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Federal Legal Liability Concerns when Acquiring Contaminated PropertyRona H. GregoryUS Environmental Protection Agency New England RegionVermont Brownfields ForumNovember 29, 20121

Environmental LiabilityAssessing Project Risk Understand which federal, state, and local statutes/regulations applyGovernment agencies exercise discretion in making enforcement decisionsEnforcement decisions are very site- and fact-specificEPA generally uses CERCLA authority for sites that are not likely to be adequately addressed otherwise Most properties are addressed through state cleanup programs Environmental liability is one project risk evaluate it in context of all project risks For example, liability for a relatively inexpensive cleanup may contribute only minimally to project risks22

Environmental Liability Assessing Project Risk If liability is a concern, there is a need to understand what triggers that liability, what liability protections are available, and what must be done to qualify for and retain those protectionsDifferent fact patterns may present different liability risksOwnership vs. leasingActivities taken (or not taken) during period of ownership or leasing33

Environmental LiabilitySuperfundSuperfund is the federal environmental program implementing the CERCLA statuteCERCLA provides EPA broad authority to respond to releases or threatened releases of hazardous substances, pollutants, and contaminantsCERCLA applies in all 50 states and U.S. territoriesEPA can compel responsible parties to perform cleanup or to reimburse EPA for cleanups performed by EPACERCLA authorizes two general kinds of response actionsRemoval actionsRemedial actions44Environmental LiabilitySuperfundSuperfund undeserved stigma?

Hazardous substances must be presentPetroleum exclusion under CERCLAAsbestos in buildings addressed in limited circumstances

If hazardous substances are present, Superfund authority may be best option to clean up a property for redevelopment

If no other available resourcesBrings broad array of federal resources to siteCleanup process requires public participationTransparency in remedy selectionSite investigations and remedial work performed to clear standards

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Environmental LiabilitySuperfundCERCLA names four groups of potentially responsible partiesCurrent owners and operatorsOwners or operators who owned or operated the property at the time of disposalThose that arranged for treatment or disposal (typically the generators)Transporters who selected the disposal siteCERCLA liability is retroactive, joint and several, and strict

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Environmental LiabilitySuperfundEvolution of liability protectionsReaction to backlash against Superfund liability schemeAttempt to mitigate unintended consequences

Involuntary acquisition by state and local government [1986]Innocent landowner [1986]Lender liability rule [1996]Prospective purchaser agreements [administrative fix]Bona fide prospective purchaser [2002]

77Environmental Liability SuperfundCERCLA Liability Protections, Defenses, and PoliciesKey statutory provisions

Third Party Defense [CERCLA 107(b)(3)]Legally complex Includes eminent domain takings [CERCLA 101(35)(a)(ii)]Includes innocent landowner protection [CERCLA 101(35)(a)(i)]

Lender liability protection [CERCLA 101(20)(E), (F), (G)]Asset Conservation, Lender Liability, and Deposit Insurance Protection Act, 1996Secured creditor exemption eliminating liability for lenders who hold ownership in a CERCLA facility primarily to protect their security interest as long as they do not participate in the management of the facility

88Environmental Liability SuperfundCERCLA Liability Protections, Defenses, and PoliciesInvoluntary Acquisition [CERCLA 101(20)(D)]Includes acquisitions by tax delinquency, bankruptcy, abandonmentState or local government must not cause or contribute to release

Bona Fide Prospective Purchaser [BFPP] [CERCLA 101(40); CERCLA 107(q)(C); CERCLA 107(r)]Includes acquisition by purchase, gift, donation

Contiguous Property Owner [CPO] [CERCLA 107(q)]Applies to contamination originating from an off-site source

Enforcement Bar [CERCLA 128(b)(1)]Limits federal enforcement where a cleanup is being conducted or has been completed in compliance with a state response program

9Environmental Liability SuperfundCERCLA Liability Protections, Defenses, and PoliciesCERCLA requirements to attain and maintain liability protectionsRequirements are similar but not identical for each liability protectionThreshold criteria Necessary to qualify for a liability protectionContinuing obligationsObligations that require additional affirmative steps to ensure that the protections survive over time

1010Environmental Liability -- SuperfundCERCLA Liability Protections, Defenses, and PoliciesThreshold criteriaMust perform all appropriate inquiry [AAI] prior to acquisition of property [BFPP / CPO / ILO]Cannot be liable or potentially liable for response costs [BFPP / CPO]Cannot be affiliated with someone who is liable or potentially liable for response costs [BFPP / CPO]11Environmental Liability -- SuperfundCERCLA Liability Protections, Defenses, and PoliciesContinuing obligations [BFPP / CPO / ILO]Comply with land use restrictionsNot impede effectiveness or integrity of any institutional controlTake reasonable steps [CERCLA 101(35)(B)] to:Stop continuing releasesPrevent threatened future releasesPrevent or limit human, environmental, or natural resource exposure to earlier hazardous substance releases12Environmental Liability -- SuperfundCERCLA Liability Protections, Defenses, and PoliciesContinuing obligations [BFPP / CPO / ILO]

Provide cooperation, assistance, and access to persons authorized to conduct response actionsIncluding cooperation and access necessary for installation, integrity, operation, and maintenance of complete or partial response action13Environmental Liability -- SuperfundCERCLA Liability Protections, Defenses, and PoliciesContinuing obligations [BFPP / CPO]

Comply with information requests and administrative subpoenasProvide legally required notices with respect to the discovery or release of any hazardous substances14Environmental Liability -- SuperfundCERCLA Liability Protections, Defenses, and PoliciesBona fide prospective purchaser [CERCLA 101(40)]Only liability protection available to purchaser who knows prior to purchase that the property is contaminatedApplies to property acquired through gift / donationThreshold criteriaProperty acquired after January 11, 2002All disposal of hazardous substances occurred prior to acquisitionConduct all appropriate inquiry into previous ownership and uses of property prior to acquisition

15Environmental Liability -- SuperfundCERCLA Liability Defenses, Exemptions and PoliciesContiguous property owner [CERCLA 107(q)]Owner of property that is contaminated by a release coming from property owned by a different entityOwner did not cause, contribute, or consent to the releaseAfter conducting AAI, owner did not know or have reason to know that property was or could be contaminated by releases from other real property16Environmental Liability SuperfundCERCLA Liability Protections, Defenses, and Policies17Table 7.3 Applicability of CERCLA Liability Provisions Based on the Method of Acquisition Key CERCLA Liability Protection ProvisionsMethods of Municipal Property AcquisitionTax ForeclosureBankruptcyEscheatEminent DomainPurchaseInheritance/BequestAbandonmentGift/DonationInvoluntary Acquisition 101(20)(D)Bona Fide Prospective Purchaser 101(40) and 107(r)(1)Third Party Defense 107(b)(3) and 101(35)(A)Enforcement Bar 128(b) Could apply to local governments Could apply to local governments under certain circumstances17Environmental Liability SuperfundCERCLA Liability Protections, Defenses, and Policies18CERCLA ProvisionIs AAI Required?Involuntary Acquisition by a Municipality No, but recommendedBona Fide Prospective Purchaser YesThird Party Defense (Innocent Landowner)

YesContiguous Property Owner

YesFigure 7.2 CERCLA provisions requiring AAI prior to acquisition 18Environmental Liability SuperfundAll appropriate inquiry [AAI]What is AAIInitial assessment of a site to identify potential presence of environmental contamination or Recognized Environmental Conditions (RECs)Conducted for real estate transactions, site discovery, CERCLA liability protection, Brownfields grants, assess business environmental risk concerns Does not delineate contamination or quantify risk19Environmental Liability SuperfundAll appropriate inquiry [AAI]CERCLA amendments in 2002Not later than 2 years after January 11, 2002, EPA shall by regulation establish standards and practices for the purpose of satisfying the requirement to carry out all appropriate inquiries under CERCLA 101(35)(b)(i)The EPA final rule became effective on November 1, 2006 All appropriate inquiries must be conducted in compliance with either EPAs final rule, or ASTM E1527-05 Phase I Environmental Site Assessment Process to obtain protection from potential liability under CERCLA as a bona fide prospective purchaser, a contiguous property owner, or an innocent landownerParties cannot use ASTM Transaction Screen standard or ASTM Phase II ESA standard to comply with AAI

20Environmental Liability SuperfundAll appropriate inquiry [AAI]How does AAI affect you?

Threshold criteria for most CERCLA liability protectionsParties seeking protection from CERCLA liability must conduct AAI prior to purchasing property

Threshold criteria for federal Brownfields Grant applicantsGrant applicant must demonstrate protection from CERCLA liability to be eligible for a grantCleanup grant applicants must have performed ASTM Phase II or equivalent

Recipients of federal Brownfields Assessment GrantsMust conduct assessments in compliance with AAI.

Targeted Brownfields Assessment (TBA)TBAs should be performed in compliance with AAI or ASTM Phase I E1527-05 to ensure prospective property owners liability protection and to ensure eligibility for future cleanup grant21Environmental Liability SuperfundAll appropriate inquiry [AAI]When must AAI be performed?Any party seeking liability protection must perform AAI before acquiring the property -- before date of title transferAAI must be conducted or updated within one year prior to date of acquisitionInterviews, records review, site inspection, and the environmental cleanup lien search must be conducted or updated within 180 days prior to the date of acquisition

22Environmental Liability SuperfundAll appropriate inquiry [AAI]Who can perform AAI?Must be performed by an Environmental Professional (EP)Only an EP can supervise or oversee the conduct of AAIPerson who does not qualify as an EP may assist in the conduct of a AAI if he or she is under the supervision or responsible charge of an EPEP required to sign AAI-compliant reports

23Environmental Liability SuperfundAll appropriate inquiry [AAI]Definition of EP

Person who has:

Sufficient specific education, training, and experience to exercise professional judgment to develop opinions and conclusions regarding the presence of releases or threatened releases of hazardous substances AND

Holds a professional engineer or professional geologist license, or other state, federal, or tribal certification or environmental professional license and has 3 years of relevant full-time experience OR

Has a degree in science or engineering and 5 years of relevant full-time experience OR

Has 10 years of relevant full-time experience.

24Environmental Liability SuperfundAll appropriate inquiry [AAI]Relevant experienceParticipation in the performance of all appropriate inquiries investigations, environmental site assessments, or other site investigations that may include environmental analyses, investigations, and remediation which involve the understanding of surface and subsurface environmental conditions and the processes used to evaluate these conditions

25Environmental Liability SuperfundAll appropriate inquiry [AAI]Key regulatory requirementsInterviews with past and present owners, operators, and occupantsReviews of historical sources of informationReviews of federal, state, tribal, and local government recordsReviews of activity and use limitations Visual inspections of the facility and of adjoining properties

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Environmental LiabilityRCRA

Resource Conservation and Recovery Act (RCRA)

RegulatesHazardous waste (Subtitle C)Solid waste (Subtitle D)Underground storage tanks (Subtitle I)

2727Environmental LiabilityRCRAHazardous Waste (Subtitle C)Hazardous waste managementCradle to GraveGenerationTransportation Treatment, storage and disposalCorrective action to clean up releasesCategories of RCRA facilitiesTreatment, Storage, & Disposal (TSD) facilitiesCommercial TSD facilities (relatively few)Many manufacturing and some commercial facilities conduct TSD operations (est. 8,000 nationally)GeneratorsMost manufacturing and some commercial facilities (e.g., dry cleaners) Facilities (including municipalities) can become a generator as the result of clean up operationsTransportersMost states are authorized to conduct RCRA (Subtitle C) in lieu of EPAStates may be more stringent and broader in scopeVermont is authorized for base program and corrective action

2828Environmental LiabilityRCRAHazardous Waste (Subtitle C)RCRA (Subtitle C) Cleanup ProgramsClosure/Post-Closure of treatment, storage, and disposal unitsApplicable to TSD facilities and generatorsCorrective actionRequired for all permitted TSD facilitiesAddress releases of hazardous waste and hazardous constituents within entire facility boundary and those that have moved off-siteCan be required for interim status TSD facilities (i.e., awaiting a permitting decision) Cleanups may require a TSD permit, but a streamlined permit is available (i.e., Remedial Action Plan)

2929Environmental Liability RCRAHazardous WastePoints to considerEPA and states maintain a data base of all known TSD facilities, generators, and transporters (must self-notify)Make sure environmental consultants and legal counsel have expertise with RCRA Subtitle CWork with authorized state to ensure RCRA requirements are metState voluntary cleanup programs may satisfy these requirements

3030Environmental Liability RCRASolid Waste (Subtitle D)Solid waste generally includesGarbage, refuse, and other discarded waste, including hazardous waste and non-hazardous wasteSolid, liquid, semisolid or containerized gases Subtitle D regulates disposal ofNon-hazardous solid wasteHazardous wastes exempt from RCRA Subtitle CEPA sets technical standards, but state and local governments generally implement the programStates can adopt more stringent requirements

3131Environmental Liability RCRASolid Waste (Subtitle D)Two types of facilitiesMunicipal solid waste landfillsMost towns own or operate MSWLsNon-hazardous solid waste disposal facilities (e.g., construction and demolition landfills)Sometimes found on commercial and industrial properties Must meet design, operating, closure and other standardsSolid waste disposal facilities that receiveNon-exempt hazardous waste could be subject to RCRA Subtitle C requirementsRegulated asbestos materials could be subject to the Clean Air ActPCBs could be subject to the Toxic Substances Control Act (TSCA)

3232Environmental LiabilityRCRAUnderground Storage Tanks (Subtitle I)Subtitle I regulates certain underground storage tanks (USTs) containing petroleum and hazardous substancesAt least 10 percent of combined volume of tanks and piping must be undergroundCertain categories of tanks are excludedMost states are authorized to implement UST program in lieu of federal programEPA sets technical standards, but many state UST programs are more stringent or broader in scope than federal requirements

3333Environmental LiabilityRCRAUnderground Storage Tanks (Subtitle I)USTs are commonly associated with gas stations but may be found on many commercial and industrial propertiesParties, including municipalities, that acquire a property containing USTs may become responsible for removal of out-of-service USTs, inspection of tanks, testing of soils, and cleaning up of releases3434Environmental Liability TSCA (Title I)PCB and PCB-Containing Wastes and EquipmentThe Toxic Substances Control Act (TSCA) contains four major sub-divisionsTitle I regulates the cleanup, management, and disposal of PCBs and PCB-containing waste and equipmentTitle II regulates asbestos abatement in schoolsTitle III regulates air radonTitle IV regulated lead-based paintTitle I cannot be delegated to states, but many states have established their own PCB laws and regulationsParties, including municipalities, that acquire a property contaminated with regulated levels of PCBs may become responsible for clean up or decontamination In addition to TSCA, EPA may require cleanup of PCBs under RCRA and CERCLA

35Environmental LiabilityClean Air ActAsbestos NESHAPThe National Emission Standards for Hazardous Air Pollutants (NESHAP) for asbestosEstablishes work practices to minimize asbestos releases during demolition and renovationRegulates asbestos in active and inactive waste disposal sitesPrivately-owned residential buildings with four or less dwelling units are generally excluded unless they are part of a commercial or public project EPA may delegate this authority to state and local authorities, but retains enforcement authorityFacilities that will be undergoing demolition or renovation must first be properly inspected for regulated asbestos containing materials (RACM)NESHAP also establishes notification and management requirementsRACM must be properly disposed of in an asbestos NESHAP approved landfillMany municipal landfills do not accept RACM

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