A Costly Dilemma: The Paradox of the Innocent Landowner under CERCLA

A Costly Dilemma: The Paradox of the Innocent Landowner under CERCLA

By: Andrew Marrero, Staff Contributor 

Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”)[1] to achieve two central goals: first, to provide a mechanism and resources to ensure that sites containing hazardous waste are cleaned expeditiously, and second, that the parties responsible for the contamination bear the costs of the cleanup.[2] To these ends, CERCLA authorizes the Environmental Protection Agency (“EPA”) to undertake remediation measures and seek reimbursement of the costs from the responsible parties.[3] Similarly, the statute creates a right of action for private parties who have incurred costs in cleaning up a hazardous waste site to recover the costs from “potentially responsible parties” (“PRPs”).[4]

CERCLA defines PRPs in four categories of persons, according to their relationship to the site or facility where the hazardous waste release occurred, or to the role they played in the contamination: the current owner or operator of the facility; any owner or operator “at the time of disposal” of such hazardous substances; any person who arranged for the disposal or treatment of the hazardous substances; and persons who transported the hazardous substances to the site for disposal or treatment.[5] CERCLA has been described as “hastily drafted”[6] and “riddled with uncertainty.”[7] Indeed, the United States Supreme Court has noted how “CERCLA, ‘unfortunately, is not a model of legislative draftsmanship.’”[8] Compounding the flawed drafting, the substance of the statute itself has raised concerns that in many applications it produces results characterized as “harsh”[9] and “unfair.”[10]

Because the statute was designed primarily to expedite cleanup of existing contaminated sites and prevent taxpayers from having to bear the remediation costs of future sites,[11] CERCLA imposes strict liability upon PRPs.[12] Under this standard, neither the plaintiff in a private action nor the EPA in a government enforcement is required to show causation as an element of a prima facie case for liability to attach to PRPs.[13]

In many cases, particularly where the contamination may involve multiple sources or substances and multiple PRPs, liability for the disposal may not be traceable to a particular source and thus would be indivisible. Consequently, such liability imposed on the defendant would be joint and several. In practice, EPA and private plaintiffs can therefore target for action the defendant who may be most readily identifiable—typically the current owner or operator—or who may have the deepest pockets, thus placing the burden on that defendant to find and implead other PRPs to share the liability.[14] The net effect of joint and several liability in the CERCLA context is that a defendant with only a slight relationship to the site or to the hazardous substance disposed there may be held responsible for a disproportionate share or even all of the response costs of the cleanup. The statutory scheme thus alters traditional tort liability in a way that shifts a heavy burden to defendants.

CERCLA sought to recognize the fundamental problem that its strict liability scheme, grounded solely on the status of a person’s relationship to the site, would create for those caught in the web of the statutory definition of responsible party. To address those concerns, in particular as they relate to persons who played no part in the disposal of the hazardous waste and thus did not contribute to the underlying response costs incurred by the private plaintiff or by EPA, CERCLA made available certain limited defenses for the landowner or operator of a contaminated site. The statute itself provides exceptions only for acts of God, acts of war, or acts of third parties with no employment or contractual relationship with the defendant.[15]

Combined, these circumstances produce perhaps the most troublesome incidence of harshness and inequity that CERCLA raises. That result stems from the imposition of strict liability on innocent landowners, with the normative implications of unfairness and inefficiency such outcomes engender for our legal system and society. An essential tenet of the American justice system, fundamentally linked to the concept of due process, is that a person should not be held responsible and compelled to incur costs to pay for injuries which that person did not cause. The innocent landowner aspect of CERCLA creates significant tension with this concept.[16] Because the CERCLA liability framework is grounded not on causation but on the status of the defendant as an owner or operator of the facility or generator or transporter of the hazardous substance, some parties initially brought into the litigation by the EPA or private plaintiffs could face strict liability even though they may have done nothing to contribute to the injury of response costs incurred for the cleanup.[17]

The third party defense initially proved of little value to innocent landowners. In particular, it was rendered ineffective because any property transaction such as a deed, lease, or other conveyance, qualified as a contractual relationship that would nullify the defense.[18] Moreover, the statute raised equitable issues regarding the status of owners who acquired the contaminated property by inheritance[19] or through foreclosure on a mortgage or other security interest.[20] To address these weaknesses, the third party defense was explicitly defined in the 1986 Superfund Amendments and Reauthorization Act (“SARA”)[21] to serve as a defense for landowners who did not know or have reason to know of a property’s contamination at the time of its sale, provided the defendant exercised due care regarding the hazardous waste and safeguarded against actions of third parties.[22]

SARA thus endeavored to clarify the text and application of the third party defense by modifying the definition of persons having a contractual relationship with the landowner so as to exclude property transactions if the acquisition by the defendant occurred after the disposal of hazardous waste on the site, and at the time of acquisition, the defendant did not know or have reason to know of the waste disposal, or acquired the property by inheritance. These alterations, however, failed to solve the innocent landowner problem. Critics point out that even as amended, the defense actually provides no reliable remedy because, as one commentator remarked, the provision “frequently turns out to be a mirage for those who seek to assert it.”[23]

Three fundamental issues account for why basic flaws remain in the statutory scheme relating to the innocent owner, despite the textual revisions, and why the defense continues to present fundamental problems not only for innocent parties subjected to litigation, but for the justice system. First, the imposition of strict liability relieving plaintiffs of the burden of showing causation, combined with joint and several liability in many cases, still means that innocent landowners are subjected to liability as responsible parties at the initial stages of the litigation.

Second, it is only at the contribution and damages phase of the litigation that innocent parties are able to present their affirmative innocence defense and thus attempt to extricate themselves from the action, a process for which they bear the burden of proof by preponderance of the evidence. Accordingly, as one commentator noted, “instances remain… in which responsibility for cleanup attaches to parties who can prove that they did not cause the contamination at the site. In still more instances, responsibility exceeds a parties ‘fair share’ of cleanup costs.”[24]

Third, even if current landowners or operators prevailed in establishing an innocence defense, they are not relieved of the large burdens, financially and in other ways, that CERCLA litigation imposes on them. By the time they would obtain relief through the innocence defense, they will have incurred significant costs in attorney’s fees and other transaction outlays, necessary to identify and bring the actually responsible parties into the litigation. Typically, those expenses can be staggering, running into the tens of thousands or even millions of dollars, and constituting large percentages of the response costs, sometimes far disproportionate to the innocent party’s role in the dispute.[25]

To address the innocent landowner problem effectively, two major reforms may be necessary, both requiring congressional action to further amend CERCLA. First, the statute should be modified to remove a current owner or operator from the definition of responsible party.[26] This remedy would be available if they are able to establish innocence at the liability phase of a response cost litigation that there was no causal connection between them and the disposal of hazardous waste at the site at any time during their ownership or operation. And second, if they succeed in establishing no liability, they should be considered prevailing parties and be entitled to recover their attorney’s fees and other transaction costs from the party who brought the action.[27]

[1] 42 U.S.C. §§ 9601-75 (2012).

[2] See Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 602 (2009).

[3] See 42 U.S.C. § 9606(c) (2012).

[4] 42 U.S.C. § 9607(a) (2012).

[5] Id.

[6] Lora E. Keenan, Attorney Fees in Private Party Cost Recovery Actions under CERCLA, 22 Ecology L. Q. 449, 458 (1995) (quoting Bulk Distrib. Ctr. Inc. v. Monsanto Co., 589 F. Supp. 1437, 1441 (S.D. Fla. 1984)).

[7] Id.

[8] United States v. Best Foods, 524 U.S. 51, 56 (1998) (quoting Exxon Corp. v. Hunt, 475 U.S. 355, 363 (1986)).

[9] United States v. Alcan Aluminum Corp., 990 F.2d 711, 721 (2d Cir. 1993).

[10] United States v. Alcan Aluminum Corp., 964 F.2d 252, 267 (3d Cir. 1992) (noting that the absence of causation as an element of CERCLA liability would appear to “lead to unfair imposition of liability”). See also John Copeland Nagle, CERCLA, Causation, and Responsibility, 78 Minn. L. Rev. 1493, 1517 n.104 (1994).

[11] Owen T. Smith, The Expansive Scope of Liable Parties under CERCLA, 63 St. John’s L. Rev. 821, 837 (1989).

[12] CERCLA does not expressly provide for strict liability, but incorporates by reference the standard applicable to the Clean Water Act which courts have interpreted to mandate strict liability. See United States v. Northeastern Pharm. & Chem. Co., 579 F. Supp. 823, 840 (W.D. Mo. 1984). See also Joel S. Moskowitz & Scott. R. Hoyt, Enforcement of CERCLA against Innocent Owners of Property, 19 Loy. L.A. L. Rev. 1171, 1175 (1986).

[13] See Nagle supra note 10, at 1508.

[14] See id. at 1533.

[15] See 42 U.S.C. § 9607(b) (2012). See also L. Jager Smith, Jr., Note, CERCLA’s Innocent Landowner Defense: Oasis or Mirage?, 18 Colum. J. Envtl. L. 155, 156 (1993).

[16] See Nagle supra note 10, at 1533 (“CERCLA presently holds current owners and operators responsible for the costs of cleaning up a site even if all the hazardous waste were disposed of at the site prior to their arrival.”). See also id. at 1525-26.

[17] As the Third Circuit expressed this concern: “CERCLA seemingly would impose liability on every generator of hazardous waste, although that generator could not, on its own, caused any environmental harm.” Alcan, 964 F.2d at 267.

[18] See L. J. Smith supra note 15, at 156.

[19] See, e.g., 42 U.S.C. § 9601(35)(A)(iii) (2012).

[20] See, e.g., 42 U.S.C. § 9601(20)(E)(ii) (2012).

[21] See 42 U.S.C. §§ 9601-75 (2012).

[22] See id.

[23] L. J. Smith supra note 15, at 157.

[24] Nagle supra note 10, at 1525.

[25] See id. at 1534.

[26] See Nagle supra note 10, at 1533.

[27] Congressional action would be required because the Supreme Court has determined that attorney’s fees in connection with CERCLA litigation are not recoverable. See Key Tronic Corp. v. United States, 511 U.S. 809, 809 (1994).