Potential
Environmental Liability
for Property Owners
Each of the states has environmental
laws and regulations that have the potential for causing great monetary
mischief for property owners. In 1980, the federal government got
into the act, when Congress passed the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA), codified at
42 U.S.C. § 9601 et seq., as amended by the Superfund Amendments
and Reauthorization Act of 1986. CERCLA was enacted pursuant to
Congress' power to regulate interstate commerce. See Burnette
v. Carothers, 192 F.3d 52 (2d Cir. 1999). "CERCLA generally
imposes sweeping liability upon those responsible for releasing
hazardous substances into the environment." Soo Line Railroad
Co. v. B.J. Carney & Co., 797 F. Supp. 1472, 1484 (D. Minn.
1992). This statement is quite accurate, for CERCLA liability is
rather sweeping, and can create unexpected liability for any property
owner.
This is caused by CERCLA's purpose,
which is to facilitate the prompt cleanup of hazardous waste sites
and to shift the cost of environmental response from taxpayers to
the parties who benefited from the wastes that caused environmental
harm. See OHM Remediation Servs. v. Evans Cooperage Co., 116
F.3d 1574 (5th Cir. 1997). Liability is imposed by 42 U.S.C. § 9607(a),
which subjects any owner of property, or the owner or operator of
such property at the time of the disposal of any hazardous substance,
or anyone who contracts for the disposal or treatment on a piece
of real property of hazardous substances owned by such person, for
"all costs of removal or remedial action incurred by the United
States Government or a State," and for the "damages for
injury to, destruction of, or loss of natural resources[.]"
The only defenses available to this
liability are those found in § 9607(b). There are only 3, 2 of which
are of little use: an act of God and an act of war. The chances
of either causing environmental damage are rather slim. The third
is the so-called innocent landowner defense. Under this, there is
no liability if a person can establish by a preponderance of the
evidence that the release of a hazardous substance and the damage
resulting therefrom were caused solely by a third party with whom
there is no contractual relationship, he exercised due care with
respect to the hazardous substance concerned, and he took precautions
against foreseeable acts caused by the third party and the consequences
that could result from those acts. § 9607(b)(3). See Soo Line,
supra; United States v. A&N Cleaners and Launderers, 854
F. Supp, 229 (S.D.N.Y. 1994). To avail yourself of this defense,
you must make an appropriate inquiry at the time of acquisition
into all previous ownership and use of the property. See Westwood
Pharmaceuticals, Inc. v. National Fuel Gas Distribution Corp.,
963 F.2d 85 (2d Cir. 1992); United States v. Serafini, 791F.
Supp. 107 (M.D. Pa. 1990).
If a party is indeed able to prove
that they are innocent of the environmental damage, they may bring
an action against the responsible parties under § 9607 to recover
their costs associated with the cleanup of the property through
the time they were able to prove their innocence. See New Castle
County v. Halliburton NUS Corp., 111F.3d 1116 (3d Cir. 1997);
Bedford Affiliates v. Sills, 156 F.3d 416 (2d Cir. 1998).
This constitutes indemnity for their costs. If the party is not
entirely innocent, but others are partially responsible for the
damage, the party can only seek contribution from the other liable
parties for those costs exceeding its pro rata share of the
entire cleanup cost. § 9613(f). See Sills, supra; Rumpke of Indiana
v. Cummins Ensine Co., 107 F.3d 1235 (7th Cir. 1997); Catullus
Dev. Corp. v. L.D. McFarland Co., 23 E.L.R. 21487 (D. Or. 1993).
If one fits within the parameters of § 9607(a), and cannot fit within a defense articulated in § 9607(b),
he is liable under CERCLA, since the statutory scheme imposes strict
liability, as well as joint and several liability if there are multiple
potentially responsible parties. See FMC Corp. v. United States
Dep't of Commerce, 10 F.3d 987 (3d Cir. 1993); United States
v. Monsanto Co., 858 F.2d 160 (4th Cir. 1988), cert. denied,
490 U.S. 1106 (1989); United States v. Chem-Dyne Corp., 572
F. Supp. 802 (S.D. Ohio 1983); United States v. Northernaire
Plating Co., 670 F. Supp. 742 (W.D. Mich. 1987), aff'd, 889
F.2d 1497 (6th Cir. 1989), cert. denied, 494 U.S. 1057 (1990).
Thus, one responsible for only a tiny fraction of the damage can
be liable for 100% of the damages, with the only available recourse
being a suit for contribution from those also legally responsible
for the environmental harm. See United States v. R.W. Meyer,
Inc., 932 F.2d 568 (6th Cir. 1991). In certain circumstances,
when a party can prove that the harm done is divisible among several
parties, damages will be apportioned, and joint and several liability
will not lie. See County Line Inv. Co. v. Tinney, 933 F.2d
1508 (10th Cir. 1991); United States v. Rohm & Haas Co., 2 F.3d 1265 (3d Cir. 1993); Price v. United States Navy,
39 F.3d loll (9th Cir. 1994); B.F. Goodrich v. Betkoski,
99 F.3d 505 (2d Cir. 1996).
The only way to avoid liability if
one comes within the reach of § 9607(a) is by contractual agreement
among private parties to indemnify or hold harmless certain persons
from potential CERCLA liability. § 9607(e). The courts generally
will uphold these contracts. See, e.8., United States
v. Hardage, 985 F.2d 1427 (10th Cir. 1993); Keywell Corp. v.
Weinstein, 33 F.3d 159 (2d Cir. 1994); Beazer E. v. Mead Corp.,
34 F.3d 206 (3d Cir. 1994), cert. denied, 115 S. Ct. 1696
(1995); Lion Oil Co. v. Tosco Corp., 90 F.3d 268 (8th Cir.
1996). This ability to shift risk by contract (for example, from
the buyer to the seller of commercial real estate) is vital, since
many courts have held that standard comprehensive general liability
(CGL) insurance policies do not cover the costs of environmental
cleanups. This is so, since CERCLA response costs are economic losses
and not "damages." See, e.g., Mraz v. Canadian Universal
Ins. Co., 804 F.2d 1325 (4th Cir. 1986); Continental Ins.
Co. v. Northeastern Pharmaceutical & Chemical Co., 842 F.2d
977 (8th Cir.), cert. denied, 488 U.S. 821 (1988); Becker
Metals Corp. v. Transportation Ins. Co., 802 F. Supp. 235 (E.D.
Mo. 1992); Verlan, Ltd. v. John L. Armitage & Co., 695
F. Supp. 950 (N.D. Ill. 1988); contra, Morrisville Water &
Light Dep't v. United States Fidelity & Guaranty Co., 775
F. Supp. 718 (D. Vt. 1991); Riehl v. Travelers Ins. Co., 15
E.L.R. 20004 (W.D. Pa. 1984).
What does all of this mean for property
owners, or anyone who falls within the strictures of § 9607(a)?
It means that in many varied situations, one who has not done anything
wrong (in the normal sense of the word) can be made to pay for very
expensive environmental cleanups, courtesy of Uncle Sam.
For example, in Alcan-Toyo Am. v.
Northern Ill. Gas Co., 881 F. Supp. 342 (N.D. Ill. 1995), the
owner of a piece of contaminated land was ordered to pay 10% of
the response costs under CERCLA. This, despite the fact that the
owner acquired the land before CERCLA came into existence,
and other known parties were wholly responsible for contaminating
the land. However, since the owner failed to inspect the property
before its purchase, it could not avail itself of the innocent landowner
defense. Simply because the owner fit within the statute, liability
attached.
In Briggs & Stratton Corp.
v. Concrete Sales & Servs., 20 F. Supp. 2d
1356 (M.D. Ga. 1998), a former owner
of a site was found liable under § 9607(a) when a tenant polluted
the land, even though the owner had no knowledge of the tenant's
actions. Why? Because the owner had a direct contractual relationship
with the tenant in connection with the acts which resulted in the
release of hazardous substances.
A similar result occurred in United
States v. A&N Cleaners and Launderers, 788 F. Supp. 1317
(S.D.N.Y. 1992). Here, a bank leased property from the owners, then
subleased a portion of it to a dry cleaning business which polluted
the site. The bank was found liable as the "owner" of the property, since it exercised responsibility for the control
and maintenance of the property as part Of its lease with the true
owner.
In City of Phoenix v. Garbage Servs.
Co., 816 F. Supp. 564 (D. Ariz. 1993), a bank was named as an
executor of a deceased property owner's estate. It thus became a
testamentary trustee of a contaminated parcel of property. Obviously,
the bank had nothing to do with the contamination. Yet, it was held
liable under CERCLA for cleanup costs, since as trustee it held
legal title to the property, and thus fit within the language of § 9607(a).
In United States v. Mansanto Co.,
858 F.2d 160 (4th Cir. 1988), cert. denied, 490 U.S.
1106 (1989), the absentee owners of property leased the land to
a chemical manufacturing corporation which released hazardous materials.
Despite having no knowledge of these releases, the owners were held
liable, since the releases occurred during their ownership.
Similarly, in Jersey City Redevelopment
Auth. v. PPG Indus., 18 E.L.R. 20364 (D. N.J. 1987), an owner
without knowledge of the contamination of his property was found
co-liable with those who actually caused the contamination, simply
because he fit within the statute.
As can be seen, CERCLA is a potential
time bomb for property owners. If you fit within the reach of § 9607(a), your are liable, period, unless there is an act of God,
an act of war, or you are an innocent landowner. To obtain this
last defense, a purchase of real estate must perform due diligence
and attempt to find out all of the previous uses of the property
if this is not done, the defense will not be available.
If you already own land and did not
perform due diligence or you formerly owned land and contamination
occurred during that time, you are liable if cleanup costs are incurred
because of that property. The easiest method of protecting yourself
is to obtain a hold harmless agreement from the previous owner when
you purchase real estate, and shift the liability to the purchaser
when you sell the property. This latter item will obviously be difficult,
but can be made easier by having the property inspected before the
sale. If it is free from contamination, a purchaser may be willing
to hold the seller harmless. If no such action is taken, the risk
of liability under CERCLA is tremendous.
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