Fourth Circuit Holds Zero-Share Apportionment Unavailable to Current Owner or Operator PRPs but Affirms Zero-Share Allocation; Rejects Bona Fide Prospective Purchaser Defense Due to a Failure to Exercise Appropriate Care
By Michael Einhorn and Tiffany Hedgpeth
In PCS Nitrogen Inc. v. Ashley II of Charleston, the Fourth Circuit (“Court”) affirmed the U.S. District Court for the District of South Carolina’s rulings addressing CERCLA liability at a former fertilizer manufacturing site. In doing so, the court outlined legal standards for multiple CERCLA issues. Significantly, the Court held that CERCLA’s structure and purpose prohibits a zero share apportionment to a current owner or operator. Yet, it affirmed a zero share allocation to a current owner and operator. Additionally, the Court held that CERCLA’s Bona Fide Prospective Purchaser defense (“BFPP”) was unavailable where the defendant delayed in filling sumps.
The current owner of the site at issue in this case, Ashley II of Charleston, Inc. (“Ashley”) brought a CERCLA § 107(a) cost recovery suit against PCS Nitrogen, Inc. (“PCS”), a potential successor to a former operator of the site. PCS counterclaimed under CERCLA § 113(f), and brought third-party contribution actions against other PRPs who, in turn, filed CERCLA §113(f) contribution claims against one another. The district court bifurcated the case, and found in the first bench trial that, through an acquisition agreement, PCS assumed CERCLA liabilities for the site and was therefore a PRP. In the second bench trial, the district court found that some of the other parties, including Ashley, were liable as PRPs, and allocated shares of the response costs among them. Certain parties appealed to dispute whether and to what amount each is liable for response costs at the site.
Zero Share Apportionment and Allocation
Robin Hood Container Express (“RHCE”), one of the third-party defendants subject to a CERCLA 113(f) contribution action, argued that the Supreme Court case of Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 129 S. Ct. 1870 (2009) supported the award of a zero-share of liability to it. In Burlington, the Supreme Court held that “[w]hen two or more persons acting independently cause[e] a distinct or single harm for which there is a reasonable basis for division according to the contribution of each, each is subject to liability only for the portion of the total harm that he has himself caused.” Id., at 614. RHCE was a former owner that had conducted excavation and was the current operator at the site. RHCE argued that no disposal of hazardous substances occurred during its operation, and therefore a reasonable basis existed to apportion it a zero-share of the harm.
The Court assumed that apportionment arguments are available to a party sued for contribution under CERCLA § 113, without deciding the issue (the Court noted that some courts have limited apportionment arguments to parties subject to joint and several actions brought under CERCLA § 107). The Court then held that as a current owner or operator, RCHE could not use individual share apportionment to apportion itself a zero-share harm. The Court explained that such a rule would eliminate the express defenses and exemptions Congress created for innocent landowners, which all require more than a mere showing that no disposal occurred during a current owner or operator’s tenure at the site. See, e.g., id. § 9601(20)(D), 35(A) (involuntary acquisition exemption); id. §§ 9601(35), 9607(b)(3) (defense for innocent landowners); id. §§ 9601(40), 9607(r) (bona fide prospective purchaser exemption); id. § 9607(q) (contiguous property owner exemption).
The Court then evaluated the district court’s allocation of liability to the various parties. The Court noted that CERCLA § 113(f), which governs contribution actions among PRPs, provides that a court “may allocate response costs among liable parties using such equitable factors as the court determines are appropriate.” 42 U.S.C. 9613(f)(1). The Court upheld the district court’s allocation, finding that the allocation “was among the reasonable conclusions supported by the evidence.” (Citations omitted). Notably, the court confirmed a zero-share allocation to the City of Charleston, a current owner and operator of the site. The Court did not discuss why its award of a zero-share allocation under CERCLA § 113(f) to a PRP that failed to qualify for CERCLA’s express defenses and exemptions did not run afoul of the structure and purpose of CERCLA.
Bona Fide Prospective Purchaser
The Court also upheld the district court’s holding that Ashley was a PRP due to its status as a current site owner. Ashley argued that CERCLA’s bona fide prospective purchaser (“BFPP”) exemption (CERCLA §§ 101(40) and 107(r)) applied and protected Ashley from liability. To qualify for the BFPP exemption, a party has the burden of demonstrating by a preponderance of the evidence that it has not impeded performance of a response action, and that it meets eight other criteria in CERCLA § 101(40)(A)-(H).
One of the eight BFPP criteria is that a party must demonstrate that it exercised “appropriate care with regard to hazardous substances” at the site. 42 U.S.C 9601(40)(D). The court held that “appropriate care” under CERCLA’s BFPP provision is at least as stringent as “due care” under CERCLA’s innocent landowner defense (CERCLA § 107(b)(3)). The Court borrowed from the due care jurisprudence to inform it of what reasonable steps were necessary to demonstrate “appropriate care” and stated the inquiry is whether a party “took all precautions with respect to the particular waste that a similarly situated reasonable and prudent person would have taken in light of all relevant facts and circumstances.” (Citations omitted). The Court held that under the above inquiry, Ashley’s delay in filling in sumps when related aboveground structures were demolished showed that it failed to exercise appropriate care. Thus, Ashley did not qualify for the BFFP exemption.