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Oct 2013
16
October 16, 2013

Fourth Circuit Addresses the Scope of CERCLA’s BFPP Defense


Earlier this year, the U.S. Court of Appeals for the Fourth Circuit issued the first decision by a federal court of appeals to address the scope of the bona fide prospective purchaser defense under CERCLA.  PCS Nitrogen Inc. v. Ashley II of Charleston, LLC (Ashley II), 714 F.3d 161 (4th Cir. 2013).  The decision underscores the ongoing risk that CERCLA’s continuing obligations requirements impose on facility owners.

In the case, plaintiff Ashley II of Charleston, LLC, had incurred response costs cleaning up hazardous substances at a former fertilizer manufacturing site that it owned in Charleston, South Carolina.  Ashley brought a CERCLA cost recovery action against PCS Nitrogen, Inc.  PCS counterclaimed.  Ashley asserted the BFPP defense in response to PCS’s counterclaim.  The trial court rejected Ashley’s BFPP defense.

After a bench trial, the district court held that Ashley was a liable owner under CERCLA because it failed to establish three of the eight elements of the BFPP defense.  Among other things, the court held that Ashley failed to exercise appropriate care when it demolished structures onsite.  On appeal, Ashley argued for a broader reading of the BFPP defense.

The court of appeals affirmed the district court and refused to apply the broad reading of the BFPP defense advocated by Ashley.  Rather, the court applied the standard for innocent owner due care adopted by the U.S. Court of Appeals for the Second Circuit.  The court held that Ashley did not meet that standard because it did not take all precautions with respect to the particular waste that a similarly situated reasonable and prudent person would have taken in light of all relevant facts and circumstances.  Specifically, the court found that Ashley failed to meet the appropriate care standard because it did not promptly cap, fill, or remove sumps after demolition of related aboveground structures.  In so holding, the court avoided the most-discussed aspect of the district court’s decision—that is, the district court’s holding that by providing indemnity to the prior owner Ashley violated the BFPP defense’s no-affiliation requirement.

In light of the Fourth Circuit’s holding, Ashley II’s primary lesson for purchasers of contaminated property is to conduct thorough pre-purchase due diligence and to carefully consider and document compliance with post-purchase site management obligations, which might include additional environmental investigation and remediation.

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