There is no polite way to sugarcoat the opinion of the United States District Court for the Northern District of Georgia in Stratford Holdings LLC v Fog Cap Retail Investors LLC and Footlocker Retail , Inc. , No 1:11-C-3463 (Sept. 17, 2012).This is a bad decision that reflects a fundamental misunderstanding of CERCLA. If followed by other courts in Georgia, it could serve to discourage purchasers from acquiring retail properties that have had dry cleaning operations and cause lenders to hesitant to extend financing to these properties.
In this case, the predecessor of the Stratford had leased space to Kinney Shoe Corporation (Kinney) in 1975. Kinney or its successor, Foot Locker Retail, Inc., subsequently subleased the premises to a dry cleaner beginning in 1990. In 2002, Foot Locker assigned its lease to Fog Cap Retail Investors LLC (Fog Cap).
In 2010, a phase 1 was performed that revealed that the dry cleaner had been employing poor housekeeping practices. Concerned that the sloppy housekeeping could have impacted the soil and groundwater beneath the premises, Stratford demanded that Fog Cap perform an investigation and perform any cleanup required under law or pursuant to the lease. Fog Cap initially refused but then authorized a site inspection that concluded there had not been any PCE releases. Unsatisfied with the scope of the investigation, Stratford then retained an environmental consultant to conduct a phase 2 investigation that found PCE concentrations as high as 1200 ppb (soil) and 56 ppb (groundwater).
Stratford notified the Georgia Environmental Protection Division (EPD) since the sampling results exceeded the notification requirement. The EPD is required to list a site on the Hazardous Site Inventory [HSI] if it determines that a release exceeding a reportable quantity has occurred or that a release poses a danger to human health and the environment. Curiously, the EPD issued a Release Notification stating that “EDP has no reason to believe that a release exceeding a reportable quantity has occurred at the property.” As a result, the EPD determined not to list the premises at issue on its HSI.
Stratford demanded that defendants reimburse it for investigation costs and to restore the premises to its pre-lease (i.e., uncontaminated) condition. When the defendants did not comply with the demand, Stratford filed the lawsuit, seeking reimbursement for the costs it has incurred in assessing the PCE contamination under CERCLA §§ 107 and 113, and a declaratory judgment for future Costs. Stratford also sought a declaratory judgment regarding Defendants’ obligations under the lease along with claims for breach of lease, nuisance and negligence.
The defendants filed a motion to dismiss the CERCLA claim, asserting that plaintiff had not incurred “necessary” response costs under CERCLA. The court agreed with the defendants, holding that a plaintiff may only recover costs where an actual and real threat to human health or the environment. The court said that since EDP determined that the PCE contamination did not rise to a level that required the listing of the premises on its HIS, the plaintiff’s costs were not necessary.
The court seemed to be saying that if a site does not qualify for a listing under the EPD superfund program, a property owner could not seek cost recovery. However, CERCLA does not require listing under state superfund program as a pre-requisite for cost recovery nor does CERCLA require that a state agree that the contamination pose an actual and real threat to human health or the environment. What CERCLA does provide is that private parties may recover necessary costs of response that are consistent with the National Contingency Plan (NCP). The “necessary” element is directed to ensuring that a level of cleanup does not go beyond that which is necessary. For example, several federal courts have recognized that recovery of response costs incurred to achieve a higher level than the use of the property are not “necessary.” See G.J. Leasing Co. v. Union Electric Co., 54 F.3d 379, 386 (7th Cir. 1995); Southfund Partners III v. Sears, Roebuck and Co., 57 F. Supp. 2d 1369, 1378 (N.D. Ga. 1999); M.R. (Vega Alta), Inc. v. Caribe General Electric Products, Inc., 31 F. Supp. 2d 226, 233 (D. Puerto Rico 1998). Another example is when a plaintiff tries to seek cost recovery for construction costs, remediates the property simply to make it more marketable or seeks to recover litigation-related costs of identifying PRPs. Costs may be recoverable for risks that appear to be reasonable but may not materialize. For a response cost to be necessary, there must be some link or nexus between the response cost and some effort to respond to a risk of or an actual contamination. Here, the plaintiff found significant levels of PCE in soil and groundwater. Because of the peculiarities of Georgia law, the contamination may not have triggered the “reportable threshold” necessary for listing on the state inventory. However, there was still evidence of a significant release of PCE.
The preamble to the NCP had lengthy discussions on what levels of cleanups may be “necessary” depending on various scenarios. Action may be “necessary” to prevent or control further spread of contamination, to prevent the continued “release” of hazardous substances or pollutants or contaminants into the environment from a source, protect against current and potential exposure, and restoration of groundwater for potential future beneficial use. EPA specifically said in the preamble to the NCP “that rigid adherence to a detailed set of procedures should not be required in order to recover costs under CERCLA for private party cleanups.” Indeed, EPA went on to say that the ability to recover costs be condition on performance of “environmentally sound cleanups.” EPA also stated that “that it is an important public policy to encourage private parties to voluntarily cleanup sites, and to remove unnecessary obstacles to their recovery of costs.” 55 FR 8794 (March 8, 1990)
Issues like necessary costs and consistency with the NCP are highly fact intensive. The plaintiff appeared to have pleaded sufficient facts to at least proceed to discovery. Before dismissing the claims outright, the court should have at least become familiar with the NCP. The court should have looked to see if the work was done in accordance with the NCP, not if the contamination was sufficient to have the site placed on the state superfund list. In dismissing the complaint outright, the court did not appear to consider if “monitoring” of the release was necessary to ensure that the contamination does not pose risks in the future nor did it appear to consider the risk of exposure from vapor intrusion.
In a footnote, the court also said it was not persuaded by Stratford’s argument that a reportable quantity was irrelevant to the question of necessity of the response in a private cost recovery action. The court appeared to be conflating reporting obligation of section 103 of CERCLA with cost recovery available under section 107 or the right of contribution under section 113(f). A site may have historic contamination that exceeds applicable cleanup standards but may not trigger a reporting obligation because it cannot be determined if the applicable reporting obligation (i.e., discharge of a threshold amount over a 24 hr period) has occurred. Reporting obligations are a distinct CERCLA obligation. While there may be a minimum threshold for reporting releases, CERCLA liability is not predicated on a minimum amount of a release.
It is bad enough that reporting obligations do not apply to historic contamination. To use the antiquated reporting rules to determine when remedial costs may be recoverable will do nothing but delay the cleanup of this nation’s inventory of contaminated sites for yet another generation.