America’s serious attempts to clean up hazardous wastes began with the passage of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) during the waning days of the Carter Administration. CERCLA is widely referred to as Superfund and over the past 40 years has not only facilitated the cleanup of contaminated sites – its original intention – but has also transformed the practice of real estate and corporate law.
Superfund was enacted in large part as a response to series of discoveries of abandoned hazardous dump sites in the late 1970s. The most notorious of these sites was Love Canal, in the city of Niagara Falls in upstate New York. In summer of 1978, toxic chemicals were discovered seeping from city sewers into basements of homes built on a landfill that had been used to bury 21,000 tons of hazardous waste, including dioxin and PCBs. Nine-hundred-fifty families were evacuated from a 10-square-block area and their homes purchased by the federal government. At the time, the U.S. Environmental Protection Agency’s Acting Administrator ruefully observed:
[Q]uite simply, Love Canal is one of the most appalling environmental tragedies in American history. But that’s not the most disturbing fact. What is worse is that it cannot be regarded as an isolated event. It could happen again – anywhere in this country – unless we move expeditiously to prevent it.
The recurrence of Love Canal and other similar tragedies is what Superfund was designed to prevent.
The Superfund statute imposes cleanup liability on four classes of parties: owners, operators, generators and transporters. However, it was hastily drafted, with ambiguous provisions and a limited legislative history. Accordingly, courts looked to its broad remedial goals and liberally construed the statute’s liability provisions.
By the mid-1980s, courts were imposing joint, strict and retroactive liability on a far broader class of parties than many had originally anticipated. Courts held that owners of property contaminated prior to acquisition, or where wastes were disposed of in accordance law, could be liable for cleanup. So could passive landlords and sublessors. Individual officers, directors, and corporate shareholders (parent corporations) also got caught up in the liability net because of control exercised over the property or a business. The CERCLA liability net even swept up the ultimate deep pockets – financial institutions when they participated in the operation of their borrower or foreclosed on contaminated collateral.
Not surprisingly, this imposition of vicarious liability on parties not responsible for the original contamination, along with the substantial cost of cleaning up sites, substantially altered the nature of corporate and real estate transactions, as parties now had to account for such liabilities and determine how they would be allocated. Negotiation of environmental representations, warranties and indemnifications quickly became a crucial element of – and, all too often, a substantial obstacle to – successful completion of such transactions.
As originally drafted, CERCLA contained only three statutory defenses. Most courts narrowly interpreted the third party defense so it was largely unavailable. Virtually anyone in the chain of title would be liable under CERCLA.
Accordingly, in 1986, Congress enacted the Superfund Amendments and Reauthorization Act (SARA) which, among other things, added an Innocent Purchaser defense to CERCLA: a purchaser who did not know or have reason to know about contamination, after performing “all appropriate inquiries” into past use and ownership of the property, generally would not be considered a responsible party if it demonstrated that the contamination was solely caused by another party. The “all appropriate inquiries” requirement gave birth to what is now commonly referred to as a Phase I Environmental Site Assessment, which is now a standard element in virtually every corporate or real estate transaction involving real property.
Unfortunately, the 1986 amendments did nothing to address the growing problem of brownfield sites – properties that any investigation would demonstrate were contaminated. Such properties, most of which were in urban or old industrial areas, sat vacant and undevelopable because no one wanted to become a responsible party, liable for cleanup, by purchasing them.
As a result, in 2002, Congress passed the Small Business Liability Relief and Brownfield Revitalization Act (BRERA), which added a Bona Fide Prospective Purchaser (BFPP) exemption to CERCLA. A BFPP may knowingly purchase contaminated property without being considered a responsible party, provided that it performed pre-acquisition due diligence, was not associated with a responsible party, and could demonstrate that all disposals occurred prior to taking title and that after becoming owner it exercised appropriate care with respect to any onsite hazardous substances.
The liability relief provided by SARA and BRERA was helpful but not sufficient to spur the redevelopment of contaminated sites. At least some of the vicarious liability burden had been removed, but many of these sites still sat vacant because of the cost of cleaning them up to make them usable.
Many states stepped in with their own policies to address this problem. New York did so with the enactment in 2003 of the Brownfield Cleanup Act (BCA). The BCA contained numerous features not previously found in New York State law or regulations, including:
- The establishment of a statutory brownfield cleanup program for hazardous waste and petroleum-contaminated sites. The prior program run by the New York State Department of Environmental Conservation (NYSDEC) – the Voluntary Cleanup Program (VCP) – was created administratively and therefore subject to challenge as legally unauthorized.
- A release of liability and contribution protection from all state agencies, including the state Attorney General’s office and the Office of the State Comptroller, which runs the New York State Oil Spill Fund. Releases under the VCP bound only NYSDEC.
- An express authorization of cleanups that did not achieve “pre-release” (i.e., background) levels of contamination. It did so by providing for different levels of cleanup geared to site conditions and currently or reasonably anticipated future use. NYSDEC subsequently promulgated regulations establishing acceptable cleanup levels in soil and groundwater for unrestricted, residential, commercial and industrial uses.
- The establishment of a protocol for monitoring and enforcement of engineering and land use controls at sites where hazardous materials were allowed to remain in place.
- An extensive program of public involvement and participation in decisions of hazardous waste cleanups.
- Last, but definitely not least, the provision of tax credits and other forms of financial assistance to encourage the cleanup and redevelopment of contaminated property.
The significance of the tax credit provisions was not widely recognized when the BCA was first enacted. However, it soon became apparent that they were extraordinarily generous. Credits were awarded not only for cleanup costs but also for the expenses of subsequently developing the site. As a result, lightly contaminated sites on which substantial development dollars were spent could generate millions of dollars in tax credits.
NYSDEC responded by imposing “eligibility criteria” in order to limit the tax expenditures generated by the program. After years of litigation, these criteria were struck down by the New York State Court of Appeals as being statutorily unauthorized.
Meanwhile, the state legislature took matters into its own hands. In 2008 and again in 2015, it reauthorized the program but restructured the tax credit provisions to incentivize more complete cleanups, while limiting the tax credits available for development expenses. For example, at sites within the five boroughs of New York City, development tax credits are now generally limited to sites in special “Environmental Zones” or being developed for affordable housing.
Although the Brownfield Cleanup Program has generated its share of controversy, it has been very successful in incentivizing the cleanup and the development of contaminated sites around the state. As of this writing, over 900 sites have been enrolled in the program, with more than 400 of them having received Certificates of Completion. Private investment in these sites has exceeded $13 billion, generating over $2 billion worth of tax credits for site owners, developers and investors.
The tax credit provisions of the current version of the BCA sunset in 2022. Most commentators expect the state legislature to reauthorize the program within the next year or two. However, as has happened with each reauthorization, there will undoubtedly be substantial debate and controversy about further amending the program, including its tax credit provisions.
Over the last 50 years we as a society have come full circle in dealing with hazardous waste sites. Through lax regulation and complacency, we allowed them to be created. We then began the arduous and expensive process of cleaning them up, but under a statute whose Draconian liability scheme caused many less seriously contaminated sites to be abandoned because no one wanted to shoulder the cleanup liability that accompanied ownership.
Twenty years into that process, we created brownfield programs with carrots and sticks to incentivize the successful remediation and safe redevelopment of these sites, spurring economic revitalization in the communities around them. In the process we have created a legal and regulatory structure that has both forced and incentivized governments, businesses and individuals to care much more about how they handle and dispose of hazardous substances.
In this sense, at least, the Superfund statute, and federal and state brownfields programs, are one of the big success stories of the past 50 years of environmental law and regulation.
David Freeman is the director of environmental practice at Gibbons Law. He has over 35 years of experience representing buyers, sellers, and developers of contaminated properties, as well as both plaintiffs and defendants in Superfund and other litigation regarding the cleanup of hazardous waste sites. He is a past co-chair of the NYSBA Environmental Law Section Committee on Hazardous Waste/Site Cleanup. He has also served as president of the New York City Brownfield Partnership, vice chair of the New York State League of Conservation Voters Education Fund, and special legal counsel to the United National Education Programme for North American Environmental Affairs. [email protected]
Lawrence P. Schnapf is an environmental attorney based in New York City and New Jersey. He is a past chair of the Environmental Law Section of NYSBA and co-chair of the NYSBA Brownfield Task Force. He is also a past chair of the American Bar Association Section of Business Law Committee on Environmental, Energy and Natural Resources Law, and a former board member of the NYC Brownfield Partnership and the advisory board of the Brownfield Coalition of the Northeast. He is an adjunct professor of environmental law at New York Law School and a faculty member of its Center for Real Estate Studies. www.schanpflaw.com