For years, parties have relied on the Bona Fide Prospective Purchaser (BFPP) defense as a smart way to acquire property while protecting themselves from liability under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). A recent decision out of the Seventh Circuit, however (Von Duprin LLC v. Major Holdings, LLC, ___ Fed.4th ___, Nos. 20-1711, 20-1793, 2021 WL 4025150 (7th Cir. Sept. 3, 2021), confirms that parties must be extremely attentive when seeking refuge under the BFPP defense. The Seventh Circuit held that the BFPP defense will only be available to parties in full compliance with the “all appropriate inquires” requirements in CERCLA's implementing regulations (40 CFR Part 312). Given the need for strict compliance, parties interested in leasing, purchasing, or otherwise acquiring property with known or potential environmental issues should carefully scrutinize their environmental assessments and adhere to EPA's requirements to maximize their protections against historic liabilities at the site. Failure to do so could result in significant and draconian joint and several liability under CERCLA.
Starting in 2013, Plaintiff Von Duprin LLC incurred millions of dollars investigating and remediating an Indianapolis property contaminated by a variety of chemical products, including trichloroethylene (TCE) and perchloroethylene (PCE). Von Duprin later filed a CERCLA lawsuit against the owners and operators of the adjoining properties, alleging that historic operations on those properties had contributed to the Von Duprin site's contamination. Major Holdings LLC — the owner of two of the adjacent properties (the Zimmer Paper parcel and the Ertel parcel) — sought to avoid CERCLA liability by asserting the BFPP defense because it had performed Phase I Environmental Site Assessments for both the Zimmer Paper and Ertel parcels. The district court, however, disagreed with Major Holdings' position, indicating that to qualify for the BFPP defense a party needs to strictly comply with the “all appropriate inquires” requirements in CERCLA's regulations, and holding that Major Holdings' Phase Is fell short of those requirements in multiple technical regards.
On appeal, the Seventh Circuit affirmed the BFPP portion of the district court's decision in full, affirming that the BFPP defense is only available to parties in “full compliance with all requirements” of CERCLA's “all appropriate inquiries” regulations. It agreed that the Phase Is completed by Major Holdings (for the Zimmer Paper and Ertel parcels) did not strictly comply with the requirements in at least two key respects. The Zimmer Paper parcel Phase I did not contain professional qualification certifications — as required by 40 CFR § 312.21(d). The Ertel parcel Phase I was not completed within 180 days of the date Major Holdings became an owner/operator — as required by 40 CFR § 312.20(b). Given these shortcomings, the Seventh Circuit concluded that Major Holdings was not entitled to the BFPP defense and remained potentially liable for releases at the Zimmer Paper and Ertel parcels.
The key takeaway from this recent Seventh Circuit decision is that courts are increasingly requiring strict compliance with CERCLA's implementing regulations for the BFPP defense. This means that parties looking to acquire properties — through lease, purchase, or otherwise — cannot simply assume that they qualify for the BFPP defense because they have obtained a Phase I. Instead, parties must confirm that they have strictly complied with CERCLA's “all appropriate inquires” process, to ensure they maximize their protection from historic environmental liabilities at a site. As such, parties looking to purchase, lease, and/or otherwise operate at a property must, for example, ensure that their Phase Is are properly certified, timely completed, and otherwise in compliance with all the requirements of 40 CFR Part 312. Von Duprin is a strong warning that failure to strictly comply with these BFPP requirements may result in substantial CERCLA liability for historic operations at a site.
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