A federal court found there were triable issues if a purchaser qualified as a bona fide prospective purchaser (BFPP) because of alleged flaws in a phase 1 environmental site assessment.
In Stratus Redtail Ranch LLC v. IBM, 2022 U.S. Dist. LEXIS 8723 (D. Col. 1/18/22), the plaintiff had acquired a 290-acre parcel of agricultural land in the rapidly growing suburbs east of Boulder to construct 500 homes. The development site is bounded to the north by the Denver Regional Landfill, and the closed Old Erie and Columbine landfills. To the ease is the Front Range Landfill.
The plaintiff’s phase 1 environmental site assessment had identified these adjacent landfills as Recognized Environmental Conditions (RECs) or Controlled RECs (CRECs) because of the potential for migration of landfill gas. However, the phase 1 ESA failed to discuss that approximately 1500 drums of liquid hazardous wastes from an IBM plant containing halogenated organics, solvents inorganics, acids and bases had been dumped in the 1960s on a portion of the development parcel.
Site History-
The Property that was subject of the litigation had been part of a larger 330-acre parcel of land. In the 1960s, owner Harold Pratt wanted to expand the arable land and arranged with a solid waste transporter to operate a landfill to fill gullies and ravines of the “South Draw” – which was located south of two other dumps known as the Columbine Landfill and the Old Erie Landfill. It appears that the presence of multiple landfills adjacent to the development site and poor or sloppy government records coupled with what appeared to be a complacency by environmental consultant about the site history led to considerable confusion about the precise location of the waste drum area.
The landfill operation was plagued by open burning and several chemical fires and was abandoned in 1969 without installation of a final cap. In 1984, the adjacent Columbine Landfill was placed on the federal CERCLIS on the mistaken suspicion that the IBM drums had been disposed at that landfill. EPA performed a preliminary assessment (PA) and Site Inspection (SI) of to determine if the landfill should be placed on the National Priorities List (NPL). While surface and groundwater contamination was detected, EPA determined the landfill did not warrant being added to the NPL because it did not pose a risk to drinking water.
In 1990, an internal IBM investigation uncovered the history of waste drum disposal and the company filed a voluntary notice of disposal under CERCLA section 103(c) which indicated that the company had disposed hazardous wastes at the Erie Landfill. This notification led the CPDHE to perform a revised PA of the Columbine Landfill. During the inspection, the CPDHE inspector observed the presence of rusting and leaking steel drums containing a variety of hazardous wastes in the South Draw. The revised PA concluded that hazardous waste disposal had occurred at the South Draw and observed signs of soil contamination. The CPDHE inspector shared this information with property ownership. Once again, the landfill was not placed on the NPL and was archived on what was then known as the EPA CERCLIS (now SEMS) database.
In 1992, title to the site was transferred to WWD LLC (WWD) which was owned by Pratt’s adult children. WWD did not conduct any pre-acquisition investigation of the Property prior to the conveyance but WWD’s management company retained an environmental consultant to perform an environmental assessment two weeks after taking title. The report discussed the past drum disposal and recommended that the drums be removed but WWD took no action.
In 2007, a potential purchaser conducted a phase 1 and phase 2 which identified the South Draw landfill and elevated levels of chlorinated organic compounds (VOCs) solvents in the soil gas as RECs. The sale fell through because of the Great Recession but the purchaser shared its reports with WWD.
With the formerly rural area now undergoing explosive growth, Plaintiff agreed to purchase the Property in 2015. Although the phase 1 consultant reviewed the 1990 PA, it appears that the consultant may have confused the South Draw landfill with the nearby active and inactive landfills since it did not mention any on-site solid waste disposal or hazardous waste. Based on expert reports prepared for the lawsuit against the environmental consultant who prepared the Phase I, it appears the confusion may have been because the consultant did not physically inspect the South Draw area during its site reconnaissance and thus missed obvious signs of industrial wastes , did not interview on-site managers and may have searched records of the wrong county agency.
Stratus did not learn about the drum disposal until informed by the Colorado Department of Public Health and the Environment (CDPHE) in 2016 after Stratus had acquired title that further investigation was required to assess risks posed by the historic dumping. Stratus was also informed by the local government that it would not be allowed to proceed with the development remediation was completed.
In 2017, Stratus entered into an administrative settlement with EPA to perform a removal action to excavate buried drums and contaminated soils. In the EPA administrative order, Stratus represented it was a BFPP. Stratus also entered into a Compliance Order on Consent with the CDPHE in 2018 to conduct a comprehensive site investigation and groundwater remediation.
After incurring $4.5MM in response costs and anticipating another $4.2MM in future costs, Stratus filed a CERCLA cost recovery action against WWD and IBM. Stratus also filed a state lawsuit against its environmental consultant alleging breach of contract and professional malpractice.
The Litigation
WWD filed a motion for summary judgment arguing it was not liable under CERCLA because no “disposals” had occurred during its ownership and that it was also entitled to the ILO defense because none of its members knew or had reason to know that the property has been used for disposal of hazardous wastes. The plaintiff and IBM countered with their own motions for partial summary judgment requesting that the court reject WWD’s affirmative defenses.
WWD argued it was not a prior owner “at the time of disposal” since it acquired the property 23 years after IBM drums had been disposed. The court said it did not have to reach the issue of passive leaking from deteriorating barrels constituted “disposal” because there were disputes of material facts if the earthmoving activities associated with the construction of the ponds or the drilling had disturbed contaminated soils so as to constitute “active” disposals. Likewise, the court found material disputes if Kramer or WWD had actual knowledge that drums of chemical waste were located on the Property and had been decaying or otherwise leaking. Thus, the court denied WWD’s motion for summary judgment on its ILO defense.
IBM also asked the court to reject the Plaintiff’s BFPP and ILO defenses on the basis that its phase 1 was deficient and did not comply with EPA’s all appropriate inquiries (AAI) rule. The court found there were several genuine disputes of material fact that preclude summary judgment on Plaintiff’s affirmative defenses including but not limited to if the phase 1 consultant failed to visit and visually inspect areas of the Property where it had reason to know that hazardous materials may have been disposed, if the consultant had adequately reviewed local and federal records, if the presence of discarded and deteriorating the drums should have was so obvious to put the consultant on notice of a presence of release or threatened release” of hazardous materials at the Property and if the plaintiff had had “reason to know” of a release or threatened release of hazardous substances at the property on the basis of the information it acquired through seeking to conduct AAI.
It is surprising that neither the plaintiff nor WWD referred to the ASTM E2247 standard practice for Forestland or Rural Property which EPA has recognized as a method for demonstrating compliance with AAI when asserting their affirmative defenses. Since ASTM E2247 has more flexible requirements for satisfying the site reconnaissance component as well as more limited “standard historic sources” that need to be reviewed, Stratus and WWD may had better success convincing the court they complied with AAI. Also surprising was that Stratus did not mention that the removal order signed by EPA acknowledged that Stratus was a BFPP.
Post-Litigation-
Perhaps as a reflection of the strength of the Denver-area residential market, this decision was not a setback for the proposed development. The parties eventually settled the litigation, and Stratus recently completed the groundwater remedial program required by CDPHE and obtained a No Action Determination (NAD) for the southern 250 acres of the property. As part of the subdivision approval, Stratus will install sub-slab depressurization systems for all the homes, record an institutional control prohibiting use of groundwater and include an environmental disclosure in the plat plan. The Colorado Brownfields Revolving Loan Fund recently agreed to provide a loan to fund construction of an engineering cap on the abandoned South Draw Landfill in the northern part of the property. The site will be subject to a 30-year post-closure monitoring and maintenance plan.