Real Estate Law

Return to Liability

Seems we just can’t get away from those pesky, real estate/environmental liability issues. We now have a couple of Appellate Court cases on the Bona Fide Prospective Purchaser defense (the “BFPP” for those of you following my blog posts).

You will remember that in order to claim the defense, you have to do things before you buy the property, and then, do things after you buy it. Well, one of these cases addresses the before and after part. The other case only addresses the after part.

How many times do I have to tell you, you have to do both parts. . .

First, in Voggenthaler v. Maryland Square LLC., 2013 WL 3839330 (CTA 9, 2013), a purchaser of a shopping center knew one of its tenants had some problems with dry cleaning fluid. It bought the property anyway. We only know it found out because the seller disclosed a report that said the property was contaminated. And, if that was not enough, there was an issue about whether it exercised due care on the post purchase obligations.

Regarding the latter, the owner tried to provide proof it followed the prescribed “all appropriate inquiry” regarding its pre-purchase steps but submitting a non-notarized affidavit. With respect to the former, the affidavit stated that after the purchase, the owner hired its own consultant to review the reports on the clean-up the former dry cleaner was performing and to demolish the former dry cleaning building. Because the affidavit was not notarized, the lower court refused to consider the submission and ruled against the owner.

Fortunately, on this issue, the Appeals court reversed and said the owner should have a chance to fix the affidavit.  Unfortunately, the Court also talked about the many deficiencies of the affidavit, such as the fact that the affidavit did not say whether the owner took any remedial steps after it tore down the building. The Court goes on to say that the affidavit, in its present form, failed to demonstrate that the owner was a BFPP on both the pre-purchase and post-purchase steps. As such, the victory may very well be short lived.

Well, actually, it was kind of short lived because the Court found that the owner was none-the-less liable under a separate state law, for the cost of clean-up, even though it did not cause the contamination. The Court noted that there was no BFPP defense in the state law.

So what have we learned about the BFPP from this story?

I guess there are two things we can learn from this story. First, if you want to assert the BFPP defense, you better make sure you can prove all the elements. Second, even if you can assert the defense under CERCLA (a federal law), there is no guarantee a state will sit idly by and say, “sure, we’ll chase the defunct owner and leave you alone.”

But that second part is really important, too.

So, we have previously talked about the Ashley II case. Recently the 4th Circuit Court of Appeals came down with a decision on the appeal which was taken after the District Court’s rulings. In PCS Nitrogen Incorporated v. Ashley II of Charleston LLC, 714 F.3d 161 (CTA 4, 2013), Ashley again, lost.

The Court of Appeals essentially rejected all of Ashley’s arguments. For example, Ashley said that it was entitled to a lesser standard of care with respect to the site because Ashley was redeveloping it, just as Congress had intended. The Court’s response was that because Ashley knew the site was contaminated, there should be a higher standard of care. However, the Court settled on an “appropriate care” standard which is essentially what a reasonable and prudent person would do in light of the relevant facts and circumstances.

Applying this standard then, the Court quickly agreed that Ashley failed to exercise appropriate care because even Ashley’s expert agreed that the sumps should have been filled a year before they were actually filled. Thus, Ashley could not demonstrate all eight factors to qualify as a BFPP.

So what have we learned about the BFPP from this story?

I guess there are a number of things we have learned from Ashley II. First, trying to take advantage of the defense is tough; after all, the court said you had to meet all eight requirements. Second, have a plan to remediate and follow it. Third, follow it quickly. Fourth, maybe a Phase II isn’t such a bad idea. And finally, hope your consultant won’t say you did something wrong.

That’s all for this installment. Thanks for reading.

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