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Uncertainty About CERCLA Liability Protection

By Bruce Flushman

A federal district court, for the first time, interpreted the requirements for the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) bona fide prospective purchaser (“BFPP”) defense.  Ashley II of Charleston LLC v. PCS Nitrogen Inc. (D.S.C., No. 2:05-cv-2782, 9/30/10) arose from a CERCLA action seeking recovery from the purchaser of costs incurred to remediate property contaminated by historic operations.  The purchaser asserted the BFPP defense. The Court found the purchaser responsible for a percentage of the allocated cleanup costs.
 
To assert the BFPP defense successfully, a party must show no disposal occurred after acquisition of the property and that it (1) conducted “all appropriate inquiries”; (2) filed all legally required notices; (3) exercised “appropriate care”; (4) provided full cooperation and assistance in accessing the site; (5) complied with and did not impede the implementation of institutional controls; (6) was not a potentially responsible party; and (7) had no affiliation with parties potentially liable for response costs.
 
Two of the matters that led the Court to find the purchaser could not satisfy the elements of the BFPP were fact specific:  the purchaser left sumps in place that could collect contaminated water and did not conduct soil testing.  Thus, the Court found a disposal may have occurred after property acquisition and the purchaser failed to exercise appropriate care, disqualifying the purchaser as a BFPP
 
Another element of BFPP defense which the Court found the purchaser could not establish was more systemic:  The Court found the purchaser could not satisfy the “no affiliation” requirement because the purchaser’s indemnification of other parties at the site reveals just the type of affiliation CERCLA prohibited. That finding is troubling as such indemnification agreements between purchasers and sellers of property are a routine contractual arrangement in real estate transactions. 
 
This case may, however, be unique: when the regulatory agency wanted to pursue response cost actions, the purchaser discouraged the agency from pursuing the seller.  That fact may have pushed the Court to disqualify the purchaser from successfully asserting the CERCLA BFPP defense based on its affiliation with the seller.
 
In all events, entities considering such transactions might wish to explore voluntary cleanup programs offered by regulatory entities such as the Department of Toxic Substances Control and Regional Water Quality Control Boards.  Those programs provide liability protection in exchange for qualifying remedial work.