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PCS Nitrogen Inc. v. Ashley II of Charleston, LLC, Nos. 11-1662, 11-2087, 11-2099, 11-2104, & 11-2297

Decided: April 4, 2013

The Fourth Circuit affirmed the District Court on all issues arising out of a dispute for cleanup of hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”).

At the center of this dispute is a forty-three-acre piece of property located in Charleston, South Carolina (“Property”). From 1884 until 1972, the Property housed several fertilizer manufacturers that, as a by-product of fertilizer production, contaminated the soil with hazardous waste. The case concerns two of the fertilizer producing companies: Ross Development Corporation (“Ross”) whose predecessor company manufactured fertilizer at the site from 1906 to 1966, and PCS Nitrogen, Inc. (“PCS”) whose predecessor company manufactured fertilizer at the site from 1966 until 1972. Following 1972, the property was no longer used for fertilizer manufacturing. In 1985, the property was purchased by two private parties (“Holcombe and Fair”), divided into three parts, and between 1987 and 2003, sold to Allwaste Tank Cleaning, Inc. (“Allwaste”), Robin Hood Container Express (“RHCE”) and Ashley II of Charleston LLC (“Ashley”). Ashley currently owns the largest share of the property. Since purchasing the property, Ashley spent $194,000 investigating and remediating the contamination of the Property. In 2005, Ashley filed a declaratory judgment action arguing that PCS was jointly and severally liable for these costs as a “potentially responsible person” under CERCLA. The district court bifurcated the trial. In the first trial, the district court determined that PCS was liable as a “potentially responsible person.” In the second trial, the court determined that many of the other owners of the Property were also liable as “potentially responsible persons” and allocated a percentage of the liability for remediation costs to each “potentially responsible person.” Four issues were appealed.

First, the Fourth Circuit affirmed the determination that PCS was a “potentially responsible person” under CERLCA. The court stated that PCS would only be liable if the predecessor was acquired through a stock sale rather than an asset sale. The Fourth Circuit first looked to the plain language of the acquisition agreement to determine whether the parties intended to engage in a stock sale or an asset sale, and found that the agreement was ambiguous. Finding ambiguity, the Fourth Circuit moved to the extrinsic evidence surrounding the agreement. The parties agreed that the successor in interest would acquire “all of [predecessor in interest] that was not specifically retained or sold to another entity.” Also, the predecessor discounted its asking price by $5 million, provided that the business and assets were taken “as is.” Furthermore, two other agreements executed at the same time as the acquisition agreement provided that “substantially all” of the predecessor company was acquired in the sale. Looking at the extrinsic evidence, the Fourth Circuit found that the district court did not commit plain error in its determination that the extrinsic evidence established that a stock sale occurred, making PCS a “potentially responsible person.”

Second, the Fourth Circuit affirmed the district court’s finding that many of the other companies were also potentially responsible persons under CERCLA. Given that PCS was liable as a potentially responsible person, PCS was jointly and severally liable. Thus, under CERCLA, it was PCS’s burden to show that others were also potentially responsible persons and thus liable for a portion of the remediation costs. First, Holcombe and Fair argued that PCS did not carry its burden in showing that they were potentially responsible persons because PCS had no direct evidence that they contributed to the hazardous waste problem. The Fourth Circuit disagreed, following the Second Circuit’s determination that “CERCLA does not require a smoking gun.” The evidence in the case established that Holcombe and Fair affected “at least 27.9%” of the Property through construction and grading, giving the district court sufficient justification to find that Holcombe and Fair qualified as potentially responsible persons. Second, RHCE argued that they were not a potentially responsible person because their interest was not a part of the “facility” affected by Ashley’s declaratory judgment action. The Fourth Circuit disagreed, finding that CERCLA defined “facility” broadly and that fertilizer and construction activities which contributed to the contamination on the Property included that part of the property occupied by RHCE. Third, Ashley argued that they were not a potentially responsible person because they were a “bona fide prospective purchaser” under CERCLA. The Fourth Circuit again disagreed, concluding that Ashley did not meet the “appropriate care” requirement of the bona fide prospective purchaser defense by failing to fill contaminated sumps that even Ashley’s expert conceded should have been filled a year before Ashley did so.

Third, the Fourth Circuit affirmed the district court’s denial of apportionment of harm on the Property. The court found that PCS failed to show that liability could be effectively apportioned because of the difficultly differentiating in the amount of harm caused by the fertilizer producing companies and that amount of harm caused by construction and development of the Property by the non-fertilizer producing companies. In addition, the court rejected RHCE’s argument that its portion of the harm should be apportioned because no disposal of hazardous waste occurred during its operation of the facility. The court stated that RHCE’s argument would undermine the clear liability that CERCLA places on a current owner or operator, regardless of whether the current owner or operator disposed of any hazardous waste on the property.

Finally, the Fourth Circuit affirmed the percentage of the harm allocated to each potentially responsible person, finding that the district court did not abuse its discretion in its allocation of liability. Noting that the “record might have supported a different allocation,” the Fourth Circuit held that the district court’s allocation was supported by the evidence.

Full Opinion

– Wesley B. Lambert