Recent Case Ruling Highlights Need for Informed Discussion, Agency Guidance

A recent court decision has highlighted the disconnect between the intent of superfund liability protections and the ability to use them, underscoring the need for an informed discussion with the Environmental Protection Agency about how such defenses can be asserted successfully, an environmental attorney told BNA Feb. 9.

Amy Edwards, a partner with Holland & Knight LLP, told BNA that in light of the ruling in Ashley II of Charleston LLC v. PCS Nitrogen Inc. (D.S.C., No. 2:05-cv-2782, 9/30/10) (19 EDDG 91, 12/16/10), it is clear that continued and increasing uncertainty related to the liability protections added as part of the 2002 amendments to the federal superfund law is impacting cleanup and redevelopment of contaminated sites.

“This case illustrates how difficult it's going to be to ever qualify for the bona fide prospective purchaser defense,” Edwards said.

Common Elements

Although Congress intended to provide protections to parties working in good faith to clean up and redevelop sites, the Ashley IIresult is an example of just how hard it is to establish the defense because of the court's strict interpretation of what is required to satisfy the eight elements of the defense. The decision also highlights the lack of guidance for parties who would like to assert the defense and what specifically they will need to do to ensure compliance. The only guidance that has been issued in this area is EPA's so-called “Common Elements” guidance released in March 2003 (12 EDDG 29, 4/17/03). That guidance, which was issued without public notice or comment, attempted to clarify how the ongoing obligations at a formerly contaminated site could be met. Now, almost eight years later, it is clear that additional clarification is needed, Edwards said. “There are a lot of things in that guidance document that don't make sense, and it would be helpful to have an open dialogue [with EPA] on these issues.”

Ashley II basically says no matter how careful you are, you might still get caught up in litigation,” Edwards said.

“This is bad news for people working on brownfield deals,” Edwards explained, especially at a time when “lenders do not want to lend on risky sites, regulations keep evolving, and state programs do not seem necessarily sympathetic toward the cause of the volunteer.”

For example, she said, there are growing concerns about changes in remediation standards for coal ash, dioxin, and perchlorate as well as consideration of vapor intrusion as an exposure pathway. All of these factors are increasing the uncertainty at contaminated sites, Edwards explained.

Potential Reopeners

In addition, the possibility of regulatory reopeners is making cleanup at these sites more complex. The issue of coal ash at brownfield sites is one example. “What happens if the site already has a no-further-action letter through the state voluntary cleanup program? Does new regulation of coal ash now trigger new concerns? How would that factor into any liability protection?”

The same holds true for dioxin and perchlorate, which also are likely to be impacted by more stringent regulatory and cleanup standards in the future, Edwards continued. Reopening of sites related to vapor intrusion already is occurring and is likely to be raised as these sites undergo their five-year superfund reviews.

While Ashley II is a lower trial court opinion and therefore only binding in South Carolina, Edwards said the case is significant and should not be overlooked because it is the only real court decision to address the bona fide prospective purchaser protection, and the case points to several issues that seem to eviscerate the defense.

In particular, the court's broad interpretation related to the “disposal” and “affiliation” issues (see 19 EDDG 91, 12/16/10, for further discussion) is troubling and, Edwards would argue, not what Congress had intended when it created the liability protections in the first place. “We need a better idea and clarification of what is meant by an 'affiliation’ as intended by Congress,” in the statute.

Edwards also said EPA needs to provide clarification on the distinction between “disposal” versus a “release.” This distinction is critical because, under the Ashley II interpretation, almost any activity a brownfields developer would take potentially could be called disposal. Edwards said it is critical to recognize good faith efforts to redevelop a site so parties can avail themselves of the bona fide prospective purchaser defense when they have redeveloped a contaminated site in a responsible manner.

Satisfying Other Elements

Edwards also is concerned that other elements the court determined Ashley had satisfied in that case may be harder to prove in other cases. These include determinations about whether “all appropriate inquiries” have been satisfied and whether the party complied with all land-use restrictions, Edwards explained. “There has not been case law on these issues yet. There currently is a huge controversy over what is meant by land-use restrictions” (see related story, p. 14).

Edwards said the case illustrates the fact that the area of redeveloping contaminated lands is not an area where the unsophisticated developer should tread. “Parties need to undertake rigorous due diligence, think about the eight elements that need to be satisfied, and consider if a court would agree.” Because Ashley IIinvolves a developer who was in regular communication with the state agency and EPA, this ruling “does not bode well for others,” Edwards said.