THE BEST OF CLE NOVEMBER 30, 2011 IDENTIFYING AND RESPONDING TO ENVIRONMENTAL ISSUES IN TRANSACTIONS

TOP 10 ENVIRONMENTAL MYTHS IN TRANSACTIONS presented by DOUG CLOUD M2C2LAW.COM

1. NO NEED FOR A PHASE I, IT’S JUST…  office, retail, vacant, farmland, lease

CASE STUDY  2.0 acres in rural Georgia  Vacant one-story, sheet metal building  Neighbors just residential, church  Security for small commercial loan  Default and foreclosure

Call from the Georgia EPD

Property on Hazardous Site Inventory

Nearby Wells

Due Diligence Today What We Do  Phase I ESA ASTM E Standard  Transaction screen  Asbestos, radon, lead  Phase II if necessary  Review of prior reports, documents, records  Compliance audit as appropriate ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

2. INNOCENCE IS BEST DEFENSE  Major concern for environmental liabilities in transactions arose with federal Superfund/CERCLA  Spawned thicket of laws  Broad liability scheme  Current and past owners and operators, generators, arrangers (transporters)  Strict, retroactive, joint & several liability  Liability not limited to property value/investment  Innocence can be no defense ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

3.“CLEAN” PHASE I = NO CONTAMINATION  Scope of Phase I - site inspection, interviews, readily available records review  Apparent Recognized Environmental Conditions (presence or likely presence of hazardous substances or petroleum contamination)  Consultant qualifications (experience, reputation, insurance)

DUE DILIGENCE : Why We Do It  To learn more about the environmental risk profile (current or potential exposure and liabilities)  To qualify for certain liability defenses under CERCLA  To inform allocation of risks among parties ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

4. “CLEAN” PHASE I = NO LIABILITY  What CERCLA Defenses?  Innocent Landowner  Adjacent Landowner  Bona Fide Prospective Purchaser  Must perform “all appropriate inquiries” per AAI Final Rule at 40 CFR Part 312  ASTM E Standard Phase I complies  Shelf life ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

Buyer Beware  Under CERCLA, relatively few commercial parties have successfully avoided liability by virtue of these defenses  3000 E. Imperial, LLC v. Robertshaw Controls Co.  Ashley II of Charleston, LLC v. PCS Nitrogen ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

5. “CLEAN” PHASE I = NO PHASE II  Scope and limitations  Contracting and reliance  Get what you pay for ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

6. IF PHASE II ID’s CONTAMINATION, AGENCY NOTIFICATION IS REQUIRED  Regulatory gaps v. agency practice  Georgia’s special case (HSRA)  Monitor consultants, parties to the deal ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

7. AGENCY NFA MEANS NEVER  Reopener ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

8. OK TO RELY ON PRIOR PHASE I  Snapshot in time  Shelf life  Updates ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

9.CONTAMINATED PROPERTY IS UNMARKETABLE  Never so many effective tools for managing environmental risks in transactions than those available in today’s marketplace

Voluntary Cleanup & Brownfields Programs  Agency oversight  Grants  Liability protections  Growing acceptance of RBCA

Regulatory Protections  CERCLA defenses  Agency  NFA determinations  Comfort letters  Prospective purchaser agreements  Secured creditor exemptions

Environmental Insurance  Pollution Legal Liability (PLL)/Premises Pollution Liability (PPL)  Can offset some typical risks, including known and unknown onsite and offsite conditions  In many ways, addresses "pollution exclusion" clauses in modern CGL policies

10.Let’s Use the Environmental Short Form  Common knowledge that environmentally related hazards can be a source of substantial risk and liability. Over the years, environmental liabilities have grown and laws and lawsuits have proliferated.  Sustainable allocation of environmental risks in transactions requires full disclosure and meeting of the minds