After 30 years of CERCLA jurisprudence, most sophisticated purchasers know if they buy contaminated real estate, they may also acquire liability for remediating the property. Until the CERCLA Brownfield amendments became effective in 2002, the only hope a purchaser had was to qualify as an “innocent landowner.” The problem, however, was if you found contamination while performing pre-purchase due diligence, you could not rely upon the innocent landowner defense. To cure that problem Congress enacted the bona fide prospective purchaser defense (“BFPP”), which attempts to allow a prospective purchaser to insulate himself from CERCLA liability. Unlike the innocent landowner defense, if a BFPP finds contamination while conducting due diligence, he can still be protected from liability even if he purchases the property – a significant advantage.
CERCLA allows a purchaser of a contaminated property to assert the BFPP defense to a claim for contribution if the purchaser meets certain criteria. Specifically, the purchaser must establish the following by a “more likely than not” standard: (1) all disposal of hazardous substances occurred before acquiring the property; (2) due diligence (as defined in CERCLA) was conducted into previous ownership and uses of the facility; (3) all legally required notices were provided regarding discovery or release of any hazardous substances at the facility; (4) reasonable steps were taken to prevent any continuing or future release and exposure to previously released substances; (5) provided full cooperation with any response actions; (6) complied with land use restrictions; (7) complied with requests for information; and (8) confirmed no affiliation with any potentially responsible party. Despite passage in 2002, the courts have given little or no guidance on how these criteria apply so as to qualify for the BFPP defense, until now. Finally, two courts have rendered opinions interpreting the BFPP defense.
In Ashley II of Charleston, LLC v. PCS Nitrogen, Inc., 2010 WL 4025885 (D.S.C.), Ashley II of Charleston, LLC (“Ashley”) tried to assert the BFPP defense as a shield against CERCLA contribution claims. The court, applying the factors above, ruled that Ashley failed to establish the BFPP defense. Specifically, the court found that Ashley did not prove that all disposal of hazardous substances occurred before it acquired the property. Ashley demolished all structures on the property including cracked sumps containing hazardous substances, which potentially leaked when filled with rainwater. After removing the structures, Ashley did not investigate whether any contamination seeped into the soil under the structures. The court further ruled that Ashley did not exercise appropriate care regarding hazardous substances on the property. When Ashley demolished the structures, it also should have capped, filled, or removed the sumps. Ashley failed to clean or fill the sumps, which left the sumps exposed and potentially worsened the hazardous conditions. Ashley also failed to exercise appropriate care by not investigating and removing a large debris pile that accumulated at the property. Because Ashley did not prevent disposal of hazardous waste and failed to act with appropriate care, it could not rely upon the BFPP defense. The court allocated 5% of the past and future clean up costs to Ashley, but also allowed Ashley to recover nearly $150,000 it incurred in response costs.
By contrast, in 3000 East Imperial LLC v RobertShaw Controls, Co., 2010 WL 5464296 (C.D.Cal.) the court ruled that 3000 East Imperial, LLC (“3000 East”), a purchaser of contaminated property, took reasonable steps to prevent further release of hazardous substances and, therefore, was entitled to BFPP status. The court focused only on the fourth element, which requires a BFPP to take 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. The defendant argued that 3000 East was not entitled to BFPP status because it waited two years after it purchased the property to remove several underground storage tanks (“UST”). However, the court recognized that 3000 East emptied the USTs shortly after it learned the USTs contained hazardous substances. Accordingly, the court ruled that 3000 East took reasonable steps to stop any continuing leaks or prevent future leaks and that it was entitled to BFPP status.
The lesson from these cases is that a purchaser must pay careful attention to the BFPP criteria both before and after the acquisition of contaminated property. Failure to do so may result in the acquisition of not only the property, but also significant liability.