[PPT] - Maintaining Liability Protection Strategies for Overcoming BFPP PowerPoint Presentation

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CERCLA Bona Fide Prospective Purchaser Defense: Securing and Maintaining Liability Protection

Strategies for Overcoming BFPP Defense Challenges and Restrictions

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific WEDNESDAY, MARCH 23, 2016

Frank J. Deveau, Partner, Taft Stettinius & Hollister, Indianapolis Thomas J. P . McHenry, Partner, Gibson Dunn & Crutcher, Los Angeles

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Limiting Superfund Liability An Overview of the CERCLA Bona Fide Prospective Purchaser (BFPP) Defense

Frank J. Deveau fdeveau@taftlaw.com 317-713-3520

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WHO IS LIABLE?

Subject to certain defenses, the following categories of

individuals are strictly, jointly, and severally liable:

Present owners and operators at a facility;
Former owners and operators at a facility at the time of

disposal;

Any person who arranged for disposal or treatment of

hazardous substances at a facility; and

Any person who transported hazardous substances to a facility

42 U.S.C. § 9607

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Limiting Liability

Bona Fide Prospective Purchaser Defense (“BFPP

defense”)

Prospective Purchaser Agreements (“PPAs”)

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BFPP Defense

To meet the statutory criteria for liability protection, a landowner must meet certain threshold criteria and satisfy certain continuing obligations.

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INITIAL OBLIGATIONS

(1) Disposal Occurred Prior to Acquisition (2) All Appropriate Inquiry (3) Affiliation

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DISPOSAL OCCURRED PRIOR TO ACQUISITION

Requirement #1

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Disposal Prior to Acquisition

A landowner must prove that all disposal of hazardous substances occurred pre-acquisition.

CERCLA 101(40)(A)

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ALL APPROPRIATE INQUIRY (“AAI”)

Requirement #2

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All Appropriate Inquiry

Interviews with past and present owners, operators, and occupants;
Reviews of historical sources of information;
Reviews of federal, state, tribal, and local government records;
Visual inspections of the facility and adjoining properties;
Commonly known or reasonably ascertainable information; and
Degree of obviousness of the presence or likely presence of contamination at

the property and the ability to detect contamination

CERCLA §§ 101(40), 101(35) 40 C.F.R. 312

Mem. from EPA on 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 (Mar. 6, 2003), at 4 – 5.

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All Appropriate Inquiry

Inquiries must be conducted or updated within one year
f the date of acquisition.
Certain aspects on the inquiry must be updated if AAI’s

are conducted more than 180 days prior to the acquisition date.

40 C.F.R. § 312

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ASTM E1527-13 for Phase I AAI

Noteworthy changes to AAI via ASTM E1527-13

Revised definitions to align with CERCLA Clearer definition of REC, HREC New category – controlled REC (CREC) Revised file review requirements Vapor migration risk analysis clarified

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Coppola v. Smith, 2015 WL 224730 (E.D. Cal.2015)

Innocent landowner/AAI decision (buyer/M&M was

unaware of contamination at time of purchase)

Downgradient landowner sued upgradient owner of

former dry cleaner

M&M sought summary judgment as innocent landowner

Court held: (1) M&M LLC could rely on pre-purchase inquiry

f Martin LP;

(2) other parties were sole cause of release of PCE; and (3) M&M exercised due care post-closing; i.e.,reasonable steps.

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Coppola v. Smith, 2015 WL 224730 (E.D. Cal.2015)

Court also held: insufficient evidence of AAI or due diligence because no evidence of accepted commercial standards in 1995 in Visalia area. Note: compliance with 1993 ASTM standard was not necessary.

Five statutory factors for pre-May 31, 1997, purchase

reviewed (42 USC 9601(35)(B)(iv)(I).

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AFFILIATION

Requirement #3

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Affiliation

Party must not be potentially liable or affiliated with any

person who is potentially liable for response costs

“affiliation” is not explicitly defined, but appears to be

broadly interpreted.

Direct and indirect familial relationships
Many contractual, corporate, and financial relationships

CERCLA § 101(40)(H)

Mem. from EPA on 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 (Mar. 6, 2003), at 5 - 6.

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Affiliation

Focus is on relationships created to avoid CERCLA liability.
EPA will consider:
Whether or not the BFPP is otherwise a potentially responsible party (“PRP”)
Whether the BFPP is in fact the same entity as a PRP;
Whether the BFPP is the result of a reorganization of a liable party through

bankruptcy or other corporate restructuring; and

Whether a party with whom the BFPP is associated is an actual PRP.

CERCLA § 101 (40)(H)

Mem. from EPA on 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 (Mar. 6, 2003), at 5 - 6.

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Affiliation

Exceptions
Instruments by which title to the facility is conveyed or financed
Contracts for the sale of goods or services
Generally exempt relationships include:
Relationships at other properties
Post-acquisition relationships
Relationships created during title transfer
Relationships established between a tenant and owner during leasing process

CERCLA § 101(40)(H)

Mem. from EPA on 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 (Mar. 6, 2003), at 5 - 6.

Mem. from EPA on Enforcement Discretion Guidance Regarding the Affiliation Language of CERCLA’s Bona Fide Prospective Purchaser and

Contiguous Property Owner Liability Protections (Sep. 21, 2011), at 6.

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Continuing Obligations

(4) Complying with Restrictions & Controls (5) Reasonable Steps (appropriate care) (6) Cooperation, Assistance, and Access (7) Compliance with Information Requests (8) Providing Legally Required Notices

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COMPLYING WITH RESTRICTIONS & CONTROLS

Requirement #4

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Complying with Restrictions and Controls

Must be in compliance with any land use restrictions

established or relied on in connection with a response action.

CERCLA § 101(40)(F)

Mem. from EPA on 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 (Mar. 6, 2003), at 6 – 8.

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Complying with Restrictions and Controls

Institutional Controls:
Administrative and legal controls that minimize the potential for

human exposure to contamination, and

Protect the integrity of remedies by limiting land or resource use

and/or providing information to modify behavior

CERCLA § 101(40)(F)

Mem. from EPA on 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 (Mar. 6, 2003), at 6 – 8

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Complying with Restrictions and Controls

Required to comply even if restrictions have not been

properly implemented

Control is never, or has yet to be, implemented;
Property owner or other using property impede the effectiveness
f a control and the party responsible for enforcement neglects to

take sufficient measures to bring those persons in compliance; or

A court finds those controls unenforceable

CERCLA § 101 (40)(F)

Mem. from EPA on 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 (Mar. 6, 2003), at 6 - 8.

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Complying with Restrictions and Controls

Must not impede the effectiveness or integrity of any

institutional control.

For example:
EPA and state programs often use notices to convey information

regarding site contamination rather than actually restricting land use.

If an owner removes notices from land records, the removal would

impede the effectiveness of an institutional control.

CERCLA § 101 (40)(F)

Mem. from EPA on 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 (Mar. 6, 2003), at 6 – 8.

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REASONABLE STEPS

Requirement #5

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Reasonable Steps

Will be a site-specific analysis aimed to:
Stop continuing releases,
Prevent threatened future releases, and
Prevent or limit, human, environmental, or natural resource

exposure to earlier hazardous substance release.

CERCLA § 101(40)(D)

Mem. from EPA on 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 (Mar. 6, 2003), at 9 – 12.

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Reasonable Steps

The pre-purchase inquiry will most likely inform the BFPP

as to the nature and extent of contamination. Phase I RECs and Recommendations will become reasonable steps

This requirement only relates to contamination for which

the BFPP is not responsible.

More than reasonable steps will likely be required from the

landowner if there is new hazardous substance contamination for which he is responsible.

CERCLA § 101 (40)(A)

Mem. from EPA on 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 (Mar. 6, 2003), at 9 – 12

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Reasonable Steps Comfort Letters

EPA or state agency may provide a comfort/status letter addressing reasonable steps at

a specific site.

Generally limited to sites with significant federal involvement such that the agency has

sufficient knowledge to form a basis for suggested reasonable steps.

Most likely given where:
It may facilitate the cleanup and redevelopment process;
There is a realistic probability of superfund liability; and
There are no other means to adequately address the party’s concerns.

62 Fed. Reg. 4,624 (1997)

Mem. from EPA on 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 (Mar. 6, 2003), at 9 – 12. Office of Enforcement and Compliance Assurances’ Policy on the Issuance of Comfort/Status Letters

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Reasonable Steps Comfort Letters

EPA has developed four sample comfort/status letters:

1. No Previous Federal Superfund Interest Letter
2. No Current Federal Superfund Interest Letter
3. Federal Interest Letter
4. State Action Letter

Office of Enforcement and Compliance Assurances’ Policy on the Issuance of Comfort/Status Letters

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Reasonable Steps Comfort Letters

State Agency Comfort Letters

Provides agency has reviewed AAI/Phase I and concludes buyer has complied with BFPP provisions (may be non-binding). May include reasonable steps…RECS or Recommendations from Phase I’s likely included.

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Reasonable Steps Comfort Letters Why should you get a Comfort Letter?

Clients and lenders like them.
Courts will likely give deference to agency’s

determination that client is a BFPP.

Provides a written record that client is a BFPP vs

relying solely on defense where client has burden of proof.

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Informal 2013 survey of states re comfort letters

State

Yes No Alternative Alaska x Prospective Purchaser Agreement California x Occasionally may issue letter, but frowned upon Colorado x Delaware x Georgia x Hawaii x Idaho x Illinois x Indiana x Iowa x Kentucky x Notice of Eligibility Louisiana x Maryland x Michigan x Baseline Environmental Assessment Mississippi x Brownfield Agreement Letter Missouri x Nevada x

Delaware issues a Brownfield Certification Letter.
Georgia issues a Limitation of Liability Certification.
Louisiana will issue a Comfort Letter if one is requested but tries not to issue these letters.
Maryland’s Brownfields program is currently inactive.
At one time, Nevada did offer Comfort Letters but no longer does so.

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Informal 2013 survey of states re comfort letters

State

Yes No Alternative New Hampshire x Covenant Not to Sue/Validation of Prospective Purchaser New Jersey x New Mexico x Voluntary Remediation Program/Covenant Not to Sue New York x Release from Liability North Carolina x North Dakota x Ohio x Voluntary Action Program Oklahoma x Oregon x Prospective Purchaser Agreement under State Law Pennsylvania x Buyer-Seller Agreement Rhode Island x Remedial Decision Letter/Remedial Agreement South Carolina x South Dakota x Tennessee x No Further Action Letter Texas x Utah x Enforceable Written Assurance Vermont x Virginia x Voluntary Remediation Program West Virginia x Wyoming x

Wyoming has not received any requests for a Comfort Letter but would likely issue one if asked.

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COOPERATION, ASSITANCE, AND ACCESS Requirement #6

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Cooperation, Assistance, and Access

BFPP must provide full cooperation, assistance, and

access to persons authorized to conduct response actions.

CERCLA § 101 (40)(E)

Mem. from EPA on 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 (Mar. 6, 2003), at 12.

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COMPLIANCE WITH INFORMATION REQUESTS Requirement #7

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Compliance with Information Requests

In particular, EPA expects timely, accurate, and complete

responses from all recipients of Section 104(e) information requests.

CERCLA § 101 (40)(G)

Mem. from EPA on 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 (Mar. 6, 2003), at 13.

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PROVIDE LEGALLY REQUIRED NOTICES

Requirement #8

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Providing Legally Required Notice

BFPP must provide all legally required notices with respect to the

discovery or release of any hazardous substance at the facility.

Ensures that EPA and others are made aware of hazardous substance

release in a timely manner.

BFPP has the burden of ascertaining what notices are legally required

in a given instance.

Regions may require landowners to self-certify that they have

provided or will provide all legally required notices.

CERCLA § 101 (40)(C)

Mem. from EPA on 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 (Mar. 6, 2003), at 13.

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PROSPECTIVE PURCHASER AGREEMENTS (PPAs)

The Gold Standard

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Prospective Purchaser Agreements

EPA continues to believe prospective purchaser agreements are no

longer necessary.

However, the agency still recognizes that in limited circumstances,

the public interest would be served by entering into agreements with purchasers of contaminated property.

These agreements are intended to serve as the vehicle for providing a

federal covenant not to sue and contribution protection for BFPPs who will perform removal work exceeding reasonable steps at sites of federal interest.

Mem. from EPA on Issuance of CERCLA Model Agreement and Order on Consent for Removal Action by a Bona Fide Prospective Purchaser (Nov.

27, 2006), at 2.

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What About RCRA?

EPA and many state agencies believe all subsequent

title holders remain subject to RCRA

RCRA closure/corrective action and AAI??
RCRA not subject to BFPP defense
Examples:

– flower shop at former interim status facility – Airport at former CERCLA removal site

Thompson Corners, LLC v. New York State Dep’t of Environmental Conservation, 2014 WL 1924148 (N.Y. App.

Div. May 15, 2014).

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IDEM Nov.11, 2015, RCRA Corrective Action Policy

“IDEM has determined that its authority to order

corrective actions under RCRA, IC 13-22-13 et al., and related federal and state rules and regulations, does not extend to subsequent owners of hazardous waste facilities if the subsequent owner did not operate such a facility on the site, did not seek or receive a permit to do so, and was not required to seek or receive such a permit.”

US EPA does not agree…….

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BFPP Defense as interpreted by the courts

How has the BFPP Defense been construed by the

courts in the past decade since it was enacted?

What guidance can we derive from case law?
Stay tuned for Tom’s presentation!

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Frank J. Deveau

Frank is co-chair of Taft’s Environmental Law Practice Group. He

has practiced environmental law for over 30 years focused primarily in the Midwest, although he has advised clients throughout the United States. His practice includes environmental issues involving litigation, property transfers and compliance. He was selected as Environmental Lawyer of the Year for 2012 and 2015 in Indianapolis by Best Lawyers, co-edited ABA’s 2012, book entitled Environmental Liability and Insurance Recovery and co-authored ABA’s 2013, book entitled The Bona Fide Prospective Purchaser Defense: A Guide for Lawyers. fdeveau@taftlaw.com 317-713-3520

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CERCLA Bona Fide Prospective Purchaser (BFPP) Defense: Recent Developments

March 23, 2016 – Strafford Webinar

Thomas J.P. McHenry 333 South Grand Avenue Los Angeles, California 90071 TMcHenry@gibsondunn.com (213) 229-7135

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Overview

Who wants to buy contaminated property?
Under what circumstances would you buy contaminated property?
Small Business Liability Relief and Brownfields Revitalization Act of 2002
Bona Fide Prospective Purchaser (BFPP) Defense
Key Cases (2010 & 2011)

– Ashley II of Charleston, LLC v. PCS Nitrogen, Inc., 791 F. Supp. 2d 431 (D.S.C. 2011), aff’d, 714 F.3d 161 (4th Cir. 2013) – 3000 E. Imperial, LLC v. Robertshaw Controls Co., No. CV 08-3985 PA (Ex.), 2010 WL 5464296 (C.D. Cal. Dec. 29, 2010)

More Recent Case (2013)

– Voggenthaler v. Maryland Square, LLC, Nos. 10-17520/11-15174/11- 15176/12-16409/12-16412, 2013 WL 3839330 (9th Cir. July 26, 2013)

Maintaining BFPP Status

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Summary

Increased scrutiny of vapor intrusion
U.S. EPA (OECA) guidance on:

– Enforcement Discretion Regarding Affiliation Language (9/21/2011) – Tenant BFPP Qualification under CERCLA (12/5/2012)

Importance of meeting and documenting all eight (8) BFPP elements
BFPP Defense is burden-bearing, fact-specific & self-executing
“Process is time consuming and transaction costs remain high” (19 Colo. J.

Int’l Envtl. L. & Pol’y 259, 275 (2008)

Difficult for small businesses to take advantage of BFPP defense without

assistance of counsel and in the absence of comfort letters

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Ashley: Background

Case: 63 page decision with complex factual history -- primer on CERCLA liability generally and application of BFPP elements specifically Procedural Background:

Plaintiff and current owner of Brownfield site (Ashley) brought suit under

CERCLA § 107 (42 U.S.C. § 9607) to recover remediation costs from former site owners

Defendant and former site owner (PCS Nitrogen) counterclaimed, seeking

contribution from current owner (Ashley) contending owner had also contaminated site

Ashley raised BFPP defense

The Site: 43 acres in the upper peninsula area of Charleston, South Carolina,

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Ashley: Relevant Timeline

1906–1985: Site occupied and contaminated by phosphate fertilizer

manufacturing: low pH and lead and arsenic in soil

1985–2003: Holcombe and Fair purchase land with intent to develop and

subdivide

1989–2008: Allwaste buys 3 acres from Holcombe

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Ashley: Key Facts (1 of 3)

Ashley acquires 27.62 acres from Holcombe and Fair in 2003 for

development

In the purchase contract, Ashley indemnifies Holcombe and Fair for

environmental liabilities -- Ashley manager testified that the intent of indemnity claim was to prevent Ashley from suing Holcombe and Fair for any environmental contamination claims

Environmental investigations conducted in September 2003
EPA information requested in 2004 – Ashley collected 452 soil samples
2006: Ashley discovers stained soil and trash pile on Site

– Tests for soil, but only for lead and arsenic – Fails to remove trash pile

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Ashley: Key Facts (2 of 3)

Ashley also acquires 2.99 acres from Allwaste in 2008:
Environmental investigations continue in 2007
Updated environmental assessment in 2008 - identifies sumps as

recognized environmental conditions (RECs)

Soil and sediment samples discover contaminated soil
Demolition of above-ground buildings -- runoff collects in pads, sumps and

trench

Investigation of sumps in 2009:

– Investigators observe water level and analyze depth of cracks in sumps, but do not take underground samples – Ashley had a protocol in place requiring it to look under slabs to ensure no environmental concerns – did not follow protocol on Allwaste parcel – Conclude water loss due to evaporation not subsurface leaks

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Ashley: Key Facts (3 of 3)

On September 3, 2008, Ashley wrote a letter to the EPA acknowledging

that Holcombe and Fair may be liable for response costs

As it had indemnified Holcombe and Fair from all environmental

liabilities, Ashley then asked the EPA to refrain from enforcement

Should EPA pursue the claim against Holcombe and Fair, Ashley argued

“it would discourage Ashley’s future development efforts”

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Applicability of Eight BFPP Defense Elements:

1. Disposal occurred prior to acquisition – No (accumulation in sumps, failure to

test)

2. All Appropriate Inquiry – Yes
3. Affiliation – No (discouragement of EPA enforcement against prior owner)
4. Compliance with Continuing Obligations and Requests – Yes
5. Reasonable Steps (Care) – No (failure to clean and fill sumps)
6. Cooperation, Assistance, and Access – Yes
7. Compliance with Information Requests – Yes
8. Provided Legally Required Notices – Yes

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What Ashley Did Right

1. All Appropriate Inquiries (AAI)

– Complied with interim AAI standard (ASTM Standard E1527–00) for Holcombe and Fair purchase in 2003 – Complied with final AAI standard (40 C.F.R. § 312) for Allwaste purchase in 2008 – “Ashley acted reasonably; it hired an expert to conduct an AAI and relied on that expert to perform its job properly.” (791 F. Supp. 2d at 500)

2. Compliance with Continuing Obligations and Requests (Institutional Controls)

– Environmental engineer, qualified as an expert, testified that no land use restrictions or unusual controls in place at Site – Ashley was in compliance with controls in place (791 F. Supp. 2d at 501)

3. Cooperation, Assistance, and Access

– Ashley “immediately notified EPA of its ownership and asked EPA to advise Ashley if EPA desired Ashley to take specific action.” (791 F. Supp.2d at 501) – “The record demonstrates that Ashley’s cooperation with EPA has been ongoing since it purchased the site.” (Id.)

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Ashley: What Ashley Did Right (Continued)

4. Compliance with Information Requests

– Environmental engineer testified that Ashley complied with all information requests and subpoenas issued by EPA (791 F. Supp. 2d at 501-02)

5. Provided Legally Required Notices

– “The record does not establish that any releases occurred on the Site subsequent to Ashley acquiring ownership. The court finds that Ashley has met its burden of proving that it made all legally required notices.” (791 F. Supp. 2d at 500)

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Ashley: What Ashley Did Wrong (1 of 3)

1.

Disposal Prior to Acquisition

– Ashley must prove all disposals occurred before acquisition. (791 F. Supp. 2d at 499) – “Ashley did not conduct testing to determine whether disposals occurred on the Allwaste parcel during its ownership period.” (Id.)

Concern that Ashley’s demolition activities contributed to contamination by

allowing water to accumulate in sumps

Ashley did not test under the concrete pads, sumps or trenches to determine if

contaminated

– Expert testimony stating no disposal occurred after acquisition was inadmissible because Ashley did not properly disclose the opinion before the trial (Id.) Lesson: Do not conduct activity on the property that might lead to or result in further leaking or contamination

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Ashley: What Ashley Did Wrong (2 of 3)

2. Affiliation

– Must prove: 1) not responsible through familial or contractual relationships, 2) not affiliated with responsible persons, and 3) not the result of business reorganization of liable party. – “Ashley is potentially liable for response costs at the Site due to contractual relationships” because Ashley released Holcombe and Fair and Allwaste from environmental liability for contamination at the Site. (791 F. Supp. 2d at 502) – “Ashley attempted to persuade EPA not to take enforcement action to recover for any harm at the Site caused by the Holcombe and Fair Parties.” (Id.) – “Ashley’s efforts to discourage EPA from recovering response costs from the Holcombe and Fair Parties reveals just the sort of affiliation Congress intended to discourage.” (Id.)

Lesson: Don’t discourage EPA from enforcing against prior owners

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Ashley: What Ashley Did Wrong (3 of 3)

3. Reasonable Steps (Appropriate Care)

– Must prove: 1) stop any continuing release, 2) prevent any threatened future release, 3) prevent or limit human, environmental or natural resource exposure to any previously released hazardous substance (CERCLA Due Care Standard). – Pre-purchase AAI will inform as to “reasonable steps.” – “When Ashley demolished all of the above-ground structures…but failed to clean out and fill the sumps, leaving them exposed to the elements, it may have exacerbated these conditions.” (791 F. Supp. 2d at 501) – “[L]ater action…to test, clean, and fill the sumps with concrete came too late to prevent possible releases.” (Id.) – “[F]ailure to 1) prevent such debris from accumulating on the Site, 2) investigate the contents of the debris pile, and 3) remove the debris pile for

ver a year indicates a lack of appropriate care.” (Id.)

Lesson: Site activities will be examined closely under “appropriate care” standard

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Ashley: Result

Ashley failed to prove 3 of the 8 elements of BFPP defense
Ashley held liable for equitable share of response costs
Court determined Ashley would be responsible for 5% of these costs
Ashley also held liable for Holcombe and Fair’s share of the response costs

(16%)

Ashley also responsible for Allwaste’s share of the response costs (3%)
Adds up to almost one-quarter (24%) of the response costs!

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Ashley: Fourth Circuit Appeal (2013)

Court of Appeals affirmed lower court finding that Ashley failed to

establish all eight elements required to obtain BFPP status. (714 F.3d 161, 180 (4th Cir. 2013))

Ashley “failed to demonstrate that it exercised ‘appropriate care’ at the

site.” Failure of this one factor enough to deny Ashley BFPP status. (714 F.3d at 181)

Declined to address two other BFPP elements:

– Improper affiliation due to indemnification of PRPs and plea to EPA to not prosecute – Proof that no disposal of hazardous substances occurred after Ashley acquired the site.

Lesson: Must satisfy every one of the 8 BFPP elements.

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Imperial: Background

Case: Much simpler and much less analysis by the court – analysis hinges

n timing of removal of USTs

Procedural History

Plaintiff and current owner of property sought declaratory relief and

compensation costs under, among other claims, under CERCLA

Defendants counterclaimed under CERCLA seeking contribution and cost

recovery

Plaintiff raised BFPP defense

The Site: Rectangular lot in Lynwood, California

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Imperial: Timeline

1955–1963: Predecessor-in-interest to defendant manufactured aircraft and

missile valves – underground storage tanks (USTs) leaked and contaminated soil

Post 1963: Property used by various furniture manufacturers
2006: Imperial (Plaintiff and current owner) purchases Property

– Aware of chemical contamination – Hired environmental consulting firm to investigate, take soil and water samples – Discovers benzene and trichloroethylene (TCE) in the soil and groundwater – Demolishes above-ground buildings used by Imperial (similar to Ashley?)

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Imperial: Key Facts

Imperial discovered contaminated USTs, emptied contents and eventually

excavated USTs

– May 2007: Sampled USTs – Sept. 2007: Discovered chemicals in samples – Oct. 2007: Emptied contents from USTs and removed from Property – 2009: Excavated USTs and discovered oily substance

Defendant argued that Plaintiff “unreasonably delayed” removal of USTs for 2

years.

Plaintiff already classified by state agency as bona fide purchaser under Cal.

Health & Safety Code 25395.69 (Imperial, 2010 WL 5464296, at *10)

Defendant’s Argument: Waiting 2 years to excavate USTs was unreasonable

delay

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Imperial: BFPP Defense: Eight BFPP Requirements:

1. Disposal occurred prior to acquisition – Yes
2. All Appropriate Inquiry – Yes
3. Affiliation – Yes
4. Compliance with Continuing Obligations and Requests – Yes
5. Reasonable Steps (Care) – Yes
6. Cooperation, Assistance, and Access – Yes
7. Compliance with Information Requests – Yes
8. Provided Legally Required Notices – Yes

2002 Brownfield Amendment to CERCLA § 107(r)

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Imperial: What Imperial Did Right

Reasonable Steps (focus of the opinion)

Plaintiffs “took reasonable steps to prevent further release of hazardous

substances.” (2010 WL 5464296, at *11)

“Since Plaintiff had the USTs emptied soon after learning that they

contained a hazardous substance, the Court finds that the Plaintiff took reasonable steps to stop any continuing leak or to prevent any future leaks

f TCE from the USTs.” (2010 WL 5464296, at *10)

Disposal prior to acquisition: No apparent concern about demolition exacerbating contamination Affiliation: No mention of any contractual releases that would create a concern about affiliation

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Subsequent Interpretation & Application of BFPP Defense

BFPP defense only applies to property purchased after Brownfield

Amendments passed on January 11, 2002 – Haskins v. Cherokee Grand Ave., LLC, No. C–11–05142–YGR, 2012 WL 1110014, at *4 (N.D.CA. April 12, 2012)

“The Court believes that the defense contained in CERCLA §§

101(40) & 107(r) is clear and, on its face, is unavailable to Defendants based on their purchase dates.”

When must all appropriate inquiries be completed?

– November 1, 2005: EPA promulgates rule setting forth AAI requirements. – All appropriate inquiries must “be conducted within one year prior to the buyer acquiring the property.

Date of acquisition is “date on which a person received title to the

property.”

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Subsequent Interpretation & Application of BFPP Defense

Voggenthaler v. Maryland Square, LLC, No. 2:08–cv–1618–RCJ–GWF,

2012 WL 1815651, at *6 (D. Nev. May 17, 2012), vacated in part, Nos. 10-17520/11-15174/11-15176/12-16409/12-16412, 2013 WL 3839330 (9th

Cir. July 26, 2013)

– “[Defendant] provides no evidence of any kind supporting its argument that it is a bona fide prospective purchaser. As such, [Defendant] fails to establish a genuine issue of material fact as to its liability under CERCLA § 107(a).”

Saline River Props., LLC v. Johnson Controls, Inc., 823 F. Supp. 2d 670,

686 (E.D. Mich. 2011)

– “Here, [Plaintiff] has not even referenced the above essential elements of the defense—let alone presented evidence on each of the numerous elements.”

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SLIDE 73

Voggenthaler: Ninth Circuit Appeal

Contaminated site home to dry cleaning facility that used and spilled PCE,

hazardous substance under both CERCLA and state codes

Nevada DEP sued under CERCLA to recover clean-up costs. District court

granted summary judgment in favor of NDEP on all claims

Prior owners and operators during contamination period
Herman Kishner Trust (owner) from 1969-2002
Shapiro Bros. Investment Co. (operator) from 1969 to 1984
DCI USA, Inc. (operator) from 1984 to 2000
Current owner and defendant: Maryland Square LLC
Maryland Square asserted BFPP defense.

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Voggenthaler: Ninth Circuit Appeal

District court did not consider content of Maryland Square’s BFPP defense

due to a formal deficiency – submission not notarized.

Ninth Circuit stated that submission was “woefully insufficient”

– Submission did not specify how Maryland Square meets all eight elements required to establish BFPP defense – Submission only stated that Maryland Square purchased site with knowledge of contamination, demolished a building on site, followed progress of previous owners in drafting and submitting plans to clean up site, and had “some (mainly undescribed) correspondence with NDEP.” (2013 WL 3839330, at *8)

Vacated district court’s grant of summary judgment in favor of NDEP so

Maryland Square may “cure the formal and substantive deficiencies of its prior submission and establish that it has met the statutory and regulatory requirements to qualify as a [BFPP].” (2013 WL 3839330, at *9)

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“Affiliation” Considerations

USEPA Enforcement Discretion Guidance Regarding the Affiliation

Language of CERCLA’s BFPP and Contiguous Property Owner (CPO) Liability Protections

Fact-specific guidance where parties meet all BFPP elements except for

affiliation “with any other person that is potentially liable”

EPA emphasizes that burden of proof remains on the party seeking liability

protection.

Exceptions from affiliation for: (1) instruments by which title is conveyed
r financed and (2) contract for sale of goods and services
Considerations in applying affiliation language
Indemnities?

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SLIDE 76

Tenant liability under CERCLA

Pre-December 2005: Tenants must show (a) sufficient indicia of ownership

and (b) landowner is BFPP for tenant to qualify as BFPP.

Post-December 2005: Tenant’s BFPP status not contingent upon whether

landowner qualifies for BFPP exemption.

Tenant may obtain BFPP status even if owner never becomes BFPP.
In addition to the eight BFPP elements, tenant must also prove it conducted AAI

prior to execution of lease.

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Tenant liability under CERCLA: Post-December 2005

A tenant may maintain BFPP status even if, by no fault of tenant, the

landlord loses BFPP status. The tenant must prove the following:

– All disposal of hazardous substances at facility occurred prior to lease execution; – Provide legally required notices; – Takes reasonable steps with respect to hazardous substance releases; – Provides cooperation, assistance, and access; – Complies with land use restrictions and institutional controls; – Complies with information requests and administrative subpoenas; – Not potentially liable for response costs at facility or affiliated with any such person (other than through lease with owner); and – Does not impede any response action or natural resource restoration.

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I Want to Be a BFPP—Lessons Learned

78

Keep the Eight (8) Requirements for a BFPP Defense in mind
Know your site – Hire a good consultant, conduct appropriate AAI

diligence, review agency files, etc.

Be careful about indemnifying former site owners
Maintain adequate records of diligence and on-site activities
Address any unexpected contamination swiftly and in accordance with

good practice

Maintain positive relations with the regulatory agency – may be a witness

in your defense

If a tenant, subject to similar BFPP requirements

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Thomas McHenry

Contact: 333 South Grand Avenue Los Angeles, CA 90071-3197 Tel: 213.229.7135 tmchenry@gibsondunn.com

Tom is a partner in Gibson Dunn’s Los Angeles office and a member of the firm's Environment and Natural Resources

practice. He practices general

environmental law with an emphasis on air quality, hazardous waste, environmental diligence, land use and energy issues. Tom has broad experience with air quality compliance and permitting. He has advised companies on new source review, emission reduction credits and rulemaking issues and has handled enforcement and compliance issues before all the major air districts in California and the California Air Resources Board.