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FRESH INSIGHTS ON CONTAMINATED PROPERTY LAW - NAVIGATING ‘ BONA FIDE PROSPECTIVE PURCHASER ’ PROVISIONS. PRESENTED BY. Paul M. Seby April 7, 2011. Comprehensive Environmental Response Compensation and Liability Act (CERCLA).

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  1. FRESH INSIGHTS ON CONTAMINATED PROPERTY LAW - NAVIGATING ‘BONA FIDE PROSPECTIVE PURCHASER’ PROVISIONS PRESENTED BY Paul M. Seby April 7, 2011

  2. Comprehensive Environmental Response Compensation and Liability Act (CERCLA) • Enacted in 1980 and imposes “strict liability” for “hazardous substance” clean-up. • Liability may result solely on property ownership and without regard to fault or negligence. • Can lead to costly and draconian outcomes

  3. Small Business Liability Relief and Brownfields Revitalization Act (“Brownfields Act”) • A 2001 amendment to CERCLA • “Congressional Intent”: • Protect small businesses from CERCLA liability • Make “brownfield” properties easier to sell and develop • 3 Principal “Exemptions” from CERCLA liability • “innocent landowners” • “bona fide purchasers” • “contiguous property owners”

  4. Not Everyone Can Be a BFPP ! To be Exempt from CERCLA liability, prior to closing must show: • Acquire property after January 11, 2002 • Release of hazardous substances occurred prior to date of ownership • Purchaser(s) are NOT affiliated with any party that is liable for the contamination.

  5. BFPP Requirements • An adequate environmental site assessment, i.e. all appropriate inquiry (AAI), is conducted prior to closing • Provide all legally required notices regarding any hazardous substances on the property • Fully cooperate in the clean-up • Comply with all applicable land use restrictions • Comply and cooperate with EPA • “Exercise appropriate care with respect to hazardous substances found”

  6. Ashley II of Charleston, LLC v. PCS Nitrogen, Inc., No. 2:05-cv2782-MBS, 2010 WL 4025885 (D.S.C.) (Oct. 13, 2010) • First federal court opinion construing statutory BFPP provisions - 8-years after Brownfield Act went into effect • Provides examples of specific actions that will or will not satisfy the elements of the BFPP defense. 

  7. The AshleyDecision • BFPP Requirement: Release of hazardous substances must have occurred prior to date of ownership. • Ashley Decision: • Court relied on CERCLA’s broad definition of “disposal.” • Found that Ashley’s removal of buildings, which then allowed rainwater to enter into cracked sumps containing hazardous substances was a “disposal.”

  8. The Ashley Decision Cont’d. BFPP Requirement: AAI must be conducted prior to closing • Ashley Decision: • The new owner properly conducted the AAI. “What is important is that [the new owner] acted reasonably; it hired an expert to conduct an AAI and relied on that expert to perform its job properly.”

  9. The Ashley Decision Cont’d. • BFPP Requirement: “Exercise appropriate care with respect to hazardous substances found” • Ashley Decision: • The Court evaluated “reasonableness” using statutory “due care” criteria along with an EPA Guidance document. • Found Ashley did not exercise appropriate care when it failed to address recognized environmental conditions identified in its own environmental site assessment. • Ashley failed to test under concrete pads, sumps and trenches. 

  10. The Ashley Decision Cont’d. BFPP Requirement: Comply and cooperate with EPA Ashley Decision: Found Ashley adequately “cooperated with EPA” since it acquired the site, because it notified EPA of its ownership and asked EPA to advise if EPA desired the new owner to take specific action.

  11. The Ashley Decision Cont’d. • BFPP Requirement: Purchaser is NOT affiliated with any party that is liable for the contamination. • Ashley Decision: Found that because Ashley released and indemnified prior owners from environmental liability at the time of disposal and had “attempted to persuade EPA not to take enforcement action to recover for any harm at the Site caused by [the indemnitees]” they failed to meet this element of the test.  • Ashley’s “efforts to discourage EPA from recovering response costs covered by the indemnification reveals just the sort of affiliation Congress intended to discourage.”

  12. Summary The Ashley decision underscores the importance for any prospective purchaser or lender involved with a potentially contaminated property. The Moral of this Story? Develop and implement a strategic game plan for limiting potential exposure to significant liability.

  13. QUESTIONS? Paul M. Sebypaul.seby@moyewhite.com(303) 292-7934 Chair, Energy, Environmental & Natural Resources Group

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