EPA has issued new guidance addressing the non-affiliation requirement for the landowner liability protections available under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) for bona fide prospective purchasers (BFPPs) and contiguous property owners (CPOs). The statute provides that landowners seeking to avoid CERCLA liability cannot be “affiliated with” another party who is potentially liable under CERCLA. The new guidance, titled “Enforcement Discretion Guidance regarding the Affiliation Language of CERCLA’s Bona Fide Prospective Purchase and Contiguous Property Owner Liability Protections,” addresses the “affiliated with” language of CERCLA and complements EPA’s previously issued Tenants Guidance. The new guidance should be of interest to owners of contaminated property and entities interested in buying and developing brownfields as well as neighboring landowners.
The new guidance discusses prohibited affiliations identified in CERCLA, the burden of proof, initial considerations in determining whether a disqualifying affiliation exists, two statutory exceptions, and four additional relationships that generally should not be considered to be disqualifying affiliations. EPA emphasizes that the analysis is fact-intensive Affiliation Guidance at 2. The crux of the analysis is whether the relationship was created to avoid CERCLA liability. Id. at 7. If so, the affiliation will disqualify a purchaser of property or owner from BFPP or CPO liability protection.
Affiliations expressly prohibited by CERCLA include: (1) direct or indirect familial relationships; (2) contractual, corporate, or financial relationships; and (3) business reorganizations of a business entity that was potentially liable. Id. at 2-3. The entity seeking the liability protection has the burden of proof to establish the non-affiliation requirement and all of the other elements of the BFPP or CPO defense. Under CERCLA, CPOs may request from EPA a “no action assurance letter” or settlement that provides protection against cost recovery or contribution. BFPPs may seek comfort/status letters, BFPP-doing-work-agreements, or prospective purchaser agreements in limited circumstances. Id. at 3.
The new guidance directs EPA personnel to consider following four issues before exploring whether there is a prohibited affiliation: (1) whether the person seeking liability protection under the BFPP or CPO provisions is otherwise a potentially responsible party (PRP) i.e., an owner/operator at the time of disposal, a transporter, or an arranger for the disposal of hazardous substances; (2) whether the entity is in fact the same entity as a PRP or is potentially liable under other principles of corporate law, such as successor liability; (3) whether a business entity asserting BFPP or CPO status is the result of a reorganization of a liable party through bankruptcy or other corporate restructuring.; and (4) whether the party with whom a person may have an affiliation is actually a PRP at the facility. Id. at 4-5.
Next, the new guidance discusses the two statutory exceptions to contractual, corporate, and financial relationships that do not disqualify a purchaser of property or owner from BFPP or CPO liability protection. The first statutory exception applies only to BFPPs and is for contractual, corporate, or financial relationships that are “created by the instruments by which title to the facility is conveyed or financed.” Deeds, title insurance, agreements with a third-party lender, or other agreement that makes transfer of title possible would fall within this exception. Id. at 6. The second statutory exception applies to bothBFPPs and CPOs and is for contractual, corporate, or financial relationships that are “created by a contract for the sale of goods or services.” EPA states that it will adopt a plain language definition of goods and services and gives a contract for snow removal as an example of a contract for a service that would not be considered to be a disqualifying affiliation. Id. at 6-7.
Additionally, EPA examines “special considerations” in applying the non-affiliation requirement and identifies the following four relationships that “it generally intends not to treat as disqualifying affiliations”: (1) relationships at other properties: (2) post-acquisition relationships; (3) documents that typically accompany title transfer; and (4) tenants seeking to purchase property they lease. Id. at 7.
Relationships at Other Properties: EPA intends to focus on only those affiliations that may be related to the contaminated property or the source property. For example, if the buyer and seller have existing lease agreements at other properties unrelated to the contaminated property, EPA will likely treat the buyer as if it were a BFPP so long as the buyer has complied with all of the other BFPP requirements. Id. at 8-9.
Post-Acquisition Relationships: A BFPP or a CPO that enters into a familial, contractual, corporate, or financial relationship with a PRP after the acquisition of the property will generally not be considered to have a disqualifying affiliation with the PRP. For example, if a buyer acquires a contaminated industrial park from a seller who was an owner during the time of the disposal at the industrial park and the seller later leases a warehouse within the industrial park to the buyer, EPA will generally treat the buyer as a BFPP. Id. at 9.
Documents that Typically Accompany Title Transfer: Generally, EPA does not intend to treat indemnification, insurance, and other agreements that are typically created as part of the transfer of title as disqualifying affiliations. Id. at 9. EPA clarifies that it means indemnification agreements that allocate responsibility for cleanup costs between a purchaser and seller and do not relieve a party of its CERCLA liability. The guidance in a footnote distinguishes the indemnification agreement that was at issue in the Ashley II decision. Ashley II of Charleston, LLC v. PCS Nitrogen, Inc., 746 F. Supp. 692 (D.S.C. 2010), motion to certify appeal granted, 2011 WL 5827786 (D.S.C. Nov. 17, 2011). See article titled “Bona Fide Prospective Purchaser Requirements Interpreted by Federal District Court,” posted on the Jackson Kelly PLLC Energy and Environment Monitor on December 29, 2010. EPA describes the agreement in Ashley II as a “liability release agreement” and emphasizes that the purchaser failed to satisfy the “no affiliation” requirement due to a release agreement, in which the purchaser agreed to release the seller as to environmental liability at the site…, and the purchaser’s subsequent efforts to dissuade EPA from taking an enforcement action against the seller.” Id. at 9 n. 17.
Tenants Seeking to Purchase Property They Lease: The non-affiliation analysis in the case of a lease involves examining the potential liability of both the tenant and the landlord. If neither the tenant/purchaser nor the landlord is liable as a PRP, then the lease would not be a prohibited affiliation. If the tenant/purchaser is a PRP, then the tenant/purchaser cannot qualify as a BFPP or CPO. If the landlord is a PRP, then an analysis of the site-specific facts will be required. EPA recommends that before purchasing the property, the tenant contact the appropriate EPA Regional office to resolve the tenant’s liability concerns. The Affiliation Guidance does not change EPA’s previously issued Tenants Guidance. Id. at 10.
This article was authored by Gale Lea Rubrecht, Jackson Kelly PLLC. For more information on the author, see here.