Brownfields – New EPA Draft Guidance

Bruce Howard

The EPA recently issued important new draft guidance on how landowners can qualify for the new and revised defenses in the 2002 Superfund amendments.

The new amendments were part of the Small Business Liability Relief and Brownfields Revitalization Act (Brownfields Amendments) enacted in January 2002. The new EPA draft guidance was issued on March 6, 2003 and is called the Common Elements Guidance because it addresses certain criteria which are common to all three landowner defenses – bona fide prospective purchasers, innocent landowners and contiguous property owners. The EPA participated in a conference call with ABA members on April 9, 2003, to elaborate on and answer questions on the new guidance.
The biggest change in the Brownfields Amendments was to create, for the first time, a Superfund defense for parties who knowingly buy contaminated property. Under prior law only parties who reasonably did not know the property was contaminated when they bought the property could qualify for a purchaser defense.

To qualify for the new “bona fide prospective purchaser” defense, a party must meet eight conditions, contained in 42 USC § 9601 (40). The most potentially controversial of these is 40(d), which states that a person must “exercise appropriate care with respect to hazardous substances found at the facility by taking reasonable steps to –
(i) stop any continuing release;
(ii) prevent any threatened future release; and
(iii) prevent or limit human, environmental, or natural resource exposure to any previously released hazardous substance.”

What does this duty mean? If it is means that a person must clean up the property to qualify for the defense, the defense is of dubious value. Since a “continuing release” could include the migration of contamination, what does one have to do about migrating soil and groundwater contamination?

The Guidance helps clarify these issues, but not definitively. According to the draft guidance,

EPA believes Congress intended to balance the desire to protect certain landowners from CERCLA liability with the need to ensure the protection of human health and the environment. In requiring reasonable steps from parties qualifying for landowner liability protections, EPA believes Congress did not intend to create, as a general matter, the same types of response obligations that exist for a CERCLA liable party (e.g., removal of contaminated soil, extraction and treatment of contaminated groundwater). Indeed, the contiguous property owner provision’s legislative history states that absent “exceptional circumstances . . . , these persons are not expected to conduct ground water investigations or install remediation systems, or undertake other response actions that would be more properly paid for by the responsible parties who caused the contamination.” S. Rep. No. 107-2, at 11 (2001). In addition, the Brownfields Amendments provide that contiguous property owners are generally not required to conduct groundwater investigations or to install ground water remediation systems. CERCLA § 107(q)(2)(D). Nevertheless, it seems clear that Congress also did not intend to allow a landowner “to ignore the potential dangers associated with hazardous substances on its property.”

Later in the Guidance the EPA delivers the bottom line: “The reasonable steps determination will be a site-specific, fact-based inquiry.”

Mindful of the open-endedness of this statement, the Guidance includes a useful “Reasonable Steps Questions and Answers” attachment. Question 7 of the attachment reads: “If a protected landowner discovers a previously unknown release of a hazardous substance from a source on her property, must she remediate the release?” The answer begins: “Provided the landowner is not otherwise liable for the release from the source, she should take some affirmative steps to ‘stop the continuing release,’ but EPA would not, absent unusual circumstances, look to her for the performance of complete remedial measures. However, notice to appropriate governmental officials and containment or other measures to mitigate the release would probably be considered appropriate.”

In its creation of the bona fide purchaser defense, Congress has taken a big step toward undoing the damage done by the original Superfund imposition of liability on non-polluter current owners. By spreading the liability net so widely, Congress excessively chilled Brownfield development. But it remains to be seen whether the new bona fide purchaser defense, while a step in the right direction, is too complex and fraught with “site-specific, fact-based inquiry” – i.e., uncertainty – to give real estate developers enough comfort to kick start the Brownfield market.

The April 9, 2003 conference call with the EPA shed some light on the Guidance. For example, agency representatives explained that a new (i.e., post – Jan. 1, 2002) tenant could not qualify for the bona fide purchaser defense unless its landlord qualified for the defense too.

In this writer’s opinion, one of the more problematic aspects of the new law and the proposed Guidance is the “Contiguous Property Owner Defense.” The purpose of this defense was to provide, logically, that a neighbor generally should not be liable under Superfund for contamination migrating onto his property from next door. This has been the law from the beginning of Superfund, due to the defense in 107(b)(3) for contamination caused solely by the acts of a third party.

Back in 1995, the EPA published a policy statement, FRL 5251-7, that said that, pursuant to 107(b)(3), it would generally not enforce Superfund liability against owners of property over groundwater contamination caused solely by a neighbor.

In its effort to codify and expand this EPA policy into the Superfund law itself, Congress created a new statutory defense for “Contiguous Property Owners.” This effort added an onerous requirement that was never a requirement of the 107(b)(3) defense, nor of the 1995 EPA policy, namely that, to qualify for this defense, the contiguous property owner must have reasonably not known of the contamination before buying the property. But why should that matter if the contamination was caused solely by the acts of the neighbor, i.e., a third party under 107(b)(3)? The neighbor had and still has a 107(b)(3) defense whether or not he/she knew of the contamination. To mitigate this new burden, Congress added that the neighbor who purchased with knowledge of the contamination, and thus lost the new contiguous property owner defense, could still qualify for the new bona fide purchaser defense, if he/she met all of those requirements. But that defense also has numerous requirements not in 107(b)(3).

The bottom line is this – Congress and the EPA say they want to encourage Brownfield development, but until they adopt simple, consistent defenses logically protecting non-polluters, this writer suspects the market will be understandably cautious. The current matrix of laws, amendments, regulations, policy statements and guidances are so convoluted, internally inconsistent, and “case-specific, fact-dependent,” that their value in the real estate market may be minimal. And that’s a shame, because a market free of unnecessary and counter-productive liability rules for non-polluters can do much more to remediate Brownfield properties than any regulatory program, however well-intended.

One could defend the latest Superfund amendments, and criticize my plea for simplicity, but arguing that the issues are inherently complex and site-specific, that is, that the law is so complex and site-specific because the underlying issues themselves are. But even if that’s true, there may be another approach that would work better. Why not grant total immunity from Superfund liability to categories of parties who deserve it – such as bona fide purchasers and neighbors not responsible for the pollution – but then impose on these parties certain logical requirements, such as duties to cooperate with cleanups, to give notices, etc? These requirements could be enforceable with appropriate measures and penalties, such as injunctive relief or fines, but not necessarily loss of the Superfund defense to total, joint and several liability for pre-existing contamination the party did not cause. For virtually all of the conditions of the Superfund common element defenses, a penalty of Superfund liability (i.e., losing the defense) is overkill. (I would exclude from this discussion the conditions in 40(H) relative to “No Affiliation” with a liable party, and in 40(A) relative to the time of disposal, which are legitimately conditions rather than duties.) Under the current law, the simple unintentional failure to give a certain required state or local notification is punishable by loss of the Superfund defense. There are numerous similar notification requirements throughout federal and state environmental laws, but they all impose far less severe penalties for their violation, such as fines. By contrast, structuring all of the requirements in the new Brownfield defenses as conditions, the law is self-defeating. Essentially it threatens to impose the death penalty on jaywalking, with no lesser penalties provided by law. Certainly the government may have discretion not to enforce in that manner. But Superfund is often enforced by other responsible parties, such as the polluters themselves, who are biased to suing every technically liable party and against discretionary restraint. Moreover, the mere statutory threat of Superfund liability may itself be fatal overkill. My proposal would be to change the defense duty-type requirements in Superfund – such as duties to give notices, to cooperate with cleanups, etc. – from conditions of the defense to stand-alone statutory obligations. Violations would generally be punishable by appropriate measures and penalties, as is the case with RCRA violations, but normally not with loss of the defense itself.

Bruce Howard is co-chair of the Superfund practice group of Latham & Watkins LLP, an international law firm. Mr. Howard is based in Los Angeles and can be reached at bruce.howard@lw.com or at 213/485-1234.