The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) is a federal statute that, among other things, allows parties to allocate environmental remediation costs among parties whose operations may have resulted in environmental contamination. CERCLA cases with multiple potentially responsible parties (PRPs) generally proceed in two phases. During the first phase — the "liability" phase — the court addresses whether each individual PRP fits within the statutory definition of a liable party under CERCLA. During the second phase — the "allocation" phase — the court allocates the cost of environmental remediation among all of the parties that were found to be liable during the first phase. CERCLA decisions before the appellate courts tend to focus on liability issues in part because parties often settle after the liability phase. As a result, appellate decisions offering guidance on allocation are rare, but important to CERCLA practitioners.

In PCS Nitrogen Inc. v. Ashley II of Charleston, No. 11-1662 (4th Cir. Apr. 4, 2013) (hereinafter "Ashley II"), the Fourth Circuit affirmed the district court's allocation of costs among various PRPs at a site located in Charleston, South Carolina. This decision is likely to impact parties who are involved at large CERCLA Superfund sites, and is particularly important for "Brownfield" redevelopers who are seeking to avoid CERCLA liability through the Bona Fide Prospective Purchaser (BFPP) exemption. Indeed, Ashley II is the first appellate decision to substantively address what "reasonable steps" a party seeking to meet the BFPP exemption must take when it purchases contaminated property.

The BFPP exemption allows qualified buyers protection from CERCLA liability. 42 U.S.C.A. § 9601(40). In Ashley II, one PRP argued that it qualified as a BFPP and should therefore be exempt from liability. Id. at *29. The district court disagreed and found that the PRP failed to meet various requirements necessary to establish its status as a BFPP. Id. at *30. As one example, the district court held that the PRP did not "exercise[] appropriate care with respect to hazardous substances found at the facility by taking reasonable steps to "(i) stop any continuing release; (ii) prevent any threatened future release; and (iii) prevent or limit human, environmental, or natural resource exposure to any previously released hazardous substance." 42 U.S.C.A. § 9601(40)(D). The Fourth Circuit affirmed and noted that the standard of "appropriate care" "is at least as stringent as 'due care' under" the third party defense, and "should be higher." Id. at *31 (emphasis in original). The PRP did not meet this requirement because it "failed to clean out and fill in sumps that should have been capped, filled, or removed when related aboveground structures were demolished, and... did not monitor and adequately address conditions relating to a debris pile and the limestone run of crusher cover on the site." Id. at *30.

In another important holding, the Ashley II opinion addressed the definition of "facility" under CERCLA. Throughout the Ashley II litigation, one PRP argued that it was not liable because its leased property was not "part of the property" undergoing remediation. Id. at *27. The Court rejected this argument as "irrelevant" because the "question is whether [the PRP's] leasehold is part of a 'facility' as defined by CERCLA," not whether the property has been "targeted for remediation." Id. CERCLA defines "facility" as "any site or area where a hazardous substance has been deposited, stored, disposed of, or placed, or otherwise come to be located." 42 U.S.C.A. § 9601(9). Because the leased property at issue in Ashley II was "contaminated as part of a pattern of widespread contamination across the entire site," it was part of the facility as defined by CERCLA. Id. The Court further noted that to hold otherwise would allow the owner or operator of a "less-contaminated" area of the property to "avoid liability for CERCLA response costs for the rest of the facility merely by demonstrating less pollution-sensitive land use." Id. at *28. According to the Court, such a result would run contrary to CERCLA's strict liability scheme and the limited exceptions to liability under the statute. This holding may have important implications for large Superfund sites where PRPs attempt to divide the site by operating areas because investigation, remediation, and characterization activities at different portions of the site proceed on separate timelines over decades.

Finally, in Ashley II, the Fourth Circuit declined to answer an interesting question related to the reasonable basis for apportionment analysis. Under CERCLA, there are two separate inquiries — apportionment and allocation — that allow a court to divvy up costs among parties. Apportionment occurs during the liability phase. Through apportionment, a party argues that it should not be held joint and severally liable for the environmental harm because the harm can be reasonably apportioned. If a party is successful in making this showing, the court then declines to impose joint and several liability, and instead apportions the environmental remediation costs among potentially liable parties. Allocation, on the other hand, is the process of dividing up costs among all the liable parties, after the parties have all been held joint and severally liable for an environmental harm.

In Ashley II, two PRPs sought to "maintain that they established a reasonable basis for apportioning at least their individual shares of the harm." Id. at *37 (emphasis in original). The Court, however, declined to address whether a PRP "must provide a reasonable basis to apportion all of the harm, or only its share of the harm, to avoid joint and several liability." Id. at *37 (emphasis in original). One PRP did not provide a reasonable basis for apportionment, and therefore the question was moot. Id. at *38. The second PRP argued that it was not liable because as a current operator at the facility, "no disposal of hazardous substances ha[d] occurred during its operation of the facility." Id. at *39. The Fourth Circuit rejected this argument holding that a zero-share of liability to a current owner or operator would negate the limited defenses and exemptions for innocent owners and operators contained in the statute. Id. at *39.

The Ashley II decision is especially relevant for large CERCLA Superfund sites with a number of PRPs, and for any owner or operator seeking to establish BFPP status. Please contact an environmental attorney from Schiff Hardin if you have any questions about the BFPP exemption or any other issue related to CERCLA liability.