Federal Legal Liability Concerns when Acquiring Contaminated Property Rona H. Gregory US Environmental Protection Agency – New England Region Vermont Brownfields Forum November 29, 2012

Environmental Liability Assessing Project Risk Understand which federal, state, and local statutes/regulations apply Government agencies exercise discretion in making enforcement decisions Enforcement decisions are very site- and fact-specific EPA 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 risks

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 protections Different fact patterns may present different liability risks Ownership vs. leasing Activities taken (or not taken) during period of ownership or leasing

Environmental Liability Superfund Superfund is the federal environmental program implementing the CERCLA statute CERCLA provides EPA broad authority to respond to releases or threatened releases of hazardous substances, pollutants, and contaminants CERCLA applies in all 50 states and U.S. territories EPA can compel responsible parties to perform cleanup or to reimburse EPA for cleanups performed by EPA CERCLA authorizes two general kinds of response actions Removal actions Remedial actions

Environmental Liability Superfund Superfund – undeserved stigma? Hazardous substances must be present Petroleum exclusion under CERCLA Asbestos 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 resources Brings broad array of federal resources to site Cleanup process requires public participation Transparency in remedy selection Site investigations and remedial work performed to clear standards

Environmental Liability Superfund CERCLA names four groups of potentially responsible parties Current owners and operators Owners or operators who owned or operated the property at the time of disposal Those that arranged for treatment or disposal (typically the generators) Transporters who selected the disposal site CERCLA liability is retroactive, joint and several, and strict

Environmental Liability Superfund Evolution of liability protections Reaction to backlash against Superfund liability scheme Attempt 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]

Environmental Liability – Superfund CERCLA Liability Protections, Defenses, and Policies Key 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, 1996 Secured 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

Environmental Liability – Superfund CERCLA Liability Protections, Defenses, and Policies Involuntary Acquisition [CERCLA 101(20)(D)] Includes acquisitions by tax delinquency, bankruptcy, abandonment State 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

Environmental Liability – Superfund CERCLA Liability Protections, Defenses, and Policies CERCLA requirements to attain and maintain liability protections Requirements are similar but not identical for each liability protection Threshold criteria Necessary to qualify for a liability protection Continuing obligations Obligations that require additional affirmative steps to ensure that the protections survive over time

Environmental Liability -- Superfund CERCLA Liability Protections, Defenses, and Policies Threshold criteria Must 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]

Environmental Liability -- Superfund CERCLA Liability Protections, Defenses, and Policies Continuing obligations [BFPP / CPO / ILO] Comply with land use restrictions Not impede effectiveness or integrity of any institutional control Take reasonable steps [CERCLA 101(35)(B)] to: Stop continuing releases Prevent threatened future releases Prevent or limit human, environmental, or natural resource exposure to earlier hazardous substance releases

Environmental Liability -- Superfund CERCLA Liability Protections, Defenses, and Policies Continuing obligations [BFPP / CPO / ILO] Provide cooperation, assistance, and access to persons authorized to conduct response actions Including cooperation and access necessary for installation, integrity, operation, and maintenance of complete or partial response action

Environmental Liability -- Superfund CERCLA Liability Protections, Defenses, and Policies Continuing obligations [BFPP / CPO] Comply with information requests and administrative subpoenas Provide legally required notices with respect to the discovery or release of any hazardous substances

Environmental Liability -- Superfund CERCLA Liability Protections, Defenses, and Policies Bona fide prospective purchaser [CERCLA 101(40)] Only liability protection available to purchaser who knows prior to purchase that the property is contaminated Applies to property acquired through gift / donation Threshold criteria Property acquired after January 11, 2002 All disposal of hazardous substances occurred prior to acquisition Conduct all appropriate inquiry into previous ownership and uses of property prior to acquisition

Environmental Liability -- Superfund CERCLA Liability Defenses, Exemptions and Policies Contiguous property owner [CERCLA 107(q)] Owner of property that is contaminated by a release coming from property owned by a different entity Owner did not cause, contribute, or consent to the release After conducting AAI, owner did not know or have reason to know that property was or could be contaminated by releases from other real property

Environmental Liability – Superfund CERCLA Liability Protections, Defenses, and Policies Table 7.3 – Applicability of CERCLA Liability Provisions Based on the Method of Acquisition Key CERCLA Liability Protection Provisions Methods of Municipal Property Acquisition Tax Foreclosure Bankruptcy Escheat Eminent Domain Purchase Inheritance/Bequest Abandonment Gift/Donation Involuntary 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 circumstances

Environmental Liability – Superfund CERCLA Liability Protections, Defenses, and Policies CERCLA Provision Is AAI Required? Involuntary Acquisition by a Municipality No, but recommended Bona Fide Prospective Purchaser Yes Third Party Defense (Innocent Landowner) Contiguous Property Owner Figure 7.2 – CERCLA provisions requiring AAI prior to acquisition

Environmental Liability – Superfund All appropriate inquiry [AAI] What is AAI Initial 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 risk

Environmental Liability – Superfund All appropriate inquiry [AAI] CERCLA amendments in 2002 Not 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 EPA’s 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 landowner Parties cannot use ASTM Transaction Screen standard or ASTM Phase II ESA standard to comply with AAI

Environmental Liability – Superfund All appropriate inquiry [AAI] How does AAI affect you? Threshold criteria for most CERCLA liability protections Parties seeking protection from CERCLA liability must conduct AAI prior to purchasing property Threshold criteria for federal Brownfields Grant applicants Grant applicant must demonstrate protection from CERCLA liability to be eligible for a grant Cleanup grant applicants must have performed ASTM Phase II or equivalent Recipients of federal Brownfields Assessment Grants Must 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 owner’s liability protection and to ensure eligibility for future cleanup grant

Environmental Liability – Superfund All appropriate inquiry [AAI] When must AAI be performed? Any party seeking liability protection must perform AAI before acquiring the property -- before date of title transfer AAI must be conducted or updated within one year prior to date of acquisition Interviews, records review, site inspection, and the environmental cleanup lien search must be conducted or updated within 180 days prior to the date of acquisition

Environmental Liability – Superfund All 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 AAI Person 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 EP EP required to sign AAI-compliant reports

Environmental Liability – Superfund All 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.

Environmental Liability – Superfund All appropriate inquiry [AAI] Relevant experience Participation 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

Environmental Liability – Superfund All appropriate inquiry [AAI] Key regulatory requirements Interviews with past and present owners, operators, and occupants Reviews of historical sources of information Reviews of federal, state, tribal, and local government records Reviews of activity and use limitations Visual inspections of the facility and of adjoining properties

Environmental Liability RCRA Resource Conservation and Recovery Act (RCRA) Regulates Hazardous waste (Subtitle C) Solid waste (Subtitle D) Underground storage tanks (Subtitle I)

Environmental Liability RCRA Hazardous Waste (Subtitle C) Hazardous waste management “Cradle to Grave” Generation Transportation Treatment, storage and disposal Corrective action to clean up releases Categories of RCRA facilities Treatment, Storage, & Disposal (TSD) facilities Commercial TSD facilities (relatively few) Many manufacturing and some commercial facilities conduct TSD operations (est. 8,000 nationally) Generators Most manufacturing and some commercial facilities (e.g., dry cleaners) Facilities (including municipalities) can become a generator as the result of clean up operations Transporters Most states are authorized to conduct RCRA (Subtitle C) in lieu of EPA States may be more stringent and broader in scope Vermont is authorized for “base program” and corrective action

Environmental Liability RCRA Hazardous Waste (Subtitle C) RCRA (Subtitle C) Cleanup Programs Closure/Post-Closure of treatment, storage, and disposal units Applicable to TSD facilities and generators Corrective action Required for all permitted TSD facilities Address releases of hazardous waste and hazardous constituents within entire facility boundary and those that have moved off-site Can 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)

Environmental Liability RCRA Hazardous Waste Points to consider EPA 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 C Work with authorized state to ensure RCRA requirements are met State voluntary cleanup programs may satisfy these requirements

Environmental Liability RCRA Solid Waste (Subtitle D) Solid waste generally includes Garbage, refuse, and other discarded waste, including hazardous waste and non-hazardous waste Solid, liquid, semisolid or containerized gases Subtitle D regulates disposal of Non-hazardous solid waste Hazardous wastes exempt from RCRA Subtitle C EPA sets technical standards, but state and local governments generally implement the program States can adopt more stringent requirements

Environmental Liability RCRA Solid Waste (Subtitle D) Two types of facilities Municipal solid waste landfills Most towns own or operate MSWLs Non-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 standards Solid waste disposal facilities that receive Non-exempt hazardous waste could be subject to RCRA Subtitle C requirements Regulated asbestos materials could be subject to the Clean Air Act PCBs could be subject to the Toxic Substances Control Act (TSCA)

Environmental Liability RCRA Underground Storage Tanks (Subtitle I) Subtitle I regulates certain underground storage tanks (USTs) containing petroleum and hazardous substances At least 10 percent of combined volume of tanks and piping must be underground Certain categories of tanks are excluded Most states are authorized to implement UST program in lieu of federal program EPA sets technical standards, but many state UST programs are more stringent or broader in scope than federal requirements

Environmental Liability RCRA Underground Storage Tanks (Subtitle I) USTs are commonly associated with gas stations but may be found on many commercial and industrial properties Parties, 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 releases

Environmental Liability – TSCA (Title I) PCB and PCB-Containing Wastes and Equipment The Toxic Substances Control Act (TSCA) contains four major sub-divisions Title I regulates the cleanup, management, and disposal of PCBs and PCB-containing waste and equipment Title II regulates asbestos abatement in schools Title III regulates air radon Title IV regulated lead-based paint Title I cannot be delegated to states, but many states have established their own PCB laws and regulations Parties, 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

Environmental Liability Clean Air Act Asbestos NESHAP The National Emission Standards for Hazardous Air Pollutants (NESHAP) for asbestos Establishes work practices to minimize asbestos releases during demolition and renovation Regulates asbestos in active and inactive waste disposal sites Privately-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 authority Facilities that will be undergoing demolition or renovation must first be properly inspected for regulated asbestos containing materials (RACM) NESHAP also establishes notification and management requirements RACM must be properly disposed of in an asbestos NESHAP approved landfill Many municipal landfills do not accept RACM