AN OLD FOE CREATES A POTENTIALLY TOXIC RELATIONSHIP
6/11/2018 | Articles & Alerts
After 30 years of representing developers and all manner of real estate owners and uses, I have seen environmental issues evolve from deal killer to merely an afterthought. Those concerns and doubts of the past have given way to the innocent purchaser rule and Act 2. Such issues are also no longer daunting to lenders, now statutorily protected from post-foreclosure liability. Unfortunately, that may all change.
On July 16, 2018, before the Third Circuit Court of Appeals, the Pennsylvania Department of Environmental Protection (DEP) argued that a chemical company should be liable for $900,000 in cleanup costs for a contaminated site if acquired southwest of Philadelphia. DEP argued that the District Court’s refusal to hold the company liable under federal law posed severe consequences for Pennsylvania taxpayers.
The District Court found that CERCLA’s (the Comprehensive Environmental Response, Compensation, and Liability Act, a/k/a Superfund) definition of “current owner or operator” did not extend liability to a current property owner for response costs incurred prior to its ownership.
The controversy arises from DEP’s suit against Trainer Custom Chemical for recovery of the Commonwealth’s cleanup costs which had been incurred when the facility was owned by a prior owner. The costs were incurred more than three years before the current owner took title. The District Court found that Trainer was not liable for response costs incurred prior to taking title. Specifically, the District Court held that CERCLA intended that the “current owner or operator” was the owner or operator when the response costs were incurred, not the owner or operator at the time DEP filed suit for reimbursement.
The District Court found no Pennsylvania cases on point, so it relied upon a Ninth Circuit decision in a California case, which concluded that the date response costs are incurred should govern responsibility in a manner consistent with the statute of limitations. The District Court agreed that the Ninth Circuit’s analysis made “common sense” and reasoned that although CERCLA imposes broad liability, “strict liability is not limitless liability.”
DEP’s would like the Third Circuit to broadly construe CERCLA, in a manner which would make the definition of “potentially responsible party” much more expansive. Such an interpretation would ensure that Pennsylvania is fully reimbursed for its response costs. DEP has also posited that CERCLA imposes liability on a current owner for “all” response costs, no matter when incurred. The property owner counters by arguing that while it may be a responsible party, it cannot be held liable for “all” response costs. The District Court agreed by finding the current property owner’s liability begins only when it takes title.
Both sides have very logical arguments. In listening to the oral argument, it seemed to me as though the Third Circuit seemed persuaded by the notion that if a property has been increased in value because of a government cleanup, and the current owner is the beneficiary of that increase in value, then it is logical that the current owner be responsible for the cleanup costs.
I wonder the extent to which states or the federal government have significant unreimbursed response costs that may give rise to similar lawsuits. If so, will transactions need to be unwound or will releases be invalidated? I will be anxiously awaiting this outcome.
For further information, please feel free to contact Neil A. Stein, Esquire at (610) 941-2469 or firstname.lastname@example.org.