Third Circuit Holds Property Owner Liable Under CERCLA for Cleanup Costs Incurred Prior to Purchase

Third Circuit Holds Property Owner Liable Under CERCLA for Cleanup Costs Incurred Prior to Purchase

In a recent case, PA. Dep’t of Envtl. Prot. v. Trainer Custom Chemical LLC, No. 17-2607 (3d. Cir. October 5, 2018), interpreting the Federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and Pennsylvania’s Hazardous Site Cleanup law (HSCA), a Third Circuit U.S. Court of Appeals panel ruled that a landowner was responsible for all environmental cleanup costs incurred by Pennsylvania’s Department of Environmental Protection (PADEP), including those incurred prior to the landowner’s purchase of the contaminated property.

​In conjunction with an agreement of sale that recognized existing contamination, Trainer Custom Chemical, LLC (Trainer) acquired a former chemical manufacturing site (Site) for $20,000 in a tax lien sale.  The prior owner had not only defaulted on taxes, but its environmental responsibilities as well.  As a result, prior to the tax sale PADEP incurred over $818,000 in environmental cleanup costs at the Site, most of which were electricity costs associated with treatment operation. Following the sale, Trainer is alleged to have exacerbated the contamination.  PADEP sued Trainer for violations under CERCLA, 42 U.S.C. §§ 9601-28, and HSCA, 35 Pa. Stat. §§ 6020.101-.1305, and sought to recover all of its response costs related to the Site, regardless of when those costs arose. Trainer did not invoke the innocent landowner or bona fide purchaser defense.

The Third Circuit vacated the District Court’s ruling that Trainer was only liable for response costs incurred after it purchased the Site in October 2012. The Third Circuit relied on CERCLA’s plain text, and HSCA’s parallel language, which provides that property owners are liable for “all costs” that a state incurs to remediate environmental risks and contamination. The Third Circuit explained that CERCLA does not draw a temporal line between pre- and post-acquisition remediation costs. Therefore, a current property owner is liable for all response costs incurred before or after acquiring the property. According to the Third Circuit, if Congress had intended for “all costs” to mean anything less than “all,” it is assumed that Congress would have specified as much.

The Third Circuit’s ruling affects both prospective purchasers and current owners of contaminated properties. Prospective purchasers of contaminated property must now consider not only the possibility that they may be responsible for cleaning up existing contamination they did not cause, but also that they can be held to reimburse the government for all response costs incurred at the property, including those incurred prior to their ownership.  With regards to statutory defenses, such as the innocent landowner and bona fide purchaser defense, prospective purchasers will need to factor the meaning of “all costs” into the transaction.

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