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.
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.
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.
Beveridge & Diamond’s Superfund, Site Remediation, and Natural Resources Damages practice group assists clients in litigation and allocation of CERCLA sites, including complex, large-scale sites. We counsel clients on developing case law and requirements under CERCLA and state-equivalent hazardous waste laws. For more information, please contact the authors.