10.29.2019 EPA Releases New Guidance on CERCLA Landowner Liability Protections
EPA recently issued a guidance document (the “Guidance”) that supersedes and clarifies its 2003 guidance on what prospective purchasers of real estate must do to qualify for one of CERCLA’s three landowner liability protections (“LLPs”). Although the 33-page Guidance does not have the force of law, it is the definitive source of EPA’s views on this issue.
Congress amended CERCLA in 2002 to add three defenses to CERCLA liability, being the “bona fide prospective purchaser” defense, the “contiguous landowner” defense, and the “innocent landowner” defense. The bona fide prospective purchaser (“BFPP”) defense is the most useful because a prospective purchaser who qualifies for it is not liable for existing hazardous substances at the property even if the prospective purchaser takes title knowing the property is contaminated. (Note: The term “hazardous substances” in CERCLA is defined to exclude petroleum. Thus, with few exceptions, the LLPs do not provide a defense to petroleum contamination.)
All three defenses have threshold criteria that must be met, followed by certain continuing obligations. The threshold criteria are that the prospective purchaser must:
- conduct “all appropriate inquires” by performing a Phase I environmental site assessment in accordance with the applicable ASTM Standard (1527-13 or 2247-16) or with 40 CFR Part 312, and
- have no affiliation with any party liable for the hazardous substance contamination.
After taking title to the property, the purchaser must meet the following continuing obligations:
- no additional disposal of hazardous substances may occur,
- compliance with, and no impedance of, land use restrictions and institutional controls,
- “reasonable steps” must be taken with respect to existing releases or threatened releases of hazardous substances,
- providing environmental agencies with cooperation and access to the property,
- compliance with requests for information from environmental agencies, and
- providing legally required notices.
Most of these continuing obligations – also known as “common elements” – are straightforward and easy to meet. Some of them, however, are subject to interpretation, and that’s been a source of controversy. EPA’s guidance clarifies EPA’s views on these issues. Of particular note are EPA’s views on the following:
What constitutes “reasonable steps” regarding releases of hazardous substances?
Court cases and previous guidance by EPA have caused considerable unease about what’s enough to meet the obligation to take “reasonable steps” regarding releases of existing hazardous substances at the property. The Guidance states that, although a landowner asserting the defense would not be expected to take the same actions expected of a party responsible for the contamination, the landowner would still be required to act reasonably to prevent ongoing releases. Further, the Guidance notes that any knowledge of the contamination and the ability to plan for dealing with it will be important considerations in EPA’s determination of whether “reasonable steps” have been taken. The Guidance suggests that persons seeking to qualify for an LLP consult with environmental professionals to determine what the “reasonable steps” are at a given site.
EPA has added an Appendix to the Guidance that provides examples of “reasonable steps” under certain scenarios. Some of these scenarios recount “reasonable steps” EPA has included in so-called “comfort letters” issued to prospective purchasers under similar facts. Are these examples of “reasonable steps” helpful? Yes, but only to a degree. The problem is that EPA caveats the Guidance repeatedly with warnings that each site is different and that whether “reasonable steps” have been taken depends on a site-specific determination of whether the person acted reasonably and prudently under the circumstances. That means the determination will be a subjective one, and one that will be made after the person has closed on the property.
The Guidance indicates EPA personnel have authority to issue “comfort/status letters to parties suggesting “property-specific reasonable steps that EPA staff believe a party should take at the property….” Is it a good idea to ask EPA to define “reasonable steps” at your property? Not unless you are prepared to do whatever EPA decides. Consider this scenario: The agency tells you it believes you need to do X, Y and Z to meet the “reasonable steps” obligation of the defense. You believe what EPA wants is far more than necessary, so you do X and Y, but not Z. Now you end up in court with the agency or a third party contending you do not qualify for an LLP and therefore are liable for existing contamination at the property you just purchased. Here’s the problem you face: The judge is unlikely to second-guess EPA, meaning she’s likely to give credence to EPA’s determination that X, Y and Z needed to be performed to meet the “reasonable steps” requirement. If you’d never asked the agency, but instead relied upon your legal counsel and environmental consultant, you would still have to defend your position in court, but at least you wouldn’t face the prospect of having EPA say, “Judge, we told them they needed to do X, Y and Z, but they declined.” The bottom line is that, rather than asking EPA for its opinion, it may be better to determine “reasonable steps” with your environmental attorney and consultant, and then document your reasoning in writing. This is especially so since any “comfort letter” from the agency probably won’t contain the degree of comfort you want. For example, the “comfort letter” is unlikely to say that if you do X, Y and Z, you will qualify for an LLP. (A good resource to review in determining “reasonable steps” is ASTM’s Standard Guide for Identifying and Complying with Continuing Obligations (E-2790)).
What does “disposal” mean?
One of the continuing obligations is to ensure there is no “disposal” of hazardous substances after taking title to the property. The problem lies in the significant number of court cases that have dealt with what that word means. The Guidance notes that there are two types of disposal – “initial” and “secondary.” The initial disposal is self-explanatory; secondary disposal is the continued or subsequent migration or movement of contaminants (by human means or otherwise) previously released to the environment. The issue of whether an action constitutes “disposal,” and what “reasonable steps” must be taken in connection with the same, is particularly important for developers where grading of soil containing hazardous substances will be required. EPA says that if the landowner acted reasonably in conducting the grading “given the type, amount and location” of the contamination and took reasonable steps to prevent exacerbating the contamination, then enforcement personnel should consider exercising their enforcement discretion not to treat the grading as nullifying the LLP. Further, if the landowner performed the grading in connection with implementing a remedy or to otherwise remove or remediate contamination, then EPA says any such grading would also be appropriate for an exercise of enforcement discretion.
What has to be done to comply with and not impede land use restrictions and institutional controls?
EPA has now linked the continuing obligation to comply with institutional controls to the continuing obligation to cooperate with the agency. Thus, if a purchaser takes title before land use restrictions are recorded or institutional controls are established in connection with an ongoing cleanup, EPA’s position is that the purchaser must cooperate with the applicable agency by recording those restrictions and/or establishing those controls. If that cooperation does not occur, the Guidance indicates enforcement personnel may contend the purchaser no longer qualifies for an LLP.
The Guidance also takes the position that impeding the effectiveness of an institutional control can include applying to change the zoning of property. The example given is of a landowner who “applies for a zoning change or variance from the current designated use of the property when the remedy relies on that designated use to act as an [institutional control].” Thus, if a landowner sought to rezone property from industrial to residential when the risk assessment on which the cleanup was based assumed future use of the property would remain industrial, EPA could view that as an impedance. The good news for purchasers is that the Guidance recognizes that land use restrictions don’t necessarily have to remain in place forever. If circumstances have changed – for example, if the contaminants have naturally degraded below levels of concern – then the landowner may seek to change the restriction as long as it follows the prescribed procedures for doing so. This means, among other things, that if permission from the agency that required the restriction is necessary to remove it, the landowner has sought and obtained that permission.
The Guidance repeatedly notes that its application depends on site-specific facts and circumstances. This means it provides little in the way of hard and fast rules one can rely on to make decisions. Nevertheless, courts deciding whether a purchaser qualifies for an LLP will certainly review it, and both sides in the litigation are likely to cite it to support their positions. Wise prospective purchasers therefore should review the Guidance carefully and get help from an environmental attorney and consultant in applying it to the facts and circumstances at the property they are considering buying.
Enforcement Discretion Guidance Regarding Statutory Criteria for Those Who May Qualify as CERCLA Bona Fide Prospective Purchasers, Contiguous Property Owners, or Innocent Landowners (EPA July 29, 2019)