Daily Development for
Friday, September 12, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

HAZARDOUS SUBSTANCES; CERCLA; REAL ESTATE BROKERS: A real estate firm and one of its agents who brokered the leasing of a property are not "responsible parties" and are not liable under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") where the lessee disposed of hazardous substances on the property during the course of the lease term.

Lentz v. Mason, 961 F. Supp. 709 (D.N.J. 1997).

Plaintiffs entered a listing agreement with a real estate brokerage firm for the purpose of leasing or selling the property. An agent of the firm introduced plaintiffs to an individual who subsequently leased the property. At the termination of the lease, plaintiffs found that the lessee had disposed of hazardous substances on their property. They brought suit against the real estate agency and the individual agent who had arranged the lease, claiming that defendants were "responsible parties" under CERCLA and were, accordingly, liable for the costs of cleaning up the property. Plaintiffs also asserted several state law claims.

The district court dismissed plaintiffs' CERCLA claim, holding that, under the facts as alleged, defendants did not fit into any of the categories of "responsible parties" defined by the statute. Defendants did not qualify as "owners" of the property since they never held title to it, entered an agreement for sale of the property, or leased it themselves. They did not qualify as "operators" of the property since plaintiffs failed to allege that either the real estate firm or its agent had "actual control" over the lessee's disposal activities.

Finally, the mere fact that defendants brokered the lease of the property did not make them "arrangers" of the disposal where plaintiffs failed to allege that defendants had any knowledge of the lessee's disposal practices. "To hold that [defendants] 'arranged' for the disposal of hazardous substances under these circumstances would expand 'arranger' liability to absurd proportions."

In addition to dismissing the CERCLA claims, the court dismissed plaintiffs' claim under the New Jersey Spill Act since the standard for liability under that Act is the same as under CERCLA. The court also dismissed plaintiffs' State law private nuisance and "ultrahazardous activity" claims since plaintiffs had failed to allege sufficient facts to support a finding of proximate causation.

Comment 1: Considering the consequences of a holding the opposite way, this ruling has to be welcome indeed to real estate brokers. But even thinking about brokers in the context of CERCLA may generate some more developed analysis in cases where the broker does more than blindly arrange a lease for a tenant with unknown hazardous waste disposal practices.

What if, for instance, the a potential lessee in fact is looking for property to accomodate an activity in which it is well know there are waste byproducts, and the broker, directly or indirectly represents the property in question as suitable for that activity, taking into account the hazardous waste disposal. Later, as often is the case, the "safe" disposal turns out, based upon new scientific information, to be a "dangerous" disposal. Here is what the court says about this issue:

"At a minimum, knowledge of the waste disposal arrangement must be alleged in order to trigger "arranger" liability. Perhaps an "arrranger need not know that the wastes disposed of are hazardous, but the statute is clear that the arranger must know of the disposal of some waste materials."

The court doesn't conclude exactly that a broker who arranges a lease knowing that the lessee will dispose of substances on the property has "arranger" liability. Those aren't the facts in this case. But the court certainly comes close to suggesting that liability would arise if those were the facts and the stuff turns out later to be nasty.

Comment 2: To those unversed in CERCLA lore the notion that one who performs a totally legal act with no knowledge of any adverse consequences should later be found liable for potentially huge sums of money seems farfetched. But that result is consistent with the fundamental theory of CERCLA. Liability is not based upon fault, or even causation, but rather on "transactional proximity." It is the ultimate cost shifting mechanism, adopted by the Congress to respond to a perceived emergency in the form of poisoned lands. We may want to be watchful that Congress does not perceive other "emergencies" that might be addressed easily by passing out liability to innocent parties.

Comment 3: To tone down the shrillness a bit, we can report that parties who do have fault, and also have money, are likely to bear the ultimate cost of CERCLA claims. But where the really bad folks are broke or out of business, CERCLA gathers in the money from others whose primary offence is proximity.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1-6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Stacy Walter at the ABA. (312) 988 5260 or stacywalter@staff.abanet.org

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