Ohio Adopts CERCLA Bona Fide Prospective Purchaser Defense
On June 16, Ohio Governor DeWine signed into law H.B. 168, which creates a “bona fide prospective purchaser” (BFPP) affirmative defense to liability for performing investigative or remedial activities that arise out of release or threatened release of hazardous substances. Ohio follows a number of other states that have similarly enacted a BFPP defense or otherwise exclude BFPPs from liability. The defense provides that a person is “immune from liability” under Ohio’s environmental laws, including liability under O.R.C. Chapters 3704, 3734, or 6111, for such investigative or remedial activities. Further, the BFPP defense applies “retroactively” to pending causes of action that were initiated prior to the law’s effective date of September 14, 2020.
The BFPP defense will be familiar to many purchasers of commercial property as it is a primary driver in performing pre-acquisition real estate due diligence in order to avoid potential liability under the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). CERCLA imposes strict, joint and several liability on current owners and operators of facilities where a release or threatened release of hazardous substances has occurred, as well as past owners and operators of a facility at the time when disposal of hazardous substances occurred, arrangers for such disposal and certain transporters of hazardous substances to such facilities. The statute imposes broad liability for response costs associated with the investigation and remediation of such releases or potential releases. However, the statute also contains a BFPP affirmative defense to liability under CERCLA.
Importantly, the CERCLA BFPP defense offered no protection to liability under state environmental cleanup laws. The new Ohio BFPP defense provides such liability protection and, in closely following the structure of the federal corollary, allows purchasers of brownfields and other contaminated properties to acquire property with knowledge of contamination from past releases of hazardous substances without acquiring any associated liabilities so long as certain prescribed conditions are met.
First and foremost of these conditions is that a person must be able to demonstrate that they are a BFPP of the facility. Ohio borrows the definition from CERCLA, which provides that a person must be able to show that:
All disposal of hazardous substances at the facility occurred prior to acquisition;
the person made all appropriate inquiry (AAI) into the previous ownership and uses of the facility (e.g. obtained a valid Phase I report);
the person provides legally required notices with respect to the discovery or release of any hazardous substances;
the person exercises appropriate care with respect to hazardous substances at the property (including taking reasonable steps to stop continuing releases and prevent future releases, and prevent exposures);
the person provides full cooperation, assistance, and access to persons performing response actions;
the person is in compliance with land use restrictions and does not impede institutional controls;
the person complies with information requests and administrative subpoenas; and
the person is not potentially liable or “affiliated” with any person that is potentially liable for response costs at the facility.
In addition, Ohio’s defense also requires that the state’s cause of action rests on the person’s status as an owner or operator of the facility, and the person does not impede a response action or a natural resource restoration at the facility.
While many of the above requirements are somewhat easily established under most scenarios (such as preparing a valid Phase I environmental site assessment), other requirements may be more difficult to establish and less certain as to whether they are satisfied. For instance, “appropriate care” includes taking reasonable steps to stop continuing releases and prevent future releases. Given the complexity of many contaminated sites, there can be significant debate over whether efforts to address a release are adequate to meet the “reasonable steps” standard. Indeed, it is possible that a party would need to conduct an extensive site cleanup to satisfy this requirement. On that note, the new BFPP defense is incorporated into Ohio’s VAP statute, but leaves in place the option to take a site through a traditional VAP investigation and cleanup, which can offer liability protection via obtaining a Covenant Not to Sue (CNS) from Ohio EPA.
In addition to establishing the affirmative defense, the legislation also includes some conforming changes to the VAP statute and a few modifications, such as addressing circumstances where a CNS is voided because an institutional control or activity and use limitation was violated. Whereas a CNS was automatically voided when such controls were violated, the statute now authorizes (but does not mandate) the Director to issue an order voiding a CNS. Consequently, such discretionary actions of the Director are appealable.
The new BFPP defense should be received as welcome news to purchasers of brownfields, as it provides another option for avoiding liabilities associated with the purchase of contaminated property. This option may be preferable as it potentially avoids entry of a site into a full-blown VAP cleanup with the need for governmental approvals to obtain liability protection. On the other hand, the BFPP defense only comes into play once litigation has commenced and the court determines whether or not all necessary requirements have been met, which can present myriad additional risks. Regardless, it is always good to have options and brownfield purchasers can now evaluate how best to insulate themselves from liability, giving consideration both to this new affirmative defense as well as a traditional VAP cleanup.