Bad policy: CERCLA's amended liability for new purchasers.

• Author: Kettles, Gregg W.

I.

INTRODUCTION

One of the most significant environmental issues facing the United States today is the abandonment or underutilization of land feared to be contaminated by hazardous materials. Such sites, known as "brownfields," are blamed for a variety of ills. Beyond posing risks to human health, their disuse also contributes to the loss of municipal tax bases and helps fuel both urban sprawl and the destruction of open space. (1) A number of people and institutions have sought to identify ways to encourage the clean-up of brownfields and return them to productive use. (2)

Many commentators have concluded that one of the most significant impediments to brownfield redevelopment has been the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), (3) commonly called "Superfund." (4) Congress enacted CERCLA in 1980 to address the consequences of decades of careless hazardous waste disposal practices. CERCLA aimed to: (1) prevent further contamination and release of hazardous material by requiring prompt clean-up of existing hazardous sites and (2) deter future hazardous materials releases by imposing high liability costs on careless waste management practices. (5) Congress advanced these two aims by creating a broad class of jointly and severally liable parties. Liability attached not only to those who were directly involved in the production, transportation, or management of the waste released; it also attached to the owner of the property from which a release of hazardous materials was taking place or at least threatened. Thus, a property owner would be liable even if the hazardous materials were deposited on the site long before he took title to the property. (6)

This broad CERCLA liability alone would have deterred the purchase of any property potentially subject to CERCLA. But reality proved even worse for prospective brownfields purchasers. Cleaning up a given CERCLA site turned out to take more time and money than most people expected. Predictably, this further deterred acquisition and development of brownfields.

Some commentators and policy makers argued that amending CERCLA was the only way to render brownfields attractive to developers. Among other things, they contended that the Act should be amended to relieve prospective property purchasers from liability. (7) The reasoning was straightforward enough: if developers shied away from brownfields because of fear of CERCLA liability, remove that liability. Only then would significant brownfield development take place. Congress eventually endorsed the idea. In early 2002, President Bush signed the Brownfields Revitalization and Environmental Restoration Act of 2001 (8) ("BRERA") into law. Among other things, BRERA amended CERCLA to relieve a certain class of property owners from liability under the Act (the "Amendment"), namely those owners who were not otherwise liable under the Act (as operators, arrangers, etc.) and who took title after January 11, 2002. (9)

This article challenges the Congressional and commentator wisdom that changing CERCLA to relieve prospective property purchasers from liability is good policy. I will argue that the Amendment is actually bad policy. Previous commentators have touched on earlier proposals to free prospective purchasers from CERCLA liability. (10) Instead, this article offers the first focused and sustained analysis of the current liability relief. Rather than addressing the subject as a proposal in the abstract, this article analyzes liability relief as it has now been enacted into law.

Amending CERCLA to shield prospective purchasers from liability was a mistake. The Amendment removed an important disincentive to the release of hazardous materials. It gave a windfall to property owners who acquired title with knowledge of their potential liability after CERCLA's 1980 enactment. This windfall is unfair because it is arbitrary. It is also potentially inefficient. Further, the Amendment increases the likelihood that future clean-ups will be performed not by a private party, but by the government, probably at higher cost. The Amendment purports to justify these costs by pointing to the virtue of its end: to increase the development of brownfields. But significant brownfields acquisition and development activity was already takihg place before CERCLA was amended. Any additional encouragement of such activity brought by the Amendment does not justify the cost.

This article aims more broadly than just to persuade Congress to correct its mistake by amending CERCLA again. Shortly after Congress' original enactment of CERCLA in 1980, many states used it as a model to enact their own hazardous waste contamination legislation. (11) These so-called "mini-Superfund" (12) laws are now at risk of being changed to conform to the post-Amendment version of CERCLA. Thus, this article is also addressed to state policy makers to dissuade them from following Congress's lead.

My criticism of the Amendment has implications for other rulemaking as well. The pre-Amendment version of CERCLA held buyers of contaminated property liable for the waste management practices of prior owners (as well as operators, arrangers, and transporters). This is an example of derivative, or successor, liability, which is a common feature of liability regimes created by statute and the common law. By freeing property buyers from liability, the Amendment has engaged in a kind of derivative liability relief. Many of the same criticisms of the unfairness and inefficiency of the relief provided by the Amendment may also be applied against derivative liability relief in other contexts.

Part I of this article recounts the pre-Amendment CERCLA and brownfields debate. It discusses the brownfield problem, the perception that CERCLA was to blame, the structure and practice of the pre-Amendment version of CERCLA, and how the Amendment altered the Act's liability scheme.

Part II then argues that the Amendment is bad policy because it is costly and unfair for three principal reasons. First, the Amendment will encourage the release of hazardous materials. Under the pre-Amendment version of CERCLA, property owners were deterred from mishandling toxic substances. In part, this was because they could be held directly liable under CERCLA. In addition, because any subsequent property owner could also be held liable, this reduced the price the owner could fetch for the property if they chose to sell it. The Amendment removed this deterrent to releasing hazardous materials by freeing property buyers from liability.

Second, the Amendment gives a windfall to anyone who bought potentially contaminated property with knowledge of the risk of a toxic release after the enactment of CERCLA. Presumably such owners bought their property at a discount that reflected the risk of CERCLA liability. Freed from liability by the Amendment, prospective purchasers will bid up the price of these properties. The sellers will enjoy a windfall. This windfall is both unfair in its arbitrariness and potentially inefficient. While the Amendment does have a provision putatively designed to prevent windfalls to property owners, it is too narrow in scope to make a significant difference. By holding buyers derivatively liable for the environmental mismanagement of their predecessor owners, the pre-Amendment version of CERCLA helped deter such mismanagement. By granting derivative liability relief, the Amendment makes derivative liability schemes in other parts of CERCLA and in other legal regimes seem more susceptible to change. This makes the threat of derivative liability less credible and weakens the deterrent posed by these other regimes. To maintain the same level of deterrence, government will have to make potentially costly changes in other regimes or in their levels of enforcement.

Third, the Amendment is bad policy because it will make clean-ups more expensive. The Amendment has reduced the chances of finding a liable party financially able to pay for the clean-up of CERCLA sites. This will leave more clean-ups to be performed by the government. Experience proves that government-run clean-ups are substantially more costly than those run by private, liable parties.

Part III then argues that the costs described in Part II outweigh the benefits provided by the Amendment. Thanks in large part to market-led forces, brownfield acquisition and development were becoming increasingly attractive before the Amendment was enacted. To the extent the Amendment added a welcome inducement to help support this trend, it could have been accomplished with a narrower enactment. Many of the costs identified in Part II could therefore have been avoided.

The foregoing criticisms also shed light on proposals to amend statutory programs outside of CERCLA that have used successor or derivative liability as a regulatory tool. The dangers of diminished deterrence, arbitrary and inefficient windfalls, and increased regulatory costs are just as real.

2. BROWNFIELDS AND CERCLA: THE DEBATE

   Congress enacted CERCLA in 1980 in the wake of public outcry over a few properties from which hazardous substances were being released into the environment, thereby posing risks to human health. Existing laws were perceived to be inadequate for holding those responsible for creating these sites--the generators, transporters, and site operators--liable for the costs of cleaning them up. CERCLA was enacted to bridge this gap. The basic concept was to make the responsible parties liable for cleaning up these sites. (13) Further contamination would be prevented by prompt clean-up and future releases would be deterred by high liability costs for sloppy waste management practices. (14)

   CERCLA purported to accomplish this by applying to any site, or "facility," from which there has been a release or threatened release of hazardous material. The Act established a scheme in which a member of any one of four classes...