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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.

© 2020 Beveridge & Diamond PC National Law Review, Volume IX, Number 241

TRENDING LEGAL ANALYSIS


About this Author

Nicole B. Weinstein Insurance Recovery & Environmental Litigation Attorney Beveridge & Diamond New York, NY
Principal

Nicole B. Weinstein helps clients minimize and eliminate liability for contaminated sites in litigation, and to recover insurance proceeds across industries.

Nicole's practice focuses on insurance recovery and environmental litigation. She excels at identifying avenues of defense and coverage, and in distilling complicated issues into understandable terms.

Nicole has been interested in environmental matters for as long as she can remember, and has always enjoyed thinking through complex challenges. She planned to become an environmental lawyer as a student, and after...

212-702-5416
Benjamin E. Apple Environmental Litigation Attorney Beveridge & Diamond Washington, DC
Associate

Ben helps clients navigate the complex environmental regulatory and litigation landscape of renewable energy development, brownfields due diligence and acquisition, and Superfund cleanups.

Ben also works closely on general environmental compliance issues surrounding electrical utilities in his role supporting firm Chairman Ben Wilson with his duties as Court-Appointed Monitor for the Duke Energy coal ash spill remediation project.

Ben’s core practice areas include:

  • Navigating the myriad environmental issues that arise in renewable energy development from land acquisition to environmental permitting to end-of-life waste management;
  • Guiding clients through the acquisition and leasing of brownfields, including due diligence and risk management;
  • Advising clients on defending against Superfund liability and negotiating remediation plans at major cleanup sites across the nation;
  • Litigating complex Superfund and tort matters arising out of historical contamination and present-day cleanups; and
  • Designing and implementing environmental, health, and safety (EHS) compliance systems to ensure regulatory compliance, especially in the electrical utility sector.

Prior to joining Beveridge & Diamond, Ben studied at Harvard Law School, where he served as a managing editor of the Harvard Environmental Law Review. Prior to law school, Ben worked as a lobster fishery biologist and research diver for the Florida Fish & Wildlife Research Institute.

Ben is located in Chapel Hill, NC, and practices out of our Washington, DC office.

202-789-6002