Owners at the Time That Cleanup Costs are Incurred are “Current” Owners Under CERCLA, Court Says

In another recent decision on the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. §9601 et seq., the Ninth Circuit clarified that the “current” owner is the owner at the time that cleanup costs are incurred for purposes of imposing liability under the act. Enacted thirty years ago, CERCLA is a federal law that creates a scheme for imposing strict liability for the investigation and remediation of contaminated property.

WetlandsCERCLA imposes cleanup liability on “current” owners of the contaminated property regardless of when the contamination actually occurred. For example, if a person owns a property that is contaminated with a hazardous substance, under CERCLA they are responsible to cleanup the property even if they did not cause the contamination. Past owners are only responsible if the contamination of the property occurred during their ownership.

Absent contractual provisions to the contrary, assuming ownership of a property carries with it the heavy burden of responsibility for all the past sins of those who have come before and caused contamination on the property. Liability extends to not only the property itself but to any other property that is impacted by contamination originating from the property. As a result, CERCLA has fundamentally changed the way properties are bought and sold. CERCLA has spawned an entire industry, and related standards, purposed towards understanding the environmental history and condition of the property before the transaction takes place. Strangely, though, until now no court has previously decided who is, precisely, the “current” owner for purposes of CERCLA’s liability scheme.

In State of California Department of Toxic Substances Control v. Hearthside Residential Corp., defendant Hearthside Residential acquired an undeveloped wetlands property in Huntington Beach, California after the contamination occurred. When Hearthside Residential purchased the property, it knew that it was contaminated and remediated the contamination. However, Hearthside Residential disputed that it should have to cleanup the adjacent residential properties that it never owned or operated. The state remediated the residential properties. Thereafter, Hearthside Residential sold its property to the State Lands Commission. The State then brought suit for the recovery of the cost to cleanup the adjacent residential properties. Hearthside argued that at the time suit was filed, it was not the “current” owner. However, the Ninth Circuit held that the “current” owner, for purposes of liability under CERLCA, is the owner at the time cleanup costs were incurred. In this case, that meant that because the State incurred cleanup costs to remediate the residential properties when Hearthside Residential owned the wetlands property, Hearthside Residential was liable for those costs. The Ninth Circuit looked at the broad remedial purpose of CERCLA and the need to interpret its provisions so as to be consistent with that intent.

While this decision does not create any fundamental change in the way most practitioners have viewed CERCLA, it does serve to clarify who falls within the definition of a “current” owner. It also serves to emphasize the importance of conducting enough due diligence to understand not only the condition of the property you may be acquiring, but also nearby properties that may have been impacted from historical operations on the property that you are acquiring.