Why Should You Pay for Someone Else’s Mess?

Let’s consider a hypothetical situation: You own a business and would like to buy a piece of property to build the company’s headquarters. You love one particular parcel — it’s near your suppliers, convenient for your customers and the seller is willing to give you a great bargain. Sounds like you’ve found the new home for your company, right?

But, before you jump in, you do some background research. You learn that the property has a long history of its former owners contaminating to the point that it might qualify as a Superfund site for cleanup purposes.

On top of the hazardous, cancer-causing materials in the soil and water, there’s also the fact that the seller is in bankruptcy.

On top of this, the owner who sold the property to the company now in bankruptcy is only willing to spend whatever it can convince its insurance companies to pay for the clean-up.

And this former owner says that, once the insurance money is gone, it will fight having to spend any of its own money to make the site safe. So, the current owner is broke, and the former owner is offering only insurance money to pay for the cleanup.

Digging a little deeper, you learn that the former owner was so difficult to deal with that the government had to issue search warrants just to find the former owner’s records about its use of the site.

You also discover that the former owner told the local government that it didn’t need to worry about contamination because the contamination only amounted to a few dirty rags. Then, just in case this wasn’t enough, you talk with the representative of the state agency in charge of overseeing the remediation of the property. He tells you that any new owner of the site could potentially be held liable for the site if the former owner also goes bankrupt.

After all, when General Motors filed for bankruptcy protection, it was able to walk away from any further responsibility for cleaning up dozens of toxic sites spread throughout the USA. The former owner of the site you’re interested in is much smaller than GM, so bankruptcy might be an attractive solution once the insurance money runs out. So, if that happens, the state agency will be looking for someone to pay for the cleanup,
and guess who that might be? The proud new owner of the toxic site. After considering all of this, you make the wise decision to buy  something else.

Unfortunately, this scenario is not fictional. It’s right here in Santa Clarita.

The almost-1,000 acres that make up the area known as Whittaker-Bermite is extremely contaminated, both in its soil and water. Whittaker (the “former owner” in the hypothetical above) has been working on cleanup at the site since the 1980s. Some knowledgeable people estimate the total cost of remediation of being north of $300 million.

The Department of Toxic Substances Control is the state agency that is overseeing the clean-up effort. Jose Diaz, the DTSC project manager, said last week at a public meeting that the cleanup is going to take so much longer that the DTSC is looking for either Whittaker or any new owner to demonstrate financial capability of completing the remediation over the next 30 years.

Knowing all of the history of the site, the cost to clean everything up, and how long it’s going to take, why would anyone even consider buying the property?

Guess what: The city itself is seriously investigating doing exactly that. According to Diaz, the city asked him to let it off the hook for any cleanup responsibility. He told the city, “No.” He said that the city then went over his head to his bosses. They also said, “No.”

Apparently not satisfied, the city has now spoken to Debbie Raphael, the head of the DTSC. They are in negotiations now about what would happen if the city bought Bermite.

My question: Why? The city already had to pay the bankrupt owner $25 million because of an eminent domain dispute.

Why potentially subject the citizens of Santa Clarita to a toxics cleanup bill of hundreds of millions of dollars? If the city has that kind of money to spend to clean up someone else’s mess, I bet many residents could think of better ways of using it.

As a business and real estate attorney, clients have consulted with me before about buying similar hazardous money pits.

As I’ve told my business clients, “Are you in the business of cleaning up toxic wastes? If not, then stay away from something that can eat your business alive.” ©

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