CHAPTER 10 WIN|WIN SOLUTIONS AT CERCLA SITES THROUGH PROSPECTIVE PURCHASER AGREEMENTS AND OTHER AGREEMENTS WITH FEDERAL AND STATE AUTHORITIES

• Jurisdiction: United States

RCRA and CERCLA
(Apr 1997)
CHAPTER 10
WIN/WIN SOLUTIONS AT CERCLA SITES THROUGH PROSPECTIVE PURCHASER AGREEMENTS AND OTHER AGREEMENTS WITH FEDERAL AND STATE AUTHORITIES
Robert W. Lawrence
Laurie L. Korneffel
Parcel, Mauro, Hultin & Spaanstra, P.C.
Denver, Colorado

TABLE OF CONTENTS

SYNOPSIS

I. INTRODUCTION

II. CERCLA LIABILITY GENERALLY

III. MECHANISMS FOR AVOIDING OR LIMITING CERCLA LIABILITY

A. PROSPECTIVE PURCHASER AGREEMENTS

B. THE INNOCENT LANDOWNER DEFENSE

C. DE MINIMIS SETTLEMENTS

D. COMFORT LETTERS

E. POLICY TOWARD OWNERS OF PROPERTY CONTAINING CONTAMINATED AQUIFERS

F. LENDER LIABILITY PROTECTIONS

G. STATE DEFERRAL GUIDANCE

H. VOLUNTARY CLEANUPS

IV. CONCLUSION

APPENDIX A

———————

[Page 10-1]

I. INTRODUCTION

The enactment and subsequent enforcement of CERCLA, with its strict liability for owners and operators of contaminated property, has had a chilling effect upon the redevelopment of properties both in rural and urban areas. Thus, for example, the opportunities presented by historic mining properties that could be remined through new and improved mining methods and technologies are often times elusive because of the significant risk of liability CERCLA poses.¹ Similarly, in urban areas, the fear of CERCLA and other environmental liabilities keeps potential developers of abandoned or unused industrial properties at bay while the properties stand idle, often for decades, causing loss of jobs and opportunities for whole communities. These urban sites are often referred to as "brownfields." The EPA describes brownfields as "abandoned, idled or underused industrial and commercial sites where expansion or redevelopment is complicated by real or perceived environmental contamination that can add cost, time or uncertainty to a redevelopment project."²

Partly in response to the pressure of local government officials, the regulated community, real estate developers and others, the United States Environmental Protection Agency (the "EPA") has developed a number of mechanisms, guidelines and programs aimed at reducing at least some of the liability barriers to redevelopment and transfers of property ownership. Some of those mechanisms include: (1) prospective purchaser agreements; (2) the innocent landowner defense; (3) de minimis settlements; (4) comfort letters; (5) the policy regarding contaminated aquifers; (6) lender liability protections; (7) state deferral guidance; and (8) voluntary cleanups. In addition to these federal initiatives, many states have adopted similar, and often, more progressive mechanisms to foster redevelopment of properties. If the regulatory agencies responsible for these policies are willing to actively implement the policies, the environmental liabilities attached to redevelopment projects may be significantly reduced. Even where liabilities cannot be entirely eliminated, however, these policies encourage redevelopment by removing the uncertainty of whether and how the government will respond to a contaminated site and how much of the response costs the new owner can expect to pay.

CERCLA's liability provisions and the mechanisms created to limit liability in favor of beneficial redevelopment are discussed below with particular emphasis on the use of prospective purchaser agreements.

[Page 10-2]

II. CERCLA LIABILITY GENERALLY

The Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA"),³ establishes the federal government's authority to respond to releases or threatened releases of hazardous substances into the environment.⁴ Section 106 of CERCLA authorizes the EPA to compel a responsible private party to clean up an actual or threatened release of a hazardous substance that may present an "imminent and substantial endangerment."⁵ Alternatively, section 104 of CERCLA authorizes the President (who has delegated most of his authority under CERCLA to the EPA) to use Superfund money to respond to any threatened or actual release of any hazardous substance that may pose an imminent and substantial public health threat.⁶ Section 107 of CERCLA provides for the recovery of response costs from persons responsible for the release of hazardous substances.⁷ Additionally, responsible parties may be liable for damages to natural resources "resulting from" a release.⁸ Finally, the EPA may enter into settlements with responsible parties for performance of response actions and recovery of response costs under section 122.⁹

EPA Superfund-financed remedial actions may only occur at sites listed on the National Priorities List (the "NPL").¹⁰ The NPL includes those sites that the EPA has identified as "top

[Page 10-3]

priority among known response targets" which "represent the greatest danger to public health and welfare or the environment."¹¹ At this time, there are approximately 1200 sites on the NPL, including over 50 mining waste sites.¹² Sites which are candidates for inclusion on the NPL are compiled by the EPA's regional offices in the Comprehensive Environmental Response, Compensation and Liability Inventory System ("CERCLIS"). Over 30,000 sites are listed in CERCLIS.

Liability for CERCLA response costs exists where: (1) the site is a facility as defined in the statute;¹³ (2) the defendant is a responsible person under the statute; (3) a release or threatened release has occurred;¹⁴ and (4) the release or threatened release has caused the plaintiff

[Page 10-4]

to incur response costs.¹⁵ Persons who are potentially responsible parties ("PRPs") under CERCLA include the following:

(a) those who presently own or operate a facility from which hazardous substances are released or are threatening to release into the environment;

(b) those who owned or operated a facility in the past, at a time when hazardous substances were disposed of;

(c) those who transported hazardous substances to a facility for treatment or disposal (provided that such transporters selected the treatment or disposal site); and

(d) those who generated the hazardous substances and/or arranged for their disposal or treatment.¹⁶

The federal government has interpreted these provisions of CERCLA to provide that the current owner or operator of a CERCLA site is among the parties held strictly liable for the costs of responding to the release of hazardous substances, regardless of whether the current owner or operator was responsible for the contamination.¹⁷ Further, courts have determined that liability for response costs attaches to disposal activities that were perfectly legal when performed.¹⁸

Liability under CERCLA for response costs is strict and, often joint and several, making each responsible party liable for the entire judgment.¹⁹ The government's position is that the only

[Page 10-5]

defenses available to a person otherwise liable for response costs are that the release was caused by: (1) an act of God; (2) an act of war; or (3) an act or omission of a third party other than an employee or agent of the defendant, or than one whose act or omission occurs in connection with a contractual relationship, existing directly or indirectly, with the defendant, if the defendant establishes by a preponderance of the evidence that (a) he exercised due care with respect to the hazardous substance concerned, and (b) he took precautions against foreseeable acts or omissions of any such third party and the consequences that could foreseeably result from such acts or omissions.²⁰ Traditional affirmative defenses are generally not available.²¹

III. MECHANISMS FOR AVOIDING OR LIMITING CERCLA LIABILITY

A. PROSPECTIVE PURCHASER AGREEMENTS

Because of the liability that attaches to owners and operators of contaminated property, developers that wished to purchase and redevelop contaminated sites sought out the EPA for solutions. In 1989, the EPA responded with its first "prospective purchasers" guidance which authorized the EPA, in very limited circumstances, to enter into agreements that would provide prospective purchasers of contaminated property with covenants not to sue under CERCLA (the "1989 Guidance").²²

The covenants not to sue authorized by the 1989 Guidance were offered to prospective purchasers only where the EPA determined that such agreements would provide the EPA with a substantial direct benefit, that is, a commitment from the purchaser to clean up the property or to provide the money necessary to fund a cleanup that would otherwise have to be funded by Superfund. If cleanup costs could be recouped through filing a CERCLA lien against the

[Page 10-6]

property or from other PRPs, no substantial direct benefit would accrue to the EPA through a prospective purchaser agreement. Thus, under the 1989 Guidance, prospective purchaser agreements were appropriate only where no other PRPs existed or were financially capable of participating in response actions at the site. The 1989 Guidance further advised the EPA against prospective purchaser agreements where the EPA was not already planning to take an enforcement action at the property.

These restrictions often made the 1989 Guidance unworkable and unable to produce more than a few prospective purchaser agreements. The problems were many. For example, prospective purchasers who desired to purchase contaminated property before the EPA had determined the nature and extent of the contamination were not eligible for a prospective purchaser agreement because the EPA had not already determined the amount of funding or cleanup that would be required of the purchaser. If the EPA had not yet determined whether any other PRPs existed from whom funding could be obtained, the prospective purchaser faced yet another roadblock to an agreement with the EPA.

With the addition of sites to CERCLIS and the NPL, the EPA's interest in encouraging the redevelopment of contaminated properties renewed. In 1995, the EPA retooled its prospective purchaser guidance to allow the agency greater flexibility in the use...