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The Monster in the Closet: Superfund Liability for Dry-Cleaners
This article has been reprinted from the June 2003 issue of Carolina Clean.

6.1.2003

Compared to their colleagues in many other States, North Carolina dry cleaners stand in an enviable position. As those in the dry cleaning industry should know by now, the North Carolina Dry-cleaning Solvent Cleanup Act ("DSCA) may fund, less a deductible amount, the cleanup of dry cleaning-related contamination of soil and groundwater by perchloroethylene ("perc") and "comparable" cleaning agents, as well as their degradation breakdown products. Many States have no such program. As a rule, in those States the cleanup of dry cleaning solvent contamination and the allocation of associated costs can be required under the harsh federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund"). From a practical standpoint, those dry cleaning solvent contaminated sites in North Carolina to be cleaned up under the DSCA program are far less likely to involve Superfund because the State will largely pay to clean up the contamination.

However, North Carolina dry cleaners can be disqualified from DSCA eligibility if they fail to comply with certain DSCA requirements - for example, the minimum management practices ("MMPs"). Still others may find themselves in unique factual situations where DSCA does not apply, or does not apply soon enough, such as when the site is already being cleaned up under a federal program. For these dry cleaners, the specter of Superfund liability is real and could be their ruin. This article will discuss the basics of Superfund liability - the "Monster in the Closet."

Superfund's Purposes

Congress enacted CERCLA for two primary purposes. The first purpose is to provide the federal government with a means to help control the spread of hazardous substances from waste "disposal" sites. Second, CERCLA assigns the ultimate costs of cleaning up such disposal sites to the parties responsible for the contamination. Although this is referred to as the "polluter pays" principle, in practice the responsible party assigned the costs through CERCLA may not be a polluter at all, but may be merely the owner or operator of the contaminated property.

Superfund provides the U.S. Environmental Protection Agency ("EPA") with authority to investigate contaminated sites and either (a) clean up a contaminated property itself using federal money and then demand reimbursement of investigative and cleanup costs from one or more "potentially responsible parties" ("PRPs"), or (b) demand that a PRP clean it up in the first instance. Superfund also encourages private clean up of hazardous substance contamination by providing private causes of action through which both non-PRPs and PRPs may sue other PRPs to recover all or part of their cleanup costs. Generally, though not always, EPA focuses its efforts on the cleanup of contaminated sites that are much larger in size and scope than those caused by retail dry cleaners. Thus, the most likely scenario for dry cleaners is that they will encounter Superfund when sued by another private party that is attempting to recover its cleanup costs.

For example, a non-PRP (i.e. a party not legally liable for the contamination) may file a CERCLA "cost recovery" action against a PRP to recover all of the non-PRP's past and future cleanup costs. Alternatively, a PRP can file a CERCLA "contribution" action against another PRP in which the former demands that the latter contribute to the past and future cost of cleaning up the contaminated property. In this situation, the court will apportion a percentage of the past and future cleanup costs to each PRP. The motivation to recover such cleanup costs is clear - Superfund cleanups are notoriously expensive, routinely costing in excess of $1 million.

Basics of Superfund Liability

A party seeking to recover costs under CERCLA must establish four elements: (1) that the contaminated area is a "facility," (2) where a "release" of a "hazardous substance" occurred or threatens to occur, (3) that such "release" or "threatened release" has caused the suing party to incur "response costs" that are "consistent with the National Contingency Plan," and (4) the party that is to be sued falls within one of four classes of persons subject to CERCLA liability.

Superfund provides its own system of definitions that flesh out these elements:

  • Superfund defines "facility" as "any site or area where hazardous substance has been deposited, stored, disposed of or placed, or otherwise come to be located." Federal courts have consistently held that a dry-cleaning operation under which perc contamination has "come to be located" constitutes a Superfund "facility."
  • Perc is a CERCLA "hazardous substance." "Release" is defined broadly, including "any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injection, escaping, leaching, dumping, or disposing into the environment." Courts hold that the presence of perc in the soil, surface water or groundwater under or around a dry cleaning site, regardless of quantity or concentration, is evidence of a CERCLA "release."
  • "Response costs" include those incurred in "removal" or "remedial" actions. "Removal" means the cleanup or removal of released hazardous substances from the environment on an urgent basis, as well as actions necessary to monitor, access, and evaluate the release or threat of release of hazardous substances, and the disposal of removed material (e.g. contaminated soil, surface water or groundwater). "Remedial actions" are those consistent with a permanent remedy taken instead of or in addition to a removal action. The National Contingency Plan is a series of EPA regulations that outline procedures and standards for removal and remedial actions.

The last element required is that the party that is to be sued must fall within one of four classes of responsible persons: either (a) a current owner or operator of the facility where the release of hazardous substances has occurred, (b) a past facility owner or operator at the time the release occurred, (c) the party that arranged for disposal or treatment of the hazardous substance at the facility, and (d) the party that transported the hazardous substance to the facility, if it selected the facility. In the context of retail dry cleaning operations, category (a), (b) and (c) are the most likely applicable categories.

CERCLA is a "strict liability" statute. That means that if the four CERCLA elements are satisfied as to a PRP, even if that PRP did not cause or even know about the contamination, then that PRP is liable for cleaning it up. For example, the party that owned the facility when perc or another hazardous substance was spilled there will always face liability, regardless of its blamelessness.

Superfund liability is also "joint and several." For example, assume that for five years a dry cleaner operated at a site where nine other dry cleaners, all of whom are now out of business, had operated beforehand. Even if all ten dry cleaners spilled an equal amount of perc, the tenth dry cleaner is liable for the cost of cleaning up all the contamination.

The mere fact that a dry cleaning business is operating as a corporation does not necessarily protect the owners, directors and shareholders of the corporation from individual CERCLA liability. Such owners, directors and shareholders have been held personally liable for Superfund cleanup costs where they participated in the day-to-day management of the dry-cleaning operation or made decisions about the disposal of spent perc.

Finally, parties cannot contract away their Superfund liability. In other words, if the government attempts to hold a landlord liable for dry cleaning solvent contamination, the landlord cannot escape liability because its tenant/dry cleaner agreed to accept all Superfund liability in the lease. Landlords, can, however, allocate the ultimate financial burden of a CERCLA cleanup in a lease. Accordingly, landlords generally include indemnity provisions in their commercial leases that require dry cleaners to reimburse them for any costs they incur as a result of the dry cleaner's operations.

Avoiding Superfund Liability

The surest way to avoid Superfund liability is to not use hazardous substances and to steer clear of property contaminated by hazardous substances. For dry cleaners this is often not possible. However, there are steps that dry cleaners can take to reduce their potential CERCLA liability.

First and foremost, comply with all of DSCA's requirements - in particular the minimum management practices. Then consider whether there are any other steps that can be taken to prevent a release, such as sealing cracks in concrete floors and then coating the floor with an epoxy-type sealant rated to resist perc. Dry cleaners can also conduct intensive employee training in how to handle perc and perc spills. It is at this point that having a good relationship with an environmental consultant familiar with the MMPs and perc's chemical properties is helpful in evaluating what other steps may be taken to avoid or at least contain perc spills.

The best way to avoid hazardous substance contaminated property is to investigate it before you buy it, rent it, or operate on it. The extent, and therefore the cost, of such an investigation will depend on the property and its history. For property on which perc dry cleaning has historically occurred, the site assessment should at a minimum include some amount of soil and groundwater sampling to test for the presence of perc contamination. Dry cleaners should be wary of buying, renting or operating on property where the seller or landlord refuses to allow a subsurface investigation.

If perc contamination is found during a subsurface investigation, the dry cleaner interested in buying, renting, or operating at the site then has a baseline showing the contamination present at the property before that dry cleaner gets involved with it. Optimally, the party responsible for the contamination, the property owner, or some other party will voluntarily get the property into the DSCA program so the contamination can be addressed. While great care should be taken when buying or leasing contaminated property, the discovery of contamination is not always a deal breaker. There are ways to structure the purchase or lease of such property that can significantly reduce a dry cleaner's liability exposure under Superfund. In that situation, it is wise to seek legal counsel versed in how best to manage contaminated property in such transactions.

For dry cleaners in other States, Superfund liability really is a monster ready to pounce on those involved with perc-contaminated sites. While certainly no guarantee against Superfund liability, DSCA is the chair propped against the door to the closet containing this monster in North Carolina.

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