Innocent Purchaser in the United States

Innocent Purchaser in Environmental Law

A person who is not liable as an owner or operator of contaminated property because he investigated the property prior to acquiring it and did not discover the contamination. The term is important under the enforcement scheme of the Superfund law, the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). It was added as a defense in the 1986 Superfund Amendments and Reauthorization Act, but the defense is hard to prove.

Background

CERCLA created an unprecedented liability system. The law’s primary purpose, to clean up abandoned hazardous waste sites, depended on finding people to pay for the work. Although some money is available to the federal government, it has never been sufficient to address all of the identified sites. The law therefore held many classes of people strictly liable for cleanup. For the purpose of the innocent purchaser defense, only one of those categories is critical: the owner or operator who acquired the property or an interest in it after the contamination occurred.

The issue originated in the 1980 version of CERCLA. One defense to against liability was that the release or threat of release of a hazardous substance was caused by the act of a third party who did not have a contractual relationship with the owner. However, a contractual relationship includes any agreements that passed title or possession of the property to someone else. So a person who bought a piece of contaminated property would never be able to show that an unrelated third party was responsible. Inevitably, a contractual relationship would exist between the new owner or operator and the past owner. Therefore, a current owner or operator who had nothing to do with past waste disposal activities at a site could not escape liability. Under CERCLA, the terms owner and operator are very broad, including persons who lease or have a permit to use the property, and may extend to a leaseholder. A facility may, therefore, have a number of “owners” and/or “operators.” Each one must complete his own investigation to obtain the innocent purchaser defense.

The Patch Approach to Clarification

When Superfund was reauthorized, Congress decided to allow some parties to be declared innocent. But instead of dealing with the issue head-on, it added some language to the definition of contractual relationship. In short, there are two requirements in the innocent purchaser defense: (1) the property had to be acquired after the disposal activities; (2) when the property was acquired, the defendant did not know and had no reason to know about hazardous substances on, in, or at the facility. The definition does exclude inherited property and government entities that acquire the property by an involuntary transfer. The burden of proof is on the defendant and must be established by more than 50 percent (preponderance of the evidence).

The definition does not stop there, however. It goes on in another paragraph to describe how innocence is demonstrated. If the defense rested only on knowledge, a party could avoid the issue by not asking about prior use. Congress was not willing to let the landowner off so easily and decided to require some investigation to show the defendant had no reason to know about the hazardous substances. To show that he or she had no reason to know, the defendant “must have undertaken, at the time of acquisition, all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial or customary practice in an effort to minimize liability.” In addition to meeting the conditions in the definition, the defendant must also show that he or she exercised due care with the hazardous substances and took precautions against foreseeable acts of other persons. Presumably, this requirement would apply only after the presence of the hazardous substances was detected, since the innocent owner would not be aware of them when taking possession.

Preacquisition Environmental Assessments

Within the commercial real estate field, the hope of establishing innocence has created the practice of conducting environmental assessments prior to acquiring an interest in property. Many environmental companies jumped on the bandwagon, and the more reputable ones tended to agree on the elements necessary for an investigation. An environmental assessment typically includes the following: a title search, usually back at least 50 years; an examination of aerial photographs; a search of public records on spills and other recorded environmental problems; a site visit; interviews with the property owner and other individuals who may know about the history of the site; and consideration of land use on surrounding properties. If the initial results suggest a problem, the prospective buyer may investigate further through a variety of tests, including soil and groundwater samples.

Even though commercial practice has evolved to include environmental assessments, the potential buyer still has no assurance that he has done enough. Many legal scholars have concluded that it is impossible to obtain the innocent purchaser status because the court will hold that if the purchaser did not discover the problem, he did not look hard enough.

Cases directly considering the defense are rare, but they will be more important in the future. Since the defense was only created in 1986 and it takes years to take a Superfund case through the courts, the issue is only beginning to be heard. The cases thus far have determined that commercial buyers must undertake some type of inquiry. A site visit is required, and the buyer cannot ignore obvious signs of contamination or commonly known facts. Also important is the time of acquisition; a person who bought property in the 1950s will not be held to the same standard as one purchasing property today.

The issue usually comes to the attention of a court when the government makes a motion to have parties declared liable pursuant to CERCLA. Then the party claiming the defense must offer sufficient evidence to allow a court to grant a crossmotion. In practice, this is more difficult than proving the defense in a trial.

A motion for summary judgment, which is the type of motion at issue, is a request to have the court enter judgment for the moving party without the necessity of proving the point. Courts can only grant such a motion in exceptional circumstances, however. To do so, they have to assume that the facts most favorable to the opposing party are true and then conclude that the moving party is still entitled to win as a matter of law.

The burden of proof at trial is a preponderance of the evidence, so the owner of the property must convince the jury or the judge that it is more likely than not he did the necessary inquiry. Unfortunately, taking the issue to court is expensive, not only in terms of litigation fees but also because the owner will be subject to cleanup costs in the meantime.

A few examples of cases considering the defense may be instructive. In United States v. Serafini, a 1988 case decided in Pennsylvania, the court would not grant summary judgment to the government even though the purchaser had not visited the site it purchased. Since the property was acquired in 1969, the court believed the government needed to establish more than the lack of a visit.

The situation was this: a partnership named Empire bought a property in Pennsylvania. It had been leased to the city for waste disposal, and 1,141 drums were visible on the property. When the go
vernment cleaned up the property, it sued the partnership and the partners.

The government tried twice again before it presented the evidence the court wanted to see. Through affidavits and depositions, it demonstrated the commercial practice in Pennsylvania in 1969 did include a visit to the site before acquisition. In 1990, the court granted summary judgment for the government, finding the Empire Group could not establish it was innocent.

Standard Practices for Environmental Assessments

The American Society for Testing and Materials (ASTM), an organization that sets voluntary standards, recently published two standard practices for environmental assessments. One is a transaction screen (E 152894); the other is called a Phase I Site Assessment (E 152794). These two documents ASTM were drafted with input from users (those who will need the document), providers (those who will complete the assessments), and attorneys. They address only issues that would arise under CERCLA except for one addition: they do consider petroleum underground storage tanks.

The transaction screen is the more controversial of the two standard practices, at least to the providers. It is basically a questionnaire, and it need not be completed by an environmental professional. It is designed to be the environmental site assessment when no potential problems are flagged during the screening process. The Phase I environmental site assessment gathers more information than the transaction screen and relies on professional opinion; it must be conducted by an environmental professional.

The ASTM has attempted to fill in the gaps of the statute by outlining “good commercial or customary practice,” and its work has determined what is acceptable for environmental assessments today. Although the ASTM standard practices are not endorsed by the government, they are tremendously helpful and specifically designed to assist the buyer in becoming an innocent purchaser.

Settlement

Short of litigation, the other way out of a Superfund lawsuit is settlement. The EPA takes the position that an innocent purchaser is eligible for settlement as a de minimis party and has published guidance for settlements with current landowners.

Authority for settlement with landowners is found in CERCLA. The provision appears to allow for settlement with not so innocent landowners as well as innocent purchasers. The owner must not have conducted or permitted generation, transportation, storage, treatment, or disposal of any hazardous substance and must not have contributed to the release or threat or release through an act of omission. The EPA, however, interprets the provision to call for the innocent purchaser defense and requires that the landowner provide evidence. The better the evidence, the EPA document states, the better the settlement terms.
Based on “Environment and the Law. A Dictionary”.

Innocent Purchaser