CERCLA: convey to a pauper and avoid cost recovery under section 107(a)(1)?
A. Categories of Potentially Responsible Parties (PRPs)
In 1980, Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), (2) with the goal of cleaning up disposal sites and requiring those who caused the problem to pay the cost. (3) At the heart of this Article are three of CERCLA's four categories of "potentially responsible parties" obligated to pay for cleaning up disposal sites, namely 1) "the owner and operator of a ... facility," 2) owners or operators "at the time of disposal," 3) any person who arranged for disposal of hazardous substances, and 4) any person who accepted any hazardous substance for transport. (4) Liability imposed on potentially responsible parties who fit the statutory categories is described as strict, (5) retroactive, (6) perpetual, (7) and virtually unlimited in amount. (8)
There is nothing remarkable about requiring parties who deposit hazardous waste to clean it up, even decades after the deposit. CERCLA, however, also imposes personal liability on parties who, having failed to meet the Act's standards of due diligence, buy contaminated land and hold the status of owner when cost recovery is sought. (9) This liability may far exceed the value of the recovered land. (10) Mere ownership at the time costs are recovered can therefore be a devastating event for a title holder who had nothing to do with actual deposit of waste.
B. Immune Parties
CERCLA does not impose personal liability for cost recovery on all entities who would be classified under state law as "owners" of a disposal site. People who become owners involuntarily--for example, by inheritance (11)--escape statutory liability. Municipalities and government agencies have general responsibility under CERCLA for their own actions (12) but not for lands acquired through tax foreclosure or eminent domain. (13) Similarly, mortgage lenders are not liable as owners if they hold title only as security and try diligently to dispose of foreclosed land. (14) Parties who meet an "innocent landowner" standard may defend against cost recovery by showing they did not know nor had any reason to know that hazardous waste was on the land when they purchased the property. (15) Most important for the innocent landowner defense is that the buyer made an adequate inquiry to determine whether disposal had occurred. (16) This Article does not deal further with immune parties beyond noting that their immunity may be only a thin categorical line away from the hapless owner who is not immune.
Site owners may be entitled to pursue other parties for contribution or reimbursement, but that remedy is useful only if the other parties are known and solvent. (17) Purchasers may also lose their rights by taking a conveyance of land with an "as is" disclaimer. (18) This Article assumes that remedies against third parties offer no help to the affected current title owner.
C. Owners and Arrangers
The two precise categories of owner liability axe: 1) owners at the time of disposal under section 107(a)(2), (19) and 2) owners at the time response costs are incurred, made liable by section 107(a)(1). (20) The categories are distinctly different. Owners at the time of disposal carry liability for cost recovery into the indefinite future (21) and cannot escape it by conveying to a new owner; (22) site owners who bought contaminated land but were not involved in disposal are liable under section 107(a)(1) only if they still hold title when cost recovery is sought. (23) Accordingly, they can step out of the liability chain by conveying to a new owner and providing adequate disclosure. (24) This Article was prompted by this apparent ability to avoid liability by passing land title to a new owner.
Another relevant category of liability is "arranging" for disposal under section 107(a)(3). (25) Hazardous materials are legitimate products for sale and use; only when they become waste does disposal becomes an issue. Accordingly, arranger liability distinguishes between sales of hazardous materials to buyers proposing to use the materials in further production of goods and transactions disguised as sales that are in reality strategies for disposal. (26) Sellers of materials for use in further production of goods are not liable for response costs, even if the buyer dumps the raw material. (27) A seller of hazardous material may, however, be liable as an arranger if the sale is merely a disposal in disguise. (28) Often, the critical question for determining whether a transaction is a sale or a disguised disposal is whether the hazardous material has value for further use. If the material is valuable, the transaction is likely a sale and the seller has not arranged for disposal. (29) If it has no value, then the material is likely to be waste and the seller may be liable for arranging disposal. (30)
Liability attached to section 107(a)(1) ownership may overlap liability under another category. For example, an otherwise passive owner may unwittingly become an "operator" of a disposal site or liable for "release" of waste if, during ownership, the owner moves earth and thereby disturbs previously deposited waste. (31) Some courts have held that if deposited waste migrates during ownership, the owner can be treated as an operator; (32) however, the trend appears to be against imposing liability for passive migration. (33) The present inquiry does not discuss the migration or disturbance issue beyond noting that the more time that elapses between initial purchase and strategic conveyance, the more exposure an owner may have under one of these theories. (34)
D. Disappointment Versus Disaster
From the title owner's point of view, if cleansed land has commercial value after deducting the cost of removal, there is reason to grumble but no incentive to abandon ownership. The property is a damaged and diminished asset, but an asset nevertheless. (35) If, however, the cost of cleanup substantially exceeds land value, title is a pure liability. Not all costs connected with a CERCLA encounter are directly connected with removing waste from the site. For example, the costs of environmental surveys, formulating a plan for the site, and bureaucratic hassle may, for example, make ownership a burden, even if specific responsibility is ultimately avoided. (36)
E. Relative Innocence
The general policy that "the polluter pays" (37) without limitation makes perfect sense when applied to at-fault generators, owners, operators of sites at the time of release or disposal, and transporters of waste, regardless of the cost of compliance. (38) Obligating "almost innocent" owners who simply get caught holding title when costs are assessed is, as a matter of justice, less compelling. (39)
The paradigm case is a careless commercial purchaser who, for some reason, flunked the innocent purchase standard for immunity by, for example, failing to conduct an environmental survey before buying land on which a disposal site is later discovered. (40) Even a purchaser who arguably meets the standard may want to avoid the bureaucracy involved in holding title to low valued land with high cleanup liability imposed solely by the purchaser's status as "owner." (41) A mortgage lender who forecloses may become an owner with cost recovery responsibility if it does not dispose of the land expeditiously. (42) These responsible parties could escape personal liability if they satisfied CERCLA's immunity provisions. In 2002, the Small Business Liability Relief and Brownfields Revitalization Act (43) clarified CERCLA's inquiry requirement, which for years was the operating standard for determining whether, in the language of the Act, the innocent purchaser "had no reason to know" of possible contamination, (44) but the Act did not change the fundamental principle of unlimited status liability for one who holds title at the critical time when cost recovery is sought and does not fit an immune category.
II. STRATEGIC CONVEYANCE TO EXTINGUISH OWNER STATUS
A. Conveyance to a Pauper to Eliminate Status Liability
Some state laws impose liability that cannot be avoided by transfer, (45) or they require remediation at the time of sale. (46) But for CERCLA liability, the principle is well established that a buyer of an already-contaminated disposal site who, in the ordinary course of events, conveys title to a new owner, steps out of the federal liability chain (47) so long as the transfer is made with full disclosure of the defect (48) and federal notice requirements are satisfied. (49)
The distinction between non-immune current owners liable for cost recovery by virtue of status and former owners who step out of the liability chain by conveying to a new owner seems categorical. The trick is then to get rid of negatively valued land and become a prior owner.
If King Henry II owned a disposal site with negative value, he might ask: "Will no one rid me of this troublesome land?" (50) An intuitively derived strategy is that the owner abandon title, thereby terminating the despised "current owner" status along with its potential liability. Unfortunately, title to real estate cannot be abandoned. (51) Title can, however, be conveyed. But to whom? No rational buyer will take title with the cleanup obligation attached, much less pay for it.
This Article is narrowly framed to ask a single question about potentially responsible parties who had no active involvement in actual disposal, operation, or transport, and for whom the cost of removal or remediation would exceed the market value of the cleansed land. The question is whether such an owner may avoid cost-recovery liability by conveying the site to a willing pauper after learning about contamination, but before becoming specifically and personally obligated for cost recovery.
B. Nurad's Prescient Foundation for Strategic Conveyance
Nurad, Inc. v. William E. Hooper & Sons Co. (52) provided a foundation for strategic conveyance yet imposed potential liability on a prior owner for leakage from unknown underground storage tanks during the defendant's ownership. (53) The Fourth Circuit recognized that after conveying the land the defendant was no longer an owner liable under section 107(a)(1). The only way to impose liability was to characterize the defendant as the owner at the time of disposal, with consequent liability for disposal under section 107(a)(2). (54) But, how could the defendant dispose of waste when he had no knowledge it was there? The court concluded that without a broad definition of disposal that includes passive disposal--that is, from seepage--"an owner could avoid liability simply by standing idle while an environmental hazard festers on his property. Such an owner could insulate himself from liability by virtue of his passivity, so long as be transfers the property before any response costs are incurred." (55)
Nurad's classification of passive migration as disposal failed to generate an enthusiastic following, (56) and it appears to have become a distinctively minority position. (57) However, the case is significant because it identifies a potential avenue for owners to avoid CERCLA liability by conveying title before response costs are incurred.
United States v. CDMG Realty Co. (58) rejected Nurad's passive disposal analysis. The Third Circuit held that a prior owner who bought contaminated property and then sold it, knowing the property was contaminated, was not liable unless it engaged in active disposal, including disturbing the deposited waste. (59) The court noted that many prior owners ultimately pay anyway because, if they disclose that the land contains waste, their selling price will reflect the cost of CERCLA liability. (60)
Therefore, the principle that prior owners who convey title in an ordinary, economically driven transaction are categorically removed from potential responsibility unless they are connected with actual disposal or release, by either the passive or active analysis, remains uncontested. The strategy would not, of course, work in a circuit that adopts Nurad's passive disposal definition. (61)
C. An Uncertain Window of Potential Opportunity
The ability to avoid potential liability by conveying a contaminated site undoubtedly ends when a state or federal government action makes the cost recovery obligation personal and specific as to the particular owner by obtaining judgment for remediation costs. But what is the critical event that marks the end of the grace period for stepping outside the liability chain? There is some logic in making discovery the critical event. For example, discovery or knowledge could make the owner a possessor of the hazardous waste, as judged by authorities for assigning possessory rights to finders of lost items (62) or for determining guilt under criminal laws regulating controlled substances. (63)
A debtor's knowledge of contamination has been held material for determining whether liability for cost recovery is discharged in bankruptcy. (64) If the debtor did not know of the potential claim at the time of filing, liability does not rise to the level of a dischargeable claim. (65) However logical it may be to attach liability at mere discovery, courts have not done so. (66)
The fundamental reason that knowledge, or lack of it, does not count is that CERCLA imposqs liability by discrete categories--a current owner under section 107(a)(1) or an owner at the time of disposal under section 107(a)(2). (67) A prior owner is not a current owner. Apart from the passive migration or disturbance analysis, an intermediate title owner is not an owner at the time of disposal. No statutory liability for cost recovery attaches to prior owners who knew about the contamination or failed to conduct an environmental survey, so long as they satisfy all requirements of the Act after they discover contamination.
If mere discovery does not end the grace period during which a current owner can step outside the chain of potential responsibility, what are the successive logical points in time for malting the obligation absolute?
After discovery of hazardous waste, an owner is obligated to exercise due care to prevent the spread of contamination. (68) This obligation appears to apply only in event of imminent release that would harm the environment and probably falls short of complete remediation. An owner who discovers contamination is statutorily obligated to notify EPA of the find, (69) but is protected from criminal action except for perjury. (70) It is only by not notifying EPA that the owner runs into serious trouble. (71) There is no clear reason why notification alone should impose specific liability that lingers beyond a reconveyance. As a matter of policy, attaching a penalty for notifying authorities about a hazardous condition would discourage people from obeying the law and frustrate CERCLA's general ambition of locating and cleaning up disposal sites.
The next step in a logical timeline is EPA's notification to a responsible state agency (72) regarding the newly discovered site. Nothing makes this notification a critical event that would disable an owner from selling to another and stepping outside the liability chain.
The point of liability nears when EPA or a state agency notifies the owner of its status as a potentially responsible party, (73) and it unequivocally arrives when a lawsuit is brought (74) to recover costs incurred. Nurad implies that an owner can step out of the section 107(a)(1) liability chain at any time before response costs are incurred. (75) A conservative assumption is, therefore, that liability becomes personal and specific for the current owner when the government incurs cleanup expense, (76) after which it is too late to avoid whatever liability may be assessed on the party identified as owner, regardless of what the land is worth in relation to full remediation. (77) A strategic conveyance must be completed before such formal action can have the desired effect.
III. THE RESPECTABLE TRADITION OF CONVEYING TO A PAUPER
A. Analogies from Property Law
Extinguishing status liability by conveying to a pauper is not a farfetched idea. In an analogous situation, where an assignee of a leasehold is obligated to pay rents to the landlord only by "privity of estate," and not by "privity of contract," law professors have long taught that the assignee's obligation for future rent terminates on subsequent assignment, even to an insolvent assignee. (78) Other analogies also come to mind, for example, lands subject to annual fees that exceed the value of the asset, (79) land with oppressively high taxes, property with statutory obligations attached, (80) and even property held "subject to" a mortgage with no potential personal liability for deficiency, but with a status obligation to avoid waste. (81)
Currently, the law assumes that any grantee in a strategic conveyance is mentally competent and that the deed of conveyance reveals the condition of the land. Although an economically motivated and solvent grantee would refuse to accept conveyance of a negative asset that imposes continuing liability, a pauper may view this technical obligation as irrelevant or even beneficial if it brings additional consideration; for example, cash or merchandise, in exchange for playing the change of title game.
Traditional conveyance rules draw no distinction as to whether the grantee pays the grantor for title or the grantor pays the grantee to take it, or neither party pays the other. (82) Ordinarily, a conveyance passes legal title to the grantee if the required formalities are observed. An indigent grantee might even receive immediate nonmonetary value from occupying the land pending ultimate EPA action or tax foreclosure. The indigent owner will, of course, never clean up the land or pay cost recovery, and the site itself is likely to be sold eventually for unpaid taxes unless value unexpectedly increases to the point that remediation makes financial sense (83) or the government bails out the impecunious landowner. (84) As with any ordinary conveyance, the deed would be recorded in the county records to reflect the fact that the grantor holds neither title nor the accompanying status of owner under section 107(a)(1) of CERCLA. (85) The deed would also document that full notice was given to the grantee. The strategic purpose of the conveyance is clear. Is anything wrong with it? Would a lawyer seriously advise a client to pursue it?
Several environmental law practitioners and scholars who were asked those questions felt intuitively that the strategy would not work, though none produced a definitive reason why. (86) On the surface, release by strategic conveyance appears to contravene CERCLA's clear policy of requiring the designated parties, including the not-at-fault current owner, to pay. But before addressing policy issues, it is useful to look at the rules of law that, absent strong objection, might otherwise apply.
By what positive law standard would the strategy be measured? CERCLA liability comes from the positive command of sovereign authority. (87) Imposing the cost recovery burden on persons whose only connection is current ownership of the site has been held constitutional. (88) But words such as "owner" and the effects given to conveyances are not self-defining. (89) Over the twenty years since the statute's enactment, courts have considered hundreds of CERCLA cases, many of which raise questions about CERCLA's fundamental concepts and problems created by the language of the Act. When judges decide how a law is to be construed and applied, they do not write on a blank slate. They have a professional lifetime to refer to, which includes political inclinations, intuitive notions of justice, formalistic tendencies, and analogies and metaphors from all areas of law. Applicable principles may be derived from property, contract, tort, constitutional, criminal, and corporate law. Sometimes the connection with a given doctrinal direction is clear, sometimes not. This Article uses analogies and metaphors that may raise knowledgeable readers' eyebrows. At least in some instances, the stretch is made knowingly.
Two obvious questions are 1) whether the transaction is such a sham that the grantor's status as owner continues after the sale, along with consequent liability, and 2) whether the conveyance can be set aside under state statute (for example, under a fraudulent conveyance statute) or common law rules. First, however, a look at what is called "status liability."
B. The Nature of Liability Based on Status--Henry Maine Revisited
The almost-innocent owner who seeks to step out of the ownership category by making a strategic conveyance is potentially liable for cost recovery only because of the conveyor's status as owner, not because of any contract promise. (90) Some readers may be reminded of Sir Henry Maine's book Ancient Law, which opines that, whereas primitive societies imposed obligation on the basis of one's membership and status (position) in a tribe or community--as for example, a parent, child, or tribal chief--mature societies impose obligations on the basis of contract (agreement and volition). (91) In the United States agreement is indeed the foundation of most private obligations. Sellers and buyers are privileged to sell or not sell, to set their prices and terms, and, by and large, to ignore the public interest in pursuit of contract advantages each party seeks. (92) A post-Maine observation is that Henry Maine was right, up to a point, but he did not write "the last chapter;" namely that when transactions acquire a high degree of social significance, the basis for obligation shifts back to status. For example, statutes now impose many obligations on landlords and tenants that cannot be changed by agreement, (93) much as CERCLA imposes status liability for cost recovery on current owners of land. (94)
A fundamental difference between contract liability and status obligation is that a contract promise binds the promisor personally, and the obligation cannot ordinarily be imposed on another without the new party's contractual consent. (95) Similarly, contract obligation cannot be discharged without the performance or consent of the promisee (or holder of that contract right; for example, an assignee). (96) Thus, an assignment of contract rights does not necessarily impose an obligation on the assignee or release the assignor from obligation. By contrast, status liability is imposed without promise and exists simply because one holds an affected position. For example, when a condition on land constitutes a nuisance, the owner or possessor is ordinarily liable for injuries caused by the use. (97) When such land is conveyed to a new owner who knows about the condition, the new owner ordinarily becomes liable if he or she fails, within a reasonable time thereafter, to act reasonably to rectify it. (98) The former owner's liability terminates when the grantee has had reasonable opportunity to discover the condition and abate it. (99) The customary rule for status liability is that when status ends, exposure for unaccrued liability ends.
Although one could argue that a buyer of contaminated land in the year 2003 voluntarily undertakes liability by "agreement" in light of the federal statute, and that buying a disposal site without an adequate environmental inquiry even places the buyer at fault as a tortfeasor, (100) such analysis goes beyond the implications of ordinary language. The good news for the almost-innocent owner of a negatively valued disposal site may be that termination of status by conveyance extinguishes unaccrued liability.
C. An Analogy from Real Covenant Law
A real covenant is an obligation imposed as an incident of land ownership by voluntary agreement between a landowner and another who benefits by performance of the promise. Unlike ordinary contract liability, real covenant obligation attaches to land ownership and runs with the title to bind any later owner during the time of that person's ownership. Obligation ceases, however, when ownership ceases. (101)
Cost recovery is an obligation created by statute, not by consensual agreement. It is therefore fundamentally different in concept from real covenant law. Yet a judge considering whether a strategic conveyance extinguishes status liability under CERCLA will likely be influenced by three functional similarities to real covenants. First, cost recovery and real covenants may impose monetary obligations that are not based on personal agreement of the party to be bound (the current owner of title). Second, the burdens of CERCLA and real covenants "run" with title to the land so as to bind later owners. Third, and most significant for present purposes, potential future liability on real covenants ordinarily ends with a conveyance of the burdened land. The Restatement of Property is clear. On covenants that run with land, the owner "is not responsible as a promisor for any defaults in the performance of the promise which may have occurred before he succeeded to the interest of the promisor in the land with which the promise runs nor is he so liable for defaults which occur after he ceases to have that interest." (102)
1. Assignees' Liability for Rent
The most familiar example of limited status liability on covenants that run with land comes from landlord and tenant law. Ordinarily, a lease assignee who did not promise to pay rents is obligated to pay rent to the landlord so long (103) and only so long (104) as the assignee occupies the status of tenant, holding the term by assignment. The doctrinal reason is that privity of estate exists between the landlord and whoever occupies the status of tenant. (105) Another reason is that rents are reserved out of the leasehold estate, and whoever owns the leasehold must account for those reserved rents to the landlord. Both analyses impose pure status liability. For example, so long as the assignee maintains the status of tenant, the assignee must pay rent due the landlord. But when the first assignee transfers the leasehold to a successor assignee, the original assignee (now assignor) is relieved of all future rent obligations because there is no longer privity of estate between the first assignee and the landlord; (106) and the first assignee no longer owns the estate out of which rents are reserved. The original tenant may be liable for unpaid future rents as a matter of privity of contract if he or she covenanted in the lease to pay them, (107) and assignees who promise, as consideration for their assignment, to pay the landlord directly may be liable as a matter of third-party beneficiary contract. (108) Contract liability arising from a promise is different from the status liability on the covenant that runs with land and is not a factor in the CERCLA analysis herein considered.
2. Real Covenants Attached to Fee Ownership--Gallagher v. Bell
Gallagher v. Bell, (109) one of the few recent cases to discuss liability after transfer of land burdened by a real covenant, applies traditional real covenant law as advanced by the Restatement of Property hold that, after conveying the affected land, even the original covenantor was not liable on a covenant to pay a proportionate share of paving costs. (110)
Gallagher described the "nature" of the real covenant as one that runs with land instead of imposing a personal obligation. (111) Cost recovery, as imposed on the site owner at the time of disposal, on the operator of the site at the time of disposal, on arrangers, and on transporters, is personal. By contrast, the liability that attaches solely as a result of taking title to contaminated land is similar to real covenant obligation and is not based on fault (tort) or agreement (contract). (112) Therefore enough similarity exists between CERCLA's cost recovery obligation and covenants running with land to continue the inquiry.
a. Touch and Concern
To run with title to land and bind the current owner, a real covenant must "touch and concern" the land. In Gallagher, the land in question was impressed with the obligation to pay for street improvements that would, in turn, benefit the land. (113) The court applied a touch and concern test from the Restatement of Property, which includes the element that "the covenantor's legal interest ... is rendered less valuable by the covenant's performance[.]" (114) Land impressed by the cost recovery obligation certainly satisfies this element.
Traditional real covenant law requires that the obligation be imposed on legal title with the intent that it run with the land. After examining the owner's circumstances when the covenant was made, along with the language of the covenant itself, Gallagher held the original covenanting parties "intended" that a covenant to bear paving costs would run with the land. (115) Traditional real covenant law begins with a "contract" basis for obligation when original parties make a covenant that is logically and formally connected with and attaches to land ownership. There is scant basis for saying that a buyer of contaminated land "intended" to contract with the government for cost recovery liability, but the inquiry into intent is not meaningless. The government's "intent" logically determines the extent of liability imposed by statutes. Because the obligation is imposed by a sovereign power, the "intent" of the owner, as a subject, is irrelevant. Ordinarily, the intent of a grantee in traditional real covenant cases is also irrelevant.
Under CERCLA, the question of the government's intent is artificial but pertinent. Government is not an intent-forming creature; but an observer may construct a model of government as a rational entity, observe its behavior, and assign "intent" in much the same fashion juries determine whether an accused "intended" to commit a crime. From this perspective, the observer can interpret the charge on contaminated land for cost recovery in the same terms as if it had been stated in a document imposing a real covenant on the land. The government's intent, as reflected by CERCLA, applies differently to the at-fault group for whom liability is personal and enduring. Land ownership really has nothing to do with the at-fault owner's liability. Government "intends" that not-at-fault title owners report the defect, (116) tell prospective buyers about it, (117) and, if they are still owners when the property is cleaned up, bear cost recovery liability if they are not in an immune category. (118)
Most important is an assumption, garnered from the structure of the Act itself, that the government intends liability for a mere site owner not to continue beyond conveyance to a new owner. This intent may be inferred from the categorical manner in which the statutory obligation is divided, stated, and imposed, (119) and from congressional acceptance of judicial decisions drawing that distinction. (120) As judged by congressional intent, liability of not-at-fault landowner is based on status, pure and simple, with the consequent implication that status obligation can be passed to the next owner so long as adequate disclosure occurs. (121)
c. Privity of Estate
To impose real covenant liability on a title owner, a plaintiff must establish privity of estate connecting its claim with the defendant's obligation. Gallagher discussed the two aspects of privity--horizontal and vertical--that are required for real covenant obligations to attach to land ownership. (122) Horizontal privity accompanies the creation of the covenant that runs with land. The Restatement of Property requires that real covenant liability be created coincident with the transfer of an interest in the burdened or benefited land, or as a promise made in the adjustment of the mutual relationships arising out of an easement held by one of the parties in the land of the other. (123) CERCLA liability is imposed by statute--not conveyance, so the analogy is not direct. The stretch, however, is not too great to say the statute itself satisfies horizontal privity by imposing a burden on the contaminated land for the benefit of government or the public at large. The benefit is probably classified as one "in gross" because it is not appurtenant to other benefited lands, unless the government is considered to have a general management interest in the total environment or adjacent landowners are treated as third party beneficiaries. The "in gross" nature might disable the covenant from running at law under traditional analysis, but the modern view adopted in the Restatement of Property clearly accommodates it. (124)
Title owners obligated by CERCLA can easily establish vertical privity. For burdened parties, vertical privity means the current owner sits in a regular line of title succession traceable back to the original obligor. (125) Following this analogy, the real covenant for cost recovery was created on disposal sites around the country in 1980 when CERCLA was enacted, or at such later time when a predecessor in title deposited waste. Apart from titles derived through adverse possession, in almost all cases current owners hold title through a regular chain of transfers that satisfies the vertical privity requirement. Therefore, the current owner is liable to pay cost recovery on the real covenant analogy. However, if the analogy holds, the current owner may transfer that liability to a grantee by formal transfer of title. The grantee, as the new owner--pauper or not--will then have vertical privity and consequent liability.
An easement, covenant, or servitude imposed by an earlier title holder is not ordinarily enforceable against a later purchaser of legal title who pays value without notice. (126) Both the recording act (127) and bona fide purchase doctrines (128) protect such purchasers. In many covenant and easement cases, grantees are not personally aware that they are buying land impressed with some sort of restriction. Nevertheless, they may be bound by recorded notice of a restriction (129) or even by notice outside the record. In Sanborn v. MacLean, (130) for example, the court held a buyer of a subdivision lot bound by restrictions outside the buyer's chain of title where the buyer could have inferred the existence of restrictions from looking at the uniform development pattern that the land manifested. (131) Thus, even though real covenant law is based on contract, actual agreement is not required to impose liability on the buyer of affected title.
CERCLA's cost recovery obligation attaches to land title, but not in a recordable fashion. However, the statutory obligation clearly requires that today's purchasers have notice that liability may attach if the land they buy is contaminated and they fail to exercise due diligence. (132) The innocent purchaser exception is similar in effect to the bona fide purchaser rule because it protects truly innocent purchasers from cost recovery. An argument could be made that by so fashioning the cleanup obligation, the government adopted in some measure real covenant principles for determining owner liability.
e. Release by Transfer
A transfer of legal title extinguishes the landowner's continuing liability on real covenants as to unaccrued obligations. Gallagher followed the Restatement of Property to hold that even the original covenantor was released from real covenant liability upon conveying the burdened land to a new owner. (133) For the original covenantor, release may not result if an inquiry shows a different intent; but the release is absolute for persons who are liable on a real covenant only through title ownership. (134) Real covenant analysis supports the notion that a strategic conveyance terminating the grantor's status as owner can, without violating fundamental legal principles, extinguish the statutory liability that depends on status alone for its existence. (135)
3. Restatement of Property III (Servitudes)
Restatement (Third) of Property would treat real covenants as servitudes encompassed within the term "covenant that runs with land." (136) Only modest effort and imagination are required to characterize CERCLA's cost recovery obligation as a servitude or burden imposed on the land by statute resulting from the statute's treatment of disposal or release of hazardous waste. The government has a claim similar to a servitude. The government's benefit is held in gross because it is not tied to ownership or occupancy of a particular unit or parcel of land that is beneficially affected by performance. (137) Traditionally, servitudes in gross did not run with land at law. However, an emerging analysis, reflected in the Restatement (Third) of Properly, flatly allows servitude burdens to run with the land, even though the benefit is held in gross. Moreover, the analysis does not require horizontal (138) or vertical privity, although it limits standing to enforce to persons who can establish a legitimate interest in enforcement. (139)
As a further analogy, the Restatement specifically legitimizes conservation servitudes for protecting natural resources, "including plant and wildlife habitats and ecosystems, and maintaining or enhancing air or water quality." (140) By validating servitudes in gross, the American Law Institute drafters sought to empower public bodies to enforce beneficial interests that are not tied to land ownership. (141) Governments may acquire servitudes in gross by condemnation. (142) Accordingly, one could say with modest conviction that through CERCLA the government has taken by eminent domain (condemned) a servitude in gross to pay the cost of cleaning up disposal sites. The government is not required to compensate the owner for "taking" the servitude because the exaction is exactly proportional to the cost the contamination imposes on the public. (143)
The owner's status obligation for unaccrued liability arising out of servitude ends when title is transferred to a new owner. Nowhere does the Restatement require that the new owner have any particular claim to solvency.
Restatement III section 4.4(1) provides that "an original party or successor to a servitude burden that runs with an interest in property incurs liability on account of the servitude burden only for obligations that accrue during the time the party or successor holds the burdened property interest." (144)
When the obligation actually accrues, as by judgment for cleanup costs, CERCLA liability attaches to the person who has the status of "title owner." (145) Until then, the servitude analogy supports the notion that the inchoate burden can be transferred to any willing grantee of the burdened estate.
4. Conveyance of Part of the Site
If the strategic conveyance works in a particular situation, a greedy owner might see another opportunity: convey only the contaminated portion, and keep the clean part. In addition to tempting fate by making a questionable action look deplorable, the partial conveyance is ineffective to terminate obligations under familiar law of servitudes and real covenants.
Traditionally, real covenants and servitudes, along with easements appurtenant, attach benefits and burdens to an entire tract held in common ownership, not to specific parcels. (146) Thus, if a developer subjects an entire subdivision to deed restrictions, each lot owner may enforce the restrictions against all other lot owners. (147) The benefits and burdens therefore run throughout the affected lands, and a conveyance of part of a lot would not remove the obligation as to the divided parcel. (148)
This suggests that to the extent a disposal site is part of a larger tract that once contained hazardous waste in common ownership, all subsequent title owners of the original tract are exposed to liability for cost recovery. Accordingly, conveyance of only the contaminated portion would not remove the charge against the excepted, clean lands. This analysis has not been consistently applied under CERCLA; but to the extent it holds, presumably the owner of the retained, clean portion of the tract would still be obliged to pay for the cost of removing waste from the conveyed, contaminated land (149) unless relieved by some variant of bona fide purchase. (150) Similarly, a conveyance of a clean portion of the tract should carry with it the cost recovery obligation unless the purchaser is protected by some variety of the innocent purchaser exception.
D. Abandonment in Bankruptcy
In Midlantic National Bank v. City of New York (151) the Supreme Court held that a trustee in bankruptcy could not abandon a negative-value disposal site "without formulating conditions that will adequately protect the public's health and safety." (152) The Court said, however.
This exception to the abandonment power vested in the trustee ... is a narrow one. It does not encompass a speculative or indeterminate future violation of such laws that may stem from abandonment. The abandonment power is not to be fettered by laws or regulations not reasonably calculated to protect the public health or safety from imminent and identifiable harm. (153)
Four members of the Court, including current Justices Rehnquist and O'Connor, dissented in an opinion that would have allowed the trustee to abandon the property without restriction. (154)
A trustee in bankruptcy has specific power to abandon negative assets under federal law, (155) and the analogy is not completely applicable to a voluntary conveyance. It is noteworthy though that in Midlantic, which was a CERCLA case, the Court limited its non-abandonment rule to cases of imminent and identifiable harm to public health or safety. (156) The bankrupt corporation in that case had accepted more than 400,000 gallons of oil contaminated with PCB, a highly toxic carcinogen. Few private disposal-site cases involve such toxic contamination. The bankrupt corporation was also the owner and operator of the site at the time of disposal, so liability was based on factors other than mere ownership of already-contaminated property. (157)
In a nonbankruptcy probate case, the executor of a solvent estate was allowed to abandon property on which a federal environmental suit was pending. (158) The court noted that the executor had sold the property to a third party. (159) In re Wall Tube and Metal Products Co. (160) upheld a Chapter 7 trustee's conveyance of property, noting it was not a maneuver calculated to result in cleanup at public expense but was instead a conveyance to a separate, presumably solvent entity who, by assuming ownership of the property, also incurred potential CERCLA liability. (161) This language suggests that transfer to an insolvent grantee might be treated as a sham.
E. Abandonment in CERCLA
CERCLA comes close but falls short of declaring that the strategic grantor remains the owner if the conveyance to a pauper is considered an "abandonment" of the site. Section 106(20)(A) defines "owner": "in the case of any facility, title or control of which was conveyed due to bankruptcy, foreclosure, tax delinquency, abandonment; or similar means to a unit of State or local government, any person who owned, operated, or otherwise controlled activities at such facility immediately beforehand." (162)
It is difficult to know how to read this section. Presumably, when title to a disposal site is conveyed to a trustee in bankruptcy, the bankrupt party remains the owner for CERCLA purposes. If the trustee abandons title, as contemplated in Midlantic, title reverts to the bankrupt party as the former owner. (163) Similarly, in the case of foreclosure of a mortgage lien or tax sale, the foreclosed owner remains the owner. This continuation of status logically complements the immunity provided for the foreclosing lien holder and taxing authority from CERCLA liability.
But what does "abandonment" include? Personal property, such as barrels of hazardous chemicals, can be abandoned by dumping them by the side of a road. By ordinary common law, the abandoning owner gives up title to the abandoned goods. (164) Gonveyance of title to a willing grantee is not "abandonment" by ordinary definition, but even if it is so treated, the quoted section still does not appear to capture the strategic grantor as the owner. The juxtaposition of the terms "abandonment" and "to a unit of State or local government" cannot be ignored. The strategic conveyance passes title to a live human person, not a unit of government.
Further, if one focuses on the position of the strategic grantor as owner after the pauper suffers tax foreclosure, it is the pauper, not the strategic grantor, who owned the facility immediately beforehand. Only if the sale to a pauper is entirely disregarded, as perhaps a total sham, does the strategic grantor come even arguably within the statutory definition. Is the strategic conveyance a complete sham that will be disregarded and cost recovery imposed against the grantor as owner?
IV. SHAM TRANSACTIONS
A. What Is a Sham?
The strategic conveyance is not driven by ordinary economic expectation of gain from acquisition of a valuable asset, but is instead engineered simply and solely to extinguish the grantor's status liability as owner under section 107(a)(1). The greatest value for the grantee lies in enticements other than transfer of title, such as a month's supply of cheap wine. A transaction of the sort described is not likely to make friends with judges and juries, but is it such a sham that it will be treated as if it had not happened?
B. Corporate Subsidiaries and Successors
A true divestment of legal title is ordinarily not a sham transaction. However, a strategic conveyance from an owner to a corporate subsidiary specially incorporated to take title to such properties probably is. One clear indication of a sham is that title is not really divested. In a conveyance to a subsidiary, title is tucked away in an entity controlled by the grantor after the conveyance is completed. Such behavior invites a court to pierce the subsidiary's corporate veil and hold the parent responsible as owner. (165)
A great deal has been written about sham transactions to avoid owner liability under CERCLA. Virtually all of it concerns corporate subsidiaries and successors that retain some connection with the former owner. (166) Although not unanimous, authorities tend to apply state law or federal common law in deciding whether to pierce the corporate veil. (167) The strategic conveyance considered in this Article would not involve a corporate entity or an entity that would maintain any ownership connection between the owner seeking to shed liability and the impecunious grantee who willingly accepts it. Even without this aspect of sham, there is ample reason to worry that the strategic conveyance would be so classified. (168) The case, however, is far from clear.
C. Intent to A void Liability
Foremost in a sham transaction is the perpetrator's intent to avoid liability. (169) This is the admitted purpose of the strategic conveyance to a pauper. (170) However, to the extent federal law invokes liability based only on status, and to the extent that the same statute allows transfer of liability, intent to make a conveyance that accomplishes that purpose, standing alone, should not convert the transfer into a sham. Congress could have made liability personal and nontransferable when it drafted CERCLA, but it did not. Courts have interpreted CERCLA's command as allowing owners to shed liability, at least by an ordinary, economically motivated transfer. (171) In light of this history, one could say that if government wants to expand its definition of liability to include former owners, or wants to look into the grantor's intent in every case, it should do so clearly and expressly. (172)
Is it a sham to place title in an insolvent grantee? A persistent veil-piercing issue is whether the subsidiary has enough assets to respond to ordinary debts of the enterprise. (173) That issue hits the strategic conveyance squarely, because only a pauper or damned fool would accept conveyance of a negative asset, and the strategic grantor would not approach any grantee with a positive financial statement. The asset factor, though, does not stand alone in a veil-piercing case. A subsidiary corporation has no existence as a person except as the created product of its parent. Presumably, the parent still owns the stock and controls the subsidiary, at least up to the point of conveying to it. In this sense, the parent really conveys only to itself. If it then abandons its stock or winds up the subsidiary's affairs, the parent remains a puppeteer after the conveyance, still capable of pulling the strings of its artificial infant. Strategic conveyance to a pauper involves placing title in a supposedly autonomous human being, albeit to one down on his or her luck. If the grantee were apparently solvent, as, for example Enron was before 2001, the conveyance would extinguish the grantor's status liability. How would one explain treating differently and disadvantageously a grimy economic shell that sleeps under the overpass on the one hand, from the polished shell of an insolvent corporation on the other?
What may be more distinctive about veil-piercing cases under CERCLA is that most, if not all, such cases concern corporate liability based on fault as a generator, operator, or transporter, and not on mere status as unfortunate owner of legal title. (174) This at-fault liability is significantly different from the almost-innocent owner whose misfortune prompts the present inquiry. Even an economically driven transfer of title cannot easily shed at-fault liability.
A significant fact in classifying the strategic conveyance as a sham may be that the only motivation for the transfer is avoidance of liability; there is otherwise no significant economic effect on either party. Douglas County v. Gould, (175) a CERCLA case dealing with arranger liability as opposed to owner liability, held that a sale of lead plates was not a sham. (176) The court stated that the plates in question "were sold at the market price for lead and with the intent of making a profit." (177) Accordingly, one might reasonably ask whether there is any explanation or justification for a strategic conveyance other than to frustrate the purpose of the statute and avoid personal liability. If that is the test for sham, it will be a hard one for the strategic grantor to overcome.
D. Love v. State--A Sham That May Provide Strategic Guidelines
Love v. State (178) provides direct authority for examining a strategic Conveyance and declaring it a sham. The conveyance in that case failed to insulate the real parties in interest from statutory liability under state law regarding the plugging of abandoned oil wells. The individual defendants in Love owned a corporation that operated oil wells in the early 1980s when statutory obligations arose to plug the abandoned wells. In 1986, after the regulatory authority notified the corporation that it was in violation of the statute, the individual defendants sold the only valuable lease to an apparently legitimate buyer and then sold the corporate shell that owed the plugging obligation to an elusive Mexican national named Ybarra. (179) Some years later, the enforcing agency issued administrative penalties. The state of Texas eventually plugged the wells and successfully sued the transferors to collect costs and penalties. A jury found the individual defendants used the corporation as a sham to perpetuate a fraud on the regulatory commission. The appellate court affirmed liability. (180) Significantly, the state contended that Ybarra, the supposed transferee of the corporation, never existed. (181)
Love raises several warning flags for owners of disposal sites who contemplate making a strategic transfer to avoid liability for cost recovery. Flag number one is not to convey to a corporation that carries lingering potential for imposing shareholder liability under local veil-piercing law. The Love court cited cases holding individuals liable under the sham theory "long after the corporation in which the individual had some prior interest is dissolved, bankrupt, or sold." (182) Accordingly, if the tract to be unloaded is owned by individuals, it would be foolhardy for those very parties to form a shell corporation to take title to the land. There is no reason to invite a court to pierce the corporate veil in an obvious sham transaction.
Flag number two is that a secret transfer, or doubtful transfer, looks bad and invites inquiry. Accordingly, a strategic transfer should be as public as any other conveyance, thereby producing a formal record that appears regular on its face. This caveat implies the recording of the deed in county records. Either the deed itself or a separately recorded document should contain full disclosure of the condition of the premises to satisfy CERCLA's requirements, (183) state statutes, (184) and common law. (185)
Flag number three involves the grantor's need to prove there was a live transferee should the government question the transfer. If there was no grantee, title was not transferred, and the would-be grantor is still the "current owner" with continuing liability for cost recovery. Ybarra may have been real, but evidence was lacking. Accordingly, the strategic vendor should make and preserve an accurate identity trail that identifies a real person (albeit one without assets) who has a social security number that is prominently displayed on the deed along with the grantee's address. (186)
Fourth, an overzealous effort to cover the problems highlighted by the previous flags may itself cause problems. A transfer that looks regular on its face is more likely overlooked than one crying out to the world that the grantor is trying to unload a dump site. It may, for example, be dysfunctional to include a promise by the grantee to clean the site. The effort to shift personal liability, once it accrues, has been held ineffectual, (187) and placing a formal obligation on an indigent who cannot perform may increase the likelihood of a sham classification. It might also make the grantor an arranger for disposal, for which the statute provides categorical liability. (188)
E. Not a Sham
Alternatively, one could argue that the strategic transaction is not a sham. The transfer itself is as real as any other. By consensual arrangement, a competent grantor, receiving consideration deemed worthwhile, conveys title to a grantee who is willing to assume status as owner with all the attendant obligations and who meets ordinary competence requirements except for possessing an empty pocket. Grantees do not ordinarily have to pay anything to validate a transfer of title. The only requirements are as follows: 1) grantor's intent to convey, (189) 2) delivery of a conforming deed. (190) and 3) because the transfer is disadvantageous, the grantee's acceptance. (191)
In the postulated strategic conveyance, the grantor clearly intends to pass title and observes all legal formalities for conveyance. The grantee may even get something of value from the transaction--for example, the legal right to live on the site until it is sold for nonpayment of taxes or to satisfy a cost recovery lien. Grantees of purely beneficial gifts are not ordinarily required to accept a gift; they are privileged to reject the gift if they deem it detrimental. (192) If an owner of a disposal site undertakes the legal formalities to extinguish ownership and liability by conveying to an indigent person, the strategist would certainly ensure that the grantee accepted and would spread that acceptance upon the record in undeniable prose. (193)
Nothing in ordinary real estate law suggests that a regular conveyance from owner to grantee, for whatever reason, is not what it purports to be--a transfer of legal title, with whatever consequences happen to flow.
If the bottom line for finding a sham is whether the transaction is real, one must take into account that the potential benefit of ownership, however remote, has been irrevocably transferred to the pauper. If the land is in Texas, it may have oil underneath. If in California, it may have gold. The site's future value may outweigh the burden. Loss of that potential is not entirely a sham. In short, the transaction, in at least some sense, is real. It is intended by the grantor to transfer title to the grantee, who knowingly accepts title with an instrument of conveyance that specifies that the grantee has been informed of any defect.
Enforcing a crisp categorical division between current owners and past owners has the virtue of simplicity, even in environmental law. The division works well in an ordinary world in which land has some residual value after cleanup costs are deducted. Owners can discount the price and assign the remediation burden without worrying that their motivation and the grantee's economic assessment of value will be second-guessed if costs are higher than anticipated. The transaction costs of authoritatively trying to identify those conveyances that are purely strategic may outweigh the overall environmental gain. Such measurement is well beyond the limited aspirations of this Article.
V. STEALING (CONVERTING) OR DESTROYING GOVERNMENT PROPERTY
It is tempting to characterize the grantor's conscious extinction of a valuable claim for remediation as destruction of government property or some variety of theft. That characterization does not, however, withstand logical analysis focusing solely on whether "property" owned by the government is destroyed or stolen by the act of conveyance. If government does have a property interest in the putative action for cost recovery, and if that right is destroyed by a wrongful conveyance, then the conveyance might be actionable. (194) If, however, the government's property (the claim for cost recovery) is itself defined by and limited to obligation based purely on status, and if that status can be extinguished by voluntary conveyance, for whatever motivation, then it is difficult to see that any "property" owned by government was destroyed. The very act alleged as destruction is the same event that defines the limit of government's property claim. (195) When conveyance occurs, the government's property in the claim for remediation costs merely ends; it is not destroyed wrongfully.
The same analysis should settle whether the strategic seller committed a tort by rendering a valuable federal asset worthless. One might infer otherwise--that a government asset, that is, a cause of action for remediation costs--has been totally devalued by the intentional, willful act of shifting status liability to a person who cannot perform it. The government certainly lost something, and the destructive act was totally intentional. But was the transaction tortious? Apparently not, inasmuch as the government imposed the burden without the agreement of the prior owner, the burden is limited by the terms of the statute that created it, and the statute itself provides a way for a burdened owner to extinguish liability.
One determined to hold a strategic conveyance defective may characterize it as a conspiracy between grantor and grantee to defraud a government agency. For example, it is a federal crime "[i]f two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy." (196)
If a strategic conveyance involves or anticipates any violation of federal law, fails to make a required CERCLA report, or makes a misrepresentation to government or a private party, the grantor and grantee may indeed have committed a forbidden conspiracy. It is difficult to see, however, how the act of agreeing to a conveyance of contaminated land, with full disclosure, crosses the statutory line. To the contrary, such action falls within the contemplation of CERCLA itself as a way to shift the status of "owner" and its cost recovery responsibility from one party to another.
Backing away from a near-criminal characterization, could the conveyance be analyzed as a fraudulent transfer?
VI. FRAUDULENT TRANSFER
Would a strategic conveyance to a pauper amount to a fraudulent Transfer (197) that the government, as a creditor for cost recovery, could avoid, thereby placing title (and the cost recovery obligation) back to the owner as if no conveyance had occurred? (198)
A. Not the Traditional Fraudulent Conveyance
Today's Uniform Fraudulent Transfer Act (UFTA) carries forward general policies that were incorporated in earlier nonuniform statutes and the Uniform Fraudulent Conveyance Act. (199) The Act empowers present or future creditors to invalidate transfers made by a debtor with intent to defraud the creditors, or that have the effect of doing so, (200) to the extent necessary to satisfy the creditor's claim. (201) Even without showing specific intent, present creditors can invalidate transfers made by an insolvent debtor who did not receive a reasonably equivalent value in exchange. (202) In the ordinary fraudulent transfer case, creditors set aside transfers that unfairly deplete a debtor's assets, thereby subjecting the value in the transferred property to attachment and levy as if it were still part of the debtor's estate. (203) A court determined to set aside a strategic conveyance aside presumably could rescind the conveyance and revest title in the former owner, thereby subjecting the land and its former owner to statutory liability.
The strategic conveyance does not fit the fraudulent transfer paradigm. The grantor's ordinary creditors (other than government) are not injured by the transfer because the asset itself has no positive economic value. To the contrary, those ordinary creditors are benefited in that the owner-debtor has unloaded property that produces liability--not something any ordinary creditor wants--thereby preserving other assets from depletion by cost recovery. The only creditor adversely affected by the transfer is the government, which lost its unaccrued (204) claim for cost recovery against the grantor. During the time the grantor--as former owner--held title, the government's claim was inchoate, potentially binding the debtor only so long as the debtor had the status of owner. If the very act considered a fraudulent conveyance is a permissible way to extinguish the CERCLA claim, it is difficult to say that government had a protected interest as a creditor of the grantor. At some level though, fraudulent transfer analysis may apply.
B. Uniform Fraudulent Transfer Act Definitions and Policy
UFTA provides several definitions that fit the strategic conveyance analysis. The disposal site meets the definition of "asset," which refers simply to "property of a debtor." (205) The site in the hands of the transferor--and later, the transferee--is clearly "property," (206) and therefore an "asset." "Creditor" means a person who has a claim. (207) Governments are included in the definition. "Debtor" means a person who is liable on a claim. (208) "Obligation" (to be considered shortly) presumably has its ordinary meaning. (209)
The UFTA empowers a creditor to set aside a debtor's transfer made "with actual intent to hinder, delay, or defraud any creditor of the debtor." (210) The admitted and sole purpose of the transfer is to hinder the government's collection efforts, and in fact to defeat them. If the strategic conveyance accomplishes its intended effect, the transfer satisfies the text's definition, albeit by a nontraditional application.
Analyzing the strategic conveyance as a fraudulent transfer provides a basis for distinguishing between an ordinary, economically motivated conveyance and a strategic transfer intended solely to evade liability as owner. In the economically motivated transaction, both parties--grantor and grantee--presumably take into account the cleanup obligation when setting a price, and the grantee decides as a rational maximizer to buy the burdened land with the expectation of financial gain. There is no intent to defraud, hinder, or delay government, even if the grantee later proves financially incapable of paying the cost of cleanup. By contrast, the only economic motivation for the purely strategic conveyance is to shift the burden to a grantee whose only qualification is hopeless insolvency, and whose economic motivation, if any, is unconnected to any real or perceived asset value in the land.
C. "Obligation Incurred" as a Fraudulent Transfer by Grantee
Could the strategic conveyance be turned on its head and viewed as a fraudulent transfer by the grantee? Such analysis departs even farther from the paradigm, but it may more nearly reflect what actually happens in an economic sense.
In reality, the flow of value in the strategic transfer runs from grantee to grantor, not from grantor to grantee. The strategic grantee's acceptance of ownership provides the grantor a valuable release from liability, and the grantee's acceptance imposes a formal obligation to pay the cost of cleanup. Although superficially benefiting from the grantee's assumption of liability, the government actually gains nothing because the grantee's undertaking is worthless. In this sense, then, the grantee is the transferor, and the grantor is the transferee of the only positive element of value--release from obligation for cost recovery. An objection may be made that there cannot be a fraudulent transfer by the grantee because no asset passed from grantee to grantor. The objection may not control, however, because the UFTA declares that "incurring an obligation" can also amount to a fraudulent transfer. (211)
UFTA section 4 states that an obligation incurred by a debtor is fraudulent as to present and future creditors if the obligation was incurred 1) with actual intent to hinder, delay, or defraud any creditor of the debtor, or 2) without receiving reasonably equivalent value and the debtor believed that he or she would incur debts beyond his or her ability to pay. The strategic conveyance analysis finds the government as a future creditor of the grantee when the pauper incurs the obligation with actual intent, both by grantor and grantee, to hinder the government's cost recovery. The grantee does not receive reasonably equivalent value by taking title to the negative asset, and both grantor and grantee believe the grantee will incur a cost recovery debt beyond its ability to pay.
Fraudulent transfer law empowers future creditors as well as existing creditors to set aside fraudulent transfers made with actual intent to hinder, delay, or defraud a creditor. (212) Protection for future creditors is significant, inasmuch as government is not a creditor of the grantee until the transfer. The strategic transfer meets the UFTA's definition as a voluntary disposal or division of an asset from the grantor's perspective (213) and as incurring a future obligation from the grantee's perspective.
The strategic grantee's assumption of the obligation for cost recovery is similar to a grantee's assumption of an existing mortgage debt. If the purpose or effect of an assumption is to defraud the grantee's creditors, then undertaking the obligation can be rationally called a fraudulent transfer. (214) The ordinary remedy in such case is cancellation of the assumption promise, not revesting title in the grantor. (215) But canceling the obligation is not the only remedy the Uniform Act allows. The Act also allows a creditor (in this case, the government) to avoid the transfer to the extent necessary to satisfy its claims and obtain an injunction against further disposition of the asset. (216) If the avoidance remedy extends to authorize judicial rescission of the transfer, a court order could reinvest the grantor with title to the disposal site, along with "current owner" status that carries responsibility for cost recovery.
D. Applies in Principal?
In sum, because the transfer itself renders the grantee insolvent (or increases the liabilities of an already insolvent estate) without any significant return value, it is a transfer in fraud of the grantee's creditors. The government is a creditor of the grantee from and after the time of the transfer, and may therefore seek to set aside the transfer--not to enhance the ability of its creditor to pay the debt, but instead to place ownership back on the solvent grantor.
The analysis under the UFTA is shaky. In particular, it is difficult to fathom how the government, as a potential creditor of the grantee for cost recovery, can complain about an undertaking that technically benefits the government. The strategic grantee's obligation may be fraudulent as to the grantee's creditors other than government because the obligation reduces their share of the asset pie that would otherwise be available. However, inasmuch as the conveyance itself created the government's rights against the grantee, it is difficult to make the case that the government has been disadvantaged as a creditor of the grantee. Thus, it is only as creditor of the strategic grantor that the government really has a complaint.
Shaky though the effort might be, fraudulent transfer analysis reinforces two points. First, the strategic conveyance appears fraudulent as to the insolvent grantee's general class of creditors, one of whom is the government. Second, a court can reasonably avoid the transfer and return title to the grantor, even though the grantee was not personally defrauded. These two points may be all that is required to avoid the strategic conveyance and reinstate the grantor's status liability as owner. The strategic grantor does not appear to qualify for the UFTA's listed defenses (217) other than, perhaps, limitations. (218)
For a judge, the choice between characterizing the strategic conveyance as acceptable economic and legal behavior on the one hand, and fraudulent conveyance on the other, may reflect the judge's fundamental assessment of the strategy's morality. For those who are not offended by the strategic conveyance, fraudulent transfer analysis is easy to reject because it does not readily fit the paradigm.
Fraudulent conveyance analysis provides a sword for those who think the strategic transfer does not pass the "smell test," and the analysis itself can be justified by both the policies and the text of the Uniform Act.
E. The "Fraudulently-Entered Transaction" Exception
Atchison, Topeka and Santa Fe Railway Company v. Brown & Bryant Inc. (Atchison) (219) referred to what it called the "Fraudulently-Entered Transaction Exception," imposing CERCLA liability on an asset purchaser "if [t]he transaction was fraudulently entered into in order to escape liability. (220) This rule, as described in Atchinson, does not directly apply to the strategic conveyance considered herein. The strategic conveyance is engineered to extinguish the grantor's liability as owner and impose it on a grantee. By contrast, the fraudulently entered transaction is devised to protect a grantee who buys the "clean" assets of a party who is liable for cost recovery (presumably in an at-fault capacity) in a transaction that leaves the seller liable but without sufficient assets to respond to the action. (221) The Atchinson court stated: "[A]lthough other courts have also recognized the availability of this exception under CERCLA, none have found occasion to apply it." (222)
Atchinson described other cases in which asset purchasers were held liable under a broader exception holding liable entities who simply acted as successors of the liable patty. (223) For example, in United States v. Carolina Transformer Co. (224) the seller's children were sole shareholders of the purchaser; in United States v. Distler, (225) the seller's key employees formed the new purchasing corporation; in Oner II, Inc. v. U.S. Environmental Protection Agency (226) a new corporation was formed for the very purpose of purchasing the assets and carrying on the business of an environmentally burdened corporation; and in Kleen Laundrx & Dry Cleaning Servs., Inc. v. Total Waste Mgmt. Corp. (227) a successor corporation took over the old corporation's business.
The fraudulently entered transaction resembles the strategic conveyance to a pauper in spirit, if not in fact. It is a conveyance entered to escape liability. But is the transaction fraudulent? This question simply redraws the circle that plagues this entire discussion.
VII. "ARRANGING" FOR DISPOSAL UNDER SECTION 107(a)(3)
CERCLA imposes liability on "any person who by contract, agreement, or otherwise arranged for disposal ... of hazardous substances owned or possessed by such person...." Is a strategic conveyance, in essence, an arranging for disposal of waste located at the site, or even a disposal imposing liability under section 107(a)(2)?
The statute defines an arranger as "any person who by contract, agreement, or otherwise arranged for disposal ... of hazardous substances owned or possessed by such person ... at any facility ... owned or operated by another party or entity and containing such hazardous substances." (228)
The strategic conveyance is clearly a contract or agreement. It is designed solely to dispose of the site and hazardous substances located thereon. The site and the waste are owned and possessed by the grantor. The statutory definition appears, however, to restrict the critical arrangement to a disposal at a "facility owned or operated by another party ... and containing ... hazardous substances." (229) An ordinary reading of the definition demands that the hazardous waste exist as an item disposed of, separate and apart from the disposal site itself. The wording therefore suggests that the act of arranging is limited to transactions that deal with waste as personal property. By definition, the strategic grantor had nothing to do with the waste itself apart from its presence in the site. Moreover, if "arranging" refers to disposal at a facility owned or operated by another party, conveyance of the site itself to the pauper does not appear to satisfy that condition. Thus interpreted, the "arranging" that imposes liability under section 107(a)(3) is limited to the rather conventional contract for disposal of hazardous waste as personal property on real estate owned by somebody else. This limitation would define strategic conveyances out of the arranging category, inasmuch as the pauper does not own a facility or undertake to dispose of the waste itself.
Sanford St. Local Dev. Corp. v. Textron, Inc. (Sanford) (230) held that the sale of a building containing transformers contaminated with PCBs could be classified as an arrangement for the disposal of waste. The defendant initially installed the transformers in the buildings. The transformers were removable when the sale was made, though at substantial expense. (231) Further contributing to the "arranging" classification, the agreement obligated the grantee to dispose of the transformers, and the sale price for the property indicated there was little or no economic value in the contaminated property. (232) Sanford represents the most analogous case found imposing potential liability on a grantor in what appeared to be a strategic conveyance. Because the defendant placed the transformers in the building, one could argue that virtually any disposition would be a disposal or arrangement for disposal, thus distinguishing the case from the strategic conveyance by an owner not otherwise liable.
Jersey City Redevelopment Authority v. PPG Industrie (233) held that the sale of a construction site contaminated with fill material did not create liability under section 107(a)(3). Jersey City indicates that "arranger" liability arises with respect to disposal of the contaminating products, not the site on which they are located. (234) G. J. Leasing Co. v. Union Elec. Co. (235) held that the sale of property containing asbestos was not an arrangement for disposal, noting the seller's belief that the property had commercial value and use in the commercial resale market, and the transaction was not a "sham" for disposal of hazardous waste. (236) The reference to "value" and use of the word "sham" may prove significant for assessing whether the strategic conveyance is given its intended effect.
The strategic conveyance falls within one measure of arranger's liability. Entities that sell hazardous materials to buyers who propose to use the materials in production of other goods are not liable for arranging disposal. (237) If, however, the sale of hazardous material is a device for disposing of it as waste, the sale imposes liability on the seller as an arranger. A critical factor in separating the two categories is whether the materials have value for further use in manufacturing. (238) If they do, the sale appears to be one for further use; if not, it is viewed as arranging a disposal. (239)
In the ordinary meaning of the term "arrange," one could argue that the strategic conveyance is nothing more than an arrangement to dispose of the contaminated site, and that section 107(a)(3) liability is appropriate. The site itself has no value and is hazardous real estate. The entire transaction is structured to transfer responsibility from the current owner to another person, whose only function is to take over the contaminated site and its attendant liability. This characterization makes the strategic grantor a culpable, responsible party whose liability is based on fault, not mere status. This simple analysis is difficult to support, however, within the wording of the statute.
VIII. A LAWYER'S LIABILITY
The idea of making a strategic conveyance to transfer cost recovery liability to a pauper is not likely to come from a client who discovers hazardous waste on land purchased without appropriate environmental inquiry. It is more likely to come from a lawyer who tries to devise a solution to a client's problem. The case that status liability can be transferred to an indigent, with consequent release for the troubled owner, is not strong enough to risk a bar license without substantial additional research. At least three professional ethics concerns must be taken into account. (240)
ABA's Model Rules of Professional Conduct (MRPC), Rule 1.2(d) provides:
A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law. (241)
Rule 4.1 prohibits a lawyer from: "(a) mak[ing] a false statement of material fact or law to a third person; or (b) fail[ing] to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6." (242) Rule 3.3 prohibits a lawyer from misleading a tribunal. (243)
These rules make it clear that a lawyer who represents an almost-innocent owner must inform the client of the obligation to disclose the discovery of hazardous waste on the ground and advise the client to comply. Advising the client not to disclose would lead to criminal conduct; failing to advise the client of the obligation would violate the Rule 1.1 requirement that the lawyer provide competent representation. Before advising a client of the possible benefits of a strategic conveyance, the lawyer should advise the client that EPA might classify a strategic conveyance as a sham, fraudulent transfer, or arrangement for disposal with possible penalties that may accompany continuing liability for cost recovery. The lawyer should also make the transaction sufficiently public such that no misleading occurs. In short, the transaction should be fully displayed on the record, warts and all. If questioned in a tribunal, the grantor must be honest regarding the purpose of the conveyance. The research on which this Article is based did not produce a clear-cut holding that strategic conveyance is criminal, a sham, a fraud, or arranging for disposal, but it certainly did not rule out such consequences. (244)
The final question may be what additional cost and liability an unsuccessful strategic conveyance might impose if it were deemed, for example, "arranging for disposal." Presumably, cost recovery is a constant, regardless of whether liability attaches to a particular party. Costs of litigation and penalties (if imposed) might be offset by the chance that, given uncertainty, the government might be willing to settle.
The question "How ought the transaction be treated?" is different from the question "How might the transaction be treated?" Unfortunately, the answer is no more clear.
IX. POLICY CONSIDERATIONS
A. Congressional Intent (245)
Through CERCLA, Congress sought to recoup cleanup costs from the specified group of more or less culpable potentially responsible parties, including "owners," whenever possible. (246) One could argue that Congress "intended" its program to operate in a world of ordinary transactions. However, people do not ordinarily seek out indigents and give them land. As opposed to "ordinary" land transactions, the conveyance of burdened lands to an indigent does not fit the ordinary transaction paradigm. Rather, it is likely to raise eyebrows and may not pass the smell test. (247)
Through CERCLA, Congress relies on economic forces to encourage private parties to clean up toxic waste dumps. The policy allows intermediate owners to avoid liability by honestly reducing the price of land to reflect cleanup costs. By imposing liability on the owner who gets caught with title, regardless of fault, CERCLA tends to reduce contaminated land to its net asset value, after deducting the cost of remediation. The system probably works in most cases to accomplish CERCLA's goals. So long as the cleansed land value is greater than the cost of cleanup, transfer of liability is irrelevant. Sometimes economic policy fails, as when cleanup cost exceeds value of the cleansed land. If this situation is the exception, and if the transfer of liability does work in most cases, an occasional strategic conveyance might do little harm. Crafting a prohibition against it might diminish the effectiveness of an otherwise efficient cost-transfer system. Bringing suit in every questionable case to establish "arranger" liability might waste more money than would be collected.
This Article examined the potential consequence of conveying contaminated land to a pauper with the sole and specific intent of avoiding CERCLA liability. Although useful for analytical purposes, this simplistic postulation cannot be taken into the real world. Real cases are never this clear cut. Evidence will seldom be overwhelmingly clear as to whether the grantor picked out an indigent, or the grantee just turned out to be broke. Making "intent" a potential key for imposing or avoiding liability invites crafty structuring of shady transactions and could torpedo legitimate transactions. As a business planning matter, how much inquiry must a responsible grantor make into the solvency of a grantee, lest liability linger after the conveyance? The formal effort to determine whether a transaction was purely strategic, or a legitimate grantee just turned out to be insolvent, may produce transaction costs that outweigh the aggregate of recovered costs. In short, on a purely economic basis, the game may not be worth the candle.
The emphasis on personal liability for nonactive parties is itself questionable. Without diminishing the responsibility of generators and active parties who create disposal sites and problems, the government could reexamine the desirability of imposing personal liability on passive owners. If a current owner is only guilty of not having checked the property fully before buying, a sensitive observer might limit liability to the value of the land itself. Recent amendments to CERCLA have relaxed responsibility for some owners, and even for some polluters. (248) All entrepreneurs enter transactions knowing they may lose all the money they invested. It is a different matter, however, to impose unlimited liability on someone whose only crime was carelessness.
B. Social Engineering
Holmes's and Pound's faith in law as an instrument of social engineering would have us believe that legislation and judicial decisions feed back into society and affect human behavior in a reasonably predictable fashion. (249) Recent application of the complexity theory casts some doubt on this assumption. (250) Nevertheless, for an academic observer, the conventions of the day require that the implications of a rule be examined in terms of ultimate social consequences. In short, which of the two potential analyses work better to accomplish a social goal deemed worthy of pursuing, such as cleaning up the environment?
Is there anything wrong with allowing the grantor to extinguish putative liability by strategic behavior? One answer is "yes." The due diligence requirement has been reasonably effective in getting buyers to pay attention to the condition of the land they buy and their responsibility to clean it up. The innocent purchaser exception provides a powerful incentive for buyers to examine land before purchase. Relaxing status liability, even slightly, diminishes this incentive. (251) If a strategic transfer can extinguish potential responsibility for remediation, what will the market produce? Unless driven by public spirit or otherwise obligated by environmental legislation, owners of land worth less than remediation cost will seek to terminate status liability. Because no rational maximizer with assets would accept such a conveyance, only a pauper or greater fool (252) will take title.
What is the predictable future for a disposal site conveyed strategically to an indigent grantee? Because the indigent owner will fail to pay taxes, the land will eventually be bought by local taxing authorities, who are specifically excluded from liability for remediation. The final stop for a disposal site where costs exceed potential value is public ownership with public funds devoted to remediation. All else is wasted effort.
Would it not make more sense to create a public entity with authority to take title of such lands by gift conveyance from owners who have no personal involvement in disposal, and use tax funds for removal and remediation? Cost recovery would be limited to at-fault parties for whom no sympathy is due, or to those owners with an economic incentive to clean it up. This change would provide some incentive for the public to take charge of negatively valued lands, as well as greater incentive to find and collect from those parties whose operations or contributing ownership caused the problem in the first place. It would also place title to cleansed lands in public ownership, where the land may have some usefulness.
C. Is This the Real World?
As a postscript, it is worth asking whether the preceding discussion refers to anything in the real world. It was not prompted by a client's question or reported opinion. A ritual review of the copious CERCLA articles did not reveal a discussion of the strategic conveyance question. A troubling thought is that any substantial activity in strategic conveyances may be underground and out of sight. Why, indeed, would a purchaser of real estate ring the bell of publicity upon finding a problem that could be avoided by pretending it did not exist? Why would anyone fail to balance the likelihood of discovery against the pain of dealing with the problem, and then convey the land in violation of all legal rules? Why not give the land to the local church and claim a charitable deduction? This Article, after all, assumes full knowledge of the law and a willingness to follow the rules. The implicit question may be whether one who knows the law and is willing to follow it should be disadvantaged by doing so.
If a single piece of paper--a deed--could change disaster (obligation for perhaps millions of dollars in cleanup fees) to mere disappointment (total loss of the money spent for contaminated land), then surely the ploy has been attempted. (253) Is EPA so understanding of almost-innocent landowners that it looks the other way or works out deals that ease the pain of ownership? (254) Is the strategy so accepted and commonplace that everyone does it and nobody questions it? Or is the circumstance so rare--cleanup costs exceeding the value of cleansed land imposed on an almost-innocent owner--that no entity considers the strategy? The authors, frankly, do not know.
Whatever the extent of the practice, a plethora of strategic conveyances would not be good for the public. Conveying contaminated land to an indigent grantee is the functional equivalent of abandonment. The land will sit vacant, perhaps leaking or leaching contaminants until the EPA pays attention or local taxing authorities conduct a tax foreclosure sale. In either case, if at-fault parties cannot be located and sued, some level of government will bear the cost of cleanup.
The entire law and policy relating to brownfields and disposal sites is under review. The original effort, though laudatory, was hastily drafted and needs revision. The Superfund is nearly depleted, and taxpayers increasingly bear the cost of cleanup. (255) Strategic conveyances may pass statutory muster, but they don't pass the smell test--neither does assignment of unlimited status liability on one who fell just short of immunity.
(1) This Article was prompted by persistent questions from two students, Ryan Gertz and Catherine Vogel, in a first year property class at University of Houston Law Center. The authors thank them for their tenacity, inquisitiveness, and continuing interest in the outcome, but regret that we still do not have a definitive answer to their questions. The authors appreciate the efforts of several environmental lawyers who commented on the ideas, but may not want to be identified with the product. Special thanks go to Matt Watson, Harriet Richman, Patrick Flanagan, Celina Rameriz, and Kyle Reed for research assistance.
(2) 42 U.S.C. [sections] 9601-9675 (2000).
(3) See United States v. Witco Corp., 865 F. Supp. 245, 247-48 (E.D. Pa. 1994) (discussing history and purposes of CERCLA in motion to dismiss third party complaint).
(4) 42 U.S.C. [section] 9607(a)(1)-(4) (2000) (emphasis added). The apparent redundancy of "owner" appearing in sections 9607(a)(1) and 9607(a)(2) was resolved by treating (a)(1) owners as current owners of the land and (a)(2) owners as those who owned at the time of disposal. Craig N. Johnston, Current Landowner Liability under CERCLA: Restoring the Need for Due Diligence, 9 FORDHAM ENVTL. L.J. 401,405 (1998).
(5) See OHM Remediation Serv. v. Evans Cooperage Co., 116 F.3d 1574, 1578 (5th Cir. 1997) (stating, "[b]ecause the Act imposes strict liability ... plaintiffs generally need not prove causation, only that the defendant is a "covered person"); New Castle County v. Halliburton NUS Corp., 111 F.3d 1116, 1121 (3d Cir. 1997), reh'g denied, 116 F.3d 82 (3d Cir. 1997) (stating that "liability under CERCLA is strict, that is, without regard to fault or willfulness").
(6) See Millipore Corp. v. Travelers Indem. Co., 115 F.3d 21, 24 (1st Cir. 1997) (finding CERCLA's cost allocation scheme applies retroactively); United States v. Olin Corp., 107 F.3d 1506, 1512 (11th Cir. 1997) (holding CERCLA's cost recovery action applies retroactively to disposals that occurred prior to CERCLA's enactment).
(7) The statute of limitations does not run until costs have been incurred. 42 U.S.C. [section] 9613(g) (2000).
(8) Section 107(c) imposes fines as high as $50,000,000. Liability is unlimited for willful acts. Id. [section] 9607(c)(D)(2). See Joseph Philip Forte, Environmental Liability Risk Management, PROBATE & PROPERTY, Jan./Feb. 1989, at 57 (environmental liability described as unlimited).
(9) See New York. v. Shore Realty Corp., 759 F.2d 1032, 1052 (2d Cir. 1985) (imposing liability on buyer of already contaminated land who was not otherwise responsible for violation); Johnston, supra note 4 (explaining that CERCLA may impose liability on landowners regardless of ownership at the time of disposal); see also William B. Johnson, Annotation, Private Entity's Status as Owner or Operator Under [section] 107(a)(1,2) of Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 140 A.L.R. FED. 181 (discussing the classes of entities that may be held liable for environmental cleanup).
(10) In In re Hemingway Transp. Inc., 174 B.R. 148 (Bankr. D. Mass. 1994), a developer bought land at its market value of $1,632,100, but related costs of cleanup were estimated in excess of $6,000,000. Id. at 161-64. In United States v. Md. Bank & Trust Co., 632 F. Supp. 573 (D. Md. 1986), the cost of cleaning up land bought at foreclosure for $381,500 was $551,713.50. Id. at 575. In United States v. DiBiase, 45 F.3d 541 (1st Cir. 1995), the cost of cleaning up a five-acre wetland disposal area was more than $2,250,000. Id. at 542 n.1.
(11) 42 U.S.C. [section] 9601 (35)(A)(iii)(2000).
(12) Id. [section] 9601(20)(D); see also Pennsylvania v. Union Gas Co., 491 U.S. 1, 12-13 (1989) (holding the state of Pennsylvania liable for cost recovery); Artesian Water Co. v. Gov't of New Castle County, 605 F. Supp. 1348, 1354 (D.C. Del. 1985) (quoting 42 U.S.C. [section] 9601(21), which includes government entities in definition of "person").
(13) See 42 U.S.C. [section] 9601(20)(D) (2000) (referring to situations where a state acquires ownership involuntarily).
(14) Id. [section] 9601(20)(E).
(15) The innocent landowner defense was added by the Superfund Amendments and Reauthorization Act (SARA) of 1986. Pub. L. No. 99-499, 100 Stat. 1615 (codified as amended in scattered sections of 42 U.S.C.). Professor Craig Johnston describes the innocent purchaser defense as a subset of the "third party defense" provided in section 107(b) of CERCLA, which exempts parties from liability for 1) acts of God, 2) acts of war, and 3) acts or omissions of third parties. Johnston, supra note 4, at 402 (emphasis added). The third-party defense may apply routinely in cases of vandalism or up-gradient property owner activity, but it specially applies to preexisting contamination where a landowner can show that prior to purchasing the property it undertook a reasonable investigation into the potential existence of contamination and found none. Id. at 402 (citing 42 U.S.C. [section] 9601(35)(A) and (B), and noting that 42 U.S.C. [section] 9607(b)(3) also requires the purchaser to "establish that it exercised due care once it became aware of the contamination"). For cases applying the innocent landowner defense, see Johnston, supra note 4, at 440-42 n. 142-44. In 2002 the Small Business Liability Relief and Brownfields Revitalization Act amended and clarified the innocent landowner provisions. Pub. L. No. 107-118, 115 Stat. 2372-2374 (2000) (codified as amended in scattered sections of 42 U.S.C.).
(16) See Foster v. United States, 922 F. Supp. 642, 653-57 (D.D.C. 1996) (holding landowner not entitled to assert innocent landowner or third party defense because of failure to exercise due care or take appropriate precautionary measures); Johnston, supra note 4, at 404. The requirements for innocent purchase are prescribed in 42 U.S.C. [section] 9601(35) (2000).
(17) Some courts have applied the doctrine of joint and several liability in the CERCLA context. See United States v. Alcan Aluminum Corp., 964 F.2d 252, 268 (3d Cir. 1992) (holding common law joint and several liability could be applied); United States v. Alcan Aluminum Corp., 990 F.2d 711, 721-23 (2d Cir. 1993) (affirming joint and several liability); United States v. Rohm & Haas Co., 2 F.3d 1265, 1281 (3d Cir. 1993) (holding owner of 10 percent interest jointly and severally liable).
(18) See, e.g., Niecko v. Emro Mktg. Co., 769 F. Supp. 973, 978 (E.D. Mich. 1991) (holding an "as is" clause in a real estate contract sufficient to shift risk to purchaser; purchaser who paid $46,000 for the land in 1987 sued in 1990 to recover $138,367 in clean up costs.).
(19) 42 U.S.C. [section] 9607(a)(2) (2000).
(20) Id. [section] 9607(a)(1).
(21) The statute of limitations does not run until costs have been incurred. 42 U.S.C. [section] 9613(g) (2000). See generally United States v. Olin Corp., 107 F.3d 1506 (11th Cir. 1997) (discussing retroactive application of CERCLA).
(22) 42 U.S.C. [section] 9607(e)(1) (2000); see also North Shore Gas Co. v. Salomon Inc., 152 F.3d 642, 648 (7th Cir. 1998) (holding an owner at the time of deposit remained liable after transfer of the site).
(23) Section 107(b)(3) provides a valid defense for current land owners. 42 U.S.C. [section] 9607(b)(3) (2000); see also Nurad, Inc. v. William E. Hooper & Sons Co., 966 F.2d 837, 844-45 (4th Cir. 1992), cert. denied, 506 U.S. 940 (1992) (holding an owner liable for "passive migration" on theory that failure to do so would allow owner to escape liability by conveying the land); United States v. CDMG Realty Co., 96 F.3d 706, 711 (3d Cir. 1996) (rejecting passive disposal theory and holding prior owner not liable).
(24) Section 101(35)(c) provides:
[I]f the defendant obtained actual knowledge of the release or threatened release of a hazardous substance at such facility when the defendant owned the real property and then subsequently transferred ownership of the property to another person without disclosing such knowledge, such defendant shall be treated as liable under section 9607(a)(1) of this title and no defense under section 9607(b)(3) of this title shall be available to such defendant.
42 U.S.C. [section] 9601(35)(c)(2000).
(25) Id. [section] 9607(a)(3). See William B. Johnson, Annotation, Arranger Liability of Nongenerators Pursuant to [section] 107(a)(3) of Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 132 A.L.R. FED. 77 (1996) (analyzing liability of entities that arrange for disposal of hazardous waste); William B. Johnson, Annotation, Arranger Liability of Sellers Pursuant to [section] 107(a)(3) of Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 125 A.L.R. FED. 315 (1995) (distinguishing between liability for arranging for disposal and sale of a useful product).
(26) See Pneumo Abex Corp. v. High Point, Thomasville and Denton R.R., 142 F.3d 769, 775 (4th Cir. 1998), cert. denied, 525 U.S. 963 (1998) (discussing factors that determine "whether a transaction was for the discard of hazardous substances or for the sale of valuable materials").
(27) AM Int'l, Inc. v. Int'l Forging Equip. Corp., 982 F.2d 989, 999 (6th Cir. 1993).
(28) California ex rel State Dept. of Toxic Substances v. Summer Del Caribe, Inc., 821 F. Supp. 574,581 (N.D. Cal. 1993).
(29) AM Int'l, Inc., 982 F.2d at 989 (citing Prudential Ins. Co. v. U.S. Gypsum, 711 F. Supp. 1244, 1253, 1255 (D.N.J. 1989)); Chatham Steel Corp. v. Brown, 858 F. Supp. 1130, 1144 (N.D. Fla. 1994).
(30) Pneumo Abex, 142 F.3d at 775; Edward Hines Lumber Co. v. Vulcan Materials Co., 685 F. Supp. 651, 656 (N.D. Ill. 1988); Prudential Ins. Co. v. U.S. Gypsum, 711 F. Supp. 1244, 1253, 1254 (D.N.J. 1989).
(31) Ganton Tech., Inc. v. Quadion Corp., 834 F. Supp. 1018, 1022 (N.D. Ill. 1993).
(32) Nurad, 966 F.2d 837, 845 (4th Cir. 1992), cert. denied, 506 U.S. 940 (1992); Johnston, supra note 4, at 407 n.17; Robert L. Bronston, Case Against Intermediate Owner Liability Under CERCLA for Passive Migration of Hazardous Waste, 93 MICH. L. REV. 609, 611 (1994) (discussing the definition of disposal in section 107(a)(2)).
(33) In Carson Harbor Vill., Ltd., v. Unocal Corp., 270 F.3d 863, 875 (9th Cir. 2001), passive migration was held not a "disposal." The court reviewed other circuit court authorities and concluded that, although cases from the Sixth, Third, Second, and Fourth Circuits fell into a continuum on the issue, only the Fourth Circuit defined passive migration as "disposal" (in Nurad). See Craig May, Taking Action--Rejecting the Passive Disposal Theory of Prior Owner Liability Under CERCLA, 17 VA. ENVTL. L.J. 385, 402-08 (1998) (analyzing the passive/active dichotomy for liability of prior owners).
(34) Knowledge of the presence of contamination might impose a nontransferable obligation because of the concomitant obligation to notify the authorities of the presence of the waste and exercise due care once the owner becomes aware of the contamination. Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. [section] 9603(a) (2000). Bedford Affiliates v. Sills, 156 F.3d 416, 430 (2d Cir. 1998), provides another reason why time may, in some circumstances, be critical--namely, that delay alone may increase contamination.
(35) For example, if land is worth $1,000,000 for development and the cost of remediation is $100,000, a rational maximizer will spend the $100,000 to correct the problem and salvage the residual $900,000 value. This is true regardless of what the owner paid for the tract. All later purchasers will therefore discount the price to reflect the cost of remediation and related nuisance, overhead, and bureaucratic aggravation. If, on the other hand, the value of the land after remediation is $100,000, and the cost of remediation is $1,000,000, the owner as a rational maximizer will seek to avoid liability if at all possible. The owner might attempt to hide the discovery of hazardous waste or make a fast conveyance to anyone foolish enough to take it, but CERCLA requires that owners notify authorities upon discovery of hazardous waste, imposing substantial penalties (including imprisonment) for failure to do so. 42 U.S.C. [section] 9603 (2000). See Kevin A. Gaynor & Thomas R. Bartman, Criminal Enforcement of Environmental Laws, 10 COLO. J. INT'L ENVTL. L. & POL'Y 39, 44-46 (1999) (discussing criminal provisions of RCRA, CERCLA, and the Clean Water Act). A fast conveyance is also likely to impose liability on the seller under prevailing common law and statutes that require disclosure to the purchasers, and with disclosure, no economically motivated purchaser will buy. Stephen L. Poe, Sale of REO Properties Under CERCLA: An Area of Continuing Environmental Risk for Lenders, 29 AM. Bus. L.J. 43, 69 (1991).
(36) See, e.g., United States v. Lowe, 118 F.3d 399, 401 (5th Cir. 1997) (allowing government to recover for monitoring or oversight costs).
(37) OHM Remediation, 116 F.3d 1574, 1578 (5th Cir. 1997) (discussing the classes of persons liable for response costs); Joslyn Mfg. Co. v. Koppers Co., 40 F.3d 750, 762 (5th Cir. 1994) (discussing indemnity agreements in leases).
(38) The liability of active participants can be analyzed as a logical extension of intentional tort law, and the liability of current owners can be rationalized as an application of traditional nuisance law. See, e.g., United States v. Chem-Dyne, 572 F. Supp. 802, 810 (S.D. Ohio 1983) (relying on Restatement (Second) of Torts); Shore Realty, 759 F.2d 1032, 1050 (2d Cir. 1985) (analyzing owner's liability under nuisance law).
(39) Section 107(a)(1) of CERCLA unequivocally imposes liability on the owner of a facility, judicially defined as the current owner, without regard to fault or causation. Shore Really, 759 F.2d at 1043-44; City of Phoenix v. Garbage Serv. Co., 816 F. Supp. 564, 567 (D. Ariz. 1993). In United States v. Parsons, 723 F. Supp. 757 (N.D. Ga. 1989), the court held an owner of a farm liable over his insistence that he was away from the farm when drums of hazardous waste were delivered and that he never gave permission for storage. Id. at 761. Liability in this case would be based on status as owner "at the time of disposal," not the time of suit. Four mid-1980s cases eroded the joint and several liability of current owners imposed in Shore Realty: United States v. Mirabile, 15 Envtl. L. Rep. (Envtl. L. Inst.) 20,994, 20,995 (E.D. Pa. 1985); United States v. Argent Corp., 1984 WL 2567 (D.N.M. 1984); United States v. S.C. Recycling & Disposal, Inc., 653 F. Supp. 984 (D.S.C. 1984), aff'd sub nom., United States v. Monsanto Co., 858 F.2d 160 (4th Cir. 1988); United States v. N.E. Pharm. & Chem. Co., 579 F. Supp. 823 (W.D. Mo. 1984), aff'd in part, vacated in part, 810 F.2d 726 (8th Cir. 1986), cert. denied, 484 U. S. 848 (1987). This relaxation of current owner liability is criticized by Johnston, supra note 4, as detrimental to the policy of encouraging buyers to exercise due diligence when buying land that may be contaminated. He criticizes New York v. Lashins Arcade Co., 691 F.3d 353 (2d Cir. 1996), AM Int'l, 106 F.3d 1342 (7th Cir. 1997), and Rumpke of Ind., Inc. v. Cummins Engine Co., 107 F.3d 1235 (7th Cir. 1997), for benefiting "almost innocent" parties who knew about the contamination when they bought or failed to conduct an adequate environmental survey. Johnston, supra note 4, at 445-52.
(40) Such an owner was described in In re Hemingway Transp., Inc., 174 B.R. 148 (Bankr. D. Mass. 1994). The owner was a land developer who bought a development tract without having an environmental assessment that presumably would have disclosed the existence of barrels of hazardous waste as well as groundwater contamination. Id. at 161. A friend of one of the authors bought a tract near an industrial area 30 years ago. He is afraid to have an environmental assessment made because of fear of what it might reveal. Any sale made in the ordinary economic market would entail such a survey. A strategic conveyance is, for him, a reasonable alternative if the economic risks connected with such a sale are minimal.
(41) Buyers are divided into three categories for innocent landowner determination. "The legislative history shows that Congress meant to establish a "'three-tier system' in these innocent landowner provisions: 'Commercial transactions are held to the strictest standard; private transactions are given a little more leniency; and inheritances and bequests are treated the most leniently of all.'" WILLIAM H. ROGERS, JR., ENVIRONMENTAL LAW [section] 8.8(C)(3)(e) (2d ed. 1994) (quoting United States v. Pacific Hide & Fur Depot, Inc., 716 F. Supp. 1341, 1348 (D. Idaho 1989)).
(42) Small Business Liability Relief and Brownfields Revitalization Act, 42 U.S.C. [section] 9601(20)(E)(ii) (2000 & Supp. 2002).
(43) Id. [section] 9601.
(44) Id. [section] 9601(35)(B).
(45) See, e.g., ME. REV. STAT. ANN. tit. 38, [section] 1362(2)(B) (1964) (regulating hazardous waste sites; defining responsible party to include "[a]ny person who owned or operated the uncontrolled site from the time any hazardous substance arrived there"). In states following the Maine formula, strategic transfers would presumably be ineffective, so the remainder of this Article would not apply to them.
(46) For example, New Jersey's Industrial Site Recovery Act (ISRA) is designed to provide expeditions cleanup of industrial properties at the time they are closed, sold, or otherwise change ownership. Mark S. Dennison, Buyer's Claims Against Seller Who Fails to Disclose Environmental Condition of Property, 36 AM. JUR. PROOF OF FACTS 3d 471, [section] 11 n.93 (1996) (citing 1993 N.J. Sess. Law Serv. ch. 139 (Senate 1070) (West), amending N.J. STAT. ANN. [section] 13(1)(K)); see also IOWA CODE ANN. [section] 455B.430 (West 1995) (requiring approval of sale by State Department of Natural Resources, Environmental Protection Division).
(47) See ABB Indus. Sys., Inc. v. Prime Tech., Inc., 120 F.3d 351, 358-60 (2d Cir. 1997) (rejecting passive migration theory and finding no liability under RCRA or for negligence); CDMG, 96 F.3d 706, 713 (3d Cir. 1996) (discussing passive migration during interim ownership and the innocent owner defense); Farmland Indus., Inc. v. Morrison-Quirk Grain Corp., 987 F.2d 1335, 1340 (8th Cir. 1993) (holding that determination that former owner was responsible party under CERCLA did not necessarily make that owner liable to subsequent owner for contribution or indemnity); Crofton Ventures Ltd. P'ship v. G & H P'ship, 258 F.3d 292, 297 (4th Cir. 2001) (finding prior owners and operators are liable only if they owned or operated the facility at the time of disposal); Plaskon Elec. Materials, Inc. v. Allied-Signal, Inc., 904 F. Supp. 644, 661 (N.D. Ohio 1995) (holding that speculation that a spill occurred during defendant's ownership was not sufficient to impose liability); Hatco Corp. v. W. R. Grace & Co., 849 F. Supp. 987, 995 (D.N.J. 1994) (holding former owner of site not liable for metal contamination in absence of evidence former owner was responsible for metal contamination); Joslyn Mfg. Co. v. T. L. James & Co., 836 F. Supp. 1264, 1270 (W.D. La. 1993) (holding a prior owner not liable absent an act of disposal).
(48) Catellus Dev. Corp. v. L.D. McFarland Co. 1993 WL 485145, at *1, *3 (D. Or. 1993); see also Lion Oil Co., v. Tosco Corp., 90 F.3d 268, 270 (8th Cir. 1996) (parties can allocate CERCLA liability by contract); Keywell Corp. v. Weinstein, 33 F.3d 159, 165 (2d Cir. 1994). They cannot however avoid liability to the federal government. Dent v. Beazer Materials and Serv., Inc., 993 F. Supp. 923, 939-40 (D.S.C. 1995), aff'd, 156 F.3d 523 (4th Cir. 1998).
(49) 42 U.S.C. [section] 9603 (2000). See Nurad, 966 F.2d 837 (4th Cir. 1992), cert. denied, Muman v. Nurad, Inc., 506 U.S. 940 (1992).
(50) "Will no one rid me of this turbulent priest?" W.L. WARREN, HENRY II, 508-10 (1973).
(51) Pocono Springs Civic Ass'n v. MacKenzie, 667 A.2d 233, 236 (Pa. Super. Ct. 1995).
(52) Nurad, 966 F.2d at 844--45.
(53) Id. at 846-47; see also May, supra note 33 (discussing both the active and passive definitions of disposal and case law supporting both, claiming that the active determination is the majority view); 42 U.S.C. [section] 9603 (2000).
(54) Nurad, 966 F.2d at 845.
(55) Id. at 844-45 (emphasis added).
(56) See generally May, supra note 33 (discussing and analyzing the other circuits' reaction to the Nurad approach).
(58) 96 F.3d 706 (3d Cir. 1996).
(59) Id. at 717 (for example, active disposal includes disturbing previously deposited waste).
(60) Id. at 717. May, supra note 33, at 407.
(61) See Nurad, 966 F.2d 837 (4th Cir. 1992); see New York v. Almy Bros., 1998 WL 438523 (N.D.N.Y. July 31, 1998) (distinguishing Nurad); Crofton Ventures Ltd. P'ship. v. G&H P'ship, 258 F.3d 292 (4th Cir. 2001) (following Nurad, allowing current landowner to recover without showing prior owner either dumped waste or knew about it).
(62) See Hannah v. Peel, 1 K.B. 509 (1945), reprinted in JESSE DUKEMINIER & JAMES KRIER, PROPERTY, XII-XV (4th ed. 1998) (holding that, without knowledge that a brook was on his property, a landowner could not claim title against a non-trespassing finder. This case graced the casebook one author studied in 1952).
(63) See, e.g., Hammond v. State, 594 N.E.2d 509, 513-14 (Ind. Ct. App. 1992), (holding there was sufficient evidence that defendant's possession of cocaine was "knowing" to support possession conviction even though defendant thought white powder was baking soda).
(64) In re Nat'l Gypsum Co., 139 B.R. 397, 407 (N.D. Tex. 1992). "[T]he National Gypsum court pieced together a bankruptcy discharge standard that distinguished between costs associated with pre-petition conduct resulting in a release or threat of release that could have been 'fairly' contemplated by the parties; and those that could not have been 'fairly' contemplated by the parties." JOHN W. WATSON & JEFFREY M. SCHWARTZ, Managing Environmental Claims in Bankruptcy, ENVIRONMENTAL LAW IN ILLINOIS [section] 12.5(B) (2001). The National Gypsum court found that conduct that could be fairly contemplated would give rise to dischargeable claims in bankruptcy, while conduct not so contemplated would not. In seeking to apply this newly articulated standard, the court cited a number of factors relevant to determining whether the parties fairly contemplated future costs based on pre-petition conduct. Factors giving rise to "fair contemplation" of a claim include "knowledge by the parties of a site in which a PRP may be liable, NPL listing, notification by EPA of PRP liability, commencement of investigation and cleanup activities, and incurrence of response costs." National Gypsum, 139 B.R. at 408. From National Gypsum emerged a line of court decisions acknowledging the need for additional knowledge of a claim before a release of hazardous substances gives rise to a dischargeable claim in bankruptcy. See WATSON & SCHWARTZ, supra, [section] 12.5(B) (describing National Gypsum as the first case to espouse a subjective knowledge standard).
(65) WATSON & SCHWARTZ, supra note 64, [section] 12.5(B).
(66) See ABB Indus. Sys., 120 F.3d 351, 356 (2d Cir. 1997) (limiting liability to those who owned or controlled land at time of disposal or release); Lion Oil Co., 90 F.3d 268, 270 (8th Cir. 1996) (upholding contract allocation of clean-up costs to purchaser of site). CDMG highlighted knowledge by stating that prior owners who bought and sold property without knowledge that it was contaminated were not polluters and should not pay for cleanup. 96 F.3d at 706, 717-18 (3d Cir. 1996); see also 42 U.S.C. [section] 9601(35)(C) (2000) (imposing continuing liability after transfer if grantor transfers without disclosure).
(67) See discussion supra note 4 and accompanying text.
(68) 42 U.S.C. [section] 9607(b)(3) (2000). See Johnston, supra note 4, at 407 (discussing conceptual problems in applying the requirement to current owners).
(69) Section 103(c) provides:
[A]ny person who owns ... a facility at which hazardous substances ... are or have been stored, treated, or disposed of shall, unless such facility has a permit issued under, or has been accorded interim status under subtitle C of the Solid Waste Disposal Act [42 U.S.C.A. [section] 6921 et seq.], notify the Administrator of the Environmental Protection Agency of the existence of such facility, specifying the amount and type of any hazardous substance to be found there, and any known, suspected, or likely releases of such substances from such facility.
42 U.S.C. [section] 9607(b)(3) (2000).
(70) Section 103(c) further provides: "Notification received pursuant to this subsection or information obtained by the exploitation of such notification shall not be used against any such person in any criminal case, except a prosecution for perjury or for giving a false statement." Id.
(71) Section 103(c) states in pertinent part:
Any person who knowingly fails to notify the Administrator of the existence of any such facility shall, upon conviction, be fined not more than $10,000, or imprisoned for not more than one year, or both. In addition, any such person who knowingly falls to provide the notice required by this subsection shall not be entitled to any limitation of liability or to any defenses to liability set out in section 9607 of this title.
(72) "The Administrator shall notify the affected State agency, or any department designated by the Governor to receive such notice, of the existence of such facility...." Id.
(73) This is the point at which the federal lien applies under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. [section] 9607(1) (2000).
(74) United States v. Fleet Factors Corp., 901 F.2d 1550, 1554 (11th Cir. 1990).
(75) Nurad, 966 F.2d 837, 844-45 (4th Cir. 1992); see also CDMG, 96 F.3d 706, 711 (3d Cir. 1996) (finding former owner not liable for movement of contaminants because he was not the owner at time of disposal and because current owner bought property fully aware that hazardous materials were contained on site).
(76) Nurad, 966 F.2d at 844-45.
(77) Aviall Servs. v. Cooper Indus., 263 F.3d 134 (5th Cir. 2001), indicates that a private party may not seek contribution for cleanup against a prior owner until a formal order has issued from the EPA or other responsible government agency. Id. at 140.
(78) The venerable 1950 version of a law school classic, A. JAMES CASNER & W. BARTON LEACH, CASES AND TEXT ON PROPERTY 495 (1951), provides Reid v. Weigher Brewing Co., 40 A. 877 (Md. 1898), as credible law school authority. The text describes the court's holding that liability of an assignee obligated only by privity of estate, terminates on assignment to a later assignee. See A. D. Juillard & Co. v. Am. Woolen Co., 32 A.2d 800, 801-03 (R.I. 1943) (holding that, absent assumption, liability of assignee rests on privity of estate, which is terminated by a new assignment; thereby rejecting a contrary Texas rule that would hold an assignee liable to the end of the lease term, even after assignment to a later assignee terminated privity of estate); Stark v. Am. Nat'l Bank of Beaumont, 100 S.W.2d 208, 212 (Tex. Civ. App. 1936) (Texas court criticizing its own rule as contrary to the overwhelming weight of national authority).
(79) See, e.g., Cerro de Alcala Homeowners Ass'n v. Burns, 169 Cal. App. 3d Supp. 1, 4 (Super. Ct. 1985) (holding that a condominium owner must relinquish "all of the rights of ownership" before he can stop paying assessments on the property); In re Val Moritz Inv. Group, Ltd., 116 B.R. 257, 258 (D. Colo. 1990) (holding that condominium owner's liability for assessments terminated on delivery of deed to a second creditor in lieu of foreclosure).
(80) See, e.g., TEX. PROP. CODE ANN. [section] 92.105(a) (Vernon 1995) (imposing statutory liability on the purchaser of rental property for return of tenants' security deposits).
(81) The authors learned that a mortgagee of a Houston apartment project refused to accept a deed in lieu of foreclosure, even though its mortgage note carried no personal liability. The mortgagor decided against making the strategic conveyance, fearing it would fail in the local legal climate. Telephone consultation between John Mixon and a former student in the 1980s. [record on file with the author].
(82) See, e.g., Pipes v. Sevier, 694 S.W.2d 918, 927 (Mo. Ct. App. 1985) (holding title passed on delivery of deed of gift at time of handing over to grantee or a third party escrow agent).
(83) The public agency that buys the property at tax foreclosure is not liable for remediation costs. 42 U.S.C. [section] 9601(20)(D) (2000).
(84) Id. Section 122 allows expedited settlement based on ability of a potentially responsible party to pay for remediation costs. The ultimate irony would be if the pauper qualified.
(85) Id. [section] 9607(a)(1).
(86) During the fall of 2000 and spring of 2001, the authors conducted informal interviews with four environmental law professors, three environmental practitioners, and a prosecuting attorney. None of the group had considered the strategic conveyance issue. One professor felt the strategic conveyance would be treated as a sham and ignored; one felt that a court would find some way (undefined) to avoid the transaction; and two admitted that the analysis made technical sense, but did not fit the policies of the Act. The practitioners and prosecutor gave similar responses. By agreement, the interviewees remain anonymous. Interviews with Anonymous Environmental Law Practitioners (2000/2001).
(87) The reference is to a positivist model of law, as described by JOHN AUSTIN, LECTURES ON JURISPRUDENCE (4th ed. 1873), in which law is defined as the command of a sovereign. See H.L.A. Hart, Positivism and the Separation of Law and Morals, 71 HARV. L. REV. 593, 600-04 (1958) (discussing and criticizing Austinian Positivism).
(88) United States v. Iron Mountain Mines, Inc., 812 F. Supp. 1528, 1543-47, 1552 (E.D. Cal. 1992). See United States v. Manzo, 182 F. Supp. 2d 385, 394, 407-09 (D.N.J. 2000) (finding retroactive application to be constitutional).
(89) Canadyne-Georgia Corp. v. NationsBank, N.A. (South), 183 F.3d 1269, 1273 (11th Cir. 1999) (holding that the question of whether particular defendant is an "owner" turns on state law, and consequently the answer may vary from state to state); Lincoln Prop. v. Higgins, 823 F. Supp. 1528, 1533 (E.D. Cal. 1992) (holding statutory terms have "ordinary meanings rather than unusual or technical meanings").
(90) Shore Really, 759 F.2d 1032, 1045 (2d Cir. 1985); see also Johnston, supra note 4, at 406-07 (stating "while former owners were liable only if disposal occurred during their period of ownership, current owners were deemed liable regardless of the time of disposal").
(91) HENRY SUMNER MAINE, ANCIENT LAW 170 (John Murray 5th ed. 1874).
(92) The private market in which persons act as rational maximizers of utility is described in Richard Posner's Economic Analysis of Law. "The task of economics ... is to explore the implications of assuming that man is a rational maximizer of his ends in life, his satisfactions--what we shall call his 'self-interest.'" RICHARD POSNER, ECONOMIC ANALYSIS OF LAW 3-4 (3d ed. 1985).
(93) Edward H. Rabin, The Revolution in Residential Landlord-Tenant Law: Causes and Consequences, 69 CORNELL L. REV. 517, 584 n.5 (1984); Roger A. Cunningham, The New Implied and Statutory Warranties of Habitability in Residential Leases: From Contract to Status, 16 URB. L. ANN. 3, 95-97 (1979).
(94) Canadyne-Georgia Corp., 183 F.3d at 1275 (11th Cir. 1999) (holding CERCLA imposes liability on individuals not because they caused the release of hazardous substances but solely because of their prior or current relationship to the polluted property); Nat'l R.R. Passenger Corp. v. N.Y. City Housing Auth., 819 F. Supp. 1271, 1277 (S.D.N.Y. 1993).
(95) The obligation may, however, be implied. See, e.g., RESTATEMENT (SECOND) OF CONTRACTS [section] 328, cmt. a (1981) (regarding assignment of a contract in general). See id. at cmt. c (regarding assignment of a contract for sale of land).
(96) Id. [section] 318. Samuels v. Ottinger, 169 Cal. 209, 211 (Cal. 1915).
(97) RESTATEMENT (SECOND) OF TORTS [section] 822 (1977); RESTATEMENT (SECOND) OF TORTS [section] 364 (1963-64). Congressional deliberations apparently included a reference to nuisance liability. See Johnston, supra note 4, at 413.
(98) WILLIAM LLOYD PROSSER & PAGE KEETON ON THE LAW OF TORTS 449 (5th ed. 1984); RESTATEMENT (SECOND) OF TORTS [section] 366 (1963-64).
(99) PROSSER & KEETON, Supra note 98, at 448; RESTATEMENT (SECOND) OF TORTS [section] 840A (1977). Comment c appears to limit continuing liability on vendors to conditions created by the vendor himself. Section 840A(2) provides that liability continues only until the vendee has had reasonable opportunity to discover and abate the condition, even if the vendor created the condition.
(100) See Johnston, supra note 4, at 468 (stating that imposing CERCLA liability on current landowners who do not satisfy the innocent purchaser defense creates a strong incentive to investigate environmental status prior to acquisition, thereby promoting both discovery of contamination and its ultimate remediation).
(101) RESTATEMENT (FIRST) OF PROPERTY: SERVITUDES [section] 538 (1944).
(102) Id. [section] 530, cmt. c (1944) (emphasis added); see also Vinson v. Meridian Masonic Temple Bldg., 475 So. 2d 807, 810 (Miss. 1985) (holding prior owner of upper floors not liable on covenant to maintain the roof for damage that occurred after they conveyed).
(103) RESTATEMENT (SECOND) OF PROPERTY: LANDLORD & TENANT [section] 16.1, cmt. e (1976). In this respect, the liability is similar to section 107(a)(2) and (3). Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. [section] 107(a)(2), (3) (2000).
(104) RESTATEMENT (SECOND) OF PROPERTY: LANDLORD & TENANT [section] 16.1, illus. 23 (1976).
(105) Id. [section] 16.1.
(108) Id. [section] 16.1, illus. 15.
(109) 516 A.2d 1028 (Md. Ct. Spec. App. 1986).
(110) Id. at 1038.
(112) Connections have been drawn to tort liability for at-fault PRPs and nuisance law for not at-fault PRPs. See discussion supra note 39.
(113) Gallagher, 516 A.2d at 1033-35.
(114) Id. at 1034.
(115) Id. at 1036.
(116) Comprehensive Environmental, Response, Compensation, and Liability Act of 1980, 42 U.S.C. [section] 9603(c) (2000); see also supra note 69.
(117) Id. [section] 9601(35)(C); see also supra note 24.
(118) Shore Realty, 759 F.2d 1032, 1052 (2d Cir. 1985).
(119) See supra note 9 (citing caselaw regarding potentially responsible parties).
(120) Small Business Liability Relief and Brownfields Revitalization Act, 42 U.S.C. [section] 9601 (2000 & Supp. 2002); see supra note 47 (citing cases that distinguish liability for new and former landowners).
(121) Most disclosure obligations arise out of state law. See, e.g., TEX. HEALTH & SAFETY CODE [section] 361.275(g) (1997) (imposing liability under state law for waste disposal and requiring disclosure). Section 101(35)(C), however, provides:
[I]f the defendant obtained actual knowledge of the release or threatened release of a hazardous substance at such facility when the defendant owned the real property and then subsequently transferred ownership of the property to another person without disclosing such knowledge, such defendant shall be treated as liable under section 9607(a)(1) of this title and no defense under section 9607(b)(3) of this title shall be available to such defendant.
42 U.S.C. [section] 9601(35)(C) (2000).
(122) Gallagher, 516 A.2d 1028, 1037 (Md. Ct. Spec. App. 1986).
(123) RESTATEMENT (FIRST) OF PROPERTY: SERVITUDES [section] 534 (1944).
(124) RESTATEMENT (THIRD) OF PROPERTY: SERVITUDES [section] 8.1 (2000) (specifically authorizing persons who hold the benefit of a covenant in gross to enforce if a legitimate interest in enforcing the covenant is established); id. cmt. a (referring to the early prohibition against creation of covenant benefits in gross).
(125) Professor Johnston states: "[I]t seems apparent that Congress embraced the EPA's philosophy that a defense should be unavailable to purchasers if they are in the chain of title with the entity that caused the contamination." Johnston, supra note 4, at 435-36. Although Johnston does not declare that simple appearance in the chain of title imposes liability (on intermediate purchasers), the chain of title reference is essentially the same as vertical privity.
(126) RESTATEMENT (FIRST) OF PROPERTY: SERVITUDES [subsection] 533, 539, cmts. l, m (1944).
(127) Id. cmt. m.
(128) Id. cmt. l.
(129) Guillette v. Daly Dry Wall, Inc., 325 N.E.2d 572, 574-75 (Mass. 1975); McQuade v. Wilcox, 183 N.W. 771, 773-74 (Mich. 1921).
(130) 206 N.W. 496 (Mich. 1925).
(131) Id. at 498.
(132) See supra note 16 (discussing the due diligence requirement for the innocent purchaser defense).
(133) Gallagher, 516 A.2d 1028, 1038 (Md. Ct. Spec. App. 1986).
(134) RESTATEMENT (FIRST) OF PROPERTY: SERVITUDES [subsection] 530 cmt. c, 531 (1944).
(135) RESTATEMENT (SECOND) OF PROPERTY: LANDLORD & TENANT [section] 16.1 illus. 23 (1976).
(136) RESTATEMENT (THIRD) OF PROPERTY: SERVITUDES [section] 1.4 (1998).
(137) Id. [section] 1.5.
(138) Id. [section] 2.4.
(139) Id. [section] 8.1.
(140) Id. [section] 1.6.
(141) Id. [section] 1.6 cmts. a, b.
(142) Id. [section] 2.18.
(143) Dolan v. City of Tigard, 512 U.S. 374, 391 (1994) (establishing a "rough proportionality" rule for regulations that might be classed as "takings").
(144) RESTATEMENT (THIRD) OF PROPERTY: SERVITUDES [subsection] 4.4(4), 4.7(2) (2000). The Third Restatement's treatment of the landowner's servitude burden does not apply and is not to be confused with its treatment of a burden in gross, which by [section] 4.4(3) and [section] 4.7(2) may not be extinguished by transfer. Id.
(145) Shore Realty, 759 F.2d 1032, 1052 (2d Cir. 1985).
(146) See, e.g., RESTATEMENT (FIRST) OF PROPERTY [section] 536 (1944) (stating: "The successor to the estate or interest of the promisor in any part of the land respecting the use of which he has so made a promise that it is capable of running with land becomes proportionally liable as a promisor upon the promise"); see also id. cmt. f (indicating that in appropriate cases the liability of an owner of part of the burdened land may extend to the entire obligation, with a right of contribution against owners of other parts of the burdened tract). Professor Johnston argues this is similar to CERCLA's formula and cites United States v. Rohm & Haas Co., 2 F.3d 1265, 1279 (3d Cir. 1993), as imposing joint and several liability for the entire cost of cleanup, even though the defendants owned only a portion of the disposal site. Johnston, supra note 4, at 438 n.137.
(147) Sanborn v. McLean, 206 N.W. 496, 231 (Mich. 1925).
(148) See United States v. 150 Acres of Land, 204 F.3d 698, 709 (6th Cir. 2000) (holding entire site was facility, though release occurred on only one of three parcels); United States v. Township of Brighton, 153 F.3d 307, 313 (6th Cir. 1998) (holding entire parcel a facility); United States v. Glidden Co., 3 F. Supp. 2d 823, 830 (N.D. Ohio 1997), aff'd in part, rev'd in part and remanded, 204 F.3d 698, 709 (6th Cir. 2000) (holding entire site subject to CERCLA removal action although deteriorating drums occurred on only one of three parcels). But see Nurad, 966 F.2d 837, 842 (4th Cir. 1992) (limiting designation to area where hazardous substances were stored).
(149) An analogy involves Texas's strange approach to oil and gas conservation through the Railroad Commission's Rule 37. 16 TEX. ADMIN. CODE [section] 3.37 (2001). Each Texas tract, no matter how small, entitled to at least one oil well, unless the tract is the result of a voluntary subdivision. Id. A quick Westlaw search produced more than 70 responses to the voluntary subdivision and Rule 37 query. The basic notion is that if a tract entitled to one well as a matter of right is divided into more than one ownership parcel, only the "reconstituted" tract is entitled to a well. Thus, the consequences of a voluntary subdivision follow the original tract and disable the individual parcels from entitlement.
(150) RESTATEMENT (FIRST) OF PROPERTY [section] 539 cmt. 1 (1944); Murphy v. City of Seattle, 647 P.2d 540 (Wash. Ct. App. 1982); Glorieux v. Lighthipe, 96 A. 94 (N.J. 1915). In broad measure, CERCLA's innocent purchaser rule reflects an adaptation of the bona fide purchase rule.
(151) 474 U.S. 494 (1986).
(152) Id. at 507.
(153) Id. at 507 n.9.
(154) Id. at 507 (Rehnquist, J., dissenting).
(155) Bankruptcy Reform Act of 1978, 11 U.S.C. [section] 554(a) (2000) (amended 1984).
(156) Midlantic, 474 U.S. at 505-06.
(157) Id. at 497-500.
(158) In re Estate of Coombs, 784 A.2d 150, 154-55 (Pa. 2001).
(159) Id. at 155 n.6.
(160) 56 B.R. 918 (Bank. E.D. Tenn. 1986), rev'd, 831 F.2d 118 (6th Cir. 1987).
(161) Id. at 923-24.
(162) Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. [section] 9601(20)(A) (2000).
(163) Midlantic, 474 U.S. 494, 509 n.2 (1986) (Rehnquist, J., dissenting).
(164) Popov v. Hayashi No. 400545, 2002 WL 31833731 (Cal Superior 2002), applied the conventional rule to the home run record-breaking baseball hit by Barry Bonds, holding the ball itself was abandoned by the its prior owner, Major League Baseball, and title was therefore subject to ownership in the first possessor. Id. at *3 n.14. The $1,000,000 dispute was between two claimants to first possession. Id. Although the case itself has relatively low precedent status, the entertaining opinion adequately summarizes supporting authorities.
(165) Some rules have been developed for preventing fraudulent manipulation of ownership for the purpose of avoiding CERCLA liability. See, e.g., La.-Pac. Corp. v. Asarco, Inc., 909 F.2d 1260, 1262-3 (9th Cir. 1990) (imposing liability on corporate successor); United States v. Mex. Feed & Seed Co., Inc., 980 F.2d 478, 484 (8th Cir. 1992) (imposing liability on owner and manager of company); Anspec Co. v. Johnson Controls, Inc., 922 F.2d 1240, 1244-5 (6th Cir. 1991) (imposing liability on corporate successors); Smith Land & Improvement Corp. v. Celotex, 851 F.2d 86, 91 (3d Cir. 1988) (imposing liability on merged corporations). In general, these rules have been applied to hold successor corporations liable for the activities of predecessor entities that engaged in some generating, transporting, or managing activity. That is, of course, not the case with the entity whose only association with CERCLA liability is the happenstance of ownership. See La.-Pac. Corp., 909 F.2d at 1263; Mex. Feed & Seed Co., 980 F.2d at 487; Anspec Co., 922 F.2d at 1246 (imposing liability on a successor corporation as an exception narrowly developed for the purpose of preventing fraud).
(166) A "CERCLA w/60 sham" search in Westlaw's "Text and Periodicals" database (TP-ALL) retrieved 82 articles. Virtually all of the articles connected the notion of sham with 1) piercing the corporate veil of a subsidiary, 2) liability of successor corporations, and 3) disposal of hazardous materials by sham sale to a fake end-user. In Joslyn Mfg., 893 F.2d 80, (5th Cir. 1990). the Fifth Circuit applied the traditional test, relying on a laundry list of factors, and found a parent corporation not responsible under Superfund for on-site contamination created by its subsidiary. Id. at 82-84. The court found corporate formalities were observed and suggested that veil piercing should be limited to situations in which the corporate entity is used as a sham to perpetrate a fraud or avoid personal liability. Id. But in United States v. Mottolo, the court stated "CERCLA places no importance on the corporate form." 695 F. Supp. 615, 624 (D.N.H. 1988) (emphasis added); see also DANIEL RIESEL, ENVIRONMENTAL ENFORCEMENT CIVIL AND CRIMINAL [section] 12.04 n.77 (2001); United States v. Vertac Chem. Corp., 966 F. Supp. 1491, 1508 (E.D. Ark. 1997); In re Hemingway Transp., Inc., 174 B.R. 148, 172 (Bankr. D. Mass. 1994).
(167) See, e.g., Joslyn Mfg Co., 893 F.2d at 83 (holding that parent corporations were not automatically liable, but would be judged by state law veil-piercing rules and held liable only if the subsidiary were a "sham" to avoid liability); Lansford-Coaldale Joint Water Auth. v. Tonolli Corp., 4 F.3d 1209, 1224-25 (3d Cir. 1993); Mobay Corp. v. Allied-Signal, Inc., 761 F. Supp. 345, 350-51 (D.N.J. 1991).
(168) See, for example, the automatic reaction of environmental law professors to the idea of avoiding liability by conveying solely to place title in an insolvent nominee. See discussion supra note 86.
(169) For example, Vertac Chemical referred to a sale of hazardous substance, stating that "merely characterizing a transaction as a sale does not preclude a finding of liability. If the transaction is really a sham for disposal, CERCLA liability will attach. The essential inquiry, therefore, is whether SCD, by selling the polychlors to Vertac, arranged to 'get rid of' hazardous substances." 966 F. Supp. at 1508 (citation omitted). Vertac Chemical dealt not with a conveyance of land to extinguish ownership but with the sale of hazardous substances that, if legitimately transferred to a user, is not a disposal. Id. at 1491. See United States v. Cello-Foil Prod., Inc., 100 F.3d 1227, 1231 (6th Cir. 1996) ("We conclude that the requisite inquiry is whether the party intended to enter into a transaction that included an 'arrangement for' the disposal of hazardous substances. The intent need not be proven by direct evidence, but can be inferred from the totality of the circumstances.").
(170) Intent is itself an elusive notion. The ordinary use of the term suggests that a thinking entity, such as a person, rationally conceives an end or purpose, commits to accomplish it as an act of will, and leaves enough physical evidence that an observer could correctly guess both the purpose and will. In operation, the term is likely to be used as a label imposed after the fact by a decision maker, either judge or jury, to justify a legal outcome. United States v. TIC Inv. Corp., 68 F. 3d 1082, 1087-88 (8th Cir. 1995) (rejecting the need to show a specific intent under 42 U.S.C. [section] 9607(a)(3)). If, however, a strategic conveyance is classified a sham, it is likely that an intent to evade liability will be incorporated in the rationale.
(171) See discussion supra Part III. C-D (discussing the ability of an owner to shed liability through real covenant and bankruptcy laws).
(172) Finding clarity of congressional intent may be textually impossible. See John Copeland Nagle, CERCLA's Mistakes, 38 WM. & MARY L. REV. 1405, 1405-08 (1997) (discussing the problems created by CERCLA's hasty drafting, consideration, and enactment).
(173) In re Acushnet River, 675 F. Supp. 22, 33 (D. Mass. 1959) (referring to state law and discussing inadequate capitalization as a basis for piercing corporate entity); L.S. Tellier, Annotation, Inadequate Capitalization as Factor in Disregard of Corporate Entity, 63 A.L.R.2d 1051, [section] 2 (1959).
(174) A Westlaw search of circuit court opinions for the terms "CERCLA & veil w/5 pierc!" returned 45 opinions. One, IBC Mfg. Co. v. Velsicol Chem. Corp., 1999 WL 486615 (6th Cir. July 1, 1999), was not published. Nine cases did not involve CERCLA liability. Of the remaining thirty-five cases, only Nurad, 966 F.2d 837 (4th Cir. 1992), considered and approved piercing the corporate veil to reach the shareholder of a corporation that was not involved as an owner, operator, or arranger in the conventional sense. However, because of Nurad's questionable analysis imposing liability for passive migration, even that case can be considered as one in which the "sham" involved at-fault activity.
(175) 871 F. Supp. 1242 (D. Neb. 1994).
(176) Id. at 1247
(178) 972 S.W.2d 114, 119 (Tex. App. 1998). Love v. State quoted from Castleberry v. Branscum, 721 S.W.2d 270 (Tex. 1986), which held that corporate fiction will be disregarded "when the corporate form has been used as part of a basically unfair device to achieve an inequitable result." Id. (quoting Castleberry, 721 S.W.2d. at 271); see also Matthews Constr. Co. v. Rosen, 796 S.W.2d 692 (Tex. 1990) (finding "[w]hen the corporate form is used as an essentially unfair device--when it is used as a sham--courts may act in equity and disregard the usual rules").
(179) Love, 972 S.W.2d at 116.
(180) Id. at 120, 121.
(181) Id. at 119.
(182) Id. at 117 (citing Huff v. Harrell, 941 S.W.2d 230, 234 (Tex. App. 1996); Seaside Indus., Inc., v. Cooper, 766 S.W.2d 566, 569-70 (Tex. App. 1989)).
(183) Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. [section] 9601(35)(C) (2000).
(184) Mark S. Dennison, Buyer's Claims Against Seller Who Fails To Disclose Environmental Condition of Property, in 36 AM. JUR. PROOF OF FACTS 3d 471, [subsection] 10-11 (1996) (detailing state consumer protection and deceptive trade practice laws and state property transfer laws).
(185) Johnson v. Davis, 480 So. 2d 625, 629 (Fla. 1985) (where seller of home knows of facts materially affecting value of property that are not readily observable and not known to the buyer, seller is under duty to disclose them to buyer); Dennison, supra note 184, at [section] 9.
(186) In Texas, the grantee's address is customarily shown on the face of the document so the county clerk knows where to mail the recorded deed. TEX. PROP. CODE ANN. [section] 11.003 (a)(1) (Vernon 1984).
(187) AM Int'l, 982 F.2d 989, 994 (6th Cir. 1993) (holding parties may allocate liability among themselves by contract but cannot extinguish CERCLA liability for government's claim); WILLIAM H. RODGERS, JR., ENVIRONMENTAL LAW 793 (2d ed. 1994).
(188) 42 U.S.C. [section] 9607(a)(3) (2000). Sanford Street Local Develop. Corp. v. Textron, Inc., 768 F. Supp. 1218 (W.D. Mich. 1991) vacated on other grounds bx805 F. Supp. 29 (W.D. Mich. 1991), noted that a conveyance by the defendant to a grantee of contaminated property was a transaction for the disposal of hazardous materials. Id. at 1222. The plaintiff alleged the grantee "agreed to 'be responsible for properly disposing of all PCB-containing transformers on the property and take responsibility for any hazardous conditions found on the property.'" Id. Further, the defendant's "negotiations with [the purchaser] suggested that it viewed the sale ... as a way to dispose of the transformers." Id.
(189) Pipes v. Sevier, 694 S.W.2d 918, 926 (Mo. Ct. App. 1985).
(191) Greene v. White, 153 S.W.2d 575, 583 (Tex. 1941). The court stated:
[T]he grantee in a deed accepted by him is a party to the deed, even though he does not sign it, and that he is concluded by recitals in the deed and by reservations contained therein in favor of the grantor.... The obligations undertaken by the parties to a deed are binding contractually; and where the conveyance is by way of deed poll--that is, one executed by the grantor alone--obligations are enforceable against the grantee by virtue of his acceptance of the deed.
Id. (citations omitted).
(192) See, e.g., Miller v. Herzfeld, 4 F.2d 355, 356 (3d Cir. 1925) (holding a gift was complete, even though the grantee did not accept the gift and did not even know it was a gift).
(193) Dennison, supra note 184, [section] 3 at 484 (providing a sample release by buyer and citing Kerr-McGee Chem. Corp. v. Lefton Iron & Metal Co., 14 F.3d 321, 326-27 (7th Cir. 1994)); see also id. at 485-86 (discussing the use of an "as is" clause). Some states have specific statutes requiring disclosure. See, e.g., id. at 496-97 (discussing consumer statutory protections).
(194) See Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. [section] 9607(e) (2000) ("No ... conveyance shall be effective to transfer from the owner or operator of any vessel or facility or from any person who may be liable for a release or threat of release under this section, to any other person the liability imposed under this section.").
(195) For example, Evans v. Abney, v. 396 U.S. 435 (1970), held that a determinable fee in parkland "for white people only" terminated automatically, without state action, and did not therefore violate the Fourteenth Amendment's prohibition on racial discrimination. Id. at 436-40.
(196) 18 U.S.C. [section] 371 (2000).
(197) See generally Uniform Fraudulent Transfer Act, 7A pt. II U.L.A. 266-365 (1999)
(198) UFFA section 7(a)(1) allows a successful creditor to obtain "avoidance of the transfer or obligation to the extent necessary to satisfy the creditor's claim;" and section 7(a)(3)(i) authorizes "an injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property." Id. [section] 7(a)(1), (a)(3)(i), 7A pt. II U.A.A. at 339.
(199) See generally UFTA Prefatory Note, 7A pt. II U.L.A. at 268-71 (explaining that the UFTA's predecessor, the Uniform Fraudulent Conveyance Act (UFCA), was enacted to codify prior laws that generally voided fraudulent transfers of personal property; the UFCA, however, was renamed the UFTA in "recognition of its applicability to transfers of personal property as well as real property.").
(200) Id. [section] 4(a)(1), 7A pt. II U.L.A. at 301.
(201) Id. [section] 7(a)(1), 7A pt. II U.L.A. at 339.
(202) Id. [section] 4(a)(2), 7A pt. II U.L.A. at 301.
(203) Id. [section] 7, 7A pt. II U.L.A. at 339-40.
(204) There are apparently three standards for determining when cost recovery becomes a claim, at least for bankruptcy purposes. United States v. Union Scrap Iron & Metal, 123 B.R. 831, (D. Minn. 1990), held that the claim arose for bankruptcy discharge only when all elements necessary for cost recovery had been satisfied, including the incurring of expenses. Id. at 835. A second theory is that the claim arises when the conduct giving rise to the injury occurs. United States v. Chateaugay Corp., 112 B.R. 513, 520 (S.D.N.Y. 1990), aff'd, 944 F.2d 997, 999 (2d Cir. 1991). A third, apparently majority, approach is that the claim arises when a release or threatened release occurs and the parties fairly contemplate or foresee liability. In re National Gypsum, 139 B.R. 397, 407 (N.D. Tex. 1992); see WATSON & SCHWARTZ, supra note 64 [section] 12.2 (discussing when environmental claims arise for purpose of discharge in bankruptcy).
(205) Uniform Fraudulent Transfer Act [section] 1(2), 7A pt. II U.L.A. at 275 (1999).
(206) Id. [section] 1(10), 7A pt. II U.L.A. at 275 (1999) (defining property as "anything that may be the subject of ownership").
(207) Id. [section] 1(4).
(208) Id. [section] 1(6), 7A pt. II U.L.A. at 337.
(209) Id. [section] 6(5) (stating that "an obligation is incurred (i) if oral, when it becomes effective between the parties; or (ii) if evidenced by a writing, when the writing executed by the obligor is delivered to or for the benefit of the obligee'). In substance, the strategic conveyance is an agreement by the grantee to take over the grantor's obligation to the government. The writing in question is a deed, which can operate as effectively as a conveyance from grantee to grantor as from grantor to grantee. See Greene v. White, 153 S.W. 2d 575, 583 (Tex. 1941), (applying the deed poll rule (or estoppel by deed) to transfer mineral rights from the grantee who owned them to the grantor who "reserved" them in a general warranty deed, which appeared to pass title to the surface to the grantee). The strategic transfer would employ a deed to convey legal title from the current owner to the indigent grantee, so the deed poll rule and estoppel doctrine would both apply.
(210) Uniform Fraudulent Transfer Act [section] 4(a)(1) (1999), 7A pt. II U.L.A. 301 (1999)
(211) Uniform Fraudulent Conveyance Act (UFCA) section 4 provides: "Every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration." UFCA, [section] 4, 7A pt. II U.L.A. 67 (1999).
(212) A transfer may be fraudulent as to a future creditor if made with actual intent to hinder, delay, or defraud (a future creditor). UFTA [section] 4(a)(1), 7A pt. II U.L.A. 301 (1999).
(213) Id. [section] 1(12), 7A pt.II U.L.A. 276.
(214) See United States v. Gleneagles Inv. Co., Inc., 565 F. Supp. 556, 576-77 (M.D. Pa. 1983) (holding mortgage guarantees are obligations that can be fraudulent conveyances, and applying the Uniform Fraudulent Conveyance Act that was repealed in 1987 and reenacted as UFTA).
(215) Revesting title in the grantor would not ordinarily affect the grantor's liability for deficiency on a mortgage debt, which is based on contract, not status, and ordinarily continues after the transfer. Schneider v. Ferringo, 147 A. 303, 304 (Conn. 1929).
(216) Ultra [section] 7, 7A pt. 2 U.L.A. 275 (1999).
(217) Section 8(a) protects transferees who obtain an asset "in good faith and for a reasonably equivalent value," or any "subsequent transferee or obligee." UFTA [section] 8(a) 7A pt. II U.L.A. 351 (1999). Having concocted the scheme for the specific purpose of avoiding liability, and having received (not paid) value, the grantor cannot claim to be an innocent for value of the release from ownership status.
(218) Section 9 sets a general four year limitation on claims for relief, except for preferential transfers to insiders to satisfy an antecedent under section 5(b), which have a one year limitation. Id. [section] 9, 7A pt. II U.L.A. 359. (219) 159 F.3d 358, 361 (9th Cir. 1997).
(220) Id. at 361 (citing Asarco, 909 F.2d 1260, 1263 (9th Cir. 1990)).
(221) Mexico Feed & Seed, 980 F.2d 478, 489-90 (8th Cir. 1992) (as described in dicta).
(222) Atchison, 159 F.3d at 365.
(223) Id. at 360.
(224) 978 F.2d 832, 839-41 (4th Cir. 1992).
(225) 741 F. Supp. 643, 646-47 (W.D. Ky. 1990).
(226) 597 F.2d 184, 186-87 (9th Cir. 1979).
(227) 817 F. Supp. 225, 231 (D.N.H. 1993).
(228) Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. [section] 9607(a)(3) (2000) (emphasis added).
(230) 768 F. Supp. 1218 (W.D. Mich. 1991), vacated on other grounds, 805 F. Supp. 29 (W.D. Mich. 1991).
(232) Id. at 1222.
(233) 655 F. Supp. 1257, 1260 (D.N.J. 1987). (234) Id.
(235) 854 F. Supp. 539, 557-58 (S.D. Ill. 1994), aff'd, 54 F.3d 379 (7th Cir. 1995).
(236) Id. at 559.
(237) Dayton Indep. Sch. Dist. v. U.S. Mineral Prod. Co., 906 F.2d 1059, 1065 (5th Cir. 1990) (commercial sale of useful building products that contained asbestos was not a "disposal" of hazardous substance).
(238) A&W Smelter and Refiners, Inc. v. Clinton, 146 F.3d 1107, 1113 (9th Cir. 1998).
(239) A&W Smelter and Refiners, Inc. v. Clinton, 962 F. Supp. 1232, 1237 (N.D. Cal. 1997), rev'd in part and remanded, 146 F.3d 1107, 1113 (9th Cir. 1998).
(240) The authors' colleagues Robert P. Schuwerk and Meredith J. Duncan helpfully identified these ethical issues, but take no responsibility for their application.
(241) AMERICAN BAR ASSOCIATION, MODEL RULES OF PROF'L CONDUCT R. 1.2(d) (2000).
(242) Id. Rule 4.1. Rule 1.6 relates to confidentiality. Id. Rule 1.6.
(243) Id. Rule 3.3.
(244) CDMG, 96 F.3d 706, 717 (3d Cir. 1996); May, supra note 33, at 407.
(245) For an extensive discussion of congressional intent, see Johnston, supra note 4 at nn.31-77. This Article's brief mention of congressional intent does not attempt to duplicate his exhaustive research. Instead, the Article raises speculation about an issue that may not have crossed the mind of anyone in the process of crafting the statute. The "intent" herein is therefore purely manufactured.
(246) OHM Remediation, 116 F.3d 1574, 1578 (5th Cir. 1997).
(247) As a remedial statute, CERCLA is construed liberally to effectuate its goals. United States v. Alcan Aluminum Corp., 964 F.2d 252, 257 (3d Cir. 1992); B. F. Goodrich v. Murtha, 958 F.2d 1192, 1198 (2d Cir. 1992); 3550 Stevens Creek Assoc. v. Barclays Bank of Cal., 915 F.2d 1355, 1363 (9th Cir. 1990).
(248) The newly enacted Small Business Liability Relief & Brownfields Revitalization Act, Pub. L. No. 107-118, 115 Stat. 2356 (2002) (codified in scattered sections of 42 U.S.C.) relaxed responsibility for some owners. For example, CERCLA's de minimis exception in section 107(o) releases entities who contributed only small amounts of waste; section 107(p) relieves residential municipal waste generators; section 107(q) relieves owners from liability for waste that migrated from adjacent property. Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. [section] 9607(o)-(q) (2000).
(249) See O.W. Holmes, Jr., The Path of the Law, 10 HARV. L. REV. 457, 469 (1897) ("for the rational study of the law the black-letter man may be the man of the present, but the man of the future is the man of statistics and the master of economics"); Roscoe Pound, The Scope and Purpose oo Sociological Jurisprudence, 24 HARV. L. REV. 591 (1911), 25 HARV. L. REV. 140, 141 (1912) (discussing the emergence of sociological jurisprudence).
(250) J.B. Ruhl, Complexity Theory as a Paradigm for the Dynamical Law-and-Society System: A Wake-Up Call for Legal Reductionism and the Modern Administrative State, 45 DUKE L.J. 849 (1996).
(251) This is the position taken by Johnston, supra note 4, at 404.
(252) This 50-year-old Houston real estate reference refers to a land investor's optimistic notion that a fool who pays more than land is worth can always find a greater fool who will pay even more. The dramatic crash in Houston real estate prices in the 1980s destroyed the greater fool theory, but it lives in fond memory.
(253) Persistent anecdotes suggest the issue is not absurd. Several years ago, before foreclosing mortgagees who bought at their own foreclosure sale were given immunity from liability as "owner," a former student called and asked whether a foreclosure could be "reversed" so as to place ownership back in the mortgagor and avoid cost recovery. The question makes more sense now than it did at the time. Another anecdote came from a colleague whose acquaintance conveyed contaminated land to a church, presumably taking a charitable contribution tax deduction for the gift. A vague, unverified suspicion arises that some charitable conveyances of marshlands and other properties in industrial areas may be motivated by a desire of an "almost innocent" owner to get rid of the troublesome title. The property owner in Sanford, 768 F. Supp. 1218, 1221 (W.D. Mich. 1991), attempted to donate its contaminated property to the City of Muskegon Heights before it conveyed the land to a buyer for $25,000--substantially below its appraised value of $200,000.
(254) Section 122(b)(4), for example, allows expedited settlement based on a potentially responsible party's ability to pay for remediation costs. 42 U.S.C. [section] 9622(b)(4) (2000)
(255) According to Katherine Q. Steelye,
The fund has been running out of money since Congress refused several years ago to extend the taxes on industry that had replenished it each year. It once contained billions of dollars from those taxes. The administration wants to reduce the payments from the fund by covering fewer sites. To do that it would shift the costs of further work to the government's general accounts, paid for by all taxpayers. Congressional critics have said this amounts to abandoning the precept that "the polluter pays," on which the Superfund program was founded.
Katherine Q. Steelye, Bush Slashing Aid for EPA Cleanup at 33 Toxic Sites, N.Y. TIMES, July 1, 2002, at A1.
ANTHONY R. CHASE * & JOHN MIXON **
* [c] 2003 Anthony R. Chase. Associate Professor of Law, University of Houston Law Center. A.B. Harvard College, 1977; M.B.A. Harvard Bus. School, 1981; J.D. Harvard University, 1981.
** [c] 2003 John Mixon. Law Alumni Professor of Law, University of Houston Law Center. B.B.A., Stephen F. Austin State University, 1952; J.D. University of Houston, 1955; LL.M. Yale University, 1962.
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