Superfund Defenses that Matter -- EPA’s New Enforcement Guidance on “Affiliation” for Landowner Defenses

Posted on December 15, 2011 by Kenneth Gray

Sophisticated buyers of contaminated and potentially contaminated property (and their counsel) typically take pains to satisfy the Superfund (CERCLA) defenses for Bona Fide Prospective Purchasers (BFPPs) and Contiguous Property Owners (CPOs).  In 2011, buyers readily understand and conduct due diligence (including the now-ubiquitous ASTM Phase I reports) and, when necessary, comply with “continuing obligations” attendant to owning contaminated property (the subject of other recent entries in this blog). 

A sometimes-overlooked element of these CERCLA defenses requires that buyers not have an “affiliation with any other person that is potentially liable” under CERLCA.  EPA has weighed in with a publicly released memo issued on September 21st, Enforcement Discretion Guidance Regarding the Affiliation Language of CERCLA's Bona Fide Prospective Purchaser and Contiguous Property Owner Liability Protection.  This new guidance covers the two exceptions to the “no affiliations” requirement expressly added to CERCLA, and also addresses four common scenarios where the affiliation issue can arise.


The memo is to assist EPA personnel in exercising their enforcement discretion—on a site-specific basis. Why now?  In this blog on March 22, 2011, ACOEL Fellow Linda C. Martin reported on the troubling case known as “Ashley II”, in which a U.S. District court rejected the BFPP defense, in part, because a liability release between the seller and buyer created a disqualifying “affiliation.”   The decision is troubling because sellers and buyers often indemnify and release each other from environmental liabilities.  The case, involving private parties, is now on appeal.


In this guidance, EPA disagrees with the general notion that indemnifications will create a disqualifying relationship, although the Agency could have directly taken issue with the Ashley II decision.  To its credit, the United States has not been aggressive in finding disqualifying “affiliations” to date (at least as reflected in published judicial decisions).  The public statement of the Agency’s views should not only confirm the government’s litigation posture, but also assist courts taking up the issue in private cost-recovery actions.   

 



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