Brownfield Developer Fails to Meet BFPP Defense; Found Liable Under CERCLA for Removing Concrete Slab Above Contaminated Soil

This Saline, Michigan case adds another decision to similar recent cases such as Ashley II and Robertshaw, which assess whether current owners of contaminated property met CERCLA’s Bona Fide Prospective Purchaser (BFPP) defense.  It also showcases the interesting legal question concerning the relation between BFPP requirements to (1) take reasonable steps, after acquisition, to prevent “releases” and (2) to show that, all “disposal” occurred prior to acquisition.

In Saline River Props., v. Johnson Controls, Inc., 2011 U.S. Dist. LEXIS 119516 (E.D. Mich. Oct. 17, 2011) 
a Federal District Court in Michigan considered, among other issues, whether a current owner could be liable under CERCLA for exacerbating pre-existing contamination caused by the prior owner.  The prior owner, Johnson Controls, Inc. (JCI), claimed that the current owner, Saline River Properties, LLC (Saline) could be liable under CERCLA for exacerbating existing vinyl chloride contamination by removing a building’s concrete slab and thereby “allowing additional rainwater into the ground that the building and slab might have partially diverted…”   The prior owner prevailed.

Introduction

Saline, the current owner, purchased a 22 acre parcel from JCI.  Years before, EPA issued an administrative order on Consent (AOC), which required JCI to perform various cleanup measures.  Saline sued JCI for failing to comply with the AOC but JCI counterclaimed that Saline, as the current owner, was liable under CERCLA for response costs because, JCI claimed, Saline exacerbated existing vinyl chloride contamination by removing a concrete slab that covered contaminated soil and thereby “allowing additional rainwater into the ground that the building and slab might have partially diverted…”

No Evidence Offered for BFPP Defense

Saline, as a brownfield developer, argued that it qualified as a BFPP.   As the Court here explained, to qualify as a BFPP the BFPP defense-seeker must show, by a preponderance of the evidence, each of the enumerated BFPP criteria which includes a list of “continuing obligations“, including, among many others, but as most relevant here:

• All disposal of hazardous substances occurred before the person acquired the facility, and
• After acquisition, the person seeking the defense exercised appropriate care with respect to hazardous substances found at the property by taking reasonable steps to prevent any threatened future release.

Saline, the Court explained, offered no evidence that it took any reasonable steps to prevent releases of existing contamination. Without any evidence of reasonable steps, Saline instead argued that any exacerbation it caused could not qualify as either a “release” or a “disposal” of hazardous substances because Saline didn’t actually put vinyl chloride in the ground. Rather, they argued, because the contamination already existed in place, they couldn’t have released or disposed it.

The Court disagreed, reasoning that Saline could be liable under CERCLA even if it didn’t actually put the contamination into the ground, because it took the action to remove the concrete slab which in turn, according to allegations supported by evidence, caused hazardous substances beneath the slab to migrate.

Taking Reasonable Steps to Prevent “Releases” Could Have Put the Current Owner In A Better Position To Show Post-Acquisition “Disposal” Did Not Occur

If Saline took reasonable steps to prevent “releases”, it probably would have been much better off.  Taking reasonable steps, while not the sole BFPP criteria needed to be met, is a critical element of the BFPP defense and could support the additional required showing that all “disposal” occurred prior to acquisition.

Notice, the BFPP defense requires both that (1) after acquisition, the defense-seeker took reasonable steps to prevent future threatened releases, and  (2) all disposal occurred before acquisition. 42 U.S.C. 9601(40).  This dual requirement addressing “release” and “disposal” raises interesting legal issues.

First, consider reasonable steps to prevent “releases.”  While it’s difficult to predict what a Court would find as appropriate “reasonable steps,” hypothetically in this case reasonable steps could have involved measures to prevent rain form contacting the soil and/or the timely installation of other engineering controls to act in a manner similar to the concrete pad.   ASTM’s E 2790 guides users and environmental professionals through the process of preparing a continuing obligations plan to, among other things, address site-specific threatened releases.  Further, EPA’s Common Element guidance explains that when taking reasonable steps new owners “are not expected to … undertake other response actions that would be more properly paid for by the responsible parties who caused the contamination.”

If reasonable steps were taken, new owners in positions like Saline’s could turn to the more focused (and some would say legally interesting) question of whether the reasonable steps to prevent “releases” were enough to show that no post-acquisition “disposal” occurred.

“Release” and “disposal” while defined differently, overlap.  As the Court here explained (and as other Courts explain, see e.g., Carson Harbor Village, Ltd. v. Unocal Corp., 270 F.3d 863, 878 (9th Cir. 2001)) the definition of “release” is broader than “disposal” because “disposal” is included within the definition of “release” – even though both definitions have several words in common.  Disposal, the Saline Court explained (under precedent for 6th Circuit), requires “human intervention,” meaning that “disposal” doesn’t occur simply because contamination “passively migrates” but, rather, requires human intervention – such as destroying the building foundation to help cause migration.  With its broader meaning, “release” the Court explained (as have others) could possibly occur even without human intervention.

If new owners like Saline could offer evidence to show that they took reasonable steps to prevent “releases” (a broader term), they could be in a position to argue the preventative reasonable steps eliminated any “human intervention” and, therefore, prevented “disposal.”

Whether this argument would carry the day remains uncertain – no BFPP cases address whether post-acquisition “disposal” nonetheless occurred even when the BFPP-seeker exercised post-acquisition reasonable steps to prevent “releases”.   But without any evidence of having performed reasonable steps, new owners reduce their chance of showing that no post-acquistion disposal occurred and, otherwise, seem to have slim chances of successfully asserting the BFPP defense.

Extrapolating to the Case for Engineering and Institutional Controls

If the removal of a concrete pad above contaminated soil can trigger CERCLA liability because rainwater could spread contamination, it’s hardly a stretch to imagine that excavating into or failing to prevent or fix cracks in engineering controls (such as concrete or asphalt “caps”) could similarly impose CERCLA liability on new owners.  Indeed, in Ashley II, the Court cited the failure to maintain a stormwater-diverting crushed rock and gravel “ROC” cover as one factor to support its imposition of CERCLA liability upon the new owner.

Parties failing to adhere to engineering controls would potentially have the added problem of not complying with Land Use Restrictions (LURs) or impeding the effectiveness of Institutional Controls (ICs), because LURs and ICs typically accompany engineering controls – recording the requirement, for example, to maintain engineering controls in good condition or to prevent their destruction.  Failing to comply with LURs or impeding the effectiveness of ICs are also grounds to lose the BFPP defense.

ASTM’s E2790 advises users to monitor and perform field inspections of LURs and ICs for activities that could compromise engineering controls or conflict  with land use limitations. See LandWatch for Continuing Obligations for more details on the monitoring and inspection process.

Additional Information

• Ashley II v. PCS Nitrogen (current owner failed to satisfy BFPP defense)
• Imperial v. Robertshaw (current owner satisfied BFPP defense)
• USEPA Common Elements Guidance  (discussing BFPP defense and Continuing Obligations)
• ASTM E 2790 (providing guidance on Continuing Obligations)
• United States v. Honeywell Int’l, Inc., 542 F. Supp. 2d 1188, 1198-99 (E.D. Cal. 2008) (development-related excavation and grading qualifies as disposal)
• ABA Newsletter,  Ninth Circuit and Passive Migration as CERCLA “disposal” (discussing varied Circuit Court holdings on passive migration)
• LandWatch for Continuing Obligations (describing procedures and tools for monitoring and inspecting ICs, LURs, ECs, and Reasonable Steps)
• Watch What You Do With That Shovel (Or Heavy Equipment): Another Developer Faces Superfund Liability for Site Redevelopment (summarizing the Saline case)