• July 30, 2012

The U.S. Court of Appeals for the 8th Circuit’s decision this week in Northern Pacific Center, Inc. v. BNSF Railway Company, could further chill the already difficult market for redevelopment of contaminated property in Minnesota.

The case involved a fact pattern that has become common across the state and elsewhere: a former property owner contaminated the property through its historical operations. When the contamination was discovered, the former owner conducted cleanup sufficient to obtain sign-off by the Minnesota Pollution Control Agency at that time, but not sufficient to allow redevelopment later planned by the new owner.

This scenario raises a number of policy questions about the scope of cleanup liability, but in Northern Pacific, the courts found no need to delve into those questions. Instead, the district court (Sr. U.S. District Court Judge Paul A. Magnuson (D. Minn.)) and the 8th Circuit focused on a quirky turn of phrase in the relevant statute, the Minnesota Environmental Response and Liability Act (“MERLA”) – a phrase which largely has been ignored by practitioners, parties
and courts until now.

Minnesota Statutes § 115B.04 authorizes the government to recover “all reasonable and necessary response costs incurred,” but limits private parties to recovery of “all reasonable and necessary removal costs.” Response costs are defined under MERLA to include both removal costs and costs of “remedial action.” The definitions of “removal” and “remedial action” under MERLA (similar to under the federal cleanup statute) are long and somewhat overlapping, and the Minnesota Legislature’s intended distinction here is less-than-clear. However, “removal” is defined fairly broadly in the first instance to include “the cleanup or removal of a released hazardous substance, pollutant or contaminant, from the
environment” while “remedial action” is defined in the first instance to include “those actions consistent with permanent remedy taken instead of or in addition to removal actions.”

Private parties in Minnesota have relied on the breadth of the “removal” definition as authorizing recovery under MERLA of a broad range of cleanup costs. The 8th Circuit, in affirming the district court’s decision in Northern Pacific, indicated that such reliance was misplaced. Under the 8th Circuit’s interpretation, removal costs are limited to those costs expended to “mitigate immediate harm,” and do not include “long-term cleanup costs.” While this interpretation is consistent with interpretation of the corresponding definitions under the federal cleanup statute, the implications under MERLA are unique and far-reaching, due to the limitation on private party cost recovery in Minn. Stat. § 115B.04. Perhaps a statutory fix is in order?

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