On January 15, 2015, the United States District Court for the Eastern District of California held in Coppola v. Smith that an innocent landowner defense under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) required expert witness testimony about environmental due diligence standards and customs at the time of purchase (No. 1:11-cv-01257-AWI-BAM, (E.D Cal. Jan. 15, 2015)).

In 1995, Martin LP (Martin) purchased a commercial office building in Visalia, California. From 1959 to the early 1970's, a portion of the property was operated as a dry cleaner that may have contaminated the soil and groundwater with perchloroethylene (PCE). The prior operation as a dry cleaner may have been difficult to discover because the address was changed when it was subsumed into a larger parcel of land for the construction of the office building.

Martin had never conducted environmental due diligence on a commercial property before. As part of its environmental due diligence, Martin reviewed three documents, including a Preliminary Site Assessment, that were prepared in 1991 for the previous owner. Martin also visited the property, interviewed the previous owner and other local business owners, and retained a financial consultant in connection with the purchase.

However, Martin did not engage an engineer, geologist or environmental professional to inspect the property. Its environmental due diligence did not reveal PCE contamination or the past use as a dry cleaner. Martin was not aware of any issues until it was contacted in 2008 by the Environmental Protection Agency (EPA) and the California Department of Toxic Substances Control. Martin was later sued for contribution by a group of other area dry cleaners.

For properties purchased before May 31, 1997, a court must consider five factors under 42 U.S.C. § 9601(35)(B)(iv)(I) to determine if a purchaser had "reason to know" of environmental contamination at the property. In this case, the five factors weighed in Martin's favor so the court next addressed the innocent landowner defense under CERCLA.

To qualify for the innocent landowner defense under CERCLA the purchaser must make "all appropriate inquiries" in accordance with "good commercial and customary standards and practices" in the relevant locale before the purchase.

The plaintiffs presented expert witness testimony that the Preliminary Site Assessment did not comply with the standards set by the American Society for Testing and Materials (ASTM), rendering Martin's reliance on that document unreasonable.

The court rejected this argument, stating that non-compliance with ASTM standards was not dispositive on the issue because the property was purchased before May 31, 1997. Although compliance with ASTM standards is generally deemed to be compliance with the "all appropriate inquiries" standard, the court also must consider the five 42 U.S.C. § 9601(35)(B)(iv)(I) factors and the generally accepted commercial practices in the Visalia area around March 1995.

The court ultimately denied summary judgment to Martin because no expert witness testimony was offered about the generally accepted commercial practices in Visalia at the time of purchase in 1955.

For transactions taking place on or after May 31, 1997, compliance with ASTM standards is deemed to be compliance with the "all appropriate inquiries" standard. The ASTM standards are generally used during Phase 1 Environmental Assessments.

For purchases before 1997, commercial real estate counsel should retain an expert witness to offer testimony about the customary commercial standards and practices in the area where the property is located at the time of purchase. Expert witnesses should be sought out when the evidence is otherwise incomplete to satisfy the elements of a CERCLA defense.