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Getting -- and Keeping -- CERCLA Liability Protections for Prospective Buyers

In 2006, EPA promulgated regulations pursuant to the 2001 Brownfields Amendments to CERCLA that allow Bona Fide Prospective Purchasers ("BFPPs") to be exempt from Superfund liability, provided, among other things, they conduct "all appropriate inquiry" (an ASTM Phase I) prior to acquiring contaminated property, exercise appropriate care with regard to environmental conditions at the property, and adhere to the requirement that there be "no affiliation" with a potentially responsible party (PRP) for the contamination.

For the first time, a federal court has interpreted the requirements of the so-called "BFPP Defense." Ashley II of Charleston, LLC v. PCS Nitrogen, Inc. v. Ross Development Corp. et al. (D. South Carolina, Oct. 13, 2010).

Ashley, a sophisticated and well-funded brownfields developer, conducted a Phase I which identified various "recognized environmental conditions" at the property. Ashley investigated these conditions, but not sufficiently. As a result, when Ashley demolished structures at the property, pre-existing contamination was released. Ashley also allowed debris piles to accumulate at the property and a cap on contamination to deteriorate.

Ashley had indemnified and given releases to the sellers of the affected parcels when it acquired their properties. When EPA became involved, Ashley asked EPA not to undertake cost recovery actions against the sellers, citing the indemnification provisions. Ashley also told EPA that if EPA insisted on pursuing a claim against the sellers it would discourage Ashley's future development efforts.

The court ruled that although Ashley had conducted all appropriate inquiry and satisfied all other BFPP requirements, Ashley failed to qualify as a BFPP because it did not exercise appropriate care and also because it was affiliated with the PRP sellers, stating that "Ashley's efforts to discourage EPA from recovering response costs covered by the indemnification reveals just the sort of affiliation Congress intended to discourage."

There are a number of lessons to be learned from this case, but primarily it illustrates that while it is not hard to obtain BFPP status, maintaining it is another story.

For more information, contact Sharon G. Newman, Esq.  Ms. Newman is a partner in the firm's Environmental Practice Group.