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FRESH INSIGHTS ON CONTAMINATED PROPERTY
LAW - NAVIGATING ‘BONA FIDE
PROSPECTIVE PURCHASER’ PROVISIONS
PRESENTED BY
Paul M. Seby
April 7, 2011
Comprehensive Environmental Response
Compensation and Liability Act (CERCLA)
 Enacted in 1980 and imposes “strict liability”
for “hazardous substance” clean-up.
 Liability may result solely on property
ownership and without regard to fault or
negligence.
 Can lead to costly and draconian
outcomes
Small Business Liability Relief and
Brownfields Revitalization Act (“Brownfields
Act”)
 A 2001 amendment to CERCLA
 “Congressional Intent”:
 Protect small businesses from CERCLA liability
 Make “brownfield” properties easier to sell and
develop
 3 Principal “Exemptions” from CERCLA liability
 “innocent landowners”
 “bona fide purchasers”
 “contiguous property owners”
Not Everyone Can Be a BFPP !
To be Exempt from CERCLA liability, prior to
closing must show:
 Acquire property after January 11, 2002
 Release of hazardous substances occurred
prior to date of ownership
 Purchaser(s) are NOT affiliated with any
party that is liable for the contamination.
BFPP Requirements
 An adequate environmental site assessment, i.e.
all appropriate inquiry (AAI), is conducted prior to
closing
 Provide all legally required notices regarding any
hazardous substances on the property
 Fully cooperate in the clean-up
 Comply with all applicable land use restrictions
 Comply and cooperate with EPA
 “Exercise appropriate care with respect to
hazardous substances found”
Ashley II of Charleston, LLC v. PCS Nitrogen,
Inc., No. 2:05-cv2782-MBS, 2010 WL 4025885
(D.S.C.) (Oct. 13, 2010)
 First federal court opinion construing
statutory BFPP provisions - 8-years after
Brownfield Act went into effect
 Provides examples of specific actions
that will or will not satisfy the elements of the
BFPP defense.
The Ashley Decision
BFPP Requirement: Release of hazardous
substances must have occurred prior to date of
ownership.
Ashley Decision:
 Court relied on CERCLA’s broad definition of
“disposal.”
 Found that Ashley’s removal of buildings, which
then allowed rainwater to enter into cracked sumps
containing hazardous substances was a “disposal.”
The Ashley Decision Cont’d.
BFPP Requirement: AAI must be conducted prior to
closing
Ashley Decision:
 The new owner properly conducted the AAI.
“What is important is that [the new owner] acted
reasonably; it hired an expert to conduct an AAI
and relied on that expert to perform its job
properly.”
The Ashley Decision Cont’d.
BFPP Requirement: “Exercise appropriate care with
respect to hazardous substances found”
Ashley Decision:
 The Court evaluated “reasonableness” using
statutory “due care” criteria along with an EPA Guidance
document.
 Found Ashley did not exercise appropriate care
when it failed to address recognized environmental
conditions identified in its own environmental site
assessment.
 Ashley failed to test under concrete pads, sumps and
trenches.
The Ashley Decision Cont’d.
BFPP Requirement: Comply and cooperate with EPA
Ashley Decision: Found Ashley adequately “cooperated
with EPA” since it acquired the site, because it
notified EPA of its ownership and asked EPA to
advise if EPA desired the new owner to take specific
action.
The Ashley Decision Cont’d.
BFPP Requirement: Purchaser is NOT affiliated with any
party that is liable for the contamination.
Ashley Decision: Found that because Ashley released and
indemnified prior owners from environmental liability at the
time of disposal and had “attempted to persuade EPA not to
take enforcement action to recover for any harm at the Site
caused by [the indemnitees]” they failed to meet this element
of the test.
 Ashley’s “efforts to discourage EPA from recovering
response costs covered by the indemnification
reveals just the sort of
affiliation Congress intended to discourage.”
Summary
The Ashley decision underscores the importance
for any prospective purchaser or lender involved
with a potentially contaminated property.
The Moral of this Story?
Develop and implement a strategic game plan for
limiting potential exposure to significant liability.
QUESTIONS?
Paul M. Seby
[email protected]
(303) 292-7934
Chair, Energy, Environmental & Natural Resources Group