In the Know

Despite “As Is” Basis, Seller Allocated Liability Under Superfund for Failure to Address Contamination of Property
July 27, 2017
Alerts
Arnall Golden Gregory LLP
A federal court recently found the City of Fairbanks, Alaska responsible for 55% of the remediation costs necessary to clean up its former property because it should have taken action to mitigate the harm or warn the purchaser, even though the property was sold “As Is”. Under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), current and prior owners are jointly and severally liable for cleanup costs when neither actually caused the contamination (but did own the property when a release occurred and/or was discovered), and there is no other reasonable basis to apportion liability. Numerous courts have held that Superfund liability cannot be defeated by contract unless specifically addressed in the contract language. The court in this case, however, allocated more liability to the prior owner than to the current owner based on equitable considerations.

In Gavora, Inc. v. City of Fairbanks, Case No. 4:15–cv-00015-SLG, BL 256894 (D. Alaska July 25, 2017), the city owned two parcels of land. Gavora had a master lease on one of the parcels where a dry cleaner operated in a shopping center. The State of Alaska informed the city of contamination on the second parcel from dry cleaner-type chemicals and determined that groundwater flowed from the first parcel to the second parcel. Although it may never have been absolutely confirmed that the pollution originated from the first parcel, the District Court found it clear that the city knew or should have known that the first parcel was also contaminated.

The city sold the first parcel to Gavora on an “AS IS, WHERE IS” basis approximately 10 years after first learning of contamination on the second parcel. (Gavora did not perform its own environmental assessment.) When contamination was discovered on the first parcel approximately 5 years later, Gavora addressed the release and sued the City of Fairbanks for contribution. Notwithstanding that the purchaser expressly took the property “as is”, the court nevertheless held the seller liable. Further, the court allocated 55% of the costs to the city and 45% of the costs to the current owner because (1) the city knew or should have known of the contamination, yet failed to inform the purchaser or others, “potentially endangering the health of Fairbanks’ citizens and visitors”; (2) the current owner made substantial corrective action efforts upon learning of the problem whereas the prior owner had taken no action, and (3) it would be inequitable to hold the current owner responsible for contamination occurring prior to its master lease but the court could not “effectively apportion the contamination”, but (4) the current owner would obtain a greater benefit than the prior owner from the remediation.

In sum, the case (1) reaffirms the proposition that an “As Is” disclaimer will not by itself divest CERCLA liability from a seller, and (2) asserts the proposition that a court may resort to equity to allocate greater responsibility to a seller who does not disclose contamination even when it did not make any representation to the contrary. Although the opinion is not necessarily binding in other districts, it does have persuasive value and could be followed by other jurisdictions where a court is looking to expand liability despite a contractual agreement.