Superfund Reform Shields Small Contributors and Encourages Brownfields Buyers

Carl H. Helmstetter and Baerbel E. Schille

Congress, after a decade of failed attempts to alleviate some of the most onerous aspects of the Superfund statute (the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601 et seq. (CERCLA))., recently and without much fanfare enacted significant amendments (i) relieving homeowners, small businesses and charities from Superfund liability for municipal solid waste disposal; (ii) exempting from Superfund liability all contributors of very small quantities of hazardous substances; and (iii) lifting the specter of Superfund liability from most sales of contaminated real estate.

On Jan. 11, 2002, President Bush signed into law the Small Business Liability Relief and Brownfields Revitalization Act (Act). The Act, which became Public Law No. 107-118, is divided into two Titles. Title I of the Act, subtitled the Small Business Liability Protection Act, carves out small-contributor exemptions from CERCLA liability with respect to pending and future Superfund litigation. Title II of the Act, subtitled the Brownfields Revitalization and Environmental Restoration Act of 2001, codifies and authorizes funding for a national program for the cleanup and redevelopment of contaminated real estate. (The full text of the new amendments is available by searching the Library of Congress website at http://thomas.loc.gov/ for bill number "HR 2869" (the enrolled version is the final version) or Public Law 107-118.)

Title I: The Small Business Liability Protection Act - An Overview
USEPA always has been uncomfortable with Superfund's impact on small parties. Even under its policy of fair and equitable enforcement, USEPA's modus operandi in Superfund litigation has been to concentrate on major potentially responsible parties (PRPs). But the major PRPs had less discomfort, for they frequently pursued their rights of contribution against all other PRPs, including local shopkeepers and the Little Sisters of the Poor. And because joint and several Superfund liability attached to any PRP that contributed a thimbleful of hazardous substances to the site, even the smallest parties were willing to pay hundreds, and sometimes thousands, of dollars in settlement rather than become enmeshed in Superfund litigation. The inequities often were most dramatic at municipal solid waste (MSW) disposal sites where industrial waste and household trash had been commingled for decades. USEPA on a case-by-case basis tried to blunt third-party collection efforts against the smallest contributors by granting them contribution protection for one dollar or other nominal amounts. Howver, USEPA's pre-emptive strikes often gave rise to additional litigation as the major PRPs either challenged USEPA's right to preempt, or sought a corrected allocation to account for the constructively-orphaned shares.

The Act rescues many of the smallest parties from the Superfund morass by creating shelters from Superfund liability for de micromis (extremely-small-quantity) generators and for small-party contributors of municipal solid waste (MSW). Moreover, the new amendments discourage PRPs from bringing third-party contribution actions against exempt parties by shifting the burden of proof to the private-party plaintiffs and by creating the risk of an attorney's fee award to a prevailing defendant. Thus, the decision whether or not to sue small contributors in the future will, for the most part, be left to USEPA; and USEPA probably will decline to do so unless it determines that a particular party has contributed significantly to the contamination.

Title I: The Principal Provisions
De micromis Exemption: Any person is exempt from generator or transporter liability at a National Priorities List (NPL) site if the total amount of waste-in material attributed to the person is less than 110 gallons of liquid material or 200 lbs. of solid material. The exemption is measured against the total amount of the material that contains a hazardous substance. Thus, 100 gallons of water containing 1% of a hazardous substance counts as 100 gallons towards the exemption amount, not 1 gallon. The exemption only applies to waste disposed of before April 1, 2001.

The de micromis exemption is measured by the quantity of material sent to an NPL site, regardless of the size of the company that sent it. Thus, even the largest corporations are entitled to the exemption if, for example, they only sent one or two barrels of material to a site.

Municipal Solid Waste (MSW) Exemption: The Act creates an exemption from generator liability for certain contributors of MSW to NPL sites. The MSW exemption applies to residences, small businesses, and charities. The exemption for residences is particularly emphatic, in that private party contribution actions against residents for disposal of MSW are barred; only the government may sue residents for disposal of MSW.

Small businesses are defined as business entities that are small business concerns within the meaning of the Small Business Act and that employ no more than 100 individuals or full-time equivalents company-wide. With respect to exempt charitable organizations, however, the definition is broader. The exemption extends to all 501(c)(3) charitable organizations that did not employ more than 100 paid individuals at the particular location from which the MSW was generated. Since few, if any, 501(c)(3) charities are likely to employ 100 full-time, paid individuals at a single location, the practical effect seems to be to exempt virtually all 501(c)(3) charities from MSW-based CERCLA liability.

Unlike the de micromis exemption, the MSW exemption is defined by the nature of the PRP that disposed of the MSW, not the volume of waste disposed. The MSW exemption is not available to large companies, no matter how innocuous their plant trash may have been.

Application to Current Litigation. The de micromis exemption and MSW exemption apparently apply to currently-pending litigation, and presumably may be invoked by a pleading amendment with the court's permission. Cases that have been concluded by settlement or judgment, however, may not be reopened.

Burden of Proof - De Micromis and MSW Exemptions. The Act creatively allocates burdens of proof to discourage private-party PRPs from bringing lawsuits against exempt entities while preserving the balance of litigation power in USEPA's hands in the event that the government, in its discretion, chooses to override the exemption.
If the government brings a CERCLA action, the burden of proof is on the defendant PRP to prove entitlement to the de micromis exemption; but in a third-party contribution action, the burden of proof is reversed, and the private plaintiff has the burden of proving that the defendant PRP is not entitled to the de micromis exemption.

The burden of proof for the MSW exemption varies depending on the nature of the plaintiff and the date of disposal of the waste. With respect to waste disposed of before April 1, 2001 the burden of proof is on the complaining party, whether it be government or private party, to prove that a defendant is not entitled to the MSW exemption. With respect to waste disposed of on or after April 1, 2001, the burden differs depending on whether the complainant is a governmental entity or a private party; the burden of proof remains on a private party complainant to prove that the small business entity or charity is not entitled to the MSW exemption; but if a government entity is the plaintiff, the burden of proof is on the defendant to prove entitlement to the exemption. (As noted above, private plaintiffs are absolutely barred from suing homeowners for disposal of MSW.) Under any scenario, however, the threshold burden of proof remains on the defendant PRP to prove that it is a residence, a small business concern or a qualifying charitable organization.

Recovery of Attorney's Fees. Another device used in the Act to discourage private-party contribution actions against exempt parties is a fee shifting provision that allows a defendant PRP who successfully invokes either the de micromis exemption or the MSW exemption against a non-governmental party in a contribution action to recover reasonable attorney's fees, expert witness fees, and costs. The fee shifting provision only applies to contribution actions commenced after the date of enactment of the Act.

Exceptions to the Exemptions. USEPA may elect not to apply the de micromis or MSW exemptions where USEPA determines that the waste in question has "contributed significantly" to the cost of the response action, or the PRP has been uncooperative. With respect to MSW, this exception theoretically could be used by USEPA to invalidate the exemption, because in most instances of MSW disposal the sheer volume of the MSW is a major contributor to the cost of the remedy. USEPA, however, likely will make this determination on the basis of the toxicity of the waste contributed by the small party compared to the toxicity of the waste of the major contributors. USEPA presumably will issue guidance to define a "significant" contributor.

Both the de micromis and the MSW exemptions only apply to NPL sites and do not apply to removal or private party sites. Small contributors, therefore, may be exempt from liability at NPL sites while continuing to be liable for similar waste volumes at removal and private party sites.

Vague Definition of MSW. The definition of MSW as applied to business entities leaves room for disagreement. MSW is defined as waste normally "generated by a household." Examples of MSW set out in the statute include food waste, product packaging, office supplies, school science lab waste and household hazardous waste. The waste disposed of by a business entity is MSW if it is "essentially the same as waste normally generated by a household," is disposed of in the normal municipal trash pickup, and "contains a relative quantity of hazardous substances no greater than the relative quantity of hazardous substances contained in waste material generated by a typical single-family household."

Thus, cafeteria waste or plant trash generated by a small business entity may or may not be MSW for purposes of this exemption, depending on the actual composition and components of the waste stream. For example, if plant trash contains more empty bleach bottles per bushel than the number of empty bleach bottles per bushel contained in "normal" household waste, the plant trash may not be exempt MSW.

The definition of MSW excludes combustion ash from resource recovery facilities or municipal incinerators, leading to the ironic result that a party may be held liable for trans-shipped incinerator ash even though its waste was MSW before the waste was burned.

Inability-to-Pay Settlements. The Act codifies USEPA's inability-to-pay settlement policy by providing for expedited settlements based on USEPA's determination that a party has limited ability to pay response costs.

No Judicial Review. An unusual feature of the statute is a "no judicial review" provision that appears three times in Title I. The new law prohibits judicial review when USEPA determines that the de micromis or MSW exemptions shall not be applied in specific instances. The law also prohibits judicial review of USEPA decisions whether or not to allow PRPs to settle on an inability to pay basis. The "no judicial review" provision seems susceptible to challenge on the ground of unconstitutionality, although the agency may attempt to ameliorate the apparent harshness of the provision by developing administrative appeal procedures that arguably offer due process to aggrieved PRPs.

Title II: The Brownfields Revitalization and Environmental Restoration Act of 2001 - Overview
Title II creates some significant hope for Brownfields redevelopment. The Act authorizes substantial monetary grants for Brownfields study and cleanup. Procedures for obtaining those grants will have to be fleshed out by USEPA regulations. An important and immediate change in the law, however, is the removal of the Superfund cloud that previously hung over contaminated property.

Liability May Not Always "Run With the Land"

Prior to the enactment of the Act, Superfund liability ran with the land. Any new buyer immediately became an "owner" under Superfund, subject to "owner" liability. Although a court ultimately might determine that a new owner's liability was zero, the potential for involvement in expensive Superfund litigation and the uncertainty of any judicial outcome quelled most redevelopers' interest in reclaiming contaminated property. The so-called "innocent purchaser" provisions inserted in the statute in 1986 were practically worthless, because an innocent purchaser was only protected against liability for site contamination that he did not discover, and could not have discovered, in the course of conducting all reasonable inquiries into the environmental conditions at the site. Thus, the innocent purchaser remained liable as new site owner for all contamination he knew about, or should have discovered, when he purchased the property.

The 2002 amendments have changed dramatically the risk of liability for a purchaser of contaminated property. The statute now provides that the new buyer shall not be liable for cleanup of existing contamination on the property, provided it (i) conducts an appropriate environmental assessment before purchasing the property, (ii) does not add to the pollution on the property, (iii) is not related in any way to prior owners or other PRPs, and (iv) extends full cooperation and assistance to governmental authorities and private parties in their efforts to clean up the property.

Grant Money is Authorized

The new amendments also authorize government grant money for Brownfields redevelopment, encourage state-lead cleanups by barring USEPA from overfiling in most instances, and insulate innocent next-door-neighbors from liability for cleaning up pollution that flows onto their property.

Title II: The Principal Provisions
Grants. The Act authorizes up to $200 million of government grant money to further Brownfields redevelopment. The properties eligible for Brownfields funding include real property with actual or perceived contamination but exclude the following categories of property from Brownfields funding: NPL sites; sites that are the subject of UAO, AOC or other orders or decrees; sites with planned or ongoing removal actions; RCRA corrective action sites; Subtitle C disposal units subject to closure; PCB sites; or any site where a viable PRP may be found to perform the needed cleanup. The government may, however, determine otherwise with respect to individual sites for good cause, so that the possibility exists that some of the redevelopment money could be applied to the more-seriously contaminated or otherwise excluded sites if health, environment, and economic redevelopment may be served. Petroleum contaminated sites may also receive funding. Brownfields funding is no longer contingent upon compliance with all National Contingency Plan (NCP) requirements imposed on removal actions, a condition strictly adhered to by USEPA prior to the passage of this Brownfields legislation. Instead, funding is conditioned upon compliance with relevant and appropriate NCP requirements.

State Programs. PRPs should now have more incentive to work with state voluntary cleanup programs, because as amended, CERCLA significantly limits the circumstances under which USEPA may take enforcement action or seek cost recovery against a PRP that is conducting a state-supervised response action. In general, USEPA is prohibited from imposing additional liability unless the contamination is interstate, USEPA makes a determination of an imminent and substantial endangerment, or material new information is revealed.

Bona Fide Prospective Purchaser. A person who buys any contaminated property after January 11, 2002, including NPL and removal sites, is protected against Superfund liability as an owner or operator of the contaminated site, provided the purchaser is not affiliated with the seller or other PRP, the purchaser made "all appropriate inquires" into the previous ownership and uses of the property, no disposal of hazardous substances occurs at the property after the purchase, and the new owner behaves in an environmentally conscientious manner by giving legally required notices regarding any hazardous substances found on the property, taking reasonable steps to stop any ongoing pollution and prevent future pollution, complying with land use restrictions affecting the property, and cooperating fully with persons who are cleaning up the property.

This is not to say that the new buyer acquires contaminated property without any financial obligation for cleanup costs. The property will be subject to a "windfall lien" in favor of the U.S. government in an amount equal to (a) the amount by which the fair market value of the property has increased as a result of the environmental cleanup efforts, or (b) the amount of the U.S. government's out-of-pocket response costs that have not been reimbursed by the potentially responsible parties, whichever is less. To supplant this lien, the new owner may substitute a bond or other form of financial assurance of payment of the outstanding government costs.

As a practical matter, any prospective purchaser should hire an engineering consulting firm to prepare a Phase I environmental assessment report. The Act specifies that until USEPA regulations define the extent of "all appropriate inquiry," published ASTM standards, including "Standard E1527-97" for Phase I site assessments, should be applied. After the property is acquired, the new owner must be careful not to add to any on-site contamination. The new owner should keep careful records of its waste disposal practices and its inventory of any hazardous substances used in its business so that it can prove, if necessary, that it has not contributed to site contamination. The new owner must abide by environmental regulations affecting the property, including in particular its obligations to notify the appropriate authorities in the event of any spill or release of hazardous substances. And the new owner must cooperate with government regulators and private parties in any on-going cleanup efforts.

Contiguous Property Exemption. A "contiguous properties" provision exempts from owner/operator status the owner of property that is next door to, and has been contaminated by, a CERCLA site as long as the owner conducted all appropriate inquiry at the time the property was purchased and did not know nor had reason to know that his property was or could be contaminated by a release from the next door contaminated property. A contiguous property owner must undertake mitigative steps to address the contamination, but does not have to investigate or clean up contaminated groundwater underlying the facility if such contamination is solely attributable to subsurface migration. A contiguous property owner also must cooperate with the government and private parties in the cleanup of the property, and provide legally required notices of any release. If sued, the contiguous property owner must prove by a preponderance of the evidence that he is exempt based on the criteria under the Act.

Conclusion
Different Congresses and different administrations attempted, but failed, to comprehensively reform Superfund since 1994. The recent amendments to Superfund, while not comprehensive, have significantly changed Superfund for the better. Small contributors, homeowners, small businesses and charitable organizations have gained significant liability relief. The Brownfields program, which has successfully operated for years, but without Congressional authorization, has now been legitimized and Congress has authorized major funding to support redevelopment and reuse of contaminated property. Brownfields buyers no longer have to fear being caught by the Superfund liability net as long as they take certain mitigative steps and cooperate with the government. Further, Brownfields parties can undertake cleanups under state voluntary cleanup programs with the confidence that, except under certain limited circumstances, USEPA will not pursue them under Superfund. With the enactment of the 2002 Amendments, parties who should have been taken out of the liability net a long time ago will no longer be part of the Superfund process. Redevelopment and reuse of contaminated property should now move forward, less encumbered by the threat of Superfund liability and more encouraged by the availability of government funding.

Carl H. Helmstetter is a partner and Baerbel E. Schiller is of counsel with Spencer Fane Britt & Browne's Kansas City, Missouri office. Carl can be reached at chelmstetter@spencerfan.com, and Baerbel can be reached at bschiller@spencerfane.com.