United States: Control Issues: Kinzua Resources, LLC V. Oregon Department Of Environmental Quality Expands Liability For Landfills In Oregon
Oregon State Bar: Administrative Law Newsletter Fall 2020

There are hundreds of active and former landfills in Oregon regulated by the Department of Environmental Quality (DEQ). Landfills are subject to DEQ solid waste permits during their active life and after they stop accepting waste.

Closing a landfill after it stops accepting waste is an expensive and lengthy process. Lingering impacts from methane gas and leaching waste often require engineered landfill gas systems, regular monitoring, and corrective actions to prevent environmental harm. Who is responsible for those obligations was the question posed in Kinzua Resources, LLC v. Oregon Department of Environmental Quality, 366 Or 674 (2020). The Oregon Supreme Court's answer was expansive: not only are owners and operators liable for landfill closure costs and obligations, but other persons—including LLC members—with the "authority to control" the landfill are also responsible.

Small Town, Big Problem

The setting for the Kinzua case is Pilot Rock, Oregon, a town in Umatilla County with about 1,500 residents. For years, Pilot Rock was home to a wood products mill operated by large national timber companies. And for years, a nearby 20-acre landfill collected wood waste from the mill.

In 1996, Kinzua Resources, LLC (Kinzua) bought the landfill property. Unfortunately, the landfill acquired a pesky habit of combusting spontaneously, raising concerns with regulators and the Pilot Rock Fire District. In 2006, the DEQ issued a solid waste disposal site permit to the landfill. Kinzua was the named "permittee."

A permittee under a solid waste permit is required to provide "financial assurances" to cover the cost of landfill closure and post-closure activities. See OAR 340-095-0090. Several mechanisms are available to satisfy the financial assurances permit requirement, including bonding. DEQ estimated the financial assurance needed for Pilot Rock was just under $1.5 million. Kinzua never provided financial assurances to DEQ.

Big Problem, Big Fine

Starting in 2010, DEQ issued a series of violations and fines against Kinzua. One allegation was Kinzua's failure to provide financial assurances. Other allegations included failing to report fires and mismanagement. Kinzua claimed it did not have the money to cover the fines or the financial assurances. Later that year, the landfill stopped receiving waste.

Kinzua Resources, LLC had three members, two of which were Frontier Resources LLC ("Frontier") and ATR Services Inc. ("ATR"). Gregory Demers was a member of Frontier and the president of ATR. Between 2010 and 2013, Kinzua administratively dissolved and reactivated several times. In August 2013, during a period of dissolution, the DEQ issued a mammoth fine in the amount of $790,062 related to failures to comply with DEQ's solid waste regulations. But because Kinzua had not responded to earlier enforcement, DEQ also named Kinzua's three individual members (including ATR and Frontier), and Mr. Demers individually. A month after the penalty was issued, Kinzua reactivated the LLC (which would make sense if a company wanted to activate the shield of a limited liability company in Oregon).

After a contested case, the Environmental Quality Commission issued a final order and fine of $782,862. Kinzua, ATR, Frontier, and Mr. Demers were found liable due to their "control" or "authority to control" the landfill site. Mr. Demers's role as the contact for DEQ for landfill issues and the violation notices played into the finding that he had the "authority to control" the site.

Big Fine, Small Definition

ATR, Frontier, and Mr. Demers appealed the final order, and in 2018, the Court of Appeals reversed. In short, that court found that none of the appellants served in a role that was "akin to being an operator," and therefore, those parties did not "control" the landfill and were not liable. DEQ then appealed to the Oregon Supreme Court.

The primary issue throughout the three tiers of litigation was in essence, rather simple: what does it mean to "control" a landfill? Under ORS 459.205, any person "owning or controlling" a landfill site must obtain a landfill permit. Under ORS 459.268, the person "owning or controlling the property on which the landfill site is located" is saddled with the obligation to close the landfill properly.

ATR, Frontier, and Mr. Demers argued that they did not operate the landfill (Kinzua did) and therefore did not control it. DEQ's response was that each of those parties had the authority to control the operations of the landfill, and therefore were liable.

Because this was an appeal of a contested case under Oregon's Administrative Procedures Act, the standard of review was whether the agency "erroneously interpreted a provision of law." ORS 183.480(2). The court found that "controlling" was an "inexact term" and therefore not subject to DEQ's deference in interpreting it.

In concluding that a party with the authority to control a landfill is liable for the landfill, the court toured the entire map for statutory construction found in State v. Gaines, 346 Or 160 (2009). This included, of course, citing the court's favorite dictionary, Webster's Third New International (unabridged ed 2002). The court also unpacked the rules of grammar behind "dynamic verbs," and insights about present participles found in A Comprehensive Grammar of the English Language. It considered Rodney Huddleston's & Geoffrey K. Pullum's The Cambridge Grammar of the English Language for perspective on "present progressive" and "present continuous" verbs. It even busted out everyone's favorite maxim of construction, noscitur a sociis.

Arriving to its destination, the court noted the context of the statute made parties "owning or controlling" equally responsible (not just "controlling" parties), buttressing a legislative intent to expand the liability net beyond just the party with current "control" over a landfill. And finally, it reviewed legislative history that indicated a goal of the statutory scheme was to make sure the environment and the public were protected from (i.e., did not have to pay for) the "major problem" caused by abandoned landfills.

Small Definition, Big Consequences

The court's finding that any party with the authority to control a landfill site is potentially liable for that landfill site means that the shield from liability normally afforded to LLC owners now has a hole, at least with respect to landfill operations. Under Oregon law, an LLC "member or manager is not personally liable for a debt, obligation or liability of the limited liability company solely by reason of being or acting as a member or manager." ORS 63.165(1). This limited liability, of course, is not absolute, and members or managers are exposed to derivative liability if the corporate shield can be pierced and disregarded. But the court noted that the liability under the solid waste statutes in ORS Chapter 459 was direct and individual, not derivative.

Using a worker injury case as an example, the court noted that statutory liability for certain conduct (or misconduct) does exist under other regulatory schemes independent of any corporate shield. The court cited Cortez v. Nacco Materials Handling Group, 356 Or 254, 268-69 (2014), which held that an obligation to provide a safe workplace extends to LLC members based on those members' "right to control" the activities that cause (or reduce) risk. Under this reasoning, a "member or manager remains responsible for his or her acts or omissions to the extent those acts or omissions would be actionable against the member or manager if that person were acting in an individual capacity."

For the parties in Kinzua, the upshot is that whoever had the authority to control the landfill is on the hook for not only the DEQ fine, but also providing the financial assurance package for closing the landfill and the responsibility of carrying out those obligations. The answer to who that might be was remanded to the Court of Appeals to referee the finger pointing.

As an environmental law concept, the court's holding is not groundbreaking. Cleanup liability can reach through an LLC and apply directly to "operators" under CERCLA, 42 USC 9601, et seq., and similar statutes. United States v. Bestfoods, 524 US 51 (1998). But figuring out the time and cost necessary to close a landfill under the law that was passed in 1983 is still an inexact exercise. The legislature apparently estimated that post-closure landfill activities would take about 30 years. ORS 459.270. For many landfills, however, 30 years have come and gone without knowing how many more years—or decades—are left before the DEQ will deem the landfill closed.

Solid waste closure permits are issued on 10-year cycles. But it is absolutely foreseeable that legacy landfill owners or permittees will go bankrupt or die during successive renewal cycles, or become unable to afford the necessary financial assurances. The Kinzua case gives the DEQ the tool to tap related, existing parties to take over postclosure obligations. But eventually, those parties too may be unavailable to shoulder the cost and effort of closing landfills. Absent making claims on individual estates, the DEQ faces a long-term policy issue of how to manage historic landfills that have nobody left to pay for or take care of them. Kinzua may have solved this problem in the short term, but a long-term solution is probably—and only—within the legislature's authority to control.

This article first appeared in the Fall 2020 issue of the Administrative Law Section's Newsletter, edited by Sara Urch.

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