How could contaminated land possibly be anything but a bargain? Really! Even though the price tag may seem cheap, the costs of environmental cleanup may greatly exceed the savings on the purchase price and make what seemed a good bargain a very bad one indeed.
It all starts with the CERCLA statute's vague definitions, which have made things tricky for land purchasers. Although the statute defines "owner" as an "owner," for various reasons, this tautology has been litigated time and time again. Courts have spent decades deciphering ownership liability under CERCLA and to what extent is an owner-especially a "current owner"- is required to pay for remediation costs, especially when the bad actor has been a tenant, not the landowner itself. During the almost 40 years since CERCLA's enactment, Congress has made several efforts to address some of the problems associated with the law, and federal courts have played their part to resolve Superfund liability issues. However, a recent Third Circuit case should help clarify who may be liable as a "current owner" under CERCLA, and which cleanup costs they may be responsible for.
First, a bit on Superfund liability...
As explained in a previous blog post, the CERCLA statute regulates cleanup of contaminated lands. The statute's liability scheme, which courts have confirmed provides for strict and retroactive liability among various broad classes of potentially responsible parties ("PRPs"), can quickly turn a good investment into a bad one.
Under Section 107(a) of the statute, the government may clean up a contaminated property, and seek reimbursement of cleanup costs. PRPs that may be liable to reimburse the government include four distinct types of entities: (1) the current owner and operator of the property; (2) the owner or operator at the time of the contamination; (3) the entity or person that arranged the disposal of the hazardous contaminant; and (4) the entity who transported and disposed of the hazardous contaminant. Each PRP is technically responsible for all costs associated with environmental cleanup of the site, unless there is a "reasonable basis" to apportion liability. To that end, a PRP may argue that the term "all costs" is too vague and they should not be responsible for certain expenditures. However, as the Third Circuit recently decided, there might not be much wiggle room.
Do "all costs" truly mean "all costs"?
A recent CERCLA case looked at the term "all costs" and ultimately reaffirmed the importance of environmental due diligence in real estate purchases. In the case of Dep't of Envtl. Prot. v. Trainer Custom Chem., LLC ("Trainer"), No. 17-2607, 2018 WL 4844077 (3d Cir. Oct. 5, 2018), the Pennsylvania Department of Environmental Protection (PADEP) had spent hundreds of thousands of dollars to clean up corrosive and combustible chemicals on a property before Trainer purchased the land for $20,000 in a tax sale. PADEP sued Trainer, seeking reimbursement of nearly $1 million in cleanup costs. In 2016, the District Court held that Trainer, who was holding title at the time of the litigation, was only liable for response costs incurred after it purchased the site and did not have to pay for prior cleanup costs.
Unsurprisingly, PADEP appealed, and on October 5, 2018, the Third Circuit vacated the District Court's ruling and held that the meaning of "all costs" under CERCLA is nothing less than all costs. The court explained that CERCLA does not draw a temporal line between pre- and post-acquisition cleanup costs. Therefore, a current property owner is liable for all response costs incurred before or after purchasing the property. Thus ends another quirky effort by a PRP to find a way out of the entanglements of CERCLA liability.
Owners of contaminated sites beware!
Though this is a Third Circuit case, it provides important insight as to what a prospective purchaser in the Second Circuit may be able to expect when purchasing land. Prospective purchasers of contaminated property should consider not only that they may be responsible for cleaning up existing contamination they did not cause, but also that they can be held liable for all response costs incurred by the government at the property prior to their ownership, especially if the land has increased in value due to the government-sponsored cleanup before the purchase. (Here, a good part of the PADEP's past response costs, nearly $1 million, were for electricity to keep the facility open while the State and U.S. EPA undertook a removal action, rather than increasing the value of the property as such.).
Buyers of contaminated land where the government has expended some money to clean up the site should also be aware that simply acquiring bona fide prospective purchaser (BFPP) status under CERCLA, and thus qualifying for one of the exemptions to liability, is not the end-all-be-all: the U.S. EPA is still allowed to obtain a lien on a property for any unrecovered response costs. This type of "windfall lien" would still make the buyer responsible for prior cleanup costs.
Sometimes a bargain price for a property is no bargain. Environmental due diligence is essential to discover a property's history, as is consulting with an environmental attorney prior to entering into a contract. A purchaser will acquire responsibility for the property's environmental history unless appropriate precautions are taken. Therefore, buyers beware!
Contact the attorneys of Periconi, LLC at 212-213-5500 if you are planning to purchase or currently own contaminated land, if you have been threatened with a lawsuit under CERCLA, or if you have general questions about CERCLA liability.