 7 (emphasis added); Sherwin-

Williams Co. v. City of Los Angeles, 16 Cal. Rptr. 2d 215, 217 (Cal. 1993). The

Califo

rnia

Supre

me

Court

has

held

that

State

law is

“in

39

confli

ct

with” or preempts local law if the local law “duplicates, contradicts, or enters an

area fully occupied by general law, either expressly or by legislative implication.”

Sherwin-Williams, 16 Cal. Rptr. 2d. at 217. As the court further explained:

Local legislation is "duplicative" of general law when it is coextensive

therewith. Similarly, local legislation is "contradictory" to general law when

it is inimical thereto. Finally, local legislation enters an area that is "fully

occupied" by general law when the Legislature has expressly manifested its

intent to "fully occupy" the area, or when it has impliedly done so . . .

Id. at 218 (internal quotations and citations omitted). Thus, with the exception of

the concept of preemption by duplication which has no federal analogue,

California’s preemption doctrine is similar to federal preemption law. With this

background in mind, we proceed to the merits of the federal and state preemption

analysis.

Neither CERCLA nor HSAA expressly preempts local law, and the Insurers

do not argue otherwise. Fireman’s Fund, 41 F. Supp. 2d at 1109 (citing Bedford

Affiliates, 156 F.3d at 426; Witco Corp. v. Beekhuis, 38 F.3d 682, 687 (3d Cir.

1994); Akzo Coatings, 949 F.2d at 1455; City of Denver, 100 F.3d at 1512); see also

40

Cal. H & S Code § 25356.6 (a).

Similarly, the Insurers do not argue that CERCLA alone preempts the field by

implication. Indeed, as the Insurers acknowledge, CERCLA contains three separate

savings clauses to preserve the ability of states to regulate in the field of hazardous

waste cleanup. First, CERCLA § 114(a) states that “[n]othing in this chapter shall

be construed or interpreted as preempting any State from imposing any additional

liability or requirements with respect to the release of hazardous substances within

such State.” 42 U.S.C. § 9614(a). Second, CERCLA § 302(d) states that “[n]othing

in this chapter shall affect or modify in any way the obligations or liabilities of any

person under other Federal or State law, including common law, with respect to

release of hazardous substances or other pollutants or contaminants. . . .” 42 U.S.C.

§ 9652(d). And third, CERCLA § 310(h) states that “[t]his chapter does not affect

or otherwise impair the rights of any person under Federal, State, or common law,

except with respect to the timing of review as provided in section 9613(h),” a

CERCLA provision that is not at issue in the present case. 42 U.S.C. § 9659(h).

Based on these provisions, courts have repeatedly held that “CERCLA does not

concurrent jurisdiction of the federal, state, and local governments to undertake

abatement actions to clean up hazardous waste contamination. Section 106 states in

pertinent part:

In addition to any other action taken by a State or local government,

when the President determines that there may be an imminent and

substantial endangerment to the public health or welfare or the

environment because of an actual or threatened release of a hazardous

substance from a facility, he may require the Attorney General of the

United States to secure such relief as may be necessary to abate such

danger or threat . . . .

42 U.S.C. § 9606(a) (emphasis added).

41

Because the Insurers cannot argue that CERCLA alone occupies the field, the

Insurers instead argue that CERCLA and HSAA, together, occupy the field.

According to the Insurers, CERCLA explicitly authorizes states, but not

municipalities, to impose additional requirements regarding the cleanup of

hazardous substances. The Insurers therefore maintain that MERLO is preempted

by the combined impact of CERCLA and HSAA under the doctrine of field

preemption.

The district court rejected this argument. Relying on the Supreme Court’s

decision in Wisconsin Public Intervenor v. Mortier, 501 U.S. 597 (1991), the district

42

court held that the term “state” as used in CERCLA is broad enough to include

political subdivisions such as Lodi. Fireman’s Fund, 41 F. Supp. 2d at 1110. As

the district court explained, “the exclusion of political subdivisions cannot be

inferred from [CERCLA’s] express authorization to the ‘State[s]’ because political

subdivisions are components of [states].” Id. (quoting Mortier, 501 U.S. at 608).

The district court further noted that because California could simply re-delegate its

authority under CERCLA to Lodi, the fact that CERCLA does not specifically refer

to political subdivisions is inconsequential. We agree with the district court.

The Insurers’ argument is based on the premise that, by referring to states but

not political subdivisions in the text of the statute, Congress intended CERCLA to

leave room for supplemental state legislation, while at the same time, prohibiting

supplemental municipal legislation. This premise is both contrary to the Supreme

Court’s ruling in Mortier and contrary to reason.

In Mortier, the Supreme Court considered whether the Federal Insecticide,

Fungicide and Rodenticide Act (“FIFRA”) preempted a local ordinance adopted by

the city of Casey, Wisconsin. Mortier, 501 U.S. at 602. The ordinance at issue

required a permit “for the application of any pesticide to public lands, to private

lands subject to public use, or for the aerial application of any pesticide to private

lands.” Id. When Casey prohibited Ralph Mortier from the aerial spraying of

43

pesticides on certain property based on the local ordinance, Mortier filed suit

alleging, inter alia, that the local pesticide ordinance was preempted by FIFRA. Id.

at 603.

The Supreme Court held that FIFRA does not preempt the Casey pesticide

ordinance. In so holding, the Court began its analysis by noting that FIFRA

expressly authorizes “State[s]” to regulate pesticides, but makes no reference in the

savings clause to political subdivisions of states. Id. at 606-07. The Court went on

to find, however, that the term “State” is broad enough to encompass political

subdivisions, and that the fact that FIFRA is silent with respect to the power of

local governments “cannot suffice to establish a clear and manifest purpose to

preempt local authority.” Id. at 607 (internal quotation omitted). As the Court

explained:

The exclusion of political subdivisions cannot be inferred from the express

authorization to the “State[s]” because political subdivisions are components

of the very entity the statute empowers. Indeed, the more plausible reading

of FIFRA’s authorization to the States leaves the allocation of regulatory

authority to the “absolute discretion” of the States themselves, including the

option of leaving local regulation of pesticides in the hands of local

authorities.

Id. at 608.

We find that Mortier’s reasoning regarding FIFRA is equally applicable to

CERCLA. Like FIFRA, CERCLA anticipates that states will enact supplemental

44

remedial environmental legislation. Accord Akzo Coatings, 949 F.2d at 1454

(“CERCLA sets only a floor, not a ceiling, for environmental protection. Those

state laws which establish more stringent environmental standards are not

preempted by CERCLA.”). Moreover, like FIFRA, the CERCLA savings clauses

refer only to “State[s],” while CERCLA specifically refers to both states and

political subdivisions in other provisions. Compare 42 U.S.C. § 9614(a) (referring

only to “State[s]”), with 42 U.S.C. § 9606(a) (referring to “a State or local

government”).

CERCLA is also like FIFRA in that CERCLA does not preclude states from

re-delegating their authority to political subdivisions. Fireman’s Fund, 41 F. Supp.

2d at 1110. Indeed, that is precisely what occurred in this case. Lodi specifically

adopted MERLO pursuant to a Cooperative Agreement entered into by Lodi and

DTSC, the state agency charged with interpreting and enforcing California’s

hazardous waste laws. Lodi’s exercise of its municipal authority to provide for

local nuisance abatement through the adoption of MERLO has therefore been

sanctioned by the State of California.

Moreover, in California, municipal ordinances are state law and may be

prosecuted in the name of the “people of the State of California.” Cal. Gov’t Code

§ 36900(a) (West 2001) (“Violations of a city ordinance is a misdemeanor unless by

45

ordinance it is made an infraction. Such a violation may be prosecuted by city

authorities in the name of the people of the State of California, or redressed by civil

action.”). In addition, the California Constitution provides Lodi and other cities

with broad municipal authority to address local environmental nuisances, Cal.

Const., Art. XI, § 7, and the California Legislature has adopted numerous laws

authorizing political subdivisions to adopt ordinances for the protection of the

environment. See, e.g., Cal. Gov’t Code § 38771 (West 2001) (providing cities with

the authority to determine what constitutes a public nuisance); Cal. Gov’t Code §

38773 (West 2001) (granting cities the authority to provide for the abatement of

public nuisances).

Included among these state laws is HSAA, which the Insurers acknowledge is

not preempted by CERCLA. HSAA’s savings clause provides that with certain

exceptions not applicable here, HSAA does not “affect or modify in any way the

obligations or liabilities or any person under any other provision of state or federal

laws.” Cal. H & S Code § 25366 (emphasis added). Significantly, the phrase “state

law” is defined in § 25326 to include municipalities. See Cal. H & S Code § 25326

(“A ‘release authorized or permitted pursuant to state law’ means any release into

the environment which is authorized by statute, ordinance, regulation, or rule of

any state, regional, or local agency or government . . .”). HSAA § 25351.2 also

distribute regulatory power between themselves and their political subdivisions.”

Deukmejian, 204 Cal. Rptr. at 907.

1513, a case in which “the Tenth Circuit declined to apply Mortier when to do so

would impede CERCLA’s objective[s]. . . .” Fireman’s Fund, 41 F. Supp. 2d at

1110 n.6. Like the district court, we find City of Denver distinguishable from the

46

permits a “city or county” to “initiate a removal or remedial” HSAA enforcement

action. Cal. H & S Code § 25351.2. Thus, HSAA itself contemplates the ability of

cities to adopt parallel municipal environmental ordinances and participate in the

process of hazardous waste remediation.

Under these circumstances, we agree with the district court that the term

“State” as used in CERCLA is broad enough to include political subdivisions such

presumption that Congress did not intend CERCLA to “den[y] local communities

throughout the Nation significant powers of self-protection.” Mortier, 501 U.S. at

621 (Scalia, J., concurring); see also Western Oil and Gas Assoc. v. Monterey Bay

Unified Air Pollution Control Dist., 261 Cal Rptr. 384 393-94 (Cal. 1989) (“In view

of the long tradition of local regulation and the legislatively imposed duty [on local

governments] to preserve and protect the public health, preemption may not be

lightly found.”). Although the Insurers urge us to hold that CERCLA preempts

present case.

In City of Denver, the federal EPA issued an order pursuant to CERCLA

requiring the W.S. Shattuck Chemical Company (“Shattuck”) to remediate a

hazardous waste site that was listed on the NPL. City of Denver, 100 F.3d at 1511.

Although Shattuck agreed to comply with the EPA’s order, Denver issued a cease

and desist order to Shattuck based on asserted violations of a Denver zoning

ordinance. Id. at 1512. In response to Denver’s cease and desist order, the EPA

sought a declaratory judgment that Denver’s cease and desist order was preempted

by CERCLA. Id.

The Tenth Circuit rejected Denver’s argument that Mortier somehow

required the EPA to adopt and comply with Denver’s municipal zoning regulation.

As the Tenth Circuit stated, “[w]e will not apply Mortier in this context when to do

so would produce a result so contrary to the overall objectives of CERCLA as

expressed consistently in the Act itself . . . .” Id. at 1513. In the present case,

however, the application of Mortier is consistent with CERCLA’s overall objective

of promoting the prompt and efficient cleanup of hazardous waste. City of Denver

is therefore distinguishable.

47

environmental legislation without exclusively occupying the field and obtaining

whatever uniformity benefits might flow from preemption. On the contrary, we

find that the more plausible reading of CERCLA is that the statute leaves room for

the creation of an arsenal of remedial environmental regulations through a

comprehensive “partnership between federal, state and local governments.”

Mortier, 501 U.S. at 615 (emphasis in original) (discussing FIFRA).

Accordingly, we hold that CERCLA permits both states and their political

subdivisions to enact hazardous waste regulations and “pursue additional remedies

at [their] own expense, as long as those remedies do not conflict or interfere with,”

Akzo Coatings, 949 F.2d at 1454, “the accomplishment and execution of

48

[CERCLA’s] full purpose and objective. . . .” Industrial Truck Ass’n, 125 F.3d at

1309.

The Insurers next assert that CERCLA and HSAA preempt seven specific

portions of MERLO under the doctrine of conflict preemption. As discussed

above, we will find federal conflict preemption where “compliance with both the

federal and state regulations is a physical impossibility,” or when the state law

stands as “an obstacle to the accomplishment and execution of the full purposes and

objectives of Congress.” California Fed. Sav. and Loan Ass’n v. Guerra, 479 U.S.

272, 281 (1987). Similarly, we will find conflict preemption under California law

when a local ordinance prohibits conduct that is expressly authorized by state

statute or authorizes conduct that is expressly prohibited by state general law.

Sports Comm. Dist. v. County of San Bernadino, 113 Cal. App. 3d 155, 159 (1980).

The Insurers challenge the following seven sections of MERLO as

preempted: (1) the MERLO section permitting Lodi to be compensated for damage

to its natural resources; (2) the MERLO sections addressing the cleanup standard set

forth in the NCP; (3) the MERLO section authorizing Lodi to gather certain

information from PRPs and their insurers; (4) the MERLO sections defining

“abatement action costs” to permit Lodi to recover attorney’s fees and interest; (5)

49

the MERLO section permitting Lodi to bring direct actions against insurers of PRPs;

(6) MERLO’s general liability scheme, including the sections of MERLO that

provide for the joint and several liability of PRPs, and the sections setting forth the

contribution rights of PRPs; and (7) MERLO’s burden of proof for establishing a

defense to liability.

MERLO § 8.24.040(A)(9)(c) states that PRPs shall be liable for “[d]amages

for injury to, destruction of, or loss of natural resources, including the reasonable

costs of assessing such injury, destruction, or loss resulting from the environmental

nuisance.” MERLO § 8.24.040(A)(9)(c) (emphasis added). The Insurers contend

that this provision of MERLO is preempted by state and federal law because “under

CERCLA and . . . HSAA, a State must designate a city as its authorized

representative before a city may seek natural resource damages.” According to the

Insurers, because Lodi has not been designated the “authorized representative” of

the State of California, it cannot recover for damages to its natural resources. We

disagree with this assertion.

“CERCLA includes mechanisms for restoring natural resources that have

been destroyed as a result of hazardous waste dumping and discharge.” Michael J.

Wittke, Comment, Municipal Recovery of Natural Resource Damages Under

50

CERCLA, 23 B.C. Envtl. Aff. L. Rev. 921, 925 (1996). One such mechanism is

CERCLA § 107(f)(1), which provides states, federal agencies, and Indian Tribes

with a federal cause of action to sue for damages to natural resources that they hold

in trust for the public. See 42 U.S.C. §§ 9607(a)(4)(C), (f)(1). “Natural resource

damages include injury or loss of land, fish, wildlife, biota, air, water, ground

water, drinking water supplies, and other resources belonging to, managed by, or

otherwise controlled by the United States or state or local governments.” State of

Idaho v. Hanna Mining Co., 882 F.2d 392, 394 (9th Cir. 1989) (citing 42 U.S.C. §§

9601(6), 9601(16)).

Specifically, CERCLA § 107(f)(1) states that:

In the case of an injury to, destruction of, or loss of natural resources under

[107(1)(4)(C) ] liability shall be to the United States Government and to any

State for natural resources within the State or belonging to, managed by,

controlled by or appertaining to such State. . . . The President, or the

authorized representative of any State, shall act on behalf of the public as

trustee of such natural resources to recover for such damages.

42 U.S.C. § 9607(f)(1). CERCLA thus allows “the President of the United States or

the Governor of a State to designate officials to act on behalf of the public as

trustees for natural resources.” City of Toledo v. Beazer Materials and Servs., Inc.,

833 F. Supp. 646, 650 (N.D. Ohio 1993). Similarly, under HSAA, the Governor of

California or an “authorized representative” of the State may recover natural

resources damages. Cal. H & S Code §25352(c).

In the wake of the 1996 SARA amendments to CERCLA, these district courts have

uniformly held that a municipality may not bring a CERCLA cause of action “as a

public trustee” of a state’s natural resources unless the municipality has been

appointed by the governor of its respective state. See, e.g., Borough of Sayreville

v. Union Carbide Corp., 923 F. Supp. 671, 680-81 (D.N.J. 1996); Burough of

Rockaway v. Klockner & Klockner, 811 F. Supp. 1039, 1049-51 (D.N.J. 1993); City

of Toledo v. Beazer Materials & Servs., Inc., 833 F.Supp. 646, 652 (N.D. Ohio

1993); City of Heath v. Ashland Oil, Co., 834 F. Supp. 971, 976-77 (S.D. Ohio

1993); Town of Bedford v. Raytheon Co., 755 F. Supp. 469, 471-73 (D. Mass.

1991).

51

It is unnecessary for us to determine whether a municipality may recover

under CERCLA for damage to its natural resources in the absence of being

MERLO permits the City to sue for damages to its natural resources under CERCLA

or HSAA. Rather, Lodi asserts that because “neither CERCLA nor . . . HSAA

purport to abrogate other causes of action, including common law actions, for

damage to natural resources, including natural resources held in trust by . . .

municipalities,” Lodi remains free to enact local ordinances such as MERLO that

permit the City to recover for damage to such resources. We agree with the City.

Notwithstanding any authority under CERCLA or HSAA that Lodi may

acquire by delegation, Lodi retains its independent authority to protect its

proprietary interest in natural resources held in trust by the City. We have held that

although municipalities may not “sue as parens patriae [to protect their natural

52

resources] because their power is derivative [of the state and] not sovereign,”

municipalities may “‘sue to vindicate such of their own proprietary interests as

might be congruent with the interests of their inhabitants.’” Colorado River Indian

Tribes v. Town of Parker, 776 F.2d 846, 848-49 (9th Cir. 1985) (quoting In re

Multidistrict Vehicle Air Pollution M.D.L. No. 31, 481 F.2d 122, 131 (9th Cir.

1973)) (emphasis added). Consistent with this holding, we find that Lodi retains its

authority under state law to protect its proprietary interest in its natural resources

from damage. Moreover, to the extent that natural resources owned or held in trust

by Lodi are damaged by environmental contamination, we find that nothing in

CERCLA or HSAA prevents the City from suing under MERLO to recover for

damage to such resources.

We therefore find that MERLO § 8.24.040(A)(9)(c) is not preempted by state

or federal law.

(2) The National Contingency Plan (“NCP”)

The Insurers next argue that portions of MERLO §§ 8.24.030-040 conflict

with CERCLA § 107(a)(4)(B) and HSAA § 25356, both of which address the

cleanup standard set forth in the National Contingency Plan (“NCP”).

Under CERCLA, the cleanup of listed hazardous waste sites must be

responsibilities for the Federal, State, and local governments . . . in effectuating the

plan.’ Therefore, the NCP does envision some role for local governments. In fact,

the NCP counts on local governments, along with state governments, to participate

in response actions and to take steps necessary to protect the public.” Wittke,

supra, at 938 (citing 42 U.S.C. § 9605(a)(4)).

53

consistent with the National Contingency Plan (“NCP”) – a plan promulgated by the

EPA that “specifies the roles” of the federal, state, and local governments “in

responding to hazardous waste sites, and establishes the procedures for making

that the cleanup process is consistent with the NCP depends on whether the plaintiff

in a CERCLA action is the government or “any other person”: “While the United

States government, or a [S]tate or Indian tribe, can obtain ‘all costs of removal or

remedial action . . . not inconsistent with the [NCP],’ any other person can obtain

‘other necessary costs of response . . . consistent with the [NCP].’” Washington

State Dep’t of Transp., 59 F.3d at 799 (quoting 42 U.S.C. § 9607(a)(2), (a)(4)(A)-

(B)) (emphasis added). Thus, where “the United States government, a [S]tate, or an

Indian tribe is seeking recovery of response costs, consistency with the NCP is

presumed,” and the burden is on the defendant to rebut the presumption of

consistency by establishing that the plaintiff’s response action was arbitrary and

capricious. Id. (emphasis added). “In contrast, any ‘other person’ seeking

that Lodi may recover all costs “not inconsistent with the NCP.” The Insurers

allege that Lodi specifically amended MERLO so that the revised version of the

ordinance – Ordinance 1684 -- omits any reference to the NCP and instead permits

the City to recover all costs “not inconsistent with the requirements of this chapter.”

According to the Insurers, this amendment “masks rather than eliminates the

problem.”

54

response costs under [CERCLA] must prove that its actions are consistent with the

NCP.” Id. (emphasis added).

HSAA incorporates the NCP standard by reference. Under HSAA §

25356.1.5, “[a]ny response action taken or approved pursuant to this chapter shall

be based upon, and be no less stringent than . . . [t]he requirements established

under federal regulation pursuant to [the NCP].” Cal. H & S Code §

25356.1.5(a)(1).

The Insurers suggest two reasons why the provisions of MERLO addressing

the NCP may be preempted. First, the Insurers argue that MERLO §

8.24.040(A)(9)(b) conflicts with CERCLA because it permits Lodi to recover from

PRPs any “necessary costs of response incurred by the city” that are “not

inconsistent with the requirements of this chapter.” MERLO § 8.24.040(A)(9)(b)

(emphasis added). The Insurers allege that even though this provision of MERLO

identical presumption of consistency with the NCP that CERCLA . . . reserve[s] for

the state and receive the presumption accorded to the state under CERCLA. See,

e.g., Washington State Dep’t of Transp., 59 F.3d at 799-800 (finding that the

Washington State Department of Transportation is the “State” under CERCLA §

9607(a)(4)(A)). Because Lodi does not advance this argument, we express no

opinion on this issue.

55

the United States, States, and Indian Tribes.”

In response to this assertion, Lodi argues that MERLO “does not purport to

change the burden of proof for a recovery of CERCLA response costs in any

CERCLA cause of action, but instead incorporates the [NCP] as a guide to recovery

of municipal response costs as a matter of municipal law.” Lodi further asserts that

“[b]ecause [MERLO] speaks to the expenditure and recovery of municipal costs,

the City could have, consistent with State and Federal law, keyed recovery of costs

to some other plan entirely.” Thus, according to Lodi, “[t]he fact that [MERLO]

We agree with Lodi’s argument.

The Lodi site is not a listed site under CERCLA and all parties appear to

agree that CERCLA has not been triggered in any way. If CERCLA does not

govern the cleanup of a particular municipal hazardous waste site, we see no reason

why Lodi cannot require cleanup consistent with the NCP and then recover

whatever response costs are permitted in accordance with a local law such as

MERLO would be preempted by CERCLA if CERCLA applied to the Lodi site.

56

MERLO. Under such circumstances, compliance with both MERLO and CERCLA

is not impossible because compliance with CERCLA is not required at all.

Moreover, under such circumstance, compliance with MERLO does not stand as an

obstacle to the achievement of CERCLA’s objectives because in the absence of

remedial action under CERCLA, whatever level of remediation Lodi is able to

Second, in addition to alleging that MERLO shifts the presumption for

recovering cleanup costs, the Insurers suggest another reason why the provisions of

MERLO addressing the NCP may be preempted by state or federal law. According

to the Insurers, MERLO is preempted to the extent that it permits Lodi to order

remediation that is either more or less stringent than the NCP.

Specifically, under MERLO § 8.24.030(A)(5):

[T]he enforcing officer may order additional or more stringent requirements

for abatement action than those that would or might apply under the NCP

whenever the enforcing officer determines that there is or may be an

endangerment to the public health, welfare, the environment or natural

resources arising out of . . . an existing or threatened environmental nuisance,

and the enforcing officer determines that such additional or more stringent

requirements are necessary . . . to secure adequate protection against . . . such

environmental nuisance . . .or are necessary . . . to protect or restore

approved land uses consistent with the general plan within the city.

57

MERLO § 8.24.030(A)(5) (emphasis added). Similarly, MERLO § 8.24.030(A)(6)

states that the City “may order less stringent requirements for the abatement [of an

environmental nuisance] than those that would or might apply under the NCP” if

the City “determines that it is in the best interests of the public health, welfare, the

environment or natural resources. . . .” MERLO § 8.24.030(A)(6) (emphasis

added). Finally, MERLO § 8.24.030(A)(7) states that “at any site within the city

which is [a listed site under HSAA], the enforcing officer must, at a minimum,

comply with [HSAA].” MERLO § 8.24.030(A)(7).

Read together, these three sections generally provide the Lodi officer

enforcing MERLO with the discretion to order more or less stringent remediation of

most hazardous waste sites within the City. In the case of a City waste site that is

also a listed site under HSAA, however, the Lodi enforcing officer must, at a

minimum, comply with the requirements of HSAA. And HSAA, in turn, requires

compliance with the NCP. Cal. H & S Code § 25356.1.5(a).

To the extent that MERLO § 8.24.030(A)(5) permits Lodi to order abatement

that is more stringent than the NCP, we find that MERLO is not preempted by either

state or federal law. “CERCLA sets only a floor, not a ceiling, for environmental

protection.” Akzo Coatings, 949 F.2d at 1454. Accordingly, “state laws which

establish ‘more stringent’ environmental standards are not preempted by CERCLA.”

58

Id. (quoting 42 U.S.C. § 9621(d)(2)(A)). It therefore stands to reason that a

municipal ordinance which similarly provides for more stringent environmental

standards is also not preempted.

The Insurers also argue, however, that the MERLO provision permitting

abatement that is “less stringent” than the NCP is preempted by CERCLA and

HSAA. We disagree. MERLO was drafted to escape preemption in this regard by

requiring compliance with the NCP to the extent that Lodi seeks remediation costs

or orders abatement in connection with a hazardous waste site that is governed by

CERCLA or HSAA. Because MERLO mandates consistency with the NCP to the

extent that MERLO’s abatement actions affect the cleanup of CERCLA or HSAA

sites, MERLO § 8.24.030(A)(6) is not preempted by either state or federal law. As

discussed supra, with respect those City sites that are subject to neither CERCLA

nor HSAA, Lodi remains free to determine its own cleanup standards and

procedures.

The Insurers next argue that MERLO § 8.24.050 conflicts with both CERCLA

and HSAA. Section 8.24.050 authorizes Lodi to compel the production of any

documents, information, and testimony:

. . . for the purposes of investigating the nature or source of . . . an

environmental nuisance, or for the purposes of determining the need

59

for abatement actions, choosing or taking an abatement action under

this chapter, or for the purposes of determining the nature and extent

of the assets and financial resources that are or may be available to (or

available to provide indemnity or similar benefits to) any potentially

responsible parties to undertake abatement actions which are or may

be required pursuant to this chapter or to reimburse the comprehensive

municipal environmental response fund for any abatement action costs

incurred or to be incurred by the city pursuant to this chapter.

MERLO § 8.24.050(A). The Insurers assert that by this section, Lodi has

improperly “arrogated to itself” information-gathering powers that only the EPA

can provide under CERCLA § 104(e), and only DTSC can provide under HSAA §

25358.1(a). The Insurers further allege that Lodi thrice requested that the EPA

delegate its information-gathering powers to Lodi, and all three times the EPA

refused. The Insurers therefore conclude that Lodi adopted MERLO to bestow

upon itself information-gathering powers that it could not lawfully exercise under

CERCLA or HSAA. We disagree.

Section 104(e) of CERCLA, 42 U.S.C. § 9604(e) “grants the EPA broad

information-gathering authority.” United States v. Martin, 2000 WL 1029188 at *3

(N.D. Ill. 2000). The statute enables the EPA, or a “duly designate[d]”

representative of the EPA or the president, “to gather information and documents

from individuals who may have relevant information about the presence of

hazardous wastes on a site under investigation.” Id.; 42 U.S.C. § 9604(e)(1).

Similarly, HSAA provides that DTSC, “a representative of the department, or any

EPA pursuant to HSAA or CERCLA.

60

person designated by the director” may request similar information from a PRP “or

any person who has, or may have, acquired information relevant” to the “release or

threatened release of a hazardous substance.” Cal. H & S Code § 25358.1(a)-(b).

It is true, as the Insurers allege, that MERLO’s information-gathering

provision permits Lodi to obtain essentially the same information that the EPA may

obtain under CERCLA § 104(e) and that DTSC may obtain under HSAA §

25358.1(a). Compare MERLO § 8.24.050, with 42 U.S.C. § 9604(e) and HSAA §

25358.1(a). It is also true that the EPA denied Lodi’s three requests for a delegation

of the EPA’s information-gathering authority under CERCLA § 104(e). That does

not mean, however, that the EPA or DTSC has abrogated Lodi’s authority to gather

information independent of CERCLA or HSAA. Indeed, neither CERCLA nor

HSAA purports to prevent governmental entities, such as municipalities, from

gathering information in the absence of a delegation of authority by the EPA or

DTSC.

has independent authority to promulgate information-gathering legislation pursuant

to its traditional police powers. These powers include the City’s authority to gather

61

the information reasonably necessary to discharge its duty to protect the public

health and welfare from public nuisances. See Cal. Gov’t Code § 38773.5 (a

municipality’s legislative body may by Ordinance establish a procedure for the

abatement of a nuisance). In addition, California Government Code § 37104

specifically authorizes city councils to issue legislative subpoenas. As § 37104

states: “The legislative body may issue subpoenas requiring attendance of witnesses

or production of books or other documents for evidence or testimony in any action

or proceeding pending before it.” Cal. Gov’t Code § 37104. Indeed, as noted

above, Lodi’s authority to issue legislative subpoenas under MERLO and pursuant

to California Government Code § 37104 was recently reaffirmed by the California

Supreme Court in Connecticut Indemnity, 98 Cal. Rptr. 2d 221 (2001).

Moreover, Lodi’s decision to exercise its independent information-gathering

authority by enacting MERLO does not conflict with either state or federal law.

Compliance with an information-gathering request under MERLO would not make

compliance with such a request under CERCLA or HSAA impossible. See

Industrial Truck Ass’n, 125 F.3d at 1309 (explaining that court will find federal

conflict preemption when “it is impossible to comply with both state and federal

requirements”). Nor would it “stand as an obstacle to” accomplishing and

executing the goals of CERCLA and HSAA. Id. (stating that courts will find federal

1684 – expanded the definition of “abatement action costs” to also include “[t]he

costs of issuing, servicing, and retiring of any financial instruments authorized by

62

conflict preemption when “state law stands as an obstacle to the accomplishment

and execution of the full purpose and objectives of Congress”). Finally, permitting

Lodi to issue legislative subpoenas does not prohibit conduct expressly authorized

by state statute or authorize conduct expressly prohibited by state law. See Sports

Comm. Dist., 113 Cal. App. 3d at 159.

For these reasons, we find that MERLO’s information-gathering provisions

are not preempted by either CERCLA or HSAA.

Under MERLO § 8.24.040, Lodi may recover from any PRP “[a]ll abatement

action costs incurred by the city to undertake, or cause or compel any responsible

party to undertake, any abatement action in compliance with the requirements of

this chapter . . .” MERLO § 8.24.040(A)(9)(a) (emphasis added). MERLO defines

the phrase “abatement action costs” to include “any and all legal, technical or

administrative fees and costs and interest and other costs of financing incurred by

the [C]ity in performing or preparing to perform an abatement action.” MERLO §

the city council . . .” MERLO, § 8.24.010(2)(h)(ii). This provision appears to refer

to a loan that the City took out in order to finance its environmental remediation

program. As Lodi explained:

Consistent with its original enforcement decisions and commitments, the City

has remained determined to implement the Lodi Environmental Remediation

Program without imposing the burden of Site response costs on the City’s

innocent taxpayers or ratepayers. Accordingly, the City has sought to borrow

from the capital markets additional funds on terms that would not impact the

general or special funds of the City of Lodi. To that end, the City of Lodi

identified a lender that was willing to provide funds to the City of Lodi for

implementation of the Lodi Environmental Remediation Program on terms

acceptable to the City Council.

63

incurred in the course of its efforts to cleanup the PCE contamination of its soil and

groundwater.

The Insurers assert that these provisions of MERLO are preempted by

CERCLA because they permit Lodi to recover attorney’s fees when the Supreme

Court has already held that the City would be barred from recovering attorney’s

fees under CERCLA. Contrary to the Insurers’ assertion, however, it remains an

open question whether a municipality such as Lodi would be entitled to recover

attorney’s fees under CERCLA.

In Key Tronic Corp. v. United States, 511 U.S. 809 (1994), the Supreme

Court held that CERCLA § 107(a)(4) does not permit a “private party” to recover

her attorney’s fees. 511 U.S. at 817-19 (emphasis added). However, in United

States v. Chapman, 146 F.3d 1166 (9th Cir. 1998), we held that CERCLA §

or the “State,” i.e., the government, for purposes of CERCLA § 107(a)(4). See

Washington State Dep’t of Transp., 59 F.3d at 800 & n.5 (holding that state

administrative departments and agencies are within CERCLA’s definition of

“State” under § 107(a)(4) and declining to reach the question whether a

municipality is the “State” under that provision). Thus, it is not clear whether Lodi

would indeed be barred from recovering its attorney’s fees under CERCLA.

64

107(a)(4) permits “the government” to recover all “reasonable attorney fees”

“attributable to the litigation as a part of its response costs” if it is the “prevailing

party.” Chapman, 146 F.3d at 1175-76 (citing Key Tronic, 511 U.S. at 813, 819)

(emphasis added). The Insurers assert that a municipality such as Lodi is a “private

person” for purposes of CERCLA § 107(a)(4), and that therefore, under Key

Regardless of whether the City would be barred from recovering such fees in

an action under CERCLA, in the context of this case, CERCLA does not preempt

the City’s general municipal authority to recover attorney’s fees in an action under

a municipal ordinance such as MERLO. Although the Insurers argue that

CERCLA preempts any state or local law “that allow[s] a party to recover costs that

are not recoverable under CERCLA,” the cases they cite in support of this assertion

are distinguishable.

The Insurers rely exclusively on three out-of-circuit cases. In all three cases,

a PRP attempted to invoke state statutory or common law remedies as an end-run

have a right of contribution under CERCLA for the cleanup costs it incurred

because the costs incurred were not consistent with the NCP. PMC, 151 F.3d at

616. When the PRP nevertheless sought to recover those costs under an Illinois

statute permitting contribution, the Seventh Circuit refused to permit the PRP to use

a state contribution law “to nullify” CERCLA’s requirement for consistency with

the NCP. Id. at 616-18. As the Seventh Circuit explained:

PMC’s invocation of Illinois’ contribution statute is an attempt to nullify the

sanction that Congress imposed for the kind of CERCLA violation that PMC

committed. A savings clause is not intended to allow specific provisions of

the statute that contains it to be nullified. CERCLA’s savings clause, [which

preserves the viability of state law], must not be used to gut CERCLA. The

purpose of a savings clause is merely to nix an inference that the statute in

which it appears is intended to be the exclusive remedy for harms caused by

the violation of the statute. . . . The passage of federal environmental laws

was not intended to wipe out the common law of nuisance.

PMC, 151 F.3d at 618. The Seventh Circuit thus held that PMC could not rely on

state law to circumvent the requirements of CERCLA in a CERCLA action. See id.

65

around CERCLA’s requirements. Under those circumstances, the Second, Third,

and Seventh Circuits all held that state and common law principles of

indemnification, contribution, and restitution cannot be used to alter CERCLAimposed

liability. See PMC, Inc. v. Sherwin-Williams, Co., 151 F.3d 610, 617-18

(7th Cir. 1998); Bedford Affiliates, 156 F.3d at 426-27; and In re Reading Co., 115

Unlike the cases cited by the Insurers, in the present action, all parties agree

that CERCLA has not been “triggered” in any way. Therefore, unlike the parties in

66

the three cases cited above, Lodi is not seeking to use MERLO to end-run the

requirements of CERCLA in a CERCLA action. Instead, by enacting MERLO, Lodi

seeks to enhance the City’s ability to remediate local hazardous waste contamination

in the absence of a CERCLA action or other federal involvement. This case is thus

distinguishable from PMC, Bedford Affiliates, and In re Reading Co.

Furthermore, because CERCLA has not been triggered in this case,

compliance with both MERLO and CERCLA is not a physical impossibility because

compliance with CERCLA is not required at all. Cf. California Fed. Sav. & Loan

Ass’n, 479 U.S. at 281 (stating that courts will find federal conflict preemption

when “compliance with both the federal and state regulations is a physical

impossibility”). Similarly, the attorney’s fee provisions of MERLO do not stand as

an obstacle to the achievement of Congress’s objectives in enacting CERCLA. Cf.

id. (stating that courts will also find federal conflict preemption when the state law

stands as “an obstacle to the accomplishment and execution of the full purposes and

objectives of Congress”). On the contrary, permitting Lodi to recover attorney’s

fees will aid the City in its effort to expeditiously remediate “a potential

environmental catastrophe to its drinking water supply.” Connecticut Indem. Co. v.

Superior Court, 86 Cal. Rptr. 2d 515, 526 (Cal. Ct. App. 1999) (Davis, J.,

dissenting), rev’d 98 Cal. Rptr. 2d 221 (Cal. 2001). This effort is wholly consistent

recovering attorney’s fees under CERCLA, the Insurers also assert that MERLO is

preempted because it permits Lodi to recover more than simply the limited range of

“necessary response costs” that are permitted under CERCLA and HSAA. As the

Insurers explain:

Ordinance 1684 also extends “Abatement Action Costs” to include (1) Lodi’s

costs of “investigating and evaluating” the $16 million loan to fund its

litigation, as well as (2) its costs in “issuing, servicing, and retiring” the

financial instruments necessary to secure the loan, for example the 25 to 30

percent interest. In other words, Lodi intends to pass its usurious

boondoggle on to insurers. However, these financing costs are not the

“necessary costs of response,” 42 U.S.C. § 9607(a)(4)(B), that state and

federal law allow Lodi to recover. A party may not recover under CERCLA

“for steps taken [that] were extravagant or otherwise unreasonably costly”

even if they were consistent with the NCP.

As set forth above, under the circumstances of this case, we find that MERLO’s

attorney’s fee provisions generally do not conflict with CERCLA. To the extent that

the Insurers seek a determination of the exact costs that Lodi may recover,

however, we decline to consider that issue at this time. Precisely what costs the

City may recover from any one PRP is best determined on a case-by-case basis, in

the context of a specific cost recovery request.

original MERLO -- Ordinance 1650 -- and reenacted an amended version of

MERLO -- Ordinance No. 1684 – which became effective on December 17, 1999.

Because we apply the law in effect at the time of decision, we must decide the

67

with the goals of CERCLA. See Stanton Road Assoc., 984 F.2d at 1019 (stating that

timely remediation of hazardous waste is a key goal of CERCLA). We therefore

issues raised in these related appeals based on the current version of MERLO.

Bradley, 416 U.S. at 711. Therefore, unless stated otherwise, all references to

MERLO are to the appropriate section of the amended MERLO, Ordinance 1684.

If the indemnitor elects to deny or otherwise contest liability under the terms

and conditions of its contract . . . with the [PRP] in the administrative action

commenced by the enforcing officer or in the civil action commenced by the

city attorney pursuant to this subsection, the final order or judgment entered

in such action brought pursuant to this subsection shall be enforceable

directly against the indemnitor(s). . . .

68

CERCLA and California Insurance Code § 11580. MERLO § 8.24.090 permits Lodi

to initiate direct actions against insurers of PRPs in two situations. First, after Lodi

has obtained a “final order or judgment” against the insured PRP in either an

administrative or judicial action, MERLO permits the City to file a direct action

against the PRP’s insurer if the insurer “elects to deny or otherwise contest its

The Insurers do not allege that this section of MERLO conflicts with either federal

or state law.

However, MERLO also permits direct actions against insurers of PRPs in a

second situation. Under MERLO § 8.24.090(B)(1), Lodi may also initiate a direct

action against a PRP’s insurer before the City has obtained a final order or

judgment against the insured PRP:

In the case of a release or threatened release from a facility, any claim

authorized by section 9607 or 9611 of this title may be asserted directly

against any guarantor providing evidence of financial responsibility for such

facility under subsection (b) of this section, if the person liable under section

9607 of this title is in bankruptcy, reorganization, or arrangement pursuant to

the Federal Bankruptcy Code, or if, with reasonable diligence, jurisdiction in

the Federal courts cannot be obtained over a person liable under section 9607

of this title who is likely to be solvent at the time of judgment.

42 U.S.C. § 9608(c)(2) (emphasis added). There are few published federal court

decisions addressing whether the above-quoted section of CERCLA permits injured

third parties to bring direct actions against insurers of PRPs. American

69

In any case where a [PRP] is in bankruptcy, reorganization, or arrangement

pursuant to the Federal Bankruptcy Code, or if with reasonable diligence,

jurisdiction cannot be obtained over a [PRP] who is likely, as adjudged at the

time of the commencement of the action, to be solvent to meet all of the

relief demanded in the city’s complaint or administrative order at the time of

judgment or at the time an administrative order becomes final and binding,

the [C]ity may commence a civil or administrative action to seek relief based

upon, or to otherwise recover upon, liability imposed pursuant to this chapter

directly against any person that is or may be a surety for, or a guarantor,

indemnitor or insurer of (“indemnitor”) such a [PRP] on any claim arising

under this chapter. In any such action, the indemnitor shall be named as the

defendant . . . on its relationship to (i.e., “ex rel.” or relator) the [PRP] whose

liability under this chapter is at issue.

MERLO § 8.24.090(B)(1). The Insurers allege that this portion of MERLO is

preempted because it conflicts with CERCLA § 108(c) and California Insurance

Code § 11580. Because we find that MERLO § 8.24.090(B)(1) conflicts with

California insurance law and is therefore preempted on this basis, we need not

Policyholders Ins. Co. v. Nyacol Prods., Inc., 989 F.2d 1256, 1263 n.11 (1st Cir.

1993); see also generally Peter R. Mounsey, The Direct Action Against Insurers in

CERCLA Insolvency Cases: An Idea Whose Time Has Come?, 18 Wm. & Mary J.

Envtl. L. 83 (1993) (arguing the CERCLA § 108(c) is broad enough to permit direct

actions against insurers of PRPs). There are also few published federal court

decisions addressing whether this provision of CERCLA preempts broader state or

municipal direct action statutes. City of New Orleans v. Kernan, 933 F. Supp. 565,

567-68 (E.D. La. 1996) (finding that CERCLA preempts Louisiana’s direct action

statute); see also Port Allen Marine Servs., Inc. v. Chotin, 765 F. Supp. 887, 889

(E.D. La. 1991) (same).

70

California Insurance Code § 11580 states that every liability insurance policy

issued in California must include “[a] provision that whenever judgment is secured

against the insured . . . in an action based upon bodily injury, death, or property

damage, then an action may be brought against the insurer on the policy and

subject to its terms and limitations, by such judgment creditor to recover on the

judgment.” Cal. Ins. Code § 11580(b)(2) (West 2001) (emphasis added).

Fireman’s Fund asserts that this statute “forbids direct actions against an insurer

absent a final judgment against the insured.” Fireman’s Fund further asserts that

because MERLO § 8.24.090(B)(1) authorizes direct actions against the insurers of

PRPs prior to obtaining a final judgment against the insured, but § 11580 forbids

such actions, MERLO § 8.24.090(B)(1) conflicts with and is therefore preempted by

California law. Sports Comm. Dist., 113 Cal. App. 3d at 159 (stating that conflict

preemption under California law includes situations in which a local statute

71

authorizes conduct prohibited by state law).

We begin our conflict preemption analysis with the plain language of the

statute. See Moyer v. Workmen’s Compl. Appeals Bd., 10 Cal. 3d 222, 230 (1973).

Contrary to Fireman’s Fund’s contention, on its face, § 11580 neither prohibits

direct actions nor purports to set forth the only circumstances under which one can

initiate a direct action against an insurer. It simply allows direct actions after the

third-party claimant has obtained a final judgment against the insured.

Nevertheless, California’s lower courts are divided on the proper

interpretation of § 11580. Two California Court of Appeals cases support the

conclusion that § 11580 does not set forth the exclusive set of circumstances under

which one can initiate a direct action against an insurer. See Roberts v. Home Ins.

Indem. Co., 48 Cal. App. 3d 313, 317-18 (1975) (“[S]ection 11580 . . . is silent as to

a direct action against the insurer before judgment is obtained against the insured.

That silence does not imply a legislative policy against allowing a claimant to

pursue any rights which may have been created by contract or by another state’s

direction action statute.”); Turner v. Evers, 31 Cal. App. 3d Supp. 11, 22 (Cal. App.

Dep’t Super. Ct. 1973) (“[S]ection 11580, subdivision (b), is a statement of the

minimum provisions that must be included in all liability insurance policies issued

in this state.”).

72

However, there is equal, and perhaps greater authority to suggest that § 11580

sets forth the exclusive set of circumstances under which a third-party claimant may

directly sue another policyholder’s liability insurer. See McKee v. National Union

Fire Ins. Co., 15 Cal. App. 4th 282, 286-87 (1993); Nationwide Ins. Co. v. Superior

Court, 180 Cal. Rptr. 464, 466 (Cal. Ct. App. 1982) (noting “the general rule of

indemnity law that ‘[w]here the terms of the indemnity contract, or law of the state,

require a judgment against the . . . [indemnitee] before direct action against the

insurer, no liability accrues as an enforceable claim against the insurer until

recovery of a final judgment against [the indemnitee].’”); Zahn v. Canadian Indem.

Co., 129 Cal. Rptr. 286. 288 (Cal. Ct. App. 1976) (“It is fundamental that generally

speaking the injured party may not directly sue an insurer of the alleged

tortfeasor.”); see also Tashire v. State Farm Fire & Cas. Co., 363 F.2d 7, 10 (9th

Cir. 1966), rev’d on other grounds, 386 U.S. 523 (1967) (stating that “under the law

of California . . . a direct action against the insu