CHAPTER 6 APPORTIONING ENVIRONMENTAL LIABILITIES IN REAL ESTATE TRANSACTIONS1
| Jurisdiction | United States |
(Nov 1988)
APPORTIONING ENVIRONMENTAL LIABILITIES IN REAL ESTATE TRANSACTIONS1
AT&T 2
Basking Ridge, New Jersey
TABLE OF CONTENTS
Page
I. Introduction
II. The Legal Framework
A. The CERCLA Private Right of Action Section 107(a)(4)(B)
B. The CERCLA Right of Contribution Section 113(f)
C. Other Grounds of Liability
III. Discovering the Problem; Environmental Audits
A. Environmental Audits
B. Contractual Termination Rights
C. CERCLA "Due Diligence" Defense
IV. Representations, Warranties and Indemnities
A. Buyer's Perspective
B. Seller's Perspective
(i) Limitation on Time
(ii) Floor and Ceiling on Damages
(iii) Limitation on Types of Damages
(iv) Requirement of Notice by Buyer
(v) Limitation to Activities during Seller's Ownership
(vi) Limitation to Seller's Knowledge
(vii) Release or Indemnity by Buyer
C. Perspectives of the Landlord and Tenant
D. Indemnities
V. Sharing Environmental Liabilities
A. Performing Remedial Work on a Shared Basis
B. Apportioning Monetary Liabilities
(i) Price Reduction
(ii) Apportionment by Time and Amount
VI. Securing Performance of a Party's Party's Environmental Obligations
A. The Acquiring Entity
B. Effectiveness of the Corporate Shield
C. Escrows, Financial Assurances, and Guarantees
VII. Conclusion
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I. INTRODUCTION
Prior to 1980, buyers and sellers of industrial and commercial property would focus their negotiating energies on many issues besides price: the down payment; whether it was refundable; contingencies on buyer's obligation to purchase; representations and warranties on the condition of the facility; the status of title and many other concerns. However, since the enactment on December 11, 1980 of the law commonly known as "CERCLA" or Superfund, 42 U.S.C.A. § 9601 et seq., environmental provisions have become one of, if not the most hotly contested topics in real estate negotiations, particularly when the property has a history of industrial operations.
The extensive costs of cleaning up hazardous waste sites are all too well-known. While many responsible developers and corporations had environmental concerns long before the passage of CERCLA and other environmental laws, the environmental hazards of many substances were simply not known at the time of their disposal. As a result, particularly with property subject to industrial uses before the late 1960's or early 1970's, a buyer can not assume the property is free of environmental problems.
II. THE LEGAL FRAMEWORK
A. The CERCLA Private Right of Action Section 107(a)(4)(B)
One cannot deal with apportioning environmental liabilities without a brief discussion of the existing legal framework. Much of the discussion in the literature, legal and
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otherwise, properly focuses on the government's powers under CERCLA. This permits recovery under Section 107(a)3 from
"(1) the owner and operator of a...facility," and
"(2) any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of"
of
"(A) all costs of removal or remedial action incurred by the United States Government or a State or an Indian tribe not inconsistent with the national contingency plan." Section 107(a)(4)(A).
These response costs go far beyond the normal costs involved in physically cleaning up a hazardous waste site. See U.S. v. Northernaire Plating Co., 685 F.Supp. at 1410 (W.D. Mich. 1988) where the court granted summary judgment in favor of EPA for response costs which included Department of Justice and EPA payroll and travel costs. Prejudgment interest on EPA expenditures, which had been allowed by some of the cases, see U.S. v. Northernaire Plating Co., 685 F.Supp. at 1420, is also now expressly permitted under the Superfund Amendment and Reauthorization Act of 1986 ("SARA"), Pub. L, No. 99-499, 42 U.S.C.A. § 9607(a) et seq.
It is not only the government's right to recover its response costs under CERCLA against an owner or operator of contaminated property, but increasingly the right of a current owner to pursue his seller and others that is spurring increasing litigation. CERCLA creates this private right of action by imposing liability, on the present owners and operators (Section 107(a)(1)); owners and operators at the time of disposal (Section 107(a)(2)); and generators under 107(a)(3), for "any other necessary costs of response incurred by any other person consistent with the national contingency plan." Section 107(a)(4)(B).
The early cases under CERCLA indicated this provision was not likely to be of much comfort to buyers of contaminated property seeking to recover from their sellers. They held that before recovery could be sought, the site had to be listed on the National Priorities List, ("NPL"), Cadillac Fairview/ California v. Dow Chemical Co., 14 Envtl. L.Rep. 20,376 (C.D. Cal. Nov. 5, 1984), or that in order to be consistent with the
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national contingency plan, the plaintiff must first obtain governmental approval of its clean-up plan. Bulk Distribution Centers, Inc. v. Monsanto Co., 589 F.Supp. 1437 (S.D. Fla. 1984). However, the later cases have rejected these restrictions. State of New York v. Shore Realty Corp. 759 F.2d 1032, 1045 (2d. Cir. 1985) (inclusion of site on NPL not required for state to recover its response costs); Wickland Oil Terminals v. Asarco, Inc., 759 F.2d 887 (9th Cir. 1986) (governmentally authorized clean-up plan not required for private cause of action under Section 107(a)(4)(B)), a position adopted by E.P.A. 50 Fed. Reg. 47,934 (1985). Accord: Cadillac Fairview/California v. Dow Chemical Co., 840 F.2d 691 (9th Cir. 1988); NL Industries, Inc., v. Kaplan, 792 F.2d 896 (9th Cir. 1986).
The weight of authority has found another CERCLA procedural requirement no bar to the Section 107(a)(4)(B) action. Section 112(a) of CERCLA provides that claims shall be presented to any other person who may be liable under Section 107, and that if not satisfied within 60 days, the claimant may commence an action in court against such person. Noting it was the first Court of Appeals to consider the issue, the court in Dedham Water Co. v. Cumberland Farms Dairy, Inc., 805 F. 2d 1074 (1st Cir. 1986) reviewed the conflicting District Court decisions dealing with whether this 60 day notice requirement applied to private claims brought under 107(a)(4)(B), and held that the 60 day notice provision was not required. Accord: Walls v. Waste Resource Corporation, 823 F.2d 977 (6th Cir. 1987).
Since a current property owner would itself be liable under Section 107(a)(1) of CERCLA, the cases have also considered whether that factor barred the owner from suing other parties who were also responsible under CERCLA, such as those who owned or operated the property at the time of disposal (Section 107(a)(2)). Here too, the courts have generally refused to find this a barrier to a Section 107(a)(4)(B) action. See City of Philadelphia v. Stepan Chemical Co., 544 F.Supp. 1135 (E.D. Pa. 1982), where the Court held the City, which owned the landfill, was not prevented from bringing a Section 107(a)(4)(B) action against the transporters and generators of the hazardous waste that was deposited on the property; Pinole Point Properties v. Bethlehem Steel Corp., 596 F.Supp. 283 (N.D. Cal. 1984), where the present owner was permitted to sue its seller who had deposited the hazardous substances; United States v. Conservation Chemical Co., 628 F.Supp. 391, 404-405 (W.D. Mo. 1985) ("Application of the unclean hands defense in this context would turn Congressional intent on its head"); and Allied Corp. v. Acme Solvents Reclaiming, Inc., 691 F.Supp. 1100, 1119 (N.D. Ill. 1988).
Although not an exhaustive treatment of the procedural and statutory defenses which defendants have used to avoid the thrust of liability under Section 107(a)(4)(B), the above
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discussion demonstrates that the courts are generally unwilling to place impediments on a party's right to bring this claim.
Current owners of contaminated property have not been reluctant to bring 107(a)(4)(B) actions against those who were owners and operators at the time the disposal occurred. While many of these cases have arisen on motions to dismiss by defendants, and thus do not finally determine the liabilities of the parties, they are illustrative of the approaches being taken by buyers of property against those who have caused the contamination.
In Cadillac Fairview/California v. Dow Chemical Co., 840 F. 2d 691 (9th Cir. 1988), the owner of a site purchased in 1976 incurred response costs and sought recovery from its seller and prior owners going back to 1942. In NL Industries, Inc. v. Kaplan, 792 F.2d 896 (9th Cir. 1986), the state required the receiver of a partnership that bought land in 1980 for a condominium to spend $1,200,000 for cleanup, and the receiver sued NL which had operated the facility since 1900. In Tanglewood East Homeowners v. Charles-Thomas, Inc., 849 F.2d 1568 (5th Cir. 1988), subdivision homeowners whose homes were built on a site of a wood treatment facility operated from 1946 to 1972, and who faced cleanup costs in the millions, sued the developers, construction companies, lenders and real estate agents. The court rejected the defendants' motion to dismiss4 which contended that the only operator of the facility at the time of disposal was the wood burning company which had abandoned the site in 1972. The Court found the CERCLA definition of "disposal" could encompass defendants' activities on the site which involved the excavating and filling of hazardous substances in conjunction with construction.
Courts have, however, gone farther than just denying motions to dismiss. In Sunnen Products Co. v. Chemtech Industries, Inc., 658 F. Supp. 276 (E.D. Mo. 1987)...
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