One underused provision in the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) makes Environmental Protection Agency (EPA) Superfund Special Accounts available for reimbursement to Bona Fide Prospective Purchasers (BFPPs). This provision has received greater scrutiny by EPA following the creation of the Superfund Task Force (“Task Force”) in May 2017, and BFPPs should carefully consider the potential benefits that Superfund Special Accounts might provide.
The Task Force includes senior representatives from different EPA Regional Offices with responsibility for Superfund policy and enforcement. EPA created the Task Force to streamline and strengthen the Superfund program. In July 2017, the Task Force issued a report containing five goals and 42 recommendations. The full report is available here.
Goal number two in the report is to reinvigorate responsible party cleanup and reuse of Superfund sites. One of the specific recommendations relating to this goal is to maximize the use of special accounts to facilitate site cleanup and/or redevelopment. EPA has begun to implement this recommendation with the issuance of a March 27, 2018 memorandum to its Regional Offices entitled: “Guidance on Disbursement of Funds from EPA Special Accounts to Entities Performing CERCLA Response Actions.” The full memorandum is available here.
On July 23, 2018, EPA issued an update to its Task Force report in which it stated that it expects to address the special account program’s integration and sustainability within the next 12 months. The July 2018 update report is available here.
CERCLA section 122(b)(3) provides EPA with the legal authority to establish Superfund special account funds. See 42 U.S.C. 9622(b)(3). Special account funds are site-specific, interest-bearing sub-accounts within the Superfund Trust Fund. EPA maintains these accounts and may make disbursements to eligible parties that conduct response actions pursuant to CERCLA. For example, EPA may make disbursements from special account funds available to parties that enter into administrative settlement agreements or consent decrees.
A BFPP may be eligible to receive disbursements from special account funds to cover response costs that it incurs implementing an EPA-selected response action. Generally, a BFPP is a person who can establish by a preponderance of evidence each of the following criteria: i) the BFPP acquired ownership of a facility after January 11, 2002; ii) any hazardous substance disposal occurred prior to the BFPP’s acquisition of the property; iii) the BFPP made “all appropriate inquiries” regarding the previous ownership and uses of the facility; iv) the BFPP is complying with all continuing obligations after acquisition of the facility; and, v) the BFPP has no affiliation with any Potentially Responsible Party (“PRP”). See 42 U.S.C. 9601(40).
In fact, achieving legitimate status as a BFPP is sometimes elusive. For example, a party must demonstrate that it has made “all appropriate inquiries” by complying with the terms of the revised American Society for Testing Materials E-1527-13 standard called “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process.” See 78 Fed. Reg. 79,310 (Dec. 30, 2013); see also, e.g., Ashley II of Charleston, LLC v. PCS Nitrogen, Inc., 791 F. Supp. 2d 231, 499-500 (D. S.C. 2011) (providing an example of a party that a District Court deemed to have properly conducted all appropriate inquiries; however, the developer ultimately lost BFPP protection because it allowed a capped area of the site to deteriorate, and because the demolition of a building inadvertently exposed sumps that the Phase I review identified as potential sources of contamination). Even after conducting all appropriate inquiries, as the landowner, a BFPP must continue to take “reasonable steps” and demonstrate “due care” to stop continuing releases, prevent threatened future releases, and prevent or limit human, environmental, or natural resource exposure to prior hazardous substance contamination. See 42 U.S.C. 9601(40)(D); see also Bob’s Beverage Inc. v. Acme, Inc., 169 F. Supp. 2d 695, 716 (N.D. Ohio 1999), aff’d, 264 F. 3d 692 (6th Cir. 2001) (determining that failure to timely notify EPA and Ohio EPA of groundwater contamination was part of a party’s failure to exercise due care); see also Idylwoods Assoc. v. Mader Capital, Inc., 915 F. Supp. 1290, 1301 (W.D.N.Y 1996) (holding that a party did not exercise due care in part because of a failure to restrict access by putting up signs or hiring security); see also Franklin County Convention Facilities Auth. v. American Premier Underwriters, Inc., 240 F.3d 534, 548 (6th Cir.) (holding that a party’s failure to promptly erect a barrier, therefore allowing the migration of hazardous substances, was a failure of due care). EPA guidance regarding a party’s status as a BFPP is available here.
If a party qualifies as a BFPP, it may then be eligible for reimbursement of response costs from special account funds for work performed pursuant to a specific agreement with EPA. EPA’s guidance is clear that a BFPP may not receive funds from a special account for any work not yet conducted and is never eligible to receive special account funds for redevelopment work that is unrelated to implementation of an EPA selected response action. Disbursements from special account funds are available solely at EPA’s discretion. Factors that may affect the availability of these funds include the terms of a specific settlement agreement and competing funding at or related to a specific site.
The disbursement process begins by a party’s submission of a certified cost summary to the appropriate EPA Regional Office. The EPA Regional Office will review the cost summary and consult with the Remedial Project Manager and the Office of Regional Counsel. The Regional Office will also review the terms of any settlement agreement. Upon approval of the disbursal of funds, the Regional Office will set up a reserve in the special account fund for future reimbursement of the eligible party for the approved work.
Parties receiving special account funds should be aware that EPA will terminate special account disbursements if EPA triggers the work takeover provision of a settlement agreement, where a party has knowingly submitted a false or misleading cost summary or certification, or where a party has submitted an inaccurate or incomplete cost summary or certification and the party fails to correct the submission. If termination occurs after EPA has disbursed a portion of the funds, EPA may be entitled to pursue repayment of those funds plus interest.
Gibbons attorneys will continue to monitor the Task Force’s progress and Superfund developments. Gibbons blogs covering various Superfund Task Force listening sessions are available here, here, here, and here.