The SCARLETT Letter of Operator Liability
When it rains, it pours, and right now there’s a veritable typhoon of Superfund liability cases.
On September 30, 2009, the federal district court in Georgia ruled on several summary judgment motions in Scarlett & Associates, Inc. v. Briarcliff Center Partners, L.L.C. The primary question was whether a property management service could be liable for remedial costs under CERCLA and/or RCRA. The Court said yes to both.
The property in question was a strip mall that housed a leaking dry cleaning facility. The contamination was identified in the early to mid-1990s and a release notification was issued on June 27, 1994. Since that time, the plume has continually migrated and expanded. When the owner of the center failed to make its payments, AmSouth Bank of Florida took over operation of the center.
In September of 1995, AmSouth retained Faison and Associates to undertake certain property management services, which they did until September of 1997.
What Faison could not do:
1) Manage any tenant operations;
2) Assert control over which tenants were permitted to lease space;
3) Evict tenants; or
4) Assert control over any hazardous substances handled by a tenant.
What Faison could do:
1) Attempt to rent and renew rentals space to tenants approved by AmSouth;
2) Collect rent and maintain common areas;
3) Make repairs;
4) Pay utilities and taxes for AmSouth;
5) Ensure that the operators of the dry cleaning business complied with EPA’s reporting requirements on dry cleaning facilities covering PCE emissions, equipment monitoring and repair, and accounting of PCE consumption.
AmSouth successfully argued that its indicia of ownership was for the sole purpose of protecting its security interest, so it had no liability pursuant to the Secured Creditor Exemption under Superfund. Faison, its agent, wasn’t as lucky.
With respect to the CERCLA claim, the court found that, to be liable, Faison needed to be actually involved in the operations involving leakage or disposal of a hazardous waste. The Court found that there was evidence that Faison “played at least a minimal role in managing the dry cleaner’s operations specifically related to pollution.” That role was that Faison had sent the dry cleaner a letter advising it of some reporting requirements (not release related) to EPA. Based on this act and Faison's general management actions, the court found that there existed a question of whether Faison had operator liability under CERCLA.
The Court then considered RCRA liability. While CERCLA is designed to address past releases, the intent of RCRA is to regulate the ongoing use of hazardous materials and to require cleanup from those operations. That is, the party, at the time that suit is filed, must be involved in an ongoing violation of a RCRA requirement, i.e., there must be a current violation. But, in this case, Faison had been off of the site for years prior to commencment of the suit. So why was Faison liable under RCRA?
The Court held that the existing plume was continuously expanding and was, therefore, a “current violation.” Although the Court specifically found that Faison did not contribute to the past or present handling, storage, treatment, transportation or disposal of PCE, its management role on behalf of AmSouth was sufficient to support a finding that it was operating a hazardous waste treatment, storage and disposal facility.
Looking at the activities of the management company, the short time period of oversight, and the length of time since the company worked on the property, I believe that most would say that this is a very disturbing holding. Obviously, the “polluter pays” principle is nonexistent but, more importantly, what message is being sent? One message is that if a property manager is aware of any contamination at a site being managed, there are only two options: 1) Don’t manage the property, or 2) Have an iron-clad indemnification from your customer (and if it’s anyone other than a bank or Microsoft, good luck with that).
But what if the property manager doesn’t know about the releases? Short answer – it doesn’t matter. In this case, the court found that there were active releases from the dry cleaner between 1995 and 1997, but there was no evidence that Faison was aware of those releases. However, nothing in the opinion or the law requires knowledge for operator liability. All that is required is that there be a release of a hazardous substance during the manager’s watch which is still migrating (I have yet to see a plume that hasn’t migrated) and is not remediated at the time of the action (which can be years after the manager has ceased managing).
Regardless of the final outcome, I would suggest that this is bad policy. We need property managers to be able to do their job without fear of being drawn into Superfund liability. We are in an era where it is permissable for banks and land purchasers to be sheilded from environmental liability. Surely we can afford similar protection to property managers.
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CERCLA. The court noted that the term “facility enjoys a broad and detailed definition.” (For those who don’t read a lot of cases, this kind of language is a bad sign). The court then found that the sewer pipes can be deemed a facility because the statutory language identifies a facility as any site or area where a hazardous substance has been disposed of or comes to be located. The court could find no language to exclude the city’s sewer system, so it held that the pipe was a “facility” under CERCLA.
The facts of Bonnieview HOA are the ones that every developer fears. A seemingly innocuous parcel of ground is ripe for development in the lovely city of Montville, New Jersey. At some point in the past, the property had been an apple orchard, though a Phase I Environmental Site Assessment failed to note that the orchards may have used pesticides which may have contaminated the soils.