Buyers of brownfields, landowners, developers, development authorities, environmental engineers, licensed remediation specialists, lenders, and others interested in brownfields remediation and redevelopment in West Virginia, need to know about arguments being advanced in the Superfund case, Ashley II of Charleston, LLC v. PCS Nitrogen, Inc., No. 11-1662(L) pending in the United States Court of Appeals for the Fourth Circuit. The Fourth Circuit’s decision, which likely will not be rendered until sometime in 2013, will be binding on all federal district courts in West Virginia and will probably affect brownfields transactions in the state. While the litigation raises multiple issues under the Comprehensive Environmental Response, Compensation, and Liability Act, as amended (CERCLA), 42 U.S.C. §§9601 et seq., the focus of this articles is the bona fide prospective purchaser (BFPP) defense found in Sections 101(40) and 107(r) of CERCLA and the brief that Ashley II of Charleston, LLC (Ashley), filed in June, claiming liability protection as a BFPP.
The Brownfields Redevelopment Project - The litigation arises out of a Superfund site that is part of a development known as “Magnolia” located in an industrial area along the Ashley River in Charleston and North Charleston, South Carolina. For approximately 100 years, two former phosphate fertilizer manufacturing plants and one wood-treatment facility operated on the project site. At the time of trial, Ashley had successfully participated in the cleanup of twenty contaminated parcels within the project boundary, including four Superfund sites. Of the twenty-one total contaminated sites addressed by Ashley, the site at issue in the litigation was a Superfund site totaling forty-three acres and was the only site where former owner/operators were not voluntarily participating. Ashley acquired most of the site at issue in the litigation as part of its acquisition of over 200 acres for a proposed multi-use real estate development. Ashley sought to acquire the property as a BFPP and hired an environmental engineer with experience working on over thirty Superfund sites to ensure Ashley complied with all BFPP requirements. Brief at pp. 5-7, 68.
Overview of Ashley’s Arguments - The basic premise of Ashley’s brief is that the district court applied an overly strict standard in determining that Ashley lost its BFPP status by failing to prove compliance with three elements of the BFPP defense. Briefly, Ashley contends that the district court applied erroneous standards in finding that: (1) Ashley had a disqualifying affiliation with a potentially responsible party (PRP); (2) Ashley failed to exercise appropriate care with respect to hazardous substances found at the site; and (3) Ashley failed to prove that all disposal of hazardous substances at the site occurred before Ashley acquired the site. Id. at p. 22. For the elements of the BFPP defense and a discussion of the district court’s decision, see article titled “Bona Fide Prospective Purchaser Requirements Interpreted by Federal District Court,” posted on the Jackson Kelly Energy & Environment Monitor on December 29, 2010.
A New Relaxed Standard for BFPPs - Ashley urges the Fourth Circuit to apply “a new relaxed standard” for BFPPs, rather than the “heightened liability standards” of CERCLA Section 107(a), so as “to encourage Brownfields redevelopment and to honor Congressional intent behind the Brownfields Amendments.” Br. at pp. 64, 69. In making this argument, Ashley relies upon judicial interpretation of CERCLA’s strict liability provisions and the legislative history of the 2002 Brownfields Amendments. Ashley correctly argues that courts have broadly and liberally interpreted CERCLA’s liability provisions so as to “sweep everyone who is potentially liable into the liability net,” including current owners who otherwise had no responsibility for the environmental harm at the site. Id. at p. 66 (emphasis in original). Ashley further argues that “[b]y 2002 the liberal application of CERCLA’s Section 107(a) liability scheme resulted in an unintended chilling effect on Brownfields redevelopment by disincentivizing the purchase of Brownfield sites.” Id. Ashley contends that Congress adopted the Brownfields Amendments in 2002 and created limited liability protections for BFPPs to remedy this problem. Relying upon legislative history, Ashley argues that Congress “alter[ed] the original design of CERCLA’s sweeping liability net” and “enacted provisions to allow certain property owners to escape CERCLA’s harsh liability scheme.” Id. at p. 67. Ashley contends that the “central vehicle for this is Section 107(r), which provides that a BFPP, whose potential CERCLA liability for a release or threatened release is based solely on its being an owner of the facility, shall not be liable as long as it does not impede the performance of a response action.” Id. Ashley concludes by urging the Fourth Circuit to distinguish between CERCLA’s “aggressive liability scheme” under Section 107(a) and the Brownfields Amendments’ “relaxed ‘limitation of liability’ scheme” under Sections 101(40) and 107(r) because they have “conflicting statutory purposes,” even though they both apply common terms and definitions, such as “release,” threatened release,” “disposal,” “due care,” and “reasonable steps”. Id. at pp. 67-68.
The No-Affiliation Requirement - Ashley maintains it proved compliance with the “no affiliation” condition as intended by CERCLA §101(40)(H). Ashley contends that its only affiliation with a PRP was a contractual relationship created by the documents by which title to the property was conveyed. While the purchase contracts provided a release and indemnity provisions, Ashley maintains that this is an exempted “affiliation” under Section 101(40)(H)(i)(II). Citing EPA’s September 21, 2011, guidance titled “Enforcement Discretion Guidance Regarding the Affiliation Language of CERCLA’s Bona Fide Purchaser and Contiguous Property Owner Liability Protections,” Ashley argues that the “key to EPA’s interpretation [of the no-affiliation requirement] is whether the relationships were created to avoid CERCLA liability” and that approved relationships include contractual relationships that are often executed or created at the time title to property is transferred. Id. at p. 71. Ashley also references the footnote in the guidance that the district court’s decision in Ashley “as potentially at odds with EPA’s guidance.” Id. at p. 72. Ashley says that the reasoning behind the district court’s ruling is “unclear” and that the only evidence, aside from the contract documents, cited by the district court is a letter from Ashley to EPA seeking to persuade EPA to release other parties from liability for EPA’s past response costs. Ashley asserts that the district court’s ruling is incorrect as a matter of law. Ashley argues its “relationships come squarely within the [statutory] exemption for relationships created as part of title transfer,” explaining: “The contractual relationship could have no bearing on the CERCLA liability…Indemnification agreements allocate responsibility for cleanup costs between a purchaser and seller, but they do not relieve a party of its CERCLA liability.” Id. at p. 73. Citing statutory language, congressional intent, and EPA’s guidance, Ashley maintains it had no disqualifying affiliation. Id. at pp. 69-73. For a discussion of EPA’s September 21, 2011 guidance, see article titled “EPA Issues Guidance on Non-Affiliation Requirement for CERCLA Landowner Defenses,” posted on the Jackson Kelly PLLC Energy & Environment Monitor on December 27, 2011.
The “Appropriate Care” Requirement - Ashley argues that the district court erred in holding it to the same “heightened standard” as a PRP under CERCLA’s Section 107(a) liability scheme. Specifically, Ashley argues it proved it exercised appropriate care as intended by CERCLA Section 101(40) for the debris pile, the limestone (ROC) cover, and the sumps and concrete pads located on site. In support of its position, Ashley cites the U.S. Supreme Court’s decision in Environmental Defense vs. Duke Energy Co., 549 U.S. 561, 562 (2007) that “[a] given term in the same statute may take on distinct characters from association with distinct statutory objects calling for different implementation strategies.” Ashley argues that “applying CERCLA’s heightened standard for common CERCLA terms and definitions, especially ‘appropriate care,’ ‘disposal,’ ‘reasonable,’ ‘release’ and ‘threatened release’ abrogates the purpose of the Brownfields Amendments” and urges the Fourth Circuit to hold brownfields developers to an “attainable standard”. Br. at p. 74.
Regarding its “appropriate care” obligations, Ashley argues that the key feature in the due care requirement is that steps be “reasonable”. Id. at p. 75. Ashley notes that at the time it acquired the property it notified EPA of the change in ownership and expressly asked EPA to notify it if and when the Agency thought that any actions were needed to comply with CERCLA’s continuing care obligations. Id. at p. 74. Ashley further notes that “EPA never made any request of Ashley that was not complied with or performed, and the only request related to granting site access to EPA for inspections.” Id. Ashley says it retained an environmental engineer with over 35 years’ experience, including experience in the phosphorus fertilizer industry and experience on over 30 Superfund sites and familiarity with the Brownfields Amendments relating to BFPP. Id. at p. 75.
Regarding the debris pile, Ashley argues that the “appropriate care” standard applies to the handling of hazardous substances, not trash and debris, and that the district court erred in finding that the debris pile contained hazardous substances. Id. at p. 76. Ashley says that the evidence showed that the hazardous waste manifest cited by the district court referred to a “five-gallon container of a cleaning product that had been found outside of a trailer on another parcel, well away from the debris pile,” and that “[t]here also were manifests for a few five-gallon pails of oil and one-gallon paint cans and other non-hazardous materials.” Id. at pp. 76-77. Ashley contends that the area of the debris pile was sampled and failed to disclose any levels of contamination that were above EPA-established levels of concern for the site. Ashley argues that EPA and state environmental agency staff also walked the site but “did not ask for any action to be taken.” Id. at p. 77. Because “the debris pile did not have anything of environmental significance that would prompt immediate action,” Ashley maintains it exercised appropriate care. Id.
Regarding the limestone (ROC) cover, Ashley asserts it exercised appropriate care. Ashley contends that the district court erred in its reliance on an aerial photograph that the ROC cover had deteriorated. Ashley contends that the “parcel was never fully covered with ROC and did not need to be” and that environmental consultants and EPA officials inspected the site numerous times and never mentioned or referenced deteriorated ROC needing action. Ashley states that before it acquired the site, “seventy-nine percent of the developable portions of the site were covered in crush and run limestone,” but “during a routine…inspection Ashley’s environmental engineer noticed some discolored soil[,]….quickly sampled the discolored area, found it contained elevated concentrations of arsenic and lead,…and immediately covered the area with four inches of ROC.” Id. at 77-78.
Regarding the sumps and concrete pads, Ashley contends that the district court erred in finding it should have capped, filled, or removed the sumps at the time it demolished buildings on the site. Ashley relies upon a letter from the prior owner to the state environmental agency giving a detailed description of how its plant including all equipment, sumps, drains, concrete collection trench, concrete floor slab and piping would be “closed” pursuant to state environmental regulations. The prior owner’s manager testified that the sumps were pumped out with pumps that “will pull up sludge and rocks and stuff like that” and “suck up absolutely everything.” Ashley argues its environmental manager walked the site after the material was pumped from the sumps and concluded that the sumps were not an environmental concern that demanded immediate attention. Ashley contends its environmental engineer’s opinion was reasonable and that it exercised appropriate care. Id. at pp. 70, 74-79.
The Requirement of No “Disposal” Post-Acquisition - Ashley argues it proved all “disposal” of hazardous substances occurred before it acquired ownership as intended by CERCLA §101(40)(A). Ashley contends that the district court erred in relying on the Fourth Circuit’s pre-Brownfields Amendments decision in Nurad, Inc. v. William E. Hooper & Sons Co., 966 F.2d 837, 842 (4th Cir. 1992), that construed the term “disposal” to include active conduct but also ownership at the time hazardous waste moved through the environment, e.g., “spilling” or “leaking”. Br. at p. 70. Ashley argues that a “BFPP should not be held to the same types of response obligations as CERCLA PRPs” and therefore “should not be held to the same standard of disposal as a CERCLA PRP.” Id. Ashley argues that the BFPP exemption is intended to encourage redevelopment of brownfields, and urges the Fourth Circuit to construe the term “disposal” so as to allow BFPPs to redevelop brownfields “without fear the redevelopment activities may lead to liability.” Id. Recognizing that “[b]uilding, demolition, and excavation on the property may agitate preexistent contamination,” Ashley argues that any other approach would render the very purpose of the BFPP exemption “meaningless”. Ashley contends that if the disturbance caused by redevelopment activities were construed as a “disposal,” the BFPP exemption would have “no purpose”. Id. Ashley also argues it presented reasonable proof that there was no disposal after it took title because bias sampling of the materials in the sumps and of soil surrounding the pads showed no actionable releases, a thorough evaluation of leak potential of the sumps found that none of the sumps leaked, and the sumps were cleaned and filled with concrete. Ashley maintains that the district court erred by finding fault with Ashley’s failure to test under the concrete pads, sumps, or trench to see if the soil under those structures was contaminated. Ashley argues that such invasive testing is a heightened standard contrary to the purposes of the Brownfields Amendments. Id. at pp. 80-81.
This article was authored by Gale Lea Rubrecht, Jackson Kelly PLLC. For more information on the author, see here.