Liability under the CERCLA (Superfund) statute is harsh – under CERCLA's system of strict-liability and joint-and-several-liability, a property may be on the hook for cleanup costs if real property they purchase requires cleanup. Buyers may avoid liability using statutory defenses available to "bona fide prospective purchasers" (BFPP). In order to assert the BFPP defense, a purchaser must establish that it purchased the property after the contamination occurred; that it made "all appropriate inquiries" before purchasing the property; that it provided the legally required notices about the contamination; and that it took steps to stop any ongoing contamination, prevent future contamination, and limit the exposure from past contamination.
Decisions in two cases have clarified what constitutes appropriate "due-diligence" necessary to allow buyers to assert the BFPP defense. In PCS Nitrogen Inc. v. Ashley II of Charleston LLC, 714 F.3d 161 (4th Cir. 2013), the Fourth Circuit Court of Appeals considered what constituted "appropriate care" in preventing the future release of hazardous materials.
The owner of the site (Ashley) purchased property with knowledge that it was contaminated, but with an expressed intention to remediate the contamination. Ashley spent $194,000 investigating and cleaning up the site. Ashley then sought to recover those costs from PCS Nitrogen, alleging that it was jointly and severally liable for the cleanup costs. PCS Nitrogen counterclaimed against Ashley, which asserted a BFPP defense to the counterclaim. The trial court rejected this defense, holding that Ashley had not exercised "appropriate care" and taken "reasonable steps" to stop continuing releases of hazardous substances.
On appeal, Ashley contended that the district court applied too stringent an interpretation of "appropriate care" and "reasonable steps" in rejecting its asserted BFPP defense. Ashley argued that the stringent standard applied by the lower court created a disincentive for landowners to undertake voluntary redevelopment of contaminated property, because the new property owner would become liable for the full cost of cleanup as a result of minor mistakes, even those which did not contribute to any harm at the site.
The Fourth Circuit rejected this argument, holding that the level of "appropriate care" required to establish a BFPP must be at least as stringent as the standard for "due care" required of an innocent landowner. The Court held that the "appropriate care" standard looks to whether a party took all precautions "that a similarly situated reasonable and prudent person would have taken in light of all relevant facts and circumstances." Under this standard, the Court concluded that Ashley's failure to fill sumps on the property — which its own expert admitted should have been filled a year before Ashley did so — demonstrated that it had not taken "reasonable steps" to prevent any threatened future release that a similarly situated reasonable and prudent person would have taken.
In Voggenthaler v. Maryland Square LLC, 724 F.3d 1050 (9th Cir. 2013), the Nevada Division of Environmental Protection (NDEP) sought to recover cleanup costs from the purchaser of a shopping center which contained soil and groundwater contaminated by PCE from an on-site dry cleaner. The trial court rejected a BFPP defense asserted by the owner, based on the fact that the affidavit the owner submitted in support of its assertion that "all appropriate inquires" had been made, had not been notarized.
On appeal, while the Ninth Circuit Court of Appeals agreed that the owner should have been permitted to correct the problem and notarize the affidavit, it nevertheless held that, even assuming the truth of its contents, the affidavit did not satisfy the requirements of the BFPP defense. In order to assert a BFPP defense, the new owner must show that it took steps to stop any ongoing contamination, prevent threatened future contamination, and prevent or stop exposure to any previously released hazardous substance.
Here, while the owner retained a consultant and attorneys to review and report on NDEP's files on the site and hired a contractor to demolish a building on the site, the affidavit did not establish that Maryland Square took any steps to prevent threatened future harm. At the time of the purchase, the new owner was aware of the PCE contamination, but it took no steps to either remove the contaminated soil or to limit the spread of the PCE contamination following demolition.
Taken together, Ashley II and Voggenthaler demonstrate the need for purchasers to take specific steps to protect against a past release and to prevent any threatened future release, as well as identifying mitigation measures in order to show that the new owner took all precautions that a similarly situated reasonable and prudent person would have taken under the circumstances.