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Seventh Circuit Affirms 25% Allocation to No-Fault Purchaser in Superfund Litigation

The Seventh Circuit has affirmed that a purchaser with notice of environmental remediation risks can face a significant liability share under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA or Superfund)—even without contributing to on-site contamination. Valbruna Slater Steel Corp. v. Joslyn Mfg. Co., No. 18-2633, 2019 WL 3729272 (7th Cir. Aug. 8, 2019). The decision underscores how brownfield developers should be diligent in assessing a site’s risks and managing them through indemnity provisions, insurance, or other contract mechanisms, lest they face remediation liability down the road. As for past owners or operators facing liability, the decision offers leverage against no-fault owners who purchased with notice of contamination and may not qualify for Superfund’s innocent landowner defenses.

Case Background

The site at issue is a steel mill in Indiana, originally owned and operated by the defendant. In 1981, a third party purchased the property and commenced various clean-up activities. In 2003, the third party filed for bankruptcy, and plaintiff purchased the site at a steeply discounted price, in conjunction with a clean-up agreement with the State of Indiana. In 2010, plaintiff filed a lawsuit against the first owner claiming over $2 million in remediation costs.

25% Equitable Share Based on Assumption of Risk and Caveat Emptor; Reduction of Recovery to Avoid Windfall

Based on (1) plaintiff’s pre-purchase knowledge of clean-up risks, (2) its remediation agreement with Indiana, and (3) the multi-million dollar difference between the purchase price ($6.4 million) and asking price ($20 million), as well as the insured value ($80 million), the Seventh Circuit affirmed the district court’s allocation of 25% to plaintiff under the principles of assumption of risk and caveat emptor. Though the Seventh Circuit called the figure “striking” for a no-fault owner and noted that it “reached the limits of [the district court’s] discretion,” it found “no abuse of that discretion based on the facts of this case.” 2019 WL 3729272, at *10.

The Seventh Circuit also affirmed the district court’s $500,000 deduction from plaintiff’s recovery, which accounted for plaintiff’s payment under its cleanup agreement with Indiana. Though the Court noted that “[m]ore evidence would have been preferable,” it agreed with the district court’s inference that the plaintiff accounted for the $500,000 cleanup payment in its purchase price and thus should not be allowed to reap a windfall.

Conclusion

The Seventh Circuit’s decision highlights the need for careful due diligence and environmental risk management by developers when purchasing potentially contaminated sites, given the risk of significant clean-up liability down the road. At the same time, the decision confirms the viability of a valuable Superfund allocation argument for liable parties against no-fault owners who purchased property with notice of environmental risks.

© 2019 Beveridge & Diamond PC

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About this Author

Nicole Weinstein, environment, litigation, insurance attorney, Beveridge diamond
Associate

Nicole B. Weinstein focuses her practice on environmental litigation and regulatory matters, as well as insurance recovery. Prior to joining the Firm, Ms. Weinstein practiced insurance coverage with a national law firm and served as a law clerk to the Honorable Catherine M. Langlois, now retired, in the Superior Court of New Jersey, Morris and Sussex County, General Equity Division.  After her clerkship, Ms. Weinstein earned an LL.M. in environmental law from Pace University, during which time she interned with the Environmental Protection Agency, in the New York/Caribbean Superfund...

212-702-5416
Benjamin E. Apple, Environmental Attorney, Beveridge & Diamond Law Firm
Associate

Ben joined the firm following his graduation from Harvard Law School, where he served as Managing Editor of the Harvard Environmental Law Review while at Harvard Law School.  He also served as Director of Academic Affairs on the Student Representative Board, and as a member of the Harvard Human Rights Clinic.  He was also a research assistant to Professor Richard J. Lazarus.

Also during law school, Ben served as a law clerk for Advocates for Human Rights in New Orleans, a law clerk for Alternatives for Community and Environment in Boston, and interned at Greater Boston Legal Services.

Prior to law school, Ben worked as a lobster fishery biologist and research diver for the Florida Fish & Wildlife Research Institute, where he designed and executed experimental research focusing on by-catch, trap movement, and habitat destruction.

202-789-6002