On Friday, April 19, 2024, the United States Environmental Protection Agency (“EPA”) announced its final rule designating perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS) as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known as Superfund. The designation, which is likely to be challenged, will result in costly new cleanup requirements for existing and even closed CERCLA sites still subject to agency oversite. It will also impact the due diligence process associated with the purchase and sale of real estate as well as mergers and acquisitions.

What You Need to Know: 

• This Final Rule designates PFOA and PFOS as CERCLA hazardous substances. 
• The designation is limited to PFOA and PFOS, just two of the thousands of synthetic chemicals that fall under the umbrella of per- and polyfluoroalkyl substances (PFAS).
• Under CERCLA, the government and other parties can sue for contribution toward cleanups and to recover costs related to those actions. This designation enables EPA to investigate and clean up releases of PFOA and PFOS and ensure that leaks, spills, and other releases are reported.  
• Federal entities that transfer or sell their property must provide notice about the storage, release, or disposal of PFOA or PFOS on the property and guarantee that contamination has been cleaned up or, if needed, that additional cleanup will occur in the future. 
• The designation will likely impact existing and closed CERCLA sites where EPA may require sampling and treatment for PFOA and PFAS.
• Now that PFOA and PFOS are hazardous substances under CERCLA, these constituents are subject to review under Phase I Environmental Site Assessments. Evaluation of the potential for a release of PFOA and PFOS into the environment must be completed prior to acquisition for a prospective purchaser to qualify for a potential defense to CERCLA liability.
• EPA will publish the Final Rule in the Federal Register shortly. The rule will be effective 60 days after it is published in the Federal Register. A pre-publication notice is available here.
• EPA has issued a separate CERCLA enforcement discretion policy. EPA will focus enforcement on parties who “significantly contributed” to the release of PFAS chemicals into the environment. EPA does not intend to pursue PFAS response actions or costs under CERCLA against municipal landfills, water utilities, municipal airports, or local fire departments.

On April 19, 2024, the EPA announced that it was taking action to designate two of the most widely used PFAS — PFOA and PFOS, including their salts and structural isomers — as hazardous substances under CERCLA. This designation does not automatically require any investigation or cleanup actions, although it is likely to impact deals (both real estate and M&A) across the country as parties work to allocate potential cleanup liabilities. 

Reporting Requirements

The Final Rule requires entities to immediately report releases of PFOA and PFOS that meet or exceed the reportable quantity to the National Response Center, state or tribal emergency response commission, and local emergency responders. The Final Rule identifies the "reportable quantity" for a release of PFOA and PFOS (and their salts and structural isomers) at one pound within a 24-hour period, which is significantly lower than the typical range of 100-5000 pounds. Entities do not need to report past releases of PFOA or PFOS if the releases are not continuing as of the effective date of the rule.

Other provisions require federal entities that transfer or sell property to provide notice about the storage, release, or disposal of PFOA or PFOS on the property and include a covenant in the deed warranting that the seller has cleaned up any resulting contamination or will do so in the future. The Final Rule also requires the U.S. Department of Transportation to list and regulate PFOA and PFOS as hazardous materials under the Hazardous Materials Transportation Act.

Financial Impact 

CERCLA is designed to address contamination already in the environment on a site-specific basis, which includes evaluating the nature, extent, and risk to human health and/or the environment from the release or threatened release. It includes cost-shifting mechanisms and liability provisions that support Potentially Responsible Party (PRP)-funded cleanups rather than reliance on the Superfund Trust Fund. 

The designation of PFOA and PFOS as hazardous substances will have a significant financial impact on parties designated as PRPs at CERCLA sites, requiring them to monitor and potentially treat for these substances. For sites that are still being investigated or in the midst of performing a remedy, sampling for PFOA and PFOS may be necessary (to the extent not already completed). This is likely to increase the total amount of cost recovery sought and contribution claims asserted. 

Implications for Buyers and Sellers of Real Estate 

Current and former owners and operators may be held strictly, jointly, and severally liable for the presence on their properties of CERCLA hazardous substances, which will now include PFOA and PFOS. Although the designation of PFOA and PFOS as CERCLA hazardous substances does not automatically require any investigation or cleanup actions, it is likely to impact real estate deals nationwide as parties consider risks and allocate potential cleanup liabilities. 

The Brownfields Amendments to CERCLA provide potential liability defenses for certain landowners and potential property owners who did not cause or contribute to contamination at the property and can demonstrate compliance with specific provisions outlined in the statute, including conducting All Appropriate Inquiries, or AAI, into present and past uses of the project. To that end, the potential for a release of PFOA and PFOS into the environment must be evaluated as part of pre-acquisition environmental due diligence via a Phase I, and in certain instances a Phase II, Environmental Site Assessment for a prospective purchaser to potentially qualify for a defense to CERCLA liability. 

EPA Discretion

CERCLA affords EPA broad discretion as to whether or how to respond to a release. Indeed, in enforcement matters, the facts, circumstances, and equities of each case inform which parties EPA pursues. Per the EPA’s newly issued CERCLA Enforcement Discretion Policy, the agency will concentrate enforcement on parties who “significantly contributed” to the release of PFAS chemicals into the environment, including parties that have manufactured PFAS or used PFAS in the manufacturing process, federal facilities, and other industrial parties. EPA does not intend to pursue PFAS response actions or costs under CERCLA against municipal landfills, water utilities, municipal airports, local fire departments or farmers, purportedly based on equitable factors. However, EPA’s discretion will not limit other parties’ ability to pursue claims for contribution against these groups, unless EPA affirmatively enters into agreements, on a case-by-case basis, affording contribution protection.

Broad Regulatory Action, Anticipated Trends

The designation of PFOA and PFOS as CERCLA hazardous substances is just the latest example of PFAS regulation at the federal level. Earlier this month, EPA finalized a new rule setting legally enforceable federal standards for PFAS in drinking water. As part of EPA’s PFAS Strategic Roadmap, the agency has also added seven PFAS to the list of chemicals covered by the Toxics Release Inventory (TRI); enacted a final rule under the Toxic Substances Control Act (TSCA) to require manufacturers of PFAS and PFAS-containing articles to report information to EPA on PFAS uses, production, disposal, exposure, and hazards; and named PFAS as a National Enforcement and Compliance Initiative for 2024-2027. We expect the trend of heightened regulation of PFAS substances at both the state and federal levels to continue. 

Potential Legal Challenges

This is the first time EPA has designated chemicals as hazardous substances under CERCLA Section 102(a). That section authorizes the agency to include “elements, compounds, mixtures, solutions, and substances which, when released into the environment may present substantial danger to the public health or welfare or the environment.” Typically, EPA designates chemicals as hazardous substances via other statutory mechanisms, such as the Resource Conservation and Recovery Act or the Clean Water Act.

Anticipated challenges from industry groups, states or water districts could raise not only the novel basis for designation, but also whether the agency went through a rigorous enough process in scientifically justifying its decision – specifically, whether PFOA and PFOS “present substantial danger to the public health or welfare or the environment” at the levels being regulated – and in performing its cost-benefit analysis.