In 1975, your company, Wishful Platers, Inc. bought a two hundred acre parcel of industrial property on which you hoped to place a new factory someday. In 1985, Wishful Platers sold the property to Anchor Corporation. Although you had hoped to develop the property, in fact you never did anything except pay taxes on the land.
Beginning in 1989, Anchor had the property tested to determine whether hazardous chemicals contaminated the property. Those tests indicated that the property was contaminated, principally by a degreasing agent known as perchloroethylene (PCE). Under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA), PCE is a listed hazardous substance. See 40 C.F.R. § 302.4. In 1992, U.S. EPA forced the current owner of the property, Anchor, to begin an extensive cleanup of the site.
Since Anchor did not contaminate the site, Anchor researched the property's prior ownership and control and determined the following: (1) prior to 1964, the property was undeveloped farm land; (2) from 1961 to April 1964, the property was developed and owned by Outta Business, Inc.; (2) from April 1964 to August 1974, the property was owned, operated and contaminated by Gonfor Good Industries, Inc.; (3) from August 1974 until July 1975, the property was held by a trustee of the Bankruptcy Court; and (4) in July 1975, your company purchased the property from the bankruptcy proceedings of Gonfor Good Industries. Gonfor Good Industries and Outta Business are no longer in existence.
Yesterday, Anchor sued your company, Wishful Platers, alleging that your company is partially liable for the costs that Anchor had incurred and would incur to assess and cleanup the site under CERCLA. You called your environmental attorney and explained to him that your company had been sued. You meet with your attorney and explain to him that your company never released, spilled, disposed or otherwise caused any hazardous substances to be released onto the property while Wishful Platers held title to the property. Your company only owned the property -- the same thing that Anchor did with the property. The only difference is that the contamination was discovered while Anchor owned the property. You tell your lawyer that since your company is in the same position as Anchor, you know that you are liable for part of the cost of the remediation and that you simply want to negotiate a quick and inexpensive settlement. You immediately tell your attorney to offer to pay for one half of the cost of the cleanup.
Your attorney advises you not to be so quick to spend your money. Your attorney advises you that you have a very viable defense to any lawsuit brought by Anchor against your company. You ask your attorney to explain how Anchor could be liable under CERCLA for the cost of the cleanup and your company would not. Neither Company disposed of the wastes on the site, both companies owned the property after it was contaminated, and U.S. EPA has already found that Anchor had to perform a cleanup.
Your attorney explains that under CERCLA 's liability section, 42 U.S.C. § 9607(a), a plaintiff makes a prima facie case by establishing that (1) the defendant is an owner or operator of the property, and thus, a responsible party under section 9607(a), (2) the site is a "facility" as defined in section 9601(9), (3) there has been a release or there is a threatened release of hazardous substances, (4) the plaintiff has incurred costs in response to the release or threatened release, and (5) the response costs conform to the national contingency plan. B.F. Goodrich v. Betkoski, 99F.3d 505, 514 (2d Cir. 1996). Your attorney explains that Anchor has proven every element of a prima facie case against your company with the exception of one. The only element at issue here is the first, whether Wishful Platers is a responsible party.
Under section 9607(a)(2) of CERCLA, a prior owner or operator is a responsible party if it controlled the site "at the time of disposal" of a hazardous substance. 42 U.S.C. § 9607(a)(2). CERCLA section 9601(29) adopts the definition of "disposal" from the Solid Waste Disposal Act, 42 U.S.C. § 6903(3), which states, in pertinent part, "[t]he term 'disposal' means the discharge, deposit, injection, dumping, spilling, leaking, or placing of any . . . hazardous waste into or on any land or water so that such . . .hazardous waste . . . may enter the environment." Accordingly, to make out a prima facie case, Anchor must establish that a spill, discharge, leak, etc., occurred at the time Wishful Platers controlled the site.
Anchor asserts that the hazardous chemicals found on the property continued to gradually spread underground (passive migration) while Wishful Platers owned and controlled the site. According to this theory of passive migration release of hazardous substances, Anchor argues that your company is liable for passive migration under CERCLA. Your attorney explains that while many companies have been found responsible under CERCLA because the company "owned" contaminated property at the time of a "release" of a "hazardous substance," recent court decisions have held that acquiring the property after the hazardous substances were released on the property, but before the hazardous substances are discovered on the property, will not impose liability under CERCLA.
The Third Circuit recently considered this same question, and after considering CERCLA's language, structure and purposes, the court held that prior owners are not liable under CERCLA for passive migration. United States v. CDMG Realty Co., 96 F.3d 706, 712-18 (3d Cir. 1996); see also Joslyn Mfg. Co. v. Koppers Co., 40 F.3d 750, 761-63 (5th Cir. 1994).
The third circuit reasoned that disposal is defined as "the discharge, deposit, injection, dumping, spilling, leaking, or placing" of hazardous chemicals so that they may enter the environment. 42 U.S.C. § 6903(3). The court concluded that none of these terms is commonly used to refer to the gradual spreading of hazardous chemicals already in the ground. CDMG Realty Co., 96 F.3d at 714.
Furthermore, the third circuit reasoned that current owners are liable if there has ever been a "release" of hazardous substances. 42 U.S.C. § 9607(a). Unlike the definition of disposal, release is defined to include "leaching,"(42 U.S.C. § 9601(22)), which is commonly used to describe passive migration, see CDMG Realty Co., 96 F.3d at 715 & n.4 (quoting several law journals and cases). The court held that since Congress used the term leaching in the definition of release demonstrates that Congress knew that passive migration occurred but decided that prior owners are not liable provided a release of "hazardous substances" did not occur during the ownership. Id.
In addition, the third circuit court reasoned that CERCLA provides an "innocent owner" defense. See 42 U.S.C. §§ 9607(b)(3), 9601(35); Westwood Pharmaceuticals v. National Fuel Gas Dist. Corp., 964 F.2d 85, 89-91 (2d Cir. 1992). To qualify for that defense, a defendant must establish that it acquired the site "after the disposal" of hazardous chemicals. 42 U.S.C. § 9601(35)(A). The third circuit court reasoned that if "disposal" included the gradual spreading of hazardous chemicals spilled before the defendant acquired the site, the innocent owner defense would hardly ever be available since spilled chemical rarely ever just stay in one place once released into the environment. CDMG Realty Co., 96 F.3d at 716. Congress would not intentionally create a useless defense. Thus, the third circuit interpreted the word "disposal" as limited to spilling, discharging, leaking, etc., and not to passive migration. Id.
The third circuit court in CDMG Realty Co. also relied on its conclusion that the innocent owner defense appeared to be unavailable to prior owners. See CDMG Realty Co., 96 F.3d at 716-17 (quoting 42 U.S.C. § 9601(35)(C), which provides the innocent owner defense and states: "[n]othing in this paragraph . . . shall diminish the liability of any previous owner"). The court reasoned: "if prior owners were liable because waste spread during their tenure . . . , prior owners would be in a significantly worse position than current owners: they would be liable for passive migration of waste" in circumstances where current owners could establish the innocent owner defense. Id. The court concluded that this fact indicated that disposal does not include passive migration. Id.
Finally, the CDMG Realty Co. Court reasoned that its interpretation was consistent with CERCLA policy. One of CERCLA's goals is "to force polluters to pay the cost associated with their pollution." CDMG Realty Co., 96 F.3d at 717; see also B.F. Goodrich, 99 F.3d at 514 (CERCLA's purposes include "assuring that those responsible for any damage, environmental harm, or injury from chemical poisons bear the costs of their actions"). If a person merely controlled a site on which hazardous chemicals have spread without that person's fault, that person is not a polluter and is not one upon whom CERCLA aims to impose liability.
You are amazed. You tell your attorney to defend Wishful Platers based upon the recent decisions out of the third circuit. Naturally, your attorney is pleased to comply.
Recent cases coming out of the circuit courts are more forgiving to prior owners and operators of a contaminated site for mere passive migration. I encourage past owners or past operators to be more aggressive in defending the passive migration case. The chain of title alone should not be connected to the Anchor that sinks your company.