October 01, 2013

Is CERCLA Owner Strategy Changing?

James Andreasen

Recent CERCLA cases suggest that purchasing contaminated properties may be safer than some assume, at least if the stars (or at a minimum the facts) align correctly. Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. §§ 9601-9675 (2006), property owners are defined as liable for any necessary remediation costs. Various exceptions, including the innocent purchaser defense, added to the 1980 statute as part of a 1986 amendment, protects purchasers who had no reason to know of contamination after conducting all appropriate inquiry into the condition and past uses of the property. 42 U.S.C. § 9601(35). This exemption created a new industry in conducting the requisite inquiry and resulted in the U.S. Environmental Protection Agency (EPA) and entities such as the American Society for Testing and Materials (ASTM) developing standards for compliance with the appropriate inquiry requirements. It left skeptics wondering if EPA or a court would ever likely find an inquiry was “appropriate” if it missed contamination discovered after purchase and requiring a response action. As part of 2002 amendments, Congress grafted on a potentially more expansive defense, called the bona fide prospective purchaser defense, that could protect purchasers even if they knew of contamination before purchasing the property. 42 U.S.C. § 9607(r). Maintaining the defense requires not only all appropriate inquiry, but also compliance with a laundry list of criteria aimed at assuring the purchaser protects the environment from the known conditions. Those ongoing obligations became the subject of EPA guidance and ASTM standards, as well.

But whether one looks at the statutory language or at the guidance, there is typically at least room to argue whether any individual purchaser fits into a particular defense. And if the property requires expensive remediation, there is every reason for either a governmental entity or a private party to pursue those arguments vigorously. In the end, a purchaser might feel a reasonable degree of certainty based on the defenses, but absent a body of case law helping to circumscribe the meaning of the defenses some inchoate risk remains.

Recent cases begin to fill in the blanks in interesting ways. One such case is U.S. v. Slay, No. 1:11-CV-263, 2013 WL 1312559 (E.D. Tex. Feb. 27, 2013), a somewhat narrow case involving claims that a purchaser of part of a remediated CERCLA facility recontaminated that facility. Slay involved more than one party that is a current owner of some part of the relevant CERCLA facility, but we will focuses on the defendant. In Slay, the defendant owner, NBR Maritime II, LLC (NBR), acquired a facility in 2008 that was on the National Priorities List, purchasing from plaintiffs Mr. Slay and several trusts of which he was trustee (collectively, Slay). NBR’s second installment toward the purchase price, a bit over $500,000, was due to be paid on June 6, 2011. EPA sued Slay under CERCLA in 2011, and NBR became embroiled in the litigation when EPA sought garnishment against it for the $500,000 payment. Slay then separately sued NBR in state court in 2011 asserting that NBR had recontaminated the site by dredging and spreading impacted soil. That suit was removed to federal court and consolidated with the previous case.

To all appearances, at the time that NBR purchased the property, all remediation was complete. The court recites that NBR “offers . . . evidence establishing that at the time it bought the Superfund Site property, there was no actionable contamination on the property.” Slay, Slip op. at 15. For example, a 2007 Record of Decision (ROD) concluded that no further action was necessary because a 2001 removal action “reduced the levels of contamination at the Site below levels that posed a risk to human health and the environment.” Id. Subsequent developments further demonstrate EPA’s view that the work at the site was complete. In 2011, EPA waived and released its CERCLA § 107 liens against the NBR property and, in December of 2011, EPA issued a letter stating NBR was never considered a potentially responsible party (PRP) at the site. Id. at 16. In March of 2012, EPA’s Site Status Summary suggested EPA would delete the site from the NPL, and EPA published a direct final notice to delete the site from the NPL effective in February 2012. Id.

Mr. Slay proceeded pro se on the Slay claims against NBR, and this surely complicated the court’s task. Nevertheless, in the end, the court construed the Slay action as one for contribution under CERCLA § 113 and analyzed the issues surrounding NBR’s motion for summary judgment on that basis. Slay, Slip op. at 13. Although citation to the 2007 ROD concluding that remediation is complete might appear to make a Phase One environmental assessment finding of no actual or threatened releases of hazardous substances nearly iron-clad, there is no indication that the court considered the innocent purchaser defense on behalf of NBR. The court does indicate, however, that NBR argued it was exonerated as a bona fide prospective purchaser. The court held, however, that NBR had not proven it met all the criteria for that defense. Slay, Slip op. at 16–17, n. 6.

The court articulated as a critical factual determination that Slay did not prove that any dredged material actually contained constituents at levels requiring remediation. It appears that NBR’s expert, unrebutted by experts for Slay, may have been key in the court’s assessment of the meaning of sampling results presented in connection with the motion for summary judgment. The court concluded that because NBR acquired the property after the CERCLA remediation was complete, the site was not a “facility” when NBR purchased it. The court also determined that no hazardous substances had been released on the NBR property after NBR’s purchase. Thus NBR could not be considered the owner of a “facility” within the meaning of CERCLA and, therefore, not liable to Slay. While the surrounding factual circumstances are sure to be relatively uncommon, the possibility of demonstrating a purchaser is simply not the owner of a covered facility is at least worth exploring where facts make it a viable argument.

Another case of interest is 3000 E. Imperial, LLC v. Robertshaw Controls Co., No. CV08-3985 PA, (C .D. Cal . Dec. 29, 2010). There, plaintiff 3000 E. Imperial, LLC (Imperial) purchased property in 2006 from Robertshaw. Its pre-purchase investigations identified trichloroethylene (TCE) and benzene in soil and ground water. In 2007, Imperial demolished a manufacturing facility as well as storage and maintenance sheds, leaving a vacant lot. Also in 2007, Imperial sampled the contents underground storage tanks that were installed in 1942, although when they were discovered is not clear. In September 2007, Imperial received results identifying TCE in the tanks, and in October it pumped them out, finally removing the tanks in 2009.

Imperial sued Robertshaw for cleanup costs, and Robertshaw counterclaimed. Imperial asserted the bona fide prospective purchaser defense, but Robertshaw asserted Imperial could not qualify because it left the tanks in place until 2009, demonstrating inadequate environmental protection. The court, however disagreed, focusing on the fact that Imperial pumped the tanks out soon after receiving the laboratory results.

A third case of interest, PCS Nitrogen Inc. v. Ashley II of Charleston, No. 11-1662 (4th Cir. Apr. 4, 2013), is covered in detail elsewhere in this issue. The salient fact for purposes of this article is that although the plaintiff there purchased the property knowing it was contaminated and expecting to remediate it, the court held the purchaser liable for only 5 percent of the total remediation costs.

What might these cases portend for the future? The Slay case might provide some prospective purchasers, in the right circumstances, the potential comfort that they cannot be PRPs if they purchase CERCLA sites at which remediation is complete and the property is not subject to relevant use restrictions. The circumstances where the Slay outcome can be repeated likely will be rare, however, and it would seem prudent to also take the necessary steps, such as conducting “all appropriate inquiry” before acquiring the property, to establish either the innocent purchaser defense, or the bona fide prospective purchaser defense. The 3000 E. Imperial case suggests that it is possible to demonstrate to a court compliance with the prerequisites of the bona fide purchaser defense. PCS, on the other hand, appears to suggest that in the right circumstances, a person may acquire contaminated property, remediate it, and recover a significant proportion of the remediation costs from other PRPs at the site.

Clearly the facts will be very important in similar future cases. Certainly it is possible that different courts may assess the facts and, where allocation occurs, the equities, differently. When possible, helping to assure that all the bases are covered during the purchase process and afterward can provide real value. Keeping an eye on the statute, guidance, and developing case law may help practitioners provide that value more effectively.

James Andreasen

Mr. Andreasen is an attorney in Lee’s Summit, Missouri, and is a member of the editorial board of Natural Resources & Environment.