New Federal Brownfield Legislation

Texas Bar Journal, December 2002

12/01/2002

On January 11, 2002, President Bush signed the “Small Business Liability Relief and Brownfields Revitalization Act” (the “Act”).  As its name suggests, the Act provides relief to small businesses and funding for Brownfields (“real property, the expansion, re-development, or re-use of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant”).  It also significantly amends certain liability-related provisions of the Comprehensive Environmental Response Compensation Liability Act (“CERCLA”) or Superfund.  This article briefly provides some background on CERCLA, and discusses new exemptions, provisions for settlement by small businesses, innocent land owners/all appropriate inquiry clarifications, and the new bona fide prospective purchaser defense.
 
Background

Under CERCLA, those classed as potentially responsible parties (“PRPs”) may be strictly liable for costs of responding to contaminated sites and restoring affected natural resources.  PRPs include present and certain past owners and operators, transporters who selected the site, and generators of waste who arranged for disposal of their wastes at the site.  The worst of these sites are included on an ongoing list developed by the United States Environmental Protection Agency (“EPA”) called the National Priorities List or NPL.  EPA may utilize funds from the “Superfund” to investigate and remediate NPL sites.
 
New NPL PRP Exemptions
 
Under the Act two classes of PRPs are newly exempted from liability for NPL sites: (1) arrangers and transporters of de micromis amounts of materials, if the amounts of the materials they disposed of are under prescribed quantities, and (2) specified arrangers, i.e., residential property owners or operators, small businesses, and tax exempt institutions, who generated municipal solid waste.   These exemptions are conditional.  Among other things:  (1) the waste must not have contributed significantly to the costs of response and natural resource restoration; (2) the person must not have failed to comply with information requests; (3) the person must not have interfered with the remedial action; and (4) all or part of the disposal, treatment, or transport of the wastes must have occurred before April 1, 2001.
 
In general, the Act proscribes contribution actions against these two classes of PRPs, other than by governmental entities, and imposes the burden of establishing that these PRPs are not within the exemption on those seeking to recover from them.  It further authorizes those newly exempted PRPs to recover reasonable costs of defending the action, including attorneys and expert fees, if they are found not liable for contribution based on the exemption.  The exemption, however, does not apply to contaminated sites not on the NPL.
 
Settlement by Small Businesses
 
For small businesses, the Act provides another benefit.  It amends CERCLA to allow parties who are unable or of limited ability to pay response costs, to expeditiously settle for small amounts.  It also authorizes them to use alternative payment methods.  To qualify, the business also must not fail to provide information or access.
 
Innocent Land Owners – All Appropriate Inquiry
 
Under CERCLA, PRPs may avoid liability if they can show that the release or threat of release of hazardous substances and the resulting damages were caused solely by: (1) an act of God; (2) an act of war: (3) an  act or omission of a third party, or (4) any combination of these causes.  In addition, they must show that they exercised due care with regard to the hazardous substances and took precautions against foreseeable acts or omissions of any such third party and the consequences that could foreseeably result.  The so-called third-party defense is not available if the third party is one whose act or omission occurred in connection with the contractual relationship with the PRP.  While some courts have required that there be a nexus between the act or omission of the seller and the contractual relationship with the PRP, others have ignored this requirement and have found the defense inapplicable if any contractual relationship exists.
 
Because of concern that a contractual relationship could gut the defense, Congress amended  CERCLA to add the so-called innocent landowner defense.  Under this defense, even if the proscribed contractual relationship were present, the PRP nonetheless could avoid liability if it could show that it satisfied the requirements of an innocent landowner, that is, that at the time of acquisition the PRP did not know and had no reason to know, that any hazardous substances were disposed at the facility.  The standard for determining the adequacy of the due diligence investigation is whether the PRP made “all appropriate inquiry.”  The Act amends the definition of contractual relationship and clarifies the due diligence standard.
 
The Act includes easements and leases as well as deeds as examples of the type of contractual relationship that may trigger the need for the innocent land owner defense.  It requires a person seeking protection under this exemption: to fully cooperate with the response actions and natural resource restoration; to comply with land use restrictions; and to not impede the integrity of institutional controls.  It also expands upon the “all appropriate inquiry” standard by explaining that the defendant must carry out all appropriate inquiry into the previous ownership and uses of the facility in accordance with generally accepted good commercial and customary standards and practices and take reasonable steps to stop any continuing release, prevent any threatened future release, or prevent or limit any human, environmental, or natural resource exposure to any released hazardous substances.
 
The Act defines the standards for all appropriate inquiry.  It requires the EPA Administrator, within two years of enactment, to promulgate regulations describing those standards, which are to include:  (1) results of an inquiry by an environmental professional; (2) interviews with past and present owners, operators, and occupants; (3) reviews of historical sources; (4) searches for recorded environmental cleanup liens; (5) reviews of governmental and other records; (6) visual inspection of the facility and adjoining properties; (7) specialized knowledge or experience on the part of the defendant; (8) the relationship of the purchase price to the value of the property if the property was not contaminated; (9) commonly known or reasonably ascertainable information about the property; and (10) the degree of obviousness of the presence or likely presence of contamination of the property; and the ability to detect the contamination by appropriate investigation.
 
With respect to property purchased before May 31, 1997, the court is required to take into account a subset of the prescribed factors, specifically, factors (7) through (10).  With respect to property purchased on or after that date, until the Administrator promulgates regulations, the ASTM 1997 standards for environmental site assessments satisfy the requirements for “all appropriate inquiry.”  For a residential property, a facility inspection and title search that reveal no basis for further investigation are generally adequate.
 
Owners of Properties Contiguous to Contamination Sources
 
The Act creates a new exemption from Superfund liability applicable to a person who owns real property that is contiguous to and that is or may be contaminated by a release or threatened release of a hazardous substance from real property not owned by that person, provided certain conditions are met.  Among other things, the person must: (1) not have caused, contributed, or consented to the release; (2) not be potentially responsible or affiliated with the person responsible for the release; (3) take reasonable steps to stop any continuing release, to prevent any threatened release, and to prevent or limit human, environmental, or natural resource exposure to any hazardous substances released from that person’s property; (4) provide full cooperation and access to persons authorized to conduct response actions or natural resource restoration; (5) comply with any applicable land use restrictions and not interfere with any institutional controls; (6) comply with requests for information; (7) provide all legal required notices; (8) and at the time at which the person acquired the property, have conducted all appropriate inquiry and not know or have reason to know that the property was or could be contaminated by the adjacent property.  The Act generally exempts owners of property whose groundwater is contaminated from offsite sources from having to conduct groundwater investigations or to install groundwater remediation systems.  For these types of newly exempted PRPs, the Administrator is authorized to issue an assurance of no enforcement action and to grant contribution protection.
 
Bona Fide Prospective Purchaser Defense
 
Both the innocent land owner defense and the new contiguous land owner defense are unavailable if the person performs the investigation and determines that contamination is present. To address that circumstance, EPA would enter into prospective purchaser agreements, on a case-by-case basis, pursuant to which the agency would release the purchaser from liability in exchange for monetary and other consideration.  The Act institutionalizes this practice by exempting so-called bona fide prospective purchasers from liability.
 
The term “bona fide prospective purchaser“ is defined as a person (or a tenant of a person) that acquires ownership of a facility and that can show certain elements by a preponderance of the evidence.  These elements include : (1) that disposal occurred prior to acquisition; (2) that  the person made all appropriate inquiry into the previous ownership and uses of the facility in accordance with generally accepted good commercial and customary standards and practices; (3) that the person provided all legally required notices; (4) that the person is exercising appropriate care with respect to the hazardous substances by taking reasonable steps to stop any continuing release, prevent any threatened future release, and prevent or limit human, environmental, or natural resource exposure to any previously released hazardous substances; (5) that  the person is fully cooperating with the party authorized to conduct response or natural resource restoration actions; (6) that the person is complying with land use restrictions and is not impeding any institutional controls; and (7) that the person is responding to information requests.  The exemption is not available if the person is affiliated with the party responsible for the contamination.
 
If there are unrecovered federal response costs at a site, the United States may impose a lien on the site, or negotiate some other assurance of payment with the site owner, for the unrecovered response costs.  The amount of the lien, however, may not exceed the increase in fair market value of the site attributable to the response action, as of the time of sale.
 
The Act provides relief to small businesses and revitalizes Brownfields.  It also significantly amends certain of the liability provisions of CERCLA.  Among other things, it affords a defense to prospective purchasers who, upon all appropriate inquiry, discover contamination, by institutionalizing the benefits of a prospective purchaser agreement, thereby encouraging Brownfields development.

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