CERCLA: convey to a pauper and avoid cost recovery under section 107(a) (1)?

• Jurisdiction: United States
• Author: Chase, Anthony R.
• Date: 22 March 2003

1. STATUTORY LIABILITY FOR COSTS UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT OF 1980

   1. Categories of Potentially Responsible Parties (PRPs)

      In 1980, Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), (2) with the goal of cleaning up disposal sites and requiring those who caused the problem to pay the cost. (3) At the heart of this Article are three of CERCLA's four categories of "potentially responsible parties" obligated to pay for cleaning up disposal sites, namely 1) "the owner and operator of a ... facility," 2) owners or operators "at the time of disposal," 3) any person who arranged for disposal of hazardous substances, and 4) any person who accepted any hazardous substance for transport. (4) Liability imposed on potentially responsible parties who fit the statutory categories is described as strict, (5) retroactive, (6) perpetual, (7) and virtually unlimited in amount. (8)

      There is nothing remarkable about requiring parties who deposit hazardous waste to clean it up, even decades after the deposit. CERCLA, however, also imposes personal liability on parties who, having failed to meet the Act's standards of due diligence, buy contaminated land and hold the status of owner when cost recovery is sought. (9) This liability may far exceed the value of the recovered land. (10) Mere ownership at the time costs are recovered can therefore be a devastating event for a title holder who had nothing to do with actual deposit of waste.

   2. Immune Parties

      CERCLA does not impose personal liability for cost recovery on all entities who would be classified under state law as "owners" of a disposal site. People who become owners involuntarily--for example, by inheritance (11)--escape statutory liability. Municipalities and government agencies have general responsibility under CERCLA for their own actions (12) but not for lands acquired through tax foreclosure or eminent domain. (13) Similarly, mortgage lenders are not liable as owners if they hold title only as security and try diligently to dispose of foreclosed land. (14) Parties who meet an "innocent landowner" standard may defend against cost recovery by showing they did not know nor had any reason to know that hazardous waste was on the land when they purchased the property. (15) Most important for the innocent landowner defense is that the buyer made an adequate inquiry to determine whether disposal had occurred. (16) This Article does not deal further with immune parties beyond noting that their immunity may be only a thin categorical line away from the hapless owner who is not immune.

      Site owners may be entitled to pursue other parties for contribution or reimbursement, but that remedy is useful only if the other parties are known and solvent. (17) Purchasers may also lose their rights by taking a conveyance of land with an "as is" disclaimer. (18) This Article assumes that remedies against third parties offer no help to the affected current title owner.

   3. Owners and Arrangers

      The two precise categories of owner liability axe: 1) owners at the time of disposal under section 107(a)(2), (19) and 2) owners at the time response costs are incurred, made liable by section 107(a)(1). (20) The categories are distinctly different. Owners at the time of disposal carry liability for cost recovery into the indefinite future (21) and cannot escape it by conveying to a new owner; (22) site owners who bought contaminated land but were not involved in disposal are liable under section 107(a)(1) only if they still hold title when cost recovery is sought. (23) Accordingly, they can step out of the liability chain by conveying to a new owner and providing adequate disclosure. (24) This Article was prompted by this apparent ability to avoid liability by passing land title to a new owner.

      Another relevant category of liability is "arranging" for disposal under section 107(a)(3). (25) Hazardous materials are legitimate products for sale and use; only when they become waste does disposal becomes an issue. Accordingly, arranger liability distinguishes between sales of hazardous materials to buyers proposing to use the materials in further production of goods and transactions disguised as sales that are in reality strategies for disposal. (26) Sellers of materials for use in further production of goods are not liable for response costs, even if the buyer dumps the raw material. (27) A seller of hazardous material may, however, be liable as an arranger if the sale is merely a disposal in disguise. (28) Often, the critical question for determining whether a transaction is a sale or a disguised disposal is whether the hazardous material has value for further use. If the material is valuable, the transaction is likely a sale and the seller has not arranged for disposal. (29) If it has no value, then the material is likely to be waste and the seller may be liable for arranging disposal. (30)

      Liability attached to section 107(a)(1) ownership may overlap liability under another category. For example, an otherwise passive owner may unwittingly become an "operator" of a disposal site or liable for "release" of waste if, during ownership, the owner moves earth and thereby disturbs previously deposited waste. (31) Some courts have held that if deposited waste migrates during ownership, the owner can be treated as an operator; (32) however, the trend appears to be against imposing liability for passive migration. (33) The present inquiry does not discuss the migration or disturbance issue beyond noting that the more time that elapses between initial purchase and strategic conveyance, the more exposure an owner may have under one of these theories. (34)

   4. Disappointment Versus Disaster

      From the title owner's point of view, if cleansed land has commercial value after deducting the cost of removal, there is reason to grumble but no incentive to abandon ownership. The property is a damaged and diminished asset, but an asset nevertheless. (35) If, however, the cost of cleanup substantially exceeds land value, title is a pure liability. Not all costs connected with a CERCLA encounter are directly connected with removing waste from the site. For example, the costs of environmental surveys, formulating a plan for the site, and bureaucratic hassle may, for example, make ownership a burden, even if specific responsibility is ultimately avoided. (36)

   5. Relative Innocence

      The general policy that "the polluter pays" (37) without limitation makes perfect sense when applied to at-fault generators, owners, operators of sites at the time of release or disposal, and transporters of waste, regardless of the cost of compliance. (38) Obligating "almost innocent" owners who simply get caught holding title when costs are assessed is, as a matter of justice, less compelling. (39)

      The paradigm case is a careless commercial purchaser who, for some reason, flunked the innocent purchase standard for immunity by, for example, failing to conduct an environmental survey before buying land on which a disposal site is later discovered. (40) Even a purchaser who arguably meets the standard may want to avoid the bureaucracy involved in holding title to low valued land with high cleanup liability imposed solely by the purchaser's status as "owner." (41) A mortgage lender who forecloses may become an owner with cost recovery responsibility if it does not dispose of the land expeditiously. (42) These responsible parties could escape personal liability if they satisfied CERCLA's immunity provisions. In 2002, the Small Business Liability Relief and Brownfields Revitalization Act (43) clarified CERCLA's inquiry requirement, which for years was the operating standard for determining whether, in the language of the Act, the innocent purchaser "had no reason to know" of possible contamination, (44) but the Act did not change the fundamental principle of unlimited status liability for one who holds title at the critical time when cost recovery is sought and does not fit an immune category.

2. STRATEGIC CONVEYANCE TO EXTINGUISH OWNER STATUS

   1. Conveyance to a Pauper to Eliminate Status Liability

      Some state laws impose liability that cannot be avoided by transfer, (45) or they require remediation at the time of sale. (46) But for CERCLA liability, the principle is well established that a buyer of an already-contaminated disposal site who, in the ordinary course of events, conveys title to a new owner, steps out of the federal liability chain (47) so long as the transfer is made with full disclosure of the defect (48) and federal notice requirements are satisfied. (49)

      The distinction between non-immune current owners liable for cost recovery by virtue of status and former owners who step out of the liability chain by conveying to a new owner seems categorical. The trick is then to get rid of negatively valued land and become a prior owner.

      If King Henry II owned a disposal site with negative value, he might ask: "Will no one rid me of this troublesome land?" (50) An intuitively derived strategy is that the owner abandon title, thereby terminating the despised "current owner" status along with its potential liability. Unfortunately, title to real estate cannot be abandoned. (51) Title can, however, be conveyed. But to whom? No rational buyer will take title with the cleanup obligation attached, much less pay for it.

      This Article is narrowly framed to ask a single question about potentially responsible parties who had no active involvement in actual disposal, operation, or transport, and for whom the cost of removal or remediation would exceed the market value of the cleansed land. The question is whether such an owner may avoid cost-recovery liability by conveying the site to a willing pauper after learning about contamination, but before becoming specifically and personally obligated for cost recovery.

   2. Nurad's Prescient Foundation for Strategic...