# Presentation: 370675

## Overview of Liability

- Walter Mugdan
- U.S. EPA, Region 2
- (212) 637-3724

## What You Should Know About CERCLA’s Liability Scheme

- How CERCLA liability works
- Who is liable?
- Defenses, limitations, and exemptions
- EPA’s enforcement discretion policies

## CERCLA Liability (§ 107)

- CERCLA Liability (§ 107)

- Release or threatened release
- Of a hazardous substance
- From a facility
- Which causes response costs to be incurred
- PRPs = Potentially Responsible Parties, as defined in section 107

## Liability Is Retroactive

- PRPs can be held liable for the present effects of acts which occurred prior to CERCLA’s enactment (1980)

## Liability Is Joint and Several

- Any one PRP can be held liable for the cost or performance of the site cleanup
- Divisibility of harm can be a factor

## Liability Is Strict

- No regard to fault or culpability
- PRPs cannot defend actions based on acting in accordance with industry standards, or claiming no negligence

## Liability Overview

- Four classes of PRPs
- Three statutory defenses to liability
- Several exemptions

## Current Owners and Operators(§ 107 (a)(1))

- Current Owners and Operators(§ 107 (a)(1))

- Actual ownership/operation
- Parent corporations:  articulated in *U.S. v. Bestfoods*
- Derivative liability
- Direct liability
- Individual liability of corporate officers, directors, managers, etc:  “exercised control”

## Past Owners and Operators(§ 107 (a)(2))

- Past Owners and Operators(§ 107 (a)(2))

- O/O at the time of disposal
- Interim owners:  “passive migration” issue

## Generators (§ 107(a)(3))

- Generators (§ 107(a)(3))

- Arranged for treatment or disposal, or transport for treatment or disposal, of hazardous substances
- Constructive possession
- Knowledge of disposal location not relevant
- “Aceto” liability

## Transporters (§ 107(a)(4))

- Transporters (§ 107(a)(4))

- Accepted hazardous substances for transport and selected the disposal/ treatment site

## Successor Liability

- General Rule:  asset purchasers do not acquire the liabilities of the seller corporation
- Fact specific determination
- Appeals courts are divided on the issue of a federal rule of successor liability

## Successor Liability

- 5 Exemptions:
- Fraud
*De Facto* merger
- Express or implied assumption
- Purchaser is a mere continuation of the seller
- Substantial continuity or continuity of enterprise; DOJ’s brief in the *Exide* case

## Extent of Liability

- All costs of removal or remedial actions taken by the U.S., State or Indian Tribe, that are not inconsistent with the NCP
- Scope of costs included
- “Not inconsistent with NCP” standard

## Extent of Liability

- Damages to natural resources in an action brought by a Federal, State or Tribal natural resources trustee
- Early involvement of trustees
- SOL issues
- Costs of health assessments under §104(i)

## Defenses to Liability (§ 107(b)(3))

- Defenses to Liability (§ 107(b)(3))

- Three defenses
- Acts of God
- Acts of war
- Acts/omissions of a third party (“third party defense”)

## Third Party Defense

- No contractual or other relationship with the third party
- Exercised due care with respect to the hazardous substances
- Took precautions against foreseeable acts or omissions of the third party

## Third Party Defense:  Innocent Landowners (§ 101(35))

- Third Party Defense:  Innocent Landowners (§ 101(35))

- Three types
- At the time the party acquired the property, the party did not know and had no reason to know of hazardous substances
- Government acquired facility through “involuntary” acquisitions
- Party acquired the facility by inheritance or bequest

## Third Party Defense:  Innocent Landowners (Cont.)

- Elements of defense
- No contractual relationship
- Due care
- Precautions against foreseeable acts or omissions
- Cooperation, assistance, access; compliance with land use restrictions and institutional controls

## Third Party Defense:  InnocentLandowners (Cont.)

- Third Party Defense:  InnocentLandowners (Cont.)

- Elements of defense
- Purchasers did not know or had no reason to know of contamination after “all appropriate inquiry”
- Purchasers must take “reasonable steps” during ownership with respect to hazardous substance contamination on the property
- Governments and inheritors may have different obligations

## All Appropriate Inquiry

- For purchases before May 31, 1997, apply 5 statutory factors:
- Specialized knowledge or experience
- Relationship of purchase price to property value
- Commonly known or reasonably ascertainable information
- Obviousness of contamination
- Ability of defendant to detect the contamination by appropriate inspection
- For purchases between May 31, 1997 and date of new regs, apply ASTM Phase 1 requirements

## AAI Proposed Rule

- “Standards and Practices for All Appropriate Inquiries,” 8-26-04
- Requirements for investigation/inquiry
- History of property use, obvious or likely contamination
- Enforcement history, environmental liens, ICs, engineering controls
- Purchase price/fair market value

## AAI Proposed Rule

- Requirements (cont.)
- Commonly known, reasonable ascertainable information
- Interviews and visual inspections
- Description of data gaps
- Environmental professional’s opinion and signature

## All Appropriate Inquiry for Residential Property

- Facility inspection
- Title search
- Results reveal no basis for further inspection

## Reasonable Steps

- Stop any continuing release
- Prevent any threatened future release
- Prevent or limit any human, environmental or natural resource exposure

## Prospective Purchaser Agreements

- Negotiated agreement used at EPA’s discretion
- May 31, 2002, Guidance: statutory liability protection makes PPAs unnecessary in most cases, but will consider where necessary for transaction and:
- Significant windfall lien
- Substantial public benefits from transaction (e.g., significant cleanup, reduced threat of litigation)
- Covenant not to sue purchaser

## Bona Fide Prospective Purchasers Exemption (§ 107(r))

- Bona Fide Prospective Purchasers Exemption (§ 107(r))

- Elements
- Acquired ownership after 1/11/02
- Owner not a PRP or affiliated with a PRP
- Disposal occurred before purchase
- Conduct “all appropriate inquiry” (can have knowledge of contamination and still have liability protection)

## BFPP Exemption (Cont.)

- Elements (cont.)
- Take “reasonable steps”
- Provide cooperation, assistance, access; comply with land use restrictions, institutional controls, info requests and administrative subpoenas; provide legally required notices

## BFPP Exemption (Cont.)

- Windfall lien on BFPP property
- For unrecovered response costs
- Limited to the lesser of the increase in FMV attributable to EPA’s response action or the unrecovered response costs
- Section 107(l)(3) notice/validity requirements apply to windfall lien
- Authorizes EPA section 107(r) windfall lien settlements
- No statute of limitations on section 107(r) windfall lien

## Contiguous Property Owners (§ 107(q))

- Contiguous Property Owners (§ 107(q))

- Elements
- Property that is or “may be” contaminated
- Only contamination is from property that is contiguous to or “similarly situated with respect to”
- Owner not a PRP or affiliated with a PRP
- Did not cause, contribute to or consent to a release

## Contiguous Property Owners (Cont.)

- Elements (cont.)
- Conduct all appropriate inquiry:  did not know or have reason to know property was or could be contaminated by release from other real property
- Provide cooperation, assistance, access; comply with land use restrictions, institutional controls, info requests and administrative subpoenas; provide legally required notices

## Contiguous Property Owners (Cont.)

- To maintain the liability protection, owner must take “reasonable steps” to:
- Stop continuing releases
- Prevent threatened future releases
- Prevent or limit human, environmental, or natural resources exposure to hazardous substance release

## Contiguous Property Owners (Cont.)

- For migration of contaminated groundwater, no remediation necessary
- EPA may provide comfort letter addressing reasonable steps at specific site, if there is significant federal involvement at site

## Contiguous Property Owners (Cont.)

- EPA may issue:
- No action assurance letter
- Contribution protection
- Party purchasing with knowledge after conducting all appropriate inquiry does not qualify as contiguous property owner, but may still qualify for BFPP liability protections

## De Micromis Exemption (§ 107(o))

- De Micromis Exemption (§ 107(o))

- NPL sites
- Generator/Transporter
- <110 gal. liquid
- < 200 lbs. solid
- Disposed, treated, transported all or part prior to April 1, 2001

## De Micromis Exemption (Cont.)

- Exceptions
- Material contributed significantly to the cost of response
- Failure to comply with CERCLA information request or administrative subpoena
- Impedes or has impeded the performance of a response action
- Criminal conviction for conduct for which the exemption would apply
- Burden shifting and attorney’s fees for contribution actions v. de micromis parties

## Municipal Solid Waste Exemption (§ 107(p))

- Municipal Solid Waste Exemption (§ 107(p))

- NPL Sites
- Applies to MSW generated by:
- Residential owner/operator/lessee
- Small business <100 FTE or equivalent
- Non-profit organizations <100 paid FTE at the location

## MSW Exemption (Cont.)

- What is MSW?
- Household waste
- Commercial, industrial or institutional waste:
- ► Essentially the same as household waste
- ► Collected and disposed of with other MSW as part of normal municipal collection service
- ► Hazardous substances are no greater in quantity than found in typical household waste

## MSW Exemption (Cont.)

- Exceptions
- MSW contributed significantly to the cost of response
- Failure to comply with CERCLA information request or administrative subpoena
- Impedes or has impeded the performance of a response action

## MSW Exemption (Cont.)

- Burden of Proof
- Private cost recovery action, burden always on plaintiff
- Government cost recovery:
- ► MSW disposed before 4/1/01, burden is on government
- ► MSW disposed after 4/1/01, burden is on defendant
- Attorney’s fees available against non-government party bringing unsuccessful contribution action

## Recycling Exemption (§ 127)

- Recycling Exemption (§ 127)

- Exempts certain generators and transporters that “arranged for recycling of recyclable materials”
- Lists covered materials: paper, plastics, glass, textiles, rubber, metal, spent batteries
- Establishes criteria for exemption (not a sham transaction)
- Identifies actions on the part of an arranger that nullify exemption

## Service Station Dealers (§ 114(c))

- Service Station Dealers (§ 114(c))

- Dealers that manage recycled oil exempt if recycled oil was:
- Not mixed with any other hazardous substance
- Managed in compliance with appropriate regulations or standards
- Applicable to generator and transporter liability, but not owner/operator liability

## Secured Creditors Exemption (§ 101(20))

- Secured Creditors Exemption (§ 101(20))

- Legal claim of ownership to protect security interest only
- Cannot “participate in management”

## Exemption for State and Local Governments (§ 107(d))

- Exemption for State and Local Governments (§ 107(d))

- Exempt from:
- Costs/damages resulting from emergency response
- ► Except for gross negligence or intentional misconduct
- Costs from rendering care in accordance with NCP
- ► Except for negligence
- Liability if property acquired involuntarily

## Exemption for Fiduciaries & Trustees (§ 107(n))

- Exemption for Fiduciaries & Trustees (§ 107(n))

- Acts for the benefit of another party as, for example, an executor
- Specific actions permitted without triggering personal liability
- Fiduciary liability shall not exceed assets held in fiduciary capacity
- Negligence pulls fiduciary into liability scheme

## Other Liability Exemptions

- Contractors/ government employees in context of response action (§ 119)
- Except for negligence, gross negligence, or intentional misconduct
- Petroleum, crude oil or natural gas
- 	(§ 101(14))
- Pesticide application (§ 107(i))
- Federally permitted releases (§ 107(j))

## Enforcement Discretion

- Described in EPA policy and guidance documents
- Non-binding
- Case-by-case determination
- Policies may apply where new SBLRBRA exemptions do not
- Non-exempt de micromis parties at non-NPL sites
- MSW/MSS policies
- Discussed further in Enforcement Options module

## Enforcement Discretion: Residential Homeowner Policy

- Single-family residence
- Located on a Superfund site
- Did not cause or contribute
- Must provide access and information

## Enforcement Discretion:Contaminated Aquifer Policy

- Enforcement Discretion:Contaminated Aquifer Policy

- Off-site source
- Did not cause or contribute
- No contractual relationship to PRPs, an agent or employee
- Not otherwise liable
- Cooperation of landowner