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California Case Upholds Bona Fide Prospective Purchaser Defense

Entry by JoeDerhake

A number of recent court cases have highlighted certain ambiguities that exist around how and when the Bona Fide Prospective Purchaser (BFPP) defense applies.  The BFPP defense provides protection for liability under CERCLA to eligible property buyers who have knowledge of existing contamination if they take “appropriate care” to address the contamination. In this way the BFPP defense aims to “encourage the cleanup and revitalization of contaminated properties” by allowing purchasers to acquire Brownfields without risk of liability so long as they perform an All Appropriate inquiry (AAI).  While the limits of when the BFPP defense is valid are contested, a California Court upheld the defense in a high profile case.  I recently wrote about this in a Globe St blog – let me summarize the key points here: 

BFPP in a nutshell

In 1980, the US Congress passed the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, also known as the Superfund Act), which created a fund to clean up contaminated sites.  CERCLA recovers its costs by assigning liability to the entities that disposed of the hazardous material at the time of discovery, regardless of when the disposal took place.  People who owned the property at the time of discovery become Potentially Responsible Parties who may also be liable.

Through its 2002 Brownfield and Land Revitalization Program, the EPA offered grants to support revitalization efforts of Brownfield sites. To encourage private parties to take advantage of the financial incentive the EPA established the Bona Fide Prospective Purchaser, as well as Contiguous Property Owner and Innocent Landowner conditions for exemptions from liability.

A Bona Fide Prospective Purchaser is defined as someone who knowingly acquired contaminated land after January 11, 2002 and meets a number of provisions, including:

  • An “All Appropriate Inquiry” was conducted into the previous ownership and uses of the property.
  • All legally required notices regarding the release were provided, and the purchased was not already liable or affiliated with a responsible party.
  • The disposal of hazardous substances on the site occurred before the acquisition.
  • The purchaser exercised appropriate care with respect to the hazardous substances found.

(The full list of provisions to qualify for BFPP liability protection can be found on the EPA Bona Fide Prospective Purchasers page.)

The EPA has offered further guidance about the controls that should be implemented in case of contamination in order to stop ongoing release and prevent any future release and exposure, including institutional controls like land use restrictions or deed notices.  Recommended engineering controls such as soil capping and subsurface venting systems are discussed in more detail in this EPA guide.

The BFPP defense in court

The Bona Fide Prospective Purchaser rule, and the post-acquisition obligations of buyers have been challenged in court a number of times. Specifically, these cases have addressed the definition of “taking appropriate care” or “performing All Appropriate Inquiry”.

A number of years ago a friend of mine worked on a defining lawsuit which confirmed the status of the BFPP defense in California.  Here’s a summary of the trial:

The plaintiff in the case was a company that bought a property in November 2006 and discovered that the site was contaminated during pre-acquisition due diligence. A September 2007 assessment discovered two areas of contamination with Trichloroethylene (TCE), a human carcinogen – the first in a “nest” of nine underground storage tanks and maintenance sheds in the building manufacturing area. The plaintiff paid more than $1.5M in response costs and sought to qualify for the Bona Fide Prospective Purchaser defense  obtain reimbursement under CERCLA. The defendant was the company that sold the property, which had used the site to manufacture valves for aircraft and missiles (a subsequent subtenant had been a furniture manufacturer).

The court, after some testimony by expert witnesses on both sides, accepted the fact that the tanks leaked and that the defendant used TCE at the property during the time of its occupancy.  Consequently, the Defendant was designated a Potentially Responsible Party.

The plaintiff had emptied the USTs in 2007 after sampling earlier that year. The results indicated that they contained TCE.  The defendant claimed that the plaintiff did not deserve the classification of a BFPP because it didn’t remove the USTs until 2009 and remaining TCE in the tanks could have continued to leak.  The plaintiff responded that at the time of removal, the only substance in the tanks was water.

The Court noted that during this time the plaintiff had entered into an agreement with the California Department of Toxic Substance Control (CDTSC), the state agency who enforces CERCLA issues.  The plaintiff coordinated their work with the agency and as such, was behaving in an appropriate manner with regard to the site conditions. Therefore, the court upheld the defense by concluding the plaintiff deserved the BFPP designation.  

In other court cases however, plaintiffs seeking protection under the BFPP defense have been less successful in proving their obligation to take “appropriate care” after closing. A recent example is described here.

Qualifying for BFPP defense

Purchasing and developing contaminated sites can offer great opportunity, but can also carry significant risk. To be protected from liability by taking advantage of the BFFP defense, a purchaser must make – and as discussed also be able to conclusively prove to a court – that satisfactory efforts were made to prevent any threatened future release at the site.  Failure to meet any of the criteria may disqualify a purchaser for the defense and put him or her at risk of becoming liable for the cleanup costs.  As such an All Appropriate Inquiry conducted in accordance with ASTM E1527-13 will allow a potentially responsible party to adequately assess risk associated with the site.  And, as the above case showed, engaging guidance from an agency such as the CDTSC can help.  Initiating remediation/mitigation efforts under State Voluntary Cleanup Program (VCP) oversight may just be the critical factor the buyer needs to prove his or her efforts and qualify for BFPP liability protection.

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Profile photo of Joe Derhake, PE
Education: MBA, University of Southern California BS, Civil Engineering, Michigan State University Registrations: Registered Professional Civil Engineer, California Registered Professional Civil Engineer, Arizona Registered Professional Civil Engineer, Tennessee EPA Accredited Asbestos Inspector, Management Planner Designer (not current) Affiliations: Member, Environmental Banker's Association Member, Mortgage Banker's Association Mr. Derhake serves as the President of Partner Engineering and Science, a national engineering and environmental consulting firm. He has over 10,000 real estate transactions throughout his career. His due diligence resume includes experience at all levels, including advising lenders and real estate investors through the following product types: Phase I Environmental Site Assessments, Phase II Subsurface Investigations, Phase III Site Characterizations, Remedial Cost Estimates, and Environmental Transaction Screens. Mr. Derhake has a significant portfolio of closed sites and speaks regularly at industry events and conferences.

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