P R O B A T E   &   P R O P E R T Y
March/April 2002
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Environmental Law Update

Environmental Law Update provides information on developments in environmental law as it applies to property, probate, and trust matters. The editors of Probate & Property welcome information and suggestions from readers.

Liability for Subdivision of Contaminated Property

With development of contaminated properties becoming increasingly more common, the issue of potential liability following subdivision arises. If a property is subdivided and a party purchases a "clean" subdivided parcel, can the purchaser of the "clean" parcel be held liable if contamination is later found on the property retained by the seller or sold to a third party? The short answer is "no," depending on several factors. Nonetheless, particular care should be exercised by purchasers of "clean" parcels to avoid potential liability.

The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund"), 42 U.S.C. §§ 9601–9675 (2001), establishes a severe liability regime for the release or threat of release of "hazardous" substances. Id. § 9601(14)(F). The statutory scheme created by CERCLA imposes strict joint and several liability on "owners" and "operators" of "facilities" at which hazardous substances have been "released." A purchaser’s potential liability is generally predicated on (1) whether the purchaser is an "owner" or "operator" of a contaminated parcel, (2) whether a "release" occurred at the parcel, and (3) the definition of the "facility" at which the release occurred.

Assume that Acme, the purchaser of the clean parcel, has no relationship to the seller other than the purchase of this property and that the contamination is completely contained within the seller’s remaining parcel. It is unlikely that Acme would be considered an "owner" or "operator" of a contaminated parcel. If Acme has never been in the chain of title to the property (i.e., there are no indicia of ownership), has not exercised any control over the operation of that parcel, and is not a successor in interest to the seller (i.e., no parent/subsidiary relationship or otherwise), then Acme is unlikely to be considered either an "owner" or "operator" of the adjacent parcel. But the inquiry does not end there.

A Fourth Circuit case, Nurad, Inc. v. William E. Hooper & Sons Co., 966 F.2d 837 (4th Cir. 1992), offers insight into how the courts address the issue of subdivision of a contaminated "facility." In Nurad, the plaintiff’s property had been part of a larger parcel, which was subdivided and sold by the previous owner. Seeking costs for remediation of contamination that it discovered on its property, the plaintiff (Nurad) sued all prior tenants of the larger parcel. Nurad argued that the prior tenants’ property interests necessarily included the implicit authority to "control" the entire property, including the area containing the leaking underground storage tanks (USTs), even if a tenant had occupied only a portion of the property. The Fourth Circuit rejected this broad interpretation of "operator," holding that the former tenants must have had some level of authority to control the facility in order to be liable for the contamination from the USTs. It is not enough that the property was at one point held in common ownership: Acme would have to exercise some level of control over the operation of the adjacent site to be considered an "operator" for purposes of CERCLA liability.

In addition, Nurad argued that the "facility" encompassed the entire site, not simply the area where the USTs were located. Under this interpretation, all tenants would be considered as having a property interest in the contaminated "facility." The Fourth Circuit, however, rejected this argument, defining the "facility" to be limited to the area immediately around the USTs. The court reasoned:

In this case, the only "area" where hazardous substances have "come to be located" is in and around the storage tanks, so the relevant "facility" is properly confined to that area. To be sure, the tanks are a part of the larger piece of property that is now the Nurad site. During the relevant period, however, the site was subdivided and separate portions of it were leased out to individual tenants. The fact that those tenants may have had control over a building that was adjacent to the USTs is irrelevant under the statute; a defendant operates a "facility" only if it has authority to control the area where the hazardous substances were located. Thus, while liability under § 9607(a)(2) is strict . . . , it nonetheless extends only to those who have authority over the area where hazardous substances are stored. The statute places accountability in the hands of those capable of abating further environmental harm, while Nurad’s proposed definition of "facility" would rope in parties who were powerless to act.

Id. at 842–43 (emphasis added). Thus, as long as the premises demised to a tenant did not include the subject contaminated "facility," that tenant would not be held liable for contamination at other areas of the larger parcel. Similarly, Acme’s liability for the contamination of the adjacent parcel would be limited because the contaminated "facility" is properly confined to the parcel in which the contamination is located.

It is important to consider that Acme’s avoidance of liability for contamination at the adjacent property is also predicated on the assumption that the contamination at the adjacent parcel has not migrated to or from Acme’s parcel. A passive owner that purchases contaminated property may potentially be liable for cleanup if the contamination migrates or otherwise is exacerbated during its ownership. Moreover, had the contamination spread throughout the entire property, including the subsurface under the buildings and common areas demised to the other tenants, the court in Nurad most likely would have defined the "facility" to include the entire property, and all tenants would have been equally liable as operators . See Axel Johnson, Inc. v. Carroll Carolina Oil Co., 191 F.3d 409, 418–19 (4th Cir. 1999) (noting that the Nurad court made the specific finding that the area around the USTs was the only contaminated area). Thus, purchasers of the "clean" parcel must ensure that their due diligence is sufficient to detect any migrated contamination.

Environmental Law Update Editor: Rafe Petersen, Holland & Knight LLP, 2099 Pennsylvania Ave., N.W., Suite 100, Washington, DC 20006–6801, rapetersen@hklaw.com.

 

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