The U.S. Supreme Court agreed this January to review a decision of the 4th U.S. Circuit Court of Appeals finding the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601, or CERCLA, preempts state statutes of repose as well as limitations. In general, a statute of limitations bars claims after a certain period of time since an injury, whereas a statute of repose bars claims after some action by the defendant, even if it takes place before the plaintiff is injured. A statute of repose is thus more favorable to defendants, because it bars more claims.
4TH CIRCUIT DECISION
On July 10, 2013, in a 2-1 decision, the 4th Circuit reversed a lower court ruling that barred a common law nuisance claim by owners of contaminated property. The 4th Circuit's ruling was based on a statute of repose and allowed the nuisance claim to proceed, notwithstanding the contamination occurring earlier than 1987. Otherwise, a 10-year statute of repose would have applied.1
The case involved nuisance claims brought by 25 landowners in North Carolina, following the 2009 discovery that their well water contained concentrated levels of trichloroethylene, or TCE, and cis-1,2- dichloroethane, or DCE, allegedly caused by a former CTS Corp. plant nearby.
At issue was Section 9658 of CERCLA, which governs actions under state law for damages from exposure to hazardous substances. Section 9658 says, "the statute of limitations established under state law shall apply,"2 except where the applicable limitations period (as specified in the state statute of limitations or under common law) would begin earlier than the "federally required commencement date." This may occur when the plaintiff knows or reasonably should have known that the personal injury claimed was caused by the hazardous substance concerned.3
The issue for resolution by the 4th Circuit was whether CERCLA's language preventing application of statutes of limitation prior to the CERCLA-established date is broad enough to encompass "statutes of repose."
The majority first determined that the term "statute of limitations" is ambiguous as to whether it includes statutes of repose and then looked to other indicia of congressional intent to interpret the term. Relying on statements in a report issued in 1982 by a CERCLA study group appointed by Congress, the majority found that the term "statute of limitations" was intended to apply to both statutes of limitation and statutes of repose. As to the implications of its decision, the majority stated:
Our decision here will likely raise the ire of corporations and other entities wishing to rest in the security of statutes of repose, free from the threat of being called to account for their contaminating acts. They likely will cite the well-known policies underlying such statutes and asseverate that we have ignored them. But we are not ignorant of these policies, nor have we turned a blind eye to their importance.
Accordingly, we reaffirm our conclusion that North Carolina's 10-year limitation on the accrual of actions is preempted by Section 9658 of CERCLA. In so holding, we simply further Congress's intent that victims of toxic waste not be hindered in their attempts to hold accountable those who have strewn such waste on their land.4
The decision notes that it is consistent with the 9th U.S. Circuit Court of Appeals' holding in McDonald v. Sun, 548 F.3d at 774 (9th Cir. 2008). It also distinguishes the 5th Circuit's opposing view in Burlington Northern & Santa Fe Railway Co. v. Poole Chemical Co., 419 F.3d 355 (5th Cir. 2005), in that plaintiffs there had knowledge of their claim before the expiration of the statute of repose.
The dissent relied on the plain language of CERCLA, saying it is limited to preempting statutes of limitation and, on its face, does not apply to statutes of repose. The dissent further said,
Even if the preemptive effect of Section 9658 were susceptible to two interpretations, a presumption against preemption would counsel that we should limit Section 9658's preemptive reach to statutes of limitations without also extending it to statutes of repose.5
POTENTIAL IMPLICATIONS OF REVERSING THE 4TH CIRCUIT'S DECISION
The case before the Supreme Court is titled CTS Corp. v. Waldburger.6 Under Supreme Court rules, the briefing schedule will be completed in late April, although the court rules allow modification of the schedule. Oral argument will occur during the court's October 2014 term, as the court does not hear oral arguments from May through September.
In the meantime, corporations and others with potential liability for historic contamination are evaluating the likelihood that the Supreme Court will reverse the 4th Circuit's decision, and the extent to which reversal of the decision would discourage environmental tort suits for such contamination.
The judicial history of the current, usually conservative-leaning Supreme Court suggests a significant likelihood of reversal. CERCLA plainly refers to statutes of limitations but not statutes of repose. Further, even if the Supreme Court agrees that the language of Section 9658 is ambiguous, Judge Stephanie Thacker noted persuasively in the 4th Circuit dissent that courts usually apply a presumption against preemption in such cases.
If the Supreme Court reverses the 4th Circuit's decision, entities and individuals with potential environmental tort liabilities will need to re-evaluate their risk profile. They will need to know the law of each of the jurisdictions in which future plaintiffs may allege injury, and the specific facts of each potential liability.
Many statutes of repose are not as broad as the North Carolina statute at issue in Waldburger. For example, these statutes are frequently directed specifically at product liability or construction liability. Thus, the law of states with focused statutes of repose not reaching environmental torts would remain unaffected by reversal of Waldburger.
In addition, it is likely courts will seek to narrowly interpret the applicability of statutes of repose under case-specific facts to provide plaintiffs with the opportunity to recover damages for their alleged injuries. For example, under certain facts, defendants who are allegedly responsible for contamination of soil, groundwater, water or air might be presumed to have reasonably known and investigated injurious releases of contamination into the environment from historic operational locations.
Plaintiffs' lawyers could allege that this is a critical distinction between tort actions for environmental contamination and, for example, asbestos product liability actions. In this scenario, plaintiffs would argue that owners of companies having potential historic releases of hazardous substances may usually be expected to know the physical locations of most or all of the company's former facilities.
In contrast, they could argue, asbestos product liability defendants usually distributed their products into a broad stream of commerce many decades ago, making it less likely that they could address exposures to the products with the passage of time. Former owners or operators of industrial facilities, however, arguably could have contacted current owners of the facilities and sought to investigate the presence and migration of historical releases.
Thus, courts applying the law of jurisdictions in which the "last act or omission" of the defendant begins the statute of repose might say this statute cannot begin while the defendant continues to expose persons or property to its waste. This argument might be less persuasive in the case of releases from off-site disposal facilities, unless the defendant would reasonably be expected to have disposal records from the time of disposal, or other knowledge of its connection to historic releases.
Courts may also be concerned that federal environmental statutes do not provide damages for personal injuries. As a result, a reversal of Waldburger is most likely to benefit environmental tort defendants in jurisdictions with statutes of repose like North Carolina's: broad in scope and applied strictly to limit plaintiffs' injury claims. Defendants in other jurisdictions will need to develop arguments based on the facts of their cases and the particular limits of the applicable statutes of repose.
HEIGHTENED CONSIDERATIONS FOR PROPERTY DEVELOPMENT
In spite of the potential for environmental tort claims to remain viable in certain situations such as those noted above, the Supreme Court's reversal of Waldburger might seem to promote development of potentially contaminated Brownfield-type properties. Historic owners and operators of such properties would be protected in jurisdictions with widely applicable statutes of repose.
It is reasonable to expect that the plaintiffs' bar would look for other viable defendants, in addition to joining with other interest groups to seek legislative solutions in jurisdictions with broad statutes of repose.
As a result, property developers and other purchasers would need to be wary of increased liability risks associated with land for which prior industrial owners or operators and their corporate successors might no longer be responsible for environmental tort claims. Current owners of historically contaminated properties might be targeted in environmental tort suits, too, depending on the plaintiffs' ability to demonstrate whether the owners acted responsibly regarding the contamination.
Although federal and state programs have actively promoted brownfields redevelopment for years, federal brownfields law does not purport to preempt state law tort actions against non-governmental acquirers of contaminated properties. The Small Business Liability Relief and Brownfields Revitalization Act,7 which amended CERCLA in 2002, provides developers and other purchasers of contaminated properties with important protection from CERCLA liability.
If a purchaser of real property performs a phase I environmental site assessment complying with the "all appropriate inquiry" rule promulgated by the Environmental Protection Agency, it will be protected from CERCLA liability. A number of states have enacted similar laws providing similar protections to bona fide prospective purchasers, or BFPPs. Redevelopment funds administered by various federal and state agencies are often available to developers of brownfields.8
One way plaintiffs' environmental tort lawyers might attempt to state a claim against a property developer or other subsequent property purchaser would be to assert that the developer or owner fails to satisfy the criteria required to maintain BFPP status. As a threshold matter in any BFPP analysis, it is necessary to determine whether the hazardous substance at issue is covered by CERCLA.
For example, petroleum is not regulated by CERCLA.9 Unless an applicable state environmental statute provides BFPP protection for purchasers of properties that are contaminated solely by non-CERCLA substances, then the CERCLA BFPP defense will not apply to these properties.
Plaintiffs seeking contribution under CERCLA have successfully challenged defendants' assertion of the BFPP defense in certain cost recovery actions. CERCLA Section 9601(40) requires a person claiming to be a BFPP to establish by a preponderance of the evidence that the person meets a number of prerequisite conditions for the liability exemption. These conditions include a requirement that the person exercise "appropriate care" with respect to the hazardous substances found at the facility by taking "reasonable steps" to:
- Stop any continuing release.
- Prevent any threatened future release.
- Prevent or limit human, environmental or natural resource exposure to any previously released hazardous substance.10
The case law addressing the BFPP exemption provides a clear warning to developers and other purchasers of brownfields who fail to prepare and implement post-acquisition plans to address prior releases of hazardous substances.11 Purchasers must also be aware of their responsibilities to comply with state laws regarding BFPPs.
For example, in a case in which the purchaser successfully prevailed on its BFPP defense regarding the manner in which it addressed leaking underground storage tanks, the court noted that California's requirements differed from those of CERCLA. The court then examined the purchaser's compliance with both sets of requirements.12
Ironically, the investigations purchasers undertake to satisfy the all appropriate inquiry rule to attain BFPP status might help plaintiffs demonstrate that the purchaser failed to prevent or limit exposure to previously released hazardous substances, as required by CERCLA Section 9601(40)(D). "Limit" is a broad term, and environmental reports for former industrial properties may identify conditions that, as viewed in hindsight by a court, the defendant did not adequately address, in spite of having knowledge of those conditions.
The likelihood that the Supreme Court will reverse Waldburger is significant enough that entities with potential environmental tort liabilities for historic contamination may wish to evaluate how those risks may change as a result of the court's impending decision. Parties should consider these risks on a case-by-case basis addressing the specific facts regarding each property and the jurisdiction in which it is located.
Former owners or operators, current owners, property developers and prospective property purchasers should investigate the potential for off-site migration issues and otherwise perform adequate due diligence to identify environmental tort risks. The results of these analyses should provide a foundation for post-Waldburger environmental risk decision-making, such as reducing or eliminating reserves for repurchasing certain former properties.
Current owners, potential purchasers and former owners or operators unable to rely on statutes of repose can use these analyses to target properties for proactively addressing conditions that might provide a basis for environmental tort claims.
1 Waldburger v. CTS Corp., 723 F.3d 434 (4th Cir. 2013).
2 42 U.S.C. § 9658(a)(2).
3 Id. at § 9658(b)(4).
4 Waldburger, 723 F.3d at 444-45 (Floyd, J.).
5 Id. at 445 (Thacker, J. dissenting).
6 CTS Corp. v. Waldburger, No. 13-339, cert. granted (Jan. 10, 2014).
7 Pub. L. No. 107-118, 115 stat. 2356 (2002).
8 See, e.g., U.S. Envtl. Prot. Agency, Brownfields and Land Revitalization - Grants & Funding, http://www.epa.gov/brownfields/ grant_info/index.htm (last updated Aug. 15, 2012) (describing various brownfields grant and funding programs).
9 42 U.S.C. § 9601(14).
10 Id. at § 9601(40)(D).
11 See e.g., PCS Nitrogen Inc. v. Ashley II of Charleston LLC, 714 F.3d 161 (4th Cir. 2013) (lack of appropriate care evidenced by owner's failure to promptly clean and fill sumps and remediate debris pile); Voggenthaler v. Md. Square LLC, 724 F.3d 1050 (9th Cir. 2013) (property purchaser's affidavit from its environmental consultant in the state's suit to recover response costs allegedly resulting from the purchaser's building demolition was "woefully insufficient" to demonstrate the purchaser was a BFPP).
12 3000 E. Imperial LLC v. Robertshaw Controls Co., No. CV 08-3985 PA, 2010 WL 5464296 (C.D. Cal. Dec. 29, 2010).
Originally published in Westlaw Journal Environmental - April 2014
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