North Carolina Ex Rel. McDevitt v. Acme Petroleum & Fuel Co.

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

STATE OF NORTH CAROLINA, ex rel. 
R. Wayne McDevitt, Secretary,
North Carolina Department of
Environment and Natural Resources,
Plaintiff-Appellee,
v.  No. 01-1665

ACME PETROLEUM AND FUEL
COMPANY; PACEMAKER LEASING
COMPANY,
Defendants-Appellants.

Appeal from the United States District Court
for the Western District of North Carolina, at Charlotte.
Graham C. Mullen, Chief District Judge.
(CA-98-505)

Argued: January 24, 2002

Decided: March 19, 2002

Before WILKINSON, Chief Judge, and LUTTIG and
MICHAEL, Circuit Judges.

Affirmed by unpublished per curiam opinion.

COUNSEL

ARGUED: John Adams Hodge, HAYNSWORTH, SINKLER &
BOYD, P.A., Columbia, South Carolina, for Appellants. Thomas
2 NORTH CAROLINA v. ACME PETROLEUM AND FUEL
James Pitman, NORTH CAROLINA DEPARTMENT OF JUSTICE,
Raleigh, North Carolina, for Appellee. ON BRIEF: Richard S.
DeGeorge, ROBINSON, BRADSHAW & HINSON, P.A., Charlotte,
North Carolina; Boyd B. Nicholson, Jr., HAYNSWORTH, SINKLER
& BOYD, P.A., Greenville, South Carolina, for Appellants. W. Wal-
lace Finlator, Jr., NORTH CAROLINA DEPARTMENT OF JUS-
TICE, Raleigh, North Carolina, for Appellee.

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

OPINION

PER CURIAM:

Defendants Acme Petroleum and Fuel Company and Pacemaker
Leasing Company appeal from a judgment ordering them to reim-
burse the State of North Carolina for the State’s costs in providing
alternate water to residents of several households whose well water
was contaminated by petroleum leaks from defendants’ underground
storage tanks. The State provided the alternate water pursuant to its
authority under the Resource Conservation and Recovery Act
(RCRA), 42 U.S.C. § 6991b(h)(2)(B), and it sought reimbursement
pursuant to 42 U.S.C. § 6991b(6)(A) and N.C.G.S. § 143-215.94. We
affirm.

I.

In October 1992 Frances Robertson complained to the Gaston
County Health Department (GCHD) that her water smelled like gaso-
line. The Robertson well was tested, and its water was found to con-
tain benzene contamination of 3,464 parts per billion (ppb). Benzene
is a component of gasoline. Concentration levels above 5 ppb present
a health risk to humans and violate federal drinking water standards;
levels above 1 ppb violate North Carolina standards. The GCHD and
the U.S. Environmental Protection Agency (EPA) traced the contami-
 NORTH CAROLINA v. ACME PETROLEUM AND FUEL 3
nation to leaking underground storage tanks (USTs) at a site called
Gilliland’s Place, a gasoline station and convenience store. The USTs
were owned by Acme Petroleum and Fuel Company and operated by
Pacemaker Leasing Company. (For convenience we will refer to these
two companies as "Acme.") GCHD and EPA tested a number of other
residential wells in the area and found that seven more wells down
gradient from the USTs were also contaminated by benzene. Five
showed benzene levels significantly greater than the federal drinking
water standard of 5 ppb.

North Carolina’s State Toxicologist, Dr. Kenneth Rudo, evaluated
the health risk posed by the contaminated well water. Dr. Rudo con-
cluded that the water was highly contaminated and should not be used
for drinking, cooking, or bathing. In the comments section of the
health risk evaluation form sent to the affected households Dr. Rudo
wrote: "Please do not use the water for ANY purposes as any expo-
sure may pose a significantly increased health and cancer risk over
time. DO NOT USE THIS WATER!" After reviewing the evalua-
tions, Linda Blalock, project manager in the Federal Trust Fund Pro-
gram in the North Carolina Department of Environmental and Natural
Resources (DENR), decided that prompt action was necessary. Under
RCRA a state may take corrective action, such as providing alternate
water supplies, if prompt action is necessary to protect human health
and the environment. 42 U.S.C. § 6991b(h)(2)(B). Accordingly,
Blalock ordered bottled water and rented point-of-entry carbon treat-
ment filter systems for the affected households. With the exception of
one household where retesting of the well was necessary, all affected
households received alternate water supplies within about five to ten
weeks.

RCRA provides that owners or operators of leaking USTs are liable
to the State for the costs of corrective action. 42 U.S.C.
§ 6991b(h)(6)(A). However, when DENR sought reimbursement from
Acme, the company refused to pay, arguing that the State should seek
reimbursement directly from the North Carolina Commercial Leaking
Petroleum Underground Storage Tank Cleanup Fund (the Commer-
cial Fund). The Commercial Fund is administered by the State and
operates like an insurance program: owners and operators of leaking
commercial USTs who have paid the applicable premiums may have
the Commercial Fund pay for (a) "cleanup of environmental damage"
4 NORTH CAROLINA v. ACME PETROLEUM AND FUEL
costs above a deductible of $20,000 or $50,000 and (b) "compensa-
tion to third parties for bodily injury and property damage" above a
$100,000 deductible. See N.C. Gen. Stat. § 143-215.94B(b)(1)-(5).
Acme was covered by the Commercial Fund and had satisfied its
"cleanup of environmental damage" deductible. In fact, the Commer-
cial Fund had already paid out $739,589.17 in cleanup costs for the
contamination at Gilliland’s Place. Acme argued that the alternate
water costs were cleanup costs, and since Acme had met its deduct-
ible for cleanup costs, any payments to the State should come directly
from the Commercial Fund.

The State of North Carolina sued Acme in the Superior Court of
Gaston County on October 5, 1998, seeking to recover from Acme the
$96,844.38 (plus interest) the State spent in providing alternate water
(bottled water and point-of-entry carbon treatment systems) to the
five households whose well water was contaminated above federal
drinking water standards. Acme removed the case to the United States
District Court for the Western District of North Carolina. After the
parties cross-moved for summary judgment, the district court held an
evidentiary hearing to assist in its determination of whether the State
was justified in taking corrective action under 42 U.S.C.
§ 6991b(h)(2)(B). After considering the evidence, the court deter-
mined (1) that due to the benzene levels in the water wells prompt
corrective action by the State was necessary to protect human health
and the environment and (2) that the State acted promptly to provide
alternate water to the affected households. As a result, the district
court determined that the State could seek reimbursement for the costs
of the corrective action taken. Later, the district court granted sum-
mary judgment to the State and entered final judgment against Acme
for $137,573.78, an amount equal to the alternate water supply costs
plus interest as of January 22, 2001. Acme appeals, raising two ques-
tions: (1) whether RCRA authorized the State to provide the alternate
water supplies and (2) whether Acme had met its deductible, requir-
ing the Commercial Fund to cover the alternate water supply costs.

II.

Acme first argues that DENR exceeded its authority under RCRA
when it provided alternate water supplies. We disagree. RCRA autho-
 NORTH CAROLINA v. ACME PETROLEUM AND FUEL 5
rizes a state to take corrective action if prompt action is necessary to
protect human health and the environment:

[The State] may undertake corrective action with respect to
any release of petroleum into the environment from an
underground storage tank only if such action is necessary,
in the judgment of the [State], to protect human health and
the environment and one or more of the following situations
exist:

...

(B) A situation exists which requires prompt
action by the [State] under this paragraph to pro-
tect human health and the environment.

42 U.S.C. § 6991b(h)(2). Corrective action may include providing
alternate household water supplies. 42 U.S.C. § 6991b(h)(5).

Acme argues that DENR’s actions were unauthorized because there
was no situation calling for prompt action and the State never
declared that prompt action was necessary. In light of the extremely
high levels of benzene contamination and the State Toxicologist’s
determination that any continued use of the water would be harmful
to human health, this argument is without merit.

Acme also argues that the State was not authorized to act because
it did not in fact take prompt action. According to Acme, the State’s
slowness to act suggests that prompt action was not really necessary.
The statute does not require that the response actually be prompt; it
only requires that there be a need for a prompt response. Even if it
is assumed that the State did not act promptly, that does not mean that
there was no need for prompt action. The high level of benzene con-
tamination in the water wells posed a significant risk to human health
and the environment. Prompt action by the State was therefore
required, and the statutory condition was satisfied. In any event, the
district court determined that the State took prompt action in provid-
ing alternate water, and the evidence supports that determination.
Several steps were involved. Water samples were taken from the
6 NORTH CAROLINA v. ACME PETROLEUM AND FUEL
wells and delivered to a laboratory for testing and analysis. The analy-
ses were forwarded to the State Toxicologist, who prepared health
risk evaluations. These evaluations were sent to a project manager in
DENR, who determined that prompt action was necessary. The proj-
ect manager then authorized the provision of alternative water sup-
plies and contacted a vendor to arrange for delivery of bottled water
and the installation of filters at the affected households. With the
exception of one household where retesting was required, the affected
households received alternative water supplies within about five to
ten weeks. Given the steps required, this evidence supports the district
court’s conclusion that the State took prompt action.

Because Acme’s leaking USTs created a situation that required
prompt action to protect human health and the environment, RCRA
authorized the State to provide alternate water supplies for the
affected households.

III.

Next, Acme argues that under North Carolina law alternate water
supply costs are "cleanup of environmental damage" costs subject to
a $20,000 deductible and not "compensation to third parties for bodily
injury and property damage" subject to a $100,000 deductible. Con-
trary to Acme’s assertion, the alternate water supply costs are prop-
erly classified as compensation to third parties for property damage.
Because Acme had not met the required "compensation to third par-
ties" deductible, the district court correctly concluded that it could not
order direct payment from the Commercial Fund.

The distinction between "compensation to third parties for . . .
property damage" and "cleanup of environmental damage" costs is
governed by North Carolina law. RCRA allows a state to implement
its own program to respond to releases from USTs if the program is
"equivalent to" and "consistent with" the federal requirements and
standards and provides for "adequate enforcement." 42 U.S.C.
§ 6926(b). North Carolina has a federally approved UST program,
and its regulations parallel the federal ones. North Carolina General
Statute § 143-215.94G(a) authorizes the State to provide alternate
sources of drinking water to third parties when prompt action is
 NORTH CAROLINA v. ACME PETROLEUM AND FUEL 7
required. In addition, the State may seek reimbursement for these
alternate water costs. N.C.G.S. § 143-215.94G(d).

North Carolina law allows direct reimbursement from the State’s
Commercial Fund, but only if the deductibles have been met.
N.C.G.S. § 143-215.94E(b). Acme does not dispute that it must first
reach the deductible. Rather, Acme argues that the costs of providing
bottled water and carbon filters are "cleanup of environmental dam-
age" costs and that it has already met its $20,000 deductible for these
costs. Acme’s argument fails because North Carolina law categorizes
alternate water supplies as compensation to third parties. As men-
tioned above, N.C.G.S. § 143-215.94G(d) deals with reimbursement
for costs of alternate water supplies. It reads:

The Secretary [of DENR] shall seek reimbursement through
any legal means available, for:

...

(3a) The amounts provided for by G.S. 143-215.94B(b)(5)
required to be paid by the owner or operator to third parties
for the cost of providing interim alternative sources of
drinking water to third parties and the initial cost of provid-
ing permanent alternative sources of drinking water to third
parties.

N.C.G.S. § 143-215.94B(b)(5), in turn, provides:

The Commercial Fund shall be used for the payment of the
following costs . . .

(5) Compensation to third parties for bodily injury and prop-
erty damage in excess of one hundred thousand dollars
($100,000) per occurrence.

In sum, alternate water supplies are considered to fall under N.C.G.S.
§ 143-215.94B(b)(5), and that section covers compensation to third
parties and has a $100,000 deductible.
8 NORTH CAROLINA v. ACME PETROLEUM AND FUEL
Despite the statutory language, Acme maintains that the higher
deductible does not apply because alternate water supplies cannot be
considered compensation to third parties for property damage because
(a) no third party has brought a claim for property damage and (b) pri-
vate parties do not "own" groundwater in North Carolina, which
means that the contamination of groundwater cannot constitute prop-
erty damage. There is no suggestion in the governing statutes that
third parties (here, homeowners with contaminated water) must make
formal claims before the State expends monies to compensate them
by providing alternate water supplies. In this case the State did test-
ing, established contamination, and provided alternate water to sev-
eral households after one homeowner complained that her water
smelled like gasoline. More formal claims from the third parties were
not necessary to trigger the State’s response. Furthermore, North Car-
olinians have the right to beneficial enjoyment of groundwater on
their property, and it is well established that private parties have a
claim for contamination of their well water. For example, in Wilson
v. McLeod Oil Co., 398 S.E.2d 586 (N.C. 1990), the plaintiffs brought
statutory claims under the Oil Pollution and Hazardous Substances
Control Act, codified at N.C.G.S. § 143-215.93, as well as claims for
trespass, nuisance, and negligence when gasoline seeping from under-
ground tanks contaminated their water supply. See also James v.
Clark, 454 S.E.2d 826 (N.C. Ct. App. 1995) (same); Ellington v. Hes-
ter, 487 S.E.2d 843 (N.C. Ct. App. 1997) (same). Contamination of
groundwater thus constitutes property damage.

Even if the North Carolina statutes did not so clearly classify alter-
nate water costs as "compensation to third parties," those costs more
naturally belong under that heading than under "cleanup of environ-
mental damage." Providing bottled water and point-of-entry water fil-
ters to individual households does not reduce contamination to the
soil or groundwater or otherwise clean up the environment. Instead,
the alternate water attempts to compensate the third parties harmed by
the contamination. Because the alternate water costs are "compensa-
tion to third parties for . . . property damage," Acme is not entitled
to indemnity from the Commercial Fund until the $100,000 deduct-
ible has been met.

IV.

We affirm the judgment entered in favor of the State against Acme
Petroleum and Fuel Company and Pacemaker Leasing Company for
 NORTH CAROLINA v. ACME PETROLEUM AND FUEL 9
$137,573.78, representing the State’s costs (plus interest) in providing
bottled water and filtration systems to households whose well water
was contaminated with benzene from the defendants’ USTs.

AFFIRMED