NOTE: Originally posted at EDR (Environmental Data Resources, Inc.) blog by Lawrence Schnapf.

Schnapf Judgment

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.

What is Due Care and Continuing Obligations

5/16/2008 | posted by

Name: Lawrence Schnapf
Company Name: Schulte Roth & Zabel
Job Title: special counsel

There have been alot of ASTM standards issued the past few years but one of the more important ones will likely be the Continuing Obligations practice that is currently in draft form. It is important because it is critical for landowners to maintain their liability protection after they take title.

It is important for consultants, attorneys and landowners to realize that the landowner liability protections are affirmative defenses-that means the person seeking to assert the defense has the burden of proving that they qualify for the liability protection. I suspect the caselaw under the third party defense and innocent landowner defenses will serve as an example of how courts are going to interpret the scope of the reasonable steps/continuing obligations obligations. If so, the courts will narrow construe the defenses-in other words make it hard for parties to establish that they are not liable.

The recent decision in U.S. v. Honeywell, 2008 U.S. Dist. LEXIS 13432  (C.D. Ca. 2/22/08) decision in California and the 2006 AMCAL v. Pacific Clay,  457 F.Supp.2d 1016. (E.D.Ca. 2006) illustrate that there is plenty of liability remaining out there for purchasers of contaminated property who move around contaminated soil. I think we would do a disservice to clients if potential users of the practice if we suggest that all they need to do is erect a fence or notify the authorities.

It should also be pointed out that some jurisdictions still hold that passive migration is disposal though a majority of courts that holds passive migration is not a release. Landowners in jurisdictions where mere migration is disposal will probably have to implement more rigorous actions to satisfy “reasonable steps” (i.e. Stop ongoing releases) than those in jurisdictions following the majority rule.

Thus, landowners need to be very careful not to inadvertantly forfeit their liability after they take title. Obviously, the determination of what steps are “reasonable” will be site-specific. However, we can probably make some general observations.

As part of the reasonable steps obligations, landowners have to stop continuing releases, prevent any threatened future releases and prevent or limit exposure to releases of hazardous substances. It would seem from any reading of the legislative language, history and the 1995 EPA Guidance on Contaminated Aquifers that a BFPP, ILO or CPO do not have to remediate groundwater. On the other end of the spectrum, it is also probably clear that simply erecting a fence or notifying the authorities is probably not going to satisfy the reasonable steps requirement in most cases.

The big question is what does such a party have to do about contaminated soil? I think it is fair to suggest that they would also not have to engage in long-term remedial measures such as would have to be implemented as part of a RI/FS. It would seem to me that landowners seeking certainty about whether they have implemented “reasonable steps” should probably anticipate that they will have to perform the equivalent of removal actions or interim remedial measures such as removal of USTs, excavation of grossly contaminated soils and probably installation of vapor mitigation systems. I think source removal and eliminating the exposure pathway should be the admission price for liability relief

 NOTE: Originally posted at EDR (Environmental Data Resources, Inc.) blog by Lawrence Schanpf.

Schnapf Judgment

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?

 NOTE: Originally posted at the EDR (Environmental Data Resources Inc.) blog by Lawrence Schnapf.

Schnapf Judgment
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.

CERCLA Liability Imposed on Developer For Spreading Arsenic-Contaminated Soil

6/10/2008 | posted by Lawrence Schnapf

A former property owner who inadvertently spread arsenic-contaminated dirt during grading activities for a residential development nearly thirty years ago could not assert the CERCLA third-party defense and was held liable as a former owner in United States v. Honeywell, 2008 LEXIS 13432 (E.D. Cal. Feb. 22, 2008).

Greg Rogers considers how market-based valuation of
environmental liabilities will begin to impact business mergers
and acquisitions.

Follow link to article by Greg Rogers and to Advanced Environmental Dimensions.

NOTE: Please also sign up for the http://www.advancedenvironmentaldimensions.com/about_us.htm newsletter, where this article was brought to our attention.

Fair Value Measurement and Solvency

As it becomes ever more clear that all environmental liabilities will one day (maybe as soon as 2011) be measured at fair value, now is the time for companies to determine the fair value of their long-lived contingent environmental liabilities and consider the looming impact on their balance sheet. A new article in the ABA Business Bankruptcy Newsletter, Environmentally Insolvent: Fair Value Measurement of Environmental Liabilities Poses Solvency Risk, explores how recent and forthcoming changes in accounting standards could give rise to new legal claims against companies with significant unrecognized environmental liabilities.

Note: Published in EDR Insider

Bank Pays for Bankrupt Borrower’s Environmental Legacy

Earlier this year, in one of the first Superfund decisions against a bank, contamination left behind at an industrial site abandoned by a bankrupt borrower cost a lender nearly $1 million. The borrower, a chemical company, manufactured and marketed chemicals for the cosmetics and water treatment industries. Its operations resulted in significant quantities of hazardous laboratory waste, chemical products and wastewater, which were stored in containers on the property.

NOTE: This information provided by Greg Rogers at www.advancedenvironmentaldimensions.com

On June 5, 2008, FASB released for public comment Proposed Statement of Financial Accounting Standards, Disclosure of Certain Loss Contingencies.  The proposed standard would significantly expand the quantitative and qualitative disclosure requirements for loss contingencies under SFAS 5 and 141(R). The proposed standard would be effective for fiscal years ending after December 15, 2008, and interim and annual periods in subsequent fiscal years.
Responses from interested parties wishing to comment on the proposed standard must be received in writing by August 8, 2008. Interested parties should submit their comments by email to director@fasb.org, File Reference No. 1025-300.

From: Law Seminars International [mailto:lsinews@lsinews.com]
Sent: Friday, June 06, 2008 9:40 AM

Subject: Environmental Resource Litigation Conference

Register Here

Environmental Resource Litigation Conference
July 28 & 29, 2008
San Francisco, CA

INTENDED AUDIENCE
Attorneys, consultants, technical professionals, and local, state and federal agency officials and other professionals in environmental litigation

This was taken from the newsletter by Greg Rogers (rogers@advancedenvironmentaldimensions.com) at www.advancedenvironmentaldimensions.com.
SEC Asked to Sanction Chevron for Hiding $10 Billion Liability in Ecuador
On March 25, Amazon Watch asked the Securities and Exchange Commission (SEC) to impose a “substantial” sanction on Chevron for misrepresenting facts to shareholders over a potential $10 billion liability resulting from a class-action environmental lawsuit in Ecuador’s Amazon region. Read Amazon Watch’s letter to the SEC.

American Bar Association
Section of Environment, Energy, and Resources
Environmental Enforcement and Crimes Committee

Presents a “Quick Teleconference” program

Criminal Enforcement of Environmental Laws: An Interview with the Department of Justice’s Top Prosecutor, Stacey Mitchell (link to ABA Program Information)