CERCLA Bona Fide Prospective Purchaser Defense: Securing...

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

mailto:[email protected]

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

DISPOSAL OCCURRED PRIOR TO

ACQUISITION

Requirement #1

11

Disposal Prior to Acquisition

A landowner must prove that all disposal of hazardous substances occurred pre-acquisition.

CERCLA 101(40)(A)

ALL APPROPRIATE INQUIRY (“AAI”)

Requirement #2

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

AFFILIATION

Requirement #3

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 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

COMPLYING WITH RESTRICTIONS &

CONTROLS

Requirement #4

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)


Contiguous Property Owner, or Innocent Landowner Limitations on CERCLA Liability (Mar. 6, 2003), at 6 – 8.

24


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)


Contiguous Property Owner, or Innocent Landowner Limitations on CERCLA Liability (Mar. 6, 2003), at 6 – 8

25


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)


26


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)


REASONABLE STEPS

Requirement #5

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)


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)


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)


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.

COOPERATION, ASSITANCE, AND ACCESS

Requirement #6

37

Cooperation, Assistance, and

Access

BFPP must provide full cooperation, assistance, and access to persons authorized to conduct response actions.

CERCLA § 101 (40)(E)


Contiguous Property Owner, or Innocent Landowner Limitations on CERCLA Liability (Mar. 6, 2003), at 12.

COMPLIANCE WITH INFORMATION REQUESTS

Requirement #7

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)


Contiguous Property Owner, or Innocent Landowner Limitations on CERCLA Liability (Mar. 6, 2003), at 13.

PROVIDE LEGALLY REQUIRED NOTICES

Requirement #8

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.

PROSPECTIVE PURCHASER AGREEMENTS

(PPAs)

The Gold Standard

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.

[email protected]

317-713-3520

mailto:[email protected]

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

[email protected]

(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


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


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


51


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


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



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



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


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


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


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


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



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



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


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


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


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


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?)


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


67

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)


68

Imperial: What Imperial Did Right

68

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

<Presentation Title/Client Name>

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.”

69


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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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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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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“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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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


77

Thomas McHenry

Contact:

333 South Grand Avenue

Los Angeles, CA 90071-3197

Tel: 213.229.7135

[email protected]

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.

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