In 3000 E.Imperial, LLC v Robertshaw Controls Co, 2010 U.S. Dist. LEXIS 138661 (C.D. Cal. 12/29/10), the purchaser acquired property in November 2006 that had been formerly used to manufacture aircraft and missile valves as well as furniture manufacturing. Plaintiff learned the site had been contaminated during its pre-acquisition diligence. After acquiring title, plaintiff demolished the manufacturing building which occupied 90% of the site and completed additional investigations.
A September 2007 report identified two areas of concern: AOC 1 was the location of former USTs and a former maintenance shed. AOC 2 was the former manufacturing building and was impacted from TCE. Plaintiff drained the USTs which had residual TCE. The USTs were excavated in 2009. Plaintiff incurred approximately $1.7MM in response costs and sought reimbursement under CERCLA and the California superfund law.
Defendant argued that plaintiff did not qualify for the federal and state Bona Fide Prospective Purchaser (BFPP) Defenses failed to exercise appropriate care. In particular, the defendant asserted that plaintiff unreasonably delayed excavating the USTs until 2009.
Court said that under the California BFPP (codified at Health & Safety Code 25395.69), "appropriate care" is defined as the performance of response actions directed by the Department of Toxic Substances (DTSC). Since the plaintiff was working under DTSC supevision, the court ruled that the plaintiff satisfied the state BFPP test.
For the CERCLA BFPP, the court noted that the plaintiff sampled the contents of the USTs in May 2007, six months after it acquired title. In September 2007, the plaintiff received its report from its consultants and then drained the USTs in October 2007, placing the contents into 20 drums that were then properly disposed. The court held that the plaintiff taken "reasonable steps" because it emptied the USTs "soon after learning that they contained a hazardous substances". The court rejected the notion that the plaintiff acted unreasonably when it waited until 2009 to excavate the USTs, noting that there was no evidence the delay allowed additional TCE to discharge into the environment. Moreover, the defendant did not produce any evidence to suggest that plaintiff should have suspected that TCE remained in the USTs. Indeed, when the USTs were removed, the court said, the contents consisted almost entirely of water. Accordingly, the court found that the plaintiff had satisfied the BFPP defense by taking reasonable steps to prevent further releases of hazardous substances.
This case contrasts with the Ashley II case we discussed two months ago where the purchaser failed to follow recommendations in the phase 1 to clean out sumps and floor drains. In that case, it appears there was some evidence that this failure may have allowed some contamination to migrate into sensitive wetlands and surface waters.
These two cases illustrates that courts are going to scrutinize the actions of a purchaser who is asserting a defense to see if they complied with post-acqusition continuing obligations. I suspect the courts in this process probably engage in some "monday morning quarterbacking" when evaluating the reasonableness of the purchaser's decisions. Decisions will be evaluated in the context of the totality of information known to the court at the time of the lawsuit. Facts that perhaps were not known at the time may in hindsight look like information that a purchaser should have known or considered.
In the Robertshaw Controls case, the plaintiff got lucky when it left the tanks in the ground for another two years until it was ready to develop the site since it was able to drain all of the TCE from the tanks. In Ashley II, the developer did not immediately cleanout the sumps and drains, and there was evidence that stormwater runoff was flowing into the wetlands and surface waters.
Because the BFPP is a self-implementing defense and because parties will be subject to second guessing by a judge who will have the benefit of hindsight, it is important that parties seeking to assert the defense carefully evaluate the risks posed by their sites. It might also be advisable to do the work under a state voluntary cleanup agreement to cloak the work with the presumption of reasonableness and perhaps even consistency with the NCP. Even if the state requires some additional work that a purchaser might not necessarily be REQUIRED to perform to comply with the BFPP, the greater protection that would be afforded by such work will probably be worth it in terms of peace of mind and litigation costs that are avoided.
A September 2007 report identified two areas of concern: AOC 1 was the location of former USTs and a former maintenance shed. AOC 2 was the former manufacturing building and was impacted from TCE. Plaintiff drained the USTs which had residual TCE. The USTs were excavated in 2009. Plaintiff incurred approximately $1.7MM in response costs and sought reimbursement under CERCLA and the California superfund law.
Defendant argued that plaintiff did not qualify for the federal and state Bona Fide Prospective Purchaser (BFPP) Defenses failed to exercise appropriate care. In particular, the defendant asserted that plaintiff unreasonably delayed excavating the USTs until 2009.
Court said that under the California BFPP (codified at Health & Safety Code 25395.69), "appropriate care" is defined as the performance of response actions directed by the Department of Toxic Substances (DTSC). Since the plaintiff was working under DTSC supevision, the court ruled that the plaintiff satisfied the state BFPP test.
For the CERCLA BFPP, the court noted that the plaintiff sampled the contents of the USTs in May 2007, six months after it acquired title. In September 2007, the plaintiff received its report from its consultants and then drained the USTs in October 2007, placing the contents into 20 drums that were then properly disposed. The court held that the plaintiff taken "reasonable steps" because it emptied the USTs "soon after learning that they contained a hazardous substances". The court rejected the notion that the plaintiff acted unreasonably when it waited until 2009 to excavate the USTs, noting that there was no evidence the delay allowed additional TCE to discharge into the environment. Moreover, the defendant did not produce any evidence to suggest that plaintiff should have suspected that TCE remained in the USTs. Indeed, when the USTs were removed, the court said, the contents consisted almost entirely of water. Accordingly, the court found that the plaintiff had satisfied the BFPP defense by taking reasonable steps to prevent further releases of hazardous substances.
This case contrasts with the Ashley II case we discussed two months ago where the purchaser failed to follow recommendations in the phase 1 to clean out sumps and floor drains. In that case, it appears there was some evidence that this failure may have allowed some contamination to migrate into sensitive wetlands and surface waters.
These two cases illustrates that courts are going to scrutinize the actions of a purchaser who is asserting a defense to see if they complied with post-acqusition continuing obligations. I suspect the courts in this process probably engage in some "monday morning quarterbacking" when evaluating the reasonableness of the purchaser's decisions. Decisions will be evaluated in the context of the totality of information known to the court at the time of the lawsuit. Facts that perhaps were not known at the time may in hindsight look like information that a purchaser should have known or considered.
In the Robertshaw Controls case, the plaintiff got lucky when it left the tanks in the ground for another two years until it was ready to develop the site since it was able to drain all of the TCE from the tanks. In Ashley II, the developer did not immediately cleanout the sumps and drains, and there was evidence that stormwater runoff was flowing into the wetlands and surface waters.
Because the BFPP is a self-implementing defense and because parties will be subject to second guessing by a judge who will have the benefit of hindsight, it is important that parties seeking to assert the defense carefully evaluate the risks posed by their sites. It might also be advisable to do the work under a state voluntary cleanup agreement to cloak the work with the presumption of reasonableness and perhaps even consistency with the NCP. Even if the state requires some additional work that a purchaser might not necessarily be REQUIRED to perform to comply with the BFPP, the greater protection that would be afforded by such work will probably be worth it in terms of peace of mind and litigation costs that are avoided.
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