In a case of first impression regarding brownfield developer liability under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund), the Fourth Circuit Court of Appeals on April 4 decided the issue of whether a current owner of a hazardous waste site can escape liability as a Bona Fide Prospective Purchaser (BFPP) under Brownfield redevelopment legislation enacted by Congress in 2002. Specifically, the opinion in PCS Nitrogen Inc. v. Ashley II of Charleston LLC LP, Nos. 11-1662, 11-2087, 11-2099, 11-2104 and 11-2297 (4th Cir. April 4, 2013), interpreted the requirement that, in order to escape liability as a current site owner under Section 107 of CERCLA, a BFPP must show that it “exercises 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 human, environmental, or natural resource exposure to any previously released hazardous substance.” 42 U.S.C. 9601(40)(D). Because the Fourth Circuit upheld a finding that Ashley II, a brownfield redeveloper of a site in Charleston, SC, did not exercise such care, and is therefore liable for a share of cleanup costs as the current site owner, it is feared that the Fourth Circuit’s opinion will chill the redevelopment of brownfield sites. A close reading of the opinion, however, shows that it is based on specific failings by Ashley II that may limit its effect to the facts of the case, and also provides guidance for brownfield redevelopers who wish to take advantage of BFPP immunity.
The principle effect of PCS Nitrogen is to interpret the meaning of the requirement that a BFPP “exercise appropriate care”. The Fourth Circuit rejected arguments by Ashley II that the “appropriate care” standard should be a lesser standard of care than that required of current owners who are liable parties under Section 107 of CERCLA, because the BFPP immunity provided for by Congress as part of the Small Business Liability Relief and Brownfields Revitalization Act enacted in 2002 was intended to lift the liability impediment to investors acquiring and redeveloping contaminated sites. Instead, the court observed that the standard for a BFPP, which acquires a site with full knowledge of its contamination, should, if anything, be higher than the “due care” standard required of an innocent landowner under CERCLA, which by definition “did not know and had no reason to know” of the contamination of a site it acquired. The court ruled, however, that the “appropriate care” standard is at least as stringent as the “due care” standard required to establish an innocent landowner defense, citing a 2003 guidance document issued by the EPA, “Office of Enforcement & Compliance Assurance, U.S. Envtl. Prot. Agency, 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” (March 6, 2003). Agreeing with the Second Circuit’s interpretation that the “due care” inquiry involves determination as to whether a party “took all precautions with respect to the particular waste that a similarly situated reasonable and prudent person would have taken in light of all relevant facts and circumstances.” New York v. Lashins Arcade Co., 91 F. 3d 353, 361 (2nd Cir. 1996).
The opinion in PCS Nitrogen therefore provides guidance to redevelopers of contaminated brownfield properties as to what is required to meet the “appropriate care” criterion (one of eight criteria) to take advantage of BFPP immunity from Superfund liability. An evaluation of the cited failings of Ashley II, relied upon by the District Court and 4th Circuit, shows what to avoid. The court cited failings of Ashley II that prevented it from establishing “appropriate care”: (i) Ashley II delayed in filling underground sumps that contained hazardous substances—Ashley II’s own expert admitted the sumps should have been filled a full year before Ashley II did so; (ii) Ashley II allowed a cover of crusher gravel to deteriorate, leaving soil contaminated with high levels of lead and arsenic exposed in many areas; and (iii) Ashley II allowed a trash pile to accumulate on the site.
The lesson of PCS Nitrogen, therefore, is that brownfield redevelopers should: (i) have as complete an understanding of site contamination as possible before acquiring a brownfield site; (ii) before acquiring a site, understand, based on expert advice, what needs to be done to protect against exposure to site contamination, stop any continuing release of hazardous substances, and prevent any future release; and (iii) promptly follow qualified expert advice regarding steps to take, or actions to avoid, in order to accomplish those requirements. Also, a brownfield redeveloper must be aware of and follow the other seven criteria contained in CERCLA that are necessary to establish BFPP immunity.