CERCLA: Maybe Things Aren’t As Bad As They Used to Be:

The Bona Fide Prospective Purchaser Defense:

Frank L. Hearne, Esq.

March 2004

This article will appear in the April 2004 Florida Specifier 

 

         Some things aren’t as bad as they used to be. Federal Superfund or CERCLA[1] may be one example. Amendments to CERLCA passed in early 2002 may help purchasers of real property avoid the draconian liability scheme of federal Superfund, at least under some circumstances. 

 

As you may recall, Section 107(a)(1) of CERCLA holds owners of contaminated property strictly liable for cleanup costs where hazardous substances have been released to lands they own whether they were in charge at the time of the release or not and whether or not it was their fault. The liability is subject to certain narrow defenses as contained in the statute.  In 2002, Congress added an additional defense for independent purchasers of property that is or may be contaminated by prior discharges, provided that the purchaser meets certain requirements.

 

A “bona fide prospective purchaser” that purchases the property after the enactment of the statue on January 11, 2002, will not be liable under Section 107 (a) as long as the purchaser meets certain criteria and does not impede the performance of a response action or natural resource restoration. Nonetheless, if EPA spends money at the property, a federal lien arises which is intended to reclaim the benefits of the cleanup from the landowner. Practically speaking, in many cases the possibility of a lien is remote if little cleanup is left on the site.

 

Last year, EPA fleshed out the criteria defining a “bona fide prospective purchaser” in a guidance document. See: Interim guidance Regarding Criteria Landowners Must Meet in Order to Qualify for Bona Fide Prospective Purchaser, Contiguous Property Owner, or Innocent Landowner Limitations on CERCLA Liability (“Common Elements”), US EPA, March 6, 2003.

 

How difficult are the criteria to meet in practice? Let’s illustrate by addressing them one by one for a sample hypothetical site that can be described as follows:

 

Hypothetical: We represent a large retailer buying a store site from an unrelated party. Our ASTM standard compliant ESA demonstrated that the site is a former manufacturing facility that has been closed and demolished. The only REC was an area containing metals in soils that was further described in a Phase II report.  The site has been designated a Brownfield site by the local government and, by agreement with FDEP, the area of metal in soils on site can be addressed by soil removal and blending coupled with a deed restriction preventing residential use of the site. In addition, a portion of the site must remain paved with regular inspections.  

 

This is a site that would be pretty safe from further state requirements. However, some businesses would remain nervous about Superfund liability.  Does this purchaser need to be concerned that EPA may show up one day and demand further cleanup? If so, would the “bona fide purchaser” defense help us? Here are the criteria with editorial remarks on the status of our situation:

 

1. All disposal of hazardous substances at the facility occurred before the person acquired the facility.

 

Status: GOOD: Because the manufacturing has ceased and the building was demolished, actual disposal in the ordinary sense is not continuing. NOT PERFECT: If there is remaining groundwater contamination, there remains the pesky problem whether “disposal” also results where contaminants are propagating through the soil. Courts are split on this issue.

 

2. The person made all appropriate inquiries into the previous ownership and uses of the facility in accordance with generally accepted good commercial and customary standards and practices in accordance with clauses

     

      Status: GOOD: New 40 CFR Part 312 was also brought about by the 2002 amendments and by rule tells us that studies meeting ASTM criteria satisfy this requirement. If we have an ASTM compliant ESA, we are probably clear on this point. NOT PERFECT:  How good is the consultant’s work in meeting ASTM criteria?

 

3. The person provides all legally required notices with respect to the discovery or release of any hazardous substances at the facility.

 

      Status: GOOD: This is usually pretty clear and if the agency is involved there is actual notice in any case.

 

4. The person exercises appropriate care with respect to hazardous substances found at the facility 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 any previously released hazardous substance.

 

      Status: NOT SO BAD: This may push us in the direction of actual removal versus soil blending in an effort to be conservative on meeting this requirement. If there is a BSRA or other closure type document on the site, we would want to add language that would buttress our argument that we have met these criteria.

 

5. The person provides full cooperation, assistance, and access to persons that are authorized to conduct response actions or natural resource restoration at a vessel or facility (including the cooperation and access necessary for the installation, integrity, operation, and maintenance of any complete or partial response actions or natural resource restoration at the vessel or facility). Also, the purchaser does not impede the performance of a response action or natural resource restoration.

 

      Status: GOOD: If most of the contamination is gone, this type of intrusion is probably not an issue. In the case of a BSRA, there will also be an agency access agreement anyway. 

 

6. The person is in compliance with any land use restrictions established or relied on in connection with the response action at a facility; and

 

      Status: NOT SO BAD: This would relate to the land use restriction on residential use. Interesting point: it would seem that if Owner A builds a commercial use and Owner B later converts to apartments in violation of the restrictive covenant, Owner B does not qualify as a “bona fide purchaser” and may have liability under CERCLA. 

 

7. The person does not impede the effectiveness or integrity of any institutional control employed at the facility in connection with a response action.

 

Status: NOT SO BAD: This would relate to the requirement that an area of the site must remain paved. Here again, it seems that if Owner A builds and maintains the proper pavement and Owner B later allows the materials to deteriorate, Owner B does not qualify as a “bona fide purchaser” and is not protected by this defense.

 

8. The person complies with any request for information or administrative subpoena issued by the President under this chapter.

 

Status: NO BIG DEAL: This would be required anyway.

 

9. The person is not potentially liable, or affiliated with any other person that is potentially liable, for response costs at a facility through any direct or indirect familial relationship; or any contractual, corporate, or financial relationship (other than a contractual, corporate, or financial relationship that is created by the instruments by which title to the facility is conveyed or financed or by a contract for the sale of goods or services); or the result of a reorganization of a business entity that was potentially liable.

 

Status: NO BIG DEAL: This sounds worse than it actually is.  A real third party purchaser is going to meet this test. Real issues may arise here where companies are transferring between affiliates. 

 

10. The purchase must take place after January 11, 2002.

 

            Status: GOOD.

 

            We can place these requirements into a (completely simplistic) form like Table 1 and assess the status of a given situation. Here the hypothetical purchaser comes out pretty well. Nothing is certain with CERLCA and the case law continues to develop, but this purchaser seems to be in fairly decent shape to make use of the defense.    

 

            TABLE 1: OUR BUYER AS BONA FIDE PURCHASER UNDER CERCLA 107(r)

 

Section 107(r) Criteria for Bona Fide Prospective Purchaser	Notes	References	Result
Purchased after January 11, 2002	Date of enactment of the statute	2	Yes
All disposal occurred prior to purchase	Issue of “disposal” being passive movement in ground	1, 2	Yes?
All appropriate inquiry conducted	New 40 CFR 312 defines ASTM criteria to meet this requirement	3, Consultant Phase I and II	Yes?
Provided all notices	No remaining such notices known. FDEP has been involved on the property	BSRA and Applicable law	Yes
Appropriate care to stop release, prevent future release, limit exposure	No continuing release, no future releases. Limit exposure by completed cleanup and impervious surfaces	2	Yes
Cooperate and provide access	No expected cleanup. Access agreement with FDEP per BSRA	BSRA	Yes
Compliance with land use restrictions	No federal requirements, but will meet state requirements in any case	BSRA	Yes
Does not impede institutional controls	No federal requirements, but will meet state requirements in any case	BSRA	Yes
Complies with information request or subpoena	Will do so.	BSRA, Required by law. None expected	Yes
Not affiliated with responsible parties	Buyer is not affiliated with any of the responsible parties except for the instruments under which title will be conveyed.	2	Yes

 

 

Table References:

 

1. Bona Fide Prospective Purchasers and the New Amendments to CERCLA, USEPA, May 31, 2003.

 

2. Interim guidance Regarding Criteria Landowners Must Meet in Order to Qualify for Bona Fide Prospective Purchaser, Contiguous Property Owner, or Innocent Landowner Limitations on CERCLA Liability (“Common Elements”), US EPA, March 6, 2003.

 

3. Final rule: Clarification to Interim Standards and Practice for All Appropriate Inquiry under CERCLA, US EPA, 68 FR 24888-01 May 9, 2003.