The “Third Party Defense” to Petroleum Clean-Up Liability Under Florida Law Is Eliminated by Buyer’s Knowledge of Pre-Existing Contamination

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A recent decision of the Florida 1st District Court of Appeal has held[1] that a landowner who purchased commercial property with known existing underground petroleum contamination failed to qualify for both the so-called “Innocent Purchaser Defense” and the “Acts of Third Parties” defenses to liability under the Florida Pollution Discharge Prevention and Control Act (PDPCA).[2]  Although one might have guessed this outcome, since under the facts of the case the buyer actually knew about the contamination before purchasing the property, the failure of the “Acts of Third Parties” defense under the PDPCA actually wasn’t quite so clear.  What does this mean to our clients in the real estate industry?

Let’s begin with some overview.  The PDPCA is a strict liability statute; that is, if a covered petroleum or dry-cleaning solvent discharge is found on or under the surface of real property, then, absent a defense to liability under the statute, the landowner is liable for the costs of assessment and clean-up, whether or not the landowner caused the contamination or knew it existed. [3]

Since many Florida commercial sites, especially service stations and shopping centers, are contaminated with petroleum or dry-cleaning solvents, in 1992 the Florida Legislature created a potential defense to the harsh consequences of the PDPCA by enacting an amendment creating the so-called “Innocent Purchaser Defense.”[4]   The defense allows the purchaser of a contaminated petroleum or drycleaning site to escape strict liability under the statute if it can show that it (1) acquired title to property contaminated by the activities of a previous owner, operator, or third party; (2) did not cause or contribute to the discharge; and (3) did not know of the polluting condition at the time it acquired title after conducting an appropriate inquiry.

The existence of this defense, by the way, is why real estate lawyers insist that their clients who are purchasing Florida real property obtain an environmental assessment from a competent environmental engineering firm before closing the deal.  Without the environmental assessment, the buyer can’t claim that it “did not know of the polluting condition at the time it acquired title after conducting an appropriate inquiry,” which means, under the statutory standard, that the buyer can’t claim the Innocent Purchaser Defense. 

The Third Party Defense to strict liability[5], which has been a part of the PDPCA longer than the Innocent Purchaser Defense, is worded differently than its counterpart.  The Third Party Defense only requires that (1) a third party’s act or omission was the sole cause of the contamination; (2) the defendant exercised due care with respect to the pollutant concerned, taking into consideration the characteristics of such pollutant, in light of all relevant facts and circumstances; and (3) the defendant took precautions against any foreseeable acts or omissions of any such third party and against the consequences that could foreseeably result from such acts or omissions.  In other words, the landowner’s state of knowledge is not part of the defense as stated in the statute. 

So what happens if a company purchases a contaminated site, knowing that it was contaminated by a third party (such as an owner higher up the chain of ownership) and otherwise complies with the elements of the Third Party Defense under the PDPCA?

Under the facts of the recent First DCA case, the buyer purchased a former gasoline service station and obtained an environmental assessment.  The assessment disclosed petroleum contamination, but the buyer elected to close the purchase anyway.  When the buyer finally reported the contamination to DEP (four years later), and tried to qualify for state clean-up funds under the Florida Petroleum Clean-Up Participation Program, the Florida Department of Environmental Protection (FDEP) denied the application and filed an administrative enforcement action against the buyer to require assessment and clean-up of the site (at the buyer’s expense). 

Without the benefit of the Innocent Purchaser Defense, and in an apparent flash of insight (or desperation), the buyer argued that the Third Party Defense applied to shield it from liability, since the property, after all, was contaminated by the former owners, not the current landowner.  Since the PDPCA doesn’t specifically say that knowledge of pre-existing contamination is relevant to rolling out a Third Party Defense, had the landowner found a loophole in the PDPCA?

Nice try, but no, held the First District Court of Appeal, reasoning that if the buyer’s position was correct, then the legislature wouldn’t have bothered enacting the Innocent Purchaser Defense by amendment in 1992.  Since a decision that a buyer who knew about pre-existing on-site contamination could avoid liability would effectively render the Innocent Purchaser Defense superfluous, the Court concluded that the Third Party Defense cannot be used as a liability shield against strict liability under the PDPCA if the landowner acquires the property knowing that it is contaminated with petroleum products. 

What’s the take-away from the above discussion? 

  1. The Third Party Defense probably survives only in the context of a landowner whose property is contaminated with petroleum or dry-cleaning solvents by a neighboring landowner after the landowner acquires the property.
  2.  Never assume that FDEP or a Florida court will look favorably upon the purchaser of contaminated commercial property simply because the purchaser wasn’t the one that caused the contamination.  The PDPCA is a strict liability statute and fault is not an issue. 
  3.  Never try to save costs on a commercial real estate acquisition by skipping the preparation of an environmental assessment, especially if the target is a high-risk site such as a service station or shopping center.  
  4.  In the rare case in which a site contaminated with petroleum or dry-cleaning solvents is attractive enough to consider acquiring it anyway, plan for a multiple of the estimated total costs of remediation and consider (a) whether contamination insurance coverage exists (especially for service stations) or is available at an affordable cost, (b) whether the site has already been included in an existing state-funded petroleum or dry-cleaning solvent clean-up program, or (c) the seller is prepared to give an indemnity, secured by a large sum of the seller’s cash to cover the cost of clean-up (however, this alternative is rarely feasible because of the known and unknown risks that the clean-up cost will exceed funds placed in escrow for such purpose). 

 


[1] FT Investments, Inc. v. Florida Department of Environmental Protection, 2012 WL 2138110, 37 Fla. L. Weekly D14190a (Fla. 1st DCA June 14, 2012)

[2] Florida Statutes Chapter 376.308

[3] The PDPCA is similar in many respects to the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as the Superfund Act, which also contains Innocent Purchaser and Acts of Third Parties defenses to strict liability of a landowner acquiring contaminated real property.

[4] Florida Statutes Section 376.308(1)(c)

[5] Florida Statutes Section 376.308(1)(d)

 

Published In: Administrative Agency 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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