Dirty Little Secrets-Part 1: RE state and federal environmental cleanup laws have reporting obligations
October 8th, 2008 by Andy Knoch
NOTE: Originally posted at EDR (Environmental Data Resources, Inc.) blog by Lawrence Schanpf.
A well-known New York City environmental attorney brings his humor and legal expertise to bear on such topics as the environmental due diligence conducted on corporate, real estate and brownfield transactions, commercial lending and securitizations, and workouts.
Dirty Little Secrets-Part 1
6/10/2008 | posted by
Name: Lawrence Schnapf
Company Name: Schulte Roth & Zabel
Job Title: special counsel
Nearly all state and federal environmental cleanup laws have reporting obligations. However, the circumstances and parties who have the obligation to report contamination will vary significantly. In many cases, the reporting obligations are linked to the discovery of contamination that exceeds a reportable quantity or RQ. The RQ will vary according to the particular contaminant.
At first glance, this may seem like a reasonable approach. However, when one “digs” a little deeper, it becomes clear that the way reporting obligations are structured have actually facilitated the proliferation of brownfields and allows many sellers of corporate property to keep the presence of contamination secret. Indeed, a common provision now appearing in transactional documents is a so-called “No Look” or “No Hunt” clause that prevents the buyer from conducting further investigations on its property if it wants to maintain the contractual protections it obtained from the seller. In fact, it is not uncommon for environmental lawyers to spend a significant amount of time on deals negotiating and drafting what and how information about contamination is to be disclosed.
The reason for all this is because the reporting obligations are often expressed in terms of the discharge of a certain quantity of a chemical over a certain period of time such as 24 hours. Now, back in the 1970s this made alot of sense when environmental management practices were still in their infancy and the principal problem was stopping ongoing discharges of hazardous substances.
Management of hazardous substances and wastes has significantly improved over the nearly three decades since the passage of CERCLA and RCRA so that NEW discharges from a facility are no longer the most important concern. Instead, it is the legacy of historical contamination from these past practices that have had to continually confront.
Unfortunately, the reporting obligations often do not address purely historical contamination since (1) the regulations often use present tense gerunds such as spilling, discharging, releasing, disposing and (2) it is difficult to determine how much of the contamination was discharged over the relevant reporting period. In otherwords, was it a drip, drip of PCB-contaminated oil from a condensor or percolation of wastes thru an unlined lagoon over 20 years, or was there a sudden release of hazardous materials from some containment structure or container.
Another regulatory oddity is that cleanup standards and reporting obligations are not congruent so that there could be contamination above above cleanup levels that may not be reportable because the contamination occurred over a very long period of time yet for some chemicals there may be a discharge that requires reporting but does not result in any risk-based cleanup obligation.
As a result, owners and sellers of property with purely historical contamination take the position that they have no obligation to disclose the presence of the contamination even if the contamination is present in concentrations that exceed applicable cleanup standards. In the absence of a regulatory driver, the owner/seller can then contractually prohibit the buyer from disclosing the contamination unless an overburdened regulatory somehow stumbles across the contamination.
Now, some academics, government legislators and judges have expressed the view that this is really not that big a problem because the marketplace can address this issue. After all, they say, a buyer can always require a seller to disclose and cleanup a site. Of course, this ignores the practical market reality that buyers may not have the leverage to extract such concessions, may not realize they need such information or that they may even want to know.
I think the absence of reporting obligations for purely historical contamination has contributed to the creation of brownfields as owners can just abandon their properties and while the local real estate market may be aware of concerns, overtaxed regulators may have no clue about the potential contamination.
My suggestion is that we link reporting obligations to cleanup standards so that if a phase 2 discovers soil or groundwater contamination, the contamination must be reported. No more time spend on trying to figure out how much of the chemical escaped into the ground or less time for lawyers to argue over how to deal with the results of the due diligence.
I also think that all phase 2 reports should be required to be sent to a centralized state database. Just think of all the wasted time and money that goes into repeating phase 2 reports over the years. If a consultant was able to access a database and see that sampling had been collected in the past in a certain area, it could use that information to advise its client that there is no need to sample in a particular area or that the area was already sampled and recommend sampling in other areas to better delineate the contamination.
Why are we still discovering contaminated sites nearly 30 years after CERCLA? Why havent we cleaned up more sites? Why are there so many brownfield sites? I think the inadequate reporting obiligations are a bit reason.
What do you think?
