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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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