The Third Circuit recently concluded that the owner of a remediated site could be liable under Section 107(a) of CERCLA for remediation costs incurred prior to its acquisition of the property. Pa. Dep’t of Envtl. Prot. v. Trainer Custom Chem. LLC 906 F.3d 85 (3d Cir. 2018). The case is noteworthy not only because of the significant implications for property owners and developers, but also because it is one of the few to have analyzed the issue.
Before turning to the facts of the case, a brief refresher on liability under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) is in order. Generally speaking, when the government responds to the release of hazardous substances, Section 107(a) of CERCLA allows the government to recover “all costs of removal or remedial action” from the potentially responsible party (PRP). 42 U.S.C. § 9607(a)(4)(A) (2018).
There are four different classes of PRPs defined in Section 107(a), but only one is relevant here: owner or operator status (owner/operator). Id. § 9607(a)(1). CERCLA’s definition of “owner and operator” is silent on the date from which ownership is measured. See id. § 9601(20)(A). This raises an important question: Does the absence of any kind of temporal limitation mean that an “owner and operator” can be liable for pre-acquisition remediation costs? If a party purchases property knowing that it is being or has been remediated for an earlier release of hazardous substances, is the party nonetheless liable as an “owner and operator”?
In the matter before the Third Circuit, that party was Trainer Custom Chemical LLC (“Trainer”). Pa. Dep’t of Envtl. Prot. v. Trainer Custom Chem. LLC (Trainer II), 906 F.3d 85, 87 (3d Cir. 2018). Trainer purchased land (“the Site”) at a tax sale knowing that it had preexisting environmental issues and ongoing remediation efforts. Id. At the time of purchase, the Pennsylvania Department of Environmental Protection (PDEP) had spent more than $800,000.00 to remediate the Site. Pa. Dep’t of Envtl. Prot. v. Trainer Custom Chem. LLC (Trainer I), 204 F. Supp. 3d 814, 817 (E.D. Pa. 2016).
After purchasing the Site, Trainer further contaminated it, which resulted in PDEP expending additional money. Id. at 818. Eventually, PDEP sued Trainer for cost recovery under CERCLA and the Pennsylvania Hazardous Sites Cleanup Act (HSCA). Trainer II, 906 F.3d at 89. In the cost recovery action, PDEP sought recovery of all costs (more than $930,000.00), not just those incurred after Trainer acquired the Site. Since PDEP spent more than $800,000.00 on the Site before Trainer purchased it, more than 85% of the cost recovery action stemmed from pre-acquisition expenditures. Id.
Eventually, PDEP moved for summary judgment on the issue. Id. In opposing the motion, Trainer did not dispute that it presently met CERCLA’s definition of “owner and operator.” See Trainer I, 204 F. Supp. 3d at 822 (finding that Trainer did not dispute owner/operator status). Instead, Trainer argued that it could not be held liable for the pre-acquisition remediation costs because it neither owned nor operated the Site at the time they were incurred. See id. at 823. In other words, Trainer argued for a temporal constraint, despite, as noted above, the absence of any such constraint in CERCLA’s definition of “owner and operator.”
The District Court’s Opinion
The district court framed the issue raised as whether Trainer was liable for remediation costs incurred before Trainer took ownership of the Site. Id. Finding no relevant cases on the issue in either the Third Circuit or the Eastern District of Pennsylvania, the court turned to a Ninth Circuit case, California Department of Toxic Substances Control v. Hearthside Residential Corp., 613 F.3d 910 (9th Cir. 2010). Id.
From Hearthside, the court interpreted the issue of Trainer’s liability for pre-acquisition remediation costs as turning on when owner/operator status is determined under CERCLA. Id. at 824. Pulling heavily from Hearthside, the court reasoned that owner/operator status could be determined either at the time of cleanup (in which case Trainer would not be liable for pre-acquisition costs) or at the time of lawsuit (in which case Trainer would be liable for pre-acquisition costs). Id. The court agreed with the Ninth Circuit, finding that owner/operator status is determined at the time of cleanup. Id. Because Trainer did not own or operate the Site at the time of cleanup, Trainer was not an owner/operator from which PDEP could recover pre-acquisition costs. Accordingly, the court concluded that although Trainer was liable for remediation costs incurred after it took ownership of the Site, it was not liable for pre-acquisition costs. Id. at 825. The court reached the same conclusion as to HSCA. Id. at 826. PDEP disagreed, and took an interlocutory appeal on the issue. Trainer II, 906 F.3d at 89.
The Third Circuit’s Opinion
On appeal, the Third Circuit framed the issue similarly, but analyzed it differently. Instead of looking to when owner/operator status attaches, the Third Circuit took as its starting point Trainer’s concession that is was an owner/operator. Id. at 91. Careful to note that it was starting from that concession, the Third Circuit determined that Trainer’s liability for pre-acquisition costs turned not on whether it was an owner/operator at the time costs were incurred, but on the scope of costs recoverable against an owner/operator under CERCLA. Id.
To answer the question of whether CERCLA imposed liability on an owner/operator for pre-acquisition remediation costs, the Third Circuit looked to the language of Section 107(a). The court found that section, with its mandate that the owner/operator “shall be liable for…all costs,” to be both remarkably broad and still “quite clear.” Id. All costs, the court found, meant just that—all costs. Id. According to the court, the unqualified language evinced Congress’s intent to impose liability without any temporal limitations. Id. If Congress had intended for “all costs” to be temporally constrained, it would have included appropriate language. Id.
Because Congress did not constrain “all costs,” the Third Circuit concluded that the meaning of “all costs” in Section 107(a) included “costs incurred both before and after a current owner acquired the property.” Id. at 93. As such, the court found Trainer liable for all removal costs, regardless of the date. The court reached the same conclusion as to HSCA. Id. at 94.
The Third Circuit’s opinion is notable because it will have a substantial impact on property owners and developers, and because it is one of the few courts to have considered the issue of owner/operator liability for wholly past remediation costs. The Hearthside case from the Ninth Circuit is apparently one of the few cases to have considered the issue. Hearthside Residential Corp., 613 F.3d 910. In Hearthside, the Department initiated a cost recovery action against Hearthside, which owned the site at the time of remediation, but had sold it prior to the Department’s lawsuit. Id. at 912. Hearthside argued that it could not be liable under CERCLA because it could not be classified as an owner/operator since it no longer owned the site. Id. The Department took the opposite position – that Hearthside could be classified as an owner/operator because owner/operator status is determined at the time of cleanup, when Hearthside still owned the site. Id. at 912.
The Ninth Circuit framed the issue as whether owner/operator status under CERCLA is determined at the time the cleanup costs are incurred or at the time the lawsuit is filed. Id. at 911. The Ninth Circuit considered the issue one of first impression, noting at the outset that there was “no controlling or persuasive precedent that answers the precise question before us.” Id. at 913. From the “broader context of CERCLA liability,” the court concluded that the Department’s position (that owner/operator liability is determined at the time of cleanup) was the better one. The court was particularly persuaded by CERCLA’s statute of limitations for cost recovery actions, which run either from the completion of the removal action or the initiation of the remedial action. Id. Because statutes of limitations are meant to protect defendants, the court reasoned that Congress intended the CERCLA limitations periods to protect the owner of the property at the time of cleanup. Id. According to the court, if owner/operator status is determined at the time of lawsuit, the limitations period would be ineffectual. Thus, the court reasoned, Congress must have intended owner/operator status to be determined at the time of cleanup. Hearthside was, therefore, liable. Id. at 916.
The Third Circuit dismissed the Ninth Circuit’s analysis, finding it inapplicable to the issues raised by Trainer. Trainer II, 906 F.3d at 93, n. 12. Hearthside, the Third Circuit wrote, considered which of two entities was a current owner for the purposes of Section 107(a)(1). Id. Because Trainer did not dispute that it was an owner/operator of the Site, “there was no need to turn to Hearthside to determine again whether Trainer was a current owner of the Site.” Id. Once Trainer admitted it was an owner/operator, the question was whether the language of “all costs” imposed liability for pre-acquisition costs. Id. The Third Circuit found that Hearthside gave “no guidance as to the meaning of ‘all costs’ in § 107(a),” and therefore did not and could “not stand for the proposition that it is permissible to temporally partition § 107(a)(1) liability with respect to cleanup costs.” Id.
The Third Circuit’s interpretation of the Ninth Circuit’s opinion is correct, but it does not address the elephant in the room. What if Trainer had not conceded it was an owner/operator? If Trainer had not conceded the issue, would the Third Circuit have applied Hearthside? Perhaps. The Third Circuit explained that it did not apply Hearthside because of Trainer’s concession, implying that it might have applied Hearthside but for the concession. See id. (explaining there was “no need” to apply Hearthside because of Trainer’s concession). If the Third Circuit had applied Hearthside, it would have found Trainer was not responsible for the pre-acquisition costs.
That liability for pre-acquisition costs turns on whether the current owner disputes owner/operator status seems like the wrong outcome, but that appears to be the law in the Third Circuit. The matter will certainly be taken up by more courts and commentators now that the Third and Ninth Circuits have considered the issue. But until then, the major takeaway for current property owners is to be careful to avoid conceding owner/operator status in cost recovery actions. Prospective buyers of property now must be mindful of not only the possibility of future cleanups, but also the prospect of having to reimburse the government for earlier ones.