Friday April 19, 2024
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5.2.1 CERCLA
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CERCLA
Background: For many years, businesses and people disposed of chemical waste with little thought about the environmental and health impact of such disposal practices.
Liability Under CERCLA: In general, there are four potential classes of PRPs.
Avoiding CERCLA: In order to steer clear of CERCLA liability, a charity should not use hazardous substances and should not own or operate property contaminated by hazardous substances.
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Background
For many years, businesses and people disposed of chemical waste with little thought about the environmental and health impact of such disposal practices. As a result, thousands of properties ended up with uncontrolled or abandoned hazardous contamination. Growing national concern about this irresponsible practice eventually led to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), enacted by Congress on December 11, 1980. CERCLA was later amended by the Superfund Amendments and Reauthorization Act (SARA) on October 17, 1986.
The basic purpose of CERCLA, commonly known as Superfund, was to locate, investigate, and clean up the worst sites across the country. In addition, CERCLA assigns the ultimate costs of cleaning up such disposal sites to the parties responsible for the contamination. This is sometimes referred to as the "polluter pays" principle. However, in many cases, a subsequent property owner or operator pays and not the original polluter. This reality is what understandably scares potential new property owners and operators, e.g. charitable organizations.
The Environmental Protection Agency (EPA) administers the CERCLA program. CERCLA provides the EPA with authority to investigate contaminated sites and either (a) clean up a contaminated property itself using federal money and then demand reimbursement from one or more "potentially responsible parties" (PRP), or (b) demand that a PRP clean it up in the first instance.
Liability Under CERCLA
In general, there are four potential classes of PRPs. They are as follows: (a) a current owner or operator of the facility where the release of hazardous substances has occurred, (b) a past facility owner or operator at the time the release occurred, (c) the party that arranged for disposal or treatment of the hazardous substance at the facility, and (d) the party that transported the hazardous substance to the facility, if it selected the facility. In the charitable contribution of property context, a charity may qualify under (a) or (b) as a current or past owner.
Congress also provided CERCLA with some serious teeth. Specifically, CERCLA is a "strict liability" statute. In other words, if a PRP is determined to fall within CERCLA's scope then that PRP is liable for cleaning it up, even if that PRP did not cause or even know about the contamination. CERCLA's strict liability is also "joint and several" which means each PRP is legally liable for the acts of every other PRP.
The mere fact that an organization is operating as a corporation does not necessarily protect the owners, directors and shareholders of the corporation from individual CERCLA liability. In some instances, such owners, directors and shareholders have been held personally liable for CERCLA cleanup costs if they participated in the day-to-day management or made decisions about the disposal of hazardous materials.
Lastly, parties cannot contract away their CERCLA liability. In short, the EPA can still find liability irrespective of a pre-existing contract provision. However, parties can allocate the ultimate financial burden of a CERCLA cleanup. Accordingly, indemnity provisions between parties that require reimbursement for any CERCLA costs incurred are common practice.
Avoiding CERCLA
In order to steer clear of CERCLA liability, a charity should not use hazardous substances and should not own or operate property contaminated by hazardous substances. Obviously, in the normal course of business, most charities have no opportunity or desire to work with hazardous substances. However, accepting gifts of real estate may unknowingly subject a charity to CERCLA's reach, i.e. the real estate is contaminated.
Therefore, it is imperative a charity create gift acceptance policies and procedures for gifts of real estate. For instance, the policies may require an Environmental Impact Survey for any proposed gift of commercial real estate. Also, a policy may require a soil and groundwater sampling to test for any contamination. The cost and depth of environmental testing will likely depend on the type of property and its prior use. So, a gift of a residential home may require very little due diligence compared with a gift of a landfill.
If a donor is reluctant to allow for such tests, a charity should move forward very cautiously or not at all. However, the discovery of contamination is not always a deal breaker. For example, it may be possible for the property to be cleaned up prior to gift. In any event, a charity should seek legal counsel and environmental advisors prior to the acceptance of the contaminated property.
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Case Studies on CERCLA
Minor Toxic Waste Problem:
Harold was a very creative and entrepreneurial person; he acquired many large parcels of property during his career. Many of these properties were developed with either commercial buildings or residential structures.
Casino Next Door:
Stephen and Diane Clarke, both age 65, have resided in town for many years. However, Stephen inherited the family farm from his mother in 1985. The farm consists of an old home and a barn plus 40 acres of surrounding property. A diesel fuel tank once used by his parents sits behind the barn. At the time of inheritance, the farm property was valued at $100,000. The farm is primarily grazing property which John has leased to a local rancher over the years. Currently, Stephen receives an annual lease payment from the rancher of $3,000. A couple of years ago, an Indian organization built a casino on the adjacent property. Since the farm is also located next to a major Interstate highway, the value of the property has skyrocketed. The operators of the casino have approached Stephen with an offer to purchase the property for $1 million.
However, there is a mortgage on the property of $65,000. Can Stephen still create a unitrust? Is there a prearranged sale problem? What can be done with the mortgage?
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