Justia Federal District Court Opinions

We here review for the second time regulations promulgated by the Administrator of the Environmental Protection Agency (EPA) for the protection of catalytic converter emission control devices pursuant to section 211(c)(1) (B) of the Clean Air Act of 1970, which provides:

(c)(1) The Administrator may, from time to time on the basis of information obtained under subsection (b) of this section or other information available to him, by regulation, control or prohibit the manufacture, introduction into commerce, offering for sale, or sale of any fuel or fuel additive for use in a motor vehicle or motor vehicle engine . . . (B) if emission products of such fuel or fuel additive will impair to a significant degree the performance of any emission control device or system which is in general use, or which the Administrator finds has been developed to a point where in a reasonable time it would be in general use were such regulation to be promulgated.

42 U.S.C. § 1857f-6c(c)(1)(B) (1970). Because lead emissions interfere with the operation of the catalytic converters now installed on most new cars,¹ the Administrator on January 10, 1973 issued regulations requiring the sale of unleaded gasoline for the protection of those devices.² Those regulations were challenged by 16 branded refiners, including the 11 petitioners here, and in Amoco Oil v. EPA³ (hereafter Amoco I ) were upheld in all but one respect by this court on May 1, 1974. The Amoco I court invalidated the liability sections of the first regulations which imposed liability upon a refiner for sales of contaminated (leaded) gasoline as unleaded by a retailer irrespective of the actual fault of the refiner.⁴ In reaching such conclusion we found that the EPA had improperly incorporated into the liability sections an irrebuttable presumption of refiner fault: even if the refiner could prove that the contamination resulted from an unforeseeable act of vandalism by a third party or from an unpreventable breach of contract by a distributor or a jobber, he would still be held liable.⁵

Following the decision in Amoco I, the Administrator redrafted the liability section of the regulations and reissued it.⁶ It is this section which is the subject of this appeal.⁷

The petitioners originally made two arguments against the new liability section; but on appeal following oral argument, at our suggestion, the parties met and agreed upon a modification of the regulations which has mooted one of those arguments.⁸ The remaining issue in the case, characterized as the "retail dealer" issue by the parties, requires this court again to consider the extent to which a refiner may be held liable for the actions of retail dealers who sell its products.

The "retailer dealer" issue centers around subsection (b)(2)(iv) of the new regulation, 40 C.F.R. § 80.23(b)(2)(iv) (1975), which allows the refiner to escape the general liability imposed by section 80.23(a) for the acts of directly-supplied retail distributors of its products if it can demonstrate that the violation in question was not caused by it or its employee or agent, and :

(iv) That the violation was caused by the action of a retailer who is supplied directly by the refiner (and not by a reseller), and whose assets or facilities are not substantially owned, leased, or controlled by the refiner, in violation of a contractual undertaking imposed by the refiner on such retailer designed to prevent such action, and despite reasonable efforts by the refiner (such as periodic sampling) to insure compliance with such contractual obligation . . . .

(Emphasis added). See note 7 supra. The provision to which petitioners object is the phrase which allows the refiner to escape liability only if it can show that the guilty retailer is one "whose assets or facilities are not substantially owned, leased, or controlled by the refiner." Under this provision, the refiner would always be liable for the actions of a retailer who leases his station from a refiner, unless one of the special exceptions in the regulations applied.⁹ The petitioners object to this blanket imposition of liability as mandated by subsection (b)(2)(iv). We agree that this language goes too far in imposing liability without proof of fault and that it should be stricken from the regulation.

Initially, it should be made clear that we are concerned here only with the liability for negligent contamination, since the refiner is able to escape liability for deliberate acts of contamination on the part of the retailer under the provisions of 40 C.F.R. §§ 80.23(b)(2)(ii) or 80.23(e) (1975).¹⁰ The only means under the regulation by which the refiner can avoid liability for the negligent or inadvertent acts of his directly-supplied retailers, however, is to prove under 40 C.F.R. §§ 80.23(b)(2)(i) and (iv) that all of the following are true:

(1) that the violation was not caused by an employee or agent; and

(2) that the violation was caused by the action of an independent (non-lessee) retailer; and

(3) that the retailer's action was in violation of a contractual undertaking imposed by the refiner upon the retailer and designed to prevent such action; and

(4) that the refiner had made reasonable efforts to insure compliance with that contractual obligation.

Our objection to this new regulation is that, even assuming the fault of the lessee can be proved, we do not believe that the lessee's negligence can be imputed to the refiner in all cases. The second element which must be proved under section (b)(2) in order for the refiner to escape liability is that the violation was caused by an independent (non-lessee) retailer. Thus, if condition (2) is not met because the retailer's facilities are leased to him by the refiner, the escape provisions of subsection (b)(2)(iv) can never apply even if the refiner has imposed upon the retailer a strict contractual undertaking to avoid contamination and made every human effort possible to insure compliance with it. Such result is arbitrary.

In defense of the capricious results¹¹ dictated by this EPA rule, the dissent observes that "this, in itself, is no ground for striking down the regulation. Employers to use the most common example of vicarious liability are held responsible every day for torts of employees even where they have taken all possible steps to avoid the injury." Dissent 177 U.S.App.D.C. at ---- - ----, 543 F.2d at 270 - 280. It is argued that the EPA is entitled to impute liability to refiners generally on the ground that "vicarious liability is imposed . . . because some properly authorized agency of government court, legislature, or administrative body has determined that such an allocation of responsibility will serve society's ends," dissent at 177 U.S.App. D.C., at --, 543 F.2d 281 (emphasis added), and that the "EPA is, beyond doubt, the properly authorized body to choose the liability standards that will best achieve the purposes of the Clean Air Act." Dissent 177 U.S.App.D.C. at ----, 543 F.2d at 282 (emphasis added). But where is the authority in the relevant statute to alter the settled law which establishes the legal responsibility of the instant parties? It is true, of course, that vicarious liability is often imposed despite the fact that the party to whom negligence is imputed has taken all possible steps to avoid the injury or harm. But that generalization does not justify the EPA's action here, since the Administrator's rule goes well beyond the bounds of traditional vicarious liability.

As a starting point, it should be noted that the EPA is not "properly authorized" to impose a blanket vicarious liability. There is nothing in the statutory grant of power to the Administrator "by regulation (to) control or prohibit the manufacture, introduction into commerce, offering for sale, or sale of any fuel or fuel additive for use in a motor vehicle or motor vehicle engine . . . ," 42 U.S.C. § 1857f-6c(c)(1), that expressly or impliedly authorizes him to alter the settled law between lessor and lessee as to their respective responsibilities in tort¹² so as to make the refiner liable for independent lessees as though they were mere subservient employees. The single fact that a refiner may have leased certain real estate and appurtenances to an individual who sells his products does not, without more, furnish any logical or legal basis for imposing blanket responsibility upon the owner for offenses or tortious acts committed by the lessee on the premises. In the absence of any indication of a specific intent on the part of Congress to create a "new tort,"¹³ the traditional common law rules of vicarious liability must apply. Isbrandtsen Co. v. Johnson, 343 U.S. 779, 783, 72 S.Ct. 1011, 1014, 96 L.Ed. 1294 (1952). The authority given to the EPA by Congress did not vest the EPA with power to supplant those rules with the doctrine of strict liability. There is a well defined body of law which determines when negligence may be imputed from one party to another and it is therefore to this law that we must look to judge the legality of the EPA's new liability regulations.

Generally, vicarious liability may be imposed upon a non-negligent person by reason of some closely integrated relationship existing between him and the negligent party.¹⁴ The essence of such relationship is that the person to whom the negligence is imputed has sufficient control over the acts of the negligent party to justify the conclusion that he is responsible for what happened.¹⁵ The facts and circumstances of each case must be examined individually to determine whether the relationship in question exhibits the necessary degree of control to justify the imputation of negligence from one party to the other. For example, the court must decide in employment situations whether the negligent party was an employee, whose negligence may be imputed to his employer, or an independent contractor, for whose actions no liability will attach to the employer.¹⁶ Similarly, the details of an agency relationship must be examined before negligence will be imputed to the principal.¹⁷

The case now before us presents a question of whether vicarious liability can be imposed on a lessor for the negligent acts of his lessee who sells the lessor's products. Traditionally, the rule has been that once control of the premises passes to the lessee, the landlord is not vicariously liable for accidents which occur thereon unless he has retained control over the premises.¹⁸ Ignoring this ancient rule, the EPA here seeks to hold lessor-refiners liable regardless of the true nature of their relationship with their retailers. In the complex and difficult situation now before us, we are not prepared to raise the general rule as a complete bar to refiner liability; on the other hand, we do feel it means that vicarious liability cannot be imposed on all refiners for any and all negligent contaminations which occur regardless of the circumstances and the degree of control exerted by the refiner over the retailer-lessee. The mere fact that a retailer sells a refiner's products and leases his facilities from the refiner are not by themselves such compelling evidence of control by the refiner as to justify conclusive imputation to the refiner of the retailer's negligence. Oil company lease agreements are not required to follow a prescribed pattern. No doubt some lease agreements may contain such strong evidence of control by the refiner as to justify the imposition of vicarious liability; but it is equally possible that the lease may affirm and protect the independence of the retailer.¹⁹ In the absence of some demonstrated link between a lease agreement and a degree of actual control over gasoline retailers sufficient to justify imputing their negligence to the refiner-lessor, we conclude that the EPA cannot by regulation impose blanket liability upon refiners for all of the negligent acts of their lessees in the sale of gasoline in violation of the applicable statute and regulations.

The dissenting opinion attempts to characterize our position on this point as requiring a "high degree" of control by the refiner over his lessee before negligence may be imputed. Dissent 177 U.S.App.D.C. at ----, 543 F.2d at 280. That is an incorrect interpretation of our holding. We are not now attempting to define the nature of the relationship which will justify the imposition of vicarious liability.²⁰ Rather, all we are saying is that the EPA must examine the indicia of control in each refiner-lessee relationship and find it to be sufficient to hold the refiner liable for the negligence of the lessee before the negligence may be imputed to the refiner. In promulgating the regulation under review here, it is true that the EPA found that refiners have "sufficient control of facilities owned or leased by them to prevent contamination of unleaded gasoline. . . ."²¹ But there is no support for this conclusion in the record. Indeed, as the dissent admits, "(n)ot a single refiner submitted a sample lease agreement." Dissent 177 U.S.App.D.C. at ----, 543 F.2d at 283. The burden of supporting the agency regulation with evidence of control by lessors rests upon the agency and not upon the refiners. Without doubt, the lease agreement is the single most important factor in establishing the lessor-lessee relationship, including the degree of control exerted by the former over the latter. And yet, without considering a single lease, the EPA has here concluded that all refiners exercise a degree of control over all their lessees sufficient to justify the application of vicarious liability in every case. This is the thrust of our holding; what degree of control is "sufficient" is a question which we do not now address.

No contrary result is required by our prior opinion in this case. In striking down the liability provisions of the previous regulations in Amoco I, we held that

(r)efiners and distributors must have the opportunity to demonstrate freedom from fault. . . . A refiner which can show that its employees, agents, or lessees did not cause the contamination at issue, and that the contamination could not have been prevented by a reasonable program of contractual oversight, may not be held liable . . . .

163 U.S.App.D.C. at 189, 501 F.2d at 749 (footnote omitted, emphasis added). Curiously, the dissent reads this passage to "plainly" mean that a refiner can be held responsible when contamination results from the negligent act of a lessee, dissent 177 U.S.App.D.C. at ----, 543 F.2d at 280, and in its footnotes goes even further by interpreting it to mean that this court held, "on the basis of the record then before it, that EPA had made a sufficient showing to justify placing vicarious liability on refiners in this narrow context for contamination caused by lessees." Dissent at --- U.S.App.D.C. at ---- n.1, n.9, --- F.2d at ---- n.1, n.9. We, however, can find no language in that opinion addressed to the sufficiency of the EPA's showing or to the question of when a refiner can be held liable for the actions of his lessee; nor does it "state with some precision the outer boundaries for the new liability regulations that EPA was sure to promulgate." Dissent at 177 U.S.App.D.C. at ----, n.1, 543 F.2d at 279 n.1. The passage "plainly" addresses only the issue then before this court, i. e., the circumstances under which a refiner may not be held liable.²² It goes no further.

Therefore, to validate the existing regulations, the phrase "whose assets or facilities are not substantially owned, leased, or controlled by the refiner" must be stricken from 40 C.F.R. § 80.23(b)(2)(iv) (1975). This will then permit refiners to escape liability if they can prove that the contamination was caused by the action of a directly-supplied lessee. Otherwise, the regulation exceeds the authority conferred on the Administrator by the statute, 42 U.S.C. § 1857f-6c(c)(1), and is "arbitrary . . . (and) not in accordance with law." 5 U.S.C. § 706(2). As we view the law the refiner cannot be held liable for the negligence of every retailer merely because he owns and leases the premises where his products are sold.

Judgment accordingly.

J. SKELLY, WRIGHT, Circuit Judge (dissenting):

The only issue left in this case is whether refiners may be held vicariously liable for contamination of unleaded gasoline negligently caused by their lessee-retailers. It ought to be dispatched in one sentence. This court has already ruled on it in favor of EPA, and all the current petitioners were parties to that lawsuit. Amoco Oil Co. v. EPA, 163 U.S.App.D.C. 162, 501 F.2d 722 (1974) (Amoco I ). In Amoco I we passed on the original liability provisions which were too strict and we set forth carefully the limits any new provisions would have to meet:

Refiners and distributors must have the opportunity to demonstrate freedom from fault. A distributor which can show that its employees and agents did not cause the contamination at issue may not be held liable * * *. A refiner which can show that its employees, agents, or lessees did not cause the contamination at issue, and that the contamination could not have been prevented by a reasonable program of contractual oversight, may not be held liable * * *.

163 U.S.App.D.C. at 189, 501 F.2d at 749 (footnote omitted; emphasis added).1

EPA expressly relied on this passage from our opinion in promulgating its new regulations. 39 Fed.Reg. 42357-42358 (December 5, 1974), JA 2-3. Those regulations conform precisely to our mandate. They give refiners an opportunity to demonstrate freedom from fault, but they also hold refiners responsible when contamination results from the negligent act of an employee, agent, or lessee.

Petitioners, eleven refining companies who were among the petitioners in Amoco I, now challenge the new regulations and assert that we meant something other than what we plainly said in the earlier case. Even if their assertion had any merit, it cannot be pressed in this fashion. It should have been raised on a petition for rehearing in Amoco I. The petitioners never filed such a petition, nor did they seek further review of our decision there. That judgment is final, and it controls this case.

Assuming, as the majority has, that we are to consider the matter anew, I still find that EPA's regulations are unquestionably valid. In the first place, the dispute rages over a very small class of contamination incidents those caused by lessee negligence. If the lessee deliberately brings about contamination, the refiner escapes liability under 40 C.F.R. § 80.23(b)(2)(ii) or § 80.23(e) (1975).2 And the lessee has precious few opportunities to cause non-deliberate negligent contamination. The refiner both controls deliveries of gasoline to the station by tank truck, JA 386-388, and maintains substantial control over the equipment that will handle the gasoline at the station, since the refiner initially installed the equipment and remains the owner of it, charged with its continuing care.

More importantly, the majority overstates the showing required before society may validly impose vicarious liability, and then relies on speculation that finds no support in the record in order to conclude that its overblown requirements have not been met. I take issue on both points.

The majority indicates that there must be "some closely integrated relationship"3 or "compelling evidence of control" before refiners may be held vicariously liable. Majority op. 177 U.S.App.D.C., at ----, ----, 543 F.2d 276. We may assume that the Due Process Clause of the Fifth Amendment and the Administrative Procedure Act's ban on arbitrary or capricious agency action, 5 U.S.C. § 706 (1970), do require some degree of relationship and control as a predicate for imposing vicarious liability, but the majority never reveals why it insists on such a very high degree.

The majority does express some shock at the notion that vicarious liability may occasionally result in loss to a refiner that has "made every human effort possible" to avoid contamination. Majority op. 177 U.S.App.D.C. at ----, 543 F.2d at 274. But this, in itself, is no ground for striking down the regulation. Employers to use the most common example of vicarious liability are held responsible every day for torts of employees even where they have taken all possible steps to avoid the injury. Dean Prosser, in the very passage of his treatise cited by the majority, makes this unsurprising proposition entirely clear.4 Employers' vicarious liability is no longer controversial. No one suggests that its imposition is either arbitrary or unconstitutional. EPA was entitled to conclude that the same factors which make vicarious liability for employee torts acceptable also render acceptable EPA's much more limited ruling that refiners shall assume responsibility for lessee-caused contamination.

Vicarious liability like other forms of strict liability is imposed not because there is "compelling evidence of control," but rather because some properly authorized agency of government court, legislature, or administrative body has determined that such an allocation of responsibility will serve society's ends. The determination may rest on the judgment that it is more just to impose liability on the party who entered the business knowing of the general hazards, rather than risk leaving the entire loss on the innocent injured party.5 Or more importantly for our purposes it may derive from the judgment that vicarious liability will create incentives which lead, in the long run, to reducing the number of injuries.6 Here it is hardly irrational to conclude that making refiners liable for contamination caused by lessee negligence will serve to reduce contamination. Under the regulations refiners are given a clear incentive to choose their lessees carefully and to refuse to renew the leases of operators with poor contamination records. Moreover, the regulations work to encourage the refiner-owners to install equipment which itself minimizes the chances that lessee negligence will result in contamination. The regulations thus plainly serve the paramount goal of protecting the consumer and keeping emission control devices functioning properly.

The majority acts as though the tests for vicarious liability have been cast in concrete, as though liability must always turn upon the familiar dichotomy between employee and independent contractor.7 This may well be a serviceable distinction when applied to exonerate the refiner of responsibility for most negligent torts committed by a lessee-retailer or the lessee's employees. But it simply does not apply here. EPA is not trying to hold refiners liable for every personal injury caused by lessees or their employees. Its regulations are narrowly focused on one specific evil, and in this limited area, because of the realities of the gasoline distribution system, JA 386-388, vicarious liability of refiner-lessors is a sensible and permissible control strategy.

EPA's regulations are designed to deter what amounts to a "new tort" call it negligent contamination or negligent impairment of an emission control device.8 It is a new form of injury which has resulted from advancing technology coupled with increasing public demand for clean air. Contrary to the majority's repeated intimations, there is no "settled law" governing responsibility for this particular narrowly-defined class of injuries. Nothing in the Constitution, the Clean Air Act, or the Administrative Procedure Act dictates that the liability rules here must conform precisely to the vicarious liability rules that continue to apply to other, more familiar, types of injuries.

The experience of recent years in the products liability field ought to prompt caution before one adopts a stance as rigid as the majority's. In that field, strict liability has been found, in an avalanche of recent cases, to serve society's ends better than the old doctrines of warranty and privity that seemed solidly entrenched only a few years ago.9 Those liability standards changed rapidly and dramatically in response to advancing technology, new and more remote relationships between manufacturers and consumers, changing societal perceptions about where the burden should justly fall, and emerging views about what strategies would best deter injuries. In a similar vein, one certainly ought to consider with an open mind the possibility that comparable factors might make appropriate different vicarious liability standards for the narrowly limited class of "torts" upon which EPA focused.

EPA is, beyond doubt, the properly authorized body to choose the liability standards that will best achieve the purposes of the Clean Air Act. This court is not to second-guess EPA's decision.10 Our only function is to assure that EPA acted within the broad limits set down by statute and the Constitution. We check only to see that the record reveals sufficient control by the refiners over lessee-retailers that EPA's imposition of liability on the refiners is neither arbitrary nor capricious. See Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 285-286, 290, 95 S.Ct. 438, 42 L.Ed.2d 447 (1974); Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971).

EPA explicitly found that refiners have "sufficient control of facilities owned or leased by them to prevent contamination of unleaded gasoline * * *." 39 Fed.Reg. 13177 (April 11, 1974), JA 11. As support for its position EPA noted that at lessee-operated stations it is the refiner-owners who make "basic decisions respecting the conditions of sale of unleaded gasoline," particularly decisions about equipment. Id. EPA also observed that a refiner "has sufficient control to limit his exposure to liability in such cases and may, of course, seek indemnity." Id. at 13178, JA 12.

The record supplies adequate support for EPA's determinations.11 My colleagues themselves even concede that some lease agreements may contain "strong evidence of control by the refiner." Majority op. 177 U.S.App.D.C., at ----, 543 F.2d at 276. They go on, however, to speculate that is is "possible" that a lease may affirm lessee independence. The paucity of record support for this speculation is striking. Although a number of refiners commented on the proposed regulations, only one even bothered to refer specifically to the lessee-retailer issue. JA 34-36. That refiner who is not a petitioner here rested content with a generalized disclaimer of control over lessees. Not a single refiner submitted a sample lease agreement or any other documentation that would support that disclaimer. They failed to do so despite EPA's careful request, in the notice of proposed rulemaking, that "comments addressed to the relationships between branded refiners and other elements of the distribution system be factual and specific and that examples of contracts or other documents illustrating those relationships be submitted where pertinent." 39 Fed. Reg. at 13178, JA 12.

The cases cited by the majority furnish no better support for its position. They all arose in drastically different contexts. To the extent they relate to the issue of lessee independence at all, they decide only that lessees are sufficiently independent to justify particular applications of the antitrust laws, e. g. Simpson v. Union Oil Co., 377 U.S. 13, 20, 84 S.Ct. 1051, 12 L.Ed.2d 98 (1964); Peter v. Union Oil Co., 328 F.Supp. 998, 1001 (C.D. Cal. 1971); United States v. Richfield Oil Corp., 99 F.Supp. 280, 293-294 (S.D. Cal.), affirmed, 343 U.S. 922, 72 S.Ct. 665, 96 L.Ed. 1334 (1951), or that lessees are sufficiently independent that their employees will not be considered employees of the refiner under the labor laws. Site Oil Co. v. NLRB, 319 F.2d 86, 93 (8th Cir. 1963). The cases say nothing whatever about imposition of vicarious liability.12 That lessees are judged independent for some limited purposes obviously does not mean they must be considered fully independent for all purposes.

EPA properly found "sufficient control" to justify holding refiners liable for negligent contamination at lessee-operated stations. Applying the proper standard of review, this court has no basis whatever for finding EPA's action irrational or arbitrary or capricious. See Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., supra.

I respectfully dissent.