Posted on March 22, 2011 by Linda C. Martin
We all know that the bona fide prospective purchaser (BFPP) provision provides a defense to CERCLA liability for contaminated sites and allows a knowing purchase of contaminated property. It encourages brownfields and voluntary cleanup programs across the country.
Judicial interpretations of the BFPP defense are scarce. In October 2010, a federal district court in South Carolina issued its opinion which was a nasty turn of events for BFPP’s. (Ashley II of Charleston, LLC v. PCS Nitrogen, Inc. (“Ashley II”), Case No. 2:05-cv-02782-MBS). The case was for recovery of cleanup costs associated with a former fertilizer manufacturing plant in Charleston, South Carolina.
The court decided that Ashley was not a BFPP, as it claimed, and was responsible for five percent of the clean-up costs based on the following facts: (1) Ashley had torn down some structures in 2008, which allowed rainwater to contact cracked sumps containing hazardous substances. As a result, disposal of hazardous substances had occurred after Ashley took possession of the property; (2) Ashley was “affiliated” with other PRPs because Ashley had indemnified them and, more significantly, attempted “to discourage EPA from recovering response costs covered by the indemnification”; and (3) Ashley had not exercised appropriate care because it failed to address recognized environmental conditions (RECs) that were identified in the environmental site assessment as well as other potential site hazards.
The lesson here is that Purchasers should consider the effect of indemnity provisions and any interactions they may have with government agencies regarding other PRPs. In addition, because “disposal” may be defined very broadly, purchasers should thoroughly evaluate construction, demolition, and other site activities to determine if such activities could cause a release of hazardous substances. Finally, it is critical that all RECs be addressed, beginning no later than the time the purchaser acquires the property and continuing for the duration of its ownership.