Free Order on Motion to Dismiss - Rule 12(b)(6) - District Court of Federal Claims - federal

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In the United States Court of Federal Claims
No. 05-1020 C (Filed: January 31, 2008) ************************************* AMERICAN INTERNATIONAL * SPECIALTY LINES INSURANCE * COMPANY, * * Plaintiff, * * v. * * THE UNITED STATES, * * Defendant. * ************************************* OPINION AND ORDER In this action, plaintiff, a general liability insurer, seeks to recover the costs incurred in removing certain hazardous substances­chlordane and other organochlorine pesticides ("OCPs")­from a portion of a former naval installation. Plaintiff alleges that the United States Department of the Navy ("Navy") failed to notify the property's purchaser that chlordane and other OCPs were present on the property and that the Navy failed to remediate the chlordane and other OCPs in breach of two contracts between the parties. Plaintiff further alleges that defendant failed to indemnify plaintiff for its remediation costs pursuant to section 330 of the National Defense Authorization Act for Fiscal Year 1993, Pub. L. No. 102-484, 106 Stat. 2315, 2371-73 (1992) (codified as amended at 10 U.S.C. § 2687 note (2000)). Before the court is Defendant's Renewed Motion to Dismiss ("Renewed Motion"), which seeks dismissal of the First Amended Complaint pursuant to Rule 12(b)(6) of the Rules of the United States Court of Federal Claims ("RCFC") for failure to state a claim upon which relief can be granted. For the reasons stated below, the court grants in part and denies in part defendant's Renewed Motion. I. BACKGROUND Pursuant to the Defense Base Closure and Realignment Act of 1990, Pub. L. No. 101510, §§ 2901-2911, 104 Stat. 1485, 1808-19 (codified as amended at 10 U.S.C. § 2687 note (2000)), the 1993 Defense Base Closure and Realignment Commission recommended the closure of Naval Air Station Alameda, located in Alameda, California.1 Compl. ¶ 9. Subsequently, the
1

It is the general rule that "a complaint is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference." PSI

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Navy issued an Environmental Baseline Survey ("EBS") for Naval Air Station Alameda, which divided the property into 208 individual parcels. Pl.'s Ex. 3 at 8. Parcels 170 and 171 constituted the East Housing Area­the property that is the subject of this action. Id.; Compl. ¶¶ 9, 25. Naval Air Station Alameda closed on April 30, 1997. Compl. ¶ 9. On April 5, 1994, after the closure recommendation, the City of Alameda and the County of Alameda joined together to establish a local redevelopment authority, which they named the Alameda Reuse and Redevelopment Authority ("Authority"). Id. ¶¶ 3, 10. The Authority developed a Community Reuse Plan for Naval Air Station Alameda and adopted the final plan on September 3, 1997. Id. ¶ 10; Pl.'s Ex. 1 at 145. The Authority's Community Reuse Plan proposed that Naval Air Station Alameda and an adjacent property be used for residential, educational, industrial, and commercial activities.2 Compl. ¶ 11. In particular, the Authority planned to demolish the buildings in the East Housing Area and redevelop it as a residential area. Pl.'s Ex. 3 at 9. As required by the National Environmental Policy Act of 1969, Pub. L. No. 91-190, § 102, 83 Stat. 852, 853-84 (1970) (codified as amended at 42 U.S.C. § 4332 (2000)), in February 1996, the Navy began the process of developing an Environmental Impact Statement ("EIS") to describe the impacts of disposing and reusing Naval Air Station Alameda. Pl.'s Ex. 1 at 145-46. The final EIS, which the Navy issued on October 29, 1999, analyzed four reuse alternatives for the property and identified the Authority's Community Reuse Plan as the preferred alternative. Id.; Compl. ¶ 11. The final EIS also noted that pesticides used in the past at Naval Air Station Alameda "included chlordane, lindane, and dichlorodiphenyltrichloroethane (DDT), which are now banned." App. 12. However, the one substantive page from the final EIS provided to the court does not specify the locations at Naval Air Station Alameda where the pesticides were used. Id.

Energy, Inc. v. United States, 59 Fed. Cl. 590, 597 n.8 (2004), rev'd on other grounds, 411 F.3d 1347 (Fed. Cir. 2005); see also RCFC 10(c) ("A copy of any written instrument which is an exhibit to a pleading is a part thereof for all purposes."); 2 James Wm. Moore et al., Moore's Federal Practice ¶ 12.34[2] (3d ed. 2006) ("In deciding whether to dismiss, the court may consider only the facts alleged in the pleadings, documents attached as exhibits or incorporated by reference in the pleadings, and matters of which the judge may take judicial notice."). Thus, for the purposes of ruling on the Renewed Motion, the court derives the facts from the First Amended Complaint ("Compl.") and the attachments to the First Amendment Complaint ("Pl.'s Ex."). The court also derives facts from the Appendix to the Renewed Motion ("App."), as the court finds that the documents included in the Appendix are incorporated by reference into the First Amended Complaint and the attachments to the First Amended Complaint. The adjacent property­to which this case does not pertain­is Fleet and Industrial Supply Center Oakland, which includes the Alameda Annex and Facility. Compl. ¶ 11; Pl.'s Ex. 1 at 145. -22

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In April 2000, the Navy issued a site-specific EBS for Parcel 170.3 Id. at 15; Pl.'s Ex. 3 at 8, 24. Additional sampling was performed on Parcel 170 in the landscaped or formerly unpaved areas of that parcel that potentially could have been affected by pesticide use. App. 26, 28. Specifically, two surface soil samples were analyzed for the presence of pesticides, which yielded "detectable" concentrations of chlordane.4 Id. at 26, 28. This site-specific EBS declared that "[n]one of these concentrations exceed 1996 [Preliminary Remediation Goals ("PRGs")] . . . ." Id. at 26. However, the site-specific EBS did not identify the 1996 PRGs. See id. at 35 (listing "NA" in the column identifying the PRGs). The site-specific EBS concluded: "The concentrations of the detected pesticides do not suggest improper use or application practices. Based on the low concentrations detected, further investigation is not recommended for [this area]." Id. at 28. Meanwhile, on April 7, 2000, the Navy issued a Finding of Suitability to Transfer ("FOST") for the East Housing Area. Compl. ¶ 25. The purpose of the FOST was "to document environmental findings regarding the real property made available through the Base Realignment and Closure process" and to "address[] the suitability for transfer of property for the intended residential reuse . . . ." Pl.'s Ex. 3 at 8. The FOST, in presenting the hazardous substances notification required by federal law,5 provided that "[h]azardous materials were stored on various

A site-specific EBS was also prepared for Parcel 171. Pl.'s Ex. 3 at 8, 24. Presently, the record does not contain this site-specific EBS.
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3

The site-specific EBS indicated the following:

Analytical results for surface soil samples 170-0001 and 170-0002 are summarized below. Results qualified with a "J" are estimated concentrations. · 4,4'-DDD (5.4J and 95 micrograms per kilogram (µg/kg)), alphachlordane (4.4J and 12J µg/kg), and gamma-chlordane (4.2J and 9.8 µg/kg) were detected in both samples. 4,4'-DDE (2.6J µg/kg) and 4,4'-DDT (40 µg/kg) were detected in sample 170-0001.

App. 26; see also id. at 28 (summarizing the same results). Pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), Pub. L. No. 96-510, 94 Stat. 2767 (codified as amended at 42 U.S.C. §§ 9601-9675 (2000)), when contracting to transfer real property to another party, the United States is required to include, in the contract, notice of the type and quantity of hazardous substances that had been stored for at least one year, released, or disposed of on the property. 42 U.S.C. § 9620(h)(1). CERCLA also requires that each deed reflecting the transfer of the property include the same notice, as well as a description of any remedial action taken, a covenant warranting that the United States has taken any required remedial action or will take any required -35

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parcels throughout former NAS Alameda as part of routine activities" and "were limited to small quantities of pesticides and herbicides used in routine maintenance activities." Id. at 13-14. The FOST discussed the various chemicals used at Naval Air Station Alameda for pest management purposes: A review of pest management plans from [the Navy Public Works Center] indicates that the following were typical of herbicides and pesticides that were used at former NAS Alameda. The following herbicides, insecticides, termiticides, and rodenticides may have been used at the former NAS Alameda: · · · · · PT-515 (Wasp Freeze) Dursban 2E Drione Ficam W Talon G

Pesticides, herbicides, insecticides, termiticides, and rodenticides were applied intermittently on an as-needed basis at former NAS Alameda, either by personnel from the PWC Pest Control Department or by contractor personnel. All personnel who routinely applied pest control substances were trained and licensed in the proper and legal application of pesticides, including the insecticides, termiticides, and rodenticides listed previously. Pesticides were applied in accordance with the manufacturer's directions, state and federal EPA registered pesticide label directions, and the installation's annually approved pest management plan. Because the pesticides and herbicides were routinely applied in a manner consistent with the standards for licensed application, they likely do not pose a threat to human health or the environment. In addition, records do not indicate that parcels covered by this FOST have been used to store pesticides in any great quantity. Id. at 19-20. Table 3 of the FOST was a Notice of Hazardous Substance Stored, Released, or Disposed of at Parcels 170 and 171. Id. at 31. The notice identified the following hazardous substances that were "stored for more than 1 year or known to have been released or disposed" of on the two parcels: Dursban 2E,6 Ficam W, Drione, Talon G, and PT 515. Id. Neither the FOST nor any exhibits to the FOST mentioned chlordane or other OCPs. On June 6, 2000, defendant, acting through the Navy, and the Authority entered into a Memorandum of Agreement that provided for the conveyance of portions of Naval Air Station

remedial action in the future, and a clause permitting the United States to access the property to take remedial action. Id. § 9620(h)(3).
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"Dursban" was misspelled on the notice. -4-

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Alameda, including the East Housing Area. Compl. ¶¶ 12-13. Article 21 of the Memorandum of Agreement described the Authority's liability for environmental contamination: Notwithstanding any other provision of this Agreement, and except as set forth in the Deed described herein, the Authority and its assigns do not hereby assume any liability or responsibility for environmental impacts and damage caused by the Government's use of toxic or hazardous wastes, substances or materials, or petroleum derivatives, on any portion of the Property. The Authority and its assigns have no obligation under this agreement to undertake the defense of any claim or action, whether in existence now or brought in the future, or to conduct any cleanup or remediation action solely arising out of the use or release of any toxic or hazardous wastes, substances or materials, or petroleum or petroleum derivatives, on or from any part of the Property due to activity on the Property by the Government. Pl.'s Ex. 1 at 16. Article 7 of the Memorandum of Agreement contained defendant's representations to the Authority, and included the following subsection: (b) Complete Information. To the best of the Government's knowledge, information and belief, the information included in this Agreement, and the Exhibits hereto and the documents to be delivered to the Authority pursuant to this Agreement or previously delivered to the Authority are true, correct and complete in all material respects, and the same do not omit any material information required to make the submission thereof fair and complete. Id. at 11. The exhibits attached to the Memorandum of Agreement included a form deed and the FOST for the East Housing Area. Id. at 4. The exhibits also included a copy of the Notice of Hazardous Substance Stored, Released, or Disposed of at Parcels 170 and 171. Id. at 40. At some point prior to July 17, 2000, the Authority and the City of Alameda purchased a pollution legal liability insurance policy from plaintiff that covered the East Housing Area for the period of July 17, 2000, through July 17, 2010.7 Compl. ¶ 48. Defendant was not an insured party under the policy. Id. ¶ 49. According to plaintiff, the policy provided: "In the event of any payment under the Policy, [AISLIC] shall be subrogated to all the Insured's rights of recovery therefore against any person or organization . . . ." Id. ¶ 50. On July 17, 2000, defendant, acting through the Navy, conveyed the East Housing Area to the Authority via Quitclaim Deed and Environmental Restrictions Pursuant to Civil Code Section 1471 for East Housing Portion of NAS Alameda ("deed"). Id. ¶¶ 20-21; Pl.'s Ex. 2. Section II.B of the deed contained a general disclaimer about the condition of the property:

7

The insurance policy is not part of the record before the court. -5-

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Except as otherwise provided herein, or as otherwise provided by law, the GRANTEE acknowledges that it has inspected, is aware of, and accepts the condition and state of repair of the Property, and that the Property is conveyed "as is" and "where is" without any representation, promise, agreement, or warranty on the party of the GRANTOR regarding such condition and state of repair, or regarding the making of any alterations, improvements, repairs or additions. Except for the environmental remediation required to be undertaken by GRANTOR, the GRANTEE further acknowledges that the GRANTOR shall not be liable for any latent or patent defects in the Property except to the extent required by applicable law. Pl.'s Ex. 2 at 3. The deed also included the following notices and covenants in section II.F: 1. Notices: a. Finding of Suitability of Transfer. A Finding of Suitability of Transfer (FOST) has been completed and an Environmental Baseline Survey ("EBS") report is referenced in the FOST. The FOST and EBS reference environmental conditions on the Property and on other property not subject to this Deed. The FOST sets forth the basis for the GRANTOR's determination that the Property is suitable for transfer[.] The GRANTEE is hereby made aware of the notifications contained in the FOST and EBS[.] b. Hazardous Substance Notification. Pursuant to CERCLA 42 U.S.C. Section 9620(h), notice is hereby provided that the information set out in Exhibit "B", attached hereto and made a part hereof, identifies hazardous substances that were stored for one year or more, known to have been released, or disposed of on this Property. The GRANTOR has made a complete search of its files and records concerning the Property and found that the FOST provides (1) a notice of the type and quantity of such hazardous substances, (2) notice of the time the storage, release, or disposal took place, and (3) a description of the remedial action taken, if any[.] 2. Grant of Covenant [CERCLA 42 U.S.C. Section 9620(h)(3)(A)(ii)(I)]. The GRANTOR covenants that all remedial action necessary to protect human health and the environment with respect to any hazardous substance remaining on the Property has been taken before the date of transfer[.] 3. Additional Remediation Obligation [CERCLA 42 U.S.C. Section 9620(h)(3)(A)(ii)(II)]. The GRANTOR covenants and warrants that GRANTOR shall conduct any additional remedial action necessary after the date of transfer for -6-

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any hazardous substance existing on the Property prior to the date of this Deed. The covenant shall not apply to the extent that the GRANTEE caused or contributed to any release or threatened release of any hazardous substance, pollutant, contaminant, petroleum or petroleum derivative[.] Id. at 6. Additionally, section II.G of the deed contained the following language under the heading "Indemnification Regarding Transferees": "The GRANTOR hereby recognizes its obligations under Section 330 of the National Defense Authorization Act of 1993 (Pub L 102484), as amended, regarding indemnification of transferees of closing Department of Defense property[.]" Id. at 8. Further, section III of the deed provided: THE CONDITIONS, RESTRICTIONS, RESERVATIONS, AND COVENANTS set forth in this deed, unless subsequently released, are a binding servitude on the Property, shall inure to the benefit of the GRANTOR and GRANTEE, their successors and assigns, and will be deemed to run with the land in perpetuity[.] Id. Appended to the deed were three exhibits. Id. Of special relevance was Exhibit B to the deed, as referred to in section II.F.1.a, which was a copy of the Notice of Hazardous Substance Stored, Released, or Disposed of at Parcels 170 and 171. Id. at 14. According to plaintiff, the Authority relied upon defendant's representations within the deed in agreeing to accept conveyance of the East Housing Area. Compl. ¶¶ 31-32. On August 1, 2001, the Authority transferred the East Housing Area to the Community Improvement Commission of the City of Alameda ("Commission"). Id. ¶ 39. The Commission was a successor to the Authority pursuant to the deed. Id. Prior to the demolition of the buildings in the East Housing Area, during the early spring and summer of 2001, Winzler and Kelly Consulting Engineers performed soil sampling to test for the presence of OCPs. Id. ¶ 40; Pl.'s Ex. 4 at 3, 6-7. In their October 20, 2001 report, the engineers documented their discovery of OCPs­namely chlordane­in the East Housing Area at levels that "exceeded potentially applicable regulatory standards." Compl. ¶ 43; Pl.'s Ex. 4 at 6. Plaintiff avers that the presence of chlordane in the East Housing Area was due to the storage, release, or disposal of OCPs by defendant prior to defendant's conveyance of the property to the Authority. Compl. ¶ 44. In support of its assertion that the chlordane and other OCPs were present in the East Housing Area prior to the property's conveyance, plaintiff alleges that the Environmental Protection Agency ("EPA") prohibited the use of chlordane in 1988. Id. Upon discovery of the OCPs in the East Housing Area, the Department of Toxic Substance Control ("DTSC") of the California Environmental Protection Agency required the Authority and the Commission to assess and remediate the OCP contamination in order for the property to be put to unrestricted residential use pursuant to the Authority's Community Reuse

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Plan. Id. ¶¶ 43, 45. The DTSC memorialized this requirement in a May 3, 2002 letter,8 id. ¶ 45; Pl.'s Ex. 4 at 224, which provided: The building foundations at [the East Housing Area] appear to have been properly treated with organochlorine pesticides (OCP) for termite control, and as such, are currently being used in the manner intended. Upon removal of the buildings and foundations that are treated with OCP, any OCP remaining in soils and exceeding the concentrations specified in the [Demolition and Organochlorine Pesticide Removal Workplan], would be a hazardous substance released to the environment, and would require remedial action pursuant to the California Health and Safety Code, Chapter 6.8. Pl.'s Ex. 4 at 224; see also id. at 6 (noting, in an attachment to plaintiff's October 31, 2002 claim for indemnification, that the DTSC permitted remediation to proceed without issuing a formal "Cleanup and Abatement Order" to hasten remediation efforts and to eliminate the costs associated with formal administrative proceedings). The Authority and the Commission removed 29,270 tons of impacted soil pursuant to the April 23, 2002 Demolition and Organochlorine Pesticide Removal Workplan approved by the DTSC. Compl. ¶ 46. The soil removal occurred between April 2002 and August 2002. Id. The total cost of the remediation that was covered by the insurance policy issued by plaintiff was $3,763,328. Id. ¶ 52. Plaintiff reimbursed the Authority and the Commission for the remediation costs, completing payment on November 20, 2005. Id. On October 31, 2002, and December 18, 2003, the Authority, the Commission, and plaintiff submitted written claims for indemnification to defendant pursuant to the provisions of the deed and section 330(b) of the National Defense Authorization Act for Fiscal Year 1993. Id. ¶ 47. Defendant did not respond to the claims. Id. Plaintiff initially filed an action in the United States District Court for the Northern District of California ("district court"). Am. Int'l Specialty Lines Ins. Co. v. United States, No. 04-1591 (N.D. Cal. filed Apr. 23, 2004). During the proceedings before the district court, plaintiff filed an amended complaint. Id. Subsequently, in a March 24, 2005 Memorandum and Order, the district court dismissed plaintiff's CERCLA claims as unripe and transferred plaintiff's express indemnification and breach of contract claims to this court. Am. Int'l Specialty Lines Ins. Co. v. United States, No. 04-1591, 2005 WL 680159, at *5 (N.D. Cal. Mar. 24, 2005).

Defendant erroneously contends that plaintiff "chose not to attach the letter to its [January] 2006 first amended complaint." Def.'s Renewed Mot. Dismiss ("Renewed Mot.") 3. Defendant must have overlooked pages 224-226 of Exhibit 4 to the First Amended Complaint. -8-

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Plaintiff filed a First Amended Complaint in this court on January 27, 2006. The First Amended Complaint contains eight claims for relief: seven claims for breach of contract and one claim for express indemnification. Compl. ¶¶ 53-162. Plaintiff seeks damages of at least $3,763,328. Compl. Prayer ¶ 1. Defendant filed its Renewed Motion on June 5, 2007, plaintiff filed Plaintiff's Opposition to Defendant's Renewed Motion to Dismiss ("Renewed Opposition") on July 23, 2007, and defendant filed Defendant's Reply in Support of Renewed Motion to Dismiss on July 23, 2007. The court deems oral argument unnecessary. II. JURISDICTION AND JUSTICIABILITY A. Subject Matter Jurisdiction Whether the court has jurisdiction to decide the merits of a case is a threshold matter. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94-95 (1998). "Without jurisdiction the court cannot proceed at all in any cause. Jurisdiction is power to declare the law, and when it ceases to exist, the only function remaining to the court is that of announcing the fact and dismissing the cause." Ex parte McCardle, 74 U.S. (7 Wall.) 506, 514 (1868). The parties or the court sua sponte may challenge the court's subject matter jurisdiction at any time. Arbaugh v. Y & H Corp., 546 U.S. 500, 506 (2006). Although the parties, at the court's request, addressed the issue of jurisdiction in their briefing on an earlier motion, defendant did not raise a jurisdictional challenge to the First Amended Complaint in its Renewed Motion. However, the court finds that a discussion of its jurisdiction remains appropriate. The ability of this court to hear and decide suits against the United States is limited. "The United States, as sovereign, is immune from suit save as it consents to be sued." United States v. Sherwood, 312 U.S. 584, 586 (1941). The waiver of immunity "cannot be implied but must be unequivocally expressed." United States v. King, 395 U.S. 1, 4 (1969). The Tucker Act, the principal statute governing the jurisdiction of the United States Court of Federal Claims ("Court of Federal Claims"), waives sovereign immunity for claims against the United States, not sounding in tort, that are founded upon the Constitution, a federal statute or regulation, or an express or implied contract with the United States. 28 U.S.C. § 1491(a)(1) (2000). B. The United States Waives Sovereign Immunity for the Subrogation Claims of Liability Insurers When construing the Tucker Act's waiver of sovereign immunity for claims based upon an express or implied contract, the United States Court of Appeals for the Federal Circuit ("Federal Circuit") requires that privity must exist between the plaintiff and the government in order to find a such a waiver. Cienega Gardens v. United States, 194 F.3d 1231, 1239 (Fed. Cir. 1998). The Federal Circuit has enumerated several exceptions to this general rule, however. First Hartford Corp. Pension Plan & Trust v. United States, 194 F.3d 1279, 1289 (Fed. Cir. 1999). These exceptions include suits by intended third-party beneficiaries, suits by subcontractors "by means of a pass-through suit when the prime contractor is liable to the -9-

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subcontractor for the subcontractor's damages," and suits by government contract sureties "for funds improperly disbursed to a prime contractor."9 Id.; see also Ins. Co. of the W., 243 F.3d at 1373-74 (holding, in a breach of contract action brought by a government contract surety under the Tucker Act, that the Tucker Act "contains an unequivocal expression waiving sovereign immunity as to claims, not particular claimants"). The Federal Circuit noted that "the common thread that unites these exceptions is that the party standing outside of privity by contractual obligation stands in the shoes of a party within privity." First Hartford Corp. Pension Plan & Trust, 194 F.3d at 1289. The Federal Circuit expounded upon the surety exception to the privity requirement in Insurance Co. of the West. Read narrowly, the Federal Circuit's decision holds that a surety, as an equitable subrogee, "may rely on the wavier of sovereign immunity in the Tucker Act and bring suits against the United States." 243 F.3d at 1370, 1375. On the other hand, read broadly, the Federal Circuit's decision holds that the Tucker Act waives sovereign immunity for equitable subrogation claims by all subrogees. Id. at 1372-75; see also Centers v. United States, 71 Fed. Cl. 529, 533-34 (2006) (finding that the holding of Insurance Co. of the West was limited to subrogation claims and did not apply to all assignments). In this case, seven of plaintiff's eight claims for relief are based upon representations made by defendant to the Authority in the Memorandum of Agreement and the deed. However, plaintiff was not a party to those contracts. Instead, plaintiff is pursuing its breach of contract
9

A surety is "[a] person who is primarily liable for the payment of another's debt or the performance of another's obligation." Black's Law Dictionary 1482 (8th ed. 2004). According to the United States Supreme Court ("Supreme Court"), it is "the usual view, grounded in commercial practice, that suretyship is not insurance." Pearlman v. Reliance Ins. Co., 371 U.S. 132, 140 n.19 (1962). In the case of a government contract, a "surety guarantees that a contract will be completed in the event of the principal's default and that the government will not have to pay more than the contract price." Ins. Co. of the W. v. United States, 243 F.3d 1367, 1370 (Fed. Cir. 2001). The performance bond issued by the surety "creates a three-party relationship, in which the surety becomes liable for the principal's debt or duty to the third party obligee (here, the government)." Id.; see also First Hartford Corp. Pension Plan & Trust v. United States, 42 Fed. Cl. 599, 611 (1998) ("[A] suretyship is the result of a three-party agreement, whereby one party (the surety) becomes liable for the obligor's (Government contractor) debt or duty to the third-party obligee (Government) . . . ."), aff'd in part, rev'd in part, 194 F.3d 1279. There is no contract or privity of contract between the surety and the government. Ins. Co. of the W., 243 F.3d at 1370. Instead, "sureties traditionally have asserted claims against the government under the equitable doctrine of subrogation." Id.; see also Nat'l Sur. Corp. v. United States, 118 F.3d 1542, 1548 (Fed. Cir. 1997) (noting that, in a case regarding a surety's right to a retainage, "[t]he Federal Circuit and its predecessor Court of Claims have recognized that subrogation is governed by equitable principles rather than by strict rules of law."). -10-

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claims as a subrogee of the Authority and the City of Alameda.10 See Compl. ¶ 50 (quoting the insurance policy's subrogation clause); id. ¶ 52 (noting that plaintiff reimbursed the Authority and the Commission pursuant to the insurance policy); Pl.'s Ex. 1 at 19 (containing Article 27 of the Memorandum of Agreement, which provides that "[a]ll representations, warranties, agreements, obligations and indemnities of the parties shall . . . inure to the benefit of and be binding upon the respective successors and assigns of the parties"); Pl.'s Ex. 2 at 8 (containing section III of the deed, which provided that "THE CONDITIONS, RESTRICTIONS, RESERVATIONS, AND COVENANTS set forth in this deed . . . shall inure to the benefit of the GRANTOR and GRANTEE, their successors and assigns"). Subrogation, as used in this case, is "[t]he principle under which an insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy." Black's Law Dictionary, supra, at 1467. Subrogation can be legal or conventional. Legal subrogation, also known as equitable subrogation, arises by operation by law. Id. at 1468. Conventional subrogation arises by contract, id., but "if the contractual right of subrogation consists merely of the usual equitable right which would have existed in any event in the absence of the contract, then equitable principles control." 83 C.J.S. Subrogation § 5 (2005). Accordingly, in this case, plaintiff maintains both contractual and equitable subrogation claims. Thus, the issue before the court is whether plaintiff may sue the United States as a subrogee of the Authority and the City of Alameda; that is, whether, in a contract and statutory indemnification action under the Tucker Act, the United States has waived sovereign immunity to permit a liability insurer to sue the government in the Court of Federal Claims on its own behalf. In essence, the court must ascertain whether the Federal Circuit's holding in Insurance Co. of the West would permit such an action to proceed. The court could not find, and the parties did not supply, any binding authority in which a liability insurer successfully enforced a right to subrogation in the Court of Federal Claims. In fact, the court could identify only one nonbinding opinion from this court on this issue: Federal Insurance Co. v. United States, 29 Fed. Cl. 302 (1993).11 In Federal Insurance Co., a liability insurer of a government contractor sought to recover from the government payments it made to the contractor as a result of the government's alleged breach of the contract with its contractor. 29 Fed. Cl. at 302. The insurance policy contained a subrogation provision, which provided that if the liability insurer made a payment under the policy, it "shall be subrogated to all [of the government contractor's] rights of recovery against any person or organization." Id. at 303 (internal quotation marks omitted). The liability insurer argued that it could maintain the suit in

Had plaintiff included the Authority or the City of Alameda as a co-plaintiff in this action, there would have been no question surrounding this court's jurisdiction because the Authority and the City of Alameda stand in privity with defendant. Neither party cited this case in its briefing on this issue. See Def.'s Corrected Mot. Dismiss or Alternative Summ. J. ("Combined Mot.") 10-12; Pl.'s Opp'n Def.'s Corrected Mot. Dismiss or Alternative Summ. J. ("Combined Opp'n") 3-5. -1111

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its own name under the authority of the subrogation provision in the insurance policy and through the general principle of equitable subrogation. Id. at 304. The court found that the liability insurer was not in privity with the government. Id. As a result, the court held that the United States had not waived its sovereign immunity to authorize the liability insurer to maintain the suit in its own name. Id. at 308. In so holding, the court rejected the applicability of decisions permitting a surety to bring suit against the government. Id. at 304-07. The court explained that "[a] general liability insurance contract does not result in a `three-party agreement' analogous to a surety arrangement" because sureties completely step into the shoes of a contractor and take over all of the contractor's rights and responsibilities. Id. at 304-05 (citing Balboa Ins. Co. v. United States, 775 F.2d 1158, 1160 (Fed. Cir. 1985)). The court then contrasted suretyship with liability insurance, noting that subrogation provisions in liability insurance policies transfer only one right­the right to sue the government if the insurer pays a claim. Id. at 305. The court concluded: The Balboa court's interpretation that the Tucker Act authorizes suit by a person who is "as much a party to the Government contract as the contractor" would hardly demand the conclusion that Congress also intended to authorize suit by parties who have no direct responsibility for contract performance and no other obligation owed directly to the government. Id. at 306. Hence, the court treated the subrogation provision in the insurance policy at issue as "no more than a contingent assignment of a right to sue the government." Id. at 305-06. Furthermore, the court rejected the liability insurer's argument that "a series of cases brought under statutes other than the Tucker Act" stood for the proposition that "the doctrine of equitable subrogation applies broadly against the government."12 Id. at 306-07. The court distinguished these cases from the one before it, noting that the three statutes at issue in the cited cases included clear waivers of sovereign immunity. Id. The court found "no analogous clear waiver of sovereign immunity in the Tucker Act to authorize suit by plaintiff, a liability insurer for a federal contractor." Id. at 307. The holding of Federal Insurance Co. notwithstanding, the parties in this case agree that the law permitting a surety to file suit in its own name in this court extends to liability insurers. In this regard, defendant relies upon the decision of the Federal Circuit in Insurance Co. of the West to support its view that plaintiff can bring suit in its own name. Combined Mot. 10-11. Plaintiff relies solely upon the Supreme Court's decision in Aetna Casualty & Surety Co. in support of its conclusion. Combined Opp'n 3.
12

The cases discussed by the court were United States v. Aetna Casualty & Surety Co., 338 U.S. 366 (1949) (Federal Tort Claims Act); Quarles Petroleum Co. v. United States, 551 F.2d 1201 (Ct. Cl. 1977) (Federal Water Pollution Control Act); and Aetna Insurance Co. v. United States, 142 Ct. Cl. 771 (1958), reh'g denied, 142 Ct. Cl. 790 (1958) (tax refund suit). -12-

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As noted above, in Insurance Co. of the West, the issue before the Federal Circuit was "[w]hether the United States has waived sovereign immunity for the equitable subrogation claims of a surety," 243 F.3d at 1370 (emphasis added); but it held more generally that "a subrogee, after stepping into the shoes of a government contractor, may rely on the waiver of sovereign immunity in the Tucker Act and bring suit against the United States." Id. at 1375 (emphasis added). In its ruling, the Federal Circuit applied a broader interpretation to the Supreme Court's holding in Aetna Casualty & Surety Co. than did the Court of Federal Claims in Federal Insurance Co.: [N]othing in Aetna suggested that its holding regarding sovereign immunity was based on the Federal Tort Claims Act's broad language. Instead, we think that Aetna reflects a broader and more generally applicable legal principle: waivers of sovereign immunity applicable to the original claimant are to be construed as extending to those who receive assignments, whether voluntary assignments or assignments by operation of law, where the statutory waiver of sovereign immunity is not expressly limited to waivers for claims asserted by the original claimant. Id. at 1373. But see Centers, 71 Fed. Cl. at 533 (noting that the Federal Circuit's interpretation of Aetna Casualty & Surety Co. is dicta). Thus, the Federal Circuit rejected the notion that the holding of Aetna Casualty & Surety Co. was based upon the broad, clear waiver of sovereign immunity in the Federal Tort Claims Act, as the Court of Federal Claims in Federal Insurance Co. had previously held. However, the Federal Circuit did not refer to Federal Insurance Co. in its decision, nor did it make any reference to liability insurers; thus, the question facing the court is whether the broad, general holding of Insurance Co. of the West includes liability insurers. The court finds that although the Federal Circuit's decision in Insurance Co. of the West applies only to the equitable subrogation claims of sureties and that its broad, general holding is therefore dicta, that dicta is instructive in this case.13 While suretyship is distinct from liability insurance, Pearlman, 371 U.S. at 140 n.19, the companies in both arrangements rely upon the concept of equitable subrogation to prosecute their claims. The Federal Circuit noted that the language of the Tucker Act "contains an unequivocal expression waiving sovereign immunity as to claims, not particular claimants." Ins. Co. of the W., 243 F.3d at 1373-74. If sureties can sue the United States for breach of contract under an
13

In a recent decision, the Federal Circuit remarked: "Dicta, as defined by this court, are `statements made by a court that are `unnecessary to the decision in the case, and therefore[,] not precedential (although [they] may be considered persuasive).''" Nat'l Am. Ins. Co. v. United States, 498 F.3d 1301, 1306 (Fed. Cir. 2007) (quoting Co-Steel Raritan, Inc. v. Int'l Trade Comm'n, 357 F.3d 1294, 1307 (Fed. Cir. 2004) (quoting Black's Law Dictionary 1100 (7th ed. 1999))). It further explained that merely because certain language is dicta, it does not logically follow that the reasoning contained therein is flawed. Id. -13-

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equitable subrogation theory, there is no reason to prevent liability insurers from utilizing the same theory for the same claim.14 Thus, the court is persuaded that the Federal Circuit's holding in Insurance Co. of the West stands for the proposition that the Tucker Act waives sovereign immunity for equitable subrogation claims of all subrogees.15 C. Ripeness Where applicable, the ripeness doctrine may constrain this court's exercise of jurisdiction. "Ripeness is a justiciability doctrine designed `to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements . . . .'" Nat'l Park Hospitality Ass'n v. Dep't of the Interior, 538 U.S. 803, 807 (2003) (quoting Abbot Labs. v. Gardner, 387 U.S. 136, 148-49 (1967)). The ripeness doctrine derives from both "Article III limitations on judicial power and from prudential reasons for refusing to exercise jurisdiction."16

This conclusion assumes that there is no violation of 31 U.S.C. § 3727 (2000), commonly referred to as the Assignment of Claims Act. The court has previously addressed the Federal Circuit's holding in Insurance Co. of the West in a case arising under the Contract Disputes Act of 1978 ("CDA"), Pub. L. No. 95-563, 92 Stat. 2383 (codified as amended at 41 U.S.C. §§ 601-613 (2000)). In Nelson Construction Co. v. United States, the prime contractor formally assigned the rights to all payments due under the contract to the payment and performance bond surety. 79 Fed. Cl. 81, 83 (2007). Plaintiffs, who served both as a subcontractor to the prime contractor and as indemnitors to the performance and payment bond surety, asserted that they were equitably subrogated to the surety's right under the assignment agreement to pursue a claim against the government. Id. at 86. After reciting the Federal Circuit's statement in Insurance Co. of the West that "waivers of sovereign immunity applicable to the original claimant are to be construed as extending to those who receive assignments," and noting other courts' construction of that statement, the court held that plaintiff-indemnitors could not invoke the doctrine of equitable subrogation "to proceed in the place of the assignee against the government . . . ." Id. at 88-89. The plaintiffs in Nelson Construction Co. were not themselves assignees. Id. Thus, Nelson Construction Co. stands in contrast to the instant case, where plaintiff is directly subrogated to the rights of "the original claimant" pursuant to a liability insurance policy. The instant case is further distinguished from Nelson Construction Co. as it does not arise under the CDA. Congress created the Court of Federal Claims under Article I of the United States Constitution. 28 U.S.C. § 171(a). Courts established under Article I are not bound by the "case or controversy" requirement of Article III. Zevalkink v. Brown, 102 F.3d 1236, 1243 (Fed. Cir. 1996). However, the Court of Federal Claims and other Article I courts traditionally have applied the "case or controversy" justiciability doctrines in their cases for prudential reasons. See id.; CW Gov't Travel, Inc. v. United States, 46 Fed. Cl. 554, 558 (2000). These justiciability doctrines include, among others, ripeness, standing, mootness, and political questions. Fisher v. United States, 402 F.3d 1167, 1176 (Fed. Cir. 2005). -1416 15

14

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Id. at 808 (citing Reno v. Catholic Soc. Servs., Inc., 509 U.S. 43, 57 n.18 (1993)). In making a determination of ripeness, a court must make a fact-specific determination of "whether the issues are fit for judicial decision" and "whether there is sufficient risk of suffering immediate hardship." Cedars-Sinai Med. Ctr. v. Watkins, 11 F.3d 1573, 1580-81 (Fed. Cir. 1993). "[T]he question of ripeness may be considered on a court's own motion." Nat'l Park Hospitality Ass'n, 538 U.S. at 808 (citing Reno, 509 U.S. at 57 n.18). D. Plaintiff's Claims Are Ripe Because the Parties Contracted Around the Make-Whole Rule of Insurance Law Although the court has determined that plaintiff can sue the United States in this court as an equitable subrogee, the court must also address whether plaintiff's claims are ripe. Within the realm of insurance law, the so-called make-whole rule requires insurance companies to indemnify fully the insured prior to bringing a subrogated claim. Barnes v. Indep. Auto. Dealers Ass'n of Cal. Health & Welfare Benefit Plan, 64 F.3d 1389, 1394 (9th Cir. 1995). But, because the make-whole rule is one of interpretation, the insurer and the insured may contract around it. Id. at 1394-95. In the case sub judice, the insurance policy contained the following relevant language: "In the event of any payment under the Policy, [AISLIC] shall be subrogated to all the Insured's rights of recovery therefore against any person or organization . . . ." Compl. ¶ 50 (emphasis added). Plaintiff did not fully compensate the Authority and the City of Alameda prior to bringing its subrogated claims against defendant in the district court.17 Am. Int'l Specialty Lines Ins. Co., 2005 WL 680159, at *4. However, plaintiff completed payment of the Authority and the City of Alameda's claims shortly after it filed the transfer complaint in this court. See Compl. ¶ 52. Thus, the court must determine whether plaintiff was required to compensate fully the Authority and the City of Alameda prior to bringing its subrogated claims against defendant and, if so, whether the requirement can be satisfied by the completion of payments after the filing of the complaint. Defendant challenged the ripeness of plaintiff's claims in its original motion to dismiss because plaintiff had not fully compensated the Authority and the City of Alameda prior to filing suit. Defendant subsequently abandoned its argument, but the court must satisfy itself that plaintiff's claims are properly before it. As a preliminary matter, the court will assume that it is required to apply the make-whole rule in this case in order to determine whether the subrogation provision in the insurance policy at issue constitutes the agreement of the parties to override the make-whole rule. The policy indicates that plaintiff will be subrogated to the rights of the Authority and the City of Alameda "[i]n the event of any payment under the Policy." Id. ¶ 50 (emphasis added). The fact that plaintiff's subrogation rights arise upon "any" payment clearly contradicts the make-whole rule.
17

The district court noted that plaintiff failed to allege that it had an agreement with the Authority and the City of Alameda contrary to the make-whole rule. Am. Int'l Specialty Lines Ins. Co., 2005 WL 680159, at *4. However, the district court did not indicate whether plaintiff pled the specific language of the insurance policy's subrogation clause as plaintiff did before this court. Id. at *1-5. -15-

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Thus, plaintiff, the Authority, and the City of Alameda contracted around the make-whole rule by allowing plaintiff to assert a subrogated claim as soon as it made one payment under the policy. Accordingly, plaintiff's claims are ripe: the issues are fit for judicial decision and plaintiff faces sufficient risk of suffering immediate hardship. Because the court holds that plaintiff, the Authority, and the City of Alameda contracted around the make-whole rule, the court need not reach the more general issue of whether the make-whole rule applies to liability insurers bringing equitable subrogation claims in the Court of Federal Claims. III. DEFENDANT'S RENEWED MOTION TO DISMISS Because the court is satisfied that it possesses jurisdiction to entertain plaintiff's complaint and that plaintiff's claims are ripe for decision, it turns to defendant's Renewed Motion. A. Legal Standard for an RCFC 12(b)(6) Motion to Dismiss Defendant filed a motion to dismiss for failure to state a claim pursuant to RCFC 12(b)(6). A motion to dismiss tests the sufficiency of a complaint. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). In ruling on a motion to dismiss, the court assumes that the allegations in the complaint are true and construes those allegations in plaintiff's favor. Henke v. United States, 60 F.3d 795, 797 (Fed. Cir. 1995). The Supreme Court recently clarified the degree of specificity with which a plaintiff must plead facts sufficient to survive such a motion in Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007), stating that "a plaintiff's obligation to provide the `grounds' of his `entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do," id. at 1964-65 (citation omitted). The Supreme Court explained that although a complaint need not contain "detailed factual allegations," id. at 1964, the "factual allegations must be enough to raise a right to relief above the speculative level," id. at 1965. "Once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint."18 Id. at 1969. Indeed, "[t]he issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Harlow v. Fitzgerald, 457 U.S. 800, 814-19 (1982). B. Breach of Contract Plaintiff asserts eight claims for relief in its complaint, three of which are straightforward breach of contract claims: the first, second, and eighth claims for relief. "To recover for breach of contract, a party must allege and establish: (1) a valid contract between the parties, (2) an obligation or duty arising out of the contract, (3) a breach of that duty, and (4) damages caused by the breach." San Carlos Irrigation & Drainage Dist. v. United States, 877 F.2d 957, 959 (Fed.
18

In so holding, the Supreme Court determined that the "no set of facts" language set forth in Conley, 355 U.S. at 45, "has earned its retirement," Bell Atl. Corp., 127 S. Ct. at 1969. -16-

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Cir. 1989); see also Hughes Commc'ns Galaxy, Inc. v. United States, 271 F.3d 1060, 1066 (Fed. Cir. 2001) ("[A] plaintiff must show that but for the breach, the damages alleged would not have been suffered. Moreover, the damages must have been foreseeable at the time the parties entered the contract, which requires that they be the natural and proximate result of the breach." (citations & internal quotation marks omitted)); Trauma Serv. Group v. United States, 104 F.3d 1321, 1325 (Fed. Cir. 1997) ("To prevail, [plaintiff] must allege facts showing both the formation of an express contract and its breach. . . . [A] breach of contract is a failure to perform a contractual duty when it is due."); id. at 1626 ("[A]ny agreement can be a contract within the meaning of the Tucker Act, provided that it meets the requirements for a contract with the Government, specifically: mutual intent to contract including an offer and acceptance, consideration, and a Government representative who had actual authority to bind the Government."). For the purposes of its three straightforward breach of contract claims, plaintiff has, without dispute, alleged the first and fourth elements of a breach of contract. First, plaintiff has alleged the existence of two valid contracts between the parties­the first and second claims for relief concern the deed and the eighth claim for relief concerns the Memorandum of Agreement. Compl. ¶¶ 12, 20, 54, 63, 155; Pl.'s Exs. 1-2. In addition, plaintiff has alleged that defendant's breach of its contractual duties has caused it damages of no less than $3,763,328. Compl. Prayer ¶ 1. Further, it appears that defendant does not dispute that the deed created the specified obligations alleged by plaintiff. Where the parties' disputes lie, then, is whether the Memorandum of Agreement created an obligation for defendant and whether defendant breached any of its contractual obligations. "A party breaches a contract when it is in material non-compliance with the terms of the contract." Gilbert v. Dep't of Justice, 334 F.3d 1065, 1071 (Fed. Cir. 2003). A material breach is one that "relates to a matter of vital importance, or goes to the essence of the contract." Id. (citations omitted). The determination of materiality "depends on `the nature and effect of the violation in light of how the particular contract was viewed, bargained for, entered into, and performed by the parties.'" Link v. Dep't of the Treasury, 51 F.3d 1577, 1583 (Fed. Cir. 1995) (quoting Stone Forest Indus., Inc. v. United States, 973 F.2d 1548, 1550-51 (Fed. Cir. 1992)). Further, the materiality determination "is a mixed question of fact and law." Gilbert, 334 F.3d at 1071. "What was required by way of contract performance turns on contract interpretation, which is an issue of law. At the same time, the conduct of the allegedly breaching party­in other words, what the party did nor did not do­is an issue of fact." Id. at 1071-72 (citation omitted). In interpreting a contract, the court begins by examining "the language of the written agreement." NVT Techs., Inc. v. United States, 370 F.3d 1153, 1159 (Fed. Cir. 2004). "When the contract's language is unambiguous it must be given its `plain and ordinary' meaning and the court may not look to extrinsic evidence to interpret its provisions." TEG-Paradigm Envtl., Inc. v. United States, 465 F.3d 1329, 1338 (Fed. Cir. 2006). However, applicable statutes and regulations in force at the time a contract is executed shall be incorporated into the contract. Norfolk & W. Ry. Co. v. Am. Train Dispatchers' Ass'n, 499 U.S. 117, 129-30 (1991); Armour -17-

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Packing Co. v. United States, 209 U.S. 56, 82 (1908); Helix Elec., Inc. v. United States, 68 Fed. Cl. 571, 584 (2005). 1. Plaintiff's First Claim for Relief States a Claim Upon Which Relief Can Be Granted In its first claim for relief, plaintiff alleges that defendant was obligated to have taken "all remedial action necessary to protect human health and the environment with respect to any hazardous substance remaining on the Property" pursuant to section II.F.2 of the deed. Compl. ¶ 55. However, plaintiff contends that defendant breached section II.F.2 of the deed by "failing to take all remedial action necessary to protect human health and the environment with respect to the hazardous substances chlordane and/or OCPs remaining on the Property before the date of the Government's transfer of the Property to the [Authority]." Id. ¶ 60. The deed itself does not define the critical terms utilized in section II.F.2. Thus, because the presence of section II.F.2 in the deed was mandated by CERCLA, the court looks to CERCLA to define two of those terms­ "hazardous substance" and "remedial action." Pursuant to CERCLA, "hazardous substance" includes "any element, compound, mixture, solution, or substance designated" in regulations promulgated by the EPA. 42 U.S.C. §§ 9601(14), 9602. At the time the parties executed the deed, the appropriate regulation designated chlordane as a hazardous substance. 40 C.F.R. § 302.4 (2000). Next, "remedial action" refers to: those actions consistent with permanent remedy taken instead of or in addition to removal actions in the event of a release or threatened release of a hazardous substance into the environment, to prevent or minimize the release of hazardous substances so that they do not migrate to cause substantial danger to present or future public health or welfare or the environment. The term includes, but is not limited to, such actions at the location of the release as storage, confinement, perimeter protection using dikes, trenches, or ditches, clay cover, neutralization, cleanup of released hazardous substances and associated contaminated materials, recycling or reuse, diversion, destruction, segregation of reactive wastes, dredging or excavations, repair or replacement of leaking containers, collection of leachate and runoff, onsite treatment or incineration, provision of alternative water supplies, and any monitoring reasonably required to assure that such actions protect the public health and welfare and the environment. 42 U.S.C. § 9601(24). The "release" referred to in the definition for "remedial action" includes "any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the environment (including the abandonment or discarding of barrels, containers, and other closed receptacles containing any hazardous substance or pollutant or contaminant)." Id. § 9601(22). Given the foregoing definitions and allegations of the complaint, plaintiff argues that prior to defendant's transfer of the East Housing Area to the Authority, the Navy released -18-

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chlordane on the property in such a way that caused a "substantial danger to present or future public health or welfare or the environment," and that the Navy failed to take the remedial action required by CERCLA as a result of that release. Specifically, plaintiff alleges that the Navy stored, released, or disposed of chlordane in the East Housing Area prior to transferring the property to the Authority, and that the chlordane levels discovered after the transfer were higher than the law permitted, thus evidencing a failure to remediate. At the outset, the court notes that defendant's argument for the dismissal of the first claim for relief assumes that plaintiff's claim can be disposed of pursuant to the liability provision of CERCLA, 42 U.S.C. § 9607.19 Renewed Mot. 11. However, plaintiff's claim is not based on CERCLA's liability provisions.20 Instead, plaintiff alleges that defendant did not comply with the provisions of the deed that contained the notices and covenants required by CERCLA. See 42 U.S.C. § 9620(h). That allegation is separate and distinct from a CERCLA liability claim. See 42 U.S.C. § 9620(a)(1) (noting that the United States is required to comply with all of CERCLA's provisions, and that the liability provision is but one of the provisions with which the United States must comply). Notwithstanding the foregoing distinction, defendant argues that CERCLA liability for the release of hazardous substances "does not apply to useful products used for their intended purpose, including lawfully applied pesticide that serves a legitimate purpose in its existing state." Renewed Mot. 11 (citing A&W Smelter & Refiners v. Clinton, 146 F.3d 1107, 1112 (9th Cir. 1998); AM Int'l, Inc. v. Int'l Forging Equip. Corp., 982 F.2d 989, 999 (6th Cir. 1993)). The useful product defense is explicitly tied to CERCLA's liability provision. Under CERCLA's liability provision, four groups of "covered persons" are subject to liability under CERCLA: (1) the owner and operator of a vessel or a facility, (2) any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of, (3) any person who by contract, agreement, or otherwise arranged for disposal or treatment, or arranged with a transporter for transport for disposal or treatment, of hazardous substances owned or possessed by such person, by any

In its Renewed Opposition, plaintiff also invokes CERCLA's liability provisions in responding to defendant's argument concerning the useful product defense. Opp'n Def.'s Renewed Mot. Dismiss ("Renewed Opp'n") 21. In fact, the district court dismissed plaintiff's CERCLA claims prior to transferring the case to the Court of Federal Claims. Am. Int'l Specialty Lines Ins. Co., 2005 WL 680159, at *35. -1920

19

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other party or entity, at any facility or incineration vessel owned or operated by another party or entity and containing such hazardous substances, and (4) any person who accepts or accepted any hazardous substances for transport to disposal or treatment facilities, incineration vessels or sites selected by such person, from which there is a release, or a threatened release which causes the incurrence of response costs, of a hazardous substance . . . . 42 U.S.C. § 9607(a). The latter three groups' liability depends upon the disposal of hazardous substances, and it is the definition of "disposal" that creates the useful product defense. See A&W Smelter & Refiners, 146 F.3d at 1112. CERCLA draws its definition of "disposal" from the Solid Waste Disposal Act ("SWDA"), Pub. L. No. 89-272, §§ 201-210, 79 Stat. 992, 9971001 (1965) (codified as amended at 42 U.S.C. §§ 6901-6992k (2000)). 42 U.S.C. § 9601(29). The SWDA defines "disposal" as: the discharge, deposit, injection, dumping, spilling, leaking, or placing of any solid waste or hazardous waste into or on any land or water so that such solid waste or hazardous waste or any constituent thereof may enter the environment or be emitted into the air or discharged into any waters, including ground waters. Id. § 6903(3). Thus, in order to have a "disposal," "solid waste or hazardous waste" must be involved. "Hazardous waste" is also defined by the SWDA, see id. § 9601(29), and includes: a solid waste, or combination of solid wastes, which because of its quantity, concentration, or physical, chemical, or infectious characteristics may­ (A) cause, or significantly contribute to an increase in mortality or an increase in serious irreversible, or incapacitating reversible, illness; or (B) pose a substantial present or potential hazard to human health or the environment when improperly treated, stored, transported, or disposed of, or otherwise managed. Id. § 6903(5). Thus, in order for liability to attach under CERCLA, a covered person must have disposed of a hazardous waste. If a hazardous substance is not waste but instead is deemed to be a useful product under the statute, liability does not attach. This exception is known as the useful product defense. A&W Smelter & Refiners, 146 F.3d at 1112. However, because the useful product defense is appropriately raised in response to claims of liability pursuant to 42 U.S.C. § 9607, it is not applicable to plaintiff's first cause of action for breach of contract. However, assuming that the useful product defense did apply to plaintiff's claim, in order to show that plaintiff cannot state any set of facts that would entitle it to relief, defendant would be required to present conclusive evidence that the Navy used chlordane for its intended purpose, -20-

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because the court must assume the facts alleged by plaintiff to be true. Defendant has not done so. Defendant's sole evidence that the Navy used chlordane in the East Housing Area for its intended purpose is contained within the DTSC's May 3, 2002 letter. Renewed Mot. 11-12. Defendant characterizes this letter as establishing that "the responsible regulators found the pesticide applied to the building foundations was used in the manner intended." Id. Contrary to defendant's assertion, the letter merely indicates that the building foundations "appear to have been properly treated" with chlordane. See Pl.'s Ex. 4 at 224. Furthermore, the DTSC's conclusory statement lacks a factual basis. Clearly, used in this context, the word "appear" is nothing more than the DTSC's qualifier that it was making an assumption without the benefit of performing its own in-depth evaluation, and thus the entire statement is nothing more than the DTSC's supposition. The May 3, 2002 letter unquestionably required remediation of any soils with excessive concentrations of OCPs upon the removal of buildings and foundations treated with OCPs. See id. Thus, the DTSC's statement in its May 3, 2002 letter is not persuasive evidence that the Navy applied OCPs in the appropriate manner. Therefore, at this stage of the proceedings, defendant has not provided evidence conclusively negating plaintiff's allegations that the levels of chlordane and other OCPs it discovered in the East Housing Area were so high as to suggest that the Navy did not use chlordane or other OCPs in the manner intended. See, e.g., id. at 6 (reporting OCPs at levels exceeding "potentially applicable regulatory standards"). Accordingly, plaintiff has set forth facts sufficient to state a claim on its first claim for relief for breach of contract. 2. Plaintiff's Second Claim for Relief States a Claim Upon Which Relief Can Be Granted Plaintiff next alleges that section II.F.3 of the deed obligated defendant to "conduct any additional remedial action necessary after the date of transfer for any hazardous substance existing on the Property prior to the date of this Deed." Compl. ¶ 64. However, plaintiff contends that defendant breached section II.F.3 of the deed by "failing to conduct remedial action necessary after the date of the Government's transfer of the Property to the [Authority] for the hazardous substances chlordane and/or OCPs existing on the Property prior to the date of the [deed]." Id. ¶ 71. In essence, plaintiff argues that prior to defendant's transfer of the East Housing Area to the Authority, the Navy released chlordane on the property and that defendant failed to take the necessary remedial action required by CERCLA after the date of transfer. Specifically, plaintiff alleges that the Navy stored, released, or disposed of chlordane in the East Housing Area prior to transferring the property to the Authority, that the chlordane levels discovered after the transfer were higher than the law permitted, and that defendant failed to take appropriate remedial action after the discovery of high chlordane levels. Plaintiff does not address the second sentence of section II.F.3, which modifies the scope of defendant's obligation, and provides: "The covenant shall not apply to the extent that the GRANTEE caused or contr