Prospective purchaser agreements: EPA's new outlook on landowner liability.

• Author: Lifsey, Margi

Brownfields are abandoned, idled, or under-used industrial and commercial facilities where expansion or redevelopment is complicated by real or perceived environmental contamination. The strict liability scheme imposed by Congress in the Comprehensive Environmental Response, Compensation, and Liability Act unintentionally resulted in millions of brownfields throughout our country. The Environmental Protection Agency (EPA) recognized this problem and took significant steps to minimize landowner liability in a Prospective Purchase Agreement Guidance, which provides a framework for EPA Regions to negotiate agreements with prospective purchasers of brownfield sites. Ms. Lifsey thoroughly examines prospective purchase agreements (PPAs) negotiated by EPA. Specifically, this Comment analyzes the different types of benefits furnished by prospective purchasers in exchange for a covenant not to sue and the various liability protections provided by EPA to prospective purchasers. The author argues that EPA should continue to negotiate PPAs that confer benefits to the community where a site is located, but to be effective, EPA should also extend greater liability protection to prospective purchasers under certain circumstances. Ultimately, Ms. Lifsey concludes that PPAs are a practical solution to the brownfields problem and should be employed by EPA as much as possible. I. INTRODUCTION

"It's the nastiest place I've ever been in," said an Environmental Protection Agency (EPA) employee about the Uniroyal Plastics Hill site.(1) The Uniroyal Company has a long history in the City of Mishawaka, Indiana. Uniroyal ran a manufacturing company on a forty-three acre site, fronting the southern bank of the St. Joseph River just off Main Street in the Mishawaka business district.(2) Industrial use of the site began in the 1830s and lasted until 1997.(3) At its peak, the Uniroyal Company employed ten thousand people to make life jackets, bowling balls, and tennis shoes.(4) For the duration, chemicals such as barium, chromium, lead, cadmium, mercury, polychlorinated biphenyls, and methylene chloride were used and disposed of on site.(5) When EPA inspected the abandoned site in 1997,(6) a tunnel running through the property was filled with sludge waist-high.(7) One local journalist described the site as "asbestos-lined pipes containing flammable toxins crisscrossed" above sludge and drums of solvents, oils, and acids.(8) Along with masses of unidentified waste in the ground, the buildings still standing were highly contaminated with asbestos.(9) The deserted Uniroyal property was not only a public health hazard: the stigma attached to the brownfield also caused economic and aesthetic impacts on the surrounding area.(10) The Mayor of Mishawaka, Robert C. Beutter, said of the Uniroyal site, "[I]t's hurting the entire city."(11) Furthermore, Uniroyal is now insolvent; it filed for bankruptcy in December 1977.(12) EPA spent approximately $1.5 million on the cleanup of the site, and the job is still not finished.(13)

Before 1989 any attorney would have advised a client interested in purchasing the Uniroyal site, to walk away--if not run--from the offer. The site would have been simply unmarketable.(14) But today, thanks to a prospective purchaser agreement (PPA) negotiated between EPA Region V and the City of Mishawaka, the site will become a public raceway that creates jobs and revenue for the local community.(15) As part of the settlement, the city agreed to demolish or remove asbestos from the buildings on the site in exchange for EPA's covenant not to sue.(16) The city leased the property with an option to purchase,(17) and as the president of the Mishawaka Business Association stated, the city can now "get together as a community and figure out exactly what we want to happen to that property."(18) Soon, EPA will knock down a dam in downtown Mishawaka, and water from the St. Johns river will flow through the Main Street Tunnel for the first time in fifty years.(19) This is just one example of how prospective purchaser agreements can benefit both a prospective purchaser and a local community.

A company seeking to build a facility on real property often has to choose between building on land that is contaminated from a prior industrial use (known as a brownfield(20)) or new land that is untouched by industry (known as a greenfield(21)). Before EPA published its current policy, a prospective purchaser could not buy a parcel of land known to be contaminated without incurring partial or total liability for hazardous waste damages.(22) Hazardous waste liability created a major disincentive for companies to purchase brownfields or for banks to provide financing,(23) even if the location was more convenient and cost-effective than a greenfield. Thus, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA or "Superfund")(24)--a statute enacted to protect public health and welfare and the environment(25)--acted as a major roadblock to the development of abandoned industrial sites. The unintended effect of the liability scheme under CERCLA is that there are now between 150,000 and 500,000 brownfields in the United States,(26) and greenfields are being destroyed at an extraordinary rate. The U.S. Conference of Mayors (USCM) cited contamination as the number-one obstacle to redevelopment in urban areas.(27)

To combat this problem, EPA published a policy on prospective purchaser agreements in 1989,(28) and revised that policy in 1995,(29) to give interested persons an opportunity to acquire contaminated property without incurring liability for the hazardous waste.(30) To date, EPA has entered into almost one hundred agreements with prospective purchasers,(31) and a large percentage of those were executed in the past two years.(32) Consequently, developers are increasingly finding real estate in urban areas more attractive.(33)

The purpose of this Comment is to examine existing prospective purchaser agreements and to discuss the advantages and disadvantages of entering into a PPA from both the purchasers' and the public's perspective. Part II explains the connection between hazardous waste landowner liability and prospective purchaser agreements. Part III reviews the benefits of prospective purchaser agreements to communities. Part IV analyzes and criticizes the type of covenant not to sue that EPA currently provides prospective purchasers and demonstrates why EPA should expand liability protection in the future. Part V concludes that prospective purchaser agreements are advantageous to all parties involved and that EPA should negotiate agreements whenever the opportunity arises.

2. CERCLA AND THE BROWNFIELDS PROBLEM

   1. Landowner Liability

      Under the CERCLA liability scheme, when a property is purchased, the new landowner is automatically considered liable as an owner or operator for any release or threat of release of a hazardous substance at the facility.(34) CERCLA is a strict liability statute, and courts, applying common law principles, tend to hold all parties jointly and severally liable(35) for "all costs of removal or remedial action incurred by the United States Government or a State or an Indian tribe"(36) or "any other necessary costs of response incurred by any other person."(37) Therefore, a new landowner could be held responsible for the entire cleanup without actually causing the contamination.(38) Given the average costs of hazardous waste removal and remediation in our country,(39) this is an enormous burden for any landowner to bear.

      CERCLA provides defenses for innocent owners of brownfields, although these are not available to prospective purchasers who buy sites knowing that they are contaminated. In order to raise a third-party affirmative defense, an owner must demonstrate that the release or threat of release was caused solely by an act or omission of a third party who does not have a contractual relationship, existing directly or indirectly, with the potentially liable party.(40) The term "contractual relationship" includes "deeds" and "other instruments transferring title or possession"(41); thus, a current landowner is precluded from asserting that the release was caused by an act or omission of past owner or operator due to the contractual relationship between the parties created by a deed or lease.(42) Congress also created a defense for innocent landowners who had no reason to know of contamination at the time of purchase and who took all appropriate inquiry into the site before purchasing the property.(43) A prospective purchaser who did not participate in contaminating a site is excluded from using this defense merely by finding out that a release occurred on site.(44) Information obtained through a site inspection, research, hiring a consultant, or by an outside party, is enough to trigger the knowledge rule.(45) Ironically, the diligent prospective purchaser who spends time and money investigating the site in order to secure financing for the purchase is not eligible for the innocent purchaser defense if it finds any contamination.(46) Thus, under the traditional CERCLA approach, a prospective purchaser of a brownfield has limited options--either clean up the site or build a facility somewhere else.

      Therefore, before 1989 many prospective purchasers turned away from brownfields because of the difficulty in proving statutory defenses that protect new landowners. Other potential developers in this situation approached EPA seeking assurances that they would not be held liable for preexisting contamination.(47) In response, EPA issued guidance in 1989 (the 1989 Guidance) stating that EPA would now enter into agreements with prospective purchasers giving the purchasers covenants not to sue in exchange for due consideration.(48)

   2. A Wave of CERCLA Reform

      The 1989 Guidance on prospective purchaser agreements authorized EPA, under certain conditions, to protect prospective...