Recent Fourth Circuit case demonstrates high hurdles to claim CERCLA BFPP defense
When seeking to develop or acquire property, compliance with the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) should be near the top of your to-do list. Unless certain precautions are taken, parties involved with property affected by contamination face strict liability for cleanup costs, potentially transforming a wise or profitable transaction into an unpredictably large expense.
Although exceptions to CERCLA, one being the bona fide prospective purchaser (BFPP) defense, are available, a recent Fourth Circuit Court of Appeals case denied BFPP status to a Charleston developer, Ashley II of Charleston LLC. The developer purchased multiple pieces of property as part of a sustainable, mixed-use project, and part of its business model was to take advantage of the BFPP exception.
After acquiring the property, as part of its due diligence, the developer conducted inspections, performed a Phase I assessment, maintained contact with the Environmental Protection Agency and Department of Health and Environmental Control, collected soil and groundwater samples, hired an environmental consulting firm, and conducted follow-up testing.
Once the property was accumulated, the developer sought a court determination that it would not be liable for cleanup and response costs at the site. The court found that while the developer had successfully and correctly complied with certain aspects of CERCLA, the developer did not sufficiently fulfill all requirements of the statute. The developer failed to prove that no post-acquisition disposals occurred, failed to address sumps and an on-site debris pile in a timely manner, and had a prohibited contractual affiliation with the party from which it acquired the site – all in violation of CERCLA. The court found that because of these failures, the developer was unable to reap the benefits of CERCLA’s BFPP exception.
The decision of the Fourth Circuit Court of Appeals could be appealed to the Supreme Court of the United States. However, for now, prospective purchasers, developers and lenders should seek skilled counsel to analyze and assess the risks involved and devise a game plan to enable the successful purchase and development of property and the avoidance of liability.