The previous post on March 2, 2023 entitled “The Case Law on the BFPP Defense (Part 4)” discusses the holdings of the United States District Court for the Southern District of Indiana in Von Duprin LLC v. Moran Elec. Serv., Inc. (S.D. IN 2019) and the appeal to the Seventh Circuit in Von Duprin LLC v. Major Holdings, LLC (7th Cir. 2021) that purchasers of the Former Ertel Facility and Zimmer Paper Parcel had not met the criteria as BFPPs. This post analyzes the district court’s determination that Major Holdings was a BFPP without having completed a Phase I environmental site assessment but rather was allowed to rely on Phase II sampling in its acquisition of the Former Moran Facility on October 4, 2005. The district court found:
“CERCLA makes it clear that performing a Phase I Environmental Site Assessment is sufficient to satisfy the all appropriate inquiries prong of the BFPP defense. 42 U.S.C. § 9601(35)(B)(iv)(II). But the law leaves open to interpretation whether a Phase I assessment is the only way to satisfy that prong, saying that a Phase I assessment “shall satisfy the requirements” of the all appropriate inquiries prong. At least one court has determined that a Phase I assessment is not the exclusive means by which a purchaser of land can make all appropriate inquiries. R.E. Goodson Const. Co., Inc. v. International Paper Co., No. 4:02-4184-RBH, 2006 WL 1677136, at *6 (D.S.C. June 14, 2006). The Goodson court determined that the Senate Report on the amendment adding the ‘shall satisfy’ language to CERCLA read that a Phase I assessment ‘can satisfy’ the ‘all appropriate inquiries’ requirement. Id. That court also noted that ‘Congress could have provided that a Phase I site assessment was required or was the exclusive procedure to satisfy the ‘all appropriate inquiries’ standard; however, Congress made no such mandate.’”
The Seventh Circuit affirmed this holding of the district court without any analysis other than stating that: “The evidence presented at trial established that Major [Holdings] completed the necessary inquiries in a complete and timely fashion in connection with acquiring the Moran property.” While this may be helpful in a future defense where a Phase II was completed without the benefit of an ASTM compliant Phase I, purchasers and tenants are cautioned not to rely solely on a Phase II as the district court’s analysis appears to have a narrow application to pre-November 1, 2006 acquisitions.
When the BFPP defense was added to CERCLA on January 11, 2002, EPA was mandated with promulgating a regulation “to establish standards and practices for the purpose of satisfying all appropriate inquiries.” 42 USC §9601 35(B)(ii). EPA’s AAI regulation became final on November 1, 2006, so Major Holdings acquisition of the Former Moran Facility predated its applicability. The district court correctly looked to 42 USC §9601 35(B)(iv)(III) in assessing whether Major Holdings met the BFPP defense which provides:
“With respect to property purchased on or after May 31, 1997, and until the Administrator promulgates the regulations described in clause (ii), the procedures of the American Society for Testing and Materials, including the document known as “Standard E1527–97”, entitled “Standard Practice for Environmental Site Assessment: Phase 1 Environmental Site Assessment Process”, shall satisfy the requirements in clause (i).”
This is the language that the district court analyzed finding that the “shall satisfy” language was not exclusive and means “can satisfy.” The language of the statute though provides that it only applies to acquisitions that pre-date when EPA promulgated its AAI rule which became effective on November 1, 2006. The AAI rule does not use the words “shall satisfy” or “can satisfy” but instead uses the word “must” in describing the requirement: “‘All appropriate inquiries’ pursuant to CERCLA section 101(35)(B) must be conducted within one year prior to the date of acquisition of the subject property and must include….” 40 CFR 312.20(a)(emphasis added). The section then goes on to list all of the customary requirements of an ASTM Standard Phase I environmental site assessment. As provided in the post on December 15, 2022, the AAI regulation currently allows the use of ASTM Standard E1527-13, E1527-21 and E2247-16 to meet AAI, but E1527-13 will be phased out effective on February 13, 2024. With the mandatory language in the AAI rule, the portion of the district court’s analysis in Von Duprin where Major Holdings was considered a BFPP without a Phase I should only be considered for the narrow period of acquisitions occurring on January 11, 2002 (the date the BFPP defense became applicable) through October 31, 2006 (the day before the AAI rule became applicable).
The next post will further examine the district court’s analysis of the Phase II that was performed and why it found that it satisfied AAI.