The ABA YLD 101 Practice Series article entitled “Understanding the Basics of CERCLA” discusses the liability framework, removal and remedial response actions, cost recovery actions, and contribution protection under the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”). This article discusses the available landowner defenses to liability under CERCLA. Courts have consistently held that the liability of potentially responsible parties is strict, joint, and several, so the federal government does not need to prove that the owner, operator, arranger, or transporter contributed to the release in any manner in order to establish a prima facie case under CERCLA. See Emhart Indus., Inc. v. Century Indem. Co., 559 F. 3d 57, 60 (1st Cir. 2009); U.S. v. Colorado & Eastern R. Co., 50 F.3d 1530, 1535 (10th Cir. 1995). This liability standard discouraged parties from acquiring, financing, and developing contaminated properties known as brownfields.
The original CERCLA statute did, however, provide for three defenses. Under 42 U.S.C. § 9607(b), a party is not liable if it can establish by a preponderance of the evidence that the release or threat of release of a hazardous substance and its resulting damages were caused by:
- An act of God;
- An act of war; or
- An act or omission of a third party with whom a potentially responsible party has no contractual relationship.
To address concerns that CERCLA’s strict liability scheme could cause inequitable results with respect to hazardous substance disposal activities, Congress further established defenses and exclusions from liability for innocent landowners, bona fide prospective purchasers, and contiguous property owners (collectively, “the landowner liability defenses”).
The Superfund Amendments and Reauthorization Act, enacted in 1986, modified the CERCLA third party defense to include innocent landowners and those who acquire property by inheritance or bequest. A “contractual relationship,” as it pertains to 42 U.S.C. § 9607(b), is deemed to not exist when a purchaser does not know and has no reason to know of the hazardous substance contamination at the time of purchase. To be eligible for the innocent landowner defense, a landowner must show that:
- The landowner acquired property after all hazardous substances were disposed of at the facility,
- On or before the acquisition date, the landowner conducted all appropriate inquiries, as described below, into the previous ownership and uses of the facility consistent with good commercial or customary standards and practices;
- The landowner did not know, and had no reason to know, of the hazardous substance contamination at the time of purchase;
- The landowner exercised due care with respect to the hazardous substance concerned, taking into consideration the characteristics of such hazardous substance, in light of all relevant facts and circumstances;
- The landowner complied with all continuing obligations after acquiring the property, as described below; and
- The landowner took adequate precautions, meaning it took affirmative acts, against foreseeable acts or omissions of any such third party and the consequences that could foreseeably result from such acts or omissions.
The criteria for satisfying the innocent landowner defense are set forth in 42 U.S.C. §§ 9607(b)(3) and 9601(35).
Bona Fide Prospective Purchasers
To encourage the acquisition and development of brownfields, the Small Business Liability Relief and Brownfields Revitalization Act (“the Brownfields Amendments”) of 2002 established the bona fide prospective purchaser defense to CERCLA liability. A bona fide prospective purchaser is a person who acquires ownership of a facility after January 11, 2002, and who establishes the following by a preponderance of the evidence:
- The hazardous substances disposal occurred before the purchaser acquired the property;
- The purchaser made all appropriate inquiries, as described below, into the previous ownership and uses of the facility;
- The purchaser complies with all continuing obligations after acquiring the property, as described below; and
- The purchaser has no affiliation with any potentially responsible party, as described below.
A party may purchase property with knowledge of the contamination after performing all appropriate inquiries and still qualify for the bona fide prospective purchaser defense, provided that it meets the other criteria set forth in 42 U.S.C. § 9601(40).
Contiguous Property Owners
The Brownfields Amendments exclude from the definition of “owner” or “operator” a person who owns property that is contiguous or otherwise similarly situated to a facility that is the only source of contamination found on the contiguous landowner’s property. A party seeking to assert the contiguous property owner defense must show that:
- The person did not cause, contribute to, or consent to the release or threatened release of hazardous substances;
- The person made all appropriate inquiries, as described below, into the previous ownership and uses of the facility;
- The person did not know and had no reason to know that the property was or could be contaminated by a release or threatened release of hazardous substances from other real property not owned or operated by the person;
- The person complied with all continuing obligations after acquiring the property, as described below; and
- The person had no affiliation with any potentially responsible party, as described below.
The criteria for satisfying the contiguous property owner defense are set forth in 42 U.S.C. § 9607(q)(1)(A).
Common Elements to the Landowner Liability Defenses
A party seeking to assert the innocent landowner, the bona fide prospective purchaser, or the contiguous property owner defense must perform “all appropriate inquiries” before acquiring the property and satisfy continuing obligations after acquisition. Bona fide prospective purchasers and contiguous property owners also bear the burden of proving that they are not potentially responsible parties or affiliated with any potentially responsible party.
1. All Appropriate Inquiries
“All appropriate inquiries” refers to the process of evaluating a property’s environmental conditions and assessing potential liability for contamination. The all appropriate inquiry rule applies to any party who seeks to assert protection from CERCLA liability as an innocent landowner, a bona fide prospective purchaser, or a contiguous property owner. The 2002 Brownfields Amendments require the EPA to promulgate regulations establishing standards and practices for conducting all appropriate inquiries into the previous ownership and uses of a property necessary to qualify for certain landowner liability protections. On November 1, 2005, the EPA published in the Federal Register its final rule entitled “Standards and Practices for All Appropriate Inquiries,” in which it declared that the American Society for Testing and Materials (“ASTM”) E1527-05 standard, entitled “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process,” is consistent with the requirements of the final rule regarding all appropriate inquiries and may be used to comply with the provisions of the rule. The standards and practices constituting “all appropriate inquiries” are set forth in 40 C.F.R. Part 312.
All appropriate inquiries must be conducted or updated within one year of acquiring ownership of a property. Certain aspects of all appropriate inquiries, such as interviews with past and present owners, operators, and occupants, the review of government records, visual site inspections, and searches for environmental cleanup liens, must be conducted or updated within 180 days prior to acquiring ownership of the property.
An environmental professional must conduct or oversee the conduct of activities required by the all appropriate inquiry rule. The EPA defines an “environmental professional” as someone who possesses sufficient specific education, training, and experience necessary to exercise professional judgment to develop opinions and conclusions regarding conditions indicative of releases or threatened releases on, at, in, or to a property, sufficient to meet the objectives and performance factors of the rule, and has:
- A state- or tribal-issued certification or license to perform environmental inquiries and three years of relevant full-time work experience; or
- A Baccalaureate degree or higher in science or engineering and five years of relevant full-time work experience; or
- Ten years of relevant full-time work experience.
The environmental professional must conduct the following inquiry activities:
- Interviews with past and present owners, operators, and occupants of the facility for the purpose of gathering information regarding the potential for contamination at the facility;
- Reviews of historical sources, such as chain of title documents, aerial photographs, building department records, and land use records, to determine previous uses and occupancies of the real property since the property was first developed;
- Reviews of Federal, State, and local government records, waste disposal records, underground storage tank records, and hazardous waste handling, generation, treatment, disposal, and spill records, concerning contamination at or near the facility;
- Visual inspections of the facility and of adjoining properties;
- Assessments of commonly known or reasonably ascertainable information about the property; and
- Assessments of the degree of obviousness of the presence or likely presence of contamination at the property, and the ability to detect the contamination by appropriate inspection.
The following additional inquiries must also be conducted by or for the party seeking to assert the landowner defenses:
- Searches for recorded environmental cleanup liens against the facility that are filed under Federal, State, or local law;
- Assessments of specialized knowledge or experience on the part of the prospective landowner; and
- The relationship of the purchase price to the value of the property, if the property was not contaminated.
2. Continuing Obligations
Parties asserting the innocent landowner, bona fide prospective purchaser, or contiguous property owner defense must comply with continuing obligations after acquiring the property. Continuing obligations require these landowners to:
- Exercise appropriate care with respect to hazardous substances found at the facility by taking reasonable steps to stop any continuing release, prevent any threatened future release, and prevent or limit human, environmental, or natural resource exposure to any previously released hazardous substances;
- Provide full cooperation, assistance, and access to persons authorized to conduct response actions or natural resource restoration at the facility; and
- Comply with land use restrictions and not impede the effectiveness of institutional controls.
The Brownfields Amendments also require bona fide prospective purchasers and contiguous property owners to:
- Cooperate with information requests and administrative subpoenas concerning the facility; and
- Provide all legally required notices regarding the discovery or release of any hazardous substances at the facility.
3. No Affiliation With A Potentially Responsible Party
Parties seeking to assert the bona fide prospective purchaser or contiguous landowner defenses must not be affiliated with any other potentially responsible party through any direct or indirect familial relationship, or any contractual, corporate, or financial relationship (excluding relationships created by instruments conveying or financing title or by contracts for the sale of goods or services).
The “no affiliation” criterion is not a required element of the innocent landowner defense, but those seeking to assert the innocent landowner defense must prove by a preponderance of the evidence that the act or omission that caused the release or threat of release of hazardous substances and the resulting damages were caused by a third party with whom the landowner does not have an employment, agency, or contractual relationship, as defined in 42 U.S.C. § 9601(35).
Determining whether a landowner meets the threshold criteria and satisfies the continuing obligations necessary to be eligible for one of the landowner defenses to CERCLA liability requires a fact-specific analysis. Potential landowners seeking to assert any of the landowner liability defenses should consult an environmental lawyer before purchasing potentially contaminated property. To minimize liability, parties must conduct environmental due diligence and attorneys should be aware of state laws that may impose greater environmental assessment and legal obligations on landowners.