In 2003, AMCAL Multi-Housing Inc. acquired property to construct 300 affordable housing units and retail uses. During negotiations, AMCAL hired an environmental consulting firm, which determined the previous owner, Pacific Clay Products Inc., and its predecessors owned and operated a clay product and ceramic manufacturing facility on the property since 1896.

Pacific Clay’s operations included extensive lead-glazing and kiln-firing activities, known for causing lead contamination.

Purchase Bob Bruss reports online.

When Pacific Clay vacated the property in 1953, it “left buried at the property a network of kilns, airways, drainage channels, connecting tunnels and other subsurface structures containing large quantities of putty-like, lead-laden waste materials that were so extensive that much of the soils in proximity to the buried structures also had high levels of lead contamination.”

Despite this information, AMCAL purchased the property. In early 2004, while demolishing the former buildings on the site, AMCAL discovered the buried kilns, tunnels, pottery shards, waste materials and lead-contaminated materials.

After reporting the discovery to local and state officials, AMCAL cleaned up the hazardous waste at a cost of $6 million. AMCAL then sued Pacific Clay Products under the federal Comprehensive, Environmental Response, Compensation and Liability Act (CERCLA) for reimbursement.

But Pacific Clay denied liability. The defendant argued the U.S. Supreme Court in 2004 ruled a “potentially responsible party” cannot seek payment for clean-up costs from other such parties when acting voluntarily. Pacific Clay argued AMCAL was not required by state or local government agencies to perform the clean-up so it cannot seek reimbursement from Pacific Clay.

If you were the judge would you rule AMCAL can obtain reimbursement from hazardous waste polluter Pacific Clay?

The judge said no!

AMCAL was a potentially responsible party under CERCLA, the judge began, but the redevelopers did not have an implied claim to recover voluntary clean-up costs from Pacific Clay. The reason was AMCAL was not ordered by the federal or state government to remove the hazardous wastes, he emphasized.

AMCAL was not a bona fide purchaser without notice because, before purchase, it hired an environmental consulting firm that disclosed the potential hazardous waste, the judge explained. Therefore, although AMCAL is in the business of redeveloping properties, it had no right to recover its remediation costs because there was no state or federal order to remove the hazardous wastes, the judge ruled.

Based on the U.S. District Court decision in AMCAL Multi-Housing Inc. v. Pacific Clay Products, 457 Fed.Supp.2d 1016.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

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