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Redevelopments gone bad: An update on Ashley II of Charleston LLC v. PCS Nitrogen Inc.

bigstock_Construction_944821In a previous post we reported on a case in the 4th Circuit, Ashley II of Charleston LLC v PCS Nitrogen Inc., that could have a chilling effect on developers interested in redeveloping contaminated property.  In that case, Ashley purchased a contaminated parcel as part of its Magnolia Development – a sustainable/mixed use project.  Prior to purchase, Ashley fully investigated the site and was aware of the site’s past history of contamination.  Ashley incurred substantial costs to investigate and remediate the site and filed a CERCLA cost recovery suit against one of the prior owners of the site, PCS.  PCS filed contribution counterclaims against Ashley and others.  Ashley relied on CERCLA’s bona fide prospective purchaser defense; a claim which was rejected by the district court on a number of grounds.  Ashley appealed this ruling to the 4th Circuit Court of Appeals.

On April 4, 2013 the Court of Appeals issued its opinion upholding the trial’s ruling that the BFPP defense did not apply to Ashley. Although the district court’s decision was based on several facts, the Court focused on only one of them: Ashley’s failure to exercise appropriate care by: (i) stopping continuing releases; (ii) preventing future releases; and (iii) limiting human or environmental exposures. On appeal, Ashley argued that the “appropriate care” required under CERCLA should be a lower threshold for developers given Congress’ intent to promote brownfield redevelopment. The 4th Circuit rejected this. In doing so it examined what steps must be taken to satisfy the “appropriate care” requirement. The Court concluded that the Second Circuit’s due care inquiry was the appropriate assessment. That inquiry looks at whether the party “took all precautions with respect to the particular waste that a similarly situated reasonable and prudent person would have taken in light of the circumstances.” [Citing, New York v. Lashins Arcade Co., 91 F3d 353, 361 (2d Cir. 1996)]  In Ashley’s situation, the Court noted that Ashley’s  failure to fill certain sumps demonstrated it did not take reasonable steps that a similarly situated person would have taken.

The 4th Circuit’s decision should be a warning to all developers; do not presume that BFPP or innocent purchaser status shields you from properly handling contaminants when the site is redeveloped. Developers should establish, and follow, a clear due care plan that describes: how continuing and future releases are to be handled and how human and environmental exposures are to be controlled.  Failure to do so could result in liability for response costs beyond what was originally contemplated.

About Brian J. Considine

Brian J. Considine is a Senior Attorney with Dawda, Mann, Mulcahy & Sadler, PLC. He concentrates his practice in the areas of corporate environmental counseling, commercial real estate due diligence and environmental/toxics litigation. His practice also includes counseling clients on Federal Motor Vehicle Safety Standards.

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