PCS Nitrogen Inc. v. Ashley II of Charleston: Prospective Purchasers Beware

On April 4, 2013, the Fourth Circuit Court of Appeals issued the first appellate decision interpreting the "bona fide prospective purchaser" ("BFPP") defense. The BFPP defense exempts certain qualified individuals and entities from the stringent federal environmental cleanup liability imposed under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA").

In PCS Nitrogen Inc. v. Ashley II of Charleston, LLC No., 11-1662 ("Ashley II") the Court made it clear that each element of the BFPP defense must be met before the purchaser can be exempted from cleanup liability. Of particular note, the purchaser in Ashley II failed to meet the "appropriate care" standard by not taking reasonable steps to address the known contamination. Specifically, Ashley failed to meet this standard because it failed to (1) remediate and fill in contaminated sumps that were discovered when related aboveground structures were demolished, and (2) monitor and address an existing and deteriorating control measure that had been taken by the prior owner to mitigate the exposure of existing soil contamination (e.g., debris piles and limestone crush and run cover).

The Ashley II decision highlights several lessons for prospective purchasers of contaminated properties.

First, after conducting all appropriate inquiries—also known as the Phase I environmental site assessment—prospective purchasers must carefully evaluate the discovered environmental conditions and assess the remedial measures they may need to take as owners in order to meet the appropriate care standard. Prudent prospective purchasers should evaluate the impact of the cost of the measures on the total value of the property and how to pay for them before moving forward with the transaction.

Second, after acquiring the property, purchasers must also ensure that they comply with other elements of the defense, including but not limited to complying with all institutional control measures, reporting the discovery of contamination, taking appropriate care of the discovered contamination, and complying with information requests. These criteria can be a source of significant concerns for buyers of properties located within or adjacent to a highly contaminated site, such as the Portland Harbor Superfund Site. In those cases, purchasers may end up implementing new or existing source control measures.

Finally, in addition to the BFPP defense, Ashley II also analyzes a number of other liability issues arising under CERCLA and should be considered by anyone looking to acquire contaminated properties. They include corporate succession of CERCLA liability; extent of liability from secondary disposal activities caused by subsequent construction activities; current operator liability from a leasehold on part of a "facility"; and apportionment of liability among potentially responsible parties.  

Click to view PCS Nitrogen Inc. v. Ashley II of Charleston.