CERCLA's Landowner Defenses: Innocent or Not?
By: Guy E. Wall and Donna Phillips Currault*
Landowners have invoked CERCLA's third party defense to avoid the often-crippling costs of remediating contaminated property. The judicial interpretations of this defense have thus far failed to provide innocent landowners with the liability protection Congress intended. This Article discusses the landowner defenses and proposes certain legislative clarifications.
II. The Third Party Defense CERCLA (1) imposes strict liability for the remediation of a release or threat of release of a hazardous substance upon the owner of contaminated property and the owner of the property at the time of disposal of those substances. (2) The intervening owners (3) are not liable unless they knew of the release and failed to disclose it when they sold the property. (4) The owner, but not a previous owner, (5) may defeat that liability by proving that the release or threat of release was caused solely by acts of a third party not in a contractual relationship with it and that it (a) exercised due care with respect to the hazardous substance and (b) took precautions against foreseeable acts or omissions of any such third party. (6)
A. "Contractual Relationship"
The term "third party" does not include an employee, agent or "one whose act or omission occurs in connection with a contractual relationship existing directly or indirectly with the defendant." (7) Courts, initially focusing only on the phrase "contractual relationship," denied the third party defense to the owner on the theory that the chain of title constituted an indirect contractual relationship with the previous owner who disposed of hazardous substances on the property. (8) In so doing, the phrase "in connection with" was largely ignored.
B. The Innocent Landowner
Unhappy with the imposition of liability on landowners who unknowingly acquired contaminated property, Congress created the innocent landowner defense in 1986. (9) As a result, a prior owner will be a third party with no contractual relationship with the owner if the latter can prove that: (1) it acquired the real property after the disposal or placement of the hazardous substances; (2) at the time of its acquisition, it did not know and had no reason to know that any hazardous substance was disposed of at the facility; and (3) it exercised due care upon learning of the hazardous substance. (10)
1. "Disposal" versus "Release"
An owner is liable where hazardous substances have been, or threaten to be, "released" -- a term broadly defined to include not only discharging but also escaping or leaching. (11) On the other hand, the innocent landowner defense is only available to one who acquires the property after the disposal or placement of the hazardous substance thereon. (12) Disposal means the "discharge, deposit, injection, dumping, spilling, leaking, or placing" of hazardous waste on land or water so that such waste may enter the environment. (13) While all "disposals" may be "releases," the converse is not true; the phrase "disposal or placement" plainly differs from a release by requiring some type of human involvement. (14) Unfortunately, some courts have blurred the istinction between "disposal" and "release."
The problem had its origin (15) in Tanglewood East Homeowners v. Charles Thomas, Inc. (16) when the Fifth Circuit, in rejecting the third party defense offered by a landowner who had unwittingly bulldozed contaminated soil, held that a disposal occurred each time materials are "moved, dispensed, or released" during landfill perations. While the fairness of this ruling may be debated, the equation of the word "disposal" with "released" was unnecessary. Nevertheless, in Nurad, Inc. v. William E. Hooper & Sons Co., (17) the Fourth Circuit extended Tanglewood East by holding that disposal includes the passive migration of hazardous waste without any human involvement or participation. (18) The effect of this decision is to equate the term "release" with "disposal or placement." District courts in other circuits have followed the Nurad decision. (19)
Nurad's "passive disposal" theory not only contradicts well established jurisprudence by requiring imposition of liability upon all intervening owners after a release, (20) but also effectively eliminates the innocent landowner defense because the passive migration that occurs after acquisition will prevent the owner from proving that it acquired the property after disposal. (21) Not surprisingly, other courts have rejected this theory. (22) In one of the most well-reasoned decisions, United States v. Petersen Sand & Gravel, Inc., (23) the court recognized that disposal must be limited to acts of human involvement for the innocent landowner defense to have any meaning.
If, at the time of the purchase, the landowner knew or should have known that the property contained some contamination with some level of danger, then there will be a contractual relationship that may defeat the third party defense. (24) A landowner will be charged with constructive knowledge of contaminations unless it conducted an appropriate inquiry into the prior ownership and use of the property consistent with good commercial or customary practices. (25)
C. "In Connection With"
Proving innocence may be an overwhelming obstacle for a landowner trying to establish the third party defense. However, it may be unnecessary. Last year, the Second Circuit held that "in connection with a contractual relationship" meant "some relationship between the disposal/releasing activity and the contract with the defendant" (26) that connects him with the handling of hazardous substances or allows him to exert control over the third party's activities. (27) This ruling potentially makes the third party defense available to even non-innocent landowners with a contractual relationship to the disposer so long as the disposal did not take place "in connection with" that relationship. (28)
Congress should, in its reauthorization, tell the courts that it meant what it said when it used the term disposal rather than the term release. Otherwise, if adopted by other circuits, the passive migration theory will effectively eliminate the innocent landowner defense. Under Westwood, however, even a non-innocent landowner can invoke the third party defense by arguing that the land contract was not "in connection with" the handling of hazardous substances. Congress could strengthen the landowner defenses by rejecting the passive migration theory and clarifying the third party defense to ensure that Westwood is followed in other circuits.