For those property owners, prospective property owners and tenants seeking to qualify for federal liability protections under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), the EPA recently issued guidance to address the “non-affiliation” element of the Bona Fide Prospective Purchaser (BFPP) and Contiguous Property Owner (CPO) liability defenses.

Under CERCLA’s liability scheme, current property owners and operators are generally classified as potentially responsible parties (PRPs) subject to joint and several liability for cleanup costs associated with hazardous substances at the property. However, the 2002 Brownfields Amendments introduced the BFPP and CPO liability defenses that exclude current owners and operators from PRP status if, generally, the owners and operators: (1) are not improperly affiliated with another PRP at the property, (2) perform “all appropriate inquiries” prior to acquiring the property, and (3) comply with “continuing obligations” after acquiring the property. EPA’s guidance document clarifies EPA’s enforcement position with respect to what constitutes improper affiliation with other PRPs for those seeking BFPP and CPO protections.

In general, this Guidance document confirms that liability protections will be available for owners and operators who purchase property from an unrelated PRP in an arms-length transaction. On the other hand, where a PRP transfers property through a corporate reorganization or transfers property to a family member, EPA generally takes the position that the “affiliation” is improper for BFPP protections. The Guidance document highlights other common examples of potential relationships between owner and prior owner to explain EPA’s position and rationale on what constitutes an improper “affiliation.”

The EPA Guidance notes that EPA does not intend to consider typical indemnity agreements created during a typical title transfer as a disqualifying “affiliation,” but notes that courts may reach different conclusions. In fact, the U.S. District Court for the District of South Carolina recently found that improper affiliation existed for an owner who provided a release and indemnity to a prior owner and engaged in efforts to dissuade EPA from seeking enforcement against the prior owner. See Ashley II of Charleston, LLC v. PCS Nitrogen, Inc., 2011 WL 2119256 (D.S.C. May 27, 2011) appeal filed No. 11-1662 (4th Cir. June 24, 2011). The Ashley II case is currently under appeal in the 4th Circuit, and the results of the appeal may further inform the scope of the “affiliation” requirement for BFPPs and CPOs.