by Jeffery C. Close
Widely regarded as a hastily drafted statute that is riddled with vagaries and contradictions,1 the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA)2 may have no provision that is more ill-conceived than what is commonly known as the “innocent landowner defense.” It is widely accepted that this provision — added in 1986 — was Congress’ attempt to integrate an environmental due diligence requirement into CERCLA’s then-existing third-party defense. However, rather than doing so with some measure of clarity, Congress instead created an inescapable conundrum in which courts are forced to either deviate from the plain language of the third-party defense itself or render other, related provisions meaningless and unnecessary. Predictably, the result has been inconsistency in the courts and uncertainty outside of them. Courts have been forced to ignore one rule of statutory interpretation or another,3 and practitioners have been left to either guess which approach their jurisdiction will take or hope that a binding interpretation on which they rely is not overturned.
One fix would obviously be for the U.S. Supreme Court to grant certiorari if and when it is requested on this issue and simply choose which language it would rather the courts disregard. However, a statutory amendment is clearly the more apt solution. This article examines CERCLA’s “innocent landowner” provision and proposes such an amendment. It first provides a background discussion of CERCLA liability and the third-party defense generally. It then explains the terms of the 1986 innocent landowner amendment and the split of authority that has resulted. Finally, this article proposes the aforementioned amendment and examines how it would not only effectuate what many believe was Congress’ original intent, but also answers once and for all whether it is entirely necessary for “subsequent purchasers” to perform environmental due diligence in order to qualify themselves for CERCLA’s third-party defense.
Background: CERCLA Liability and the Third-party Defense
CERCLA was enacted in 1980 in response to the growing number of environmental tragedies brought about by the industrial pollution of the 20th century. Among other things, it establishes four classes of “covered persons” (also known as potentially responsible parties or PRPs) that are liable for costs associated with releases or threatened releases of hazardous substances (collectively “releases”) and subject to administrative orders and injunctions requiring actions to address such releases. The four classes of PRPs include 1) persons who currently own or operate a “facility”4; 2) persons who owned or operated a facility at the time of a “disposal”5; 3) persons who arranged for treatment or disposal of hazardous substances at a facility6; and 4) persons who transported hazardous substances for disposal or treatment at a facility of their choosing.
As a number of courts have been quick to note, CERCLA has limited defenses that are narrowly applied.7 One such defense, commonly known as the “third-party defense,” is codified at 42 U.S.C. §9607(b)(3) and requires a PRP to plead and prove a) that the release or threat of release at issue was caused solely by the acts or omissions of a third party; b) that such acts or omissions did not occur in connection with a contractual relationship existing directly or indirectly between the PRP and the third party; c) that the PRP has exercised due care with regard to the contamination; and d) that the PRP took reasonable precautions against foreseeable acts or omissions of the third party.
As illustrated most clearly by its fourth element, the third-party defense plainly contemplates situations in which a potentially responsible party is associated with a facility prior to release and is, thus, able to take measures to prevent the release and/or measures to promptly mitigate any damages that result. For example, if an owner of a particular facility fences that facility and posts “no trespassing” signs, only to have a “midnight dumper” trespass and dispose of hazardous substances on his or her property, that owner would likely qualify for a third-party defense, so long as the owner could show that, after learning of the contamination, he or she undertook reasonable measures to identify and, if necessary, address any threats the contamination might have posed (i.e., that he or she exercised “due care”).
What is much less clear, however, is whether the defense, at least as originally drafted,8 applied in cases where the current owner did not purchase or otherwise become associated with the facility until years — perhaps decades — after any release had taken place. On one hand, such “subsequent purchasers” were often in a position to satisfy the black letter of the law. That is, they could often plead and prove that any release or threatened release was solely caused by the acts or omissions of a previous owner or tenant. (This was particularly true with respect to owners who, after taking possession of the facility, neither conducted nor allowed operations that could have caused a release and confirmed that their inaction had not allowed any “release” to continue.9) In addition, even in cases when subsequent purchasers acquired the property directly from a third party who caused a release, the purchaser could plead and prove a) that the only contractual relationship that ever existed between the purchaser and the release-causing third party was their buyer-seller relationship, and b) that it would have been impossible for any release-causing acts or omissions to have occurred in connection with this relationship because, at the time of any such acts or omissions, the relationship did not yet exist. Third, well-advised purchasers often position themselves to plead and prove that they have exercised due care, perhaps by stopping contamination from leaching to ground or surface water and confirming that the site does not otherwise pose an immediate threat to human health or the environment. Last, subsequent purchasers could typically argue that the “precautions” element required nothing of them because the third party’s acts or omissions, having occurred years before the purchaser became associated with the facility, could not possibly have been foreseeable to (and much less prevented by) the subsequent purchaser.10
On the other hand, it cannot be denied that the nature of the “precautions” element casts at least some doubt on whether Congress intended to make the original defense available to subsequent purchasers. To be sure, at least three district courts appear to have agreed that the defense could apply in these cases.11 However, the only circuit court to squarely address the issue prior to enactment of the innocent landowner provision stated in no uncertain terms that “the acts or omissions referenced in the statute are doubtless those occurring during the ownership or operation of the defendant.”12
The “Innocent Landowner” Amendment
Faced with this confusion as to whether the third-party defense could apply to subsequent purchasers, Congress enacted the innocent landowner provision as a part of the Superfund Amendments and Reauthorization Act of 1986 (SARA). It is widely believed that the intent of this amendment was to establish that whether subsequent purchasers are eligible for the third-party defense depends on whether, prior to purchase, they make all appropriate inquiries into the possibility of contamination (also commonly referred to as “environmental due diligence”) and, despite these inquiries, still have no reason to know of contamination at the site. Under this scheme, subsequent purchasers who perform due diligence and find no signs of contamination become eligible for the defense, whereas such purchasers who either fail to adequately perform due diligence or find “reason to know” of contamination remain ineligible.
Thus, the purported objective was simple: Add a due diligence element to CERCLA’s third-party defense as it applies to subsequent purchasers. Unfortunately for courts and practitioners alike, however, Congress did not take this measure. Instead, since the availability of the defense depends in part on the existence of a “contractual relationship,” Congress defined this term to include land contracts, deeds, easements, leases, or other instruments transferring title or possession, unless prior to purchase the buyer undertakes all appropriate inquiries and after doing so has no reason to believe contamination exists.13 Consequently, if a subsequent purchaser either fails to perform all appropriate inquiries or in doing so finds reason to suspect contamination, that purchaser’s buyer-seller relationship constitutes a “contractual relationship” for purposes of CERCLA’s third-party defense.
If the intent of this amendment truly was to create an environmental due diligence requirement, it is clear that Congress was acting under the assumption that the existence of this “contractual relationship” would, in and of itself, preclude a subsequent purchaser from qualifying for the third-party defense. However, the plain language of the statute clearly states otherwise. As explained above, in order for a contractual relationship to negate the third-party defense, not only must a third party’s release-causing acts or omissions have occurred in connection with that relationship, but that relationship must have existed, directly or indirectly, between the defendant and a release-causing third party. An agreement between a landowner and a third party under which the third party provides some release-causing service (car crushing, for example) might fit these criteria, as might a lease between a landlord and a release-causing tenant.14 However, even in cases in which subsequent purchasers have acquired a facility directly from a seller who caused or contributed to a release, it is simply impossible for the seller’s release-causing acts or omissions to have occurred in connection with a buyer-seller relationship that, at the time of the acts or omissions, did not yet exist.15
On the other hand, as explained above, it is widely accepted that the sole purpose of the innocent landowner provision was to clarify that subsequent purchasers are not eligible for the third-party defense unless they conduct all appropriate inquiries and, in doing so, find no reason to know of contamination at their site. If courts are not willing to gloss over the “occurs in connection with” language in order to effectuate this intent, the innocent landowner provision is rendered virtually meaningless.
Additionally, in 2002, Congress enacted CERCLA’s “bona fide prospective purchaser” defense, which is designed specifically for subsequent purchasers and requires that they plead and prove 1) that they are prima facie liable under CERCLA solely by virtue of their status as a “current owner or operator” of a facility; 2) that all “disposals” of hazardous substances at their facility occurred prior to their acquisition of their facility; 3) that, prior to acquisition of their facility, they performed all appropriate inquiries; 4) that they have made all required notices relating to the contamination at their facility; 5) that they have exercised “appropriate care” with respect to hazardous substances found at their facility by a) taking reasonable steps to stop any continuing release, b) preventing any threatened future release, and c) preventing or limiting human, environmental, or natural resource exposure to any previously released hazardous substance; 6) that they have provided full cooperation, assistance, and access to persons that are authorized to conduct response actions or natural resource restoration at their facility; 7) that they are in compliance with any land use restrictions established or relied on in connection with a cleanup at their facility, and that they have not impeded the effectiveness or integrity of any institutional control employed at their facility in connection with a cleanup; 8) that they have complied with any EPA requests for information or administrative subpoenas issued under CERCLA; 9) that they have no familial, financial, or corporate affiliation with any other responsible party; and 10) that they have not impeded the performance of a response action or natural resource restoration.
If the third-party defense is construed in a manner that does not effectuate the due diligence requirement, it is virtually impossible for a person to qualify for this “bona fide prospective purchaser” defense without first satisfying the less burdensome requirements of the third-party defense.16 For this reason, refusing to ignore the third-party defense’s “occurs in connection with” language not only renders the innocent landowner provision meaningless; it also renders the bona fide prospective purchaser defense unnecessary.
Thus, by incorrectly assuming that the mere existence of any contractual relationship between a subsequent purchaser and previous owner would, in and of itself, bar any subsequent purchaser’s third-party defense, Congress created a conundrum in which courts are forced to either a) deviate from the clear and unambiguous terms of the third-party defense itself or b) render other, related provisions meaningless and unnecessary. Given that the rules of statutory construction sanction neither of these options,17 it should come as no surprise that the courts have split on the issue. The courts refusing to ignore the “occurs in connection with” language (and thereby refusing to effectuate the due diligence requirement) include the Second and Sixth circuits,18 the Northern District of Florida,19 and the Eastern District of Pennsylvania,20 while the courts effectuating the “contractual relationship” definition (and, in turn, the due diligence requirement) include the Ninth Circuit,21 the District of Rhode Island,22 the District of South Carolina,23 and the Eastern District of Virginia.24
To rid CERCLA of this patent flaw, Congress should abandon its original idea of creating a due diligence requirement through a definition and, instead, simply add this requirement as another element to the defense itself. The third-party defense currently reads as follows:
(b) There shall be no liability . . . for a person otherwise liable who can establish by a preponderance of the evidence that the release or threat of release of a hazardous substance and the damages resulting therefrom were caused solely by… (3) an act or omission of a third party other than an employee or agent of the defendant, or than one whose act or omission occurs in connection with a contractual relationship, existing directly or indirectly, with the defendant . . . , if the defendant establishes by a preponderance of the evidence that (a) he exercised due care with respect to the hazardous substance concerned, taking into consideration the characteristics of such hazardous substance, in light of all relevant facts and circumstances, and (b) he took precautions against foreseeable acts or omissions of any such third party and the consequences that could foreseeably result from such acts or omissions.
An amended version that adds a due diligence requirement might read:
(b) There shall be no liability . . . for a person otherwise liable who can establish by a preponderance of the evidence that the release or threat of release of a hazardous substance and the damages resulting therefrom were caused solely by … (3) an act or omission of a third party other than an employee or agent of the defendant, or than one whose act or omission occurs in connection with a contractual relationship, existing directly or indirectly, with the defendant . . . , if (A) the defendant establishes by a preponderance of the evidence that (i) he exercised due care . . . and (ii) he took precautions . . .; and (B) if the defendant is a subsequent purchaser of a facility, the defendant establishes by a preponderance of the evidence that, prior to his acquisition of the facility, he performed all appropriate inquiries and, after doing so, did not know or have reason to know of the presence of any hazardous substance at the facility . . . .
“Subsequent purchasers” could then be defined to include persons who acquire facilities after all disposals have taken place, and to preserve the protections currently afforded to governmental entities that acquire CERCLA facilities involuntarily or through eminent domain and persons who acquire CERCLA facilities through inheritance or bequest,25 the “subsequent purchaser” definition could provide that the term excludes persons who meet one of these criteria.
This type of amendment would not only effectuate what many believe was the original intent of the innocent landowner provision, but it would also allow the CERCLA defenses to apply to subsequent purchasers coherently: Those who look for contamination and find nothing would qualify for the third-party defense, while those who look and find “reason to know” would have the option of qualifying themselves for the bona fide prospective purchaser defense. In turn, courts would not be forced to ignore one provision over another, and practitioners would at least have a definitive list of elements with which to work.
In 1986, Congress apparently set out to establish through CERCLA’s “innocent landowner” provision that “subsequent purchasers” of contaminated sites cannot qualify for CERCLA’s third-party defense unless, prior to acquisition of their site, they perform environmental due diligence and find no reason to know of contamination. Unfortunately, however, Congress took a peculiar approach that created an inescapable conundrum in which courts cannot interpret the defense without violating at least one well-established tenet of statutory construction. As a result, the due diligence requirement has been nonexistent in many jurisdictions, and both courts and practitioners have struggled to determine exactly what is required to qualify one’s self for the defense. Although an amendment as simple as the one proposed in this article would easily resolve these issues, Congress has elected not to act. Thus, after a quarter of a century, the innocent landowner provision remains atop CERCLA’s long list of interpretive challenges.
1 See, e.g., Ohio ex rel. Brown v. Georgeoff, 562 F. Supp. 1300, 1310 n.12 (D.C. Ohio 1983) (“CERCLA was rushed through a lame-duck session of Congress, and, therefore, might not have received adequate drafting.”); Atlantic Richfield Co. v. American Airlines, Inc., 98 F.3d 564, 570-71 (10th Cir. 1996) (“CERCLA is inartfully drafted, and is riddled with inconsistencies and redundancies.”) (citing cases); CP Holdings, Inc. v. Goldberg-Zoino & Associates, 769 F. Supp. 432 (D.N.H. 1991) (“[C]ourts seem to resort to a sort of ‘Purkinje phenomenon,’ hoping that if they stare at CERCLA long enough, it will burn a coherent afterimage on the brain.”).
2 42 U.S.C. §9601, et seq.
3 Compare Connecticut Nat. Bank v. Germain, 503 U.S. 249, 253-254 (1992) (“We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there. When the words of a statute are unambiguous, then, this first canon is also the last: ‘judicial inquiry is complete.’”) (citations omitted), with Ariz. Governing Comm. for Tax Deferred Annuity and Deferred Comp. Plans v. Norris, 463 U.S. 1073, 1108 (1983) (“Our polestar, however, must be the intent of Congress, and the guiding lights are…language, structure, and legislative history….”).
4 The term “facility” is broadly defined to include “(A) any building, structure, installation, equipment, pipe or pipeline (including any pipe into a sewer or publicly owned treatment works), well, pit, pond, lagoon, impoundment, ditch, landfill, storage container, motor vehicle, rolling stock, or aircraft, or (B) any site or area where a hazardous substance has been deposited, stored, disposed of, or placed, or otherwise come to be located; but does not include any consumer product in consumer use or any vessel.” 42 U.S.C. §9601(9). Although the “EPA has broad discretion in defining the boundaries of a particular facility, . . .the boundaries are normally based on the extent of the contamination.” United States v. Capital Tax Corp., 545 F.3d 525, 535 (7th Cir. 2008).
5 The term “disposal” is defined to include “the discharge, deposit, injection, dumping, spilling, leaking, or placing of any solid waste or hazardous waste into or on any land or water so that such solid waste or hazardous waste or any constituent thereof may enter the environment or be emitted into the air or discharged into any waters, including ground waters.” 42 U.S.C. §9601(29). Some — but not all — courts construe the definition narrowly, requiring active conduct before a “disposal” can be found to have occurred. Compare United States v. 150 Acres of Land, 204 F.3d 698, 705-06 (6th Cir. 2000), with Nurad, Inc. v. William E. Hooper & Sons Co., 966 F.2d 837, 844-46 (4th Cir. 1992).
6 For a recent development in the law “arranger liability,” see Burlington N. and Santa Fe Ry. Co. v. United States, 556 U.S. 599 (2009) (holding that arrangement for disposal of hazardous substances requires an intent on the part of the arranger that hazardous substance be disposed).
7 See, e.g., Kelley v. Thomas Solvent Co., 727 F. Supp. 1532, 1540 n.2 (W.D. Mich. 1989) (“Courts construe CERCLA’s limited defenses narrowly to effectuate the act’s broad policies.”) (citing cases); Lincoln Props., Ltd. v. Higgins, 823 F. Supp. 1528, 1536 (E.D. Cal. 1992) (noting CERCLA’s “limited defenses that are rarely available”).
8 See notes nine and 10 and accompanying text.
9 The term “release” is broadly defined to include “any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the environment ....” 42 U.S.C. §9601(22). The term has generally been held to include the passive movement of contaminants. See, e.g., Murtaugh v. New York, 2011 WL 3607180, *20 (N.D.N.Y. 2011) (“Unlike the definition of disposal, release is defined to include ‘leaching,’… which is commonly used to describe passive migration....”) (quoting ABB Indus. Systems, Inc. v. Prime Technology, Inc., 120 F.3d 351, 358 (2d Cir. 1997)); United States v. CDMG Realty Co., 96 F.3d 706, 714 (3d Cir. 1996) (“It is especially unjustified to stretch the meanings of ‘leaking’ and ‘spilling’ to encompass the passive migration that generally occurs in landfills in view of the fact that another word used in CERCLA, ‘release,’ shows that Congress knew precisely how to refer to this spreading of waste.”).
10 It should also be noted that, in subsequent purchaser cases, a number of courts have also lumped the precautions element together with due care, see, e.g., Lincoln Props., 823 F. Supp. at 1543-44, or held that the element simply does not apply. See, e.g., New York State Elec. & Gas Corp. v. First Energy, 2011 WL 3471079 (N.D.N.Y. 2011) (“Since none of the releases in issue occurred subsequent to I.D. Booth’s acquisition of the two sites in question, [the precautions] element does not come into play.”).
11 See United States v. Mirable, 1985 WL 97, *16-17 (E.D. Pa.); United States v. Maryland Bank & Trust Co., 632 F. Supp. 573, 581 (D. Md. 1986); United States v. Tyson, 1986 WL 9250, *9, 11-12 (E.D. Pa.).
12 State of New York v. Shore Realty Corp., 759 F.2d 1032, 1048 (2d Cir. 1985) (emphasis added).
13 The definition also provides that instruments transferring title do not constitute contractual relationships where a) the defendant acquired the property through inheritance or bequest or b) the defendant is a governmental entity that acquired the property involuntarily or through exercise of eminent domain.
14 See New York v. Westwood-Squibb Pharm. Co., 138 F. Supp. 2d 372, 387 (W.D.N.Y. 2000) (holding that a lease between a PRP and a release-causing tenant is a contractual relationship that bars the PRP’s third-party defense); Briggs & Stratton Corp. v. Concrete Sales & Servs., 20 F. Supp. 2d 1356, 1366 (M.D. Ga. 1998) (same); but see Emerson Enterprises, LLC v. Kenneth Crosby Acquisition Corp., 2004 WL 1454389, *5-6 (W.D.N.Y.) (suggesting that a lessor must anticipate the handling of hazardous substances on the premises or exert control over the tenants’ actions before a lease can be considered a contractual relationship that negates the third-party defense).
15 In Shore Realty, the Second Circuit suggested in dicta that a post-release purchase agreement could “block” the third-party defense if, in that agreement, a subsequent purchaser assumes at least some of the environmental liability of the previous owner. Shore Realty, 759 F.2d at 1049 n.23. However, more recently, the Second Circuit seems to have modified its position, stating instead that “a landowner is precluded from raising the third-party defense only if the contract between the landowner and the third party somehow is connected with the handling of hazardous substances.” See Westwood Pharm., Inc. v. Nat’l Fuel Gas Distrib. Corp., 964 F.2d 85 (2d Cir. 1992) (emphasis added).
16 At least one court appears to have acknowledged this argument, stating that the “bona fide prospective purchaser” defense, applicable to those who acquire ownership of a facility after January 11, 2002, appears to abrogate Westwood Pharmaceuticals and Lashins Arcade. Major v. Astrazeneza, Inc., 2006 WL 2640622, n. 18 (N.D.N.Y. 2006).
17 See note 3.
18 See New York v. Lashins Arcade Co., 91 F.3d 353, 360 (2d Cir. 1996); Westwood Pharm., Inc. v. Nat’l Fuel Gas Distrib. Corp., 964 F.2d 85, 89 (2d Cir. 1992).
19 See Reichhold Chemicals v. Textron, Inc., 888 F. Supp. 1116, 1130 (N.D. Fla. 1995)
20 See United States v. Rohm and Haas Co., 790 F. Supp. 1255, 1260 (E.D. Pa. 1992), rev’d on other grounds, 2 F.3d 1265 (3d Cir. 1993).
21 See Carson Harbor Village, Ltd. v. Unocal Corp., 270 F.3d 863, 887 (9th Cir. 2001).
22 See United States v. Domenic Lombardi, 204 F. Supp. 2d 318, 332 (D.R.I. 2002).
23 See RE Goodson Constr. Co., Inc. v. Intern’l Paper Co., 2006 WL 1677136, *3 (D.S.C.)
24 See Chesapeake and Potomac Telephone Co. of Va. v. Peck Iron & Metal Co., 814 F. Supp. 1269, 1280 (E.D. Va. 1992).
25 See note 11.
Jeffery C. Close is an associate with the Jacksonville firm of Milton, Leach, Whitman, D’Andrea & Eslinger, P.A. Prior to joining Milton Leach Whitman in February 2011, he worked as a senior assistant general counsel with the Florida Department of Environmental Protection, where he litigated enforcement cases primarily in the hazardous waste and waste cleanup programs.
This column is submitted on behalf of the Environmental and Land Use Law Section, Martha M. Collins, chair, and Gary K. Oldehoff, editor.