What's Happening?
The U.S. Court of Appeals for the D.C. Circuit has upheld the Environmental Protection Agency's (EPA) designation of perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS) as 'hazardous substances' under the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA). This marks the first time the EPA has used its freestanding authority under Section 102(a) of CERCLA to directly list substances as hazardous, rather than relying on designations made under other environmental statutes. The decision means that PFOA and PFOS now carry the same strict, joint and several, and retroactive liability as long-regulated contaminants like lead and benzene. Industry groups, led by the U.S. Chamber of Commerce, had challenged the Biden-era rule, arguing that the EPA misinterpreted the statutory term 'may present substantial danger' and that its cost-benefit analysis was flawed. However, a three-judge panel affirmed the EPA's authority and its analysis, concluding that the 'possibility' of 'substantial danger' is sufficient for designation.
Why It's Important?
This ruling has significant implications for industries and property owners across nearly every sector of the U.S. economy. The designation exposes a wide range of potentially responsible parties (PRPs) to strict liability for PFOA and PFOS contamination, chemicals historically used in numerous value chains including petrochemicals, electronics, medical devices, and firefighting products. This means PRPs, including property owners, operators, and arrangers, could be held liable for the entire cost of cleanup, regardless of fault or the extent of their contribution. The decision also complicates real estate transactions and mergers and acquisitions, as it triggers heightened 'all appropriate inquiries' due diligence obligations to evaluate PFOS and PFOA. Furthermore, the ruling sets a precedent for the EPA to use Section 102(a) to address other contaminants of emerging concern, potentially expanding the scope of CERCLA liability for additional substances in the future.
What's Next?
With the D.C. Circuit's decision, the EPA now has full authority to compel PRPs to investigate and remediate PFOS and PFOA contamination at sites, or to recover costs incurred by the EPA for such actions. Companies and individuals with current or past operations at properties with any history of PFOA or PFOS contamination are advised to assess their potential CERCLA exposure. Due diligence protocols for real estate transactions, mergers, acquisitions, and project financing should be updated to account for PFOA and PFOS as CERCLA hazardous substances. While the EPA has indicated an enforcement discretion and settlement policy for 'passive receivers' of these substances, this policy is not a statutory exclusion from liability and could change. The EPA has also promised a forthcoming framework rule for future Section 102(a) designations, which may provide a more uniform approach and potentially limit the type of data used to justify future listings. Industry parties still have the option to petition the Supreme Court for certiorari, which could alter the regulatory landscape.
Beyond the Headlines
The D.C. Circuit's decision underscores a broader shift in environmental regulation, granting the EPA more direct authority to address emerging contaminants. By affirming that the 'possibility' of 'substantial danger' is sufficient for designation, the court has provided the EPA with a powerful tool to tackle substances where scientific evidence of harm may not yet be conclusive across all release scenarios. This move could lead to a more proactive approach to environmental protection, but it also raises questions about the balance between regulatory authority and the economic burden on industries. The 'passive receiver problem,' where entities that did not manufacture or intentionally use these chemicals may still face liability, highlights the complex legal and ethical dimensions of historical contamination. The ongoing debate and potential legislative efforts to provide legal protections from CERCLA liability for passive receivers will be crucial in shaping the long-term impact of this ruling on various stakeholders.
