Owning property contaminated by hazardous material can result in government cleanup requirements, depress the value of the property, and create a possible threat to human health and the environment — not a good thing.
The federal Comprehensive Environmental Response Compensation and Liability Act (CERCLA) facilitates the cleanup of contaminated property by creating a federal cause of action that may allow landowners to recover a portion of their cleanup costs from the class of what CERCLA calls potentially responsible parties (PRPs).
CERCLA’s passage in 1980 changed the nature of real estate transactions by establishing new statutory liabilities among buyers and sellers of contaminated property, and all significant real estate transactions should address potential liability under CERCLA.
But attorneys dealing with environmental-law issues should know that CERCLA is not the only game in town. Section 361.344 of the Texas Solid Waste Disposal Act (TSWDA) contains a Texas version of CERCLA that provides a state cause of action for recovery of cleanup costs.
The Texas Supreme Court has described the TSWDA as a state counterpart to CERCLA, and the statutes’ scope is similar. In general, liability under both is strict and retroactive. Allocation of cleanup costs among liable parties under both is based on equitable factors. Persons who voluntarily clean up property can recover costs under both statutes.
Although similar, the requirements for cost recovery under CERCLA and the TSWDA are not identical. Lawyers contemplating cost-recovery litigation or who are drafting real estate documents to address possible cost-recovery claims need to be familiar with these differences. What follows are just a few of the differences to keep in mind.
• Covered materials. CERCLA provides a cause of action for recovery of the costs of cleaning up “hazardous substances.” Although CERCLA defines “hazardous substances” to include a large number of pollutants and chemicals that other federal environmental statutes define as hazardous, CERCLA specifically excludes “petroleum.” Thus, CERCLA does not create a cause of action for recovery of the costs to clean up releases of crude oil or gasoline.
The scope of materials eligible for cost recovery under §361.344, however, extends to a broader class of “solid wastes.” Thus, unlike CERCLA, recovery under §361.344 is not limited to cleanup of a specific class of hazardous substances, and the TSWDA may allow for recovery of the costs for the cleanup of releases of petroleum and petroleum products.
• Liable parties. PRPs are liable under CERCLA, and the TSWDA extends liability to “responsible persons” defined in §361.271. The classes of liable parties under CERCLA and the TSWDA are similar. Both include current owners or operators of contaminated property and, in some cases, prior owners and operators. Both provide similar protections for lenders and fiduciaries.
But there are important differences. CERCLA, for example, contains a “bona fide prospective purchaser” defense that, under certain conditions, limits the liability of persons who bought property after 2002 with knowledge that the property is contaminated. The TSWDA has no directly comparable defense to liability. Additionally, CERCLA has an express limitation on the liability of persons who send certain materials for recycling. There is no comparable “recycler” exception in the TSWDA.
• Cleanup requirements and government approval. Under CERCLA, cost recovery is available without government review or approval of the cleanup, but parties must prove that their cleanup was “consistent with the National Contingency Plan.” The national contingency plan is the set of federal regulations that establish the substantive and procedural requirements that a landowner must meet as a prerequisite to CERCLA cost recovery.
In contrast, cost recovery under §361.344 is available only if the Texas Commission on Environmental Quality has approved the cleanup. Conducting the cleanup under the Texas Voluntary Cleanup Program is the most common way to obtain this approval. In addition, §361.344 requires that costs be “reasonable and necessary” and that landowners provide early notice to defendants. These requirements may be different than those of the national contingency plan.
• Statute of limitations. CERCLA contains a specific three- or six-year statute of limitations for bringing a cost recovery action. The TSWDA, however, does not contain a specific statute of limitations for cost recovery under §361.344.
Given the extent of potential liability arising from buying and selling contaminated property, lawyers need to be familiar with the similarities and differences in liability under both CERCLA and the TSWDA. That would be a good thing.