September 18, 2017 Article

Environmental Alert: Bona Fide Prospective Purchaser Escapes CERCLA Liability

Environmental Alert

The owners of a shipyard sued a prior owner and the current owner of an adjacent former steel mill property in Baltimore, Maryland for recovery of cleanup costs under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA” or “Superfund”).   At issue was the cost of cleanup being conducted by the plaintiffs as a result of passive migration of contaminants via groundwater from the former steel mill property to the shipyard property.

The prior owner of the steel mill property, Sparrow Point LLC, had purchased it out of bankruptcy in 2012 pursuant to an agreement approved by the U.S. Bankruptcy Court.  In 2014 Sparrow Point sold the property to defendant Tradepoint Atlantic LLC.  Upon purchasing the property, Tradepoint entered into an administrative consent order with the Maryland Department of the Environment and a settlement agreement with the U.S. Environmental Protection Agency to conduct various cleanup activities.

Tradepoint asserted that it was not liable under CERCLA due to its status as a Bona Fide Prospective Purchaser (“BFPP”).  BFPP status exempts parties that would otherwise be liable as an owner or operator under CERCLA. To qualify for the BFPP exemption, the current owner/operator must have acquired the facility after January 1, 2002 and must establish compliance with eight criteria. 

Plaintiffs argued that Tradepoint failed to establish two of the BFPP elements:  (a) that the disposal of hazardous substances must have occurred before acquisition of the facility, and (b) that there be no “affiliation” between the BFPP and the parties responsible for the contamination.  Plaintiffs argued that the passive migration of benzene constituted a new act of disposal and that both Sparrow Point and Tradepoint were “affiliated through a web of corporate relationships” with the previous owners of the steel mill that were designed to “scrub the environmental liabilities” from the former steel mill property.

The Maryland federal district court rejected these arguments.  The court noted it was undisputed that the contamination at issue originated prior to the defendants’ purchase of the steel mill property and was “merely the passive flow of benzene through groundwater” that neither defendant had caused or exacerbated (and was, in fact, exacerbated by plaintiffs’ own pumping activities).   Further, pointing to Tradepoint’s agreements with state and federal environmental regulators, the court found that Tradepoint had not structured its acquisition of the former steel mill property to avoid liability.  The court concluded that as there was no post-acquisition “disposal” of hazardous substances or any “affiliation” between Tradepoint and any responsible party for the purpose of avoiding liability.

Successfully running the gauntlet of requirements to obtain BFPP status is not easy.  Very few court decisions provide guideposts for obtaining and maintaining BFPP liability exemptions.  While nothing can prevent a BFPP from being sued, this decision gives some comfort to prospective purchasers that careful efforts to attain BFPP status are worthwhile, and can and will be honored by the courts.