Legislative Issues: Understanding Environmental Liability of Landowners

A recurring environmental problem in the ceramic industry involves the transfer of property. The problem for someone purchasing land arises under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), which is administered by the Environmental Protection Agency (EPA). CERCLA makes any person who owned or operated a facility at which hazardous substances were disposed liable for all costs of removal of the hazardous substances if, at the time of disposal, it owned or operated the facility. The owner or operator can also be held liable for any remedial action taken to restore the site.

A recent appellate court decision, arising from the transfer of property in Ohio, will help protect unknowing buyers from attempts by the EPA to impose cleanup liability on land purchasers.

Case in Point

The case in question involved 150 acres of real estate. In 1987, the Ohio Environmental Protection Agency found 300 abandoned drums containing paint waste, chemicals and sludge on the property. Toxicity tests were negative. The property owner asked the Ohio environmental officials to inform her if the drums were a problem. They never responded to her. Over two years later, Ohio state inspectors reexamined the property and found drums that caused environmental concerns. The inspectors concluded that the drums were placed there during a period from the mid-1950s to the early 1970s-before the current owner acquired the property. After the reinspection, the Ohio officials did not advise the owner of possible hazardous materials or tell her to remove the material.

Over two years after the reinspection, Ohio officials asked the EPA to become involved. An EPA inspector found approximately 400 drums of waste, and soil tests caused the EPA to institute removal action. In all, the EPA removed about 1,000 drums, of which 550 contained waste. The rest were empty. The EPA then sought to collect over $850,000 from the current land owner for the removal costs and damages. EPA even perfected a lien on the property, posing the possibility of a forced sale of the land to pay the costs.

The landowner defended on the basis that she did not own the property when the disposal occurred and had no knowledge that any hazardous materials were present. She maintained that after two inspections, the Ohio Environmental Protection Agency never told her of any hazard problem, and the situation was not obvious (the area was overgrown with tall grass and other vegetation). The lower court held for the EPA and said the current owner was responsible. The Court of Appeals, however, reversed and ruled that under the circumstances the current owner may not be liable. The appellate court asked the lower court to examine the evidence as to who knew what and when.

In the Ohio action, the EPA maintained that the current owners were responsible because they were "disposing" of hazardous waste onto the land after they acquired it. The EPA's theory was that the drums continued to leak after the property changed hands, and this was "disposal" under the statute. The Court of Appeals rejected the EPA's "passive movement of substances" argument and said that it did not constitute disposal. Other federal appellate courts have ruled the same way, rejecting the EPA's theory on leaks being the same as disposal.

What it Means to You

The basic holding by the Court of Appeals is that current owners of property may not be liable for cleaning up hazardous situations not caused by them and unknown to them when they acquired the property. A purchaser, however, cannot avoid all responsibility by claiming it was ignorant of any problem when it acquired a site. Instead, purchasers must make appropriate inquiry concerning what the past uses of the particular property may have been. Obvious situations, such as the presence of drums full of chemicals and storage tanks, need to be investigated before the property is purchased.

The case demonstrates that EPA does not always win in court, but it also shows that property transfers may pose significant environmental liability problems. As some in the ceramic industry have already learned, careful investigation of past use and existing problems needs to be undertaken before any industrial or storage site is acquired. Purchasers may insist that sellers agree to bear the costs of any cleanups for problems discovered later.