A federal district court sitting in South Carolina has rendered the first reported judicial decision interpreting the reasonable steps or appropriate care requirements of the Bona Fide Prospective Purchaser (BFPP) defense under the Comprehensive Environmental Response, Compensation, and Liability Act of 1990, 42 U.S.C. §9601 et seq. (CERCLA). Reasonable steps or appropriate care is one of the requirements that must be met by a prospective purchaser of contaminated land to avoid CERCLA liability. The decision was rendered on October 13, 2010, in Ashley II of Charleston, LLC v. PCS Nitrogen, Inc., No. 2:05-cv2782-MBS, 2010 WL 4025885 (D.S.C. Oct. 13, 2010).
The decision is significant because it is the first reported case interpreting the reasonable steps or appropriate care requirements of the BFPP defense. It is also important for West Virginia landowners, developers, and others interested in brownfields in West Virginia because any appeal will be filed in the United States Court of Appeals for the Fourth Circuit, the appellate court for federal district courts sitting in West Virginia as well as South Carolina. Finally, the decision is noteworthy because it provides examples of specific actions by a prospective purchaser and the evidence offered at trial to prove those actions that one district court has held either do or do not satisfy the elements of the BFPP defense.
Briefly, a BFPP is a party or tenant of that party who acquires ownership of a brownfield after January 11, 2002, the date of enactment of the Small Business Liability Relief and Brownfields Revitalization Act, which added the BFPP defense to CERCLA, and who satisfies the following eight requirements by a preponderance of the evidence:
- Establishes that all disposal of hazardous substances on the facility occurred before the purchaser’s acquisition of the facility.
- Undertakes all appropriate inquiry (AAI) before acquiring title to the property. AAI is typically met by conducting a Phase I site assessment using the relevant ASTM standard. AAI must be conducted or updated within one year before the date on which the party takes title to the property and certain aspects of the AAI must be updated if conducted more than six months before the date of acquisition.
- Provides all legally required notices with respect to the hazardous substances found on the facility.
- Exercises appropriate care 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 previously released hazardous substances.
- Provides full cooperation, assistance, and access to persons authorized to conduct a response action or natural resource restoration.
- Complies with all land-use restrictions and does not impede the effectiveness of any institutional controls at the facility.
- Complies with information requests and administrative subpoenas under CERCLA.
- Establishes that the purchaser is not potentially liable for response costs, is not affiliated with a potentially responsible party (PRP) through a family, contractual, corporate, or financial relationship, and is not the result of a reorganization of a business entity that was potentially liable.
CERCLA §101(40), 40 U.S.C. §9601(40).
In Ashley, the district court found that the new owner of a brownfield that had been used to operate a fertilizer plant and a container cleaning and storage facility failed to satisfy elements 1, 4, and 8. Ashley, 2010 WL 4025885 *54-57. The district court’s rulings on the actions taken by the prospective purchaser and the evidence offered at trial to establish the eight elements of the BFPP defense are discussed below.
1. All Disposals of Hazardous Substances Must Occur Before Site Acquisition: The district court held that the new owner did not prove this element. Relying upon the definition of “disposal” in CERCLA and the Fourth Circuit’s broad interpretation of the term “disposal,” the district court concluded that the new owner failed to prove no disposals occurred on the site after its acquisition of the site. The district court found it “likely” that there were disposals after the new owner removed only the buildings but not the concrete pads, trenches, and sumps used to collect wastewater generated by the container cleaning process and to capture spills of any hazardous materials because “the sumps contained hazardous substances, were cracked, and were allowed to fill with rainwater.” Id. at *23 & 54. The district court reasoned that the new owner did not conduct testing to determine if disposals occurred during its ownership and specifically noted that the new owner did not test under the concrete pads, sumps or trench to see if the soil under those structures was contaminated although a protocol required the new owner to undertake such testing. Id. at *30. In addition, the district court struck at trial expert testimony that no disposals occurred after the new owner’s acquisition of the site for failure to disclose the expert’s opinion before trial. Id.
2. All Appropriate Inquiries: The district court found that the new owner properly conducted the AAI. At the time of the new owner’s due diligence for one parcel, interim standards were in place to meet the AAI standard which could be met by complying with ASTM Standard E1527-00 or the previous ASTM Standard, E1527-97, and at the time of the new owner’s due diligence for the other parcel, the final standards for performing AAI were in effect and could be met by complying with ASTM Standard E1527-05. Id. at *55 & n. 12 & 13. The defendant corporation whose predecessor had operated the fertilizer plant “point[ed] to some inconsistencies between…Phase I reports and the relevant ASTM Standards.” The district court found that “such inconsistencies lack significance,” explaining that: “What is important is that [the new owner] acted reasonably; it hired an expert to conduct an AAI and relied on that expert to perform its job properly.” Id. at *55.
3. All Legally Required Notices: Because the record did not establish that any releases of hazardous substances occurred on the site after the new owner purchased the site, the district court found that the new owner met its burden of proving that it made all legally required notices. Id.
4. Exercise of Appropriate Care/Reasonable Steps: The district court found that the new owner did not exercise appropriate care with regard to hazardous substances found at the site. Id. at 55-56. The new owner hired an environmental engineer to ensure that it complied with all BFPP requirements, provided security, conducted periodic inspections, fenced, gated, and posted no-trespassing signs. Id. at *28. Notwithstanding these actions, the district court found that the new owner had not exercised appropriate care with respect to the sumps, a debris pile, and a crushed rock cover on the site. EPA contended that Congress intended the “reasonable steps” requirement to be “consonant with traditional common law principals and the existing CERCLA due care requirement.” Under the CERCLA due care requirements, a party must establish that it “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 or circumstances.” EPA looks to existing case law on due care as a reference point for evaluating the reasonable steps requirement. EPA takes the position that “doing nothing in the face of a known or suspected environmental hazard would likely be insufficient.” Id. at *55. The district court noted that EPA’s Interim Guidance on BFPP Status provides that the AAI will most likely inform the BFPP as to the nature and extent of contamination on the property and what might be considered reasonable steps regarding the contamination, i.e., how to stop continuing releases, prevent threatened future releases, and prevent or limit human, environmental and natural resource exposures. Here, the Phase I identified the sumps and concrete pads as recognized environmental conditions. Id. at *24. There was standing water on the pads and in the sumps, which overflowed regularly and reached the cracks in the pads and the edge of the pads. One sump had a crack twelve inches deep. The district court concluded that the new owner’s investigation was insufficient to establish that the structures did not leak. Id. at *31-32. The district court found that the new owner may have exacerbated the conditions when it demolished the buildings but failed to clean out and fill in the sumps leaving them exposed to the elements. Experts at trial testified that the new owner should have capped, filled, or removed the sumps at the time it demolished the buildings. Id. at *56. The district court also found that the new owner’s failure to prevent a debris pile from accumulating on the site, investigate the contents of the debris pile, and remove the debris pile for over a year indicated a lack of appropriate care. Id. When the debris pile was finally removed, the hazardous waste manifests showed that the new owner removed hazardous substances from the site, including hydrochloric acid and waste paint. Id. at *30. Subsequent sampling of the soil under the debris pile indicated the presence of hydrocarbons and elevated levels of benzo(a)pyrene and other contaminants. At the time of this sampling, buckets, tires, and a bottle of engine oil that contained fluid remained on the site. Id. at 31. Finally, the district court found that the new owner failed to maintain the crushed rock cover on the site, noting that the cover had deteriorated. Id. at *56.
5. Full Cooperation, Assistance and Access: When the new owner acquired the site, it notified EPA of its ownership and asked EPA to advise if EPA desired the new owner to take specific action. Specifically, the new owner “explicitly requested that EPA inform [it] if EPA desired ‘specific cooperation, assistance, access or the undertaking of any reasonable steps with respect to the Site.” Id. at *28. Further, the district court found that the new owner cooperated with EPA since it acquired the site. The district court concluded that this was sufficient evidence to meet the new owner’s burden of proof on their requirement of full cooperation, assistance, and access. Id. at *56.
6. Institutional Controls: The new owner’s environmental engineer testified at trial that there were no land use restrictions or unusual institutional controls in place at the site and that the new owner was in compliance with any controls in place, and his testimony was not contradicted. Accordingly, the district court found that the new owner met its burden of proof that it was in compliance with any land use restrictions at the facility and was not impeding any institutional control employed at the facility in connection with the response action. Id. at *57.
7. Compliance with Requests and Subpoenas: The new owner’s environmental engineer testified that the new owner had complied with all EPA information requests and subpoenas, and an example of the new owner’s response to an EPA information request was introduced at trial. Id. at *29 & 57. The district court therefore found that the new owner had met its burden of proof that it had complied with information requests and subpoenas. Id. at *57.
8. No Affiliation: The district court held that the new owner failed to prove this element. In purchasing the site, the new owner entered into releases and environmental indemnity agreements with the sellers. The agreement with the operator of the container cleaning facility expressly provided that: “this indemnity is not intended, and shall not be construed, to abrogate or diminish [the new owner’s] status as a [BFPP]….” Id. at *21-22 & 24. With respect to the parcel where the fertilizer plant had operated, the new owner wrote to EPA a letter, stating that: “if EPA insisted on pursuing a claim against the [sellers] it would discourage [the new owner’s] future development efforts.” Id. at *31. The district court found that the new owner had released and indemnified prior owners at the time of disposal from environmental liability for contamination at the Site and had “attempted to persuade EPA not to take enforcement action to recover for any harm at the Site caused by [the indemnitees].” Id. at *57. The district court concluded that the new owner in indemnifying the past owners took the risk that the past owners might be liable for response costs. The district court further reasoned that the new owner’s “efforts to discourage EPA from recovering response costs covered by the indemnification reveals just the sort of affiliation Congress intended to discourage.” Id. Accordingly, the district court said that the new owner’s affiliation with the past owner of the portion of the site that contained the fertilizer plant precluded application of the BFPP defense. Id. The district court did not address the language in the indemnity agreement with the operator of the container cleaning facility that sought to preserve the BFPP defense. The district court also held that the new owner was a potentially responsible party and failed to meet its burden of proof because it was the “current owner of the majority of the Site on which hazardous materials are still leaching through the soil.” Id. at *57. There was no allegation that the new owner was the result of a reorganization of a business entity that was potentially liable. Id.
This article was authored by Gale Lea Rubrecht, Jackson Kelly PLLC. For more information on the author, see here.