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Supreme Court Broadly Interprets Liability Under the Wisconsin Spills Law

Summer 1998

In State vs. Chrysler Outboard Corporation, June 19, 1998, the Wisconsin Supreme Court approved a broad interpretation of the liability provisions of the Wisconsin Spill Statute. In particular, the Court ruled that a party that caused the release of haz-ardous substances is liable for fines and penalties as well as injunctive relief even where:

1. all original disposal actions took place before the Spills Law effective date (1978); and
2. the responsible party had agreed to voluntarily clean up the contamination.

This decision will have an important impact in a number of areas. First, it will impact what type of warranties and repre-sentations sellers should provide in buy/sell transactions about compliance with environmental law. Second, the case raises the specter of subjecting the responsible party to fines and penalties for contamination when the DNR is notified of newly discovered contamination conditions on property. Third, it emphasizes the importance of parties trying to take advantage of the new liability exemptions from the Spills Law provided under the provisions of the Land Recycling Law.

This bulletin will briefly describe the Chrysler decision. It will also describe the type of contamination cases that could be impacted by this new penalty analysis approved by the Court. In addition, this bulletin will provide some advice on de-veloping strategies for parties involved in contaminated property transactions to minimize the impact of the decision.

IMPLICATIONS OF THE CHRYSLER DECISION

The Chrysler decision is surprising in a number of respects. First, the Court affirms the notion that fines or penalties are appropriate against a party that voluntarily agrees to remediate a site where contamination exists. Second, the Court seems to authorize the imposition of penalties for a time period where contamination exists on a site without regard to the responsible party's knowledge of the existence of such contamination. In particular, it is unclear what the Court meant by considering the factor of "culpability" when assessing fines for such conduct. Does this mean that the responsible party must know that contamination exists before it can be assessed fines? The decision is not clear on this point.

Finally, the decision is also important in the affirmation of the scope of injunctive relief that the State was seeking in the case. The State sought an order against Chrysler that it investigate, for possible contamination, all other sites where waste material was delivered before the effective date of the Spills Law. The Court expressly approved this request for investiga-tory relief. This broad grant of injunctive relief opens up new "vistas" of authority for the State when it is exploring the cause of contamination on property in Wisconsin. In particular, the State can now fashion arguments that responsible parties may need to investigate other properties where contamination may exist, even when there is no evidence of contamination.

SUGGESTED RISK AVOIDANCE STRATEGIES

Compliance With Law Warranties

Parties involved in transactions involving potentially contaminated property in Wisconsin should consider the implications of the Chrysler decision when negotiating buy/sell agreements. In particular, the seller should be wary of agreeing to a compliance of law warranty that is not limited by the seller's knowledge. On the other hand, the buyer may insist upon such a broad warranty.

In the absence of such a knowledge limitation, the seller may be held to violate the warranty if contamination is later discovered on the property. Chrysler stands for the proposition that the mere existence of contamination without remediation after the effective date of the Spills Law represents a violation of that statute. The buyer should be wary of the existence of contamination; the penalty provisions of the Spills Law apply equally to the party that owns the real estate and to the party that caused the contamination.

Potential for Penalties for Voluntary Remediation

One of the surprising aspects of the Chrysler decision is that the State sought fines and penalties against a party that agreed to voluntarily remediate contamination once the existence of the contamination was brought to its attention. Presumably, this same potential for fines or penalties exists for any party that voluntarily agrees to remediate property when its responsibilities are first brought to its attention. One would like to think that the State will carefully exercise its enforcement discretion in this area. However, responsible parties need to assess this risk when they are developing legal strategies for handling recently discovered contamination on property that is the focus of a due diligence inquiry.

Implications for Protection Under the Land Recycling Act

The Chrysler decision underscores the importance of considering the availability of protections afforded parties under the new Land Recycling Act. Under the new law, parties who qualify for protection are insulated from liability for fines and penalties that may be imposed for latent conditions under the Spills Law. After Chrysler, parties have more incentive to carefully analyze the cost/benefits of relief afforded under this new law. In particular, a liability exemption afforded parties by this new law could insulate those qualifying parties from any fines or broad injunctive relief that may otherwise be avail-able to the State under the Spills Law.

Godfrey & Kahn welcomes your comments or questions on the issues discussed in this mailing. Please contact Art Harrington or any other member of our Environmental/Energy Practice Group at (414) 273-3500.

The information contained in this publication is not intended to serve as specific legal advice.

Media Contact 

If you have a media request or need an attorney with particular knowledge for comment, please contact Susan Steberl, Director of Marketing, at 414.287.9556 or ssteberl@gklaw.com.

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