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EPA Outlines Enforcement Discretion For Liability Protection Under CERCLA

Friday, October 14, 2011

Key Development: The Environmental Protection Agency outlines how it intends to exercise its enforcement discretion for parties who would otherwise qualify for liability protection defenses under the superfund law.

Potential Impact: EPA personnel will have more clarity in using their discretion to decide who may quality for bona fide prospective purchaser and contiguous property owner liability defenses.

By Pat Ware

The Environmental Protection Agency has outlined how it intends to exercise its enforcement discretion for parties who would otherwise qualify for liability protection defenses under the superfund law in a memorandum from the agency's Office of Enforcement and Compliance Assurance.

The memo is to assist EPA personnel in exercising their enforcement discretion—on a site-specific basis—for parties who meet all requirements as bona fide prospective purchasers or contiguous property owners except for being “affiliated with any other person that is potentially liable” for contamination at a facility.

The Sept. 21 memo, Enforcement Discretion Guidance Regarding the Affiliation Language of CERCLA's Bona Fide Prospective Purchaser and Contiguous Property Owner Liability Protections, was sent to EPA regional counsel and superfund national policy managers.

The Brownfields Amendments of 2002 to the Comprehensive Environmental Response, Compensation, and Liability Act provide bona fide prospective purchasers and contiguous property owners protection from liability under CERCLA as long as they meet certain statutory requirements.

One criterion that parties who seek either of the defenses must meet is that they cannot be “affiliated with” another party who is potentially liable under CERCLA at a facility.

Four Issues to Be Analyzed.

Before analyzing whether there is a prohibited affiliation, EPA personnel should consider four preliminary issues, the memo said.

  • First, agency personnel should consider if the party is a potentially responsible party at the facility as an owner or operator at the time of disposal, a transporter, or an arranger for the disposal of hazardous substances. If so, the party cannot be a bona fide prospective purchaser or contiguous property owner.
  • Second, EPA should consider whether the entity is the same as potentially responsible parties or is potentially liable under other principles of corporate law, such as successor liability. After careful analysis, the relationship between the potentially responsible party and the entity in question may lead EPA to decide not to treat that entity as a bona fide prospective purchaser or contiguous property owner.
  • Third, EPA should analyze whether a business entity asserting status as a bona fide prospective purchaser or contiguous property owner is the result of a reorganization of a liable party through bankruptcy or other corporate restructuring. If so, the entity may not be eligible for the liability protection.
  • Fourth, EPA personnel should carefully consider whether the party with whom a person may have an affiliation is actually a potentially responsible party at the facility. If not, the person may qualify for protective status.
Statutory Exceptions Allowed.

EPA also said certain types of affiliations between the purchaser of the property or owner and other entities do not disqualify the purchase or owners from protective status under CERCLA.

For bona fide prospective purchasers, CERCLA provides an exception that allows contractual, corporate, or financial relationships that are “created by the instruments by which title to the facility is both conveyed or financed.”

CERCLA also includes an exemption providing that “a contractual, corporate, or financial relationship that is created … by a contract for the sale of goods or services” is not an affiliation that denies protection under the bona fide prospective purchaser or contiguous property owner defenses, the memo said.

“The affiliation language in the [bona fide prospective purchaser] and [contiguous property owner] provisions is broad and could potentially encompass many, if not all, familial relationships, and many corporate or other relationships, thus having the potential consequence of reducing the number of entities that qualify for these liability protections,” the memo said.

Not Disqualifying Affiliations.

EPA said it has decided not to treat the following as disqualifying affiliations:

  • relationships at other properties—relationships that occur between an entity seeking [bona fide prospective purchaser] and [contiguous property owner] status with a potentially responsible party for properties other than the one affected by the contamination or the source property;
  • post-acquisition relationships—relationships between the purchaser and a potentially responsible party that arose after the purchase and sale of the property;
  • relationships created during title transfer—contractual or financial documents or relationships that are often executed or created at the time that title to the property is transferred; and
  • tenants seeking to purchase property they lease—relationships established between a tenant and an owner during the leasing process.
Guidance Called `Great Start.'

“I think it's a great start, but it probably doesn't go as far as some of us would like,” Timothy Haley, an attorney with Barnes & Thornburg told BNA Oct. 12.

The guidance is helpful because it addresses nonaffiliation, an area of CERCLA's liability protection that has not been studied in much detail, said Haley, who represents brownfields developers and landowners.

If it does not go far enough, it is because it does not substantively address the Ashley II case, Haley said.

Ashley II refers to a 2010 ruling by the U.S. District Court for the District of South Carolina finding that the Ashley LLC, which wanted to redevelop a superfund site, did not meet several of the bona fide prospective purchaser requirements, including nonaffilation, to establish liability protection under CERCLA (Ashley II of Charleston LLC v. PCS Nitrogen, 746 F. Supp. 2d 692 (D.S.C. 2010);.

“The problem in Ashley II is that the indemnity releases signed were fairly typical for brownfields developers,” Haley said.

“The concern is what has to change in the future to preserve these liability protections,” Haley said. “We'll have to wait and see what happens with Ashley II.”

By Pat Ware


The memorandum,Enforcement Discretion Guidance Regarding the Affiliation Language of CERCLA's Bona Fide Prospective Purchaser and Contiguous Property Owner Liability Protections, is available at http://www.epa.gov/compliance/resources/policies/cleanup/superfund/affiliation-bfpp-cpo.pdf. 

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