Fourth Circuit Restricts “Bona Fide Prospective Purchaser” Defense

On April 4, 2013, the Fourth Circuit issued a ruling in PCS Nitrogen Inc. v. Ashley II of Charleston that, among other things, may limit the availability of the “bona fide prospective purchaser” (“BFPP”) defense that Congress added to CERCLA in the 2002 Brownfields Act. This is the first time that a federal appellate court has ruled on the limits and boundaries of the BFPP defense. Congress added the BFPP exception “to promote the cleanup and reuse of brownfields . . . .” Pub. L. No. 107-118, 115 Stat. 2356 (2002) (the “Brownfields Act”). The BFPP defense applies only to federal claims under CERCLA. As such, to properly manage environmental liability exposure, purchasers of contaminated property often couple the BFPP defense with other legal protections (such as covenants not to sue from state environmental agencies in exchange for voluntary cleanup activities). As the Fourth Circuit’s decision shows, qualifying for the BFPP defense requires affirmative - and considered - action on the purchaser’s part. Fortunately, the applicability of the defense typically only arises when EPA pursues a party for cleanup or when litigation over the site ensues. In this latest ruling, the Fourth Circuit has narrowly construed one of the elements of the BFPP defense, thereby underscoring the importance of strict compliance with all requirements of the defense.

Explanation of the BFPP Defense -

CERCLA imposes joint and several liability on all potentially responsible parties (“PRPs”). The current owner or operator of a site is always a PRP under CERCLA, regardless of whether he actually contributed in any way to the site’s contamination. Prior to the Brownfields Act, one of the few defenses available to a PRP was the “innocent owner” defense, which applied only to an owner who “did not know and had no reason to know” about the contamination when the property was acquired. 42 U.S.C. § 9601(35)(A)(i). The Brownfields Act added the BFPP defense, which - for the first time - made it possible for a purchaser of contaminated property to avoid liability even when the purchaser knew the site was contaminated. To qualify for this defense, a BFPP (1) must acquire the property after January 11, 2002, (ii) cannot impede the performance of a response action or natural resource restoration, and (iii) must prove eight criteria by a preponderance of the evidence, which demonstrate that the BFPP has...

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Topics:  Bona Fide Purchaser, Brownfield Properties, CERCLA, Environmental Liability, PRP

Published In: Civil Procedure Updates, General Business Updates, Environmental Updates, Commercial Real Estate Updates, Toxic Torts Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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