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What Is Required to Retain the Bona Fide Prospective Purchaser Exemption from CERCLA Liability?

Have you been in the market to buy property, but learned that the property was contaminated? There are steps that you can take to avoid opening yourself up to liability.

As you may remember, we recently discussed EPA's proposed and direct final rules on Amendment to the Standards and Practices for All Appropriate Inquiries. All Appropriate Inquiries ("AAI") are one of the first steps that a person seeking to acquire property must take in order to maintain his Bona Fide Prospective Purchaser ("BFPP") exemption from being named a Potentially Responsible Party ("PRP") under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA").

EPA's rules would have established a new Phase I Environmental Site Assessment ("Phase I") protocol, known as ASTM E1527-13, as an option for prospective purchasers to fulfill their AAI obligations. Interestingly, EPA did not attempt to replace the former ASTM E1527-05 standard with this newer, more stringent version, but merely provided an alternative - prospective purchasers would have been able to use either version of the standard as guidance.

After receiving adverse comments on the decision to simultaneously recognize the two ASTM standards, EPA withdrew its direct rule change on October 29, 2013. EPA issued its final rule on December 30, 2013. In response to public comments, EPA noted that it "strongly encouraged" prospective purchasers to use the ASTM E1527-13 standard in performing AAI, and that it will soon propose an amendment to remove the ASTM E1527-05 option.

There are eight separate requirements for a prospective purchaser to follow in order to retain its BFPP status. Recently, several courts have spoken to what is required to maintain the BFPP exemption, focusing on the more substantive elements of the exemption. This case law, along with EPA's rule change, makes the prospective purchaser's affirmative obligations to qualify for the BFPP exemption increasingly rigorous.

Once a prospective purchaser has conducted AAI through a Phase I, he must exercise Appropriate Care ("AC") to mitigate any environmental hazards detected during the AAI. The prospective purchaser must cooperate with any ongoing cleanup, and take care not to impede remedial actions on the property or institutional controls in place at the facility.

In the Fourth Circuit, a delay in addressing potential sources of environmental contamination discovered during the AAI phase was found not to be a reasonable exercise of AC, and the court did not allow the purchaser to preserve the BFPP exemption. PCS Nitrogen Inc. v. Ashley II of Charleston LLC, 714 F.3d 161 (4th Cir. 2013). Similarly, in the Eastern District of Michigan, a purchaser's decision to break up concrete on its newly acquired property was found to have impeded the ongoing response actions. This purchaser was denied the benefit of the BFPP exemption. Saline River Properties, LLC v. Johnson Controls, Inc., 823 F.Supp.2d 670 (E.D. Mich. 2011).

In contrast, in the Central District of California, the court held that emptying USTs, without removal, was reasonable AC, intended to prevent further releases. 3000 E. Imperial, LLC v. Robertshaw Controls Co., 2010 WL 5464296 (C.D. Calif., Dec. 29, 2010).

If there's a rule to be derived from the AC cases, it is that the "appropriate care" standard may well be met by some degree of remediation less than full remediation, but it is surely not met by doing nothing when owning a contaminated site.

What constitutes AAI and AC, and what other steps a BFPP must take to retain their exemption from liability, is complicated and can be confusing. The only thing that's certain is that determining what constitutes appropriate due diligence is a highly fact-specific inquiry, and requires consideration of the particulars of a given piece of property. If you are about to purchase property, the experienced environmental attorneys at Periconi, LLC can help you navigate this difficult path.

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