February 25, 2014
Peter R. Duchesneau
Partner, Manatt, Phelps & Phillips, LLP
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On December 30, 2013, the U.S. Environmental Protection Agency (“EPA”) adopted ASTM E1527-13, an updated Phase I environmental assessment standard for performing all appropriate inquiries to establish landowner liability protections under the U.S. Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”). This new Phase I protocol clarifies the previous standard for all appropriate inquiries, which is an important first step, but not the only one for establishing landowner liability protections. With the adoption of ASTM E1527-13, buyers of potentially contaminated property should take the opportunity to revisit the other requirements and scope of landowner liability protections. By doing so, prospective purchasers will not only better their chances of effectively establishing such protections, but can also better manage risks that may fall beyond them.

CERCLA Landowner Liability Protections
Under CERCLA, existing property owners are strictly liable for the cleanup of contamination of their property, including new owners who acquire the property years after the contamination occurred. To promote the development of contaminated property, on January 11, 2002, President Bush signed the Small Business Liability Relief and Brownfields Revitalization Act, Public Law 107–118 (‘‘the Brownfields Amendments’’), which amended and clarified CERCLA by establishing three forms of landowner liability protections for new owners of contaminated property: the bona fide prospective purchaser (“BFPP”), the contiguous property owner, and the innocent landowner.

To qualify for these CERCLA landowner liability protections, the Brownfields Amendments provide that parties purchasing potentially contaminated property must comply with a number of requirements, including undertaking ‘‘all appropriate inquiries’’ into the ownership and use of the property prior to purchase. On November 1, 2005, the EPA promulgated regulations that set standards and practices for all appropriate inquiries and authorized the use of ASTM E1527-05 to comply with the rule.

ASTM E1527-13 Phase I Standard
In November 2013, ASTM International published ASTM E1527-13, “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process,” replacing ASTM E1527-05. In many respects, ASTM E1527-13 is the same as its predecessor. However, the new standard contains some important revisions, including a clarification that all appropriate inquires must include an assessment of vapor migration and vapor releases on, at, in or to the subject property. Other revisions to the standard include updated definitions of “Recognized Environmental Conditions” (“REC”), “Historical Recognized Environmental Conditions,” and “de minimis conditions,” as well as the addition of a new form of REC, “Controlled Recognized Environmental Conditions.” ASTM E1527-13 also contains additional requirements pertaining to regulatory agency file and records review and clarification of the “User” obligations.

A New Property Owner’s Post-Acquisition Obligations
For the most part, the requirements to establish the three protections are similar, including the necessity of performing all appropriate inquiries prior to purchasing property. While many prospective purchasers diligently attempt to perform all appropriate inquiries, the other requirements can be overlooked, as can the limitations of CERCLA landowner liability protections.

Perhaps of most concern are real property transactions where contamination or other recognized environmental conditions are identified in the course of performing all appropriate inquiries. Despite such knowledge, as a BFPP, the new owner can largely be exempt from CERCLA liability for preexisting contamination. Yet the requirement to establish the BFPP defense does not end with performing all appropriate inquires under ASTM E1527-13 prior to purchase. Buyers also have important obligations after the acquisition of property.

Parties seeking the benefit of the BFPP protections must establish, by a preponderance of evidence, each of the “painstakingly detailed statutory elements,” as one court put it in the course of rejecting a bid to secure the BFPP protections. See U.S. v. Slay, 2013 U.S. Dist. LEXIS 46204, n. 6 (2013). In all, there are eight statutory elements, including that a new property owner must provide all legally required notices with respect to the discovery or release of hazardous substances at the property; exercise appropriate care with respect to the hazardous substances found at the facility by taking reasonable steps to stop any continuing release, prevent threatened future releases and preventing or limiting exposure to previous releases; and provide full cooperation, assistance and access for response actions.

A number of courts have recently declined or otherwise expressed doubt as to BFPP claims due to the claimants’ failures to demonstrate they met their post-acquisition obligations. For instance, in Saline River Properties, LLC v. Johnson Controls, Inc., 823 F. Supp. 2d 670, 686 (E.D. Mich. 2011), the court held that the defendant had failed to demonstrate that it had not impeded performance of a response action when it broke up a concrete slab alleged to have caused hazardous substances beneath the barrier to migrate into additional soils and groundwater. In Voggenthaler v. Maryland Square, 724 F.3d 1050, 1062-1063 (9th Cir. 2013), although the Court of Appeals remanded the issue to the trial court, it expressed skepticism that the party would be able to establish a BFPP defense and show it prevented further harm and limited exposure to preexisting contamination after it demolished a building and took no steps to remove the contaminated soil or limit its spread. Similarly, in PCS Nitrogen v. Ashley II of Charleston, 714 F.3d 161, 180-181 (4th Cir. 2013), the court found that a party’s delay in filling in sumps and not stopping runoff amounted to failure to exercise appropriate care, thwarting its BFPP defense.

Environmental Risks Outside CERCLA Landowner Liability Protections
Even where a party can establish CERCLA landowner liability protections, the scope of such protections warrants careful consideration for buyers of contaminated property. There are a number of environmental risks that fall outside the purview of the CERCLA landowner liability protections. For instance, the protections do not extend to releases of fuel from underground storage tanks, given CERCLA’s petroleum exclusion. Nor do the protections necessarily apply to state cleanup claims or toxic tort actions, with laws varying by state. For example, under the California Land Reuse and Revitalization Act of 2004, an agreement with a state environmental agency must be entered into before the land owner liability protections will attach. Buyers must also be astute of contractual provisions for property acquisitions that may stymy the protections.

Despite the potential limitations of the CERCLA landowner liability protections, ASTM E1527-13 establishes a valuable starting point for buyers to assess potential environmental risks of real property and achieve CERCLA landowner liability protections. However, prospective purchasers need to remember that all appropriate inquiries is only the start and just one element for managing environmental risk when acquiring contaminated property. Other means to manage risk may be necessary, and new property owners should take care not to neglect post-acquisition obligations to achieve landowner liability protections.

Peter R. Duchesneau is a partner in the Los Angeles office of Manatt, Phelps & Phillips, LLP. His practice focuses on environmental law involving litigation, administrative proceedings, regulatory compliance and business transactions. He holds a B.S. degree in Chemical Engineering; is admitted to practice before the U.S. Patent and Trademark Office; and regularly advises clients on corporate and real estate transactions, Brownfields, and environmental due diligence. Mr. Duchesneau can be reached at (310) 312-4209 or [email protected].

This column is part of a series of articles by law firm Manatt, Phelps & Phillips, LLP’s Energy, Environment & Natural Resources practice.