Strict Liability: Trying to Avoid or At Least Reduce $1.7 Million in Damages
The 7th Circuit Court of Appeals recently reminded us that strict liability is the norm for costly CERCLA environmental cleanups. A few underlying facts in the case also emphasize why tenants need to be careful on timing when securing defenses to such strict environmental liability. Von Duprin, LLC v. Major Holdings LCC, Nos. 20-1711 &20-1793 (7th Cir., Sept. 3, 2021). Strict, “joint and several,” cleanup liability is common when contamination from many sources intermingles in the subsurface over long periods of time, usually by spreading in groundwater. Strict liability results due to the indivisible environmental harm.
In Von Duprin, a lower court judgment dividing up $1.7 Million in cleanup costs among four parties was appealed. The 7th Circuit threw out the court’s judgment and emphasized that “theoretical division” of the harm caused by the chlorinated solvent contamination was not enough to support the apportionment. The court explained the many challenges in developing and analyzing evidence of who caused what environmental harm and how much each party needs to pay for the total remediation costs. Many pages in the ruling detail how the lower court got the division of the $1.7 Million in costs all wrong—procedurally and substantively—when it attempted to apportion the liability of the parties.
Fairness considerations in contribution “allocation” could also not save the lower court division of the cleanup costs among the parties. The equitable factors of cost allocation must be analyzed independently from the liability apportionment under CERCLA. The 7th Circuit determined that the lower court conflated the different concepts of “apportion” and “allocate.” As each of the allocation equity factors were merely cited by the lower court with no explanations as to whether or how any were applied, there was nothing to work with on the allocation appeal. The case goes back for another try to determine if it is even possible for the court to determine who will pay what.
One of the parties, who was a tenant and then purchased the contaminated property it occupied, asserted a statutory defense and therefore claimed it had no cleanup liability. That party submitted two Phase I Environmental Site Assessment (ESA) reports into evidence, one report was completed prior to its tenancy and the other was finished prior to taking title of the same land it was occupying.
At the lower court, the tenant-to-owner party specifically asserted that it had established the Bona Fide Prospective Purchaser (BFPP) Defense before taking title to the land and was therefore not responsible for any of the $1.7 Million in cleanup. The lower court did not agree, confirming that tenants are just as strictly liable for the cleanup costs as land “owners” because tenants fall under the statutory term “operators.” As the cleanup defense must be established prior to owning or operating, the Phase I ESA prior to the tenancy was the only one that mattered for purposes of securing the BFPP defense to cleanup liability. And unfortunately, the effective date of the pre-lease Phase I ESA report was more than 180 days prior to the start of the lease. This meant that too much time had elapsed between the due diligence work and the start of the tenancy such that certain “All Appropriate Inquiries” of that Phase I ESA report had expired, no longer meeting the defense requirements. On appeal, the tenant-to-owner party continued to assert that the second Phase I ESA, completed just before taking title, should apply and allow it to escape the CERCLA liability. The 7th Circuit confirmed that “operators” are PRPs and agreed with the lower court that the failure to update the expired Phase I ESA report prior to the start of the party’s tenancy was fatal to the entirety of its asserted BFPP cleanup defense.
This type of complex “who did it” and “fair share” environmental cleanup litigation may be minimized or even avoided. Prospective tenants and land purchasers recognize the value of reducing the strict liability risks by carefully completing All Appropriate Inquiries within the time necessary for establishing statutory affirmative defenses to such environmental cleanup costs.