On September 21, 2011, the Environmental Protection Agency’s (“EPA”) Office of Site Remediation Enforcement released a memorandum titled “Enforcement Discretion Guidance Regarding the Affiliation Language of CERCLA’s Bona Fide Prospective Purchaser and Contiguous Property Owner Liability Protections.” The memorandum outlines how EPA intends to exercise its enforcement discretion for parties who would otherwise qualify for liability protection defenses under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”). The memo was sent to the Regional Counsel and Superfund National Policy Managers for EPA regions I-X.
In 2002, the Brownfields Amendments to CERCLA purported to provide bona fide prospective purchasers ("BFPP") from CERCLA liability as long as they can show that they are not affiliated with another potentially responsible party (“PRP”) and otherwise satisfy specific requirements necessary for this protection to attach. EPA's enforcement memorandum appears to have been issued, at least in part, in response to the decision in Ashley II of Charleston, LLC v. PCS Nitrogen, et al. (this links to the first half of the opinion and the second half of the opinion can be viewed here) where the court found that notwithstanding the fact that the purchaser had conducted all appropriate inquiries, the purchaser failed to exercise appropriate care with respect to known site contamination. The Ashley II court also found that the purchaser was "affiliated" with a prior site owner as a result of an indemnity obligation between the purchaser and the prior site owner. The court therefore refused to allow the purchaser to rely on the BFPP defense to CERCLA liability.
The new EPA enforcement memorandum is intended to provide guidance to Agency personnel in the exercise of their enforcement discretion regarding the affiliation requirement of the BFPP defense on a site-specific basis. According to the memo, Agency personnel should consider the following issues before analyzing whether there is a prohibited affiliation: whether the party is a responsible party at the facility, whether the entity is the same as a PRP or is potentially liable under other principles of corporate law, whether the business entity claiming to be a BFPP was formed through the reorganization of a liable party through corporate restructuring, and whether the party with whom a person may have an affiliation is actually a PRP.
The memo also provides examples where there would not be a prohibited affiliation. For example, a prohibited affiliation does not exist where the contractual, corporate, or financial relationship is created by the instrument that conveys and finances title to the facility. Another exception allows contractual, corporate, or financial relationships created by a contract for the sale of goods or services. Further exceptions include the following: relationships with PRPs at other properties, post-acquisition relationships, relationships created during title transfer, or relationships established between a tenant and owner during the lease period.