In State v Howe Cleaners, a property had contained a dry cleaner from 1974 until 1996. After the dry cleaner ceased operating, a bakery purchased the space. Shortly thereafter, the bakery ceased operating and defaulted on its loan.

The bank then foreclosed on the property and held title for seven months. The bank then sold the property "as is" to a purchaser who operated a pizzeria. Prior to conveying the property, the bank had a phase 1 performed which did not identify any RECs and the purchaser reviewed the report prior to taking title.

Sometime after the pizzeria took title, an EPA inspector visited the site after talking to a former employee of the dry cleaner. The inspector lifted some floor boards and discovered two tanks in the crawl space beneath the floor that had contained PCE which leaked into the soil and groundwater.

The state implemented response actions and sought cost recovery from both the bank and the pizzeria. The pizzeria asserted the Vt version of the innocent landowner defense known as the "diligent owner" defense. This defense is is similar but not identical to CERCLA.  Under the Vermont Waste Management Act, a "diligent owner" is  a person who can establish by a preponderance of the evidence "that after making diligence and appropriate investigation of the facility" they had no knowledge or reason to know of a release or threatened release at the facility. "   

The Phase 1 report said it was performed in accordance with E1527-97. It did indicate that the property was formerly used as a dry cleaner but aside from recommending removal of some construcion debris, the report concluded that "No other environmentally hazardous condition were identified on the subject property. Accordingly, no further investigative work is recommended at this time, based on currently available data. "

The state argued that pizzeria owner could not reasonably rely on the report and should have undertaken more inquiry because of the prior use as a dry cleaner. The lower courts ruled that it was reasonably for the pizzeria owner to rely on a "recently produced, professional Phase 1 report" and that such reliance was "sufficient to constitute diligent and appropriate investigation as a matter of law." 

The court said that an ordinary person should not be required to "look behind" a report and that the state had not alleged any circumstances that could have given a such a lay person reason to conclude that the phase 1 was deficient.so held even  even though the pizzeria owner had filed a negligence action against the consultant who performed the phase 1. The Vt. Supreme court affirmed. 

Note 1: It should be noted that this case was decided under the state innocent landowner defense which is similar but not identical to CERCLA. The decision was based solely on statutory language.

Note 2: The pizzeria owner was relying on a report prepared by a consultant retained by the bank. Vt has not promulgated its own all appropriate inquiry rule nor referenced the EPA AAI rule. Had it followed the EPA AAI,the pizzeria would not have been able to assert the defense since it had not performed its own AAI.