By: Peyton Myers
On October 8, 2018, the United States Court of Appeals for the Third Circuit decided the case of Pennsylvania Department of Environmental Protection v. Turner Custom Chemical, LLC, 906 F.3d 85 (3d Cir. 2018). This case addressed the issue of whether a landowner is liable for the costs of an environmental cleanup that occurred before the owner acquired the property.[1]
Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) to promote the timely cleanup of hazardous waste sites and to ensure that the costs of such cleanup efforts were borne by those responsible for the contamination.[2] Under CERCLA, states possess the right to recover costs incurred in cleaning up a waste site from potentially responsible parties – four broad classes of persons who may be held strictly liable for releases of hazardous substances that occur at a facility.[3] Those four classes of potentially responsible parties are: “the owner or operator of a facility; anyone who owned or operated the facility when there was a disposal of a hazardous substance; anyone who arranged for the disposal or treatment, or arranged for the transport for disposal or treatment, of hazardous substances at the facility; and anyone who accepted hazardous substances for transport to sites selected by such persons.”[4] Once an entity is identified as a potentially responsible party, it may be required to reimburse the government for past and future response costs.[5] Moreover, and particularly relevant to this case note, under CERCLA, a current owner is liable for all response costs, whether incurred before or after acquiring the contaminated property.[6]
Background
Trainer Custom Chemical, LLC (“Trainer”) acquired a piece of property, Stoney Creek Site (“Site”), located in Trainer Borough, Delaware County, Pennsylvania, for $20,000.00.[7] Prior to the acquisition, in 2007, it was owned by Stoney Creek Technologies (“Stoney Creek”), which used the property primarily for making corrosion inhibitors, fuel additives, and oil additives.[8] Stoney Creek maintained a laboratory and water treatment facility on the property and kept hazardous substances thereon, including approximately three million gallons of flammable and/or combustible chemicals that posed a grave threat of release.[9] Pennsylvania’s Department of Environmental Protection (“PADEP”) investigated potential environmental risks at the Site, and in 2007 determined that “there is a release or threat of release of hazardous substances or contaminants, which presents a substantial danger to human health or the environment.”[10] Resultingly, PADEP and the United States Environmental Protection Agency (“EPA”) initiated removal actions. Stoney Creek, at the time of the action, was in financial trouble and unable to afford the expenses involved in the cleanup, and a result of a lack of payment from Stoney Creek, PADEP assumed responsibility for paying the bills. PADEP and the EPA completed their removal actions at the Site on December 12, 2012.[11]
PADEP had incurred over $818,000.00 in environmental cleanup costs at the Site at the time Trainer acquired the property.[12] The cleanup costs continued to pile up following Trainer’s acquisition of the property as a result of both pre-existing pollution and because buildings on the Site were demolished by Trainer’s principals, Jeremy Hunter (“Hunter”) and James Halkias (“Halkias”), causing further contamination.[13] Thereafter, in 2014, PADEP received two reports assessing environmental concerns at the Site.[14]
Soon after, PADEP sued Trainer, Hunter, and Halkias under CERCLA and the Hazardous Sites Cleanup Act (“HSCA”)[15] to recover costs incurred in cleaning up the Site. Eventually, PADEP moved for summary judgment, arguing that the defendants should be jointly and severally liable for all the environmental response costs totaling $932,580.12.[16] Finding no pertinent caselaw on the issue in the Third Circuit, the District Court relied on a decision from the Ninth Circuit[17] and granted summary judgment in part and denied in part.[18] With regard to CERCLA liability, the Court held Trainer liable for any response costs incurred after Trainer took ownership of the Site, but not for costs incurred beforehand.[19] As to CERCLA damages, the District Court denied summary judgment because there was a genuine dispute of material fact concerning the amount of damages for which Trainer was liable – the Court reached the same conclusions with respect to liability and damages under HSCA.[20] In short, the District Court held that a new owner is not liable for recovery costs incurred before he took ownership of the facility.[21]
Disagreeing with this ruling, PADEP sought an order certifying for interlocutory appeal the issue of whether federal and Pennsylvania law “make an owner liable for response actions and response costs attributable to an identified release of hazardous substances which continues at the time of that person’s ownership, regardless of when such actions or response costs were taken or incurred.”[22] The District Court granted the certification, and PADEP petitioned to the Third Circuit for permission to appeal, which was given pursuant to 28 U.S.C. 1292(b).[23]
Court’s Decision
Before beginning its opinion, the Third Circuit noted that all parties and the District Court agreed that Trainer was the owner of the Site and, pursuant to CERCLA § 107(a)(1), is at least liable for environmental response costs incurred after he took ownership of the property in question.[24] That said, however, the Third Circuit determined that Trainer’s liability for pre-acquisition costs turned not on whether he was an owner or operator at the time were incurred, but on the scope of costs recoverable against an owner or operator under CERCLA.
Following, the Court was tasked with determining whether the meaning of “all costs” in § 107(a) included response costs incurred before Trainer acquired the Site. According to the Court, the “unqualified language” evinced Congress’ intent to impose liability without temporal limitations.[25] The Court concluded that a current owner under § 107(a)(1) was liable for all response costs, whether incurred before or after acquiring the property.[26] In coming to this conclusion, the Court reasoned that the Ninth Circuit’s ruling was inapplicable and instead based the decision on CERCLA’s definition of “owner” and “operator.”[27] Finding no temporal limitation in the definition of either word, the Third Circuit, relying on CERCLA’s plain text and HSCA’s parallel language, held that PADEP could recover both pre- and post-acquisition remediation costs from Trainer.[28] The Third Circuit discussed and reasoned that if Congress had intended for “all costs” to be temporally constrained, it is assumed that Congress would have specified as much by including appropriate language.[29]
Discussion and Analysis
The decision in this case is notable as it will have sweeping implications and substantial impacts on both prospective purchasers considering the purchase of property where hazardous substances have been released and current owners of contaminated properties. Prospective purchasers of properties that are contaminated must now consider not only the possibility that they may be responsible for cleaning up existing contamination not caused by them, but also that they can be liable to reimburse the government for all response costs incurred at the property, including those incurred prior to their ownership. In other words, prospective purchasers of such properties run the risk of being on the hook for the entirety of costs to remediate the contaminated property – including costs that were incurred prior to the time the buyer assumed ownership of the property. Resultingly, prospective purchasers must now factor the meaning of “all costs” into the transaction when considering whether or not to purchase property.
This decision further demonstrates that there is no temporal limitation for an owner’s liability under § 9607(a) of CERCLA. While enforcing CERCLA and HSCA’s intent of promoting the “prompt cleanup of contaminated properties,” this decision seemingly contravenes the intent of holding the “potentially responsible parties” liable for environmental costs incurred in the cleanup.[30] Namely, the current owner, Trainer, had no responsibility for the prior owner’s operation and management of the Site which inevitably led to the hazardous substances release. Resultingly, this opinion accentuates the importance of conducting thorough environmental due diligence in real estate transactions and moreover ensuring that a buyer interested in acquiring contaminated properties understands the risks associated therewith. Such environmental due diligence is vital in determining the property’s history and condition, as the purchaser of the property will now assume responsibility for the entirety of the property’s environmental history. The main takeaway from this decision is that prospective buyers of property must now be mindful of having to potentially reimburse the government for earlier cleanups.
[1] Pennsylvania Department of Environmental Protection v. Turner Custom Chemical, LLC, 906 F.3d 85 (3d Cir. 2018).
[2] 42 U.S.C. § 9601 et seq.
[3] Id.
[4] United States v. CDMG Realty Co., 96 F.3d 706, 713 (3d Cir. 1996).
[5] 42 U.S.C. § 9607.
[6] Id.
[7] Id. at n. 1.
[8] Id.
[9] Id.
[10] Id.
[11] Id.
[12] Id.
[13] Id.
[14] One report noted that the EPA has acknowledged that hazards still exist at the Site. The other report indicated that buildings on the Site had asbestos-containing materials that needed to be removed prior to demolition.
[15] HSCA is Pennsylvania’s state law counterpart to CERCLA.
[16] Id. at n. 1.
[17] California Dep’t of Toxic Substances Control v. Hearthside Residential Corp., 613 F.3d 910 (9th Cir. 2010).
[18] PADEP v. Trainer Custom Chemical, LLC, No. 15-1232 (E.D. Pa. 2016).
[19] Id.
[20] Id.
[21] Id.
[22] Id.
[23] Id.
[24] Id. at n. 1.
[25] Id.
[26] Id.
[27] Id.
[28] Id.
[29] Id.
[30] Id. at n. 1; Id. at n. 5.