CERCLA — BFPP Defense

BFPP and Innocent Landowner Defense: Due Diligence Prerequisites

The bona fide prospective purchaser (BFPP) defense under 42 U.S.C. § 9601(40) and the innocent landowner defense under 42 U.S.C. § 9601(35) are the two landowner liability protections in CERCLA. Both share a critical feature: the prerequisites must be satisfied BEFORE closing. They cannot be established retroactively.

The Innocent Landowner Defense (§ 9601(35))

To qualify as an innocent landowner, the current owner must establish:

1. The hazardous substance disposal occurred before the owner acquired the property
2. At the time of acquisition, the owner conducted all appropriate inquiries into the previous ownership and uses of the property and found no evidence of contamination (or did not know and had no reason to know of the contamination)
3. After acquisition, the owner exercised due care with respect to hazardous substances, provided full cooperation to response authorities, and complied with any institutional controls

The innocent landowner defense is available under § 9607(b)(3) as a complete defense to liability. It is most commonly invoked by owners who acquired property in good faith and later discovered pre-existing contamination.

The Bona Fide Prospective Purchaser Defense (§ 9601(40))

The BFPP defense -- added to CERCLA by the Small Business Liability Relief and Brownfields Revitalization Act (2002) -- is available to purchasers who knowingly acquire contaminated property. Unlike the innocent landowner defense, knowing about the contamination before closing does not disqualify the BFPP. What matters is compliance with ongoing obligations after closing.

To qualify:

1. All Appropriate Inquiries before closing. The ASTM E1527-21 Phase I Environmental Site Assessment (EPA-recognized effective February 13, 2023; 40 C.F.R. Part 312) satisfies this requirement. ASTM E1527-13 is no longer acceptable.
2. Notice to EPA of any hazardous substance discovered. If the Phase I or subsequent investigation reveals contamination, the purchaser must provide notice.
3. Appropriate care. The BFPP must stop any continuing releases, prevent any threatened future releases, and prevent or limit human, environmental, or natural resource exposure to any hazardous substance released.
4. Full cooperation with EPA and state authorities conducting response actions.
5. Compliance with institutional controls that are designed to prevent exposure to contamination at the site.
6. No affiliation with a liable party. The BFPP must not be affiliated with (through a familial or corporate relationship) any person who is liable under § 9607.

The All Appropriate Inquiries (AAI) Requirement

The Phase I ESA under ASTM E1527-21 is the recognized standard for satisfying AAI. Key requirements under ASTM E1527-21:

• Conducted by an environmental professional
• Reviews of historical records, regulatory databases, interviews, and site reconnaissance
• Covers the current condition and uses of the property and adjoining properties
• Evaluates recognized environmental conditions (RECs) that represent past or present releases or material threats of releases

A Phase I with REC findings does not automatically disqualify the BFPP defense -- the BFPP may proceed to Phase II investigation and still maintain the defense if the ongoing obligation requirements are met.

State-Level Traps: Where Federal Compliance Is Not Enough

New Jersey (most important exception). A Phase I alone does NOT establish the innocent purchaser defense under the NJ Spill Act. The NJ Spill Compensation and Control Act (N.J.S.A. 58:10-23.11) defines "all appropriate inquiry" to require a Preliminary Assessment (PA) conducted in accordance with NJDEP's Technical Requirements for Site Remediation (N.J.A.C. 7:26E) -- not just an ASTM Phase I. The PA is a separate, NJ-specific document. Practitioners handling NJ acquisitions frequently make this mistake -- the federal CERCLA defense does not translate to Spill Act defense without the PA.

New York (newly created defense, ongoing obligations). The NY State Superfund BFPP defense under ECL § 27-1323(5) -- enacted as part of the FY2025 budget (Chapter Law 58, signed by Governor Hochul; applies retroactively to acquisitions on or after October 7, 2003) -- requires all appropriate inquiries before acquisition AND ongoing obligations: notice of discovery, "appropriate care" (stopping continuing discharges), cooperation with NYSDEC, and compliance with institutional controls. The NY BFPP defense is a fact-intensive, post-closing obligations framework, not a one-time pre-closing step.

California (HSAA). The California Hazardous Substance Account Act (Health and Safety Code § 25323.5) provides a state innocent landowner defense, but the standard differs from federal CERCLA. Under State Water Resources Control Board Resolution No. 88-63 (1988) ("Sources of Drinking Water Policy"), adopted pursuant to the Porter-Cologne Water Quality Control Act (Cal. Water Code § 13000 et seq.), California designates all groundwater as an existing or potential source of municipal and domestic water supply -- establishing a higher remediation standard than most other states, which directly affects what cleanup standard applies when the defense is invoked.

The Closing-Date Trap

The BFPP defense requires that all appropriate inquiries be completed before the purchase. Practically:

• The Phase I must be current at closing -- 40 C.F.R. § 312.20(a) requires that five key inquiry components (including interviews, records review, and visual inspections) be conducted or updated within 180 days prior to acquisition; ASTM E1527-21 is one approved methodology for satisfying this regulatory requirement
• If closing is delayed beyond the 180-day window, a Phase I update is required
• Post-closing discovery of contamination does not retroactively cure a failure to conduct AAI before closing

The defense must be engineered into the deal timeline, not bolted on after the fact.