October 01, 2013

Managing the Risks of Ashley II to Protect CERCLA Defense

Hong N. Huynh

In spring 2013, the Court of Appeals created a bit of a shock wave through the world of environmental due diligence with the much-anticipated decision in PCS Nitrogen Inc. v. Ashley II of Charleston, LLC. While affirming the lower court’s finding, the Fourth Circuit authored the first appellate decision interpreting the “bona fide prospective purchaser” (BFPP) defense. No. 11-1662 et al. (4th Cir. April 4, 2013), aff’d 791 F. Supp. 2d 431 (D.S.C. 2011) (Ashley II).

Because of the pervasive application of the BFPP defense, it remains the goal for many entities that are engaging in real property transactions. The defense allows them to acquire property while knowing, or having reason to know, of contamination on the property. With clarification from the U.S. Environmental Protection Agency (EPA) in a December 2012 guidance entitled Revised Enforcement Guidance Regarding the Treatment of Tenants Under the CERCLA Bona Fide Prospective Purchaser Provision, the BFPP defense is also available to prospective tenants leasing contaminated properties. Under this guidance, prospective tenants can now act independently of the property owner and be exonerated from liability under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). Finally, the elements of the BFPP defense are common to those of the innocent landowner and the contiguous property owner defenses. In sum, these buyers and tenants want to believe in the promise Congress made in 2002 when it passed the Brownfields Amendments to CERCLA—that the defense offers tangible relief from the strict liability scheme of CERCLA and from the increasingly expensive and unpredictable world of environmental remediation.

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