1. Managing HAZMAT Liability in Easement Acquisitions Gary Fremerman NRCS Easement Programs Division Workshop Denver, Colorado October 31, 2006

2. Gary M. Fremerman USDA Office of the General Counsel Pollution Control Team 3351 South Building 1400 Independence Avenue, SW Washington, D.C. 20250-1412 Tel: 202-720-8041 Gary.Fremerman@USDA.GOV

3. Hazmat Lawyer

4. Objectives  Understand the potential environmental liabilities and financial risks related to NRCS easements  Consider ways to avoid or minimize NRCS liability

5. I. Environmental Liability relating to Easement Acquisition USDA/NRCS policy recognizes that: –Environmental contamination is an important consideration in real property easement acquisition, and –Environmental contamination is an important consideration in real property easement acquisition, and –Should normally be avoided –Department hazmat funds may not be used to clean up contaminated land that is acquired through an easement

6. CERCLA: the “800-Pound Gorilla” CERCLA: the “800-Pound Gorilla”  The Federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) is the best-known cleanup law affecting NRCS easements

7. CERCLA Liability  It is a powerful law:  Strict Liability  Retroactive liability  Joint and several liability  Owner/Operator/Arranger liability

8. CERCLA Liability  Costs can be quite high: --Investigation--Cleanup --Operations and maintenance --Deed restrictions --Natural resources damages --Defense

9. CERCLA Liability  Deed “protections” may be illusory

10. CERCLA Liability (cont.)  2002 Brownfields Amendments to CERCLA: Easement holders subject to CERCLA liability

11. CERCLA Liability (cont.)  Judicial decisions indicate easement holders may be liable under CERCLA  But provide less practical guidance as to when they will be liable

12. CERCLA Liability (cont.)  Potential for liability increases with NRCS’ increased involvement in and control over the easement area  WRP involves significant likelihood of CERCLA liability due to (1) reserve interest deed, and (2) substantial NRCS control --Inundation-related complexities

13. Legal Liability  NRCS (and even individual NRCS employees) could be liable under other laws for consequences of hazmat problems  Examples: CWA, RCRA, ESA, MBTA  Lake Apopka

14. CERCLA Liability (cont.)  Other NRCS easement programs also involve hazmat risk, but generally less than WRP

15. II. Avoiding or Minimizing Liability Recent Legal Changes:  On January 11, 2002, President Bush signed into law the Small Business Liability Relief and Brownfields Revitalization Act  This “Brownfields Act” amended CERCLA

16. Avoiding/Minimizing Liability  Expanded potential defenses under CERCLA to three types of purchasers of real property interests:  Innocent Landowner – persons who did not know, and had no reason to know, that the property was contaminated  Bona Fide Prospective Purchaser (BFPP) – persons who knowingly acquire contaminated property  Contiguous Property Owner – persons whose property is contiguous to another property that is the source of the contamination

17. Avoiding/Minimizing Liability Avoiding/Minimizing Liability Common Elements of these CERCLA defenses:  Perform “all appropriate inquiries” into the prior ownership and uses of the property (before closing) --Also known as hazmat screening or environmental due diligence --ASTM Standard E 1527 has been the applicable standard (records review, site visit, interviews, report) --Often called a “Phase I” Environmental Site Assessment --Often called a “Phase I” Environmental Site Assessment --Superceded as of Nov. 1, 2006 --Superceded as of Nov. 1, 2006

18. Avoiding/Minimizing Liability (cont.) Avoiding/Minimizing Liability (cont.)  No affiliation with a liable party  Comply with land use restrictions and not impede the effectiveness or integrity of institutional controls

19. Avoiding/Minimizing Liability (cont.)  Take “reasonable steps” with respect to hazardous substances affecting the landowner’s property  Provide cooperation, assistance and access  Comply with information requests and administrative subpoenas  Provide legally required notices

20. All Appropriate Inquiries (AAI)  AAI is the most important step  Why AAI screening matters: –Provides NRCS defenses to CERCLA liability –Helps avoid/minimize liabilities under other Hazmat laws –Helps avoid acquisition of unsuitable easements  Existing NRCS hazmat “checklists” are not sufficient

21. All Appropriate Inquiries (AAI)  EPA recently finalized new, more stringent standards for conducting AAI (Nov. 1, 2005 FR) –Effective Nov. 1, 2006  Compliance with these new standards will be required to achieve the three defenses to CERCLA liability

22. All Appropriate Inquiries  Key changes made by new AAI rule: –Requires hazmat screening to be under the “supervision or responsible charge” of an “Environmental Professional” –More stringent definition of “Environmental Professional” –More detailed, comprehensive report –Reduced “shelf life” –New ASTM Standard E 1527-05

23. Avoiding/Minimizing Liability (cont.) Avoiding/Minimizing Liability (cont.)  The Department has its own environmental guidance  It is applicable to all USDA agencies, including NRCS  The Department requires a fairly stringent level of hazmat screening in connection with real property acquisition

24. Avoiding/Minimizing Liability (cont.) Avoiding/Minimizing Liability (cont.)  See USDA Department Manual DM 5600-001, “Environmental Pollution Prevention, Control, and Abatement Manual.”  Chapter XIV, Environmental Compliance for Real Property Acquisition or Disposal (amended Nov. 18, 2004)  Primarily concerned with easements and other real property acquisitions that may result in CERCLA liability  The appropriate level of hazmat screening is ultimately a policy call with legal ramifications  www.ocio.usda.gov/directives/index.html www.ocio.usda.gov/directives/index.html

25. Avoiding/Minimizing Liability (cont.)  At minimum, should be using a “tiered” approach: --Start with site visit --Complete checklist --Interview owner/operator --If hazmat problem(s) suspected, involve hazmat experts; do “Phase I” ESA --If “Phase I” indicates contamination, consider “Phase II” sampling work

26. Avoiding/Minimizing Liability (cont.) Avoiding/Minimizing Liability (cont.)  Hazmat terms and conditions in deed instruments: –Definitions –Representations and warranties –Indemnification  Use of “model” hazmat provisions

27. Avoiding/Minimizing Liability (cont.) Avoiding/Minimizing Liability (cont.) Follow-up with problem properties: --Eligibility criteria --Shift “burden of proof”

28. Closing Thoughts  Legally: easement holders can be subject to liability under CERCLA and other Federal and State hazmat laws  Hazmat provisions in deed instruments are important but not a “silver bullet”  Hazmat screening is an important decision- making tool and a form of “insurance”

29. Closing Thoughts (cont.)  The extent of hazmat screening that NRCS will undertake is a policy decision (involving the Department) with legal implications  NRCS personnel should do or supervise the hazmat screening themselves  Address hazmat issues early in process

30. Closing Thoughts (cont.)  Specialized skills needed to assess and remediate  Inter-agency coordination is increasing  Landowners may not always be truthful or forthcoming