In an interesting decision issued a few weeks ago, a District Court in Georgia held that a property manager at a strip mall could not be held liable as an owner of a facility under CERCLA. However, the court held that the property manager could be liable as an operator of the facility. I don’t think that the decision is correct, but if it is the law, then property managers would be wise to consider carefully what responsibilities they are willing to assume and what sort of indemnification agreements may be required with the actual property owners.
The case, Scarlett & Associates v. Briarcliff Center Partners, involved a strip mall which had as one of its tenants – surprise, surprise – a dry cleaning operation. The owner had almost no connection to the property. It had leased the entire strip mall. When the lessee ran into financial problems, its lender took over the property and engaged Faison & Associates to manage the property for it. Faison managed the property for approximately two years, until the bank sold the lease.
It seems obvious that Faison was not an owner of the property, since it neither owned nor leased the property, and the court agreed.
However, the court denied Faison’s motion for summary judgment on operator liability. Looking to the Bestfoods decision, the court concluded that there was sufficient evidence that Faison "manage[d], direct[ed], or conduct[ed] operations specifically related to pollution….” The evidence cited by the court, however, is troubling, to say the least. In ruling against Faison, the court noted that Faison had informed the dry cleaner of certain EPA requirements and requested documentation that the dry cleaner was in compliance. There was also evidence that Faison “generally was responsible for managing and maintaining the shopping Center and performing all acts necessary to effect [the bank’s] compliance with all laws….”
I don’t think that that’s enough. In fact, the reverse seems to be the case. Don’t we want property managers to be taking steps to ensure that operating lessees comply with applicable regulations? If that can be evidence that the manager is an operator, the only result will be to cause property managers to be more hands off, which means less oversight, which means less compliance. The law has to be that property managers can take steps to ensure that lessees are in compliance without such steps being interpreted as “operation” of the facility by the manager.
Nonetheless, with this decision out there, if I were a property manager, I’d be very carefully reviewing my contracts both to ensure that I have minimized the likelihood that I will be considered an operator and to ensure that I have received proper indemnifications from the property owner.
How do you see this relating to the Supreme Court decision that Shell was not liable as an operator?
Interesting you should ask. I was surprised to see no reference to Burlington Northern in this decision. It is true that the Shell analysis dealt with arranger liability under 107(a)(3), rather than owner/operator under 107(a)(1), but the SC’s requirement of some affirmative act as a prerequisite to arranger liability should have informed the district court’s analysis of operator liability. That’s one reason why I think it’s wrong and would likely be reversed if it makes it to the court of appeals.