cercla bona fide prospective purchaser defense: securing...
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CERCLA Bona Fide Prospective Purchaser
Defense: Securing and Maintaining
Liability Protection Strategies for Overcoming BFPP Defense Challenges and Restrictions
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TUESDAY, SEPTEMBER 23, 2014
Presenting a live 90-minute webinar with interactive Q&A
Frank J. Deveau, Partner, Taft Stettinius & Hollister, Indianapolis
Thomas J. P. McHenry, Partner, Gibson Dunn & Crutcher, Los Angeles
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Limiting Superfund Liability
An Overview of the CERCLA Bona Fide Prospective Purchaser (BFPP) Defense
Frank J. Deveau [email protected]
317-713-3520
6
WHO IS LIABLE?
Subject to certain defenses, the following categories of individuals are strictly, jointly, and severally liable:
Present owners and operators at a facility;
Former owners and operators at a facility at the time of disposal;
Any person who arranged for disposal or treatment of hazardous substances at a facility; and
Any person who transported hazardous substances to a facility
42 U.S.C. § 9607
7
Limiting Liability
Bona Fide Prospective Purchaser Defense (“BFPP defense”)
Prospective Purchaser Agreements (“PPAs”)
8
BFPP Defense
To meet the statutory criteria for liability protection, a landowner must meet certain threshold criteria and satisfy certain continuing obligations.
INITIAL OBLIGATIONS
(1) Disposal Occurred Prior to Acquisition
(2) All Appropriate Inquiry
(3) Affiliation
11
Disposal Prior to Acquisition
A landowner must prove that all disposal of hazardous substances occurred pre-acquisition.
CERCLA 101(40)(A)
13
All Appropriate Inquiry
Interviews with past and present owners, operators, and occupants;
Reviews of historical sources of information;
Reviews of federal, state, tribal, and local government records;
Visual inspections of the facility and adjoining properties;
Commonly known or reasonably ascertainable information; and
Degree of obviousness of the presence or likely presence of contamination at the property and the ability to detect contamination
CERCLA §§ 101(40), 101(35)
40 C.F.R. 312
Mem. from EPA on 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 (Mar. 6, 2003), at 4 – 5.
14
All Appropriate Inquiry
• Inquiries must be conducted or updated within one year of the date of acquisition.
• Certain aspects on the inquiry must be updated if AAI’s are conducted more than 180 days prior to the acquisition date.
40 C.F.R. § 312
15
ASTM E1527-13 for Phase I
AAI
Noteworthy changes to AAI via ASTM E1527-13
Revised definitions to align with CERCLA
Clearer definition of REC, HREC
New category – controlled REC (CREC)
Revised file review requirements
Vapor migration risk analysis clarified
16
Vapor Intrusion and AAI
IMPORTANT: E1527-13 expressly requires environmental professionals to
account for “vapor migration” or “encroachment” in looking for Recognized
Environmental Conditions (“RECs”).
Also, EPA’s 2013 (general) Vapor Intrusion Guidance includes two
significant changes:
1. It recommends indoor air sampling instead of modeling; and
2. It seeks to extend EPA’s authority to indoor air risks in commercial and
industrial buildings traditionally governed by OSHA.
www.epa.gov/oswer/vaporintrusion/documents/vaporIntrusion-final-guidance-20130411-reviewdraft.pdf
18
Affiliation
Party must not be potentially liable or affiliated with any person who is potentially liable for response costs
“affiliation” is not explicitly defined, but appears to be broadly interpreted.
Direct and indirect familial relationships
Many contractual, corporate, and financial relationships
CERCLA § 101(40)(H)
Mem. from EPA on 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 (Mar. 6, 2003), at 5 - 6.
19
Affiliation
Focus is on relationships created to avoid CERCLA liability.
EPA will consider:
Whether or not the BFPP is otherwise a potentially responsible party (“PRP”)
Whether the BFPP is in fact the same entity as a PRP;
Whether the BFPP is the result of a reorganization of a liable party through bankruptcy or other corporate restructuring; and
Whether a party with whom the BFPP is associated is an actual PRP.
CERCLA § 101 (40)(H)
Mem. from EPA on 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 (Mar. 6, 2003), at 5 - 6.
20
Affiliation
Exceptions Instruments by which title to the facility is conveyed or financed
Contracts for the sale of goods or services
Generally exempt relationships include: Relationships at other properties Post-acquisition relationships Relationships created during title transfer Relationships established between a tenant and owner during leasing process
CERCLA § 101(40)(H)
Mem. from EPA on 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 (Mar. 6, 2003), at 5 - 6.
Mem. from EPA on Enforcement Discretion Guidance Regarding the Affiliation Language of CERCLA’s Bona Fide Prospective Purchaser and Contiguous Property Owner Liability Protections (Sep. 21, 2011), at 6.
Continuing Obligations
(4) Complying with Restrictions & Controls
(5) Reasonable Steps (appropriate care)
(6) Cooperation, Assistance, and Access
(7) Compliance with Information Requests
(8) Providing Legally Required Notices
23
Complying with Restrictions and
Controls
Must be in compliance with any land use restrictions established or relied on in connection with a response action.
CERCLA § 101(40)(F)
Mem. from EPA on 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 (Mar. 6, 2003), at 6 – 8.
24
Complying with Restrictions and
Controls
Institutional Controls:
Administrative and legal controls that minimize the potential for
human exposure to contamination, and
Protect the integrity of remedies by limiting land or resource use and/or providing information to modify behavior
CERCLA § 101(40)(F)
Mem. from EPA on 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 (Mar. 6, 2003), at 6 – 8
25
Complying with Restrictions and
Controls
Required to comply even if restrictions have not been properly implemented
Control is never, or has yet to be, implemented;
Property owner or other using property impede the effectiveness of a control and the party responsible for enforcement neglects to take sufficient measures to bring those persons in compliance; or
A court finds those controls unenforceable
CERCLA § 101 (40)(F)
Mem. from EPA on 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 (Mar. 6, 2003), at 6 - 8.
26
Complying with Restrictions and
Controls
Must not impede the effectiveness or integrity of any institutional control.
For example:
EPA and state programs often use notices to convey information regarding site contamination rather than actually restricting land use.
If an owner removes notices from land records, the removal would impede the effectiveness of an institutional control.
CERCLA § 101 (40)(F)
Mem. from EPA on 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 (Mar. 6, 2003), at 6 – 8.
28
Reasonable Steps
Will be a site-specific analysis aimed to:
Stop continuing releases,
Prevent threatened future releases, and
Prevent or limit, human, environmental, or natural resource exposure to earlier hazardous substance release.
CERCLA § 101(40)(D)
Mem. from EPA on 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 (Mar. 6, 2003), at 9 – 12.
29
Reasonable Steps
The pre-purchase inquiry will most likely inform the BFPP as to the nature and extent of contamination.
Phase I RECs and Recommendations will become reasonable steps
This requirement only relates to contamination for which the BFPP is not responsible. More than reasonable steps will likely be required from the
landowner if there is new hazardous substance contamination for which he is responsible.
CERCLA § 101 (40)(A)
Mem. from EPA on 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 (Mar. 6, 2003), at 9 – 12
30
Reasonable Steps
Comfort Letters
EPA or state agency may provide a comfort/status letter addressing reasonable steps at a specific site. Generally limited to sites with significant federal involvement such that the agency has
sufficient knowledge to form a basis for suggested reasonable steps.
Most likely given where: It may facilitate the cleanup and redevelopment process;
There is a realistic probability of superfund liability; and
There are no other means to adequately address the party’s concerns.
62 Fed. Reg. 4,624 (1997)
Mem. from EPA on 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 (Mar. 6, 2003), at 9 – 12.
Office of Enforcement and Compliance Assurances’ Policy on the Issuance of Comfort/Status Letters
31
Reasonable Steps
Comfort Letters
EPA has developed four sample comfort/status letters:
1. No Previous Federal Superfund Interest Letter
2. No Current Federal Superfund Interest Letter
3. Federal Interest Letter
4. State Action Letter
Office of Enforcement and Compliance Assurances’ Policy on the Issuance of Comfort/Status Letters
32
Reasonable Steps
Comfort Letters
State Agency Comfort Letters
Provides agency has reviewed AAI/Phase I and concludes buyer has
complied with BFPP provisions (may be non-binding).
May include reasonable steps…RECS or Recommendations from
Phase I’s likely included.
33
Reasonable Steps
Comfort Letters
Why should you get a Comfort Letter?
●Clients and lenders like them.
●Courts will likely give deference to agency’s
determination that client is a BFPP.
●Provides a written record that client is a BFPP vs
relying solely on defense where client has burden of
proof.
34
Informal 2013 survey of states
re comfort letters
• State Yes No Alternative
Alaska x Prospective Purchaser Agreement
California x Occasionally may issue letter, but frowned upon
Colorado x
Delaware x
Georgia x
Hawaii x
Idaho x
Illinois x
Indiana x
Iowa x
Kentucky x Notice of Eligibility
Louisiana x
Maryland x
Michigan x Baseline Environmental Assessment
Mississippi x Brownfield Agreement Letter
Missouri x
Nevada x
-Delaware issues a Brownfield Certification Letter.
-Georgia issues a Limitation of Liability Certification.
-Louisiana will issue a Comfort Letter if one is requested but tries not to issue these letters.
-Maryland’s Brownfields program is currently inactive.
-At one time, Nevada did offer Comfort Letters but no longer does so.
35
Informal 2013 survey of states
re comfort letters • State Yes No Alternative
New Hampshire x Covenant Not to Sue/Validation of Prospective Purchaser
New Jersey x
New Mexico x Voluntary Remediation Program/Covenant Not to Sue
New York x Release from Liability
North Carolina x
North Dakota x
Ohio x Voluntary Action Program
Oklahoma x
Oregon x Prospective Purchaser Agreement under State Law
Pennsylvania x Buyer-Seller Agreement
Rhode Island x Remedial Decision Letter/Remedial Agreement
South Carolina x
South Dakota x
Tennessee x No Further Action Letter
Texas x
Utah x Enforceable Written Assurance
Vermont x
Virginia x Voluntary Remediation Program
West Virginia x
Wyoming x
-Wyoming has not received any requests for a Comfort Letter but would likely issue one if asked.
37
Cooperation, Assistance, and
Access
BFPP must provide full cooperation, assistance, and access to persons authorized to conduct response actions.
CERCLA § 101 (40)(E)
Mem. from EPA on 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 (Mar. 6, 2003), at 12.
39
Compliance with Information
Requests
In particular, EPA expects timely, accurate, and complete responses from all recipients of Section 104(e) information requests.
CERCLA § 101 (40)(G)
Mem. from EPA on 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 (Mar. 6, 2003), at 13.
41
Providing Legally Required Notice
BFPP must provide all legally required notices with respect to the discovery or release of any hazardous substance at the facility.
Ensures that EPA and others are made aware of hazardous substance release in a timely manner.
BFPP has the burden of ascertaining what notices are legally required in a given instance.
Regions may require landowners to self-certify that they have provided or will provide all legally required notices.
CERCLA § 101 (40)(C)
Mem. from EPA on 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 (Mar. 6, 2003), at 13.
43
Prospective Purchaser
Agreements
EPA continues to believe prospective purchaser agreements are no longer necessary.
However, the agency still recognizes that in limited circumstances, the public interest would be served by entering into agreements with purchasers of contaminated property.
These agreements are intended to serve as the vehicle for providing a federal covenant not to sue and contribution protection for BFPPs who will perform removal work exceeding reasonable steps at sites of federal interest.
Mem. from EPA on Issuance of CERCLA Model Agreement and Order on Consent for Removal Action by a Bona Fide Prospective Purchaser (Nov.
27, 2006), at 2.
44
What About RCRA?
• EPA and many state agencies believe all subsequent
title holders remain subject to RCRA
• RCRA closure/corrective action and AAI??
• RCRA not subject to BFPP defense
• Examples:
– flower shop at former interim status facility
– Airport at former CERCLA removal site
Thompson Corners, LLC v. New York State Dep’t of
Environmental Conservation, 2014 WL 1924148 (N.Y. App.
Div. May 15, 2014).
45
BFPP Defense as interpreted
by the courts
• How has the BFPP Defense been construed by the
courts in the past decade since it was enacted?
• What guidance can we derive from case law?
• Stay tuned for Tom’s presentation!
46
Frank J. Deveau
• Frank is co-chair of Taft’s Environmental Law Practice Group. He
has practiced environmental law for over 30 years focused primarily
in the Midwest, although he has advised clients throughout the
United States. His practice includes environmental issues involving
litigation, property transfers and compliance. He was selected as
Environmental Lawyer of the Year for 2012 and 2015 in Indianapolis
by Best Lawyers, co-edited ABA’s 2012, book entitled
Environmental Liability and Insurance Recovery and co-authored
ABA’s 2013, book entitled The Bona Fide Prospective Purchaser
Defense: A Guide for Lawyers.
317-713-3520
CERCLA Bona Fide Prospective Purchaser (BFPP)
Defense: Recent Case Developments
September 23, 2014 – Strafford Webinar
Thomas J.P. McHenry
333 South Grand Avenue
Los Angeles, California 90071
(213) 229-7135
<Presentation Title/Client Name> <Presentation Title/Client Name>
Overview
Who wants to buy a contaminated site? Or, under what circumstances
would you buy one?
Small Business Liability Relief and Brownfields Revitalization Act of 2002
The Importance of Bona Fide Prospective Purchaser (BFPP) Defense
Two Key Cases (2010 & 2011)
– Ashley II of Charleston, LLC v. PCS Nitrogen, Inc., 791 F. Supp. 2d 431
(D.S.C. 2011), aff’d, 714 F.3d 161 (4th Cir. 2013)
– 3000 E. Imperial, LLC v. Robertshaw Controls Co., No. CV 08-3985 PA (Ex.),
2010 WL 5464296 (C.D. Cal. Dec. 29, 2010)
One More Recent Case (2013)
– Voggenthaler v. Maryland Square, LLC, Nos. 10-17520/11-15174/11-
15176/12-16409/12-16412, 2013 WL 3839330 (9th Cir. July 26, 2013)
How to Maintain BFPP Status
48
<Presentation Title/Client Name> <Presentation Title/Client Name>
Summary
Increased scrutiny of potential for vapor intrusion
U.S. EPA (OECA) guidance on:
– Enforcement Discretion Regarding Affiliation Language (9/21/2011)
– Tenant BFPP Qualification under CERCLA (12/5/2012)
Importance of meeting and documenting all 8 BFPP Elements
BFPP Defense is burden-bearing, fact-specific & self-executing
“Process is time consuming and transaction costs remain high” (19 Colo. J.
Int’l Envtl. L. & Pol’y 259, 275 (2008)
Difficult for small businesses to take advantage of BFPP defense without
assistance of counsel and in absence of comfort letters
49
<Presentation Title/Client Name> <Presentation Title/Client Name>
Ashley: Background
Case: 63 page decision with complex factual history -- primer on CERCLA
liability generally and application of BFPP elements specifically
Procedural Background:
Plaintiff and current owner of Brownfield site (Ashley) brought suit under
CERCLA § 107 (42 U.S.C. § 9607) to recover remediation costs from
former site owners
Defendant and former site owner (PCS Nitrogen) counterclaimed, seeking
contribution from current owner (Ashley) contending owner had also
contaminated site
Ashley raised BFPP defense
The Site: 43 acres in the upper peninsula area of Charleston, South Carolina,
50 50
<Presentation Title/Client Name> <Presentation Title/Client Name>
Ashley: Relevant Timeline
1906–1985: Site occupied and contaminated by phosphate fertilizer
manufacturing: low pH and lead and arsenic in soil
1985–2003: Holcombe and Fair purchase land with intent to develop and
subdivide
1989–2008: Allwaste buys 3 acres from Holcombe
52
<Presentation Title/Client Name> <Presentation Title/Client Name>
Ashley: Key Facts (1 of 3)
Ashley acquires 27.62 acres from Holcombe and Fair in 2003 for
development
In the purchase contract, Ashley indemnifies Holcombe and Fair for
environmental liabilities -- Ashley manager testified that the intent of
indemnity claim was to prevent Ashley from suing Holcombe and Fair for
any environmental contamination claims
Environmental investigations conducted in September 2003
EPA information requested in 2004 – Ashley collected 452 soil samples
2006: Ashley discovers stained soil and trash pile on Site
– Tests for soil, but only for lead and arsenic
– Fails to remove trash pile
53
<Presentation Title/Client Name> <Presentation Title/Client Name>
Ashley: Key Facts (2 of 3)
Ashley also acquires 2.99 acres from Allwaste in 2008:
Environmental investigations continue in 2007
Updated environmental assessment in 2008 - identifies sumps as
recognized environmental conditions (RECs)
Soil and sediment samples discover contaminated soil
Demolition of above-ground buildings -- runoff collects in pads, sumps and
trench
Investigation of sumps in 2009:
– Investigators observe water level and analyze depth of cracks in sumps, but do
not take underground samples
– Ashley had a protocol in place requiring it to look under slabs to ensure no
environmental concerns – did not follow protocol on Allwaste parcel
– Conclude water loss due to evaporation not subsurface leaks
54
<Presentation Title/Client Name> <Presentation Title/Client Name>
Ashley: Key Facts (3 of 3)
On September 3, 2008, Ashley wrote a letter to the EPA acknowledging
that Holcombe and Fair may be liable for response costs
As it had indemnified Holcombe and Fair from all environmental
liabilities, Ashley then asked the EPA to refrain from enforcement
Should EPA pursue the claim against Holcombe and Fair, Ashley argued
“it would discourage Ashley’s future development efforts”
55
<Presentation Title/Client Name> <Presentation Title/Client Name>
Applicability of Eight BFPP Defense Elements: 1. Disposal occurred prior to acquisition – No (accumulation in sumps, failure to
test)
2. All Appropriate Inquiry – Yes
3. Affiliation – No (discouragement of EPA enforcement against prior owner)
4. Compliance with Continuing Obligations and Requests – Yes
5. Reasonable Steps (Care) – No (failure to clean and fill sumps)
6. Cooperation, Assistance, and Access – Yes
7. Compliance with Information Requests – Yes
8. Provided Legally Required Notices – Yes
56
<Presentation Title/Client Name> <Presentation Title/Client Name>
What Ashley Did Right 1. All Appropriate Inquiries (AAI)
– Complied with interim AAI standard (ASTM Standard E1527–00) for Holcombe and
Fair purchase in 2003
– Complied with final AAI standard (40 C.F.R. § 312) for Allwaste purchase in 2008
– “Ashley acted reasonably; it hired an expert to conduct an AAI and relied on that expert
to perform its job properly.” (791 F. Supp. 2d at 500)
2. Compliance with Continuing Obligations and Requests (Institutional
Controls)
– Environmental engineer, qualified as an expert, testified that no land use restrictions or
unusual controls in place at Site
– Ashley was in compliance with controls in place (791 F. Supp. 2d at 501)
3. Cooperation, Assistance, and Access
– Ashley “immediately notified EPA of its ownership and asked EPA to advise Ashley if
EPA desired Ashley to take specific action.” (791 F. Supp.2d at 501)
– “The record demonstrates that Ashley’s cooperation with EPA has been ongoing since it
purchased the site.” (Id.)
57
<Presentation Title/Client Name> <Presentation Title/Client Name>
Ashley: What Ashley Did Right (Continued)
4. Compliance with Information Requests
– Environmental engineer testified that Ashley complied with all information requests and
subpoenas issued by EPA (791 F. Supp. 2d at 501-02)
5. Provided Legally Required Notices
– “The record does not establish that any releases occurred on the Site subsequent to
Ashley acquiring ownership. The court finds that Ashley has met its burden of proving
that it made all legally required notices.” (791 F. Supp. 2d at 500)
58
<Presentation Title/Client Name> <Presentation Title/Client Name>
Ashley: What Ashley Did Wrong (1 of 3)
1. Disposal Prior to Acquisition
– Ashley must prove all disposals occurred before acquisition. (791 F. Supp. 2d
at 499)
– “Ashley did not conduct testing to determine whether disposals occurred on the
Allwaste parcel during its ownership period.” (Id.)
• Concern that Ashley’s demolition activities contributed to contamination by
allowing water to accumulate in sumps
• Ashley did not test under the concrete pads, sumps or trenches to determine if
contaminated
– Expert testimony stating no disposal occurred after acquisition was
inadmissible because Ashley did not properly disclose the opinion before the
trial (Id.)
Lesson: Do not conduct activity on the property that might lead to or result in further
leaking or contamination
59
<Presentation Title/Client Name> <Presentation Title/Client Name>
Ashley: What Ashley Did Wrong (2 of 3)
2. Affiliation
– Must prove: 1) not responsible through familial or contractual relationships, 2)
not affiliated with responsible persons, and 3) not the result of business
reorganization of liable party.
– “Ashley is potentially liable for response costs at the Site due to contractual
relationships” because Ashley released Holcombe and Fair and Allwaste from
environmental liability for contamination at the Site. (791 F. Supp. 2d at 502)
– “Ashley attempted to persuade EPA not to take enforcement action to recover
for any harm at the Site caused by the Holcombe and Fair Parties.” (Id.)
– “Ashley’s efforts to discourage EPA from recovering response costs from the
Holcombe and Fair Parties reveals just the sort of affiliation Congress intended
to discourage.” (Id.)
Lesson: Don’t discourage EPA from enforcing against prior owners
60
<Presentation Title/Client Name> <Presentation Title/Client Name>
Ashley: What Ashley Did Wrong (3 of 3)
3. Reasonable Steps (Appropriate Care)
– Must prove: 1) stop any continuing release, 2) prevent any threatened future
release, 3) prevent or limit human, environmental or natural resource exposure
to any previously released hazardous substance (CERCLA Due Care Standard).
– Pre-purchase AAI will inform as to “reasonable steps.”
– “When Ashley demolished all of the above-ground structures…but failed to
clean out and fill the sumps, leaving them exposed to the elements, it may have
exacerbated these conditions.” (791 F. Supp. 2d at 501)
– “[L]ater action…to test, clean, and fill the sumps with concrete came too late to
prevent possible releases.” (Id.)
– “[F]ailure to 1) prevent such debris from accumulating on the Site, 2)
investigate the contents of the debris pile, and 3) remove the debris pile for
over a year indicates a lack of appropriate care.” (Id.)
Lesson: Site activities will be examined closely under “appropriate care”
standard
61
<Presentation Title/Client Name> <Presentation Title/Client Name>
Ashley: Result
Ashley failed to prove 3 of the 8 elements of BFPP defense
Ashley held liable for equitable share of response costs
Court determined Ashley would be responsible for 5% of these costs
Ashley also held liable for Holcombe and Fair’s share of the response costs
(16%)
Ashley also responsible for Allwaste’s share of the response costs (3%)
Adds up to almost one-quarter (24%) of the response costs!
62 62
<Presentation Title/Client Name> <Presentation Title/Client Name>
Ashley: Fourth Circuit Appeal (2013)
Court of Appeals affirmed lower court finding that Ashley failed to
establish all eight elements required to obtain BFPP status. (714 F.3d 161,
180 (4th Cir. 2013))
Ashley “failed to demonstrate that it exercised ‘appropriate care’ at the
site.” Failure of this one factor enough to deny Ashley BFPP status. (714
F.3d at 181)
Declined to address two other BFPP elements:
– Improper affiliation due to indemnification of PRPs and plea to EPA to not
prosecute
– Proof that no disposal of hazardous substances occurred after Ashley acquired
the site.
Lesson: Must satisfy every one of the 8 BFPP elements.
63 63
<Presentation Title/Client Name> <Presentation Title/Client Name>
Imperial: Background
Case: Much simpler and much less analysis – analysis hinges on timing of
removal of USTs
Procedural History
Plaintiff and current owner of property sought declaratory relief and
compensation costs under, among other claims, under CERCLA
Defendants counterclaimed under CERCLA seeking contribution and cost
recovery
Plaintiff raised BFPP defense
The Site: Rectangular lot in Lynwood, California
64 64
<Presentation Title/Client Name> <Presentation Title/Client Name>
65
Imperial: Timeline
1955–1963: Predecessor-in-interest to defendant manufactured aircraft and
missile valves – underground storage tanks (USTs) leaked and contaminated
soil
Post 1963: Property used by various furniture manufacturers
2006: Imperial (Plaintiff and current owner) purchases Property
– Aware of chemical contamination
– Hired environmental consulting firm to investigate, take soil and water samples
– Discovers benzene and trichloroethylene (TCE) in the soil and groundwater
– Demolishes above-ground buildings used by Imperial (similar to Ashley?)
<Presentation Title/Client Name> <Presentation Title/Client Name>
66
Imperial: Key Facts
Imperial discovered contaminated USTs, emptied contents and eventually
excavated USTs
– May 2007: Sampled USTs
– Sept. 2007: Discovered chemicals in samples
– Oct. 2007: Emptied contents from USTs and removed from Property
– 2009: Excavated USTs and discovered oily substance
Defendant argued that Plaintiff “unreasonably delayed” removal of USTs for 2
years.
Plaintiff already classified by state agency as bona fide purchaser under Cal.
Health & Safety Code 25395.69 (Imperial, 2010 WL 5464296, at *10)
Defendant’s Argument: Waiting 2 years to excavate USTs was unreasonable
delay
<Presentation Title/Client Name> <Presentation Title/Client Name>
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Imperial: BFPP Defense:
Eight BFPP Requirements:
1. Disposal occurred prior to acquisition – Yes
2. All Appropriate Inquiry – Yes
3. Affiliation – Yes
4. Compliance with Continuing Obligations and Requests – Yes
5. Reasonable Steps (Care) – Yes
6. Cooperation, Assistance, and Access – Yes
7. Compliance with Information Requests – Yes
8. Provided Legally Required Notices – Yes
2002 Brownfield Amendment to CERCLA § 107(r)
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Imperial: What Imperial Did Right
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Reasonable Steps (focus of the opinion)
Plaintiffs “took reasonable steps to prevent further release of hazardous
substances.” (2010 WL 5464296, at *11)
“Since Plaintiff had the USTs emptied soon after learning that they
contained a hazardous substance, the Court finds that the Plaintiff took
reasonable steps to stop any continuing leak or to prevent any future leaks
of TCE from the USTs.” (2010 WL 5464296, at *10)
Disposal prior to acquisition: No apparent concern about demolition
exacerbating contamination
Affiliation: No mention of any contractual releases that would create a concern
about affiliation
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Subsequent Interpretation & Application of BFPP Defense
BFPP defense only applies to property purchased after Brownfield
Amendments passed on January 11, 2002
– Haskins v. Cherokee Grand Ave., LLC, No. C–11–05142–YGR, 2012
WL 1110014, at *4 (N.D.CA. April 12, 2012)
• “The Court believes that the defense contained in CERCLA §§
101(40) & 107(r) is clear and, on its face, is unavailable to
Defendants based on their purchase dates.”
When must all appropriate inquiries be completed?
– November 1, 2005: EPA promulgates rule setting forth AAI
requirements.
– All appropriate inquiries must “be conducted within one year prior to
the buyer acquiring the property.
• Date of acquisition is “date on which a person received title to the
property.”
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<Presentation Title/Client Name>
Subsequent Interpretation & Application of BFPP Defense
Voggenthaler v. Maryland Square, LLC, No. 2:08–cv–1618–RCJ–GWF,
2012 WL 1815651, at *6 (D. Nev. May 17, 2012), vacated in part, Nos.
10-17520/11-15174/11-15176/12-16409/12-16412, 2013 WL 3839330 (9th
Cir. July 26, 2013)
– “[Defendant] provides no evidence of any kind supporting its argument
that it is a bona fide prospective purchaser. As such, [Defendant] fails to
establish a genuine issue of material fact as to its liability under CERCLA
§ 107(a).”
Saline River Props., LLC v. Johnson Controls, Inc., 823 F. Supp. 2d 670,
686 (E.D. Mich. 2011)
– “Here, [Plaintiff] has not even referenced the above essential elements of
the defense—let alone presented evidence on each of the numerous
elements.”
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<Presentation Title/Client Name>
Voggenthaler: Ninth Circuit Appeal
Contaminated site home to dry cleaning facility that used and spilled PCE,
hazardous substance under both CERCLA and state codes
Nevada DEP sued under CERCLA to recover clean-up costs. District court
granted summary judgment in favor of NDEP on all claims
Prior owners and operators during contamination period
• Herman Kishner Trust (owner) from 1969-2002
• Shapiro Bros. Investment Co. (operator) from 1969 to 1984
• DCI USA, Inc. (operator) from 1984 to 2000
• Current owner and defendant: Maryland Square LLC
• Maryland Square asserted BFPP defense.
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<Presentation Title/Client Name>
Voggenthaler: Ninth Circuit Appeal
District court did not consider content of Maryland Square’s BFPP defense
due to a formal deficiency – submission not notarized.
Ninth Circuit stated that submission was “woefully insufficient”
– Submission did not specify how Maryland Square meets all eight
elements required to establish BFPP defense
– Submission only stated that Maryland Square purchased site with
knowledge of contamination, demolished a building on site, followed
progress of previous owners in drafting and submitting plans to clean
up site, and had “some (mainly undescribed) correspondence with
NDEP.” (2013 WL 3839330, at *8)
Vacated district court’s grant of summary judgment in favor of NDEP so
Maryland Square may “cure the formal and substantive deficiencies of its
prior submission and establish that it has met the statutory and regulatory
requirements to qualify as a [BFPP].” (2013 WL 3839330, at *9)
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<Presentation Title/Client Name>
“Affiliation” Considerations
• USEPA Enforcement Discretion Guidance Regarding the Affiliation
Language of CERCLA’s BFPP and Contiguous Property Owner (CPO)
Liability Protections
• Fact-specific guidance where parties meet all BFPP elements except for
affiliation “with any other person that is potentially liable”
• EPA emphasizes that burden of proof remains on the party seeking liability
protection.
• Exceptions from affiliation for: (1) instruments by which title is conveyed
or financed and (2) contract for sale of goods and services
• Considerations in applying affiliation language
• Indemnities?
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Tenant liability under CERCLA
Pre-December 2005: Tenants must show (a) sufficient indicia of ownership
and (b) landowner is BFPP for tenant to qualify as BFPP.
Post-December 2005: Tenant’s BFPP status not contingent upon whether
landowner qualifies for BFPP exemption.
Tenant may obtain BFPP status even if owner never becomes BFPP.
In addition to the eight BFPP elements, tenant must also prove it conducted AAI
prior to execution of lease.
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<Presentation Title/Client Name>
Tenant liability under CERCLA: Post-December 2005
A tenant may maintain BFPP status even if, by no fault of tenant, the
landlord loses BFPP status. The tenant must prove the following:
– All disposal of hazardous substances at facility occurred prior to lease
execution;
– Provide legally required notices;
– Takes reasonable steps with respect to hazardous substance releases;
– Provides cooperation, assistance, and access;
– Complies with land use restrictions and institutional controls;
– Complies with information requests and administrative subpoenas;
– Not potentially liable for response costs at facility or affiliated with any such
person (other than through lease with owner); and
– Does not impede any response action or natural resource restoration.
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I Want to Be a BFPP—Lessons Learned
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Keep the Eight (8) Requirements for a BFPP Defense in mind
Know your site – Hire a good consultant, conduct appropriate AAI
diligence, review agency files, etc.
Be careful about indemnifying former site owners
Maintain adequate records of diligence and on-site activities
Address any unexpected contamination swiftly and in accordance with
good practice
Maintain positive relations with the regulatory agency – may be a witness
in your defense
If a tenant, subject to similar BFPP requirements
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Thomas McHenry
Contact:
333 South Grand Avenue
Los Angeles, CA 90071-3197
Tel: 213.229.7135
Tom is a partner in Gibson Dunn’s
Los Angeles office and a member of the
firm's Environment and Natural Resources
practice. He practices general
environmental law with an emphasis on air
quality, hazardous waste, environmental
diligence, land use and energy issues.