How to Protect Yourself from Environmental Liability: Key Legal Defenses for Landowners and Developers

Environmental liability under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) poses significant financial risks to landowners and developers. Landowners’ and developers’ liability under CERCLA has the potential to be substantial, and the Environmental Protection Agency (EPA) vigorously pursues enforcement actions under CERCLA when warranted. When facing EPA scrutiny, it is crucial to collaborate closely with an experienced California environmental litigation attorney to develop an informed defense strategy. While there are a variety of potential defenses available, choosing the right defense (or defenses) under the circumstances is critical for avoiding unnecessary consequences.

4 Potential Defenses to Environmental Liability Under CERCLA

There are four primary defenses to environmental liability under CERCLA. These are (i) the general third-party defense; (ii) the innocent landowner defense; (iii) the bona fide prospective purchaser (BFPP) defense; and (iv) the contiguous property owner defense – the latter three being specialized statutory variations of the third-party defense.

1. The Third-Party Defense

The third-party defense to CERCLA liability focuses on shifting responsibility for environmental contamination to an unrelated entity. This defense exists under Section 107(b) of CERCLA (42 U.S.C. Section 9607(b)), which states, in pertinent part:

“There shall be no liability . . . for a person otherwise liable who can establish by a preponderance of the evidence that the release or threat of release of a hazardous substance and the damages resulting therefrom were caused solely by . . . an act or omission of a third party . . . if the defendant establishes by a preponderance of the evidence that (a) he exercised due care with respect to the hazardous substance concerned, . . . and (b) he took precautions against foreseeable acts or omissions of any such third party and the consequences that could foreseeably result from such acts or omissions . . . .”

There are several “elements” to the third-party defense under CERCLA, and landowners and developers seeking to rely on this defense must be able to establish each of these elements in order to avoid liability. Most notably, a landowner or developer seeking to rely on the third-party defense must be able to demonstrate that it both exercised “due care” regarding the contamination at issue and took precautions against the “foreseeable acts or omissions” of the third party that is responsible. As a result, having thorough documentation of the landowner’s or developer’s due diligence is essential, and landowners and developers must be able to rely on their defense counsel to present this documentation to EPA effectively.

2. The Innocent Landowner Defense

The innocent landowner defense is an extension of the third-party defense established by Congress through the Superfund Amendments and Reauthorization Act of 1986 (SARA). As EPA explains, prior to SARA, “the deed transferring title between a [potentially responsible party (PRP)] and the new landowner was a ‘contractual relationship’ that prevented the new landowner from raising the traditional CERCLA third party defense.” This is because,under CERCLA Section 107(b), a landowner generally may not assert the third-party defense if the release was caused by a party with whom the landowner or developer has a “contractual relationship.” 

SARA addressed this issue by creating the innocent landowner defense, which allows certain landowners to avoid CERCLA liability if they meet specific criteria. To assert the innocent landowner defense, a landowner must meet the requirements for asserting the third-party defense under Section 107(b). In addition, the landowner must meet one of the following three requirements:

• The landowner acquired the property without knowledge of, and without reason to have knowledge of, the contamination;
• The landowner inherited the contaminated property, or,
• The landowner is a government entity that acquired the property through the exercise of eminent domain or through escheat or other means of involuntary transfer.

As EPA also explains, “[t]he 2002 CERCLA amendments clarified the ‘innocent landowner defense’ to require the landowner to meet a set of continuing obligations similar to what is required of BFPPs.” We discuss the BFPP defense below.

3. The Bona Fide Prospective Purchaser (BFPP) Defense

Landowners who qualify as bona fide prospective purchasers (BFPPs) are exempt from environmental liability under CERCLA. As EPA also explains, under the 2002 CERCLA amendments, “a party can now achieve and maintain status as a BFPP[] so long as that party meets specific statutory criteria.” If a landowner establishes and maintains its status as a BFPP, then the landowner is not liable for any contamination of the property resulting from acts or omissions prior to the landowner’s acquisition. There are three main requirements for securing BFPP status under CERCLA:

• Acquiring the contaminated property after January 11, 2002;
• Refraining from impeding any response actions or natural resource restoration efforts; and
• Meeting the “threshold criteria and ongoing obligations” outlined in CERCLA and EPA’s supporting guidance.

One of the key “threshold criteria” for securing BFPP status is performing all appropriate inquiries (AAI) prior to purchasing the contaminated property. However, this is just one of many, and landowners seeking to rely on the BFPP defense will need to work closely with an experienced California environmental litigation attorney to ensure that they can clearly establish compliance with all applicable statutory conditions, both at the time of purchase and throughout the duration of ownership.

4. The Contiguous Property Owner Defense

The fourth main defense to environmental liability under CERCLA is the contiguous property owner (CPO) defense, codified at 42 U.S.C. § 9607(q). While the CPO defense is similar to the BFPP defense in that landowners can establish the defense by proving that they meet the relevant statutory and regulatory requirements, it differs from the BFPP defense in a key respect:  “persons who know, or have reason to know, prior to purchase, that the property is or could be contaminated, cannot qualify for the CPO liability protection.” In contrast, the BFPP defense expressly allows purchasers to qualify for liability protection even when contamination is known at the time of acquisition—provided they satisfy the AAI requirement and other continuing obligations.

Due to the substantial risks involved, when facing EPA enforcement action under CERCLA, it is imperative that landowners and developers thoroughly assess all potential defense options and develop a comprehensive and cohesive strategy for moving forward. While there are no guarantees, with the right approach, landowners and developers can mitigate their risk and steer EPA’s inquiry toward a resolution that avoids unnecessary liability.

Schedule a Consultation with a California Environmental Litigation Attorney at Bick Law LLP

If you would like to learn more about the defenses to landowner/operator liability under CERCLA, we invite you to contact us. Call 949-432-3500 to schedule a consultation with a California environmental litigation attorney at Bick Law LLP today.