Confusion Over Scope And Timing of RCRA Cleanup Leads to Potential Liability for Brownfield Developer

Last year, the brownfield community was rattled by the Ashley II decision of United States District court for the District of South Carolina holding that a brownfield developer failed to comply with the requirements of the Bona Fide Prospective Purchaser defense. The court ruled the developer did not comply with its post-closing continuing care obligations when it did not timely implement recommendations in a phase 1 report.

 Now, we have an equally scary case from the federal District Court for the Eastern District of Michigan where confusion over the scope and timing of a RCRA corrective action caused the brownfield developer to become exposed to potential CERCLA liability.  

 Saline Properties LLC v Johnson Controls, Inc, 2011 U.S. Dis. Lexis 119516 (E.D. Mi. 10/17/11) involved a 22-acre former die cast auto parts manufacturing facility in Saline,Michigan. Universal Die Casting (UDC) owned and operated the facility as a subsidiary of Hoover Universal from 1944 and 1984. In 1985, Johnson Controls, Inc (JCI) merged with UDC and operations continued at the facility until 1991.

After the plant was shut down, the Washtenaw Industrial Facility, LLC acquired title to the property and leased the site to an automotive parts storage and distribution company. When the tenant vacated the premises in 2002, the owner defaulted on its mortgage. The lender holding the mortgage on the site wanted to avoid foreclosing on the property because of the concerns about environmental conditions that might exist due to the site’s manufacturing history. The lender apparently contacted EPA to obtain information about potential liable parties and then approached JCI about getting the Site “delisted” from the RCRA Information System database so that the site could be marketed. In 2003, JCI entered into an RCRA 3008(h) Administrative Order on Consent (“AOC”) to perform a RCRA Facility Investigation/Corrective Measures Study (RFI/CMS).

 JCI had originally contemplated a Corrective Measures Plan (CMP) based on a commercial/industrial cleanup standard. However, while the RFI was underway, plaintiff Saline River Properties LLC (SRP) obtained a zoning change to residential to support a proposed $20MM condominium development. SRP acquired the site in 2006 after performing a Baseline Environmental Assessment (BEA). However, SRP did not conduct a pre-acquisition AAI-compliant phase 1. Instead, SRP performed a database update of a four-year old phase 1.

SRP obtained $1MM in brownfield funding fromMichiganin the form of a $400K CleanMichiganInitiative (CMI) Brownfield Redevelopment Grant and a CMI brownfield redevelopment loan of $600K. The funds were to be used to implement SRP’s due care responsibilities under the state Natural Resources and Environmental Protection Act (NREPA). SRP demolished the building structures in 2007, leaving only a building foundation that covered approximately 40% of the site.

At this point, the publicly available facts become a bit murky. Initially, it appears that SRP had contemplated using its CMI funds and an EPA brownfield revolving loan fund to remove the foundation and excavate contaminated soils necessary to achieve the more stringent residential standards. To facilitate this work, SRP performed a phase 2 which detected more extensive contamination than originally envisioned.

EPA then told JCI that because of the re-zoning, the reasonably anticipated future use was residential and therefore, the CMP had to be amended to reflect a residential cleanup standard.  EPA advised JCI that its RFI was not acceptable because there remained data gaps, which was confirmed by the SRP phase 2. Sometime in 2007, SRP demolished the building foundation

Since JCI was now obligated under the ACO to remediate the site to a residential standard, EPA determined that the site was no longer an eligible brownfield site. In making this determination, EPA said that it was now unclear what JCI would pay for and how the brownfield funding would be used. Citing to 42 U,S.C. 9604(k)(4)(B)(i)(IV) which provides that no part of a grant or loan may be used to provide an indirect benefit to a responsible party, EPA said it did not want public funding to be used for cleanup that could be the responsibility of JCI. Also, around this time, it appears that SRP lost its CMI funding because of project delays associated with the RFI/CMS.

In 2009, JCI submitted a CMP addendum. EPA identified a number of deficiencies. In early 2010, EPA met with JCI and SRP. EPA advised both parties that they needed to coordinate their activities to ensure that an effective corrective action plan. In follow-up correspondence, EPA told SRP that it had to provide detailed site plans including specific building locations. EPA also advised SRP that it had to define what due care measures it would be implementing so this work could be coordinated with the corrective action plan. EPA also reminded SRP that the former facility had been an RCRA interim status TSDF and that corrective action obligations for such facilities “ran with the land” and applied to future owners or operators of such facilities under 40 CFR 265.1 and 270.72(a)(4).

EPA also cautioned SRP that the slab had served as a barrier to groundwater infiltration exposure to contaminated soils until SRP was ready to commence construction in the slab area. EPA told SRP that addressing the slab was now critical because the removal of the slab allowed infiltration and exposure to contaminants that had been located below the slab.

SRP filed a lawsuit in 2010 seeking to enforce the AOC under the RCRA citizen suit provision, asserting breach of contract, negligence, and nuisance claims. In an initial ruling, the court dismissed JCI’s motion to dismiss and dismissed the state claims without prejudice. SRP then filed a complaint in state court and JCI removed the action back to federal court on diversity grounds. JCI filed counterclaims against SRP under CERCLA and NREPA. JCI filed a motion to dismiss the common law claims and SRP filed a motion for summary judgment on JCI’s CERCLA and NREPA counterclaims. The court dismissed the breach of contract, nuisance, and negligence claims. The court also granted summary judgment to JCI on the SRP’s citizen suit to enforce the AOC.

In its CERCLA counterclaim, JCI argued that SRP exacerbated the existing environmental contamination below the building by allowing additional rainwater into the ground that the building and slab might have partially diverted to the slab perimeter. SRP asserted it was exempt from CERCLA liability as a bona fide prospective purchaser (BFPP). JCI also alleged that it incurred additional response costs because it had to work around the rubble piles to continue its investigation, and was forced to change its remediation plan from using the slab as an engineered barrier with some “hot spot” removal to installation of an “in-situ oxidation” system. As a result of SRP’s action, JCI said it would have to spend an additional $520K.

The court said, though, that SRP had not presented evidence on each of the BFPP elements and also had not shown it had not impeded the performance of the response action. In contrast, the court said that JCI introduced evidence that vinyl chloride concentrations had been stable while the slab had been intact but began to fluctuate significantly after SRP had broken up the slab. JCI’s expert testified that the reason for the increased concentrations was the infiltration of precipitation into subsurface soils through the broken up slab causing migration of previously stable contaminants. The court said the evidence also showed that SRP was also well aware of the role barriers like the slab play in preventing exacerbation of existing contamination. Despite this knowledge, the court failed to take any steps to prevent future rainwater infiltration through the broken slab or to conduct any remedial or investigative steps.

Thus, the court concluded that the evidence showed that SRP failed to satisfy the BFPP defense criteria because it failed to take reasonable steps to prevent the continued release or the threat of a future release and also caused exposures to persons on the site. Indeed, the court said that far from taking reasonable steps, SRP demolished the 3-acre floor slab after being specifically warned by its expert not to do so, and with full knowledge that contamination underlay the slab. Likewise, the court said SRP had not established it qualified for the innocent landowner defense because it had not demonstrated that it exercised due care with respect to the hazardous substance

Turning to the elements of CERCLA liability, SRP argued that JCI could not establish there had been a release during SRP’s ownership because the vinyl chloride had existed in the soil and groundwater prior to the time SRP acquired title. However, the court said that the definition of “release” was broader than “disposal”. As a result, the court said that a release encompassed movement of hazardous substances without any human activity. Indeed, the court said that JCI had not simply alleged passive migration but that Saline took the affirmative action of breaking up the concrete slab, which caused hazardous substances beneath that barrier to migrate into additional soils and groundwater. Thus, the court said JCI had created a genuine issue of material fact as to whether SRP caused a release or disposal at the facility

On the NEPRA claim, JCI asserted that by breaking up the concrete slab that was serving as a barrier to the known contamination in the soil beneath the slab, SRP had exacerbated the existing contamination by causing a change in facility conditions that increased response activity costs. SRP argued that it is exempt from liability under M.C.L. § 324.20126(1)(c) because it conducted a BEA. The court noted that JCI had presented evidence showing that:

  • there was a very large concrete slab on the Property;
  • SRP knew there was contamination beneath the slab; 
  • a concrete slab can serve as an engineered barrier to contamination beneath the slab;
  • SRP’s environmental expert told SRP about their due care requirements, which were “first and foremost not to make the contamination worse, not to move it around, not to excavate it, not to create any new conditions of exposure for the existing contamination.”;
  • SRP’s environmental expert advised SRP not to break up the slab and to leave it in place;
  • SRP hired a contractor who broke up the slab;
  • SRP had not undertaken any measures to prevent rainwater infiltration through the broken up building slab; and
  • SRP environmental expert prepared a “Due Care Plan” for SRP but SRP did not follow that plan.

Thus, the Court concluded that JCI has submitted sufficient evidence to create a genuine issue of material fact as to whether SRP’s actions constitute exacerbation.

As Ashley and this case demonstrate, brownfield development is extremely complex and parties that move dirt need to understand the requirements of the CERCLA and state law liability defenses. Demolition and construction schedules need to be closely coordinated with remedial activities to ensure that the work is done in a cost-efficient manner and that the remedy is effective. Courts are going to be evaluating the performance of a remedy with the benefit of hindsight and what might may had made sense from a construction schedule when the work was be done may in retrospect not look like the exercise of due care or appropriate care.  

This case also serves as a reminder of how RCRA interim status will follow the land. Purchasers often only focus on CERCLA or state superfund law and fail to consider potential RCRA liability.

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