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Ashley ii court addresses the BFPP defense

In the years I’ve spent helping to draft a Continuing Obligations Guide as part of the ASTM E50 Committee, my colleagues and I have often acutely noted (and perhaps lamented) that no court has ever directly addressed CERCLA’s Bonafide Prospective Purchaser (“BFPP”) defense.  Well now there’s a case.  In Ashley II of Charlseston LLC v. PCS Nitrogen, Inc. v. Ross Development Corp. et al. (D. South Carolina, Oct. 13, 2010) Civ. Action No. 2:05-cv-2782, a Federal District Court in South Carolina analyzed the BFPP defense – and particularly the “appropriate care” element.  There, the court ultimately found that while Ashley II of Charleston LLC (“Ashley”) properly performed all appropriate inquiries (“AAI”) before it bought the  Columbia Nitrogen Site, after the purchase they failed to exercise “appropriate care.”

The Site

The Columbia Nitrogen Site covers over 40 acres and holds fairly serious contamination.  Dating back to 1905 and until the early 1970s, the site was used as a fertilizer plant  causing arsenic and lead contamination as well as low pH (acidic) conditions.   After that, the bare soil of the site was eventually (by the late 1990s) covered with “ROC” – crushed rock and gravel – which helped divert stormwater and control the spread of contaminated soil.   Much of the site then became used for various outdoor storage and outdoor commercial activities.

EPA categorizes the site as an “NPL caliber” site, meaning the site is hazardous enough to be on EPA’s National Priority List but, instead, is being addressed under EPA’s “superfund alternative approach.”  Under this approach, EPA has been closely involved since around 1991, completing a feasibility study in 2002 and a remediation plan in 2005, among other things.  Ashley plans to build a mixed use  development.

The Purchase and Post-Purchase.

Ashley purchased most of the site in 2003 and then purchased a smaller portion in 2008, and prior to both purchases it properly performed AAI by following the ASTM Phase I process.The 2003 Phase I clearly noted site contamination, and even directly incorporated EPA reports.  The 2008 Phase I made the finding that cement pads and sump pits used as part of a former tanker truck cleaning operation were recognized environmental conditions (“RECs”)  – a finding that would come back to haunt Ashley.

With the Phase Is in hand, Ashley took title and moved forward as a BFPP.  And it took many responsible, some would say even prudent, steps.  Ashley hired an engineer specifically for the purpose of satisfying the BFPP requirements.   It also hired other consultants to complete site assessments and get going with actual cleanup. Ashley put a fence around the site, placarded it with no trespassing signs, responded to requests for information from EPA, granted access to EPA, and performed a large-scale post-purchase assessment of 452 soil samples – in all spending $192 million – and completed costs estimates for full cleanup at about 8 million dollars.

The Lawsuit.

Ashley filed a lawsuit trying to recoup its $192 million from the “former-former” owner – not the seller that is, but rather the prior owner  who originally caused the site’s contamination – and also asked the court to make this  “PRP” fully liable for the costs of future cleanup.The PRP, in turn, filed a contribution action claiming that Ashley was partially responsible and should help pay.

The BFPP Defense.

Ashley claimed it need not help pay because it met the elements for the BFPP defense at 42 U.S.C. sec. 9601(40) and, therefore, was not a responsible party.  As to some of the elements, the court agreed that Ashley put forward the proper showing – the court held that Ashley performed AAI, made all legally required notices, provided full cooperation and assistance, complied with all information requests and subpoena’s, and complied with land use restrictions and did not impede the integrity of institutional controls (there were no apparent land use restrictions or institutional controls).

But on the element of “appropriate care,” the court held differently.As the court explained, the defense seeker must show they exercised appropriate care by taking reasonable steps to (1) stop any continuing release; (2) prevent any threatened future release; (3) prevent or limit exposure to previously released hazardous substances.The court called out three reasons to support its conclusion that Ashley failed to exercise appropriate care.

The Sumps.First (and this factor seemed most bothersome to the court) Ashley demolished on-site structures but left behind the concrete pads and sumps (which had been previously identified as RECs) and, as the court explained, did not clean out the sumps, left them open to the elements, and “may have exacerbated” the conditions. Notably, the court pointed out that Ashley did not test the concrete pads or sumps to see if a release had occurred.  And, experts testified that this open sump condition could have caused a release and that it posed a threat of a release.

Pile of Debris.Second, Ashley allowed a debris pile of barrels, tires, and discarded vehicles to accumulate and sit for over a year.   When Ashley eventually removed the debris, the manifests accompanying it to the landfill showed some of the debris as hazardous waste, including hydrochloric acid and waste paint.

Failure to Maintain ROC Cover.Third, Ashley “failed to adequately maintain the ROC cover” allowing it to deteriorate over portions of the site and, in turn, undermining its function of diverting storm water and controlling the spreading of contminated soil.

Because it did not satisfy the BFPP defense, Ashley will need to help pay for the cleanup.

A Continuing Obligations Guide?

Would a Continuing Obligation Guide have helped Ashley?The forthcoming Guide intends to do exactly that.  Of the many BFPP elements, the CO Guide focuses on (1) taking “appropriate care”, (2) complying with land use controls, and (3) not impeding the integrity or effectiveness of institutional controls.   It recognizes that the procedures for achieving these goals are site specific, so it offers guidance as to the types of procedures known to be good practices and it suggests the preparation of a continuing obligation plan. Armed with the examples of good practice, the continuing obligations plan begins with the Phase I’s findings  and devises strategies, both immediate and long term, for taking appropriate care and managing LURs and ICs.   The examples of good practice and the process of  continuing obligation plan could help future Ashleys of the world to take the appropriate – “appropriate care.”

As the draft Guide moves towards the home stretch – with an ASTM vote planned for February or March 2011 – the Ashley II Court helps us remember (or realize) the value a guide like this can bring to buyers of contaminated land, and their consultants.

Other Articles on Ashley II

Other articles discuss the decision and raise other good points, including (1) the quality of Ashley’s Phase I, (2)  the  issue of whether Ashley’s activities qualified as post acquisition disposal and (3) whether its relation to the sellers (Ashley indemnified the sellers) and Ashley’s related communications to EPA about cost recovery from the sellers made Ashley “affiliated with” responsible parties.

When All Appropriate Inquiry Isn’t Enough:  Court Highlights the Significance of Other Factors in the Bona Fide Prospective Purchaser Defense.

Getting – and Keeping – CERCLA Liability Protections for Prospective Buyers

First Test:  Prospective Purchaser Defense Fails

In addition, see Court Finds “Appropriate Care” which discusses another recent Federal opinion where the court found that the BFPP defense-seeker did take “appropriate care.”

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