W hile the Winter of 2003-2004 will be enforcement action, the - PDF document

G Environmental Law Alert March 2004 Winter of 2003-2004, Hot One For Superfund Developments By Richard F. Ricci, Esq., Michael J. Caffrey, Esq., Todd M. Hooker, Esq., and Priya R. Masilamani, Esq. W hile the Winter of 2003-2004 will be enforcement action, the claimant has no statutory remembered by many for its record low right of contribution under CERCLA. In so holding, temperatures and seemingly endless the Court acknowledged that its narrow snowfall, Superfund practitioners will remember it interpretation “might very well hamper some PRP more for a flurry of pronouncements from the courts efforts at removal and remediation of hazard waste and the U.S. EPA on important CERCLA liability sites.” The Court also acknowledged that CERCLA issues. As discussed more fully below, these §113(f) expressly permits a contribution action by a pronouncements create confusion on an important party without an initial law suit or unilateral contribution issue, eliminate a form of successor administrative order if the party has resolved its liability and clarify the contiguous property owner CERCLA liability with the United States through defense. settlement. The Dupont case is at odds with the decision of the Contribution Confusion United States Court of Appeals for the Fifth Circuit in In late December 2003, the United States District Aviall Services, Inc. v. Cooper Industries, Inc ., 312 F.3d Court for the District of New Jersey ruled that a 677 (5th Cir. 2002) ( en banc ). In Aviall , the Fifth potentially responsible party (“PRP”) may not initiate Circuit held that §113 permits a contribution claim a CERCLA §113 contribution action unless the “at whatever time in the cleanup process the party, United States first commences a §107 action or issues seeking contribution, decides to pursue it,” a §106 unilateral administrative order to the irrespective of whether an initial action pursuant to claimant. E.I. DuPont De Nemours & Co., et al. v. US CERCLA §§106 or 107(a) has been initiated by the et al ., 2003 WL 23104700 (D.N.J. December 30, government. The court reasoned that any other 2003). Relying primarily on the common law reading “create[s] substantial obstacles to achieving definition of “contribution,” the Court reasoned that the purposes of CERCLA,” by reducing the potential a right of contribution exists only in favor of a tort- for the reallocation of cleanup costs among PRPs, and feasor who is sued by an aggrieved party and who “has by discouraging voluntary cleanups. discharged the entire claim for the harm by paying more than his equitable share of the common This split in authority should be short lived. The liability.” Therefore, absent an initial federal U.S. Supreme Court granted certiorari in the Aviall This document is published by Lowenstein Sandler PC to keep clients and friends informed about current issues. It is intended to provide general information only. L Roseland, New Jersey Telephone 973.597.2500 65 Livingston Avenue www.lowenstein.com 07068-1791 Fax 973.597.2400

G case on January 9, 2004 and will likely issue a decision In New York v. National Serv. Indus ., 352 F.3d later this year. 682 (2nd Cir. 2003), the United States Court of Appeals for the Second Circuit interpreted Substantial Continuity Test Curtailed Bestfoods to mean that “when determining whether Generally, under the common law, when a liability under CERCLA passes from one corporation sells or transfers all of its assets to another, corporation to another, [the court] must apply the successor corporation is not liable for the common law rules and not create CERCLA- predecessor’s liabilities. One exception to this general specific rules.” Since the substantial continuity test rule is the “mere continuation” exception, where the was not part of the federal common law, the court purchasing corporation is merely a continuation of the held that it could not be used to determine whether transferor corporation, with the purchasing a corporation takes on CERCLA liability in an asset corporation having the same stock, stockholders and purchase. The United States Court of Appeals for directors as the selling corporation. Prior to the United the First Circuit reached the same result, but for States Supreme Court’s decision in United States v. different reasons, in United States v. Davis , 261 F.3d Bestfoods , 524 U.S. 51 (1998), some federal courts 1, 53-54 (1st Cir. 2001) ( Bestfoods requires recognized a more relaxed standard than the “mere application of state, rather than federal common continuation” exception, known as the “substantial law, in determining successor liability and the continuity test” (also known as the “continuity of substantial continuity test is not part of enterprise” approach). Under this exception, a court Massachusetts common law). would consider eight-factors in determining if an asset Notwithstanding that the two federal appellate purchaser acquired the liabilities of its predecessor: courts to consider the issue have held that the (1) retention of the same employees; substantial continuity test cannot be used in (2) retention of the same supervisory determining CERCLA liability, some federal personnel; district courts still apply it, even after Bestfoods , (3) retention of the same production facilities including district courts within the Third Circuit. and location; See, e.g., Pennsylvania Dep’t of Envtl. Protection v. (4) production of the same products; Concept Sciences, Inc ., 232 F.Supp.2d 454, 459 (E.D. (5) retention of the same name; PA 2002). Moreover, the test remains viable in (6) continuity of assets; determining successor liability under state (7) continuity of general business operations; Superfund-type statutes such as the New Jersey and Spill Compensation and Control Act. Analytical (8) whether the successor holds itself out as a Measurements, Inc. v. Keuffel & Esser Co ., 843 continuation of predecessor. F.Supp. 920, 926 (D.N.J. 1993); New Jersey Dep’t of This relaxed test exposed the purchaser in an asset Transp. v. PSC Resources, Inc ., 175 N.J. Super. 447, transaction to the seller’s liabilities, even where the 467 (N.J. Super. Ct. Law. Div. 1980). seller expressly retained those liabilities.

G In sum, while the “substantial continuity” The additional conditions include first, that the exception appears to have been eliminated as a basis landowner seeking protection is not potentially liable for CERCLA liability in the First and Second for response costs at the facility, nor “affiliated” with Circuits, the issue is not yet settled beyond those potentially responsible individuals or entities, through circuits, and the exception may well remain viable a familial, contractual, or financial relationship, or under state Superfund-type statutes. through business reorganization. Second, contiguous property owners must obtain their property without Contiguous Property Defense Clarified knowledge or reason to know it is contaminated, after On January 13, 2004, the U.S. EPA issued a conducting all appropriate inquiry. Third, property guidance document, “Interim Enforcement owners who want to insure protection must assume Discretion Guidance Regarding Contiguous Property several ongoing obligations, including: Owners,” interpreting a provision added to CERCLA (1) taking “reasonable steps” to stop and in 2002, which exempts certain contiguous property prevent releases of hazardous substances owners from CERCLA liability. The guidance and to prevent human and environmental document does not have the binding effect of a exposure to hazardous substances; regulation, but it does explain how the U.S. EPA is (2) cooperating with, assisting, and providing likely to apply the law. access to those who conduct response actions; The Small Business Liability Relief and (3) complying with land use restrictions and Brownfields Revitalization Act, or “Brownfields institutional controls used in the response Amendments” to CERCLA, adopted in January action; 2002, added the contiguous property owner and bona (4) complying with information requests and fide potential purchaser defenses to CERCLA, and administrative subpoenas; and clarified the innocent purchaser defense. The contiguous property owner provision, CERCLA (5) providing legally required notices. §107(q), provides that “a person that owns real The no affiliation, all appropriate inquiry, and property that is contiguous to or otherwise similarly continuing obligations criteria are relevant to the situated with respect to, and that is or may be contiguous property owner, innocent purchaser, and contaminated by a release or threatened release of a bona fide potential purchaser defenses to CERCLA hazardous substance from, real property that is not liability and are described in the U.S. EPA’s “Interim owned by that person,” and that does not “cause, Guidance Regarding Criteria Landowners Must Meet contribute, or consent to the release or threatened in Order to Qualify for Bona Fide Prospective release,” is not an “owner or operator” subject to Purchaser, Contiguous Property Owner, or Innocent CERCLA liability for cleanup costs, provided that Landowner Limitations on CERCLA Liability” or additional conditions are met. The amendment is “Common Elements Guidance,” issued in March intended to protect landowners whose property is 2003. polluted as a result of their neighbors’ actions.