In a key decision earlier this month with potentially hefty ongoing implications for developers and property owners, the U.S. Court of Appeals for the Third Circuit held a chemical company liable for nearly $1 million in pre-acquisition cleanup costs. The case is Pennsylvania Department of Environmental Protection v. Trainer Custom Chemical, LLC and offers another clear illustration that property owners and developers may be liable for environmental response costs incurred before they acquired property.

This decision also demonstrates that there is no temporal limitation for an owner’s liability under Section 9607(a), 42 U.S.C. § 9607, of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known as Superfund. This case further accentuates the importance of careful drafting as part of the transactional process, because current CERCLA carveouts – such as the bona fide prospective purchaser (BFPP) exemption and innocent owner defense – remain the primary defenses available in litigation.

As further background on the case, the defendants bought a remediated property several years after the Pennsylvania Department of Environmental Protection (PADEP) spent over $800,000 to remove hazardous substances from the property. After defendants contributed to the contamination at the site, PADEP brought suit to recover all response costs – most of which were incurred before the defendants purchased the property. Under CERCLA, a responsible party, including the owner of the property, is liable for “all costs of [a] removal or remedial action.” 42 U.S.C. § 9607(a). The Third Circuit interpreted the term “all costs” to include those costs incurred before ownership as well as those incurred afterward. Based on this interpretation, the court ruled PADEP could recover all of its response costs from defendants.

This decision is one of several recent decisions centering on CERCLA liability. Check out our past blog posts on these significant developments, including the EPA taking back decision-making authority, lessons learned in negotiating covenants, and insurers’ duty to defend.