BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Martha M. Escutia, Chair
2003-2004 Regular Session
SB 493 S
Senator Cedillo B
As Amended March 24, 2003
Hearing Date: April 22, 2003 4
Health and Safety Code 9
MTY:cjt 3
SUBJECT
Hazardous Materials: Liability
DESCRIPTION
This bill would immunize bona fide prospective purchasers
and innocent purchasers, as defined, from clean-up
liability associated with a release or threatened release
at a site, if the bona fide prospective purchaser or
innocent purchaser meets specified conditions.
The bill would also immunize a person from clean-up
liability associated with a release or threatened release
of a hazardous material from a site not owned by that
person, if the person owns real property contiguous to the
contaminated site and certain specified conditions are met.
BACKGROUND
The federal Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA) and various state
laws, including the Carpenter-Presley-Tanner Hazardous
Substance Account Act, generally provide that current and
previous owners of contaminated property are jointly and
severally liable for the cost of clean up of hazardous
materials released on a site. [Joint and several liability
means that all parties are potentially liable for the
entire amount. If one party finds itself paying more than
its fair share of the total liability, that party may seek
to collect against other responsible parties, but may still
be held liable for the total amount.]
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Recent changes to the federal CERCLA have granted immunity
to innocent and prospective purchasers, and innocent
contiguous property owners, for previously occurring
contamination for which the innocent or prospective
purchaser had no responsibility, subject to certain
conditions. This bill seeks to enact similar changes to
the state's environmental clean-up laws.
The bill is double-referred to the Senate Environmental
Quality Committee.
CHANGES TO EXISTING LAW
1. Existing law generally provides for joint and several
liability for current and previous owners of property for
the "response costs" (cost of clean up) incurred by the
government or any other party associated with the
contamination of a site by hazardous materials. [Federal
CERCLA, 42 USC 9601 et seq.; Carpenter-Presley-Tanner
Hazardous Substance Account Act, Health and Safety Code
Sec. 25300 et seq.; Hazardous Waste Control Law, Health
and Safety Code Sec. 25100 et seq.; Keene Underground
Storage Tank Cleanup Trust Fund Act, Health and Safety
Code Sec. 25299.10 et seq.]
Existing federal law provides that a person may be exempt
from response cost liability under CERCLA if the
following conditions are met: 1) the release of hazardous
substance was caused solely by an act or omission of a
third party other than an employee or agent of the
person, 2) the person exercised due care with respect to
the hazardous substance in light of all relevant facts
and circumstances, and 3) the person took precautions
against forseeable acts or omissions of the third party
and the consequences that could forseeably result from
that party's acts or omissions. This provision is
commonly referred to as the "innocent purchaser defense."
[42 USC 9607(b)(3).]
Existing federal law provides that a "bona fide
prospective purchaser" (BFP) whose potential liability
for a release or threatened release is based solely on
the purchaser's ownership or operation of a site shall
not be liable for response costs under CERCLA so long as
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he does not impede clean-up efforts. To qualify as a
BFP, all of the following conditions must be met: 1) all
disposal of hazardous substances at the site occurred
before the person acquired the facility, 2) the person
made all appropriate inquiries into the previous
ownership and uses of the site in accordance with
generally accepted good commercial and customary
standards and practices, 3) the person provides all
legally required notices with respect to the hazardous
substances, 4) the person exercises appropriate care with
respect to hazardous materials found at the site, 5) the
person complies with and does not impede any ongoing
clean-up efforts at the site, 6) the person complies with
any requests for information by the government, 7) the
person is not affiliated with any other potentially
liable person. [42 USC 9601(40).]
Existing federal law provides that if the federal
government incurs clean-up costs at a site where the
owner qualifies as a BFP, the federal government shall
have a lien on the property for the increase in the fair
market value of the property resulting from the clean up.
This lien, called a "windfall lien," remains in place
until satisfied by sale of the property or other means
(but not foreclosure). [42 USC 9607(r).]
This bill would provide that an innocent purchaser (IP),
or a bona fide prospective purchaser (BFP) as defined in
federal law, is not liable under any state law for any
clean-up costs associated with a release or threatened
release of any hazardous material at a site, if the IP or
BFP's liability is based solely on the person's ownership
or operation of the site.
This bill would provide that the protection from
liability does not apply if the IP or BFP impedes the
performance of any clean-up or restoration effort.
2. Existing federal law provides that a person who owns
real property that is contiguous to and is contaminated
by release on a site not owned by that person shall not
be liable for clean-up costs if the person: 1) did not
cause, contribute, or consent to the release, 2) at the
time of purchase conducted appropriate inquiry into the
site and did not know or have reason to know the property
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was or could be contaminated from another site, 3) is not
affiliated with any other potentially liable person, 4)
takes reasonable steps to stop further release, 5)
complies and cooperates with clean-up efforts, 6)
complies with any governmental requests for information,
and 7) provides all legally required notices.
This bill would provide that a person who owns property
contiguous to a contaminated site who meets the
conditions in federal law just described is not liable
for clean-up costs associated with hazardous material
from a site not owned by that person.
COMMENT
1. Need for the bill
This bill is sponsored by the California Center for Land
Recycling (CCLR), which writes that:
At the heart of the problem with contaminated
properties in California are state laws that
attach liability to any current property owner,
regardless of who was responsible for the
contamination. Under the "joint and several"
liability scheme, a new owner may be required to
pay the entire cost of the clean up, even if they
did not actively cause or contribute to the
pollution in the soil or groundwater. This
reality has caused a widespread dampening effect
on real estate transactions involving properties
that raise any concern about potential
environmental contamination[.]
The Home Ownership Advancement Foundation (HOAF) explains
that:
The main fear of purchasers of contaminated
property is that despite their best efforts to
identify property contamination and make the site
suitable for development, costly ground water
clean ups are a trap with no easy way out . . .
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Under current law, an innocent purchaser faces
unknown liability in perpetuity for groundwater
problems that are complex and costly.
The Job-Center Housing Coalition, an economic development
coalition formed by numerous business organizations
(including the Chamber of Commerce, the California
Building Industry Association (CBIA), and the California
Manufacturing and Technology Association (CMTA)), writes
that:
SB 493 would help solve these challenges by
encouraging private investors to take dormant
tracts of land and put them back into productive
use for new businesses, housing, parks and other
job-generating and community-enhancing projects.
The bill is modeled after a recently enacted
federal bill, which provided liability relief to
small business owners operating on, and potential
investors of, previously contaminated tracts of
land[.]
To achieve these goals, the bill would grant innocent
purchasers, prospective purchasers, and innocent
contiguous property owners with immunity from clean-up
liability under any state law for contamination for which
they had no responsibility. Immunity would also be
conditioned on various measures of due diligence and
compliance with environmental authorities before and
after purchase. The bill also explicitly specifies that
its immunities do not extend to personal injury or
wrongful death claims.
2. Does joint and several liability encourage or
discourage the clean up of contaminated sites?
While existing law generally makes past and current
owners of property jointly and severally liable for
response costs, the reality is that it is very rare for
an innocent purchaser to be held totally responsible for
response costs. Instead, agencies use the threat of
liability to encourage clean ups by existing owners and
to force clean ups by prospective purchasers. The
fundamental point of dispute between supporters and
opponents of the bill is whether this threatened
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liability is encouraging or discouraging the clean up of
contaminated sites.
Supporters argue that the threat of joint and several
liability is a major disincentive to clean up and
redevelopment of contaminated property. HOAF writes that
"In situations where there is no economically viable and
identifiable property owner, a homebuilder is loath to
take the liability risk." As a result, supporters argue,
many contaminated sites in the state remain unused and
are never cleaned up.
Opponents Sierra Club and the Planning and Conservation
League (PCL) argue, however, that it is this threat of
liability that allows agencies to order clean ups and
negotiate "prospective purchaser agreements" (PPAs). [A
PPA is an agreement between a prospective purchaser and
an environmental enforcement agency where the purchaser
agrees to clean the site to a standard set by the agency,
and in return the agency agrees not to sue the purchaser
for response costs.] Opponents are concerned that
without the threat of joint and several liability, state
agencies will be unable to order clean ups by current and
prospective owners. Opponents of the bill also argue
that PPAs, particularly when combined with other state
programs encouraging clean up (such as environmental
loans and insurance), are an effective clean-up tool.
Supporters respond that only companies with significant
resources are able and willing to negotiate PPAs. In
addition, supporters note, the cost of negotiating a PPA
and the high costs of the subsequent clean up mean that
PPAs are used only on those sites where a large profit
can be expected. Many contaminated sites do not fall
into this category, particularly, supporters note, in
low-income communities.
As to clean-up orders by state agencies, supporters argue
that the bill does not affect agencies' ability to pursue
responsible parties. More importantly, supporters argue
that the net gain in development (and the private clean
up associated with it) will outweigh the gain that
agencies get from ordering clean ups by current and
prospective owners. It is precisely the threat of
enforcement actions, supporters argue, that is leaving
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contaminated sites undeveloped and not cleaned.
3. Effect of joint and several liability on allocation of
clean-up costs
The joint and several liability in existing law
represents a previous policy judgment by the state that
obtaining the money necessary to clean a site is a higher
priority than the potential unfairness of making a party
pay more than its fair share for those clean-up costs.
How this policy actually impacts clean-up efforts varies
greatly depending on the nature of the site and its
previous owners. In situations where one or more of the
previous owners is well-funded, joint and several
liability allows an agency to draw on those owners to
clean a site. However, in many situations there are no
well-funded previous owners, and in some of those cases
the current owner is the only source of funds for clean
up other than the taxpayers.
Opponent Sierra Club argues that this bill:
would immunize property owners from liability by
shifting costs on to the public sector . . . in
cases where contamination by the previous owner
causes imminent danger to public health and
safety, the state will have to step in to conduct
a clean up with public funds[.]
Opponents further note that the bill does not contain a
significant piece of federal law designed to mitigate
this problem called the "windfall lien." The windfall
lien allows the government to place a lien on the
property of the immune prospective purchaser for the
increase in the market value of the property resulting
from the publicly funded clean up. Even if the bill
contained a windfall lien, however, some opponents might
still oppose the bill, preferring that the state retain
its more stringent protections.
The bill's supporters argue that opponents' costs
concerns are overstated for several reasons. First, they
argue that the state can still pursue previous owners for
response costs. Second, they argue that situations where
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the current owner is financially capable of paying
clean-up costs are rare; more often, supporters argue,
the current owner also has no funds, or there is no
viable current owner due to liability concerns.
The bill's supporters further argue against including a
windfall lien provision in this bill. Unlike the federal
government, California has multiple agencies that may
conduct a response action. Supporters argue that
drafting a lien provision that takes all these agencies
into account will either be too difficult or result in a
lien that creates too much uncertainty for prospective
property owners and lenders. This uncertainty,
supporters argue, would undermine the purpose of the
bill.
4. Impact on future projects
Opponent Sierra Club writes that removing liability for
prospective purchasers would increase the risk of
"redevelopment of sites without clean-up, resulting in
long-term public health disasters." In many cases,
opponents argue, using joint and several liability to
require a purchaser to clean a site prior to purchase
prevents the inappropriate use of contaminated property.
The sponsor responds that:
any redevelopment activity at a contaminated site
would be subject to California's rigorous
environmental standards, and all applicable
remediation and monitoring. This means that a new
owner who is interested in putting the property
back to productive use will be required to clean
up the property in cooperation with California's
natural resource agencies[.]
Supporters note that new development would still be
subject to the California Environmental Quality Act
(CEQA) as well as any local land use and environmental
regulations. Opponents worry, however, that the bill
would remove the threat of joint and several liability
that could be used by state agencies in negotiations with
developers.
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5. Scope of the bill
Opponent Planning and Conservation League raises a number
of concerns with the scope of the bill:
SB 493 would take liability exemptions that are
allowed in some limited circumstances in one
federal law [CERCLA] and apply them broadly to all
state and local laws that hold property owners
liable for response costs . . . SB 493 would not
be limited to brownfield sites. Its immunities
would apply to operating facilities as well as
vacated sites, and to affluent suburbs as much as
impoverished inner cities.
The sponsor responds that:
As with its federal environmental counterpart, SB
493 does not limit the scope of this limited
liability protection to properties of a certain
location or regulatory status . . . An inclusive
definition of "site" . . . ensures that a greater
number of redevelopment opportunities are
realized.
6. Issues for future consideration
The bill has a few "technical" issues the author may want
to consider, many of which are likely to be raised by the
Senate Environmental Quality Committee, where the bill
has been double-referred.
a. Definitions taken from federal law
The term "bona fide prospective purchaser" and the
conditions for innocent purchaser or contiguous
property owner liability protection are defined by
reference to applicable federal law. These terms are
described in detail in the "Changes to Existing Law"
section of this analysis.
Whenever direct references to federal law are used,
there is the possibility of implementation difficulties
resulting from differences in definition and
terminology. The author's office may want to keep
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these potential difficulties in mind as the bill moves
to the Senate Environmental Quality Committee. Also,
the author may want to consider using language similar
to Health and Safety Code Sec. 25310, which provides
guidance to state courts in interpreting federal
terminology.
b. Impact of bill on nuisance actions
Existing law provides for nuisance actions by private
parties against the owners of contaminated sites.
Among the recoverable damages in these cases is the
cost of "abatement." Committee staff has received
conflicting interpretations on whether the bill as
currently drafted covers these actions.
c. Impact on redevelopment agencies
Several laws, including the Polanco Redevelopment Act
and the California Land Environmental Restoration and
Reuse Act [SB 32 of 2001 (Escutia), Ch. 764, Statutes
of 2001], authorize local redevelopment agencies to
take a variety of steps to assess and clean a
contaminated site and then seek those costs from
previous and current owners, while giving the
prospective purchaser liability protections. This
bill's innocent purchaser provisions might impact those
efforts insofar as agencies seek costs from a current
owner who might otherwise qualify as innocent
purchasers under the bill.
Support: Bridge Housing; California Association of
Realtors; California Bankers Association; California
Building Industry Association; California Business
Properties Association; California Center for Land
Recycling; California Chamber of Commerce; Civil
Justice Association of California; East Bay Habitat
for Humanity; FannieMae; Greater Sacramento Urban
League; Greenlining Institute; Grupe Company;
Job-Center Housing; League of California Cities;
League of Women Voters of California; Livable
Places; LTSC Community Development Corporation;
Mexican American Community Services Agency;
Mid-Peninsula Housing Coalition; National Coalition
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of Hispanic Organizations; San Diego Regional
Chamber of Commerce; Services, Immigrant Rights and
Education Network (SIREN); Town of Los Gatos;
TELACU; Urban Ecology; Women Organizing Resources,
Knowledge and Services (W.O.R.K.S.)
Opposition: Sierra Club; Planning and Conservation League
(PCL)
HISTORY
Source: California Center for Land Recycling
Related Pending Legislation: SB 559 (Ortiz) seeks to
address the overlapping
jurisdictions of the state's various
environmental agencies by creating a
Brownfields Response Unit to
coordinate activities. The bill is
set for hearing the Senate
Environmental Quality Committee on
April 28.
Prior Legislation: SB 32 of 2001 (Escutia), Ch. 764,
Statutes of 2001;
SB 667 of 2000 (Sher), Ch. 912, Statutes
of 2000;
SB 1684 of 2002 (Polanco), Ch. 1004,
Statutes of 2002
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