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SouthEastern States Vapor Intrusion Symposium Phase I ESA Update

October 1, 2014, Atlanta

David R. Gillay, Esq.

Partner, Environmental Department

Overview

• Understanding nature & scope of due diligence

• Status of ASTM 1527-13 Standard

• (Some) Key differences between 1527-13 vs. 1527-05

• Internal policy/legal implications

• Continuing Obligations / Long Term

Stewardship considerations

• Recommendations

Scope of Due Diligence • Understand and document the underlying purpose of due diligence in connection with the transaction

– Who is your client?

– What does it plan to do with the target property?

– What are potential continuing obligations?

• Significant and important differences: – Lenders & SBA process

– Is Prospective Purchaser trying to qualify for defenses?

– Business Risk evaluation

Status of E1527-13 Standard • “All Appropriate Inquiries” or AAI EPA rule became effective November 1, 2006; but CERCLA defenses 2002

• ASTM 1527-05 is equivalent to AAI. 40 CFR § 312.11(b).

• ASTM 1527-5 sunsets after 8 years; ASTM Phase I Task Group’s efforts

• Aug. 15, 2013 – EPA publishes a direct final rule stating that 1527-13 is equivalent to AAI

– Allows either 2005 or 2013 standard

– Solicits comments .. Wasn’t really expecting any …

• Sept. 16, 2013 – Comments period ends (41 comments)

Status of E1527-13 Standard

• Nov. 6, 2013 – ASTM 1517-13 published

• Dec. 30, 2013 – EPA effectively adopts the previously proposed rule providing that ASTM E1527-13 is equivalent to AAI

– EPA does not remove the 2005 ASTM standard

– EPA recommends use of the 2013 ASTM Phase I standard

– EPA foreshadows additional rule to remove 1527-05

US EPA rulemaking update

• Notable quotes from December 30 final rule (78 FR

79319):

– In the case of vapor releases, or the potential presence or migration of vapors associated with hazardous substances or petroleum products, EPA notes that both the All Appropriate Inquiries Rule and the ASTM E1527-05 standard already call for the identification of potential vapor releases or vapor migration at a property, to the extent they are indicative of a release or threatened release of hazardous substances.

– EPA wishes to be clear that, in its view, vapor migration has always been a relevant potential source of release or threatened release that, depending on site-specific conditions, may warrant identification when conducting all appropriate inquiries.

US EPA rulemaking update

• June 14, 2014 - EPA proposed on June 17 to remove reference to the ASTM 1527-05 standard with 1-yr transition.

• July 17 – comments were due (5 received)

• Sept. 25 – US EPA responded to comments

– Vapor migration or vapor releases ALWAYS required under AAI rule and ASTM 1527-05

– Will publish final rule with 1-yr transition to removal of ‘05

Interplay of Vapor Migration /Intrusion

•Vapor intrusion (VI) generally occurs when there is a migration of volatile chemicals from contaminant sources into an overlying building

– Volatile chemicals can emit vapors that may migrate

through subsurface soils and into indoor air spaces of overlying buildings in ways similar to that of radon gas seeping into homes

Vapor Intrusion

Vapor Migration • CERCLA “release” includes solid, liquid, vapors.

• Vapor migration should be treated just like groundwater contamination

• New definition of migrate/migration and AUL includes soil vapor

• VI assessment is outside the scope of AAI.

• ASTM E2600-10 is only a reference document; not a required tool to determine whether vapor migration is a REC

Vapor Encroachment Condition •A VEC is defined as the “presence or likely presence of chemicals of concern (COC) vapors in the sub-surface of the target property caused by the release of vapors from contaminated soil or groundwater either on or near the target property as identified by Tier 1 or Tier 2 procedures.”

– Tier 1 identifies known or suspected contaminated properties within the area of concern (1/3 mile for volatile compounds; 1/10 mile for petroleum hydrocarbons).

– Tier 2 is more comprehensive and evaluates certain characteristics of a known contaminated plume resulting from contaminated properties and the proximity of the contaminated plume to the target property. If no plume information is available, Tier 2 screening can involve sampling.

REC/HREC/CREC/de minimis Contamination in, at or on the TP:

• Is it de minimis? – Yes: NOT a REC

• If NO, then determine if REC/HREC/CREC: – REC: it has not been addressed or regulatory officials view

cleanup as inadequate today

– CREC: regulatory officials view cleanup as adequate today and there are restrictions (Is a REC)

– HREC: regulatory officials view cleanup as adequate today and there are no restrictions (Not a REC)

Case Study • TP is a shopping center and the source of contamination has been eliminated and contaminated soil removed. Regulatory Agency allows residual groundwater to attenuate but is requiring ongoing monitoring.

– groundwater above residential standards

– Agency allowing natural attenuation means no unacceptable risk or completed pathways

– Agency requires ongoing monitoring of groundwater …

– So, constitutes a CREC

File Reviews • Focus on new section 8.2.2

•AAI Rule requires the exercise of professional judgment • 312.24(b) how far back to search

• 312.26(d) determining geographic search distance

• 312.28(b) specialized knowledge and expertise

• 312.20(c) evaluate information as a whole

•Burden of potential CERCLA liability falls upon the property owner or operator

File Reviews (cont)

• EP must issue an opinion if a file review is not warranted and justify its opinion

• EPs may use alternative sources

• EP must include a summary of information obtained from the file review and include an opinion on the sufficiency of the information obtained

• Use of “data gap” under section 12.7

User Responsibilities • Ties back to the understanding the scope; section 6.8 states that user shall make known the reason it wants to have the Phase I ESA performed.

– If user does not identify reason, EP shall assume it is to qualify for any applicable landowner liability protections.

• Complete the User Questionnaire (most common error)

• NOTE : Nothing in Section 6 (User’s Responsibilities) relieves the EP of satisfying the EP’s responsibilities set forth in the AAI Rule (40 CFR Part 312)

Vapor Migration Screening • What if we had not considered the vapor migration pathway in the past, does this open us up to any liability?

– Legal determination and ultimately a judge would decide

– Evaluation would include:

• How does state agency manage VI?

• US EPA’s first VI guide in 2002; still not finalized … but stay tuned!

• Review legal appendix to Phase I ESA standard

• Look at how contaminated groundwater was handled in the Phase I ESA

Other issues/notes • Recommendations are not required but does client require?

• Continuing obligations are not addressed – HUGE issue see sections X1.3.1.2 on Post-Acquisition Obligations and 13.1.4 on compliance with AULs

– Great business growth opportunity

Continuing Obligations •EPA origins: 2002 Brownfield Amendments and new Bona Fide Prospective Purchaser Defense (BFPP) •BFPP defense allows you to purchase known contaminated property and avoid CERCLA liability provided certain pre and post requirements are satisfied. •Focus here is on post-Closing.

Continuing Obligations

•Take reasonable steps to: (a) stop any continuing release

(b) prevent any future threatened release; and

(c)prevent or limit any human, environmental, or natural resource exposure to any previously released hazardous substance

•What does this really mean?

Continuing Obligations

National IC Policy

• US EPA draft (and near FINAL) VI policy emphasizes pre-emptive mitigation … but LTS guidance missing …

• EPA’s NEW National Policy on Use and Roles of ICs is to

develop an IC Plan: – Institutional Controls: A Guide to Planning, Implementing,

Maintaining, and Enforcing Institutional Controls at Contaminated Sites, EPA-540-R-09-001 (Dec. 2012) [referred to as the “IC Guidance”]

– Institutional Control: A Guide to Preparing Institutional Control Implementation and Assurance Plans at Contaminated Sites, EPA-540-R-09-002 (Dec. 2012) [referred to as “ICIAP Guidance” or “IC Plan”]

Recommendations • Good time to critically review AAI rule

•Develop clear communication protocols to define the nature and scope of due diligence efforts

•Conduct internal review of past Phase I ESAs with potential vapor issues and where client qualified for CERCLA defenses BECAUSE of requirement for continuing obligations to maintain those defenses

•Consider potential VI-related post-closing continuing obligations and document in written communication

•Review standard contract and company policies related to file reviews, user responsibilities, and develop company policy on vapor migration

Recommendations • If appropriately managed, the VI pathway will not kill your

deal, chill your redevelopment project, or delay your closure goals.

– Develop a VI play book and clear communication protocols

– VI pathway is complex and science is evolving but you can successfully navigate to closure with cost effective and practical approaches

• Understand when and where a CO Plan is necessary to maintain landowner liability protections.

Questions or Comments

David R. Gillay, Esq.

Chair, Brownfields & Environmental Transactional Diligence

Chair, Remediation, Corrective Action & Voluntary Cleanup

(317) 231-7474 or (317) 946-9267

david.gillay@btlaw.com

Prominence in Buckhead 11 South Meridian St.

3475 Piedmont Road N.E. Indianapolis, IN

Atlanta, GA